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Good day, and thank you for standing by. Welcome to Nanox First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the call over to Mike Cavanaugh of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today. Earlier today, Nanox Imaging Ltd. released financial results for the quarter ended March 31, 2024. 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 share some information with participants. First, if you're an institutional investor and would like to schedule a meeting with management or join an upcoming demonstration of the Nanox.ARC system, please contact me at mike.cavanaugh@westwicke.com, and we will work to schedule a requested meeting.
Second, 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 files 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.
Thank you for joining us today. And as always, we appreciate your continuing support of Nanox and our mission as we strive for global health equity via innovation, particularly in medical technology and AI, which we believe is key and can directly impact patient outcomes. We aim to offer a comprehensive solution that connects medical imaging solutions from scan to diagnosis.
During this call, we will provide updates on our strategic partnerships, product launches, and market expansions. We will also discuss our operational achievements. Our CFO, Ran Daniel, will present the financial highlights, and we will conclude with a Q&A session. We look forward to sharing our progress with you and answering questions you may have.
Let's get started. We have kicked off 2024 with a positive momentum, achieving milestones in our U.S. commercialization work, strategic partnership, product launches, and market expansion outside the U.S. In the first quarter of 2024, we've continued to make strides in our operational performance. Our key operational metrics reflect our commitment to excellence and our relentless pursuit of our mission to make medical imaging more accessible globally through innovative medical imaging technology.
In the U.S., we are continuing with our installation plan. As of today, we have about 20 systems in the U.S., of which some has been installed and several more are in different stages of shipment and deployment. We have manufactured dozens of systems today and we are confident that we can meet the accelerating demand for Nanox.ARC systems that we are seeing in the U.S. market. Last month, we hosted an in-personal live demonstration of the Nanox.ARC system on a patient as part of our investor event in Dynamic Medical Imaging in New Jersey. Investors witnessed the entire patient scanning workflow with Nanox.ARC and observed the speed and precision of the generated images as well as for its clinical utility.
Additionally, we presented samples from the undergoing [ chest ] clinical trial in Beilinson Hospital in Israel and outlined the path to expanded indications in the U.S. outside MSK. As the health care landscape continues to evolve, we are staying ahead of the curve by leveraging our cutting-edge technology and strategic partnerships. For current installation, I can share that we recently received initial indication for reimbursement for Nanox.ARC scan from a managed care insurance company.
On the previous investor call, we discussed the building out of the support and service infrastructure Nanox.ARC users will need as deployment accelerate specifically the Georgia site at 626 Imaging Academy, which serves as a technical and training center for technicians seeking to be trained on the use of the system, anticipating the need for another vendor beyond 626 to provide installation services as well as routine servicing of deployed Nanox.ARC system, we have entered into a third-party agreement with Swissray. Located in Bridgewater, New Jersey, Swissray is one of the forefront experts in the area of digital radiography from sales for installation, setup, training and service. The agreement covers system installations, user support, troubleshooting and regular system maintenance.
As we continue to expand our footprint on the ground in the U.S. we will constantly evaluate the need for commercial personnel to drive our growth while also closely monitoring the need for a service infrastructure to effectively support our advancements. Moreover, we have expanded the capabilities of our Nanox.ARC system with the addition of specialized MSK protocols, including protocols for surgical, thoracic and lumbar spine.
In addition to spine imaging, we have also fine-tuned our MSK protocols to include more detailed patient positioning options and further enhancement which will aid health care providers in obtaining clearer and more accurate diagnostic images, facilitating better patient outcomes. These new protocols are designed to offer more precise and detailed imaging options catering specifically to the needs of our customers based on feedback we have received from them. Thanks to our advanced cloud-based architecture, these upgrades have been implemented remotely across all systems without the need of physical modification or on-site visits.
