NANO-X IMAGING LTD

Good day and thank you for standing by. Welcome to the Nano QX Q1 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Cavanaugh of Investor Relations. Please go ahead.

Good morning and thank you for joining us today. Earlier today, Nanox Imaging Limited released financial results for the quarter ended March 31, 2025. The release is currently available on the Investor section of the company's website. With me today are Aris Meltzer, Chief Executive Officer and Acting Chairman, and Ron Daniel, Chief Financial Officer. 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 commercialization activities, regulatory process and clinical activities, and other matters. These statements are subject to risks, uncertainties and assumptions that are based on management's current expectations as of today and may not be updated in the future. Therefore, these statements should not be relied upon as representing the company's views as of any subsequent date. Factors that may cause such a difference include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission. We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of the non-GAAP to GAAP measures is provided with our press release with the primary differences being 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 administrative expenses, and non-GAAP gross loss per share. With that, I'd now like to turn the call over to Eris Meltzer.

Good morning, everyone. Thank you for taking the time to review non-OPS imaging's Q1 2025 financial results with us today. I'm pleased to report that we have made progress in our mission to improve medical imaging and enhance patient outcome. At NANOX, we pride ourselves on our comprehensive -to-end solution that supports preventive healthcare and expand access to imaging services. With that goal in mind, we made two strategic acquisitions in 2021. USA Rod, our tele-radiology business, and Zebra Medical Imaging, which is now NANOX AI, to build out our -to-end solution around the core NANOX ARC technology. Integrating AI-powered imaging analysis and a global tele-radiology solution with our groundbreaking NANOX ARC technology takes us one step closer to creating a global connected medical imaging solution with a potential meaningfully expand the delivery of healthcare. These acquisitions have proven to be good strategic decisions. Since the acquisitions less than four years ago, we have doubled the revenues generated by USA Rods and at the same time, NANOX AI has progressed from a pre-revenue business to one that is now generating growing revenue. To highlight another benefit of our -to-end solution, most of our NANOX ARC customers also use our tele-radiology services and this is not only provides more effective imaging and diagnosis for providers and patients, but also increases revenues per customer and creates value for our shareholders. NANOX AI continues to be a key part of our strategy, driving forward our commitment to integrating artificial intelligence into medical imaging, by leveraging advanced AI capabilities, we aim to streamline workflows, support clinical decision-making and improve efficiency across the imaging ecosystem. Our innovative technologies, including NANOX ARC and our AI solutions are gaining traction in the market and we are excited about the future of our company. Let's review some operational highlights. Beginning with our commercial efforts, we are employing a multi-pronged strategy to generate a robust sales pipeline. This is led not only by our direct sales force in the US and in the EU, which calls on imaging providers directly, but also by forming business collaborations, which leverage the marketing expertise of our medical imaging companies. We've also began to engage with distributors worldwide, especially in the EU, which we believe will be an efficient way of potentially penetrating a market comprised of 27 different countries. Complementing our efforts to commercialize NANOX ARC, we are benefiting from a steady revenue growth driven by our US Arat Tele radiology business and growing revenues from the sales of AI solutions. We are also supporting these marketing initiatives with marketing campaigns and I'll touch on these aspects of our commercial plan today. And we've seen an increase in the number of scans performed by our systems, both in the US and worldwide and we're beginning to see initial revenue streams for NANOX ARC customers reflecting that we are gaining traction with our NANOX ARC systems and customers can see the value in using the system. Our sales pipeline has doubled since January, 2025 and our sales team as of today's call is handling over 1000 leads. Our growing pipeline primarily consists of standalone multi-specialty, small and medium sized health clinics, not only from the US, but also from countries around the world, such as Peru, France, Azerbaijan, Hungary and Poland and various countries in the EU. Since its commercial deployment at the beginning of this year, there are now over 60 units that are in various stages of implementation and execution of the deployment plan for commercial demo and clinical use. For the operational units, we are achieving an average target of seven scans per day. As we grow, we intend to share more information as our business evolves and with a promise previously made to provide more details, we will do so today. We are targeting over 100 ARC systems in various stages of deployment by the end of 2025 worldwide. We are happy to now be in a position to share guidance on our commercial progress. But as we are all aware, recent market uncertainties could make our guidance subject to change as the year progresses. Introducing new and innovative technology in the US market is always challenging. However, we are encouraged by the growing base of early adapters that have ordered and are using the Nanox ARC furthermore. The nature of our sales process is clinical, meaning that we dedicated time and resources to our prospective customers who educate them on the benefit of the Nanox ARC, to their practices, how to use it and why they should use it, all of which takes time. The US deployment of Nanox ARC is progressing and we are preparing to ship the first systems to Puerto Rico. From the beginning of the year, we continue to strengthen our sales team with representatives now covering the West, East and mid-coast regions. Additionally, we continue to expand our clinical team by structuring a continuous professional group along with continue enhancement to our operational team and an efficient interface with our local services partner. As we continue our accelerated US commercializations, we provide all the necessary resources to our sales and services personnel in the US to support our expanding client base. Along with various channel partners, our team on the ground will be critical to our accelerating rollout and we will steadily but clearly continue to add to this team. We are making hiring decisions widely with 22 US personnel on the ground. We are moving ahead towards our target of 30 to 40 sales service marketing and support personnel in place by the end of 2025, depending on needs and progress. Now let's move on to some specific US market commercial accomplishments and updates. We have made notable progress in forming solid distributor partnerships while continue to pursue commercialization options. Beyond the engagement, we announced last quarter with Advanced Southern Imaging, known as ASI. We