Beyond Air, Inc.

Good afternoon and welcome everyone to the Beyond Air financial results call for the fiscal quarter ended September 30, 2024. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. And now, I would like to turn the call over to Corey Davis, LifeSci Advisors. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Today, we issued a press release announcing the operational highlights and financial results for Beyond Air's second quarter of fiscal year 2025. A copy of this press release can be found on our website, www.beyondair.net, under the News and Events section. Before we begin, I'd like to remind everyone that we will be making comments and various remarks about future expectations, plans, and prospects, which constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Beyond Air cautions that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated. We encourage everyone to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's most recent Form 10-K and Form 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Additionally, this conference call is being recorded and will be available for audio rebroadcast on our website, beyondair.net. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 11, 2024. Beyond Air undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call. With that, I'll turn the call over to Steve Lisi, Chairman and Executive Officer of Beyond Air.

Go ahead, Steve. Thanks, Corey, and good afternoon to everyone joining us. With me here today is Doug Larson, our Chief Financial Officer. I'm excited to report that the Beyond Air team is successfully executing our commercial strategy and building positive momentum. As a result, during the quarter ended September 30th, 2024, we increased our total number of hospital clients by over 60%. This is a tremendous signal to our team that the recent improvements we implemented in our marketing and customer education programs are striking the right tone with our customer base. Also, we are pleased with how our LungFit PH device is operating following the upgrades we made about six months ago. As all of you may recall, our new chief commercial officer joined us in July, and we are very pleased that the strategic initiatives put in place are having an immediate impact on customer receptivity, which is starting to flow through the channel in the form of contract negotiations. We expect this success will continue to drive accelerated top line revenue growth over the following quarters as our recent sales and marketing initiatives mature. In addition, we announced several partnerships, including with healthcare links a renowned healthcare advisory and contracting firm that works with GPOs and IDNs, and Trillimate to help us engage with and distribute to the military and veterans administration hospitals. And we're teaming up with business Asia consultants to provide lung food pH to hospitals in Europe, South America, the Asia Pacific region, and the Gulf Coast region, where many hospitals are unable to obtain nitric oxide supply or use NO due to the difficulties associated with legacy cylinder systems that can't generate NO from ambient air like LungFit PH. We are also implementing additional strategic initiatives over the next few months that are expected to build on our momentum that will further separate us from the competition, so stay tuned. To best position ourselves for success, we recently announced three separate financial agreements that are expected to extend our cash runway. First, we completed a private placement equity offering for $20.6 million with a select group of healthcare-focused investment funds and company insiders. Second, we reached an agreement with Avenue Capital to extinguish their senior secured term loan for a one-time payment of $17.85 million. This agreement eliminates payments that would have been made from October 1st, 2024 through June 30th, 2026 of approximately $12 million. Avenue Capital also participated in the private placement equity transaction I just mentioned. Third, we entered into an $11.5 million royalty funding agreement led by certain Beyond Air board members. This debt will carry a 15% interest rate, with 12% being payment in kind until the September 2026 quarter. Actual cash payments for all interest and principal will commence after the September 2026 quarter and will be determined based on an 8% royalty rate on sales of LungFit PH. These royalty payments will continue only until principal and interest are paid off. The outcome of these financial agreements, combined with the cost reduction measures taken earlier this year and anticipated revenues, is that we expect to have sufficient cash for about 18 months as we ramp up our global commercial execution plan. Before turning it over to Doug, I want to touch on some growth drivers we are expecting in the relative near term. Our PMA supplement for the expansion of the LungFit pH label to include cardiac surgery was accepted and is under review by the FDA. As a reminder, a PMA supplement is a submission for when there is a change to an already PMA-approved medical device. While there is no firm date for FDA to complete its review, we can say that as of today, we have answered all questions posed by FDA and we await their feedback. We will work with FDA to provide the quickest timeline possible but cannot give a specific date for an FDA decision. As you may recall, there are no nitric oxide products currently approved for cardiac surgery in the United States. So, if granted, this would represent the first formal FDA approval among any of the current players in the market. B.E. Mark, the regulatory changes in the EU for medical devices have been difficult for everyone. However, we believe that we will receive a final answer before the end of this calendar year. I know the frustration from investors on this topic, but from my view, the Beyond Air team's performance was a lesson in patience, perseverance, and being an expert at your craft. Before the end of the March 2025 quarter, we will file a PMA supplement to the FDA for our next generation lung fit pH system. We look forward to demonstrating this system next week at the AARC annual meeting in Orlando for those attending our private meetings. We believe and we expect those of you who attend AARC and see for yourselves will agree that this superior system will be rapidly adopted in the global nitric oxide market. Moreover, It can provide NO to areas of the world where cylinders just can't be used, and this will result in lives saved. Turning to Beyond Cancer, they are awaiting regulatory approval in Israel for their UNO program in combination with anti-PD-1 therapy in late-stage cancer patients, which remains an area of high unmet patient need. Just the other day at the Society for Immunotherapy of Cancer meeting, compelling survival data in both rats and mice were presented. We're encouraged to see that the amount of gas used was less than 10% of the amount of gas used in the phase 1A UNO monotherapy human study where an acceptable safety profile was demonstrated. This lower volume administration may be even safer and allow for tumors to be treated in more areas of the body than just cutaneous and near cutaneous. I encourage all of you to visit the Beyond Cancer website and get better educated as 2025 should be transformational for this potentially groundbreaking therapy for those suffering from solid tumors. I am also pleased with the advances that Neuronos, our subsidiary focused on therapies for autism spectrum disorders, is making. Great early stage work continues at Neuronos, and I encourage you all to visit their website to get a better understanding of what is to come over the next 12 to 24 months. In closing, let me summarize my comments on LungFit pH sales by saying, Our commercial operations in the U.S. turned a page about six months ago, and we are energized by the steady flow of high-quality engagements with potential new customers and by the extremely positive feedback from existing U.S. customers. In addition, the interest we are seeing outside the U.S. is quickly gaining traction since our system upgrade, and we anticipate signing new ex-U.S. agreements over the next six to 12 months and to begin shipping systems overseas in the first half of calendar 2025. In addition, we have several upcoming regulatory and product development milestones that are expected to drive increased growth. When we take all of these factors together, I hope you see why we are so excited about what we are planning over the next year. Now, I will turn it over to our CFO, Doug Larson.

