Nano-X Imaging Ltd. Q1 FY2024 Earnings Call

Good day, and thank you for standing by. Welcome to Nanox First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Mike Cavanaugh of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today. Earlier today, Nanox Imaging Ltd. released financial results for the quarter ended March 31, 2024. The release is currently available on the Investors section of the company's website. Erez Meltzer, Chief Executive Officer; and Ran Daniel, Chief Financial Officer, will host this morning's call. Before we get started, I would like to share some information with participants. First, if you're an institutional investor and would like to schedule a meeting with management or join an upcoming demonstration of the Nanox.ARC system, please contact me at mike.cavanaugh@westwick.com, and we will work to schedule a requested meeting. Second, 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, manufacturing and commercialization activities, regulatory processes, operations, and other matters. These statements are subject to risks, uncertainties, and assumptions that are based on management's current expectations as of today and may not be updated in the future. 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-GAAP financial measures to provide additional information to investors. A reconciliation of the non-GAAP to GAAP measures is provided with our press release, with the primary differences being non-GAAP net loss attributable to ordinary shares, non-GAAP cost of revenue, non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP research and development expenses, non-GAAP 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 for joining us today. And as always, we appreciate your continuing support of Nanox and our mission as we strive for global health equity via innovation, particularly in medical technology and AI, which we believe is key and can directly impact patient outcomes. We aim to offer a comprehensive solution that connects medical imaging solutions from skin to diagnosis. During this call, we will provide updates on our strategic partnerships, product launches, and market expansions. We will also discuss our operational achievements. Our CFO, Ran Daniel, will present the financial highlights, and we will conclude with a Q&A session. We look forward to sharing our progress with you and answering questions you may have. Let's get started. We have kicked off 2024 with positive momentum, achieving milestones in our U.S. commercialization work, strategic partnership, product launches, and market expansion outside the U.S. In the first quarter of 2024, we've continued to make strides in our operational performance. Our key operational metrics reflect our commitment to excellence and our relentless pursuit of our mission to make medical imaging more accessible globally through innovative medical imaging technology. In the U.S., we are continuing with our installation plan. As of today, we have about 20 systems in the U.S., of which some have been installed, and several more are in different stages of shipment and deployment. We have manufactured dozens of systems to date, and we are confident that we can meet the accelerating demand for Nanox.ARC systems that we are seeing in the U.S. market. Last month, we hosted an in-person live demonstration of the Nanox.ARC system on a patient as part of our investor event in Dynamic Medical Imaging in New Jersey. Investors witnessed the entire patient scanning workflow with Nanox ARC and observed the speed and precision of the generated images as well as its clinical utility. Additionally, we presented samples from the ongoing clinical trial in Beilinson Hospital in Israel and outlined the path to expanded indications in the U.S. outside of musculoskeletal imaging. As the health care landscape continues to evolve, we are staying ahead of the curve by leveraging our cutting-edge technology and strategic partnerships. For current installations, I can share that we recently received initial indication for reimbursement for Nanox.ARC scans from a managed care insurance company. On the previous investor call, we discussed building out the support and service infrastructure Nanox.ARC users will need as deployment accelerates, specifically the Georgia site at 626 Imaging Academy, which serves as a technical and training center for technicians seeking to be trained on the use of the system. Anticipating the need for another vendor beyond 626 to provide installation services as well as routine servicing of deployed Nanox.ARC systems, we have entered into a third-party agreement with Swiss Re, located in Bridgewater, New Jersey. Swiss Re is one of the forefront experts in the area of digital geography for installation, setup, training, and service. The agreement covers system installations, user support, troubleshooting, and regular system maintenance. As we continue to expand our footprint on the ground in the U.S., we will constantly evaluate the need for commercial personnel to drive our growth while also closely monitoring the need for a service infrastructure to effectively support our advancements. Moreover, we have expanded the capabilities of our Nanox.ARC system with the addition of specialized musculoskeletal protocols, including protocols for surgical applications. In addition to spine imaging, we have also fine-tuned our musculoskeletal protocols to include more detailed patient positioning options and further enhancements that will aid health care providers in obtaining clearer and more accurate diagnostic images, facilitating better patient outcomes. These new protocols are designed to offer more precise and detailed imaging options catering specifically to the needs of our customers based on feedback we have received from them. Thanks to our advanced cloud-based architecture, these upgrades have been implemented remotely across all systems without the need for physical modifications or on-site visits. This approach significantly reduces service work hours and