have expanded a third party service and support agreement with Srisway in Bridgewater, New Jersey. Srisway is one of the foremost experts in digital radiography from sales through installation, setup, training and service. This relationship is off to a good start and in addition to the support and services agreement, we enter into a non-exclusive distribution agreement for the sales of our system and services to government, official public health authorities and medical institutions in the US. Furthermore, we are in negotiation with additional leading national distributors. And finally, we are in the finalization stages of a new project around workers' compensation segments. With over 100 million workers estimated to be covered on the workers' compensation in the US, this business segment presents a large potential opportunity for Nanops, helping to promote the recovery of injured workers by providing imaging services to individuals and insurers. The project is structured to build a network of medical imaging centers, starting with two to three proof of concept sites with plans to expand from there. With the POC be completed successfully, the collaboration will kick off its commercial binding level. The engagement relies on attractive terms based on contractual rates of 120 to 180 per patient. If achieved, this potential line of business will be part of the Nanops Services Division, which will oversee the program's development. Turning to our efforts in markets outside of the US, we have also made strides in deploying our Nanops Arc system since our last update call. Our efforts in the EU have been assisted by the recent key milestones of securing the CMR for the Nanops Arc in February. As of today's call, we are ready to ship Nanops Arc and make our first installations in Europe subject to local approvals by country with our distributors. We are working on deploying systems to Greece and Romania with demo units expected to be shipped to those countries soon, and we are also preparing for demo units to be shipped to Mexico. These are necessary steps to create a commercial presence that we can build from in which of these countries, and we will work hard to maintain this momentum. Turning to our AI solutions business, we are seeing tremendous momentum. Trial data has shown that our AI solutions provide strong and proven data, and customer feedback has been overwhelming. We are seeing strong interest in our solutions as they grow and the sales pipeline expands. I believe that our AI business is also getting an added boost from the secular growth of AI in the broader economy, as well as the excitement surrounding AI in general. On our last call, we announced an agreement with Ezra AI, a healthcare artificial intelligence company revolutionizing early detection through full-body MRIs and low-dose chest CT screens. This agreement is moving ahead, and we expect to expand the use of our AI solutions in dozens of Ezra locations throughout the US. Continue with our commercial efforts, we have engaged with new AI marketplaces and are currently in negotiation with several companies. These collaborations will help us expand on a global scale, especially in the US, providing a steady stream of new client referrals. We also have three pilot programs running with similar AI platform companies, and we will provide more details once these pilots are completed. As previously mentioned, we continue to cooperate with various prestigious academic centers that are using our AI solutions, including Oxford University Hospital's NHS Foundation Trust in the UK, which has published trial data on the HealthOast-bound solution, and following that, secured a three-year contract for HealthOast. We are also working with Duke University Hospital in North Carolina, UVA Health in Virginia, UW Health in Wisconsin, on various AI-related projects. With respect to regulatory, we have also had some notable regulatory success recently, and in April, we were proud to announce that we have received 510-K clearance from the FDA for the Nanox Arc X, our updated multi-source digital tonal synthesis systems. Now for an update on our clinical work, which is always going on behind the scenes, and the reason is simple. Clinical validation is one of the key drivers of our future growth. It is imperative to generate fresh clinical data to support the use of a medical device, especially when introducing new technology and to encourage a change to the standard of care. Recognizing this reality, we continue to expand our efforts to implement our clinical trials with the goal of producing a robust database supporting the use of the Nanox Arc. Regarding our ongoing multi-site trial, we are working on clinical sites collaboration in two new sites in Europe, a leading teaching hospital, as well as a large private hospital. We are excited to welcome these two prominent healthcare providers into our trial. I can also announce that the Nanox Arc X system was installed successfully in the Shamir Hospital to be used for a multi-site trial. It is now being used to actively scan patients. Finally, USA RAD, our color radiology subsidiary, continues to provide valuable outsource radiology services to healthcare imaging centers, and most of our Nanox Arc customers also utilize this service. We have recently signed an agreement with a large US-based company to provide terodology services for their self-insurance program, which will further strengthen our position in the market. Our second opinion services is a consumer-oriented platform provided by USA RAD, which connects patients with radiologists and other subspecialty physicians for additional consultation on their medical diagnosis. Second opinion has integrated all three of Nanox AI, SBA-cleared AI solutions, and is now generating revenues and interpreting approximately 20 scans per month. We are very active with our OEM partners, particularly to ensure adequate supply of components for the ARC, but also with the intention of finding additional applications for our Nanox proprietary technology. One such active engagement is with the US government agency, Oak Ridge National Laboratories, to develop novel and compact mobile x-ray technologies. We began our partnerships in Q2 of last year and have progressed to developing and building prototypes due to be completed this summer. More good news is from Varix, who recently delivered to Israel several tubes for our next generation ARC-X. They also passed incoming inspections and are now being assembled into ARCs to complete system-level integration. Additionally, we have technical staff at Varix this month for validation and training on multi-source demonstration units we are producing for future applications development. The Nanox team is excited to attend the RSNA 2025, which is the annual meeting of the Radiological Society of North America to be held in Chicago from November 30th through December 4th. We are especially excited for RSNA 2025 as we will be presenting the full Nanox -to-end solution at this high-profile industry event for the first time. Our booth will feature the new Nanox ARC-X cold tomography system and ARC-AI tele-radiology services and AI solutions. We hope to see some of you there and we welcome you to stop by the Nanox booth to meet some members of our team and see the Nanox solution for yourself. With that, I will close my prepared remarks and turn the call over to Ran Daniel to review our financials. Ran, over to you.