This approach significantly reduces service work hours and eliminates the need for travel, bringing efficiency and convenience to health care facility. All upgrades has been meticulously performed in alignment with applicable regulatory requirements, ensuring our system continue to operate within their intended use and safety standards. We are confident that these upgrades will empower health care professionals further elevate diagnosis capabilities and enhance patient care in all facilities equipped with Nanox.ARC system.
Turning to our deployment efforts outside of the U.S. market. As previously mentioned, we continue to advance our commercial footprint in Africa, Latin America and Asia. We have had unit installed at the University of Ghana Medical Center, UGMC, and which has received local regulatory clearance. We have had a footprint in Africa for some time, and we'll continue to price our commercialization there. Furthermore, we are in the process of initiating a clinical trial in UGMC as part of our multi-site clinical trial.
In Latin America, we continue to invest in our commercial activities with respect to the Nanox.ARC and Nanox.CONNECT in Mexico, Peru and Chile. At the high level, we will expand our geographic footprint as we achieve local regulatory authorizations. We also have an Nanox.CONNECT operating system deployed in various countries, including Ghana, Morocco, Cameroon and Israel. Some of these systems have been paid for upfront, which we referred to as CapEx model, Others are operating under the MSaaS model where we charge per scan and some are currently being used for demonstration purposes.
In our quest to promote health care globally, we recently announced our entry in the South Korea market through our collaboration with AhealthZ, a health care distribution company and SCL Science, AhealthZ affiliated company and subsidiary of global healthcare group, SCL, Seoul Clinical Laboratories. AhealthZ plans to assist Nanox in effort to secure local authorization and licenses to enable the importation, marketing and sales of the Nanox.ARC in South Korea and will also include SCL's Science integrating Nanox AI solution.
Additionally, Nanox Marketplace a teleradiology services platform that provides remote access to radiology and cardiology experts will potentially be integrated with SCL Sciences, teleradiology centers in South Korea and other overseas markets. These expansion is a testament to our ongoing efforts and our partners' commitment to bringing comprehensive medical imaging solutions to South Korea. We hope the South Korea collaboration to the stepping stone into the broader Southeast Asia market for the entire Nanox products group.
Turning to our important AI business segment. Nanox.AI recently signed two agreements. Covera Health, a leading health care technology company has signed a multiyear contract with Nanox.AI to provide its 3 advanced AI solutions, cardiac, bone and liver. Covera Health delivers clinically validated solutions population health that improve patient outcomes, reduce health care costs, and enhanced value-based care by supporting radiologists with technology capabilities that emphasizes improvement of quality and performance.
Under these new agreements, Nanox will deploy the full suite of population health AI algorithms to support the needs of Covera customers. And we will deploy the population health Nanox.AI, and for the first time, commercially installed HealthFLD, HealthFLD clinicians in detecting fatty liver associated with metabolic dysfunction-associated fatty liver diseases following FDA clearance last February.
The second agreement is the collaboration with New York-based Dandelion Health, a health care data platform that focuses on AI analytics, offering health care providers accessibility to data with AI insight and aims to bring products to market faster providing a wealth of multi-model clinical data for health care pioneers. Clinical AI precision listing offer the potential for earlier diagnosis, personalized screening and prevention strategies in more effective therapy. Dandelion Health Partners with leading health systems to provide safe, ethical access to build identify clinical data of unparalleled depth, quality and diversity.
Moving to developments in existing partnerships. As part of our cooperation with Corewell, it was reported by Dr. Langholz, a cardiology specialist who participated in a Society of Cardiovascular CT webinar led by using Nanox.AI cardiac solution, Corewell Health significantly increased their ability to detect coronary calcification, identify nearly 4,000 new patients in 2023 compared to just 268 patients having CAC reported in the previous 2 years. This data demonstrates the effectiveness of the technology, but a great impact is the seamless integration into hospital electronic medical record systems streamlining the process of incorporating these findings into patient record for improved care and management.
On the regulatory front, Nanox.AI recently submitted to the FDA a new version of the cardiac AI solution, HealthCCSng, which introduces algorithm improvement aimed at enhancing accuracy and yield. It will also include new features that will improve coronary artery category detection accuracy.
