Nano-X Imaging Ltd. (NASDAQ: NNOX) Second Quarter 2022 Earnings Conference Call August 16, 2022 8:30 a. m. m. ET
Participating companies
Mike Cavanaugh – Managing Director of Investor Relations
Erez Meltzer – Executive Director
Ran Daniel – Chief Financial Officer
Conference Call Participants
Jeff Cohen-Ladenbourg
Suraj Kalia-Oppenheimer
Rahul Rakhit – LifeSci Capital
Operator
Have a nice day and thank you for being here. Welcome to Nano-X Imaging’s 2022 quarter earnings call. Right now, all participants are in listen-only mode. Following the presentation of the speakers, there will be a question-and-answer session. [Operator Instructions] Please note that today’s lecture is recorded.
I would now like to move on to the convention with your speaker today, Mike Cavanaugh, Managing Director of Investor Relations. Continue.
Mike Cavanaugh
Good morning and thank you for joining us today. Earlier today, Nano-X Imaging Limited released its monetary effects for the quarter ended June 30, 2022. The press release is recently available on the investor segment of the company’s website. Erez Meltzer, President and Chief Executive Officer; and Ran Daniel, Chief Financial Officer, will lead this morning’s call.
Before we begin, I would like to remind everyone that control will make statements in this call that will come with forward-looking statements relating to the company’s monetary results, studies and development, production and marketing activities, regulatory proceeding operations and other matters. These statements are subject to risks, uncertainties and assumptions that are based on existing expectations of control as of today and may not be updated in the future. Therefore, such statements do not deserve to be construed as representative of the Company’s prospects at a later date.
Factors that could 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 monetary measures to provide more information to investors. from non-GAAP measures to GAAP measures is provided with our press release, the main differences are impairment of goodwill, adjustments to the merger and acquisition obligation, stock-based compensation, amortization of intangible assets, and SEC and COVID elegance movements and expenses.
Now I would like to call Erez Meltzer.
Erez Meltzer
Thank you, Mike, and thank you all for participating in today’s call. As always, we appreciate your continuation of Nano-X. As in our last call, I will provide a review of our recent achievements and percentages of our outlook for the coming months before handing over the ground to Ran Daniel, our CHIEF Financial Officer, to review our monetary results. Next, we will open the call for questions.
We have continued to make progress over the last quarter to advance the commercialization of the Nano-X ARC formula and continue to move forward with all our strength to advance the FDA approval process. In today’s call, I will talk about the progress we have made. since our last call for final results dividing my comments into 3 different segments: regulation, commercialization and, finally, AI and teleradiology. I’m going to talk about what we’ve done in each of those segments and how we’ve approached our purpose of implementing the formula at scale. Before I do, I’m going to treat our monetary effects to a higher level, but we’ll leave most of the main points for Ran’s comment later in the call.
Nano-X generated a profit of $2. 2 million in the current quarter of 2022, compared to $1. 8 million in the first quarter of 2022. As in the last quarter, all profits were generated through the Nano-X and Nano-X AI teleradiology services business unit, our deep learning device analytics company. As many of you know, those sets of businesses started generating profits since their acquisitions in November 2021, and it’s gratifying to see our teleradiology grow quarter after quarter.
This income, which was relatively modest at the time, is vital for two reasons: first, it helps us improve our money flow and its management. And second, they demonstrate that consumers and other stakeholders, such as hospitals and incorporated healthcare formulas, value those facilities, reinforcing our confidence that those programs and facilities will raise the price within our multi-source formula when incorporated with our proprietary imaging technology.
I am pleased to announce that in the current quarter of 2022, we signed 14 new visitor agreements for teleradiology services. Our clients in the teleradiology segment come with hospitals, ambulatory imaging centers, emergency care, multispecialist physician groups, study centers, and intellectual fitness facilities. We continue to see accelerated earnings expansion in our teleradiology services, driven through the addition of new visitors as well as biological expansion in existing visitors. The AI response business continued to gain traction in the U. S. U. S. and abroad. For example, Nano-X was first put into service at five Northwell Health outpatient centers on July 26, followed by South Shore Hospital on August 8. The formula is expected to be operational at other hospitals and outpatient sites through the rest of August through September.
In addition, in the past we reported a significant strategic agreement with one of the leading IDNs in the northwestern United States to use our AI-powered population fitness solution. network with 15 hospitals and fitnesscare centers.