Thanks, Steve, and good afternoon, everyone. Our financial results for the second quarter of fiscal year 2025, which ended September 30, 2024, are as follows. Revenue for the second fiscal quarter of 2025 was $0.8 million as compared with $0.2 million in our fiscal second quarter of 2024. We're showing a $1.1 million loss in gross margin for the fiscal second quarter of 2025 compared to a $0.2 million loss for the same period last year. Cost of revenue in the current fiscal year exceeded revenue primarily due to a $0.7 million of one-time costs required to upgrade our existing fleet of devices, plus $0.8 million of non-cash headwinds, either provisions for excess inventory or depreciation of devices purchased but not yet deployed. We expect gross margins to turn positive in the March 2025 quarter. Research and development expenses for the three months ended September 30th, 2024, were $4.6 million as compared to $7.1 million for the three months ended September 30th, 2023. The decrease of $2.5 million was primarily attributed to a decrease in spend in salaries, stock-based compensation, and preclinical studies. SG&A expenses for the three months ended September 30, 2024 and September 30, 2023 were $7.2 million and $10.2 million, respectively. The decrease of $3 million was attributed primarily to a decrease in stock-based compensation costs. Other expense for the three months ended September 30th, 2024 was $1.2 million compared with an other income of $0.1 million for the three months ended September 30th, 2023. The increase in expense of $1.3 million was mostly non-cash and attributed primarily to the partial extinguishment of the Avenue loan. Net loss attributed to the common stockholders of Beyond Air Inc. for the three months ended September 30th, 2024 was $13.4 million, or a loss of $0.28 per share, basic and diluted. Our net loss attributed to common stockholders of Beyond Air Inc. for the three months ended September 30th, 2023, was $16.2 million, or a loss of $0.51 per share, basic and diluted. Net cash burn in the quarter ended September 30th, 2024, excluding one-timers, and the impact of the financing transaction Steve mentioned earlier was $11.5 million. We hit the brakes hard on spend in the last two quarters, closing two offices, reducing staff levels by over 30% across the company, putting our VCAP study on hold, and adjusting our production forecasts. We'll get a full quarter of benefit from all of our actions and expect to see a reduction in cash burn in Q3 by at least one-third. As of September 30th, 2024, the company had cash, cash equivalents, and marketable securities of $28.4 million. Due to the timing of cash settlements associated with the financial transactions mentioned earlier, certain settlements were completed subsequent to quarter end. Thus, on a pro forma basis, for September 30, 2024, cash was $18.5 million. And with that, I'll hand the call back to Steve.