We have also been busy integrating our acquisitions of the previous 3 years deploying these assets to leverage our core platforms and technologies. One example is second opinion, which we acquired through our USARAD subsidiary. Second opinion is an online medical platform providing second opinions in a wide variety of medical fields. This service is provided through the USARAD platform and has been available to patients since 2012.
Nanox.AI functionality is being embedded in Second Opinions to allow private patients to use artificial intelligence to their Second Opinions TPA reports aim to enhance the early detection of chronic conditions on chest and abdominal CT scan for the short process of registration to the Second Opinions website. The Second Opinions service will provide access to the Nanox population health, AI solutions that has already received FDA 510(k) clearance. We expect the enhanced Second Opinions platform to be launched in a matter of weeks.
Earlier this month, we announced that USARAD has once again earned the Joint Commission's Gold Seal of Approval for ambulatory health care accreditation. The Joint Commission is a leading accrediting organization in the United States. This certifies more than 22,000 health care organization and programs based on the highest startup of patient safety and quality of care.
Moving on to the production and OEM initiatives. As you know, we have entered into multiple supply agreements with prominent original equipment manufacturers around the world to ensure an adequate supply of high-quality components as we scale our manufacturing of the Nanox.ARC. And I will share an update on some of these. Our agreement with USA-based Varex to produce tubes and proceeding according to plan. Tubes design and development continues with the first prototype and ARC system integration testing scheduled for this summer.
In addition to tube development and manufacturing, we continue to explore additional opportunities together. Additionally, we continue to progress with other tube suppliers. We have produced and performed positive functional testing on our first wafers and chips developed in conjunction with Switzerland-based CSEM. We will build tubes with different chips in them for testing and validation in the coming weeks. We are transitioning our efforts to our process refinement, end-of-line testing and planning for initial production wafer fabrication second half of this year.
Following up on our collaboration with the U.S. government agency, after their acquisition of our chips and tube score evaluation we have received the purchase order to collaborate on a novel tube development programs potentially for noninvasive screening applications. The initial phase of the design and simulation is underway with component testing set to commence later this year. Our previously announced collaboration with a leading global medical technology company is also continue as planned.
We are still in the relatively early stages there but I can share that they are now in the process of performing design and simulation for the purposes of finalizing a proposal, which would enable them to produce tubes for us. As part of their design and production simulation, they did purchase and test our chips, which allowed the Nanox team to meet them and their design team and their production facility in Europe. We will share updates as this collaboration moves toward the formal production agreement.
We have identified our first few clients to take delivery of our demonstration kits. As described, the Nanox demonstration inclusive of Nanox chip, cold cathode tube, power supply, and the necessary software to operate the system has been developed to expose potential partners to our technology and capabilities in a simplified manner.
Now I'd like to provide an update on the clinical aspects. Recognizing the fundamental clinic value of Nanox.ARC system to our future success, we devote substantial effort to conducting clinical trials and create clinical evidence for broader intended use. To date, we have 3 clinical trials by type, Shamir Hospital in Israel, Beilinson Hospital, and the Ghana Hospital, UGMC, and we are currently working to extend to our fourth facility, a prominent medical institution in Israel.
In Ghana, the multicenter trial site is currently well positioned to start soon. The trial has received local IRB approval and currently under the review of the Ghana FDA, the Nanox.ARC system that will be used in the trial is now actively scanning patients.
I would like also to share some real-world feedback on the value of Nanox technology. In a recent review with our clinical collaboration at Shamir, Hospital and Beilinson Hospital in Israel, we have observed the significant impact our Nanox.ARC system can have on the daily routines of radiologists and referring clinicians.
