Good day, and thank you for standing by. Welcome to The Nanox Imaging's First Quarter 2022 Earnings Conference Call. At this time, all participants are in listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press star one on your telephone. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Mike Cavanaugh, Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us today. Earlier today, Nanox Imaging Ltd. released financial results for the quarter ended March 31, 2022. The release is currently available on the investors section of the company's website. Erez Meltzer, Chief Executive Officer, and Ran Daniel, Chief Financial Officer, will host this afternoon's call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements regarding the company's financial results, research and development, manufacturing and commercialization activities, regulatory process operations, the impact of COVID-19 on its business and other matters. These statements are subject to risks, uncertainties, and assumptions that are based on management's current expectations as of today and may not be updated in the future. Therefore, these statements should not be relied upon as representing the company's views as of any subsequent date.
Factors that may cause such a difference include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission. We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of the non-GAAP to GAAP measures is provided with our press release, with the primary differences being stock-based compensation, amortization of intangible assets, and class action-related expenses. I'd now like to turn the call over to Erez Meltzer.
Thank you, Mike, and thank you all for joining the call today. As always, we appreciate your continued support of Nanox. As on our last call, I will give an overview of our recent achievements and share our outlook on the year ahead before turning the call over to Ran Daniel, our Chief Financial Officer, to review our financial results. We will then open the call up to questions. Overall, I am pleased with our performance in the first quarter as Nanox experienced accelerating revenue growth, continued to advance the design and deployment of the Nanox system, and we continue to make headway in the FDA clearance process. The first quarter of 2022 was our first full quarter of revenue generation. The company generated top-line revenue of $1.8 million compared to $1.3 million revenue in Q4 2021.
As in the previous quarter, the revenue growth was due to the acquisition of Zebra Medical Vision, now Nanox.AI, a deep learning machine analytics company. MDWEB, now Nanox. MARKETPLACE, which is their decentralized marketplace connecting imaging facilities with the radiologists. USARAD Holdings, Inc., leading provider of Teleradiology Services. The acquisitions were completed at the end of 2021 and started to generate revenue in mid Q4. Beyond the acquired revenue streams, we are pleased to note that we also experienced organic growth in the Teleradiology business, which accelerated in the first quarter of 2022. The sales and marketing efforts around our teleradiology solution, which began in November of 2021, have begun to produce results. During the first quarter, our team generated growth from existing clients while also implementing new contracts with their new imaging centers.
Our teleradiology solution now consists of a network of more than 300 independent radiologists that are certified by American Board of Radiology, and we provide our teleradiology service to over 500 imaging facilities, including hospitals. We believe that the progress in our Teleradiology business will strengthen the Nanox end-to-end medical imaging platform and will support our global deployment efforts and ultimately help to increase the accessibility of medical imaging solutions. These acquisitions are important pieces that we have put in place around the innovative Nanox.ARC technology, and we believe they will help prepare Nanox to advance our vision democratizing healthcare around the world. It is gratifying to see our AI-powered software adopted by large hospital systems designed to promote increased early detection of risks for cardiovascular disease and osteoporosis, which was first announced on our last call.
We believe the value of our AI solution will become stronger once it is being paired with a Nanox.ARC to create end-to-end connected, affordable, streamlined medical imaging solution, from image capture to analytics to intervention by trained radiologists. It is well known that early detection saves lives, and we believe that the increasing use of advanced AI-enabled diagnostic equipment for the rapid diagnosis will shift healthcare from predictive to preventive. In developed countries, this is one of the major factors anticipated to contribute to the rising product demand as this technology continue to gain momentum with healthcare providers. Currently, only a handful of players operating in the market are providing an AI-enabled imaging technologies to the healthcare industries. We believe that these successes demonstrates the integration of the acquired companies is going smoothly.
As part of our integration effort, we have focused on improving our internal controls by implementing procedures, processes, and policies. We have continued to invest and improve our human capital and technological infrastructure. We plan to continue to evaluate our potential additive technologies that may enhance the value of Nanox ecosystem. With that, I'd like to turn to the regulatory update. Our continuing dialogue with the FDA enabled us to receive feedback on our Q submission, and we expect that the next step in the process to be the submission of the supplement to the Q submission, followed by a formal 510(k) application to the FDA for the multi-source Nanox.ARC that will have the power levels and indication that we believe will result in a successful deployment of the Nanox.ARC.
