Good afternoon, and welcome, everyone, to the Beyond Air Financial Results Call for the Fiscal Quarter ended December 31, 2023. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. And now, I'd like to turn the call over to Corey Davis, LifeSci Advisors. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Today, after the market close, we issued a press release announcing the fiscal third quarter 2024 operational highlights and financial results. A copy of this press release can be found on our website, www.beyondair.net under the News & Events section. Before we begin, I would like to remind everyone that we will be making comments and various remarks about future expectations, plans, and prospects, which constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Beyond Air cautions that these forward-looking statements are subject to risks and uncertainties, and could cause actual results to differ materially from those indicated. We encourage everyone to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's most recent Form 10-K and Form 10-Q, which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements. Additionally, this conference call is being recorded and will be available for audio rebroadcast on our website, beyondair.net. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 12, 2024. Beyond Air undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call. Joining me today on the call are Steve Lisi, Chairman and Chief Executive Officer; and Douglas Larson, Chief Financial Officer. With that, I'll turn it over to Steve Lisi. Go ahead, Steve.

Thanks, Corey, and good afternoon to everyone joining us today. Today, we announced a strong step in the right direction with a greater than 60% increase in revenue this quarter versus last quarter. While this is a small number in absolute terms, there are several factors that give us confidence in hitting our fiscal year 2025 revenue guidance of $12 million to $16 million. Filters shipped in fiscal 3Q grew by more than 100% compared with shipments in fiscal 2Q. It's important to note that this growth does not yet reflect the software upgrade received from the FDA in September as it takes time for such a manufacturing change to result in upgraded systems. Our first new hospital start with the updated system was on February 1. As this rollout of the new machines has just begun, the financial impact in the March quarter will be a bit muted compared with the levels of revenue we expect to see in the June quarter. It is important to understand that we will maintain a balance for the next several months between upgrading our existing customer base and adding new customers. The increase in demand for product evaluations has surged since our upgraded system was displayed at the American Academy of Respiratory Care in early November. Since the conference, we have completed, started, or definitively scheduled as many evaluations as we have completed in the previous 10 months. Prior to the upgraded system, we had zero multi-year contracts. I am pleased to announce today that we now have three such engagements, with more multi-year requests than single-year requests by a wide margin. For reference, upgrading our software removes all compatibility issues, reduces the system noise, improves alarms, and improves sensor accuracy. We have told every hospital that we welcome a head-to-head comparison with any competitor in their hospital. However, not surprisingly, we have had very few instances where a competitor was willing to sit in the same room with us at a hospital to cycle through multiple use cases with our system and their system. While still in its early stages, we have also been pleased with the progress made since securing our innovative technology contract award from Vizient, the nation's largest provider-driven healthcare performance improvement company. We're excited by this opportunity to expand our reach through the Vizient customer network. We also anticipate adding LungFit PH to more group purchasing organization platforms over the course of the next year. To capitalize on this positive growth trajectory, we will continue to build out a field team based on the growth opportunities as they evolve. One last point to make on the U.S. nitric oxide market. Our PMA supplement for the expansion of our label to include cardiac surgery was accepted and is under substantive review by the FDA. Our clinical and regulatory team is to be commended for putting together a strong submission. While there is no firm date for FDA to complete their review, we would expect a decision before the end of calendar 2024. Once approval is received, we anticipate an impact on revenue growth after a few months. Looking outside of the United States, we still expect to receive CE Mark in the first half of calendar year 2024. As we have mentioned previously, in addition to opening up doors in Europe for our system, receiving this CE mark will trigger a milestone payment from our partner, Getz Healthcare, which has signed an agreement with us to commercialize LungFit PH in several countries in the Asia Pacific region, excluding Japan. Moving on to our pipeline. During the quarter, Beyond Cancer announced that its Phase 1 study evaluating ultra-high concentration nitric oxide, or UNO, in advanced relapsed or refractory unresectable primary or metastatic cutaneous and subcutaneous solid tumors has cleared the first cohort of 25,000 parts per million single-dose UNO by the Safety Review Committee with no reported dose-limiting toxicities. This means that there is an UNO dose of 25,000 parts per million nitric oxide that is safe for human use. And given the data shown in November at the SITC conference, there should be confidence there is an immune response much like we saw in preclinical studies. As a reminder, this is a first-in-human study that is being conducted in two parts, dose escalation and dose expansion. The dose escalation part will consist of three UNO dose cohorts, 25,000, 50,000, and 100,000 parts per million nitric oxide, or possibly a concentration below 25,000 parts per million. The dose expansion portion of the study will begin once the recommended dose is determined with the primary objective of the trial to assess safety and tolerability of UNO with a secondary objective of assessment of efficacy by immune biomarker response to UNO therapy. One last note is that we anticipate completing the Phase 1a study and presenting the data in the first half of this calendar year and then initiating a Phase 1b study in the back half of the calendar year, which will include combination therapy with anti-PD-1 therapy, given the strong combination data shown to date in the preclinical setting. I encourage all of you to visit the Beyond Cancer website to get better educated on this potential transformational therapy for those suffering from solid tumors. Our viral community-acquired pneumonia, or VCAP, study is underway. As a reminder, this randomized, double-blind, placebo-controlled pilot study will treat hospitalized patients with 150 parts per million nitric oxide intermittently for up to seven days. Due to viral pneumonia following seasonal patterns of activity, this is a seasonal study running through the fall and winter months. As a result, we have decided to conduct this study over two seasons. Thus, we expect to announce top line data by the middle of calendar year 2025, with interim data updates when appropriate. This will not change the timing for a pivotal study in the '25-'26 season. Obviously, viral pneumonia is a significant unmet medical need given the times we live in. Turning to our autism program. We are pleased that the program remains on track for human data in 2025. Please recall that this early-stage development program is being conducted in partnership with The Hebrew University of Jerusalem, which continued to produce exciting preclinical data. As a reminder, the data thus far have shown that reducing nitric oxide production by inhibiting neuronal nitric oxide synthase reduces nitrosative stress biomarkers in the brain and reverses the molecular, synaptic, and behavioral autism spectrum disorder associated phenotypes. To be clear, a reversal of behaviors associated with autism was demonstrated in several different genetic mouse models of autism. We believe this program offers tremendous potential and look forward to providing updates as we progress throughout the year. Now, I will turn it over to our CFO, Doug Larson. Doug?