Nanox.ARC system added valuable information to regular X-ray in almost all reviewed studies, showing excellent results for lung nodule detection, visualization of fractures that are hard to see on a standard radiograph, and accurate localization of fracture. We look forward to sharing these results with a clinical and scientific community at upcoming medical conference day. Speaking of Beilinson Hospital, the chest trial being run there is well underway. We have already scanned more than a dozen patients and initial results are promising. As I just mentioned, we hope to be able to share data from this study in some upcoming medical industry conferences.
In addition, Beilinson has been fully integrated into the multicenter trial as the first site and the trial is now actively recruiting with additional referring departments are being added to the trial mainly orthopedics and [ internal words ].
I would like to take a moment to share that we have fortified our group of advisers and key opinion leaders with the addition of Dr. Greg Kicska, Dr. Kicska is a cardiothoracic radiologists with a PhD in biochemistry. Dr. Kicska embarked on a career at the University of Washington in the cardiothoracic imaging division, during his 12 years tenure at UW, who was awarded a grant from GE to study the clinical application of chest tomosynthesis.
Dr. Kicska's clinical expertise included imaging diseases of the chest, heart and blood vessels with specialized training in cardiac MRI and cardiac CT. His research on digital test, tomosynthesis explore the unique advantages of these hybrid imaging methods. We are excited to welcome Dr. Kicska to Nanox family and look forward to a productive collaboration.
Turning to our regulatory efforts. We recently received an ISO 13485 certificate for the quality management system of the division from BSI. We completed this important step during the quarter as we continue to work with our notified body to secure CMR designation. I believe the diverse area of development across multiple geographies and business segments, I was able to share today underscore our commitment to making our innovative medical imaging technology accessible to health care providers and patients worldwide.
In summary, the first quarter of 2024 has been a period of significant growth and progress for Nanox. We are excited about the opportunities ahead and look forward to sharing more updates in the coming months. I will now turn the call over to Ran Daniel, Chief Financial Officer.
Thank you, Erez. We reported a GAAP net loss for the first quarter of 2024 of $12.2 million, which I'll refer to as the reported period compared with a net loss of $11.8 million in the first quarter of 2023, which I'll refer to as the comparable period. The increase was largely due to a onetime income that was recorded in the comparable period due to a decrease in the company's earn-out liabilities in the amount of $4.7 million and a decrease in the gross profit in the amount of $0.5 million, which was offset by a decrease of $1.1 million in the research and development expenses, a decrease of $0.4 million in the sales and marketing expenses $2.8 million in general and administrative expenses, an increase of $0.4 million in the company's financial income.
Revenue for the reported period was $2.6 million, and gross loss was $2.0 million on a GAAP basis compared to $2.4 million and a gross loss of $1.45 million on a GAAP basis for the comparable period. Non-GAAP gross profit for the reported period was $0.6 million as compared to $1.0 million in the comparable period which represents a gross profit margin of approximately 22% on a non-GAAP basis for the reported period as compared to 43% on a non-GAAP basis in the comparable period.
Revenue from the teleradiology services for both the reported period and comparable period was $2.4 million, with a gross profit of $0.3 million on a GAAP basis in the reported period as compared to a gross profit of $0.5 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 21% on a GAAP basis in the comparable period. Non-GAAP gross profit of the company's teleradiology services for the reported period was $0.9 million as compared to $1.1 million in the comparable period, which represents a gross profit margin of approximately 37% on a non-GAAP basis for the reported period as compared to 44% on a non-GAAP basis in the comparable period.
The decrease in the gross profit margins on a GAAP and non-GAAP basis is mainly due to an increase in the cost of the company's radiologists due to the increase in the [ week base ] during the overnight and weekend shift.
During the reported period, the company generated revenue through the sales of its AI solutions in the amount of $97,000 as compared to revenue of $49,000 in the comparable period. As noted previously, during the first quarter of 2024, Nanox.AI licensees HealthCCS cardiac solution to Intermountain for an annual fee of $8,500 during the first year of the engagement and an annual fee of $75,000 of the first anniversary of the engagement and after.
