Nano-X Imaging Ltd. (NASDAQ:NNOX) Q3 2022 Earnings Conference Call November 10, 2022 10:00 AM ET
Company Participants
Mike Cavanaugh – ICR Westwicke, Investor Relations
Erez Meltzer – Chief Executive Officer and Director
Ran Daniel – Chief Financial Officer
Conference Call Participants
Jeffrey Cohen – Ladenburg
Suraj Kalia – Oppenheimer
Rahul Rakhit – LifeSci Capital
Operator
Ladies and gentlemen, thank you joining us today. And welcome to the Nanox’s Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is may be recorded.
I would now like to hand the conference over to your speaker host, Mike Cavanaugh of Investor Relations. Please go ahead.
Mike Cavanaugh
Good morning, and thank you for joining us today. Earlier today, Nano-X Imaging Limited released its financial results for the quarter ended September 30, 2022. 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 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. 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 amortization of intangible assets, shared-based compensation, secondary offering expenses, goodwill impairment, change in obligation in connection of acquisitions and legal fees and connection with class action litigation and SEC inquiry.
I’d now like to turn the call over to Erez Meltzer.
Erez Meltzer
Thank you, Mike. And thank you all for joining the call today. Reporting on our third quarter of 2022, I’m proud of the results our team has been able to deliver as we continue to advance our commercialization of the Nanox.ARC system. As in our last call, I will give an overview of our recent achievements. And we’ll share our outlook for the rest of 2022. Before turning the call over to Ran Daniel, our CFO to review our financial results in detail. We will then open the call up to questions. I’m pleased with the progress our team made during the quarter, which as most of you know includes our 510 (k) submission to the FDA for our multi-source Nanox.ARC system at the end of September, and which is now under FDA review. I’m very proud of the hard work behind the scenes by our regulatory product and other teams to absorb the continuous feedback from our Q submission process and incorporate it into the research submission. We do not have any insights into the timing of the FDA is the response.
In other regulatory news, we continue to pursue CE Mark approval in the European Union. And I’m happy to report that we have engaged with VSI, the notified body with whom we will work during this process. We look forward to providing updates to you as the process advances in the coming months. I’d like to take a few minutes now to discuss our progress toward commercialization of the multi-source Nanox.ARC system. It remains our goal to begin to deploy the multi-source Nanox.ARC system in 2022. And we’ve continued to push toward the goal. We continue to advance the process toward deployments of the multi-source Nanox.ARC in Nigeria subject to regulatory approval, as we recently received an import license. We intend to ship the first system and begin trading soon as we aim to secure regulatory approval. Globally, we have a total of 6,850 pre ordered units, we believe that once we begin to deploy the multi-source Nanox.ARC in Nigeria and in other early adopting countries, health system, hospitals and distributors will see the service that the Nanox.ARC provides.
Clinical updates, we have received the Helsinki permits to conduct clinical trials in Israel using our multi-source Nanox.ARC system. We anticipate that the results of these trials will generate clinical central images of multiple body organs during the fourth quarter of 2022.
Now turning to our AI and teleradiology segments, we continue to see revenue from these important business segments. I’m happy to report that during the third quarter of 2022, we signed nine new clients’ agreements for teleradiology services. And we continue to see revenue growth in these services driven by new clients’ additions, as well as organic growth from existing clients. These businesses generate a top line revenue of $2.4 million in the third quarter of 2022, compared to $2.2 million in the second quarter of 2022. Ran then will review the financial in more details. But these revenues continue to demonstrate the viability and utility of these additional services to the health care system, which services are intended to be part of a fully integrated multi-source Nanox.ARC system upon deployment, and an integral part of our ecosystem and end to end solution.
Before I turn the call over to Ran, I’d like to remind everyone that we will be hosting a multi-source Nanox.ARC demonstration broadcast with a live audience in the Neve Ilan on Wednesday, November 16, at 9:30am Eastern Time, due to the capacity limitation, we invite you to attend virtually, you can find the link for registration on our websites. I want to thank our investors for their continued support of our vision to help made medical imaging accessible throughout the world. I’m very happy with the progress we made this quarter. And we look forward to meeting additional milestones as we move towards large scale commercialization.
