NNOX - Nanox Announces Second Quarter of 2023 Financial Results and Provides Business Update

Reports progress towards global supply chain development

Ended the second quarter of 2023 with cash, cash equivalents, restricted cash and marketable securities of $80.3 million

Management to host conference call and webcast Thursday, August 17, 2023 at 8:30 AM ET

NEVE ILAN, Israel, Aug. 17, 2023 (GLOBE NEWSWIRE) -- NANO-X IMAGING LTD (NASDAQ: NNOX) (“ Nanox ” or the “ Company ”), an innovative medical imaging technology company, today announced results for the second quarter ended June 30, 2023 and provided a business update.

Second Quarter 2023 Highlights and Recent Developments:

Financial results for three months ended June 30, 2023

For the three months ended June 30, 2023 (the “reported period”), the Company reported a net loss of $17.4 million, compared to a net loss of $19.6 million for the three months ended June 30, 2022 (which is referred as the “comparable period”), representing a decrease of $2.2 million. In the comparable period, the Company recorded an expense that resulted in a goodwill impairment of $14.3 million, which was largely offset by a decrease in the Company’s other income due to a decrease in the Company’s earn-out liabilities in the amount of $12.8 million.

For the three months ended June 30, 2023, the Company reported revenue of $2.6 million, compared to $2.2 million in the comparable period. During the three months ended June 30, 2023, the Company continued to generate revenues largely through the sales of teleradiology services and AI solutions.

The Company’s gross loss during the three months ended June 30, 2023, totaled $1.7 million on a GAAP basis, as compared to a gross loss of $1.8 million in the comparable period on a GAAP basis, which represents a gross loss margin of approximately (66)% on a GAAP basis, as compared to (80)% on a GAAP basis in the comparable period.

Non-GAAP gross profit for the three months ended June 30, 2023, was $0.9 million, as compared to $0.8 million in the comparable period, which represents a gross profit margin of approximately 34% on a non-GAAP basis for the three months ended June 30, 2023, as compared to 37% on a non-GAAP basis in the comparable period.

The Company’s revenue from teleradiology services for the three months ended June 30, 2023 was $2.5 million with a gross profit of $0.4 million on a GAAP basis, as compared to revenue of $2.1 million with a gross profit of $0.3 million on a GAAP basis in the comparable period, which represents a gross profit margin of approximately 14% on a GAAP basis for the three  months ended June 30, 2023 as compared to 16% on a GAAP basis in the comparable period.

Non-GAAP gross profit of the Company’s teleradiology services for the three months ended June 30, 2023, was $0.9 million, which was unchanged from the comparable period on a non-GAAP basis, which represents a gross profit margin of approximately 36% on a non-GAAP basis for the three months ended June 30, 2023, as compared to 43% on a non-GAAP basis in the comparable period. The increase in the Company’s revenue is mainly due to the increase in the amount of radiologists that engaged in reading during overnight and weekend shifts due to the Company’s efforts to increase its revenue in those segments. The decrease in the gross profit margin on a non-GAAP basis is attributable mainly to an increase in the cost of the engaged radiologists due to incentive payments which the Company paid to radiologists to engage during overnight and weekend shifts.

The Company’s revenue from its AI solutions for the three months ended June 30, 2023 was $0.1 million with a gross loss of $2.1 million on a GAAP basis, which was unchanged from the comparable period.

Non-GAAP gross loss of the Company’s AI solutions for the three months ended June 30, 2023 was $0.0, as compared to $0.1 on a non-GAAP basis in the comparable period. During the second quarter of 2023, Nanox AI completed several pilot programs with marketplaces, marketplace costumers and health organizations.

Research and development expenses for the three months ended June 30, 2023 were $6.9 million, as compared to $6.5 million in the comparable period. The increase of $0.4 million was mainly due to an increase in the Company’s cost of labor in the amount of $0.7 million, which was mainly due to increase of headcount in connection with the development of the Nanox.ARC, and an increase in depreciation expenses in the amount of $0.1 million which was partially offset by a decrease in share based compensation of $0.3 million and an increase in R&D grants that the Company received in the amount of $0.1 million.

Sales and marketing expenses for the three months ended June 30, 2023 were $0.8 million, as compared to $1.1 million in the comparable period. The decrease of $0.3 million was mainly due to a decrease in share-based compensation in the amount of $0.1 million and a decrease in marketing expenses of $0.1 million.