During the second quarter of 2024, Nanox.AI entered into a 3-year contract to license its 3 advanced AI solutions, cardiac, bone and liver for an annual base fee of $50,000.
During the reported period, the company generated revenue to the sales and deployment of imaging systems, which amounted to $46,000 with a gross loss of $387,000 on a GAAP and non-GAAP basis. Those revenue stems from the sales and deployment of the Nanox.ARC systems in the U.S. and the sales of our 2D systems in Africa.
Research and development expenses for the reported period were $5.2 million as compared to $6.3 million in the comparable period, a decrease of $1.1 million was mainly due to a research grant of $0.9 million that was received in connection with the NHSX project, a decrease of $0.2 million in salaries and wages, a decrease of $0.2 million in share base compensation, which was offset by an increase of $0.4 million in the expenses related to our research and development and regulatory activities.
Sales and marketing expenses for the reported period were $0.8 million as compared to $1.2 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 $5.0 million as compared to $7.8 million in the comparable period. The decrease of $2.8 million was mainly due to a decrease in our legal expenses in the amount of $2.2 million, largely as a result of the finalization of the SEC investigation and the settlement of the class action. And a decrease in the cost of the directors' and officers' liability insurance premium in the amount of $0.4 million.
Turning to our balance sheet. As of March 31, 2024, we had cash, cash equivalents, restricted deposits and marketable securities of approximately $73.3 million and add a $3.3 million loan from a bank. We ended the first quarter of 2024 with a property and equipment net of $42.7 million. As of March 31, 2024, we had approximately 57.8 million shares outstanding.
With that, I will hand the call back over to Erez.
I want to thank you all once again for joining us on our call today, and your continued to support of Nanox.
As stated, the first quarter of 2024 was one of the strong commercial progress. This progress was not confined solely to the deployment of the Nanox.ARC system. We now have several connect systems deployed and some are generating revenues.
Regarding Nanox.AI we are proceeding with a pipeline of current and new product applications upgrades continue to generate revenues and gain adoption from health care providers worldwide. As always, we'll welcome your comments and are always available to meet with investors.
Thanks again for your time today. That concludes our prepared remarks. Operator, please open the call for questions.
[Operator Instructions] And our first question coming from the line of Ross Osborn with Cantor Fitzgerald.
So starting off, you mentioned 20 systems in the U.S. in some stage of commercialization. How many of those were placed and being used during the quarter?
How many?
Yes. Of the 20, I believe you said some have been imported, but not necessarily active. So just trying to update our model properly for the first quarter in terms of those 20 systems that were actually being used during the quarter.
Yes. Ross, as to your question, as of date, there are approximately 20 units. But as of the March 31, we had already 13 of those 20 already installed. So I hope that answers your question.
Yes. That's very helpful. And then regarding utilization of...
Ross, maybe additional point. Basically, this is making progress on an almost daily or weekly basis that we already mentioned that we have dozens in the sales pipeline. And what I mean dozens, it's not 1 or 2 or 3 dozen by far and more. And another point that could be mentioned that we are, in fact, installing today at one of the national radiology providers the first system. So this is basically going forward on a weekly basis being that big.
Great. Glad to hear that. And it's very helpful as well. And then maybe just switching to the utilization levels. During the fourth quarter call, you were saying that you're seeing initial stance of about 7 per day. Would you say that was consistent for the duration of the first quarter and how you see that uptake any?
Give and take, yes.
Yes. But don't forget, it's too early to call. We're still in the midst of the soft launch. So we'll do all the conclusions once we conclude this phase of the deployment.
One other indication that I'm referring to, I don't know, items that I mentioned during the call is that the more clinical protocols that we are adding, we see more scans per day. For example, the spine that we added. And the fact that we can do it online without the necessity to go to on-site and the fact that we have the initial reimbursement.
Each one of this component, the clinical in terms of use, even sometimes the incidental findings that we have that we talked about and we'll talk further, these are -- each one of them is adding to the number of scans more and more.