With that, I’d like to turn the call over to Ran Daniel, Chief Financial Officer to review our financial results.
Ran Daniel
Thank you, Erez. We reported a GAAP net loss for the third quarter of 2022 of $19.1 million, compared with a net loss of $13.5 million in the third quarter of 2021, which increase was largely due to the consolidation of Nanox.AI and USARAD with the Company since the fourth quarter of 2021, an increase in our research and development expenses, an increase in our general and administrative expenses, which was mitigated by a decrease in our sales and marketing expenses and a $1.0 million expense due to change in our obligation in connection of acquisitions.
Revenues for the first quarter of 2022 was $2.4 million, and gross loss was $1.4 million. Revenue from teleradiology services for the same period $0.3 million with a gross profit of $0.6 million on a GAAP basis. And a gross profit of $1.2 million on a non -GAAP basis, which will present a gross profit margin of approximately 49.4%. The increase in the company’s revenue and the gross profit margin in the third quarter of 2022 is due to revenues from a data monetization project with a total revenue of $0.3 million. Revenue from licensing of AI applications for the same period was $0.1 million with a gross loss of $2.1 million on a GAAP basis and $0.0 million on a non-GAAP basis.
Research and development expenses for the third quarter of 2022 were $6.1 million as compared to $3.7 million for the comparable period in 2021. The increase in our research and development expenses was mainly due to the consolidation of Nanox.AI with the company as well as due to the development of the multi-source Nanox.ARC and Nanox.CLOUD and share based compensation. Sales and marketing expenses for the third quarter of 2022 were $0.7 million as compared to $1.5 million for the comparable period in 2021. The decrease was mainly due to a decrease in cost of labor and share-based compensation.
General and administrative expenses for the third quarter of 2022 were $10.6 million as compared to $8.2 million for the comparable period in 2021. The increase was due largely to the consolidation of Nanox.AI and USARAD with the company since the fourth quarter of 2021, an increase in the company’s headcount and the overall organization infrastructure and an increase the company’s legal fee due to the US Securities and Exchange Commission inquiry and class- action litigation as discussed in the company’s Form 6-k file today and Form 20- F from the year ended December 31, 2021, filed on May 2, 2022.
Change in obligation in connection of acquisitions was $1.0 million, as compared to none in the comparable period, due to the decrease in the Company’s contingent earnout liability. The Non-GAAP net loss for the third quarter of 2022 was $8.1 million compared to a non-GAAP net loss of $8.4 million for the same period in 2021. A reconciliation between GAAP net loss and non-GAAP net loss for the third quarter of 2022 and 2021 is provided in the financial results that are part of this press release issued this morning.
Turning to our balance sheet; as of September 30, 2022, we add cash, cash equivalents and marketable securities of approximately $117.1 million, and we add $3.5 million in loans from bank. We enter the quarter with property and equipment net of $44.1 million, compared with $37.4 million as of December 31, 2021, the increase is largely due to the purchasing of long lead items for our multiple systems and machinery and equipment for our publication facility in South Korea. As of September 30, 2022, we had approximately 52.3 million shares outstanding as opposed to 51.8 million shares outstanding as of December 31, 2021. The increase was mainly due to the exercise of stock option.
With that, I will hand the call back over to Erez.
Erez Meltzer
Thank you, Ran for the financial update. And once again, thank you all for joining us today. I feel very good about Nano’s results in the third quarter as CEO that all of us recognize there is more to do. We hope to provide additional updates in the coming weeks and months.
With that, I’d like to now open the call for questions. Operator, please begin the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions]
Our first question coming from the line of up Jeffrey Cohen with Ladenburg.
Jeffrey Cohen
Hello, Erez and Ran. How are you? Just fine. So, a few questions for you. I guess firstly, as far as Nigeria and units that may be available for replacement, could you give us a sense of manufactured mark units as they stand at the moment.