Thanks, Steve, and good afternoon, everyone. Our financial results for the fiscal quarter ended December 31, 2023, are as follows: Revenue for the fiscal quarter was $0.4 million as compared with $0.2 million for the previous quarter and $0 for the fiscal quarter ended December 31, 2022. While we are seeing positive operating margins on our individual contracts, there are three reasons why our overall gross margin remains negative. First, we incurred costs related to the software upgrade of the LungFit devices. Note, there will be similar costs for the next two quarters as we complete the upgrade of all of our devices. Second, because we prebuilt several hundred devices that are currently being upgraded, we have depreciation of devices that are not currently generating revenue. Third, consistent with this early stage of growth, we are suboptimal in our physical warehousing infrastructure, but as we grow this effect will dissipate. Our supply chain is committed to being a great partner to the hospitals we engage with and having the right number of high-quality upgraded systems in the right location is key. Research and development expenses for the fiscal quarter were $6.8 million, compared with $5 million for the fiscal quarter ended December 31, 2022. Of the $1.8 million incremental spend, $1.2 million was due to development costs associated with our pipeline, mainly from the start of our VCAP study. Investment continued to ramp up in Beyond Cancer, but this was mostly offset by favorable comps in NTM and autism. The remaining $0.6 million was almost exclusively due to loaded salaries in Beyond Air's R&D teams. SG&A expenses for the fiscal quarter were $9.8 million compared with $8.9 million for the fiscal quarter ended December 31, 2022. The $0.8 million increase was mainly due to stock-based compensation and salaries, with the majority being noncash compensation. Other income and expense for the fiscal quarter showed a $0.2 million loss compared with a $0.2 million gain for the fiscal quarter ended December 31, 2022. There's a lot of moving parts again this quarter, but the biggest movers are an increase in interest expense of $0.8 million, being partially offset by a $0.4 million increase from gains in our marketable securities. For the fiscal quarter ended December 31, 2023, on a GAAP basis, the company recorded a net loss of $17.1 million, of which $16.1 million, or $0.50 per share, was attributable to the shareholders of Beyond Air, Inc. compared with a net loss of $12.7 million, or $0.43 a share, for the fiscal quarter ended December 31, 2022. Net cash used in the quarter ended December 31, 2023 was $12.7 million. We alluded to a higher cash burn this quarter in our last call, with payments required towards our VCAP study, development of our Gen 2 device, continued in-human trials in Beyond Cancer, and advances in our autism program. We also raised $5.5 million on our ATM in the quarter to partially compensate for the planned cash burn. As of December 31, 2023, the company had cash, cash equivalents, and marketable securities of $31.4 million. And as a reminder, we also have $5.2 million held on deposit by our contract manufacturer. And with that, I'll hand the call back to Steve.