Thanks, Doug. We will now take any questions you may have. Thank you. We will now be conducting a question and answer session.

If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key.

One moment, please, as we poll for questions. Our first question,

It comes from the line of Jason Witts with Ross Partners. Please proceed with your question.

Hi. Thanks for taking the questions. First off, I think it said it would be getting a 60% increase in contracts. What does that say about momentum for the rest of the year? Should we expect that to flow through for the remaining quarters, or how should we think about sort of the progression as we go from first quarter to fourth quarter?

Yeah, hey, Jason, thanks for the question. I think that momentum will continue. Again, it's, you know, every contract has its own value, so I think that the volume is very good, and I think the volume will continue at this pace. Obviously, as the denominator gets bigger, maybe the percentage may not keep up, but the number of contracts that we're adding every quarter will continue. The current quarter that we're in is, you know, close to what we had last quarter. Not quite there yet, but we still have another, you know, seven weeks left.

Okay. And then, you know, you mentioned several strategic partnerships. Just curious how they might work, especially with the VA. Are you in the VA now, or is the Trillium partnership going to get you into the VA? Yeah.

Yeah, we do not have any VA hospitals yet. I think the relationship with Trillamed has just gotten started. Trillamed was instrumental in us getting the Naval Hospital in Guam. So that was great. But I think there's a little bit of work to do with the VA. So I wouldn't expect a big impact in the December quarter from the VA at all. We just, you know, again, the Trilomed agreement just got started, so I think there's some work we need to do with them before they go out in full force.

Okay, and I think also you mentioned for the PMA for cardiac surgery, I guess timing depends largely on the FDA right now, or how should we think about, I don't know if you could give me more color in terms of how you think that might go.

Yeah, I mean, look, we've given them everything that they've asked for. It's in their, the ball's in their court, so to speak. But, you know, this is a device, not a drug, so there's no hard . So I just don't know. I wish I could be more specific, but we've tried to give guidance in the past on regulatory timing, and it just hasn't gone well. So we're just going to let you guys know what we know, which is that we've given them everything they've asked for, and now we just wait.

Okay, great. Now I'll ask one more question. I'll jump back to you, and that's just on the, you mentioned, I appreciate the commentary on cash burn. I think you said it'll reduce by about a third. At least one third. Most of that is in the SG&A line or how would that be? I assume that's where we'd see most of that reduction or anywhere else we might see it.

Yeah, you're going to see it all over the place. I mean, Steve and I went through with a knife basically to the entire P&L. So, we've looked at everything where we could make savings. So, you're going to see it in the R&D line. You're going to see it in G&A.

Okay, great. I'll jump back in queue. Thanks, Jason. Thank you. Our next question comes from the line of Jason Bednar with Piper Sandler.

Please proceed with your question.

Hey, guys, how's it going? This is John for Jason. I said a couple of questions on the competitive landscape here. So one of your big peers referenced some good traction at the recent product launch. Can you talk about what you're seeing out there in the market with respect to competitive dynamics and whether the presence of this new offering is leading to any longer contract negotiations with hospitals? Thanks.