Thank you, Erez. We reported a gap net loss for the first quarter of 2025 of $13.2 million, which is the reported period compared with a net loss of $12.2 million in the first quarter of 2024, which is the comparable period. The increase of $1.0 million was largely due to an increase of $1.1 million in our gross loss. Revenue for the reported period was $2.8 million and gross loss was $3.0 million on a gap basis. Revenue for the comparable period was $2.6 million and gross loss was $2.1 million on a gap basis. Non-gap gross loss for the reported period was $0.4 million, as compared to a gross profit of $0.6 million in the comparable period, which represents a gross loss margin of approximately 15% on a non-gap basis for the reported period, as compared to a gross profit margin of 22% on a non-gap basis in the comparable period. Revenue from the tele-radiology services for the reported period was $2.6 million, with a gross profit of $0.4 million on a gap basis, as compared to revenue of $2.4 million with a gross profit of $0.3 million on a gap basis in the comparable period, which represents a gross profit margin of approximately 17% on a gap basis for the reported period, as compared to 14% on a gap basis in the comparable period. Non-gap gross profit of the company's tele-radiology services for the reported period was $1.0 million, as compared to $0.9 million in the comparable period, which represents a gross profit margin of approximately 39% on a non-gap basis for the reported period, as compared to 37% on a non-gap basis in the comparable period. The increase in the company's revenue and gross profit margin from the tele-radiology services was mainly attributable to customer retention, increased rate and increased volume of the company's reading services during the weekdays shift. During the reported period, the company generated revenue through the sale and deployment of imaging systems and OEM services, which amounted to $33,000 for the reported period, with a gross loss of $1.6 million on a gap basis and $1.5 million on a non-gap basis. Compared to revenue of $47,000 with a gross loss of $0.4 million on a gap basis and $0.3 million on a non-gap basis in the comparable period, the company's revenue from its AI solutions for the reported period was $0.2 million with a gross loss of $1.9 million on a gap basis, compared to a revenue of $0.1 million with a gross loss of $2.0 million in the comparable period. Non-gap gross loss of the company's AI solutions for the reported period was $0.1 million, compared to a gross profit of $29,000 in the comparable period. With such and development expenses, net for the reported period were $5.0 million, compared to $5.2 million in the comparable period, reflecting the decrease of $0.2 million. The decrease was mainly due to a decrease of $0.2 million in share-based compensation and a decrease of $0.8 million in expenses related to our research and development activities, which were offset by a decrease of $0.8 million in grants received due to the completion of the NHSX project and the commencement of its commercial phase. Sales and marketing expenses for the reported period were $0.9 million, compared to $0.8 million in the comparable period. General and administrative expenses for the reported period were $5.1 million, compared to $5.0 million in the comparable period. The increase of $0.1 million was mainly due to an increase of $0.2 million in salaries and wages, an increase of $0.2 million in our IT expenses, and $0.2 million in our recruiting expenses to our commercialization efforts in the US market. The increase was offset by a decrease of $0.5 million in our legal expenses and a decrease of $0.2 million in our D&O insurance expenses. Turning to our balance sheet. As of March 31st, 2025, we had cash, cash equivalents, restricted deposits, and marketable securities of approximately $72.9 million. And we had $3.1 million in short-term loan from a bank. We ended the quarter with a property and equipment net of $45.3 million. As of March 31st, 2025, and December 31st, 2024, we had approximately 63.8 million shares outstanding. With that, I will end the call back over to Eric.