Erez Meltzer
In terms of manufacturing, we are as we say in the process, we have all the materials which is available, we are making actually, we work with hand to hand with the regulatory approvals. So once we get all the paperwork, we can start to ship the units. And it goes the same with the other countries when we get the all the regulation approvals. Just to complete the answer about Nigeria. The next step is, send the first unit for demonstration. The demo center is ready already over there. And then to engage with those customers who are expecting to get the machines to do the training. As you know, we’ve indicated the work that we do with BVDH for the deployment and the training in Nigeria. So that’s the process that we do.
Jeffrey Cohen
Can you give us a sense of the size of the order over the coming year? Specific to Nigeria.
Erez Meltzer
We don’t, as you know and I’m going to stick to it until further or later or future other indications. We haven’t given numbers so far. The main reason, of course, was a relation. But we haven’t given numbers so far, and we make changes in the future.
Jeffrey Cohen
Got it, okay. And jumping over to the teleradiology, can you give us a sense of number of accounts and account growth and/or utilization trends, and utilization growth?
Erez Meltzer
Okay, Ran, would you like to address this question?
Ran Daniel
Yes. Jeffrey, we had an additional nine accounts this quarter. The total account is approximately four, right, as of now, and so you can calculate yourself the growth rate probably.
Erez Meltzer
Basically, you see the numbers in terms of the revenues, they have the growth rate, we are still waiting for all the approvals, and licenses that and the accreditation that we are waiting always, when we signed, there is a gap between the time that we can start do the readings. But right now, in terms of the customers, as always, we have the sort of, I would say 60:40 or 70:30, where a few customers are generating pretty much of the, I would say majority, at least 60% of the revenues. And right now, what we see a lot of growth in those — that have been with us for quite some time, and we see the future as well.
Jeffrey Cohen
Okay, got it, and then could you talk about a couple of millions of goodwill impairment for the quarter, is more than fair, I can see the goodwill number, but would you anticipating any more breakdown, so that there’s a low number for the balance year give us a sense of what was written down for the third quarter?
Ran Daniel
Yes. And then just to complete my answer before as to the new accounts, there are a geologist accounts, it takes us as I said, it takes us two to three months to go through the credentialing process once we get the new client. They’re just to complete my other answer. As for the goodwill, the goodwill is really, the goodwill impairment comes from a few factors, the two main ones are first, changing the discount rate that we’re using. And then as long as the Federal Reserve continues to increase the rate, we should expect to at least to be required to examine if we are — impairment is needed. And that’s what we do in quarterly basis. This specific quarter, there was no impairment, but there wasn’t a patient that the impairment is needed. So we had to go through the process. As for your question is for the third quarter, impairment, there’s no impairment expense, but we may have, we have to go through the whole process as for the fourth quarter, and you can also consider the fact that we’ll have to consider our estimates for 2023. And going forward, coupled with any change that will be in the discount price, right? That will be done by the Federal Reserve.
Erez Meltzer
Now, you can imagine, by the way that once we started the deployment of the art, obviously, all the teleradiology services will be will be expanded into growth.
Jeffrey Cohen
Got it, and then finally, for [inaudible] review, where things stand at the FDA as far as the permutations that we should expect going forward. Do you anticipate that, obviously, a clearance would be one option. The second would be that they would be back with additional questions, what are the few permutations that we could see?
Erez Meltzer
Okay, the one thing that I don’t bet or indicate is the timing of the process from the FDA and we saw it in the last three years and I think the whole world, the whole business world, but we see it as we see it right now. What we are saying that we have done the utmost or everything that we could in order to increase the likelihood of the clearance from the FDA. Having said that, as I think that we spoke about it and we have emphasized it that this year none of says changed a little bit its regulatory strategy from the single step FDA submission process to a stepwise approach using Q submission path for questions and answer with the FDA team priority to the 510 (k) submission. And, frankly speaking, we intend to continue to use this dialogue with the FDA as we develop the next generation of the Nanox.ARC system, as well as the future products that Nanox will generate.
Operator
Our next question in queue coming from the line of [inaudible].
