Q1 2023 Nano-X Imaging Ltd Earnings Call

You.

Good day and welcome to the NANOXQ1 2023 earnings call. At this time, all participants are listening only mode. After the speaker's presentation, there will be a question and an intercession. Instructions will be given at that time. As a reminder, this call may be recorded.

I would like to turn the call over to Mike Kavanaugh, Invest Relations. You may begin.

Good afternoon, and thank you for joining us today. Earlier today, Nanox Imaging Limited released financial results for the quarter-ended March 31, 2023.

The release is currently available on the investor section of the company's website.

Erez Meltzer, Chief Executive Officer, and Ron Daniel, Chief Financial Officer, will host this morning's call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements regarding the company's financial results, research and development, and financial reporting.

Manufacturing and commercialization activities.

regulatory process operations and other matters.

Therefore, these statements should not be relied upon as representing the company's views as of any subsequent date. Factors that may cause such a difference include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission. We will also refer to certain non-GAF financial measures to provide additional information to investors. A reconciliation of the non-GAF financial measures to the nearest GAF financial measure is provided in our press release.

The non-GAF financial measures include non-GAF met loss attributable to ordinary shares.

The non-GAAP financial measures include non-GAAP net loss attributable to ordinary shares, cost of revenue.

Non-GAP gross profit, non-GAP gross profit margin, non-GAP research and development expenses.

Non-gap sales and marketing expenses.

non-GAAP general and administrative expenses, and non-GAAP gross loss per share.

With that, I'd now like to turn the call over to Erez Meltzer.

Thank you, Mike, and thank you all for joining the Colt State.

I will provide an overview of our recent operational accomplishments before handling the call-over to REN to review our financial results, and then we will close as usual with a question-and-answer session.

With that, I'll get right into it and I'll start with news.

that I'm sure is at the top of everyone's mind, which is the recent FDA clearance for non-SAR system.

As a reminder, on April 28, 2023, we received a 510k clearance from the FDA to market the Nanux Arc, including the Nanux Cloud. It's a company...

As a reminder, on April 28, 2023, we received a 510K clearance from the SDA to market the Nanux Arc, including the Nanux Cloud. It's a company cloud-based infrastructure.

The approved device is intended to be used in professional healthcare facilities.

over a geological environment such as hospitals, clinics, imaging centers, and other medical practices by trained radiographers, radiologists, and physicians.

Representing a major advancement in the X-ray tube technology, the Nanox Arc is a multi-source, 3D tomosynthesis system that utilizes novel cold-capped X-ray tubes to

which the company intends to offer using an innovative paper scan business model.

We believe that the Nanuk's art has the potential to increase availability to medical imaging globally, once approved by local regulatory authorities and deployed in scales.

We intend to deploy this version of the Nanux Arc that was cleared by the FDA.

which has the power level necessary to scan the MSK system.

We believe the FDA clearance will assist in our efforts to gain regulatory clearance in certain other jurisdictions, including in other countries that are FDA clearance-based markets. Following this clearance, Nanooks will continue to work with the FDA to pursue additional regulatory clearances and to ensure that the FDA is able to provide regulatory clearance to the FDA.

and intends to extend clinical indications.

Other applications may be available in other markets for local regulatory approvals.

With the FDA clearance secured, we are in the process of setting up a US demo center located in Fort Lauderdale, Florida, which will be used for commercial purposes.

We are currently working to secure an import license and expect to ship the Nanux ARC unit later this quarter.

with our notified body, BSI, to whom we've already submitted the contract package.

While it is gratifying to see the commercial and regulatory process of recent months,

At the same time, we are collecting additional data supporting the use of the Nanux Arc System. Under the Health Sync-It Permits, which we have previously disclosed, we started to collect clinical sample images of multiple human body anatomies with Nanux Arc System.

that was deployed in the Shamir Hospital in Israel.

Additionally, we recently passed independent evaluation of the device by the Israeli Ministry of Health, which facilitates further clinical trials in Israel utilizing the Nanuk's Arc.

We are planning to conduct a clinical trial in Israel to evaluate the diagnostic potential of the nanocs art for chest and lung diseases on patients with these pathologies.

The trial is expected to be executed in collaboration with a local hospital in Israel and is expected to begin in the second half of 2023.

Turning to commercial deployment activities, Nanos has entered into a three-year distribution agreement with a local partner in Morocco, VitaltechSARL.

Under the distribution agreement, Vitaltech will purchase, deploy, and operate an estimated 270 Nanos Arc units over three years for clinical use.

The execution is subject to acceptance tests of the first units and regulatory clearances.

We have already received an import license, we have sent a first unit, and our deployment team is on the ground as we see. Morocco is enhancing our footprint in Africa in addition to work we are doing to deploy in Nigeria and Ghana.

which we have discussed on previous calls. I will now take a few minutes to introduce and discuss a new commercial partnership which extends the reach of Nanux AI.

During this quarter, we entered the global partnership with Blackford Analytics to market our Nanux Arc product.

Blackford Analytics is a global imaging AI solution provider.