General and administrative expenses for the three months ended June 30, 2023 were $7.6 million, as compared to $11.2 million in the comparable period. The decrease of $3.6 million was mainly due to a decrease in the Company’s cost of labor in the amount of $0.5 million as a result of a reduction in headcount as part of the Company’s plan to increase efficiencies, a decrease in share-based compensation in the amount of $2.8 million and a decrease in the cost of the directors’ and officers’ liability insurance premium in the amount of $0.3 million.

During the second quarter of 2023, the Company accrued $0.7 million for future settlement expenses in connection with the SEC investigation. As previously disclosed, the Company and Ran Poliakine, Chairman of the board of directors of the Company, reached agreements in principle with the SEC staff to settle the SEC investigation. The agreements are subject to finalization, including any financial remedies, which the Company estimates will be approximately $0.7 million in civil penalties from the Company. Final resolution of this matter is subject to preparation and negotiation of documentation satisfactory to all the parties, including, with respect to the Company, approval by the Company’s board of directors and, in the case of the SEC, authorization by the Commission, as well as approval by a federal district court.

Non-GAAP net loss attributable to ordinary shares for the three months ended June 30, 2023 was $9.9 million, as compared to $8.2 million in the comparable period. The increase of $1.7 million was mainly due to income tax benefit of $2.1 million that the Company recorded in the comparable period as compared to $0.1 million during the three months ended June 30, 2023. Non-GAAP gross profit for the three months ended June 30, 2023 was $0.9 million, as compared to $0.8 million in the comparable period. Non-GAAP research and development expenses for the three months ended June 30, 2023 were $6.0 million, as compared to $5.3 million in the comparable period. Non-GAAP sales and marketing expenses for the three months ended June 30, 2023 were $0.6 million, as compared to $0.8 million in the comparable period. Non-GAAP general and administrative expenses for the three months ended June 30, 2023 were $4.7 million, as compared to $5.5 million in the comparable period. The decrease of $0.8 million was mainly due to a decrease in the Company’s cost of labor in the amount of $0.5 million as a result of a reduction in headcount as part of the Company’s plan to increase efficiencies and a decrease in the cost of the directors’ and officers’ liability insurance premium in the amount of $0.3 million.

A reconciliation between GAAP and non-GAAP financial measures for the three- and six-month periods ended June 30, 2023 and 2022 is provided in the financial results that are part of this press release. The difference between the GAAP and non-GAAP financial measures above is mainly attributable to amortization of intangible assets, share-based compensation, change in contingent earnout liability, legal fees in connection with the class-actions litigation and the SEC investigation, accrual in connection with the settlement of the class-actions litigation and accrual in connection with the estimated settlement of the SEC investigation.

Liquidity and Capital Resources

As of June 30, 2023, the Company had total cash, cash equivalents, restricted cash and marketable securities of $80.3 million, composed of $74.4 million of cash, cash equivalents, and short-term marketable securities and $5.9 million of long-term marketable securities and restricted cash. As of June 30, 2023, the Company had total current assets of $77.5 million and total current liabilities of $23.4 million, creating a working capital of $54.1 million .

As of December 31, 2022, the Company had total cash, cash equivalents, restricted cash and marketable securities of $102.9 million. As of December 31, 2022, the Company had $77.6 million of cash, cash equivalents and short-term marketable securities and $25.3 million of long-term marketable securities and restricted cash. As of December 31, 2022, the Company had total current assets of $82.5 million and total current liabilities of $25.1 million, creating a working capital of $57.4 million.

The decrease in the Company’s cash, cash equivalents, restricted cash and marketable securities of $22.6 million during the six-month period ended June 30, 2023, was primarily due to negative cash flow from operations of $20.8 million and the purchase of property and equipment of $1.8 million.

On July 26, 2023, the Company raised $30 million in a registered direct offering by selling 2,142,858 of the Company’s ordinary shares, par value NIS 0.01 per share (the “ordinary shares”), together with warrants to purchase up to 2,142,858 ordinary shares at a combined purchase price of $14.00 per share. The net proceeds of the offering were expected to be approximately $28.2 million, excluding any proceeds that may be received upon the exercise of the warrants, after deducting placement agent fees and other offering expenses payable by the Company. The warrants have an exercise price of $19.00 per share, are exercisable immediately upon issuance and will expire five years from issuance. The warrants are exercisable for cash only so long as the Company has an effective registration statement covering the issuance of shares upon the exercise of the warrants.