In another related matter to our regulatory efforts, we announced several weeks ago that Nanox.AI had secured another FDA 510(k) clearance, this time for our HealthOST device, an AI software that provide qualitative and quantitative analysis of the spine from CT to support clinicians in the evaluation and assessment of vertebral compression fractures and low bone density. This is our 10th clearance with our innovative portfolio of AI-powered clinical decision assist tools. In addition to these FDA clearances, Nanox has secured the CE mark in Europe for 11 radiology AI solutions, as well as numerous regulatory approvals in other countries for its radiology AI solutions. I'd like to finish up the regulatory update by announcing another new initiative on the regulatory front.
We are now in discussions with several notified bodies in the European Union to begin the process of securing the CE mark in the E.U. for the Nanox.ARC system. This is an important step towards achieving a global footprint. We are pleased with our regulatory developments, and we are committed to continue our efforts diligently to meet the goals we have set for ourselves. We took another important step to our commercialization with a commencement of large-scale production of our MEMS chips at our new semiconductor fabrication plant in South Korea, as announced at the beginning of April. The facility will be the production site for the Nanox.SOURCE, the chip that produces the digital X-ray source and lies at the heart of the company's Nanox.ARC system.
We continue to prepare for full-scale production soon, and that this facility will support our manufacturing needs for the foreseeable future once we begin deployment. As we also reported last month, we continue to build our production lines for the Nanox systems at our Israeli facility in anticipation of the first Nanox.ARC shipments. With that, I'd like to turn the call over to Ran Daniel, Chief Financial Officer, to review our financial results.
Thank you, Erez. We reported a GAAP net loss for the first quarter of 2022 of $21.7 million, compared with a net loss of $12.7 million in the first quarter of 2021. Our revenues for the first quarter of 2022 were $1.28 million, and the gross loss was $1.9 million. Our revenue stems from the sales of Teleradiology Services and AI solution, and those revenues represent a full quarter of operation. Of such revenue, our revenue from Teleradiology Services for the same period was $1.7 million, with a gross profit of $0.1 million on a GAAP basis and a gross profit of $0.7 million on a non-GAAP basis, which represents a gross profit margin of approximately 39%.
In addition, our revenue from licensing of AI applications for the same period was $0.1 million, with a gross loss of $2.0 million on a GAAP basis and $0.0 million on a non-GAAP basis. Research and development expenses for the first quarter of 2022 were $6.8 million as compared to $2.7 million for the comparable period in 2021. The increase in our research and development expenses was mainly due to the consolidation of Nanox.AI with the company, development of our multi-source and cloud systems, and share-based compensation. Sales and marketing expenses for the first quarter of 2022 were $1.1 billion as compared to $1.7 million for the comparable period in 2021. The decrease was due to the decrease in share-based compensation.
General and Administrative expenses for the first quarter of 2022 were $11.3 million as compared to $8.2 million for the comparable period in 2021. The increase was due largely to the consolidation of Nanox.AI and USARAD Holdings with the company and the acquisition of the assets of MDWEB. Increase in our labor costs due to the increase in our headcount in connection with the expansion of the company's management team and the overall organization infrastructure, and legal fees with connection to the SEC inquiry and class action litigation. Other expenses for the three months ended March 31, 2022 were $0.8 million as compared to none for the three months ended March 31, 2021.
The increase was mainly due to the relocation of our fabrication facility in Korea to its permanent location and change in our contingent earn-out liability. The non-GAAP net loss for the first quarter of 2022 was $12.0 million, compared to a non-GAAP net loss of $7.0 million for the same period in 2021. A reconciliation between GAAP net loss and non-GAAP net loss for the first quarter of 2022 and 2021 is provided in the financial results that are part of the press release we issued this morning. The difference between GAAP and non-GAAP net loss is mainly due to amortization of intangible assets, share-based compensation, fees related to our secondary share offering, which was closed during the first quarter of 2021, and legal fees in connection with the SEC inquiry and class action. Turning to our balance sheet.
As of March 31, 2022, we had cash equivalents, and marketable securities of approximately $139.4 million, and we had $3.7 million loans from bank. We ended the quarter with property and equipment net of $41.2 million. The increase of $3.8 million during the first quarter of 2022 is mainly due to the completion of the construction of our fab in South Korea and the preparation for mass production of our MEMS chips. As of March 31, 2022, we had approximately 52.1 million shares outstanding, as opposed to 51.8 million shares outstanding as of December 31, 2021. The increase was mainly due to the exercise of warrants and issuance of shares to the former shareholders of Nanox.AI due to the achievement of a milestone.