Thank you, Ron. To close our call, I would like to extend our appreciation for your continued support of Nanos. We understand that our investors are key to the journey that Nanos is undertaking to transform medical imaging. Like many companies over the past several years, we have experienced challenges. But our belief in the Nanos vision, as well as the support of our investors, encourage us to keep pushing ahead. We are making steady progress commercializing the Nanos ARC and Nanos AI, utilizing multiple different initiatives. Now our tele radiology business continue to provide a revenue base to help fund our continued growth. We are also doing much work behind the scenes to support our commercialization through clinical data generation, securing more regulatory clearances, and marketing campaigns designed to raise awareness of the Nanos -to-end solution. We are advancing our clinical trials with promising initial results. We continue to increase the number of our commercial collaborations, and we are working with our growing customer base to help them integrate the Nanos ARC into their practices. In closing, we remain committed to making medical imaging more accessible and improving patient outcomes through innovative technologies and strategic collaborations. We thank you for joining us today and look forward to providing additional updates on our next call. Operator, please open the call for questions.

Certainly. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please limit yourself to one question in the follow-up and please stand by. And our first question will be coming from Jeffrey Cohen of Leidenberg, Salmon & Company. Your line is open.

Good morning, Your Honor. Thanks for taking our questions. I wondered, Baris, if you could talk about the fleet that by the end of the year, we are speaking of 100 units. Could you give us a sense or flavor for geographies at which point you anticipate placements to occur during this year or already placed? Thank you.