Other Assets

As of June 30, 2023, the Company had property and equipment of $45.2 million as compared to $43.5 million as of December 31, 2022. The increase is mainly attributed to the purchase of equipment and parts for the assembly of Nanox.ARC (including the Nanox.CLOUD) units.

As of June 30, 2023, the Company had intangible assets and goodwill of $93.3 million as compared to $98.6 million as of December 31, 2022. The decrease is attributable to the periodic amortization of intangible assets in the amount of $5.3 million.

Shareholders’ Equity

As of June 30, 2023, the Company had approximately 55.6 million shares outstanding as compared to 55.1 million shares outstanding as of December 31, 2022. The increase was mainly due to the issuance of 210,138 shares upon the exercise of options, which generated, in the aggregate, approximately $0.6 million in gross proceeds to the Company and the issuance of 255,392 ordinary shares to the former stockholders of USARAD, in consideration for the achievement of certain milestones in connection with the first earn out period, as defined in the USARAD Stock Purchase Agreement and a global settlement of both parties’ performance obligations under the USARAD Stock Purchase Agreement.

Conference Call and Webcast Details

Thursday, August 17, 2023 @ 8:30am ET

Individuals interested in listening to the conference call may do so by joining the live webcast on the Investors section of the Nanox website under Events and Presentations. Alternatively, individuals can register online to receive a dial-in number and personalized PIN to participate in the call. An archived webcast of the event will be available for replay following the event.

About Nanox:

Nanox (NASDAQ: NNOX) is focused on applying its proprietary medical imaging technology and solutions to make diagnostic medicine more accessible and affordable across the globe. Nanox’s vision is to increase access, reduce costs and enhance the efficiency of routine medical imaging technology and processes, in order to improve early detection and treatment, which Nanox believes is key to helping people achieve better health outcomes, and, ultimately, to save lives. The Nanox ecosystem includes Nanox.ARC - a multi-source Digital Tomosynthesis system that is cost-effective, and user-friendly; an AI-based suite of algorithms that augment the readings of routine CT imaging to highlight early signs often related to chronic disease, (Nanox.AI); a cloud-based infrastructure (Nanox.CLOUD); and a proprietary decentralized marketplace, through Nanox’s subsidiary, USARAD Holdings Inc., that provides remote access to radiology and cardiology experts; and a comprehensive teleradiology services platform (Nanox.MARKETPLACE). Together, Nanox’s products and services create a worldwide, innovative, and comprehensive solution that connects medical imaging solutions, from scan to diagnosis. For more information, please visit www.nanox.vision.

Forward-Looking Statements:

This press release may contain forward-looking statements that are subject to risks and uncertainties. All statements that are not historical facts contained in this press release are forward-looking statements. Such statements include, but are not limited to, those relating to the Company’s expectations regarding the timing of the closing of the offering, the expected amount of gross proceeds, the satisfaction of customary closing conditions related to the offering and the intended use of proceeds therefrom. In some cases, you can identify forward-looking statements by terminology such as “can,” “might,” “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “should,” “could,” “expect,” “predict,” “potential,” or the negative of these terms or other similar expressions. Forward-looking statements are based on information the Company has when those statements are made or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Factors that could cause actual results to differ materially from those currently anticipated include: risks related to (i) Nanox’s ability to continue to develop of the Nanox imaging system; (ii) Nanox’s ability to successfully demonstrate the feasibility of its technology for commercial applications; (iii) Nanox’s expectations regarding the necessity of, timing of filing for, and receipt and maintenance of, regulatory clearances or approvals regarding its technology, the Nanox.ARC and Nanox.CLOUD from regulatory agencies worldwide and its ongoing compliance with applicable quality standards and regulatory requirements; (iv) Nanox’s ability to realize the anticipated benefits of acquisitions, which may be affected by, among other things, competition, brand recognition, the ability of the acquired companies to grow and manage growth profitably and retain their key employees; (v) Nanox’s ability to enter into and maintain commercially reasonable arrangements with third-party manufacturers and suppliers to manufacture the Nanox.ARC; (vi) the market acceptance of the Nanox imaging system and the proposed pay-per-scan business model; (vii) Nanox’s expectations regarding collaborations with third-parties and their potential benefits; and (viii) Nanox’s ability to conduct business globally; (ix) changes in global, political, economic, business, competitive, market and regulatory forces; (x) the costs incurred with respect to and the outcome of the securities class action litigation and the SEC inquiry Nanox is currently subject to and any similar or other claims and litigation it may be subject to in the future; and (xi) risks related to business interruptions resulting from the COVID-19 pandemic or similar public health crises, among other things.