Yeah, I don't know who's gaining traction in the market. I don't know who said who's who's who that might be. So I don't really, unless you have a specific competitor you want to talk about, I don't know who's gaining traction. So, you know, we, I don't think the hospitals look at money raises by companies on Wall Street as much as you think. You know, our relationship with hospitals and our customers and potential customers is the same as it was before the money raises, it is after. We haven't noticed anything different. What we've noticed different is that The implementation of the new tactics we started back late in the spring and have been augmented greatly by our new chief commercial officer who came on in July. We're seeing a lot of good feedback from these initiatives and the upgraded machine. So we seem to be picking up a lot of momentum with customer discussions in the U.S. We feel real good about it. And I think, like we said in the prepared remarks, on the international side, we're getting a lot of activity, much more than we had six months ago, that's for sure. So if you have anything more specific on a particular competitor, I'm happy to talk about it if you have something.

No, we can take that offline, Steve. That's all right. But I appreciate the color there. And just to follow up to that one, can you also talk a little bit about contract pricing with the uptick in activity in the most recent quarter, kind of piggybacking off the last question? Has there been any movement up and down here in pricing versus earlier this year? And can you talk about how this pricing is fluctuating across account sizes?

Thanks. Yeah, I think that the, you know, the pricing is as expected, you know, on a per hour basis. I don't think we're seeing anything different than we saw six months ago or 12 months ago. you know, seems to be pretty stable from our perspective. But, you know, obviously the size of contracts are dependent on the volume of the hospitals. And the higher the volume, the lower the price, of course. But we like the higher volume ones because they're bigger. But, you know, you guys will see how that's playing out for us over the next quarter or two in terms of the size that we're getting.

Great. Appreciate that. Thanks. Thank you. Our next question comes from the line of Marie Dybolt with ETIG.

Please proceed with your question.

Hi, I appreciate you taking the questions this evening. I wanted to ask a qualitative question here on some of the changes David has made to the commercial organization. You know, what strategies specifically are working well? Where are you finding success and where is there sort of more to come. I assume that he hasn't had time to deploy all his strategies yet. So love to hear a little bit more about what's going on behind the scenes.

So, you know, we mentioned, you know, a partnership with an international distribution firm that will manage, you know, our relationships outside the United States. That's a big win for us. You know, it's not like there's hundreds of them you can choose from and There's very few high-quality companies out there like BAC. So that's David bringing that in. And, you know, it takes time to win those partners and then implement it. So I think you'll see some activity on the international front over the next three to six months. You know, and, of course, you know, we have TrillaMed and healthcare links that will be helping us with not just the VA and, Department of Defense, but of course GPOs and IDNs. You know, those things are very important. David, and again, you're not seeing anything this particular quarter from those agreements other than the Naval Hospital base in Guam. But you'll start to see that pick up as we go forward. And David, you know, has been able to generate, excuse me, generate more leads in the United States with some of the things he's implemented already. He just got that started up maybe a month or so ago. And I won't say exactly what that is. I don't want to steal his thunder or give away his secrets. But he's done a really good job of generating more leads and interest for our commercial team, for the sales team. So, again, that will start to bear fruit over the next three to six months. So I think the groundwork he's laid is fantastic. And we're already starting to see it here. It's just, you know, reporting this quarter is just too early to see the benefits of what David has done.

Of course. Well understood. Thanks for that, Steve. A question for Doug, then. Can you talk to us a little bit about gross margins and how we might expect some of that to be impacted by, say, both higher volumes to come, but also some of these label expansions, the transport-ready system, the CE mark, and selling abroad? Any impact to gross margins to expect over the next few quarters? Thanks so much.

