Nano-X Imaging Ltd (NNOX) 2021 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Nano-X Imaging Third Quarter 2021 Earnings Call. (Operator Instructions) I would now like to turn the conference over to your speaker today, Mike Cavanaugh, Investor Relations with ICR Westwicke. You may begin.

Good afternoon, and thank you for joining us today. Earlier today, Nano-X Imaging Limited released financial results for the quarter ended September 30, 2021. The release is currently available on the Investors Section on the company's website. Ran Poliakine, Chairman of the Board and Chief Executive Officer; Erez Meltzer, Executive Board member and incoming Chief Executive Officer; and Ran Daniel, Chief Financial Officer, will host this afternoon'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, the impact of COVID-19 on its business 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 might cause such a difference. Those 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 stock-based compensation and class-action related expenses.

I'd now like to turn the call over to Nano-X Chairman and CEO, Ran Poliakine.

Thank you, Mike, and thank you all for joining the call today. Today, I will give an overview of our achievement during the quarter as well as corporate update, before turning the call over to Ran Daniel, our CFO, to review our financial results. We will then open the call to questions. We've been busy since our last earning call, advancing the Nanox.ARC system, which has a potential to improve accessibility and aims to drive a significant increase in the delivery of medical imaging all over the world. Besides greater availability and accessibility, we believe the Nanox.ARC system and its end-to-end ecosystem will enable health care providers to obtain crucial information, which has the potential to shorten diagnostic and treatment time and promote early detection. It is well known that earlier intervention is a key contributor to better health outcome for patient.

Before I begin, I would like to have Erez Meltzer, Nano-X incoming CEO, say a few words and introduce some of our latest development. Erez?

Thank you, Ran, and thank you all for being on the call today. I'm excited about the leading and dedicated and talented Nano-X team as we move ahead towards commercializing the Nanox.ARC system. I'm working closely with the team to prepare for assuming the CEO role beginning on January 1, 2022, and I look forward to participating in the Q&A session at the end of today's call.

Turning for accomplishments during the quarter. As many of you know, we recently completed our 3 previously announced strategic transactions. First, we completed the merger with Nanox AI, formally known as Zebra Medical Vision. Second, we completed the acquisition of USARAD Holding; and third, completed the acquisition of the assets of MDW. We believe that having a more accessible medical imaging technology would not be enough to transform the global marketplace, but we also have to have an AI capability to complete and complement our technology. Nanox AI fulfill this need and provides the image analytics necessary to locate a problem and begin the process of diagnosis and treatment.

The acquisition of his USARAD and MDW provide a connected team of professional radiologists and decentralized marketplace that connect facilities and patients with radiologists that begin the next step of the evaluation process in the AI alerts to a potential problem. These transactions help to fulfill our AI-powered workflow and provides some of the important final pieces of the Nanox.ARC system as we had toward commercialization.

With that, I'll turn the call back over to Ran Poliakine.

Thank you, Erez. And I would like to quickly highlight a few other achievements since our last report. In October, we announced that we entered into an MSaaS agreement with International Clinics Group, a medical equipment distributor that serve hospitals, health systems, clinics, and other medical facilities in Chile, Bolivia and Peru, which adds to the growing future demand for our Nanox.ARC system. The agreement called for the deployment of 350 Nanox.ARC devices across the region. To date, the company entered into MSaaS agreement for deployment of 6,500 Nanox.ARC units.

In September, Nanox AI received its 8 510(k) FDA clearance, in this case, for Coronary Artery Calcium solution known as CAC, as part of its population health offering. CAC is a key biomarker indicating risk of cardiovascular disease and can help Nanox AI identify potential medium and high-risk patient, which can then be flagged for further evaluation and is another enhancement of the AI-powered workflow that we feel will lead to better value-based population health.

Operationally, we continue to progress towards commercial production of the silicon MEMs chips, Nanox wholly owned Korean subsidiary that is integral to Nanox digital X-ray source. We expect production at the new facility to begin pilot production in 2022. This key initiative is especially important given the current supply chain shortage for many products worldwide. This will not only help to secure the stable supply of the chips that we need for the production of the Nanox.ARC, but will also ensure that the quality of our chips is not a concern for us or the health care professionals using the Nanox.ARC systems.