This partnership is intended to broaden the reach of Nanux AI cardiac and bone solutions by presenting the Nanux AI algorithm on Blackford's platform, which offers a wide portfolio of imaging AI software and services.

We believe partnering with Blackford is an important step in expanding the reach of Nanook's AI, Health OST and Health CCSNG solutions.

into radiology department globally including the US and Europe .

Nanook's AI solution may also benefit downstream physicians in cardiology and endocrinology by enhancing their abilities and help detect subclinical levels of osteoporosis and cardio disease.

Moreover, we have already completed the installation of our application.

in four out of five NHS clinical institutions in the UK, and our system has been installed in 10 clinical institutions in the US for the purpose of initial clinical pilot.

Turning to technology and manufacturing.

And as previously mentioned in our previous R&D calls, since the beginning of this year, we have been improving our production line capabilities and establishing an operational assembly line to enable the expected ramp up in the production and preparation for the shipments of the Nanosar system later this year.

With deployment as a key focus,

I'm pleased to report that the production line of the gas is now fully operational.

Furthermore, I am happy to share that Nanooks Korea received the ISO 123485 certificate on April 5, 2023. The scope of this certificate obtained by Nanooks Korea covers design, development, and manufacturing.

of $2.4 million compared to $2.1 million revenues in Q4 2022.

almost a quarter to quarter increase of 15%.

Ron will review the financials in more detail, but as I've stated before, these businesses are attracting customers, thereby demonstrating the utility of these services to healthcare systems, and we are confident they will add significant value to the fully integrated Nanux Arc system upon deployment.

Our work is not done, but we are now at an inflection point in our company's history and are now looking ahead to deploying the Nanux Arc at a large scale globally.

With that.

I'd like to turn the call over to Randaniel, Chief Financial Officer, to review our financial results.

the call over to Randaniel, Chief Financial Officer, to review our financial results. Thank you, Aaron.

of 2022, which decreased was largely due to the decrease in ear-nouts liabilities in the amount of $5.0 million and a decrease in our general and administrative expenses in the amount of $3.5 million.

Our non-GAAP net loss for the first quarter of 2023 was $10.5 million compared to a non-GAAP net loss of $11.6 million for the same period in 2022.

Revenue for the first quarter of 2023 were $2.4 million and gross loss was $1.5 million on a gap basis.

Revenue from teleradiology services for the same period was $2.4 million, with a gross profit of $0.5 million on a gas basis and a gross profit of $1.1 million on a non-gas basis, which represents a gross profit margin of approximately 21% on a gas basis.

and 44% on a non-GAAP basis. The increase in the company's revenue and gross profit margin in the first quarter of 2023 is mainly due to the increase in the amount of the radiology and cancer logistics in the last three decades and has reached $ mentality for understanding

and our rates for tele-radiology services during the three months ended March 31, 2023, as compared to the comparable period.

Research and development expenses for the first quarter of 2023 were $6.3 million as compared to $6.8 million for the comparable period in 2022. The decrease of $0.5 million was mainly due to the lack of a

due to the decrease in the company's cost of labor in the amount of $0.5 million and a decrease in share-based compensation in the amount of $0.8 million.

which was mitigated by an increase of $0.2 million in development expenses.

General and administrative expenses for the first quarter of 2023 were $7.8 million as compared to $11.3 million for the comparable period in 2022. The decrease was largely due to a decrease in the company's cost of labor in the amount of $0.8 million.

a decrease in share-based compensation in the amount of $4.5 million, a decrease in the company's directors and officers' liability insurance premium of $0.3 million, which was offset in part by an increase in professional services in the amount of $0.5 million.

million and increase in the company's legal fees in the amount of $1.4 million due to an increase in the company's legal fees in connection with the SEC investigation and class action litigation as described in the company's 6K filed on May 22nd, 2023.

During the fourth quarter of 2022, we had accrued $8 million for future settlement expenses in connection with the two pending class action lawsuits against the company. On April 28, 2023, we signed a term sheet with the lead plaintiff in both actions to settle all claims in both actions in consideration for $8 million.

The settlement is subject to finalizations of a formal settlement agreement and court approval of the settlement.

Changing contingent earned on liabilities was minus $4.7 million in three months ended March 31, 2023, as compared to $0.4 million in the current favorable period in 2022. Due to the decrease in the company's contingent earned out liabilities as a result of the amendment of the stock purchase agreement, the company's contingent earned out liabilities was minus $4.7 million in 2022.

that we entered into with the former shareholders of the USROD on April 28, 2023.

Under this amendment, the company shall pay an aggregated amount of approximately 0.3 million in cash and 45,392 ordinary shares to the former stockholders of U.S.R.U.D.

in consideration for the achievement of certain milestones in connection with the first air and oil trade plan, as defined in the US-RAD stock purchase agreement.

In addition, the company and the former shareholders of USRAD agreed that the company shall pay an aggregate of $0.5 billion in cash and 210,000 ordinary shares to the former stockholders of USRAD as consideration for the remainder of the milestones and applicable to the current

announced under the US-RAD stock purchase agreement. Turning to our balance sheet, as of March 31, 2023, we had cash, cash equivalents, and marketable securities of approximately $91.0 million and a $3.5 million loan from banks.

