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Nano-X Imaging Ltd. (NASDAQ:NNOX) Q4 2023 Earnings Call Transcript

Nano-X Imaging Ltd. (NASDAQ:NNOX) Q4 2023 Earnings Call Transcript April 1, 2024

Nano-X Imaging Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the Nanox Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mike Cavanaugh, Investor Relations. Please go ahead.

Mike Cavanaugh: Good morning and thank you for joining us today. Earlier today Nano-X Imaging Limited released financial results for the quarter ended December 31, 2023. The release is currently available on the investor 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 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. 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.

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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.

Erez Meltzer: Thanks, Mike. And as always, thank you all for joining us today for our financial result call and corporate updates. Before we get started I would like to take a minute to acknowledge the passing of our founder Ran Poliakine back in January. We all owe him our gratitude, and I'm proud to lead our team as we seek to realize his vision of making medical imaging more accessible to improve early detection and treatment to help people achieve better health outcomes. My remarks will be a bit longer today than usual and I will provide a lot of details on the various business aspects of Nanox. As we share our fourth quarter update and review our financial results, I am extremely proud of the progress our team made over the course of 2023, highlighted by the exciting milestone of FDA clearance for the Nanox.ARC, a clear validation of our technology and mission and our first steps in the U.S. commercialization.

On today's call, we will be focusing on our fourth quarter activities, as well as some of our achievements in early 2024, a year which I expect will be a transformation of Nanox. We are now in the process of expanding our commercialization of the Nanox.ARC system and are aiming for a steady increase in deployment as we raise awareness of the Nanox solution. Nanox is dedicating to accelerating the implementation of our commercial infrastructure and future strategic plans in the U.S. Our mission is to provide healthcare practices with a game-changing advantage through the Nanox.ARC and accessible cost-effective solution that not only provides advanced diagnostic imaging capabilities, but also elevates overall patient care. I'd like to start our call with an update on our U.S. deployment activities.

As we have disclosed in the past, we have already deployed the ARC at the first location in the U.S., in New Jersey, in the New York metropolitan area. Since then, we have launched across five states, marking an advancement in our U.S. Deployment, which is going as planned. As of today's call, ARC systems have been installed at several medical imaging and diagnostic systems centers in New Jersey, New York, Florida, and Kansas, as well as the Georgia 626 Imaging Academy, which serves as a technical and training center, the Nanox.ARC system begun to scan patients. Clinical operation of the ARC system will begin in other sites’ spending certification from the corresponding state's regulatory bodies. As already indicated in our investors day, back in December, one of the purposes of these installations is to validate our MSaaS assumptions.

Based on these initial deployments, it seems that the model is indeed validated and we are scanning around seven scans per day, as well as the indication for $30 per scan. As part of the establishment of our infrastructure, the Georgia site at 626 Imaging Academy serves as a technical and training center for technicians on the use of the system, and they have successfully completed our engineers training program at the Atlanta 626 MIS Woodstock Training Center. We are in advanced negotiation with another installation, maintenance, and service provider in order to expand our service coverage. This is prior to scale. As we increase our footprint across the United States, we continue to expand our U.S. sales and technical teams. We are continuing to expand our professional team and have recruited additional personnel in the U.S. We aim to grow gradually as needed and are being judicious about our hires to ensure that additional expenditure generate a good return on the investment.

At the same time, we are extending our sales network as planned. As we ramp up the deployment, I can share that we have begun realizing revenue streams from ARC imaging scans at the U.S. deployed sites that are utilizing the MSAS model. I'd like to address one final aspect regarding our commercial operation in the U.S. As per our standard procedures, Nanox has submitted certification requests to expand the placement of Nanox.ARC units to various states across the country. I'm eager to keep you updated on the progress of these future installations. Turning now to our deployment effort in the rest of the world outside of the key U.S. market, as we disclosed in our last call, we are generating revenue from hardware deployments in Africa and have three installations as of the end of March.

As previously mentioned, we have had a unit installed at the University of Ghana Medical Center Limited, UGMC, and which has received local regulatory clearance. I can now share that we have signed a Ghana Multisite Agreement, which was done as part of our multisite trial in Ghana. We are conducting the trial aiming to generate continuous data and clinical evidence on the Nanox.ARC. I will describe this trial in a bit more detail later in my remarks. We have also made progress in expanding the Nanox footprint in Latin America. One recent agreement is with a Peru-based medical equipment distributor, which has partnered with us to distribute the Nanox connect in that country. The partner has a strong presence in Peru with good reach into the key local health system and hospitals.