For a discussion of other risks and uncertainties, and other important factors, any of which could cause Nanox’s actual results to differ from those contained in the Forward-Looking Statements, see the section titled “Risk Factors” in Nanox’s Annual Report on Form 20-F for the year ended December 31, 2022, and subsequent filings with the U.S. Securities and Exchange Commission. The reader should not place undue reliance on any forward-looking statements included in this press release.

Except as required by law, Nanox undertakes no obligation to update publicly any forward-looking statements after the date of this press release to conform these statements to actual results or to changes in the Company’s expectations.

Non-GAAP Financial Measures

This press release includes information about certain financial measures that are not prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), including 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, non-GAAP other expenses and non-GAAP basic and diluted loss per share. These non-GAAP measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies. These non-GAAP measures are adjusted for (as applicable) amortization of intangible assets, share-based compensation expenses, change in contingent earnout liability, legal fees in connection with class-action litigation and the SEC investigation, accrual in connection with the settlement of the class-actions and accrual in connection with the estimated settlement of the SEC investigation. The Company’s management and board of directors utilize these non-GAAP financial measures to evaluate the Company’s performance. The Company provides these non-GAAP measures of the Company’s performance to investors because management believes that these non-GAAP financial measures, when viewed with the Company’s results under GAAP and the accompanying reconciliations, are useful in identifying underlying trends in ongoing operations. However, these non-GAAP measures are not measures of financial performance under GAAP and, accordingly, should not be considered as alternatives to GAAP measures as indicators of operating performance. Further, these non-GAAP measures should not be considered measures of the Company’s liquidity. A reconciliation of certain GAAP to non-GAAP financial measures has been provided in the tables included in this press release.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s condensed consolidated financial position as of June 30, 2023, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022 and the condensed consolidated statements of cash flows and the condensed consolidated statements of equity for the six months ended June 30, 2023 and 2022 . The preparation of financial statements in conformity with GAAP requires the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues, and expenses. Actual amounts could differ from these estimates.

NANO-X IMAGING LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share data)

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2022, filed with the SEC on May 1, 2023 (the “Annual Report”). For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Annual Report.

Fair Value of Financial Instruments

Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

The Company’s financial instruments consist mainly of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other liabilities. The fair value of these financial instruments approximates their carrying value.

Contingent earnout liability:

The Company determines the fair value of the liabilities for the earn-out contingent consideration based on a probability-weighted discounted cash flow analysis with regards to probability assessments of achievement of certain milestones and discount rate. A probability of success factor ranging from 0% to 100% was used in the calculation of the probability of the achievement of each milestone. This fair value measurement is based on significant unobservable inputs and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liabilities is based on several factors, such as: the cash flows projected from operations; the probability of success of achievement of regulatory clearances, CPT codes, and other industry certification, development of applications and systems deployment and several other milestone events; and the time and resources needed to complete each milestone and the risk adjusted discount rate for fair value measurement. The weighted average discount rate ranged from 9.2% to 28.1%. The contingent earnout liability consideration is evaluated quarterly. Changes in the fair value of contingent consideration liabilities are recorded in the consolidated statements of operations. Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes in the contingent earnout liabilities.

The Quantitative Information about Level 3 Fair Value Measurements of the Company’s short-term and long-term contingent consideration liabilities designated as Level 3 are as follows:

NANO-X IMAGING LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share data)

NOTE 3 - COMMITMENTS AND CONTINGENCIES :

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business.