Okay. So, still the majority of the units will be in the US. Based on the progress of the regulation approvals in the countries that we are planning to place arcs in Europe, it seems that I would say maybe 15 or 20% will be in Europe. And I would say Israel and other, probably 10% will be in other places like Israel, like Africa, like Latin America. It all depends on the progress of the ability to speed up the regulation approvals and the import license in the various countries that we operate. And of course, the other thing which is very important is how fast are we going to be able to install the system that we currently have in the orders, agreements that were assigned, the projects that we mentioned. In a nutshell, I would say that this is a very important element of what I was trying to deliver in this earnings, that the feeling of the building blocks of our future, short term future in terms of the ability to generate the arcs that are going to be installed from the sales team, from the campaigns that we are leading, one of them, each one of these campaigns generate about 1000 leads and we start in the process to implement them, the workers comp portion, the business partners that we work with, and of course, the Europe and the rest of the world that we do these installations. But in a nutshell, that's what I gave you.

Got it, and then as a follow up, could you talk a little more about the USARAD second opinion services? Is there a particular list price for that service and is it being reimbursed by the payers out there? Any further color would be appreciated, thank you.

Okay, USARAD, we are, lately we have achieved, I would say some peaks or high numbers in terms of the weekly revenues which are being generated or scans that they are reading. In addition, it seems that what we were trying to do and we have been amazingly successful in implementing the end to end solution where USARAD are doing a lot of the readings of the places that we are installing the arcs. So we are generated from the same unit and the same scan, more revenues to the company. In addition, the workers comp is going to be based initially or to begin with at least based on USARAD geologists that are going to read. And last but not least is what you have asked is the second opinion. The second opinion is about $300. It's mostly private, it's growing business and yeah. So that's. It's a retail model. Yeah, it's more of a retail model. By the way, in addition, by the same token, I would say that it's interesting to see that the part of the increase in revenues or business that we're doing is what we call the B2B2C. So we are serving someone who is serving the consumer or the retail and this is what we do with the ESRA. In ESRA, for example, every reading is about $75 right now. And if we do more applications of AI other than the CCS, it's going to increase above the $100 per scan. As you remember the workers comp, I mentioned around one. And so basically it's growing this part of the business.

Perfect, thanks for taking our questions. Good quarter. Thank you.

And one moment for our next question. Our next question comes from Ross Osborne of Cantor Fitzgerald, your line is open Ross.

Hey guys, thanks for taking our questions. So starting off, you mentioned 60 units in various stages of deployment. How many of these were placed, approved and operating in the US? And why have we not seen the associated inflection revenue based upon those units being used?

So I'll start with the first number. Right now to your reference of the question, it's more than 20. As some of them are being installed as we speak, some of them are installed but waiting for approval from regulation or a physicist or the building or the city or the state, I think we passed most of the approvals. So this is with respect to the numbers. Ramsey, would you like to address the revenues?

Yes, you have to bear in mind that since from the time that as I said, from the time that we deploy the machine until we generate revenue, there's a few phases that we need to go through with the machine. First of all, it's the registration with the state and all kinds of other permits. Sometimes there's a set up to be made and more importantly, all the process with getting the approved EOB for the procedure itself. But once we get the EOBs as we see in certain places, then the number of the scans increased and then the revenue generation is following up.

The interesting part, Ross, is that we have indeed mentioned the average of the seven scans per an operating day, that which was the base of the model, but definitely I would say that we can see that in the segment of the market that we are putting the systems in a multi-specialty medical centers, we can see days with 11 scans per day, even days with 17 scans per day, the workers come probably will generate more than seven scans per day. So the ramp up takes time and the reimbursement, although there is a CPT code and all of this, the reimbursement and the EOB sometimes takes time and the increase the revenue following after.

But once we get the EOB, we do see a mining inflection point where the operator increased significantly the number of the scans.

Okay, I appreciate the color there. And then moving down the P&L to gross margin, how should we thinking about you guys getting to a break even point or turning positive between your three business lines?