We ended the quarter with the property and equipment with a net of 45.1 million dollars.

As of March 31, 2023, we had approximately 55.2 million shares outstanding as compared to 52.1 million shares outstanding as of December 31, 2022. From April 28, 2023, we issued approximately 255,000 shares outstanding as compared to

ordinary shares to the former stockholders of USRAD under the amendment to the USRAD book purchase agreement previously discussed.

With that, I'll end the call back over to Eric.

Thank you, operator, and thank you all once again for your support of Nanux.

I've been the CEO of Nanox for over a year now and have been looking forward to sharing the welcome news of FDA clearance.

The U.S. regulatory clearance also paves the way for NAMUC's ARC to be approved in other countries that are SBA clearance-based markets.

Other applications will be available in other markets for local regulatory approvals.

We will continue to push ahead on multiple fronts. Commercialization and deployment across multiple geographies.

Continue to strengthen our manufacturing capabilities of the supply chains.

and continue to generating and collecting imaging data that supports the use of Namux-ARTS across multiple pathologies and uses.

I look forward to our next update call in August .

when we will discuss our Q2 results.

In the meantime, and if you want to connect with us, please contact our investor relations partner at ICR West Wing.

In the meantime, and if you want to connect with us, please contact our investor relations partner at ICR West Wing. Have a good day.

Ladies and gentlemen, if you'd like to ask a question, please press star 11.

If your question hasn't answered and you'd like to remove yourself from the queue, please press star 1-1 again.

Our first question comes from Jeffrey Cohen with Leidenberg-Dalman. Your line is open. Four seconds later.

Hi, how are you?

Arison Rand, how are you? Great!

Good morning, Jeff. So congratulations.

Again, on the clearance, it's very exciting. Can you walk us through and talk about a little bit as far as the backbone of production and where that's existing now? And you mentioned fully operational and then talk about all the components and subcomponents and …

to manufacturing and tie that into the facility in Korea as well.

to the facility in Korea as well. Okay.

Thank you, Jeff. First of all, indeed, we are very excited about the FDA clearance and the work that is ahead of us. We've indicated in the, what we talked actually in the last...

15 minutes. First, in the press release that we did, that A, we continue to manufacture the chips in Korea.

Same goes with the tubes that currently we are manufacturing in Korea. We've indicated in the future we have plans to have more than one or two sources for each one of the components, so including the tubes. So this will come in the future.

In addition, in terms of the assembly, we have actually opened the facility at Dagesh in Israel where we're going to manufacture all the systems that we're going to assemble this year and shift to the...

various locations that will be part of the deployment. So this means this is what we mean by fully operational. In the future, we have already mentioned that we will consider and also explore opportunities to assemble in other countries.

when we go to the mass production other than Israel specifically as we do right now.

Thank you.

Our next question comes from Ross Osborn with Cantor Fitzgerald. Your line is open.

Hi guys, congrats on the progress, thanks for checking our questions.

Thank you all for watching.

I will.

So maybe starting off, could you just provide an update out of Ghana and Nigeria? Where does the company stand in beginning to generate scans there and also related revenue? Okay. So right now we've just started. So revenues are expected later this year.

In terms of the deployment that you mentioned

We are working country by country with the local regulation, starting with the import license and the local regulation.

in those countries that are FDA-based clearance and are not FDA-based clearance and have their local regulation.

We have indicated that we are focusing on Africa and we are exploring and extending the business in Africa. In Ghana the system is already there, installed, operating.

In Nigeria, the system is there. We'll be operating shortly when we get all the permits and certificates to operate it. We have also indicated today that we signed another big agreement or meaningful agreement on how to replicate all of your levCongratulations orders.

Morocco. In terms of the others right now we're going one by one.

of the agreements that we have in order to ensure that we'll have a path and roadmap for the deployment.

At the same time, we have indicated today

something very important that originally we thought that the US will be only next year. We really understand right now that we have to find a way and do our best in order to accelerate the process of the deployment and the go-to market in the US.

this quarter. Great. Sorry, I can't see the process. Maybe I'll follow up on your Morocco contract. You mentioned being able to deploy 270 units over three years. If you're able to receive the required license, let's say tomorrow and begin deployment, you're

Based upon your current manufacturing capabilities, would you be able to meet the three-year window? The answer is there is no reason why not. Okay, that's great to hear. And then maybe one more if I may. Just on the US commercialization...

Is the plan to deploy systems in the US also on the pay per scan model rather than a capital sale? And then if so, should we think about price around $14 similar to your global average? The short answer is that.

Without going into the details, the short answer is basically yes, but I think it's too early to say once we start the deployment, we'll see the various models that can be explored, the various types of units or clinics or hospitals that we'll hear.

Right now from what we hear from the market the answer is yes. We may explore and then decide something else but this is too early to say.

I will say once again in general the answer is yes not necessarily the $14 that was mentioned but

But it might be that it will be different or higher, but right now that's the plan.

Thanks for taking my questions. Congrats again on the progress. Thank you, Ross.

Thank you. That is all the time we have for questions. Thank you for your participation in today's conference. You may now disconnect. Everyone, have a great day.