Thanks, Doug. We will now take any questions you may have.

Thank you. Our first question comes from Jason Bednar with Piper Sandler. Please go ahead with your question.

Hey, good afternoon. Thanks for taking the questions here, guys. If I could just start maybe on some of the recent developments, clearly, some more steps forward on the contracting front, some wins you mentioned there, that's all good. When I step back and think about where we're at in the context of your $12 million to $16 million revenue guidance for next year, you're clearly signaling confidence about future contracting as well. So, I guess, when I back that up and needing a good jumping off point to exit this year in order to move into that $12 million to $16 million range, and also consider January tends to be, I think, a good contracting period or at least a lot of discussions happening here at the new year, can you talk about maybe the commercial signals you've seen here early in calendar '24?

Sure. Thanks for the question. As we mentioned earlier, we're seeing an increase in customers wanting longer-term contracts, which we view positively. This indicates their confidence in our system, particularly with our upgraded software. There's been a significant rise in requests to evaluate our system, and we have a busy schedule over the next six to eight weeks, with more bookings anticipated beyond that. We're focusing on serving our existing customers while also pursuing new ones. Our current customers are essential to us; they've provided valuable insights on optimizing our system before the software update. We'll continue to care for them while also onboarding new customers. Once we fully shift our focus to new clients, it will be an exciting time for our team. It's also worth noting that while January 1 is typically a peak time for contracts, other times of the year, like July 1, are also significant. We have new contracts starting at various points throughout the year, including some as soon as February 1. Our priority is ensuring we have the necessary supply to manage these commitments while taking care of our existing customers. We're optimistic about the future and plan to expand our team to handle the anticipated demand in the next three to six months. If you need more specific metrics, feel free to ask.

That's very helpful. I’m trying to gather more qualitative insights to assess the situation, and it certainly appears that progress is being made. I’d like to transition to the next question regarding Duncan's departure. Can you provide more details on this? Specifically, how soon do you plan to fill this position? Given the critical point you are at commercially, it's important to ensure a smooth and prompt transition.

Yeah. I think that the transition will be seamless. I don't know when we'll have someone new in that role starting up. But we have a pretty strong team here internally. So, we're certainly working together as a team to bring these things forward. I wish Duncan the best and he's done a great job for us. But we're focused on the task at hand. And I think we have the right people at the company right now. And obviously, we need to add as we grow as opportunities come our way. But we're going to wait for the right person; bringing in the wrong person because we need someone quickly is not the right attitude. So, I think that with what we have in place, we certainly can wait for the right person to come our way, whether that be in 30 days, 60 days or 180 days, I can't tell you that right now, I don't know. But I want the right person in that role.

Okay. That makes sense. One last question. Doug, I appreciate your help with some of the gross margin details. I know it’s still early, but is there a way to quantify or identify what some of those one-time costs might be? They seem to have been higher in the second quarter, or your fiscal third quarter, and they will likely continue for the next two quarters. I’m just trying to understand what an adjusted gross margin or adjusted cost of goods sold would have looked like for you in that quarter.

Thank you, Jason. I'm a bit hesitant to break down the details, but the depreciation on machines that are not in service and the upgrades for devices we're enhancing software on add up to about $400,000 to $500,000 for the quarter. I hope this provides some clarity. I believe we'll see this recur in the next quarter. Once sales increase and we complete the device upgrades, those costs will fade away. As our revenue grows, that depreciation will simply become a standard part of our cost of sales.