Okay, so if you look at the 20th, so you can see that our tele radiology and I'm talking about on a non-GAP basis because you have to, if you look at the face of the P&L, so you look at the measurement, you look at the numbers on a gap basis and there's all kinds of amortization of intangible and sharpest compensation and all kinds of items that we actually adding back when we talk about the non-GAP basis. But even when we talk about non-GAP basis, you can see that our tele radiology division is already possible and the gross profit margin varies between 36, 37% to 41, 42%. The AI business should be with the higher gross profit margin and the ARC division will be somewhere between. Of course, once we'll transition from to the ARCX where we have the glass field rather than the ceramic cube then we should expect our gross profit margin to increase over there since as we know the cost of the machine of the ARCX is much lower.

Thanks for taking our

question.

Thank you and our next question will be coming from Scott Henry of AGP. Scott, your line is over.

Thank you, good morning or afternoon depending where one is. It seems to me in the quarter there's a lot of really strong technological progress and people that have the machines are using it but the quarter replacement level of 10 to 15 per quarter it's gonna take a while to get to break even. How should we think about when there may be an inflection point to get to higher placements per quarter?

Thank you. I would like to answer your question and by the same token to also to refer to the tail of Ross question, okay? So under all the fact that the safe harbor and the uncertainties in the market and all the results that what is happening right now in the markets, et cetera, we are indicating expectations that US around is making money right now. The AI is going to break even or AI business is going to be right even next year, 2026 and the ARCX business are going to break even in 2027. So that's actually right now the plan and these are the indications that we expect. We work hard in order to be there. In terms of the, you like the word inflection point, I would say that inflections point will be probably the second half of 2025 where we are going to see a lot of the results. You're right that there are a lot of progress in the technology in this quarter, but if you notice we made progress in the ARCX, we made progress with the AI customers and revenues. We made progress with the second opinion. We made progress with the tele-ideology. We made progress with the clinical efforts and clinical education and brand awareness. We have made progress with regulatory. We've made progress with cooperation with new market segments, with the OEM business, with the implementation of the -to-end solution and also with what we call the cost of the product. So I think that what this quarter actually shows, first of all, that we are delivering what we promised, but second, we are making progress all the time. Yet we are saying getting a new medical equipment to the market is not an easy one and getting something which is, as you all write, disruptive, changing the standard of care is not an easy one. It requires a lot of education, a lot of efforts in terms of the clinical support, but that's what we are doing and that's the reason why we have indicated that in the RSNA this year, we're going to present the new product that we're going to install the ARC AI or the solution of the AI to the ARC that is going to be built in in the system. The fact that the ARC is going to do 2D X-ray as well, built in in the system and a lot of other goodies which are part of the ARC-X.

Okay, great, thank you. A lot in that answer, I appreciate that. If I could just double click on one thing you mentioned, you said ARC business potentially profitable or casserole breakeven in 2027, should we be thinking about as a quarterly run rate exiting 2027 as breakeven? And I don't know if you wanna answer this question or not, but could you give us a sense of what kind of revenue run rate it would take to breakeven? We could do the math ourselves, but I thought I would ask. Thank you for taking the question.

It really depends on the mixture of the revenue. And this is not really a formal guidance, but we have spoken, we gave some unit numbers of 1500 to 2000 units being deployed in order to get to a breakeven point. And of course, if we get more attraction from the telebiology business rather than the AI and the ARC, so it comes with low gross profit margin, but we will get more from the hardware and the AI and we'll see more growth over there then the breakeven point will be even faster just because it comes with

the higher gross profit margin. It really depends on the mix between the CAPEX cells, hybrid cells and the EMSA cells, which right now I don't think that we are in a position to indicate the mix between these three elements, but the more we get into getting more experience in the market and starting to penetrate to the European market as well as the Latin America market, I think that we will be able to shed some more light and to give some more guidance with respect to what will be the mix of these type of cells. But it definitely depends on the mix. Okay, great, thank you for taking the questions.

Thank you, and I'm showing no further questions. This will conclude today's conference call. Thank you for participating, you may now disconnect.