With that, I will hand the call back over to Erez.
Thank you, Ran, for the financial update. Once again, thank you all for joining us today. I feel very good about Nanox results at the first quarter as CEO, but all of us recognize there is more to do. We hope to provide additional updates in the coming weeks and months. I would also like to share with you all that Nanox management team will have a non-deal roadshow in person with investors in late June. If you would like to schedule a meeting, please contact our investor relations partners at ICR. With that, I'd like now to open the call for questions. Operator, please begin the Q&A session.
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Our first question comes from Suraj Kalia with Oppenheimer. Your line is open.
Good morning, Erez, Ran. Can you hear me all right?
Good morning.
Good morning, Suraj.
Hey. Erez, sorry, just hopping around on a couple of things. In terms of the timing of the actual 510(k) submission and CE mark, can you give us some broad timelines as to how you see it currently?
For some reason, unfortunately, I can't hear you. Mike, can you repeat the question or?
Yeah. Could you, I think Suraj is asking kind of a broad timeline of the 510(k) submission down the road.
I can't hear for some reason. Can you repeat it once again? Sorry.
Suraj, can you repeat that? Sorry.
Sure. Erez-
There is a lot of noise in the background.
Forgive me, Erez. There's no background noise here. I was just inquiring about the timing of the actual 510(k) submission and the CE mark.
Oh, okay. I understand. Oh, whoa. Maybe it's in my phone. One second. Okay. Right now we don't say more than what we are saying right now in the press release and in the.
in the earnings. The only thing I'm saying is that the fact that we have changed our way to communicate with the FDA to an ongoing dialogue with the Q-Sub, we are waiting for the green light from the FDA to the approval of the Q-Sub, and then it will be submitted. Okay? We have provided in the last few months all the information that we requested, following the last two sessions that we had with the FDA, they have asked for a lot of supplemental information. We have actually shared this information with the FDA, and right now we are waiting for the okay. They will take their time.
Last time, the only thing I would say that the last time they had, like, 75 days before they respond to the submission, and they responded after 35 days. What will be now? Good question. As soon as we have their response, it will be very shortly after that we will do the submission.
Fair enough. Erez, hopefully you can hear me. I'll just ask one more question, and I'll hop back in queue. Has there been any validation testing done by any clients on the multi-source? Thank you, gentlemen.
First of all, I'd like to complete one question that you had before with respect to the CE. What we said is exactly the situation. We are evaluating a few notified bodies in Europe. Hopefully shortly we'll be able to finalize and go ahead with the CE submission as well. In terms of what you say, the customers, the real implementation, we obviously cannot do anything before we get the approval of the FDA or an approval to do the clinical trials. What we can do is once we get the clearance from those countries that we're planning the deployment that do not require the FDA approval, they have a different regulation that will apply.
The answer is that this will be shortly after that we will do the trials at the customer sites.
Thank you. Our next question comes from Jeffrey Cohen with Ladenburg Thalmann. Your line is open.
Hi, Erez and Ran. How are you?
Hi. Hi, Jeff.
Hi. I'm gonna follow up with Suraj's follow-up. What I was hearing was that you will receive some feedback from the agency on your last Q-Sub, and you should get feedback in the maybe near or medium term, and then you will again submit another supplement from their feedback.
No.
From the Q in the coming months.
No. The right now what we know is basically we have provided and submitted all the supplemental information that they required, and we're waiting for their go ahead to do the submission. Now, they may ask a few more questions. We are planning to do a session with them similar to those that we had in the last few months since we went to the Q-Sub process. Based on this, we're waiting for the go ahead and do the submission. If more information is required, then we'll submit it. But right now we are also taking all the necessary steps to provide some more kind of simulations and supporting evidence for what is needed.
I think that the process as it's going right now, from at least from our point of view, and especially due to the fact that it's a kind of a new technology that they haven't experienced in the past years and asking a lot of fundamental questions, I think it will enable us to move pretty quickly with the go and to get the go ahead and move forward.
They may require or you may be going through one more iteration perhaps, or at some point they will inform you to go ahead and file the formal 510(k) for the ARC.
Yeah. There are a few options of course. We hope that the next step will be the submission. They may ask for at the same time that we do the submission to go with clinical trials. Probably, no, we are not sure yet, but this is something that we think that will be shortly after. The one thing that we hope is that it will go directly to submission and, you know, start ticking the clock in order to get the approval as soon as possible.