In September 2020, two securities class action complaints were filed in the United States District Court for the Eastern District of New York against the Company and certain then-current officers and a director, which were subsequently consolidated and captioned as White v. Nano-X Imaging Ltd. et al, Case No. 1:20-cv-04355, alleging violations of securities laws on behalf of all persons and entities that purchased or otherwise acquired the Company’s publicly traded securities between August 21, 2020 and September 15, 2020, and seeking unspecified damages. On December 7, 2020, proposed lead plaintiffs submissions were fully briefed, on August 10, 2022, Magistrate Judge Marcia M. Henry issued a Report and Recommendation, recommending that the Court approve Derson O. Jolteus and Edward Ko as lead plaintiffs, and on August 30, 2022, Judge William Kuntz adopted the Report and Recommendation. On June 24, 2022, the Company moved to consolidate this action with the action captioned McLaughlin v. Nano-X Imaging Ltd. et al, Case No: 1:21-cv-05517, discussed further below. The Company’s motion to consolidate remains outstanding. On October 31, 2022, Lead Plaintiffs filed an amended complaint, which alleges that defendants violated the federal securities laws in connection with certain disclosures regarding the Company’s FDA submission and customer contracts, among other allegations. Lead Plaintiffs seek to represent a class of investors who purchased the Company’s publicly traded securities between August 21, 2020 and September 15, 2020. On February 3, 2023, the Company moved to stay this action in favor of the McLaughlin action, or, in the alternative, until the Company’s pending motion to consolidate was decided. The Company has not yet responded to the amended complaint.

On October 5, 2021, a class action complaint was filed in the United States District Court for the Eastern District of New York against the Company and certain of its officers, captioned McLaughlin v. Nano-X Imaging Ltd. et al, Case No. 1:21-cv-05517. On January 25, 2022, Magistrate Judge Peggy Kuo appointed Davian Holdings Limited as Lead Plaintiff in the McLaughlin v. Nano-X Imaging Ltd. et al, Case No. 1:21-cv-05517. On April 12, 2022 and in the same case, the Lead Plaintiff filed an amended complaint, which alleges that defendants violated the federal securities laws in connection with certain disclosures concerning the cost of the Nanox.ARC system as well as the comparison of the Nanox.ARC to CT scanners, among other allegations. Lead Plaintiff seeks to represent a class of investors who purchased the Company’s publicly-traded securities between August 21, 2020 and November 17, 2021. The Company moved to dismiss the amended complaint, and briefing on that motion was completed on September 9, 2022, and it remains outstanding. On April 28, 2023, the Company signed a term sheet with Lead Plaintiffs in both the McLaughlin action and the consolidated White action to settle all claims in both actions. On June 2, 2023, the Company entered into a formal settlement agreement to settle those actions for $8 million .The settlement agreement was filed for a court approval. As of June 30, 2023, the Company accrued $8 million for future settlement expenses in connection with the two pending class action lawsuits against the Company.

The Division of Enforcement of the U.S. Securities & Exchange Commission (the “SEC”) notified the Company that it is conducting an investigation to determine whether there had been any violations of the federal securities laws. The Company has received a 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 product at scale, among other things, and the Company has provided documents and information to the SEC. The Company has cooperated with the SEC in responding to its requests. The Company and Ran Poliakine, the Chairman of the Board of Directors of the Company, have reached agreements in principle with the SEC staff to settle this matter. The agreements are subject to finalization, including any financial remedies, which the Company estimates will be approximately $650 in civil penalties from the Company and less than $500 in penalties, disgorgement and prejudgment interest from Mr. Poliakine. Final resolution of this matter is subject to preparation and negotiation of documentation satisfactory to all the parties, including, with respect to the Company, approval by the Company’s board of directors and, in the case of the SEC, authorization by the Commission, as well as approval by a federal district court. As of June 30, 2023, the Company accrued $650 for future settlement of this investigation.

On May 1, 2023, the Company received a notice alleging several causes of action, including breach of a consulting agreement between the claimant and Nanox Gibraltar PLC (the “Gibraltar Entity”) that was entered into in 2015. The claimant’s demand from the Company is for the payment of approximately $1.26 million for unpaid consulting fees from the Gibraltar Entity and approximately $25 million connection with his claimed entitlement to securities in the Gibraltar Entity. The Company believes the allegations against the Company have no merit and intends to defend its position vigorously.

NOTE 5 – DEFERRED REVENUE

The following table represents the changes in deferred revenue for six months ended June 30, 2023:

NANO-X IMAGING LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(U.S. dollars in thousands, except share and per share data)

The expected volatility is based on the historical volatility of comparable companies. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the awards granted in dollar terms. The Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. Accordingly, as to ordinary course options granted, the expected term was determined using the simplified method, which takes into consideration the option’s contractual life and the vesting periods.