And finally, before I turn the call over to Ran Daniel, I would like to take a moment to update you on our commercialization efforts, including the regulatory process with the FDA. We are still in the process of responding to the FDA after receiving their comments on our first submission. As you all know, we are planning a second submission in the near term that will cover the next version of the multi-source Nanox.ARC, and we believe that the feedback we have received from our first submission will help inform any subsequent submission.

With that, I would like to turn the call over to Ran Daniel, Chief Financial Officer.

Thank you, Ran. Before I get started on my first earnings commentary as the CFO of Nano-X, I would like to say how excited I am to be part of the team that is working to transform the future of medical imaging. I am looking forward to the work I had with the talented team. I would also like to mention another change. We recently partnered with ICR Westwicke, a leading health care focused integrated communications firm as our new Investor Relations adviser. They are highly experienced in the medical technology space and will be a good addition to the team adding into the important year of 2022.

With that on to the financials. Nano-X reported a GAAP net loss for the third quarter of 2021 of $13.6 (sic) [13.5] million compared to a net loss of $11.1 million for the same period in 2020, largely due to an increase in our research and development expenses and general and administrative expenses, which were mitigated by a decrease in our marketing expenses. Non-GAAP net loss applicable to the ordinary shares for the third quarter of 2021 was $8.5 million compared to a non-GAAP net loss of $5.1 million for the same period in 2020. A reconciliation between GAAP net loss and a non-GAAP net loss for the 3-month period ended on September 30, 2021 and 2020 is provided in the financial results that are part of the press release we issued this morning. The difference between GAAP and non-GAAP net loss is mainly due to the share-based compensation and legal fees related to the SEC inquiry and class-actions litigations.

Research and development expenses for the third quarter of 2021 were $3.7 million as compared to $2.1 million for the same period in 2020, reflecting the increased development activities for our Nano-X systems and the related regulatory costs. Marketing expenses for the third quarter of 2021 were $1.5 million as compared to $2.7 million for the same period in 2020 due to a decrease in share-based compensation. G&A expenses for the third quarters of 2021 were $8.2 million as compared to $6.3 million for the same period in 2020.

The increase was due largely to an increase in our labor cost of approximately $0.5 million due to an increase in our headcount in the connection with the expansions of the company's management team and the overall organization infrastructure, increase in our D&O insurance expenses of approximately $0.5 million, increase in our legal fees in the amount of approximately $0.6 million due to the SEC inquiry and class-action litigation as described in our 6-K filed today, and transaction expenses with connection to the acquisitions of Nanox AI, USARAD Holdings and assets of MDW, in the amount of approximately $0.5 million.

Net cash used in operating activities during the third quarter of 2021 was $7.0 million. For the 9 months ended September 30, 2021, Nano-X recorded a GAAP net loss applicable to the ordinary shares of $39.8 million compared to a net loss of $24.9 million for the same period in 2020. Non-GAAP net loss for the first 9 months of 2021 was only $4.2 million compared to a non-GAAP net loss of $10.5 million for the same period in 2020. The difference between GAAP and non-GAAP net loss to the ordinary share is mainly due to a share-based compensation, expenses related to the secondary share offering, which closed in the first quarter of 2021 and legal fees in response to the SEC inquiry and class-action litigation as reported in our 6-K filed today.

As of September 30, 2021, we had approximately 47.9 million shares outstanding. We ended the third quarter of 2021 with cash, cash equivalents and marketable securities of over $180 million and $3 million loans from banks. Before we take your questions, I would like to mention that the company has been providing documents and information to the SEC in connection with an investigation and has now received the subpoena from the SEC requesting that the company provide documents and other information relating to the development cost of the company's Nanox.ARC prototypes, as well as the company's estimate for the cost of assembling the final Nanox.ARC products at scale. The company is cooperating with the SEC in responding to its request.

With that, I will hand the call back over to Ran Poliakine.

Thank you for the financial update, Ran. I understand that this is a lot of information to digest and that many of you likely have more questions than we can address on the call today. We are committed to being accessible to the investment community. And for this reason, we will engage in a robust investor outreach in the coming months. Additionally, as was noted in our last press release last week, we will be attending the 2021 Radiology Society of North America Annual Meeting in Chicago from November 28 to December 2. While there, we will demonstrate new features of the Nanox.ARC system.