Sure. So, as mentioned in the prepared remarks, there's a couple headwinds that we've got. You know, some, the one-timer basically being us having to upgrade the systems that we have in stock. So, that was 700,000. That's, I wouldn't call it exactly a one-timer because we're not completely finished yet, which is why we're calling for gross margins to turn positive in the March quarter and not necessarily the December quarter. So there's going to be a little additional cost next quarter, and then that is going to, for all intents and purposes, disappear in the March quarter. Also mentioned, you know, there's about $500,000 of depreciation in this quarter. That's basically on systems that we've built that are ready to be deployed, and it's already kind of a drag on our gross margin. So the good news there is as we expand into the market, we don't have to build as many machines that are already built. We can deploy them and that drives, that's going to go straight into margin, right? We can generate revenue on them without having that additional depreciation cost in gross margin. So that's... That's going to have very positive upside. The other thing we used to talk about a little bit, it's going to have a lesser effect, but we do also have some fixed warehousing costs that are in our gross margin base. And as we grow those geographical regions, we penetrate more in the regions where we're already existing. We can do that without adding additional cost. So again, that gross margin, the gross margin rate is going to go up from that. As we go internationally, you are going to see a little bit of a drag on the gross margin as opposed to, you know, where we'll be in the U.S. because the business model there is a little bit different. And so we, you know, we won't be seeing the same margin rates outside of the U.S. as we see inside the U.S. That's going to grow slowly over time, right? So, you know, between now and the end of the fiscal year, you're not going to see a huge drag from that because we're only going to start shipping in the March quarter. so it'll have a minimal impact. But going forward, it's definitely something to put in the models that, you know, there will be a little bit of impact from that, you know, the more successful we are in international.

Very helpful. Thanks for taking the question.

Thank you. Our next question comes from the line of Dale Jen with Laidlaw & Company.

Please proceed with your question.

Good afternoon, and thanks for taking the questions. Steve, when you mentioned that there's a 60% increase, could you give a little bit more color in terms of that, whether that 60% is from last year, or how should we just think about the basis for that number?

Yeah, so the basis is just our total customers, you know, as of June 30th versus our total customers at September 30th.

Okay.

Okay, great. So basically the quarter over quarter, I guess that's one way to look at it. Yep. Okay. Okay, great. That's very helpful. And also on the press release, you're talking about annual, annualized the revenue in October. Could you elaborate a little bit more on that specific aspect? It seems to be over 800,000 a quarter revenue. Would that be something we'd look into the third quarter, fiscal third quarter, or is that something we underestimate?

Yeah, I mean, we did 800 this quarter, and the run rate would put us more like 875. And we did say that we have some more starts after October 1st. So the number will be higher than that. How much higher, we don't know, because we don't know all the starts. We may get some uh, hospital starts in December, um, right now. So we're still waiting. Um, so yeah, I mean, we'll, we'll be talking about that kind of a run rate thing every quarter so you can see how we progress. So we think that every quarter it's going to continue to rise.

Okay, great.

That's awfully helpful. And then maybe the last question here is in terms of your international sales, I know you have, uh, try to match us the consultant. Are you guys going to have using this firm to expand the footprint to other countries or you are still seeking any kind of formal sort of collaborator partners and that kind of things and just want to get a little bit color as you guys move forward, go beyond the US borders? And thanks.

Yeah, thanks, Yale. So BAC is more of an intermediary between us and the actual distributor in each country. You know, we started to see the demand come in as we showed our upgraded system back in spring. And, you know, we had one person doing international for us. We had the Getz deal in Southeast Asia. We had a few other things that were happening. And it just became apparent to us over the summer that, you know, He's only one man, so we needed some help. And that's why we contracted with this group. And they can handle any volume that comes our way. We're fortunate to have as much as we think. So they're the intermediary. They've got a great track record. And we're looking forward to them getting going over the next 30 to 60 days.

And maybe just tag on one more here. Do you need additional approval in overseas countries, or you feel that the U.S. application, maybe the EU application, I mean, approval will be able to cover a lot of these ex-U.S. countries or territories?

Yeah, so FDA approval covers some. I think the CE mark of the EU covers more than just FDA approval. And there is another regulatory approval. It's called MDSAP. We anticipate having that as well sometime next calendar year, maybe late next calendar year, which will open up a few other countries. But in most countries, you still need to go through their licensing process. So it may take a couple of months to, you know, maybe even a year in some places. So every country is different. And of course, as you know, Japan has their own process. So FDA in Europe will not make a difference there. And there might be one or two other countries it's going to be a long process. But for the vast majority of countries, it's a couple months to maybe a year. And once we get our CE mark, then, you know, we'll have most of the countries in the world covered outside the U.S.