And our cloud-based connect solution should be complementary product for the product offering, as this partner is already actively marketing other healthcare solutions, which enable remote patient exams by a clinician. I can also update you that our distributor in Mexico is seeking an import license for the Nanox.ARC and preparing for the first installation. The partner has also received an import license for the Nanox Connect and we have shipped the first two systems. Similar to the ARC, the distributor has applied to obtain the required registration to sell this solution. And we also anticipate that Connect will also continue generating revenues in 2024. As a side comment, I will say that it is very gratifying to see that the Arc and Connect be marketed together as we have envisioned this complementary imaging solution from the very beginning.

I would like to provide an update on our hardware revenues, which Ron will review in more details shortly. While we have begun generating revenues through our AI solutions in Q3, Nanox begun to generate revenue outside of the U.S. for the sales and deployment of its imaging systems. Now I'd like to provide an update on NanoxAI business, which has had an increase of 250% in our client base, compared to last quarter. We have an installed base of health system, who use Health CCS, an AI-powered solution to detect levels of coronary artery calcium, a proven indicator of future cardiac events. We have digested our experience in the field with this and gathered feedback from users, specifically cardiologists and radiologists, to upgrade the solution.

Revisiting one of the AI product partners, Corewell Health, formerly Spectrum, which begun using our population health solution in mid-2022 and is a large integrated health system. We have consistently received positive feedback from Corewell Health, which has fully integrated this into their standard-of-care. This has been a productive partnership, which has been extended for additional term. Many of you are aware that the Nanox solutions are available on Nuance Precision Imaging Network, a Microsoft company. More than 12,000 health-serve facilities and 80% of the U.S. radiologists will use Nuance PowerScribe for radiology reporting. I can share that Intermountain Health has signed on to deploy Health CCS and was part of Nuance Bundled. The Go live process started, including training activities and integration of the solution into internal systems.

Nanox also achieved another regulatory milestone last month when we received the 510(k) clearance by the U.S. Food and Drug Administration, FDA, for Health FLD, an artificial intelligence software that provides automated, qualitative, and quantitative analysis of liver attenuation from routine CT scans. Health FLD is intended to support clinicians in the detection of fatty liver correlated with hepatic steatosis, an early sign of metabolic dysfunction associated steatotic liver disease, MASLD, formally referred to as non-alcoholic fatty liver disease. Health FLD is a new and valuable tool for doctors as it has traditionally been difficult to assess liver attenuation on contracts enhanced scans, which make up a large proportion of the CT scans.

Health FLD was designed to help clinicians in the assessment and the analysis of fatty liver in general population from routine CT scans. We believe that AI innovative solution and specifically health FLD may deliver substantial advantages to the bio-pharmaceutical industry to streamline the identification of candidates for clinical trials of much needed therapies for liver diseases, including NASH. This regulatory decision solidifies our leadership as a developer of automated AI software medical devices. We also announced last month early findings from the AI-enabled ADOPT study, which uses the Nanox AI solution, HealthVCF, the previous version of our current health LSP solution. To review routine CT scans, have identified up to 6 times more patients with vertebral compression factor that the national average -- at National Health Services, NHS hospitals in the U.K. The study is being conducted at various National Health Service or NHS sites, including the Oxford University's hospitals.

A patient in an imaging room, their medical diagnosis in the hands of Nanox's tomographic imaging.
A patient in an imaging room, their medical diagnosis in the hands of Nanox's tomographic imaging.

The ADOPT data shows that HealthVCF has clearly demonstrated the ability to identify vertebral compression fractures in far more patients than previously possible with existing tools, enabling earlier intervention and potentially better patient outcomes. Today, the Nanox AI algorithms has identified over 2,400 patients with previously unknown patients with previously unknown vertebral compression fractures and those patients have been designated for a follow-up evaluation and treatment. As you can see, we have been very busy not only with this Nanox.ARC system deployment, but also advancing the uptake of Nanox AI, which is an important component of the complete Nanox solution. Turning now to our OEM initiatives. After executive partnership kickoff meetings at Varex headquarters in Salt Lake City last year, the company's technical teams are actively engaged in validating the tube design and advancing the roadmap towards production and exploring future development.

