Nano-X Imaging Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 22, 2023

There are 6 speakers on the call.

Operator

Good day, and welcome to the Nanox Q1 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded.

Operator

I would like to turn the call over to Mike Cavanaugh, Investor Relations. You may begin.

Speaker 1

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 Investors section of the company's website. Erez Meltzer, Chief Executive Officer and Ron Daniel, Chief Financial Officer, will host this morning's call. Before 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, manufacturing and commercialization activities, regulatory process operations and other matters.

Speaker 1

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 financial measures to the nearest GAAP financial measure is provided in our press release.

Speaker 1

The non GAAP financial measures include 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.

Speaker 2

Thank you, Mike, and thank you all for joining the call today. I will provide an overview of our recent operational accomplishments before handing 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 the news that I'm sure is at the top of everyone's mind, which is the recent FDA clearance for non IFRS systems. As a reminder, on April 28, 2023, We received a 510 clearance from the FDA to market the Nanox Arc, including the Nanox Cloud, its company Cloud based infrastructure. The approved device is intended to be used in professional healthcare facilities All radiological environments such as hospitals, clinics, imaging center and other medical practices by trained radiographers, radiologists and physicians.

Speaker 2

Representing a major advancement in the X-ray tube technology, the Nanook Arc It's a multi store 3 d tomosynthesis system that utilizes novel cold cathode X-ray tubes, which the company intends to offer using an innovative paper scan business model. We believe that the NanoxArt has the potential to increase availability to medical imaging globally, Once approved by local regulatory authorities and deployed in scale, we intend to deploy This version of the Nanox ART 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 market. Following this clearance, Nanox will continue to work with the FDA to pursue additional regulatory clearances and intends to expand clinical indications. Other applications may be available in other markets for local regulatory approvals.

Speaker 2

With the FDA clearance secured, we are in the process of setting up a U. S. 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 Nanox Arc unit later this quarter. Additionally, we continue pursuing The European Union CE Mark and continue our work with our notified body, BSI, to whom we've already submitted the contract 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 NanoStar system.

Speaker 2

Under the Health and Care permits, Which we have previously disclosed, we started to collect clinical sample images of multiple human body anatomies With Nanook's 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 facilitate Further clinical trials in Israel utilizing the NanoxArc. We are planning to conduct a clinical trial in Israel to evaluate the diagnostic potential of the Nanox Heart 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 twenty twenty three. Turning to commercial deployment activities, Nanox has entered into a 3 year distribution agreement with a local partner in Morocco, Vital Tech S. A.

Speaker 2

R. L. Under the distribution agreement, VitalTech will purchase, deploy and operate an estimated 270 Nynos AHRQ units over 3 years for clinical use. The execution is subject to acceptance test Of the first unit and regulatory clearances, we have already received an import license, we have sent the first unit and our deployment team is on the ground as we speak. 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.

Speaker 2

I will now take a few minutes to introduce and discuss a new commercial partnership, which extends the reach of Nanox AI. During this quarter, we entered the global partnership with Blackford Analytics To market our NanoxArt product, Blackford Analytics is a global imaging AI solution provider And this partnership is intended to broaden the reach of Nanox AI Cardiac and Bone Solutions By presenting the Nanox AI algorithms 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 Nanox AI, Health OST and Health CCSNG solutions Interadiology department globally, including the U. S. And Europe, Nanox AI solution may also benefit downstream in cardiology and endocrinology by enhancing their abilities and help detect subclinical levels of osteoporosis and Cardio disease.

Speaker 2

Moreover, we have already completed the installation of our application In 4 out of 5 NHS clinical institutions in the UK and our system has been Turning to technology and manufacturing. And as previously mentioned in our previous earnings call, 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 Nanook's ARC system later this year. With deployment as a key focus, I'm pleased to report that the production line at Bagesh is now fully operational. Furthermore, I'm happy to share that Nanook's Korea received the ISO 123,485 certificate On April 5, 2023, the scope of this certificate obtained by Nautilus Korea Covers design, development, manufacturing and sales of X-ray tube for medical use. Before turning the call over to Ran, I'd like to touch on the Nanox AI and Teleridology business segment, which continued to generate revenue.

Speaker 2

This business has generated top line revenues of $2,400,000 compared to $2,100,000 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 this fully integrated NanoxArch system upon deployment. Our work He's not done, but we are now at an inflection point in our company's history and are now looking ahead To deploying the Nanox Arc at a large scale globally. With that, I'd like to turn the call over to Rand Daniel, Chief Financial Officer, to review our financial results.

Speaker 3

Thank you, Erez. We reported a GAAP net loss For the Q1 of 2023 of $11,800,000 compared with a net loss of $21,700,000 In the Q1 of 2022, which decrease was largely due to the decrease in earn outs liabilities in the amount of $5,000,000 And the decrease in our general and administrative expenses in the amount of $3,500,000 Our non GAAP net loss for the Q1 of 2023 was $10,500,000 compared to a non GAAP net loss of $11,600,000 for the same period in 2022. Revenue for the Q1 of 2023 were $2,400,000 And gross loss was $1,500,000 on a GAAP basis. Revenue from teleradiology services for the same period was 2 $400,000 with a gross profit of $500,000 on a GAAP basis and a gross profit of 1.1 $1,000,000 on a non GAAP basis, which represents the gross profit margins of approximately 21% on a GAAP basis and 44% on a non GAAP basis. The increase in the company's revenue and gross profit margin in the Q1 of 20 23 is mainly due to the increase in the amount of the radiology interpretations or and read and our rates for telephodionic services during the 3 months ended March 31, Quarter of 2023 were $6,300,000 as compared to $6,800,000 for the comparable period in 2022.