Okay, great. Well, I appreciate it. And again, congrats on all the progress at this moment.

Great. Thanks, Yam. Thank you. And our next question comes from the line of Matt Kaplan with .

Please proceed with your question. Hey. Hey, guys. Thanks for taking the question. Can you talk a little bit more about the next generation device, the Transport Ready device and the PMA supplement that you expect to submit, I guess, in the first quarter of next year? Is that, could that review, be, since it's a supplement, be faster than the first gen?

Thanks for the question, Matt. Boy, it better be faster than the first one. The first one was torturous. But again, that was a difficult time for FDA with the pandemic and lots of changes going on over there. So I think they're in better shape staffing-wise than they were back then. So we're looking forward to working with them on this supplement. But yeah, it is a supplement. It's not a new product. So it should be a little bit smoother. I don't know the timing. I don't want to speculate. Let's just get it to them and see what they think of their, of the filing of the quality of it. And we'll go from there. But, you know, this is, this is a product that we'll be showcasing next week at the American Academy of Respiratory Care in Orlando. So if anybody wants to make the trip down to Disney and, You can come see us and we'll give you a look at this system. It is ready. It's ready to go. So you'll see it fully functioning next week. And, you know, we're just putting together all the external testing from our external partners who do this testing for us. And then we'll put it into them in a couple months. Okay.

And then you spoke in your prepared remarks about expected accelerated. top-line revenue growth in the coming quarters. Can you give a little more color to that? Is it going to be chunky as you sign new deals, or do you expect it kind of to be – just give us some more color on that?

Sure, Matt. I wish I could. I mean, you know, I'd love for it to be, you know, as smooth as can be and give you a nice little chart, but it never works that way. It's probably going to be chunky. You know, we may one quarter get one or two really big contracts and the next quarter, you know, still keeping up volume with hospitals growing. But, you know, we might not hit a big home run in the next quarter. So you just don't know. I wish I could give you more insight into how smooth it is. But, you know, the size of contracts, you know, range from less than 100,000 a year to over a million a year. So you just don't know which ones are going to hit in what quarter. But we're talking to as many hospitals as we can, trying to reach out to as many potential customers as possible. And there are potential wins across the range of size of hospitals. So we'll just have to see how they come in.

And then last question in terms of you mentioned or I guess it was mentioned in the prepared remarks that March 25, you expect margins to turn positive. How should we think about it for the calendar year 2025?

How should your margins evolve? Thanks, Matt, for the question.

So you're asking about calendar 2025. So we'll be turning positive in the March quarter. Going forward, you're going to see I hate to give percentages out. You're going to see margins that you've probably been expecting from us. How's that? Starting in the first quarter of fiscal 26.

And let me just help out here. I mean, you know, we've said publicly in the past that, you know, we're targeting with our first generation product, you know, 60 to 65%. gross margins. You know, so that's the target, and I think by the end of calendar 25, you know, on a gap basis, you probably could see that. I think, you know, giving Doug a little wiggle room here, you know, the international impact, you know, there is always the cost plus component of international, so that may bring the margin down. It just depends on how we structure the back end of that, whether it be a royalty or, you know, we're doing a razor, razor blade type model as to whether the impact on the gross margin will be muted or not. So, it might be a good thing if that gross margin is a little bit light because we're so strong internationally. So, we'll just have to see how it plays out. But I think that by the December quarter of calendar 25, you should see us, you know, close to that 60%-ish number.

Okay. That's great.

That's helpful. Thanks. Thanks for taking questions. Great. Thanks, Matt. Appreciate it. Thank you. At this time, we are showing no further questions in the queue.

And this concludes our question and answer session. I would now like to turn the call back over to Steve Lisi for any closing remarks.

Thanks for joining today, everyone. I look forward to speaking to you in a couple of months.

Thanks. Thank you, and ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.