I would now like to communicate about our regulatory progress. Beyond favorable profit streams, I just mentioned that we have made additional progress in our efforts to offload FDA approval for the Nanox. ARC multi-source system. Recently, we got feedback from the FDA on our Q presentation supplement that we had submitted in the past to the agency. The feedback we got was invaluable and is helping us optimize our 510(k) presentation. Thereafter, we are now preparing our 510(k) submission to the FDA for our multi-source Nanox. ARC, which will have the full degrees of strength and direction that will allow us to successfully deploy the Nanox. ARC. In parallel, we are preparing the global deployment of our multi-source Nanox. ARC.
In accordance with local regulations and the issue of approval required in the market. Regarding regulatory efforts to download the CE mark for Nanox. ARC, we have submitted all mandatory documentation to initiate the CE marking process. We hope to provide further updates to the progress of this process.
Let’s move on to marketing. We continue to move towards the commercialization of the Nanox. ARC multiple source in several areas. I am pleased to announce that we have taken steps to advance the implementation of the Nanox. ARC multiple source in Nigeria. In April, we sent an initial implementation team to and are preparing to send our first business unit for demonstration and training. Our shipping plan to Nigeria goes along with a local dating process.
I am also pleased to announce a new agreement we recently signed with a distributor in Ghana, under which we have agreed to deploy 350 equipment according to local regulatory requirements, bringing the total number of equipment under contract to 68,150 worldwide. This is a vital milestone for the company and we are advancing the progressive, deployable formula to satisfy those commands.
We believe that once we begin to implement the multi-source Nanox. ARC in Nigeria and other early areas of [adaptation] (ph), healthcare systems, hospitals and providers will see the service that the Nanox. ARC provides and then we will begin to fill the e-book of orders with [indistinguishable] accumulation.
In addition, we have an agreement in place with a non-governmental organization, Bio Ventures for Global Health, known as BVGH, for the progression and implementation of a medical imaging initiative in Nigeria. BVGH is a Seattle-based non-profit organization that develops and manages systems in the for-profit and non-profit sectors to drive studies and progression of poverty-related diseases, build R&D capacity.
Finally, I’d also like to take a minute to announce a vital step on the path to marketing that we’re excited about. We are in the process of building an Israel-based generation progression center to expand the chips and tubes that will lead to Nanox. . ARC in the coming years. This medium will complement our services in Korea and Japan.
To conclude my remarks, I wanted to thank the Nano-X team for all their hard work and progress made this quarter. Most importantly, I want to thank all of our investors for their continued help from our project to democratize healthcare through imaging. affordable and available worldwide. We look forward to sharing more advancements with you on our next effects call.
With that, I’d like to speak with Ran Daniel, Chief Financial Officer, to review our monetary results.
run daniel
First of all, I must announce that we have been added to the Russell 2000 and Russell 3000 indices, starting with the opening of the US market. The U. S. Food and Exchange Rate on June 27 as a component of the annual replenishment of the Russell 2022 indices. This is a wonderful progression for our company.
With respect to our monetary results, we reported a GAAP net loss for the current quarter of 2022 of $19. 6 million, compared to a net loss of $13. 6 million in the current quarter of 2021, largely due to expenses similar to the acquisition of the Nano-X market platform in November 2021. The consolidation of Nano-X AI and USARAD with the Company from the fourth quarter of 2021 and the accumulation in our studies and progress expenses, the depreciation of goodwill and the accumulation in our general and administrative expenses, which were mitigated by reducing our promotional and marketing expenses and reducing our legal liability in connection with mergers and acquisitions.
Our revenue for the current quarter of 2022 was $2. 2 million and a gross loss of $1. 8 million, teleradiology revenue for the era was $2. 1 million with a gross profit of $0. 0 million. On a GAAP basis and gross profit of $0. 9 million, on a non-GAAP basis, representing gross profit margins of approximately 43% on a non-GAAP basis. AI response licensing revenue for the time was $0. 1 million, with a gross loss of $2. 1 million on a GAAP basis and $0. 1 million on a non-GAAP basis.
Research and development costs for the current quarter of 2022 were $6. 5 million, compared to $4. 3 million for the same period in 2021. November 2021, increasing our stock amortization and balance due to the progression of the Nanox. ARC multi-source formula and Nanox. CLOUD.
Sales and marketing expenses for the current quarter of 2022 were $1. 1 million, compared to $1. 8 million for the same period in 2021. The minimum is basically due to a minimum of $0. 6 million in our stock-based compensation.