Got it. Okay. As far as your commentary for the European Union, was your commentary referring to the ARC submission?
Yes.
Was your commentary about single source?
No, no, multi-source. The same submission that is going to the FDA, it's going to be with the CE. As you probably know, they have changed the guidance in Europe. They have limited the amount of notified body that can actually approve, the overload of work following the COVID was enormous. So basically, sometimes it takes more time than it used to be before when they had like 40 or 50 notified bodies, and right now I think that it's like 20. But I think that I believe that the efforts that we're making right now will get the results and that we hope to move forward in the foreseeable future with the CE as well.
Okay, got it. For Ran, any commentary, I think that our estimates for the first quarter were slightly lighter on the overall OpEx front. Could you give us any indication or flavor cadence on how OpEx in your view currently should roll out for the balance of the year? Would you expect that to come off a little bit due to lower charges that are one-time in nature?
Well, I think first of all that you in general should expect to see us being more efficient. We're going through a lot of processes and a lot of steps that we are taking in order to be more efficient, which will come in effect with the OpEx itself. Of course, the current trend in market where the dollar is strengthening and is helping us a little bit with regard to the OpEx since, as you know, most of our eight countries in Israel and in Korea.
Over there, we enjoyed in some period of the first quarter the strengthening of the U.S. dollar, and probably it will be the same in the second quarter. As always, we are in line with our annual operating plan.
Okay, got it. What's been the net FTE change over the past quarter or so from end of year to now? Is the organization continuing to grow or stabilize at the same size?
I'm sorry, can you repeat the question?
The total employee count.
The total employee count, we had a decrease in the total employee count, but of course, per our annual operating plan, we do plan to recruit more people and in order to exercise our plan.
Okay, perfect. That does it for us. Thanks for taking the questions.
You're more than welcome, Jeffrey.
Thank you. Our next question comes from Rahul Rakhit with LifeSci Capital. Your line is open.
Hey, guys. Just a couple from me. I know you mentioned that certain countries don't require the FDA approval in order for you to get regulatory clearances there. Could you comment on what the regulatory process looks like in those countries, and when do you anticipate receiving those regulatory clearances?
The process is these countries are what I would call local processes, special approval that are required. At least on one or two of them, we hope to get it shortly. They are by far, I would say, a little not by far, but a little bit more simple than the usual FDA and CE. We are in the process to get them as soon as possible. It will enable us to actually to start the
Hey, can you guys hear me?
Yep.
Yes, I can hear you.
Oh, sorry. Sorry, I think it cut off for a second. Apologies. Last one is, do you guys kind of expect to sign any additional MSaaS agreements through the year? I know there were two last year. I guess maybe you could kinda just touch on your efforts there and what that pipeline might look like.
The short answer is yes. The little bit longer answer that we are negotiating right now a few more agreements. I don't think that I can actually share when they are going to be signed, but at least in one or two of them, it's an advanced process.
Got it. Okay. Last one for me. You know, I know a few of the contracts you guys signed back in 2020 had three-year initial terms. Just realistically, how many of these do you expect to renew? Of the ones that do renew, should we expect any changes to see in the terms of these contracts in terms of, you know, the minimum numbers of units they may deploy or the minimum annual fee that might be agreed upon? Thank you.
Right now we don't have any reason to expect that any of them will change. The one thing that we are pushing once this is kind of right now in the cooking stage. Once we start or initiate the deployment, I think it will enable us to analyze in a better way what will be the minimum and what will be the charge per scan. Bear in mind that in those scans that we're going to add the reading, we're going to charge by far three or four times more than the current charge. This is right now the discussion.
I think that we may want to change, first of all, the minimum per scan and the minimum scans per day.
Got it. That's helpful. Appreciate it. Thank you, guys.
You're more than welcome.
Thank you. That's all the time we have for questions. I'd like to turn the call back over to Erez Meltzer for closing remarks.
Once again, thank you all for joining us today. We do hope to give you some more good news in the next few months. As always, what I'm trying at least to ensure that I'm saying or informing only things that I'm 100% sure that are going to be implement or have been implemented already. Sometimes it's more careful to be here, to be like this, but at the end, that's the better way. Thank you all for today, and we'll be in touch. We'll see you probably sometime in late June.
This concludes today's conference call. Thank you for participating. You may now disconnect.