eliminates the need for travel, bringing efficiency and convenience to health care facilities. All upgrades have been meticulously performed in alignment with applicable regulatory requirements, ensuring our systems continue to operate within their intended use and safety standards. We are confident that these upgrades will empower health care professionals and further elevate diagnostic capabilities and enhance patient care in all facilities equipped with the Nanox.ARC system. Turning to our deployment efforts outside of the U.S. market. As previously mentioned, we continue to advance our commercial footprint in Africa, Latin America, and Asia. We have had a unit installed at the University of Ghana Medical Center, UGMC, which has received local regulatory clearance. We have had a footprint in Africa for some time, and we will continue to advance our commercialization there. Furthermore, we are in the process of initiating a clinical trial in UGMC as part of our multi-site clinical trial. In Latin America, we continue to invest in our commercial activities with respect to the Nanox.ARC and Nanox.CONNECT in Mexico, Peru, and Chile. At a high level, we will expand our geographic footprint as we achieve local regulatory authorizations. We also have a Nanox.CONNECT operating system deployed in various countries, including Ghana, Morocco, Cameroon, and Israel. Some of these systems have been paid for upfront, which we refer to as CapEx model, while others operate under the MSaaS model where we charge per scan, and some are currently being used for demonstration purposes. In our quest to promote health care globally, we recently announced our entry into the South Korea market through our collaboration with a health care distribution company and STL Science, an affiliated company and subsidiary of a Global Healthcare Group, STL Clinic laboratories. This company plans to assist Nanox in efforts to secure local authorization and licenses to enable the importation, marketing, and sales of the Nanox.ARC in South Korea and will also include STL's Science integrating Nanox AI solution. Additionally, Nanox Marketplace, a teleradiology services platform that provides remote access to radiology and cardiology experts, will potentially be integrated with STL Sciences' teleradiology centers in South Korea and other overseas markets. These expansions are a testament to our ongoing efforts and our partners' commitment to bringing comprehensive medical imaging solutions to South Korea. We hope the South Korea collaboration will be a stepping stone into the broader Southeast Asia market for the entire Nanox product group. Turning to our important AI business segment. Nanox.AI recently signed two agreements. Covera Health, a leading health care technology company, has signed a multiyear contract with Nanox.AI to provide its three advanced AI solutions: cardiac, bone, and liver. Covera Health delivers clinically validated solutions for population health that improve patient outcomes, reduce health care costs, and enhance value-based care by supporting radiologists with technological capabilities that emphasize improvement in quality and performance. Under these new agreements, Nanox will deploy the full suite of population-based AI algorithms to support the needs of Covera customers. And we will deploy the population health Nanox.AI, and for the first time, commercially installed Health FLD, Health FLD clinicians in detecting liver issues associated with metabolic dysfunction following FDA clearance last February. The second agreement is a collaboration with New York-based health analytics company that focuses on AI analytics, offering health care providers accessibility to data with AI insights. This aims to bring products to market faster, providing a wealth of multi-model clinical data for health care pioneers. Clinical AI precision listings offer the potential for earlier diagnosis, personalized screening, and effective therapy. As part of our cooperation with Corewell, it was reported by Dr. Langholz, a cardiology specialist who participated in a Society of Cardiac City webinar led by using Nanox.AI's cardiac solution, Corewell Health significantly increased their ability to detect coronary calcification, identifying nearly 4,000 new patients in 2023 compared to just 268 patients having CAC reported in the previous two years. This data demonstrates the effectiveness of the technology, but a great impact is the seamless integration into hospital electronic medical record systems, streamlining the process of incorporating these findings into patient records for improved care and management. On the regulatory front, Nanox.AI recently submitted to the FDA a new version of the cardiac AI solution, HealthCCMG, which introduces algorithm improvements aimed at enhancing accuracy and yield. It will also include new features that will improve coronary artery category detection accuracy. We have also been busy integrating our acquisitions from the previous three years, deploying these assets to leverage our core platforms and technologies. One example is Second Opinion, which we acquired through our USARAD subsidiary. This is an online medical platform providing second opinions in various medical fields. This service is provided through the USARAD platform and has been available to patients since 2012. Nanox.AI functionality is being embedded in second opinions to allow private patients to use artificial intelligence to enhance the early detection of chronic conditions on chest and abdominal scans. The second opinion service will provide access to the Nanox population health AI solutions that have already received FDA 510(k) clearance. We expect the enhanced second opinions platform to be launched in a matter of weeks. Earlier this month, we announced that USARAD has once again earned the Joint Commission's Gold Seal of Approval for ambulatory health care accreditation. The Joint Commission is a leading accrediting organization in the United States and certifies more than 22,000 health care organizations and programs based on the highest standards of patient safety and quality of care. Moving on to production and OEM initiatives. As you know, we have entered into multiple supply agreements with prominent original equipment manufacturers around the world to ensure an adequate supply of high-quality components as we scale our manufacturing of the Nanox.ARC. I'll share an update on some of these. Our agreement with a U.S.