General and administrative expenses for the current quarter of 2022 were $11. 1 million, compared to $7. 4 million for the comparable era of 2021. The $3. 7 million accrual is primarily explained through acquisitions of the Nano-X market platform in November 2021, the consolidation of Nano-X AI in the United States [indistinguishable] with the company since the fourth quarter of 2021, an increase in the overall infrastructure of the company and the organization, and an increase in the company’s legal expenses due to the United States Securities and Litigation. Exchange Commission elegance investigation and action as described on U. S. Securities and Exchange Commission Form 20-F. Corporate U. S. for the year ended December 31, 2021 filed on May 2, 2022.
The update in M&A legal liability for the current quarter of 2022 $2. 6 million, compared to none for the current quarter of 2021. The accrual is basically due to adjustments to the Corporation’s additional contingent value liability.
Impairment of merchant credit for the 3 months ended June 30, 2022 $14. 3 million, due to impairment of goodwill similar to the acquisition of Nanox. AI. Our non-GAAP net loss for the current quarter of 2022 is $8. 2 million, compared to a GAAP net loss of $8. 6 million for the same era in 2021. A reconciliation of GAAP net loss to non-GAAP net loss is provided for the current quarter of 2022 and 2021 in the monetary effects that shape the component of the press release we issued this morning. .
The difference between GAAP and non-GAAP net loss is primarily due to impairment of goodwill, replacement in merger and acquisition obligation, amortization of intangible assets, stock-based reimbursement expenses, legal fees for LAWSUITS and SEC investigation, and secondary offering fees.
With respect to our balance sheet, as of June 30, 2022, we had money, money equivalents, and marketable securities of approximately $126. 7 million. We ended the quarter with net property, plant and appliances of $42. 9 million, compared to $37. 4 million at the end of the quarter. December 31, 2021. La net accumulation of $5. 5 million in the first part of 2022 is basically due to the final touch of the structure of the Company’s manufacturing plant complex in South Korea and the acquisition of machinery and apparatus.
As of June 30, 2022, we had intangible assets of $140. 5 million, compared to $160. 1 million as of December 31, 2021. The reduction is basically due to the periodic amortization of intangible assets and the impairment of commercial credit. As of June 30, 2022, the Company held approximately 52. 2 million notable shares, compared to 51. 8 million notable shares as of December 31, 2021. The accumulation is basically due to the renegotiation of [192,927] (ph) warrants and the renegotiation of 141,067 functions. The company generated approximately $0. 5 million in gross profits from the renegotiation of those functions and warranties.
In addition, in the first part of 2022, the Company issued 89,286 shares to former shareholders of Nanox. AI, due to the achievement of a milestone in the terms of the Merger Agreement and Plan, dated August 9, 2021, and its modifications. between the Company, Nanox. AI and Perryllion Ltd. , as representative of the shareholders of Nanox. AI.
With that, I’m going to call Erez.
Erez Meltzer
Thank you, Ran for the monetary update. And once again, thank you all for being with us today. I am very satisfied with the quarterly effects of Nano-X as CEO. But we all recognize that much remains to be done. We expect to provide more updates in the coming weeks and months. I would also like to share with all of you that the Nano-X control team will have a presentation tour with investors at the end of September, if you want to schedule a meeting, please contact our investment partners at ICR.
With that, I would now like to open the call for questions. Operator, start the Q&A session.
Q&A session
Operator
Thank you. [Operator Instructions] Our first comes from Jeff Cohen with Ladenburg. Your line is now open.
jeff cohen
Hello, Erez and Ran. How are you?
Erez Meltzer
Great and you?
jeff cohen
It is ok. Could you tell us about the generation center you plan to open in Israel and the functions you envision there for existing and planned functions in services in Korea and Japan?
Erez Meltzer
First of all, it’s going to be very similar, but we’re in a position to base our long term on other complex technologies. Currently, we have centers in Japan and Korea for chips and tubes. We thought it would be appropriate for generation and fundamental wisdom to evolve very close to where we do R.
jeff cohen
Ok, I get it. Could you report on the manufacture of ARC and the amount of ARC that have been manufactured and the expected amount of ARC manufactured until the end of the year?And then associate that with your planned program at the FDA for your product today?