In essence, you can see this as a chain of reactions that starts from the clinical data that we accumulate and then expand where the commercial use of the machine.
[Operator Instructions] our next question coming from the line of Jeff Cohen with Ladenburg Thalmann.
So just a few questions on our end. I guess, firstly, you talked about another 2 program. Could you elaborate a little further as far as your comment about it being non-invasive. Is it similar to your current platform? Or what may be the difference?
I'm not sure I got the question. Are you referring about the tube?
Yes.
So basically, what we have indicated that we will have 3 suppliers for the tubes right now. And we may cooperate on other players in the future. The first one is, of course, what we do in Nanox Korea. We spoke about the Italian tubes. We spoke about the future and intense and very broad cooperation that we have with Varex that we have already the final design. This will actually be a very broad technology breakthroughs that will come in the future.
And we always spoke about our OEM business. We spoke about the [indiscernible] national laboratory that we spoke about and we spoke about another player in the medical imaging industry that might and have currently interest in our tubes. So all of them basically are expanding our tube availability and tube installation in our systems.
Got it. Okay. And actually, could you talk about the Second Opinions service? And where or when you may launch that? And would that be cash only as in not reimbursed by payers. And any specific data on that front would be helpful.
So in fact, it's been years right now. We are expanding these services to be available in other states. This is initially based on the technology and the platform that we have, first of all, integrated with the acquisition of USARAD and the marketplace, MDWEB that we did. And we build the product, the vulnerability of other players. So right now, we see operating and we are planning to expand. It's generating revenues. And it's part of what USARAD offering, service offering currently right now. It does not depend on the reimbursement.
And it's paid in cash.
And we are adding the AI capabilities to these services as well.
Okay. Got it. And then lastly for us, we've been doing some work on medical analytics. Regarding spine, skeletal, orthopedics. So could you talk about your platform versus CT straight up and the ability to transfer files directly into analytics software.
I'm not sure I got the question.
For a company that has in input of CTs versus Nanox Imaging. Could one be substituted for the other? And could you compare and contrast perhaps the capabilities amongst the skeletal system.
First of all, this is an area that we are going to elaborate more and more in the foreseeable -- the coming months because based on the various clinical trials that we do and based in the first installations that we have together a lot of clinical data.
Based on this, as originally started and plan, what we would like to do is to be as close as the value that the CT is provided, but more and more intelligent use our clinical [indiscernible] that we bring will be able to add value to the users.
What we see right now is a lot of great indications that our offering, and basically, we are in many ways, changing the standard of care is something that we are adding value by far more than the X-ray [indiscernible] is providing, but very close to CT. And we can talk about examples probably we'll talk about it later, but the answer is technically trying to do as much as we can with our equipment, it will enable to replace a lot of the CT [indiscernible] used as we go forward.
And that is all the time we have for questions today. I will now hand the conference back to Mr. Erez Meltzer for any closing remarks.
So thank you all for making the time to listen to the progress that we have made. As you all know, we are putting a lot of efforts in 3 areas. Commercial, which we make a lot of progress and we'll continue to update as we move forward. One of the amazing findings or the progress that we made is something that we put a lot of efforts and dedication that this is the clinical evidence. This is coming from the clinical trials as well as the initial indications for the deployed systems.
And last but not least, I would say a technology breakthrough that we are adding to the product road map to the future, a lot of the lessons learned from the process.
We are, of course, taking all the necessary steps in order to ensure that the regulatory for being the same and to ensure that our promise, promise that software, namely AI and hardware will be the basis for our conceptual offering from the end-to-end solution. I would say that every week, we are making progress.
Even today, we received a few new orders and indication of the time that we're going to install the first system in Mexico as indicated. We received another purchase order from Philippines. So we are expanding on a global basis. And this will be something that will be shared as we move forward more and more.
Thank you all, and have a great day.
This concludes today's conference. Thank you for your participation, and you may now disconnect.