Unidentified Analyst
Hi. Hope everyone’s doing well. Congrats on the progress. So starting off, is there any update on the Ghana contract? I know you made a special approval process on last quarter. So if you could provide a little bit more color just on what the regulatory environment is there? And kind of where you stand in Ghana?
Erez Meltzer
You asked about the Ghana deployment?
Unidentified Analyst
Yes, that’s right.
Erez Meltzer
We did it not up until now. And we’ll did it, we’ll do it in the future that as soon as we have information, which is needed to be shared with the public will do, we signed, as you know, we signed the agreement. We’re waiting for the regulatory processes. And once we get the clearance as we did now with Nigeria, or the approval, then we’ll release it. But then, by the way, in the meantime, of course, as we do with any other countries, then we do all the preparations. So meeting with the customers, doing the show trainings, checking all the availability of the internet and telecommunication infrastructure, try to see what is needed in terms of the training itself, et cetera, et cetera.
And since we have already said that we expect that the initial deployment of the Nanox.ARC at scale as we say, to be done in outside of the US, then, basically, that’s where we’re doing all the standalone, 3D digital tomosynthesis units. Our approach is right now to do the deployment in the US only in the next step, and we’ll inform when we actually get the dialogue with the FDA, and as soon as we can get it, we’re making all the preparation, even in the countries that will require the FDA, namely meeting distributors, getting to know better the customers, know the preparation of their regulatory processes, et cetera, et cetera. And so once we get the clearance, then we can actually move fast forward.
Unidentified Analyst
That sounds great. I guess just one more on the Ghana contract. I know you disclose 350 units. But are you able to provide us with a minimum annual fee? If there is a letter of credit associate with the contract?
Ran Daniel
There is always the difference between able and will.
Erez Meltzer
And the answer is that as soon as we have something to say we will say.
Unidentified Analyst
Okay. And then I guess, looking ahead of deployment, do you expect for scan to be read in Nigeria? Or were those be outsourced to Nanox? And if it is the latter, do you have radiologists in place? And are those radiologists that are financially motivated to reading the scans?
Erez Meltzer
Right now based on everything that we know right now, which may change in the future, but based on the studies and the underground work that we did in Nigeria, it will be both.
Operator
Next question in queue coming from the line of Suraj Kalia with Oppenheimer.
Suraj Kalia
Good morning, Erez, Ron. How are you? So, hey, Erez, bunch of questions. Erez, can you give us — as you look for commercialization, let’s say to begin off in Nigeria? How would the workflow for these products look i.e. what happens in Israel? What happens in Korea, especially your manufacturing facility, what happens in Japan, ceramic or glass kit, just kind of walk us through how the workflow is expected to happen.
Erez Meltzer
It’s interesting, and it’s funny, but actually what you are asking for is a promo on next week. On the Art Day, on the day, you will see whole flow, as we have explained in the past, the chips are being manufactured in Korea, the tubes are being installed in Korea, and we’re planning to do more of it in the future in other — from other suppliers. All the integration and the assembly are being done currently in Israel and will in the future, as we said in the prospectors, and the 20th will be done, part of it will be done outside of Israel. So the system is fully installed and assembled in Israel. And when it shifts to actually secure in a box and shipped to the place that they are going to be deployed.
In Nigeria, you asked specifically about Nigeria, and but it will be the same in other countries. We are doing the installation, the connection to the network, to the system, sometimes even to tech system in the future. We do all the training of the operators, we do all the training of the maintenance on site, we do the training of the radiologist on premise, we have a demo center, we will have a demo center in every country that says we’re going to deploy and right now in Nigeria, we have already, the demo center ready to be to install the first unit. And what else and then of course, the maintenance afterwards. And the initial operating of the units will be on the ground. We work with partners in Nigeria, we’re going to explore the work that we’re planning to do with other partners as well. So it’s not the only one, but it will be a few of them. We have already engaged ourselves in a dialogue with customers and hospitals in Nigeria, by the way in other countries as well. So that’s actually I hope that I addressed in detail the answer to your question.