Expanding on our OEM related activity, we have issued our first production purchase order to an industrial imaging equipment manufacturer and continue to work towards a multi-year tube supply agreement to ensure an adequate future supply of tubes. Additionally, our collaboration with the U.S. government agency exploring Nanox.ARC technology for use in security applications and progressing. After their acquisition of chips and tubes for evaluation, we are advancing toward collaboration on a novel tube based on our meter. Finally, as a means of increasing awareness and allowing access to our core technologies, we have created Nanox demonstration kit containing a tube utilizing our meter. And we have recently received the necessary safety and regulation certifications for the kit and will be delivering our first few to interested parties in the coming weeks.

Regarding the mass production as recently announced due to the scale up in commercialization, we continue as planned with our collaboration with the system, a chip maker located in Switzerland. As I mentioned earlier in my comments about Ghana, Nanox is conducting multicenter clinical trial to enhance Nanox.ARC with the goal of expanding its use with chest and other indications. The trial is scheduled to begin patient recruitment shortly, and Nanox.ARC systems that are being used in these trials are already scanning patients. The system installed at Beilinson Hospital is ready. The Institutional Review Board IBR, has approved the trial and we are finalizing the remaining steps for integrating into multisite. In Ghana, the IRB has been submitted and currently is under review.

Additionally, the Nanox.ARC is being used to scan patients with abnormal lung conditions at Beilinson, one of the world's top academic medical center, and an institution that has pioneered advancement in radiology. The system at UGMC is also currently being used to scan patients. Our pursuit of the CE mark in Europe is advancing in partnership with our notified body. Specifically, recently we completed a five-day audit by the notified body as part of the certification process for the CE certificates, the ISO 13485 plus medical device regulations MDR certificate. During the inspection, 100s of records, procedures, proofs, reports, and examples were presented. The MDR test was passed successfully. The ISO 13485 test was passed with a great success and without any adverse findings.

Sometimes after the audit, the formal review process will begin, which includes examining aspects of the manufacturing process. And although we expect our application process to proceed in a timely manner, I would note the regulatory bodies worldwide are still working through a backlog of applications, which accumulated during the multi-year COVID pandemic and the adjustment for the new MDR regulation. However, as I said, we are well along in the process and will continue to prioritize the work with our partners necessary to complete the matter of tests required to bring the CE certification process with the finish line. With that, I'd like now to turn the call over to Ran Daniel for a review of our financial results. Ran?

Ran Daniel: Thank you, Erez. We reported a GAAP net loss for the fourth quarter of 2023 of $10.2 million, which is the reported period, compared with a net loss of $52.8 million in the fourth quarter of 2022, which is the comparable period. The decrease was largely due to a goodwill impairment of $36.5 million and an accrual of $8 million in connection with the settlements of the cloud section which were recorded in the comparable period and a decrease of $4.4 million in the general and administrative expenses. Revenue for the fourth quarter of 2023 was $2.4 million and gross loss was $1.7 million on a GAAP basis. Revenue for the comparable period was $2.1 million and gross loss was $1.8 million on a GAAP basis. Non-GAAP gross profit for the reported period was $0.9 million, as compared to $0.8 million in the comparable period, which represents a gross profit margin of approximately 36% on a non-GAAP basis for the reported period, as compared to 39% on a non-GAAP basis in the comparable period.

Revenue from the teleradiology services for the reported period was $2.3 million with a gross profit of $0.3 million on a GAAP basis, as compared to revenue of $2.1 million with a gross profit of $0.3 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 as compared to 13% on a GAAP basis in the comparable period. Non-GAAP gross profit for the company's teleradiology services for the reported period was $0.9 million, as compared to $0.8 million in the comparable period, which represents a gross profit margin of approximately 38% on a non-GAAP basis for the recorded period, as compared to 40% on a non-GAAP basis in the comparable period. The decrease in the gross profit margin on a GAAP and non-GAAP basis is mainly due to an increase in the cost of the company's radiology due to the increase in the [Indiscernible] and payments of incentive payments, which the company pays to the company's radiologists to engage in readings during the overnight and weekend shifts.