Erez Meltzer
It is ok. First of all, we are accelerating production as discussed. Obviously, we are not disconnected from the truth of what happens in the market in terms of the supply chain, in terms of the other components, which are part of this meeting. So, we have some of the systems that will be taken to 2023 to hopefully get started. And it is in relation to the production that we are, even before the end of the year, we are going to take the next step. deepen the discussion with mass production, and I mean beyond the 1,000 games in one or two places, which are not in Israel. We discussed that the first 1,000 games will be assembled in Israel and we hope that in the fourth or first quarter of next year we will have the arrangement for the reunion of all the systems that fall after the first 1,000 games.
Regarding the query he made about the FDA. First of all, I was very pleased with the assembly that took place last week, which was the last, not the last, but the last assembly before the final preparation of this presentation. I would say the feedback we got from the FDA was very helpful and meaningful to us. So, as we say, we are in the final preparation of the official presentation and this will align with our way forward.
Right now, I would say that the concept of going to pre-subscription in the Q presentation and taking the lead during. . . I would say, about 8 almost 8 months of discussion, an ongoing discussion with the FDA and it turned out to be the right decision. And I think all the feedback gained and the cooperation that he had with the FDA and that we continue to have with the FDA will make it a lot less difficult for us, so. . .
jeff cohen
And finally, let’s talk about Ghana as far as production and delivery of ARC units is concerned. How much do you expect to be delivered to you in the next quarter or both?
Erez Meltzer
At the moment, I would say the — we’ve explained in the afterlife that basically, not every country we work in requires FDA regulation, as we mentioned, Nigeria, one of them and Ghana will be another. We have two others that are not similar to the filing of formal FDA approval. Ghana has a special procedure that we are going through, we have been given guidance, but I would not need to do it, until I see it in my eyes, I would not dedicate myself to. . . we expect to have approval to submit the formula in the fourth quarter. And I would say that by the start of next year, more formula will probably be sent. Overall, the agreement covers 350 units.
jeff cohen
they gave it to me AND then a quick consultation for Ran. Do you expect goodwill depreciation in the current part of the year for the third or fourth quarter?
run daniel
But as we say in PR, it is based on market parameters, but the interest rate, yes, there will be an accumulation or there will be a replacement in other capital market formats. So, possibly we would have to do a depreciation again, we want to at least verify it. And it’s also based on our internal control estimate.
jeff cohen
Okay, perfect. He does it for us. Thank you for answering the questions.
Erez Meltzer
thanks jeff
run daniel
thanks jeff
Operator
Our next comes from the lineage of suraj Kalia with Oppenheimer. Your line is now open.
Suraj Kalia
Hello, Erez, Ran. Can you hear me well?
Erez Meltzer
Loud and clear.
run daniel
Perfect.
Suraj Kalia
Perfect. I hope everyone is healthy. Hey, then, Erez, I’m just following up on nanox. ARC’s multi-source presentation. A maximum power point has already been questioned, perhaps I misinterpreted your comments about the FDA’s comments. Don’t forget correctly, in the last quarter, I think everyone discussed that from 40 to 120 KvP, it would cover the total range. So perhaps you can be kinder to your express comments when commenting on the maximum strength point?
Erez Meltzer
First of all, I hope I understood the question, but there was never any doubt about it.
Suraj Kalia
Okay, fair enough. So, Ran, when. . . you are in. . . or can you give us a deadline as to when the multi-source 510(k) will be submitted?And when do you wait for permission?
run daniel
As you know, in fact, I can only say or insinuate or need to devote myself to things that I am one hundred percent sure there will be during the time I actually devote. So, for now, I think I’ve given enough context and data about the timeline. We are in the final preparation of the presentation and it will be done shortly. And I think, this is, I would say, I definitely believe that the feedback that we’ve gotten from the FDA gives us the credit for adding some elements in the presentation that will be made in the coming weeks that will be added to the system. So I hope this presentation will be, it will be soon. And once it ships, I’m sure you know.
Suraj Kalia
So more than likely you’ll register in the fourth quarter?
run daniel
Did you say that? Basically, I try to do things right in all grades and on all fronts.
Suraj Kalia
Erez, the CE marking, sometimes speaking, corporations have expressed a lot of concern, only that the MDR procedure is very bulky. The EC procedure is very voluminous in general and perhaps I overlooked it in your comments on the updated deadlines for CE marking. for Nanox. ARC multisource?