-based supplier to produce tubes is proceeding according to plan. Tubes design and development continues, with the first prototype and system integration testing scheduled for this summer. In addition to tube development and manufacturing, we continue to explore additional opportunities together. Additionally, we continue to progress with other tube suppliers. We have produced and performed positive functional testing on our first wafers and chips developed in conjunction with a supplier. We will build tubes with different chips in them for testing and validation in the coming weeks. We are transitioning our efforts to process refinement, end-of-line testing, and planning for initial production wafer fabrication in the second half of this year. Following up on our collaboration with a U.S. government agency, after their acquisition of our chip and tube for evaluation, we have received a purchase order to collaborate on a novel tube development program potentially for noninvasive screening applications. The initial phase of design and simulation is underway, with component testing set to commence later this year. Our previously announced collaboration with a leading global medical technology company is also continuing as planned. We are still in the relatively early stages, but I can share that they are now in the process of performing design and simulation for the purposes of finalizing a proposal, which would enable them to produce tubes for us. As part of the design and production simulation, they did purchase and test our chips, which allowed the Nanox team to meet with their design team in their production facility in Europe. We will share updates as this collaboration moves toward the formal production agreement. We have identified our first few clients to take delivery of our demonstration kits. As described, the Nanox demonstration includes a Nanox chip, cold-casted tube, power supply, and the necessary software to operate the system, which has been developed to expose potential partners to our technology and capabilities in a simplified manner. Now I'd like to provide an update on the clinical aspects. Recognizing the fundamental clinical value of the Nanox.ARC system to our future success, we devote substantial effort to conducting clinical trials and creating clinical evidence for broader intended use. To date, we have three clinical trials at Shamir Hospital in Israel, Beilinson Hospital, and the Ghana Hospital UGMC, and we are currently working to extend to a prominent medical institution in Israel. In Ghana, the multicenter trial site is currently well-positioned to start soon. The trial has received local IRBA approval and is currently under the review of the Ghana FDA. The Nanox.ARC system that will be used in the trial is now actively scanning patients. I would also like to share some real-world feedback on the value of Nanox technology. In a recent review with our clinical collaborators at Shamir Hospital and Beilinson Hospital in Israel, we have observed the significant impact our Nanox system can have on the daily routines of radiologists and referring clinicians. The Nanox.ARC system added valuable information to regular X-rays in almost all reviewed studies, showing excellent results for lung nodule detection, visualization of structures that are hard to see on standard imaging, and accurate localization of ruptures. We look forward to sharing these results with the clinical and scientific community at upcoming medical conference days. Speaking of Beilinson Hospital, the chest trial being run there is well underway. We have already scanned more than a dozen patients and initial results are promising. As I just mentioned, we hope to share data from this study at some upcoming medical industry conferences. In addition, Beilinson has been fully integrated into the multicenter trial as the first site, and the trial is now actively recruiting with additional referring departments being added to the trial, mainly orthopedics and internal medicine. I would like to take a moment to share that we have fortified our group of advisers and key opinion leaders with the addition of Dr. Greg Kishke. Dr. Kishke is a cardiac radiologist with a Ph.D. in biochemistry. He embarked on a career at the University of Washington in the cardiothoracic imaging division during his 12 years tenure at W, where he was awarded a grant from GE to study the clinical application of chest imaging. Dr. Kishke's clinical expertise includes imaging diseases of the chest, heart, and blood vessels, with specialized training in cardiac MRI and cardiac imaging. His research on digital tomosynthesis explores the unique advantages of these hybrid imaging methods. We are excited to welcome Dr. Kishke to the Nanox family and look forward to a productive collaboration. Turning to our regulatory efforts, we recently received an ISO 13485 certificate for the quality management system division from BSI. We completed this important step during the quarter as we continue to work with our notified body to secure CE designation. I believe the diverse areas of development across multiple geographies and business segments that I was able to share today underscore our commitment to making our innovative medical imaging technology accessible to health care providers and patients worldwide. In summary, the first quarter of 2024 has been a period of significant growth and progress for Nanox. We are excited about the opportunities ahead and look forward to sharing more updates in the coming months. I will now turn the call over to Ran Daniel.