Nanox AI will host an onsite booth there, where the company will showcase its AI-enabled medical imaging software, population health solution. And on December 1, Nano-X will broadcast a virtual tour of Nanox.ARC in a clinic setting from the Shamir hospital in Israel. We will close our attendance at the RSNA annual meeting with an exclusive webinar, specifically for investors. We hope to see many of you there. We have to meet you soon again. Thank you for the time today and continued support, and especially for your belief in our vision, a vision that will improve the health of all of us.

Thank you very much. We will now open up the call for question, which Ran Daniel and Erez will handle today. Operator, please begin the Q&A session.

(Operator Instructions) Our first question comes from Jeffrey Cohen with Ladenburg Thalmann.

So couple of questions from our end. So you had $0.6 million of legal expenses for Q3. Any insight into what that may look like for the fourth quarter?

Ran?

Yes. We don't have any insight for the moment. But as we said, we filed the 6-K today, and we refer to the information that we closed over there. That's what we can update at the moment.

Okay. Got it. You had some commentary, Ran, about pilot production. I think the press release read early '22 and you stated 2022. Can you give us a walk-through of the facility in South Korea as far as the construction and how that looks now and how the time line is looking over the next number of months, please?

With respect to the Korean facility?

Yes, please.

Okay. I think that we have indicated that we have launched the new site. We have already cited, which is operating right now on a temporary basis. We expect that the new site will be operating second quarter of -- highly, I would say, highly likely that it will be operating in the second quarter of next year. And it's in line of the original expectations and in line with the plans.

Okay. Got it. And then could you walk us through what you stated about the FDA time line? I know that you stated that you were responding to the first set of questions from the FDA. Will that go in as a response to the first set of questions? And will that be separate from a second submission, as you called it for the ARC?

First of all, I think that Ran addressed it very, very clearly that basically we're going to meet the 180 days window that we currently have to the latest submission, that basically, we're going to use all the feedback that we get, including the future feedback that we'll get in order to work on the future applications and future submissions that we're planning to do. This is basically with respect to the ARC. As you can see on the Nanox AI, we always -- and we are continuing to submit other FDAs and taking it to work with them to get another approvals, FDAs and CPT codes.

Our next question comes from Suraj Kalia with Oppenheimer.

So Ran, Erez, anyone, I'll throw it out there. So what does considering filing another 510(k) mean? There's a change in the wording. And I'm curious what is driving that -- or am I reading too much into it?

I'm not sure that I understand what is referring that is not clearly written in the document.

Yes, your earnings release says you're considering filing another 510(k). And I'm curious why -- is there anything, any other mitigating factor that is causing some sort of a reconsideration of filing? Or am I reading too much into the word considering filing?

Yes. You are reading too much. I think that if you -- you can see that basically on all fronts on the Nanox AI, including the ARC, we're all the time developing more and more. We are going to show in the RSNA, new applications and new ways of using the ARC. So it will be presented in the RSNA. Having said that, it doesn't say anything that -- they doesn't say that we are not going in the future to submit more FDA approvals or more request for FDA approvals to future uses of the -- our system, including both the source and the ARC itself.

Got it. And in terms of the multi-source, has it been independently validated, i.e., with non-Nano-X affiliated people? Has any other independent expert evaluated it so far?

First of all, this happens all the time. But I would suggest that, as Ran said, wait for the RSNA, and you will see what's coming up.

Okay. Erez, and forgive me if I missed this. The 1,000 unit production run that has been talked about in the past, I don't -- I'm not sure if I heard an update on that, maybe you could provide some color?

We don't have any reason right now to believe that this is not the target that we would like to continue to stand behind.

Okay. And finally, on the SEC subpoena, when was the original request for documentation information received? When was it first received?

As we file -- as we said in our filings today, the original written request for documentation from the SEC was received on November 8.

November 8. Okay. Perfect.

And our next question comes from Ravi Misra with Berenberg Capital.

So I want to just kind of go back to that 1,000 unit production cycle that you're discussing. Can you just kind of give us in light of the updated commentary out of the Korean facility? I think you said second quarter and kind of the original commentary from earlier this year, saying some of the units will be produced in Israel. What is the kind of production schedule right now as you see it in terms of where the first 1,000 will be made? And I guess, is there any risk if there are delays in Korea that you're unable to hit that number next year?