All right. Perfect. All right, thanks so much.

Our next question comes from the line of Les Sulewski with Truist. Please proceed with your question.

Good evening. Thank you for taking my questions. Steve, regarding the pricing environment in hospitals, can you clarify how it is influencing the decisions of the hospital groups you are working with? Additionally, can you provide more details about the size of the three new engagements you've referred to and your expectations for the conversion rate?

Let me start with that. What do you mean by conversion rate on that?

Conversion of contract...

We have those three new engagements secured through multi-year contracts.

Got it. okay.

I would say that two of them are probably slightly below market average, and one of them is probably double what you consider market average. These are good-sized contracts. I really don't want to give too much detail on them, but these are good-sized hospitals. They're handling pretty good volume, and even the two that I would consider to be a little bit below what the average-sized hospital would be are doing pretty good volume. The other one, however, has a lot of volume. There are many patients every single day, and we’ve got over 20 machines in that hospital. It's a big hospital. I hope that helps.

It does.

Let me address your question about pricing. Price absolutely plays a role; there's no denying that. In any situation, hospitals aim to secure the best price possible, although it isn't the only factor influencing their decisions. We cannot overlook this reality. As I've mentioned previously, the pricing environment is largely in line with our expectations when we entered this market, generally falling within the range we anticipated. Some hospitals may achieve better pricing than others due to various factors, with volume being the most significant. However, I don't believe it's the sole factor, and I want to clarify that this market is not in a downward pricing spiral; that's simply not accurate. Overall, I view the pricing environment as healthy.

Got it. Very helpful. On the VCAP study, can you just give a little bit more color how this was extended into two seasons? And then separately, on the one-fold increase on your filter shipments, can you translate that into utilization, or is this a seasonal inventory stocking? Just give a little more commentary on that, if you could.

There’s no seasonal inventory stocking for this. The numbers reflect genuine growth without any seasonality involved. Hospitals typically order what they need for the next 30, 60, or 90 days, depending on their individual requirements, and they don’t stockpile a year’s supply. This is purely true growth. Regarding the VCAP study, it's a safety study, and while efficacy needs to be established in one season, safety doesn’t have that restriction. We won’t change the timeline for our pivotal study. We received approval late in the June quarter last year, and it was a challenge to get all sites operational on time for the season. So, around Thanksgiving, we decided to extend over two seasons, which was always an option we considered but couldn’t implement quickly enough. Instead of overextending ourselves, we focused on a few core centers, which turned out to be the best approach given the tight schedule. This decision was made before we were fully into the season, and I believe it was the right call as long as it doesn’t delay the start of our pivotal study.

Got it. That's helpful. Maybe from a high level, could you kind of quantify the pecking order, your pipeline strategy, anything that could be pushed back further if there's risks involved, whether it's financial or time? Any kind of color around the high-level strategy process and thoughts around the pipeline?

I believe we are clearly communicating our ongoing projects. We are currently focused on VCAP, cancer, and autism. Autism is relatively low-cost compared to the other two programs since it is still in the preclinical stage, which means it isn't incurring significant expenses. We aim to progress to the first human trials for this project in 2025 and gather data, which we don't expect to be costly. The expenses will increase when we move into potentially Phase 1b or Phase 2a stages. For now, it remains affordable. NTM is our next program, and we plan to meet with the FDA by the end of this calendar year to discuss trial design and hopefully establish a pivotal trial. COPD has not advanced, which is reflected in our corporate presentation, and it is currently on hold. Bronchiolitis has also been inactive for the past few years. Our pipeline priorities are quite clear, and I'm not sure if I completely answered your question, but I provided the ranking of our projects.

No, that's helpful. Thank you for that, Steve. Appreciate it.

Our next question comes from the line of Yale Jen with Laidlaw & Company. Please proceed with your question.

Good afternoon, and Steven, thank you for addressing the questions. To begin with LungFit PH, could you provide the total number of hospitals currently using the device, including the three multi-contract hospitals that have already adopted it?