Thank you, Erez. We reported a net loss for the first quarter of 2024 of $12.2 million, compared with a net loss of $11.8 million in the first quarter of 2023. The increase was largely due to a one-time income that was recorded in the comparative period due to a decrease in earned-out liabilities in the amount of $4.7 million and a decrease in gross profit in the amount of $0.5 million, offset by a decrease of $1.1 million in research and development expenses, a decrease of $0.4 million in sales and marketing expenses, and $2.8 million in general and administrative expenses, and an increase of $0.4 million in the company's financial income. Revenue for the reported period was $2.6 million, with a gross loss of $2.0 million on a GAAP basis compared to $2.4 million and a gross loss of $1.45 million on a GAAP basis for the comparable period. Non-GAAP gross profit for the reported period was $0.6 million compared to $1.0 million in the comparable period, which represents a gross profit margin of approximately 22% on a non-GAAP basis for the reported period compared to 43% on a non-GAAP basis in the comparable period. Revenue from the teleradiology services for both the reported period and comparable period was $2.4 million with a gross profit of $0.3 million on a GAAP basis in the reported period compared to a gross profit of $0.5 million on a GAAP basis in the comparable period, which represents a gross profit margin of approximately 14% on a GAAP basis for the reported period compared to 21% on a GAAP basis in the comparable period. Non-GAAP gross profit of the company's teleradiology services for the reported period was $0.9 million compared to $1.1 million in the comparable period, which represents a gross profit margin of approximately 37% on a non-GAAP basis for the reported period compared to 44% on a non-GAAP basis in the comparable period. The decrease in the gross profit margins on a GAAP and non-GAAP basis is mainly due to an increase in the cost of goods sold due to the increase in operational rates during the period. During the reported period, the company generated revenue through the sales of its AI solutions in the amount of $97,000 compared to revenue of $49,000 in the comparable period. As noted previously, during the first quarter of 2024, Nanox.AI licensed its cardiac solution to Intermountain for an annual fee of $8,500 during the first year of the engagement and an annual fee of $75,000 after the first anniversary of the engagement. During the second quarter of 2024, Nanox.AI entered into a 3-year contract to license its three advanced AI solutions: cardiac, bone, and liver for an annual base fee of $50,000. During the reported period, the company generated revenue from the sales and deployment of imaging systems, which amounted to $46,000 with a gross loss of $387,000 on a GAAP and non-GAAP basis. This revenue stems from the sales and deployment of the Nanox.ARC systems in the U.S. and the sales of our 2D systems in Africa. Research and development expenses for the reported period were $5.2 million compared to $6.3 million in the comparable period. The decrease of $1.1 million was mainly due to a research grant of $0.9 million that was received in connection with the NHS project, a decrease of $0.2 million in salaries and wages, a decrease of $0.2 million in share-based compensation, which was offset by an increase of $0.4 million in expenses related to our research and development and regulatory activities. Sales and marketing expenses for the reported period were $0.8 million compared to $1.2 million in the comparable period. The decrease was mainly due to a decrease in expenses related to our sales and marketing activities. General and administrative expenses for the reported period were $5.0 million compared to $7.8 million in the comparable period. The decrease of $2.8 million was mainly due to a decrease in legal expenses in the amount of $2.2 million, largely as a result of the finalization of the SEC investigation and the settlement of the related actions, and a decrease in the Board of Directors and directors' and officers' insurance payment in the amount of $0.4 million. Turning to our balance sheet, as of March 31, 2024, we had cash, cash equivalents, and restricted deposits of approximately $73.3 million and a $3.3 million loan from a bank. We ended the first quarter of 2024 with property and equipment net of $42.7 million. As of March 31, 2024, we had approximately 57.8 million shares outstanding.