During the reported period the company generated revenue for the sales of its AI solutions in the amount of 84,000 as compared to revenue of 63,000 in the reported period. During the first quarter of 2024, Nanox AI sold its Health CCS cardiac solution to a second IDN in the U.S. for an annual fee of $8.5 thousand during the first year of the engagement and an annual fee of $75,000 from the first anniversary of the engagement and after. During the reported period, the company generated revenue through the sales and deployment of its imaging system, which amounted to $17,000 with a gross loss of $44,000 on a GAAP and non-GAAP basis. Those revenue stems from the sales and deployment of our 2D systems in Africa. Research and development expenses for the reported period were $6.8 million, as compared to $7.1 million in the comparable period.

The decrease of $0.3 million was mainly due to a decrease in the company's development expenses. Sales and marketing expenses for the reported period were $1.0 million, compared to $1.5 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 $3.8 million, as compared to $8.2 million in the comparable period. The decrease of $4.4 million was mainly due to a decrease in our legal expenses in the amount of $4.0 million, largely as a result of the finalization of the SEC investigation and the settlement of the class action, a decrease in share-based compensation in the amount of $0.2 million, and a decrease in the cost of the directors and officer stability shows premium in the amount of $0.4 million.

Other income was $2.7 million for the reported period, as compared to an expense of $7.8 million for the comparable period. Other expenses in the comparable period included an accrual for the settlement in connection with the class action lawsuit against the company in the amount of $8 million, which was reversed by the amount of $3 million in the reported period since the company received this amount from its D&O insurance career under the settlement agreement in connection with the class action lawsuit against the company. Turning to our balance sheet. As of December 31, 2023, we had cash, cash equivalents, restricted deposits and marketable securities of approximately $82.8 million, and we had $3.5 million loan from a bank. We ended the quarter with a property and equipment net of $42.3 million.

As of December 31, 2023, we had approximately 57.8 million shares outstanding, as compared to 55.1 million shares outstanding as of December 31, 2022. The increase was mainly due to the sales of approximately 2.1 million shares and warrants to purchase up to 2.1 billion shares in a registered direct offering in consideration of gross proceeds of $30 million and a net profit of approximately $27.1 million and the issuance of approximately 255,000 ordinary shares to the former shareholders of U.S. Rad under the amendment to the U.S. Rad stock purchase agreement. With that, I will hand the call back over to Erez.

Erez Meltzer: Thank you all once again for joining our call today and your continued support of Nanox’s mission to make medical imaging more efficient, accessible and affordable worldwide. It has been two years since I stepped into the CEO role. And when I came here, Nanox was in a very different place. In just this year, we achieved an important milestone of ADA clearance and are seeking to potentially expand the use case for ARC with the FDA. We are also deep into the process of pursuing CE Mark designation in the European Union and have received local regulatory clearances in other countries like Ghana. We've also begun commercialization, earnest and RX systems are now deployed for the use by imaging center and hospital systems in Israel, three countries in Africa.

And as of today's call, we know we have numerous deployed systems in the U.S. Over these two years, we have integrated our AI strategy across the company. Our leading Nanox AI solution provides the ability to use AI to highlight and help identify patients with asymptomatic undetected chronic disease, initiating early diagnosis and preventative management. In this year, we also achieved two FDA clearances, a substantial clinical validation of our AI solution. We understand this has been a long road, but our progress is tangible and we are very excited for even more progress in 2024. Before I end the call, I have 1 last piece of news to share, and this is something many of you have been anticipating. On Wednesday, April 10, we will demonstrate the use of the installed ARC system, a dynamic medical imaging in Union, New Jersey, beginning at 9:30 a.m. The demonstration will be followed by a roundtable discussion.

Please contact our Investor Relations partners at ICR Westwicke if you are interested in attending, and note that space is limited. With that, I thank you once again and bring our fourth quarter and full year 2023 investor call at close.

Operator: We will now conduct the question-and-answer session. [Operator Instructions]

Erez Meltzer: Just before we dive into the Q&A session, I would like to mention that we have updated our website with interesting clinical pathologies from the U.S. commercial site and CHEST from our clinical sites. In the U.S. sample, we note enhanced visualization, compared to traditional radiography. One example is cervical spine scan. Additionally, you can find the CHEST study from the Beilinson clinical trial. And in the CHEST study, while the X-ray only frankly shows a lesion, this lesion was clearly visualized on the Nanox.ARC images and in the CT scan of the patient scheduled for biopsy. So take a look and feel free to see it as well. Q&A?

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