Nanox Announces Third Quarter of 2023 Financial Results and Provides Business Update

Reports progress towards global supply chain development and commercial deployment

Ended the third quarter of 2023 with cash, cash equivalents, restricted cash and marketable securities of $95.6 million

Management to host conference call and webcast Tuesday, November 28, 2023 at 8:30 AM ET

Management to host investor day on December 4, 2023

NEVE ILAN, Israel, Nov. 28, 2023 (GLOBE NEWSWIRE) — NANO-X IMAGING LTD (NASDAQ: NNOX) (“Nanox” or the “Company”), an innovative medical imaging technology company, today announced results for the third quarter ended September 30, 2023 and provided a business update.

Third Quarter 2023 Highlights and Recent Developments:

“The Nanox team made tremendous progress toward commercialization of the groundbreaking Nanox.ARC technology in the third quarter, capped off by the first US system deployment in a commercial imaging center in New Jersey. The Nanox.ARC system at this site will be used for patient imaging as well as serve as our demonstration center for the Nanox.ARC and marks the beginning of Nanox’ commercial expansion into the U.S. market,” said Erez Meltzer, Chief Executive Officer of Nanox. “Alongside this initial system deployment, we have partnered with 626, an established Florida-based firm that will provide the necessary installation and support services for future Nanox.ARC users. Outside of the U.S., we continued to advance the deployment of the Nanox.ARC system globally. These efforts include multiple initiatives such as receiving regulatory clearance in Israel, formally kicking off the process of submitting our technical file for obtaining a CE mark with the Notified Body and receiving regulatory clearance for the Nanox.ARC system that was placed in Ghana earlier this year. It is truly an exciting time for Nanox.”

Financial results for three months ended September 30, 2023

For the three months ended September 30, 2023 (the “reported period”), the Company reported a net loss of $21.4 million, compared to a net loss of $19.1 million for the three months ended September 30, 2022 (which is referred as the “comparable period”), representing an increase of $2.3 million. The increase was largely due to a goodwill impairment of $7.4 million and an increase of $0.4 million in sales and marketing expenses, which was offset by a decrease in the general and administration expenses in the amount of $5.6 million.

The Company reported revenue of $2.5 million in the reported period, compared to $2.4 million in the comparable period. During the reported period, the Company started to generate revenue through the sales and deployment of its imaging systems while continuing to generate revenues through the sales of teleradiology services and AI solutions.

The Company’s gross loss during the reported period totaled $1.7 million (gross loss margin of (67%)) on a GAAP basis, as compared to a gross loss of $1.5 million (gross loss margin of (60%)) in the comparable period. Non-GAAP gross profit for the reported period was $0.9 million (gross profit margin of approximately 37%), as compared to $1.1 million (gross profit margin of approximately 46%) in the comparable period.

The Company’s revenue from teleradiology services for the reported period was $2.2 million, as compared to revenue of $2.4 million in the comparable period. The decrease in the Company’s revenue from teleradiology services was mainly attributable to customer attrition.

The Company’s GAAP gross profit from teleradiology services for the reported period was $0.2 million (gross profit margin of approximately 11%), as compared to $0.6 million (gross profit margin of approximately 26%) in the comparable period. Non-GAAP gross profit of the Company’s teleradiology services for the reported period was $0.8 million (gross profit margin of approximately 36%) as compared to $1.2 million (gross profit margin of approximately 49%) in the comparable period. The decreases in the gross profit margins on a GAAP and non-GAAP basis were attributable mainly to an increase in the cost of the engaged radiologists due to increases in reading rates and incentive payments which the Company paid to radiologists to engage during overnight and weekend shifts.

As mentioned above, during the reported period the Company started to generate revenue through the sales and deployment of its imaging systems which amounted to $99 thousand for the reported period, with a gross profit of $36 thousand (gross profit margin of approximately 37%) on a GAAP and Non-GAAP basis. The revenue stems from the sale and deployment of our 2D systems in Africa.

The Company’s revenue from its AI solutions for the reported period was $141 thousand with a gross loss of $1.9 million on a GAAP basis, as compared to revenue of $87 thousand with a gross loss of $2.1 million in the comparable period. Non-GAAP gross profit of the Company’s AI solutions for the reported period was $75 thousand, as compared to a loss of $41 thousand on a non-GAAP basis in the comparable period. During the third quarter of 2023, Nanox AI continued to complete pilot programs with marketplaces, marketplace costumers and health organizations in anticipation of full deployment of its products.

Research and development expenses for the reported period were $6.0 million, as compared to $6.1 million in the comparable period. The decrease of $0.1 million was mainly due to a decrease in cost of labor of $0.6 million, which was offset by an increase in the Company’s development expenses of the Nanox.ARC system in the amount of $0.5 million.

Sales and marketing expenses for the reported period were $1.1 million, as compared to $0.7 million in the comparable period. The increase was mainly due to an increase in the Company’s marketing expenses in preparation of its entrance into the U.S. market.