Suraj Kalia
Fair enough. And in areas, I presumed the Nigeria configuration is the same as the US configuration.
Erez Meltzer
It’s a good question. Hopefully, yes. But we don’t know what will be, we hope that the FDA will be — will approve the same as that we have intended to use and I hope that no changes will take place and the answer is so basically, that’s the answer.
Suraj Kalia
Got it, and Erez, finally the 6,800 or so confirmed pre orders that you talked about. How confident are you with these contracts in their ability to fulfill, your ability to enforce because a lot of them, our recollection is they are at least a few years old and have not gone through validation testing. So any additional color would be greatly appreciated. Gentlemen, thank you for taking my questions.
Erez Meltzer
Okay, so I’m more than — I think that more than 40 years in business for [Zero] and more than 35 years as the CEO and the one thing I’ve learned in business that basically you are confident in the deal and the transaction once the money is in your bank, then this says specific place where the money from each one of them will be in my — in our bank account. So this is with in terms of confidence. But having said that, it all depends on the clearance processes and approvals and regulations in any one of the places. We are in continuous dialogue with these business entities that we signed the agreement with. A few of them, by the way, are coming from time to time to Israel to see the progress and to see to do some training and to get to know better the system and the product and the intended use. So that’s basically the answer.
Operator
And our next question in queue coming from the line of Rahul Rakhit with LifeSci Capital.
Rahul Rakhit
Hey, guys, thanks for taking the questions. I was just wondering if you could touch a little bit on the initial utilization levels at Northwell inspection health, maybe help us better understand how to think about the revenue generation from these IBN moving forward.
Erez Meltzer
First of all, we have not indicated that specifically from each one of the IBN but I will add, or I will say a couple of things, that discussion with one of the IBN that that we have already installed and received the money last year. The agreement or the extension of the agreement for next year is with much higher revenues coming from the IBN. In terms of the Northwell, this is a continuous dialogue. We have the over I think few hospitals that were already installed as part of the project Northwell I would say is more than just an IBN. They are kind of strategic IBN that we work with that we’ve jointly developed some applications.
We jointly develop some business models and intended use of the AI application, they are planning to adapt and install. All the applications that we have, we are as you know, we have two in place and a few others are coming soon. And last but not least, we are in the final process of developing the business, the future business model that will help us to indicate what is the value that we bring to the IDN, to the insurance company to the pharmaceutical company and to tailor made to each one of them. Like what would be the best model in order for our benefits to grow the business but also that they will enjoy from the added value of our services.
Rahul Rakhit
Got it. Okay. Thank you.
Ran Daniel
And, Rahul, just one more sentence. We have not, as Erez said, we have not indicated the amount of revenue that we generated or going to generate from those two projects. Nevertheless, we have to bear in mind those are the two projects that we have in our preparation area.
Rahul Rakhit
Got it, no, I appreciate that. Thank you. And just one for making, can you tell us a little bit more about the clinical trials that you intend to conduct in Israel? Can you provide color on trial design or what images specifically you’ll — you guys are focusing on initially and what you — how you tend to leverage that data moving forward. Thanks for taking the questions.
Erez Meltzer
We will update as soon as we complete to getting the samples and the one thing that we have indicated that we have received the Helsinki permit to conduct the clinical trials in one of the leading hospitals, the system is already installed there. The X-ray room is already installed there. And we anticipate that the results of these trials will for us will generate sample of images of multiple body organs during this quarter, the fourth quarter of 2022. I do hope believe and anticipate that in the next earnings call, we will be — we’ll have more to share about it.
Operator
Thank you. And I am showing no further questions at this time. I would now like to turn the call back over to Mr. Meltzer for any closing remarks.
Erez Meltzer
So thank you all for taking the time to be with us. For those of you who have actually more interest in what we have to show and indicate, we, I hope that next week will be good for those — for these people that would like to see. I thank you all the investors for being with us. And we hope to fulfill our promises, promises that we made to make everything happen and to really change the world in what we’re doing.
Operator
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect. Good day.
Be the first to comment