So first of all, we have not disclosed any specific on this one. Bear in mind that we have already enough chips that will enable us to do what we do from the original manufacturer, from the Japanese. So currently, we have the lot, which is independent to the manufacturing of the Korean one. Right now, all the units are being assembled in Israel, and we have not made a decision yet when we're going to switch to gear up to the -- to scale up the process of assembly. Once we do, and I think it may be some time during the first half -- the first -- third of next year. If there are any changes, we're going to let the market knows any changes that will be -- will take place on this one. Right now we don't see the -- we are making lot of orders and the supply chain in order to be ready.

Okay. And then on the kind of potential second submission to the FDA, can you just help us think about what is going to be the key difference between that and the original submission?

I think that it was clear that it's not a second submission, okay? We are planning a lot of submissions in the future to the FDA once we move on, and we develop more applications and more releases in terms of the use of the system, then we're going to submit further. I think that after the RSNA, when you see the system, you will probably be more into the understanding of what has to be done and what kind of further submission we would like to do in the future.

And is that RSNA -- is that -- are you going to be attending the event? Or is it going to be virtual like last year? And then I guess my last question would be just on the SEC investigation. I mean, November 8, I guess, is when you said they've started the first line of inquiry. The subpoena, I guess, was received what, today, yesterday or a few days after that? Can you just help put some timing around that?

No.

So I'll give Ran to answer the SEC, and then I will address the RSNA.

Okay. As for the SEC matter, the subpoena was received on November 8. We had informal and verbal discussion with the SEC. That's it.

So with respect to the RSNA, the ARC is going to be presented virtual. And actually, what used to be Zebra has secured a booth in present in the RSNA, and they are going to be -- Nanox AI will be presented there as people will be there as well in present. Part of our people will be there, including people from the ARC division.

Okay. And then just maybe one final clarification. If the subpoena was November 8, just curious, when did the original SEC investigation begin?

It was short period before.

Our next question comes from Rahul Rakhit with LifeSci Capital.

Just two questions, 2 from me. In terms of the upcoming filing, maybe could you comment on the X-ray tube that you guys want to use, maybe on what the kVp could be or whether it's going to be a glass or ceramic tube? And maybe an update on the manufacturing there as well?

So first of all, I think I mentioned it. We are -- with the original process and plans for the manufacturing, right now, it's being done in Israel. We have no -- nothing to add in terms of the kV that we have already achieved. It will be all presented live in the -- not live in present, but live in when it takes place in the virtual presentation in the RSNA. So you'll be able to see also answer to the question of the -- of these -- the question that you asked.

In addition, I think that the more we go into the deployment process right now in the countries that we're going to operate and initially start to implement and put our systems next year in place, we will probably be more exposed to what further applications request detail has to be further presented and submitted to the FDA. So the more we go into the future, the better we know about this one as well.

Got it. Okay. Appreciate that color. And just last one for me. Once again, congrats on the most recent contract. Maybe you could talk a little bit about the interest that you're seeing. It's also geographically kind of where you guys expect to see a bit of interest or the next few contracts.

You mean next contract?

Yes, looking forward.

Once we sign, we announced, this will be the next 6-K. I would say that there is a kind of race between a few of the players that we are trying to engage in future, who is going to sign first. I'm kidding. But seriously speaking, I think that once we has more clarity on the next agreement, then we know what to tell and when it's going to be implemented. But right now, as you can imagine and see, we are getting more and more attraction to future deals that are to be signed. And as we speak, there are a lot in the process and in the pipeline.

And we have a follow-up from Jeffrey Cohen with Ladenburg Thalmann.

So I wondered on the regulatory front outside the U.S. for the multi-source. Is there any update or any progress on timing with regard to CE and other territories?

Now that -- nothing due in this respect. We will be working on the CE and simultaneously with the FDA. Once -- as you can imagine, since we work on a global basis, not everywhere we need FDA or a CE because some countries will require local. So we -- generally speaking, we work on a global basis to get the FDA and the CE and others. But at the same time, we're going to implement the deploy in other countries work, not necessarily will require to this specific regulatory approvals.

And I'm showing no other questions in the queue. I'd like to turn the call back to Erez Meltzer for closing comments.

So thanks for the support and for participating in this call. We'll further discuss as Ran was saying, and we'll probably has more discussions either on one-on-one or others that will come in the near future. Feel free to get in touch with Mike or with either one of us to further. And thank you so for being part of today's call.

Thank you all.

This concludes today's conference call. Thank you for participating. You may now disconnect.