Yeah. We haven't said how many hospitals are out there. We don't want to give any information out to the general public about how many hospitals we're in or where they are or who they are. So, we're not going to comment on that. But...

Okay, that's good. Could you provide a bit more detail regarding the software update, specifically what makes this version significantly different from the earlier one?

Yeah. So, just to give a little background. Remember, we froze the design of our system in early 2019. So then we had this global pandemic. So, it took a while to extend the time to submission and approval. There are a lot of things that three and a half years of no changes in our system where the rest of the world is having changes makes it difficult for us to catch up right away. So, essentially, this software update gave us optimal accuracy with our sensors for monitoring and our delivery. It gave us compatibility with all the systems out there that are important. I would say all the systems; I don't think we're incompatible with anything at this moment in time. That's very important for us to be compatible with all the ventilators that are used. There's a little bit of noise from some of our compressors, so the software is able to reduce that noise. I don't think that was a big deal, but certainly, it is nicer for the hospitals to have that, and we're able to improve on the alarms. So, that's really it. I think the compatibility and the sensor accuracy are probably the two biggest things that it did for us. So, that's it. I mean I would say those two things are really the driver for why we did this. And it was a little frustrating that it took as long as it did, but it's here now, and the feedback is as expected. Everybody is very pleased and happy with it. Like I said earlier, we're getting a lot more interest and a lot more looks from hospitals since we displayed this in early November at the American Academy of Respiratory Care.

Okay. Maybe my last question here is that in terms of the NTM, just a company recently, AN2 Therapeutics, has a pause in their Phase 2/3 study of a similar indication at this point based on, I guess, the efficacy as they indicated. Do you see any impact on your development in the LungFit go for this indication? Or any comments on that?

I'm sorry, what company was it that you were mentioning? I didn't hear the name.

It's called AN2 Therapeutics and they paused their study.

Yeah, AN2 Therapeutics.

Yes.

Yeah, I believe that these are using an antibiotic, is that correct?

Right. And basically, they suggest that they have subpar efficacy, at least that they hinted in their press release, and that's the reason they paused the Phase 2/3 study.

Look, anything that's positive for these patients is a big win. So, I'm very happy to hear that they may be able to help patients; that's fantastic. So, it's more options for these patients. They have very few. So, I think it's a good thing. And I think that it could even make the path easier through FDA; perhaps, we have to see. We have to wait and see what happens with them. But right now, our studies are being done on top of antibiotic therapy. So, I think we would just be used together with antibiotics. I don't know if we're going to be doing any monotherapy studies in the near term. So, at this point, any success with antibiotics is great for us and great for patients. Nitric oxide enhances the efficacy and certainly helps with the tolerability of antibiotics as we've seen in our studies. So, I think they are all positive.

I believe they paused their study because they do not have sufficient efficacy in their results.

It was a failure, Yale. I hadn't the data.

Yeah.

That's unfortunate; these patients need options, and we hope things work out for them. Our strategy remains unchanged. We'll continue to utilize existing antibiotic background therapies. If there's any chance we can advance due to certain patients as a monotherapy, that would be ideal, but it's a bit premature at this moment. We'll discuss with the FDA; you never know. Regardless, this does not alter our strategy. We have a distinct mechanism of action for treating NTM lung disease, and it will not change our perspective. Our data is compelling; we had very strong results in our last study, so we're quite optimistic about it.

Okay. Great. I appreciate it. Congrats on the progress at this moment.

Thanks, Yale. Appreciate it.

Our next question comes from the line of Marie Thibault with BTIG. Please proceed with your question.

Hey, good afternoon. This is Sam Eiber on for Marie. Thanks for taking the question this afternoon. Maybe I can start on the CE mark as we get closer to approval here. Just any thoughts on how to think about the ramp both in Europe and APAC? Any target markets that you'd highlight for us, revenue contribution? And anything included in the fiscal '25 guidance for international at this time?