General and administrative expenses for the reported period were $5.0 million, as compared to $10.6 million in the comparable period. The decrease of $5.6 million was mainly due to a decrease in legal expenses in the amount of $2.9 million, largely as a result of the finalization of the SEC investigation and reaching a settlement of the class action litigation, a decrease in share-based compensation in the amount of $2.7 million and a decrease in the cost of the directors’ and officers’ liability insurance premium in the amount of $0.3 million.

Goodwill impairment for the reporting period was $7.4 million, which was resulted from the goodwill impairment related to the teleradiology and Nanox.AI reporting units. The impairment was largely due to the increased discount rate and management estimates that it would take longer than we originally expected to generate revenues, gross profit, and positive operating cash flows in the AI and Teleradiology business segments.

As previously disclosed, the Company and Ran Poliakine, Chairman of the board of directors of the Company, reached final agreements with the SEC staff to settle the SEC investigation. The agreements were approved by the United States District Court for the Southern District of New York in October 2023. The Company agreed to pay a civil penalty in the amount of $0.7 million, which was paid during October 2023.

Non-GAAP net loss attributable to ordinary shares for the reported period was $9.4 million, as compared to $8.1 million in the comparable period. The increase of $1.3 million was mainly due to the decrease in the non-GAAP gross profit of $0.2 million and increase of $1.1 million in our operating expenses. Non-GAAP gross profit for the reported period was $0.9 million, as compared to $1.1 million in the comparable period. Non-GAAP research and development expenses for the reported period were $4.9 million, as compared to $5.0 million in the comparable period. Non-GAAP sales and marketing expenses for the reported period were $0.9 million, as compared to $0.4 million in the comparable period. Non-GAAP general and administrative expenses for the reported period and the comparable period were $4.5 million.

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

Liquidity and Capital Resources

As of September 30, 2023, the Company had total cash, cash equivalents, restricted cash and marketable securities of $95.6 million, compared to $102.9 million as of December 31, 2022.

The decrease in the Company’s cash, cash equivalents, restricted cash and marketable securities of $7.3 million during the nine-month period ended September 30, 2023, was primarily due to negative cash flow from operations of $32.3 million and the purchase of property and equipment of $2.8 million, which was offset by cash flow from financing of $27.2 million largely from the capital raise that the Company consummated during the third quarter of 2023, as discussed below.

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, 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 approximately $27 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. The Company accounted for the issued warrants as an equity in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.

Other Assets

As of September 30, 2023, the Company had property and equipment of $45.1 million as compared to $43.5 million as of December 31, 2022. The increase was mainly attributed to the purchase of equipment and parts for the assembly of Nanox.ARC (including the Nanox.CLOUD) units.

As of September 30, 2023, the Company had intangible assets and goodwill of $83.3 million as compared to $98.6 million as of December 31, 2022. The decrease was attributable to the periodic amortization of intangible assets in the amount of $7.9 million and goodwill impairment of $7.4 million.

Shareholders’ Equity

As of September 30, 2023, the Company had approximately 57.7 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 2,142,858 of the Company’s ordinary shares in consideration of gross proceeds of $30 million, the issuance of 224,938 shares upon the exercise of options, which generated, in the aggregate, approximately $0.9 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

Tuesday, November 28, 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 initiation, timing, progress and results of the Company’s research and development, manufacturing, and commercialization activities with respect to its X-ray source technology and the Nanox.ARC, the ability to realize the expected benefits of its recent acquisitions and the projected business prospects of the Company and the acquired companies. 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, including the continuation and escalation of the military conflicts in Israel; (x) the costs incurred with respect to and the outcome of the securities class action litigation 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, goodwill impairment, 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 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.

Use of Non-GAAP Financial Measures

The unaudited condensed consolidated financial information is prepared in conformity with GAAP. The Company uses information about certain financial measures that are not prepared in accordance with 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 adjusted for (as applicable) amortization of intangible assets, goodwill impairment, share-based compensation expenses, change in contingent earnout liability, legal fees in connection with the class-action litigation and the SEC investigation and accruals in connection with the settlement of the SEC investigation. The Company believes that separate analysis and exclusion of the one-off or non-cash impact of the above reconciling items (as applicable) adds clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measures for planning, forecasting, and measuring results against the forecast. The Company believes that the non-GAAP financial measures are useful supplemental information for investors and analysts to assess its operating performance. 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.

Reconciliation of GAAP net loss attributable to ordinary shares to Non-GAAP net loss attributable to ordinary shares and Non-GAAP basic and diluted loss per share (U.S. dollars in thousands)

Reconciliation of GAAP cost of revenue to Non-GAAP cost of revenue (U.S. dollars in thousands)

Reconciliation of GAAP gross loss to Non-GAAP gross profit (U.S. dollars in thousands)

Reconciliation of GAAP gross loss margin to Non-GAAP gross profit margin (in percentage of revenue)

Reconciliation of GAAP research and development expenses to Non-GAAP research and development expenses (U.S. dollars in thousands)

Reconciliation of GAAP sales and marketing expenses to Non-GAAP sales and marketing expenses (U.S. dollars in thousands)

Reconciliation of GAAP general and administrative expenses to Non-GAAP general and administrative expenses (U.S. dollars in thousands)

Reconciliation of GAAP other expenses to Non-GAAP other expenses (income) (U.S. dollars in thousands)