Erez Meltzer
Firstly, we have already submitted all the mandatory documentation for registration to the notified body. We decided on the notified body, we gave him all the information. You know, when I was young, I learned that you have to do everything you can, when you can do things. He has to be patient when he can’t, but he hopes to have the wisdom to differentiate them. This is fundamentally true for the EC and for the FDA. We can’t do what we do, okay, we can’t, we don’t administer the EC or the FDA. And we hope that the fact that they have a lot of overload on their systems and processes will not hurt us and give us the privilege that the fixes that we have made in the last few months, we will give the effects faster than later.
Suraj Kalia
I got it I have two last queries, I’m back in line. So as far as Ghana is concerned, what were our validation tests before they started shipping those sets?And the timing: the last query about my aspect of Erez is, the 6,850 sets he referred to in terms of contract amounts. If my memory serves me correctly, a significant part of those contracts or more than 3 years, I see them in 2019. Maybe you can tell us if they are still valid or if there have been any changes?Would any other color be greatly appreciated? Gentlemen, thank you for responding to my inquiries.
Erez Meltzer
It is ok. So, first of all, I’m not sure about the first query about validation. What exactly do you mean when it comes to the systems we verify?The answer is yes. I would say that the consultation is positive. As for authorization in the region, do you mean what kind of validation in terms of generation or in terms of regulations in Ghana?
Suraj Kalia
No, Erez, what I meant is that before you launch a product to the market, you have to pass a multitude of tests, functionality tests [Various speakers]
Erez Meltzer
Yes, yes, of course. Yes Sí. La answer is yes. Not fundamentally the answer is yes.
Suraj Kalia
It is ok. Thank you.
Operator
The next one comes from the Rahul Rakhit line with LifeSci Capital. Your line is now open.
Raul Rakhit
Hi, guys. Thank you for answering the question. He then discussed that there are two other countries that don’t necessarily want FDA approval for deployment.
Erez Meltzer
The answer is no, because since we have not announced it to the public, as soon as we announce that the public will share. My preference would be that only when we have signed agreements do we tell the market that they have been signed. In the past, you know that in 20-F, there are some countries that don’t necessarily want the FDA.
Raul Rakhit
Good, good. Well, that makes sense. And then excited to hear about some of those AI deals he’s announced. Maybe it can help us think about the broader earnings perspective there. integration look like there? And finally, what is the broader profit opportunity?
Erez Meltzer
First of all, as far as integration is concerned, I think we discussed it in the 6-K script which they are: we already implemented in some and installed the formula there. And we are, and a timeline right now in the coming months. I think the last one will be October and November, I think, November. November will be the last month that we will install the formula in all the hospitals that this, particularly in Northwell, has given us as a component of the plan.
In terms of [IBN] (ph) in general, our trading style is essentially that you can go. And it’s different from what happened in the afterlife and in the old, than Zebra Medical. to a few million dollars.
Raul Rakhit
they gave it to me Okay. I thank you. And then, based on a lot of questions and answers so far, it turns out that the conversations with the FDA have been very fruitful. I know you don’t need to set an express time for the presentation. it can help us perceive the impact of those conversations on the Q submission at the actual moment of the decision. So once you’ve submitted the 5-K dossier, how long do you think it will take to get FDA approval from there??
run daniel
So basically the only thing I would say, preferably in a moderate logical market and timeline, I would say that the Q offer would probably be insignificant to us, because it is very useful in the procedure to speed up the procedure. But right now, we know that the FDA, based on dialogue, we know that since we worked with them and cooperated with them, we know the overload that they have and I hope it’s not — that it gives us the — I would say, the merit or the. I would not say the privilege, however, I would say get the merits of the procedure we have carried out to do so as soon as possible, and that is what has been discussed to me. Overall, I believe that the procedure would have had a positive effect on the procedure and I hope that the same will happen with the customs clearance procedure.
Raul Rakhit
they gave it to me Logic. Enjoy.
Operator
That’s all the time we had for questions today. I would now like to refer the call to Erez Meltzer for final comments.
Erez Meltzer
So, once again, I must thank you all for participating in this call today. See you soon for those of you who are in the U. S. Infrequently in the U. S. in September, at the end of September. And we’re in — with ICR, we’re in a position to respond to any queries that — possibly coming from investors or any public this query that is similar to what we do and what we’ve been doing so far. Thank you very much and for the day.
Operator
This concludes the convening of today’s convention. Thank you for participating. You can now log out.