Yeah. Sam, I don't think that we're going to have anything from the European Union in '25. I mean, we still have to get the CE mark, then we'll ink a deal, and then we've got to ramp things up. It takes time in Europe. Australia, New Zealand, I think that the TGA approval in Australia will lag the CE mark, give or take, 90 days. I mean you can't be sure, but that's a rough estimate, and then we'll have to ramp things up. So, if there's any effect from there, it would be minimal in '25, fiscal '25. So, I wouldn't think it would be very impactful. I think that this is more of a fiscal '26, '27 impact for us on both fronts.

Okay. That's helpful to think about. And maybe I can just use my follow-up here on some of the comments around adding to the field team. I guess just any way to quantify or think about that ramp here, and obviously, incremental contribution to operating expenses in the back half of this year and fiscal '25?

Yeah. I mean we already budget for this, right? In our budget, in our forecast, we already have people being added. And what we're doing now is adding based upon the interest in what we see coming our way, right? So, we need to be prepared for this. We need to bulk up our team a little bit for the interest in our system. So, it's in our budget. It's not going to change anything. Whether we have one or two people ahead or one or two people behind in a certain quarter, it's all going to smooth out over the next four to six quarters. I mean, we're probably going to be where we are in four to six quarters. Just each quarter might be a little bit different in terms of who starts when. But this is all part of the plan. It's in our budget. It's in our guidance for burn; it's all there. This is nothing new. It's not going to increase our expenses. I mean it's exactly what we expect to happen when we see the demand coming; we're going to bring people on.

Okay. Well understood. Thanks for taking the questions, Steve.

Great. Thanks. Appreciate it.

Hey, thanks for taking my questions. Can you provide more details on why you feel confident in your guidance for the $12 million to $16 million in 2025? What do you need to see in terms of converting some of the conversations with various hospitals to reach that goal?

Thanks, Matt. So look, you don't win them all. There's no way we expect about 1,000 here, but we do expect to be winning a good portion of these discussions that we're having. What we need to see is keeping our existing customers, re-signing them because a lot of the re-signings are coming up in the next couple of months. I think that will be important. And it will also be important to bring on some new customers. What we need to see is June, July, and August type things or where we believe we'll be bringing on significant numbers of new customers because we'll have already taken care of our existing customer base by every time we get out there, and we'll have time to build up our inventory to a point where we can take on more hospitals. So, that's what we need to see. And we're already seeing it. We mentioned we had the new start, February 1. We had another start in February. So, it's two hospitals starting in the month of February, and we'll have more coming. I think we're going to be seeing hospitals, hospital starts every month, multiple hospital starts every month, hopefully, and the sizes will vary. Some are small, some are medium, some are big. We might even get lucky, Matt, to get one of those giant-size customers. We'll see. We'll see if we can break into that club of having some of the big, huge users of nitric oxide in the United States.

Okay. Great. That's helpful. And then, in terms of the PMA supplement for cardiac surgery, obviously, the label and approval took a lot longer than you expected for initial indication. How is the review going? Is it just starting? And how do you expect it to progress? Is this something you expect to be completed later this year?

Matt, I don't like to comment on things I have no control over. But I think before the end of this calendar year is a fair assessment that we'll hear back from the FDA, one way or the other. It could be sooner than that. It could be the summer; it could be the fall. I mean it's very difficult to pinpoint it. And I don't want to give a hard date here. But I would say it's going to take more than 180 days that some people may think. So, please don't put 180 days. I don't think we're getting the approval in the month of May. I would think it's going to take several months beyond that. And right now, it's a pure guess on my part because the interactions with FDA, as you're aware, we're still a little bit short of when you would normally hear feedback from FDA. We're still a little bit away from getting a full picture of FDA's first pass of our application. So that's just a guess on my part. We do feel confident in our application. We think that the data that have been generated are very strong. We really look forward to discussing with FDA. I mean, my team can't wait. We're gearing up. We're sitting here twiddling our thumbs, trying to prepare, guess what questions will be asked and try to be ready for it. That's all we can do. So hopefully, next update in June I'll have a little bit more information for you. But right now, it's just our opinion.

Great. All right. Well, thanks for taking the questions.

Perfect. Thanks, Matt. Appreciate it.

There are no further questions in the queue. I'd like to hand the call back to Steve Lisi for closing remarks.

Well, thanks, everyone, for tuning in. Much appreciated. We look forward to sharing with you our progress on the next call. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.