Speaker 3

The decrease of $500,000 was mainly due to the decrease in the company's cost of labor in the amount of $500,000 and a decrease in share based compensation in the amount of $800,000 which was mitigated by an increase of $200,000 in development expenses. General and administrative Expenses for the Q1 of 2023 were $7,800,000 as compared to $11,300,000 for the comparable period in 2020 2, the decrease was largely due to a decrease in the company's cost of labor in the amount of $800,000 A decrease in share based compensation in the amount of $4,500,000 a decrease in the company's directors and officers' liability insurance a premium of $300,000 which was offset in part by an increase in professional services in the amount of 0.5 $1,000,000 an increase in the company's legal fees in the amount of $1,400,000 due to an increase in the company's legal In connection with the SEC investigation and cross action mitigation as described in the company's Form 6 ks filed on May 22, 2023. During the Q4 of 2022, we had accrued $8,000,000 For future settlement expenses in connection with the 2 pending class action lawsuits against the company, on April 28, 2020 3, we signed the term sheet with the lead plaintiffs in both actions to settle all claims in both actions in consideration for $8,000,000 The settlement is subject to finalization of a formal settlement agreement and court approval of the settlement.

Speaker 3

Change in contingent element liabilities was minus $4,700,000 in 3 months ended March 31, 2023, as compared to $400,000 in the accounts payable period in 2022. Due to the decrease in the company's contingent earn out liability as a result of the amendment of the stock purchase agreement That we entered into with the former shareholders of U. S. ROTH on April 28, 2023. Under this amendment, the company shall pay an aggregated amount of approximately $300,000 in cash and 45 1,392 ordinary shares to the former stockholders of Urethra in consideration for the achievement of Certain milestones in connection with the first announced period as defined in the U.

Speaker 3

S. RAS stock purchase agreement. In addition, the company and the former shareholders of U. S. Trade agreed that the company shall pay an aggregate of $500,000 in cash and 210,000 ordinary shares to the former stockholders of U.

Speaker 3

S. Rod as Turning to our balance sheet. As of March 31, 2023, we had cash, cash equivalents and marketable securities of approximately $91,000,000 and a $3,500,000 loan from bank. We ended the quarter with the property and equipment with a net of $45,100,000 As of March 31, 2023, we had approximately 55,200,000 shares As compared to 52,100,000 shares outstanding as of December 31, 2022. On April 28, 2023, we issued approximately 255,000 Ordinary shares to the former stockholders of U.

Speaker 3

S. RAS under the amendment to the U. S. RAS Stock Purchase Agreement previously discussed. With that, I'll hand the call back over to Eric.

Speaker 2

Thank you, operator, and thank you all once again for your support of Nanox. 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 Nanook's ARC to be approved in other countries There are FDA clearance based markets.

Speaker 2

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 in the supply chains and continue to generating and collecting imaging data that supports the use of NanoxRx across multiple pathologies and users. 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 Westring.

Operator

If your question has been 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 Ladenburg Thalmann. Your line is open.

Speaker 4

Hi, Erez and Ryan. How are you?

Speaker 2

Great.

Speaker 3

Good morning, Jeff.

Speaker 4

So congratulations again on the clearance. 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 the all the components and subcomponents and to manufacturing and tie that into The facility in Korea as well.

Speaker 2

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. 1st and 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.

Speaker 2

We've indicated in the future, we have plans To have more than 1 or 2 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 are we have actually Open the facility at Dagesh in Israel, where we're going to manufacture all the systems 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.

Operator

Thank you. Our next question comes from Ross I'm with Cantor Fitzgerald. Your line is open.

Speaker 5

Hi, guys. Congrats on the progress. Thanks for taking our questions.

Speaker 3

Hey, Rob. Hi,

Speaker 5

Rob. So maybe starting off, could you just provide an update out of Ghana and Nigeria? Where does the company stand and beginning to generate scans there and also related revenue?

Speaker 2

Okay. So right now, it's the we've just started, so the revenues Are expected later this year. In terms of the deployment that about those 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.

Speaker 2

We'll be operating shortly when we get all the permits and Certificates to operating. We have also indicated today that we signed another A big agreement or a meaningful agreement in Morocco. The system is already at the hospital As we speak, and we have a team in the ground, which are going to operate it, and it will start to generate, of course, images. This is with respect to Morocco. In terms of the others, right now, we're going 1 by 1 Of the agreements that we have in order to ensure that we'll have a path and roadmap for the deployment.

Speaker 2

At the same time, We have indicated today something very important that originally we thought That U. S. 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 U. S, and it's going to be this year.

Speaker 2

And we've already indicated that the first the Demosnet center that we talked about In the script, in the PR and also the machine that will be sent this quarter. Great.

Speaker 5

Maybe I'll follow-up on your Morocco contract. You mentioned being We're deploying 270 units over 3 years. If you're able to receive the required license, let's say tomorrow and begin deployment, Based upon your current manufacturing capabilities, would you be able to meet the 3 year window?

Speaker 2

The answer is, there is no reason why not.

Speaker 5

Okay. That's great to hear. And then maybe one more, if I may. Just on the U. S.

Speaker 5

Commercialization, is the plan to Choice Systems in the U. S. Also on the pay per stand model, rather than a capital sale? And then if so, should we think about price around $14

Speaker 2

The short answer is Without going into the details, the short answer is that basically yes. But I think it's too early to say. Once we start the deployment, we'll see There are various models that can be explored, the various type 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. But I will say once again, in general, the answer is yes.

Speaker 2

Not necessarily the $14 that was mentioned, but might be that it will be Different or higher, but right now, that's the plan.

Speaker 5

Okay. Thanks for taking my questions. Congrats again on the progress.

Speaker 2

Thank you, Ross.

Operator

Thank you. That is all the time we have for questions.

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Nano-X Imaging Q1 2023
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