I want to thank you all once again for joining us on our call today, and your continued support of Nanox. As stated, the first quarter of 2024 was one of strong commercial progress. This progress was not confined solely to the deployment of the Nanox.ARC system. We now have several connected systems deployed, and some are generating revenues. Regarding Nanox.AI, we are proceeding with a pipeline of current and new product applications. Upgrades continue to generate revenues and gain adoption from health care providers worldwide. As always, we'll welcome your comments and are always available to meet with investors. Thanks again for your time today. That concludes our prepared remarks. Operator, please open the call for questions.

Our first question is from Ross Osborn with Cantor Fitzgerald.

So starting off, you mentioned 20 systems in the U.S. in some stage of commercialization. How many of those were placed in being used during the quarter?

How many?

Yes. Of the 20, I believe you said some have been installed but not necessarily active, so just trying to update our model properly for the first quarter in terms of those 20 systems that were actually being used during the quarter.

As of March 31, we had already installed 13 of those 20 systems. I hope that answers your question.

Yes. That's very helpful. And then regarding...

Maybe an additional point. Basically, this is making progress on an almost daily or weekly basis that we already mentioned that we have dozens in the sales pipeline. And what I mean by dozens is not 1 or 2 or 3 dozen, it’s very substantial – and another point that could be mentioned is that we are, in fact, installing today the first system with one of the national radiology providers. We are moving forward on a weekly basis.

Great to hear that. It's very helpful as well. Regarding the utilization levels, during the fourth quarter call, you mentioned you're seeing initial scans of about 7 per day. Was that consistent throughout the first quarter, and how do you see that uptake?

Given and take yes.

Yes. But don't forget, it's too early to call. We're still in the midst of the soft launch, so we'll draw all conclusions once we conclude this phase of the deployment.

One other indication that I'm referring to, items that I mentioned during the call, is that the more clinical protocols we are adding, we see more scans per day. For example, the spine that we added; and the fact that we can do it online without the necessity to go on-site and the fact that we have the initial reimbursement. Each of these components, in terms of clinical improvements, even sometimes incidental findings that we have discussed further, is adding to the number of scans more and more.

In essence, you can see a chain reaction that starts from the clinical data that we accumulate and then expands the commercial use of the machine.

Our next question comes from Jeff Cohen with Ladenburg Thalmann.

So just a few questions on our end. I guess, firstly, you talked about another two programs. Could you elaborate a little further as far as your comment about it being non-invasive? Is it similar to your current platform? Or what may be the difference?

I'm not sure I got the question. Are you referring to the tube?

Yes.

So basically, what we have indicated is that we will have three suppliers for the tubes right now. We may cooperate with other players in the future. The first one is, of course, what we do in Nanox. We spoke about the Italian tube suppliers. We discussed the future and the very broad cooperation that we have with another supplier where we already have the final design. This will actually lead to substantial technology breakthroughs that will come in the future. We have also discussed our OEM business. We spoke about another player in the medical imaging industry that may currently have interest in our tubes; all of them basically are expanding our availability of tubes for installation in our system.

Got it. Okay. And actually, could you talk about the second opinion service? And where or when you may launch that? And would that be cash only as in not reimbursed by payers. And any specific data on that front would be helpful.

In fact, it's been around for years now. We are expanding these services to be available in other states. This is initially based on the technology and the platform that we have, first of all, integrated with the acquisition of USARAD and the marketplace that we built. We are building the product, the vulnerability of these services. So right now, we are operational, and we are planning to expand. It's generating revenues, and it's part of what USARAD is currently offering. It does not depend on reimbursement.

And it's paid in cash.

And we are adding AI capabilities to these services as well.

Okay. Got it. And then lastly for us, we've been doing some work on medical analytics. Regarding spine, skeletal, orthopedics. So could you talk about your platform versus CT straight up and the ability to transfer files directly into analytics software?

I'm not sure I got the question.

For a company that has been inputting CTs versus Nanox Imaging. Could one be substituted for the other? And could you compare and contrast perhaps the capabilities amongst the skeletal system?

First of all, this is an area that we are going to elaborate more in the foreseeable future because based on the various clinical trials that we conduct and the first installations, we have a lot of clinical data. What we would like to do is to ensure that we provide as much value as we see is necessary, but more and more intelligent uses of our clinical findings will enable us to add value to the users. What we see right now are a lot of great indications that our offerings are, in many ways, changing the standard of care. We are adding value that far exceeds what traditional x-ray can provide, and we are getting closer to what CT offers. We can talk about examples probably in the future, but the answer is technically trying to do as much as we can with our equipment, enabling the replacement of a lot of the CT imaging used as we go forward.

And that is all the time we have for questions today. I will now hand the conference back to Mr. Erez Meltzer for any closing remarks.

Thank you all for making the time to listen to the progress that we have made. As you all know, we are putting a lot of effort into three areas: commercial progress, which we have made significantly, and we will continue to update as we move forward. One of the amazing findings or the progress that we made is in this clinical evidence. This is coming from the clinical trials as well as the initial indications for the deployed systems. And last but not least, I would say a technology breakthrough that we are adding to the product roadmap for the future, with many lessons learned from the process. We are, of course, taking all the necessary steps to ensure compliance and to ensure that our software, particularly AI and hardware, will form the basis of our end-to-end offering. I would say that every week, we are making progress. Even today, we received a few new orders and indications of the time that we're going to install the first system in Mexico as indicated. We received another purchase order from the Philippines. So we are expanding on a global basis. This will be something that will be shared as we move forward. Thank you all, and have a great day.

This concludes today's conference. Thank you for your participation, and you may now disconnect.