Thank you for standing by. This is the conference operator. Welcome to the Nano-X Imaging Second Quarter 2021 Earnings Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask question. [Operator Instructions] I would now like to turn the conference over to Bob Yedid of Investor Relations. Please go ahead.

Thank you, operator, and thanks to everyone for joining the Nano-X Imaging Second Quarter 2021 Conference Call. On today's call, we will hear from Ran Poliakine, Chairman of the Board and Chief Executive Officer; and Itzhak Maayan, Chief Financial Officer. Before we begin, I would like to remind everyone that managements remarks today contain forward-looking statements regarding the Company's financial results, proposed acquisitions, 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 may cause such a difference -- 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 and class action related expenses. Completion of the proposed Zebra Med acquisition is subject to, among others, approval of the transaction by the equity holders of Zebra Med. The acquisition of USARAD is subject to the completion of due diligence and to negotiations of a definitive agreement. The definitive agreement with USARAD may not be entered into on terms or in the time frame currently contemplated. Both acquisitions are subject to satisfactory -- satisfaction of the conditions to closing in the definitive agreements, regulatory approvals and other customary conditions. Therefore, neither of the proposed transactions may be consummated on a timely basis or at all. With those prepared remarks, it's my pleasure to turn the call over to Nano-X Chairman and CEO, Ran Poliakine. Ran?

Thank you, Bob, and thank you, everyone, for joining our call this morning. Also joining me is Itzhak Maayan, our Chief Financial Officer. After my prepared remarks, I will turn the call over to Itzhak to review the financials before opening the call for questions. Well, during the second quarter and the following period, we made substantial progress towards our goal of democratizing medical imaging. As we've said many times before, roughly 2/3 of the world population do not have meaningful access to medical imaging. And we believe extended global access to medical imaging devices will lead to earlier detection of chronicle condition. In order to fulfill our mission, we aim to tackle three significant worldwide challenges. The first one, of course, is a global shortage of medical images devices. The second one is global shortage of radiologists to read these images. And the third one is lack of data connectivity between patients and physicians and lack of data crunching platforms. In the context of shortage of medical imaging devices, we have made significant progress in the production, signing more partners and the regulatory path. So concerning the first challenge, the Nanox.ARC production, we continue to make important progress towards building our global supply chain, including scaling up our semiconductor fabrication plant in South Korea as planned. We're also advancing a schedule with our two production using our two tube suppliers for the multi-store system in Italy and South Korea. Finally, our production assembly line in Israel is fully occupied, integrating those chips and tubes into systems. Concerning the existing and new partners of MSaaS agreements, we recently signed an MSaaS agreement with EiLEENO Pharma to deploy 1,000 Nanox.ARC system across Nigeria, a country with a population of over 200 million. This is our first entry into the West African…

Thank you, Ran. And just let me say that it has been a privilege working at Nano-X and being a part of creating a vision aiming to change people's lives on a global scale. During the past two years, I believe we have built a solid foundation from which to drive future growth, the run and the rest of the senior management team are very capable of driving forward. In addition, I have had the pleasure of working with Erez Meltzer as a member of the Board of Nano-X since late 2019, prior to the Company's IPO and I wish him well in his new role. Now turning to the numbers. Nano-X reported a GAAP net loss applicable to ordinary shares for the second quarter of 2021 of $13.6 million compared to a net loss of $6.4 million for the comparable period in 2020. Non-GAAP net loss applicable to ordinary shares for the second quarter of 2021 was $8.6 million compared to a non-GAAP net loss of $2.9 million for the same period in 2020. A reconciliation between GAAP net loss and non-GAAP net loss for the 3-month period ended on June 30, 2021 and 2022, 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 to ordinary shares is mainly due to share-based compensation and secondary offering costs. Non-GAAP research and development expenses for the second quarter of 2021 were $3.4 million as compared to $1.5 million for the comparable period in 2020, reflecting the increased development activities of our Nano-X system and the related regulatory costs. Non-GAAP marketing expenses for the second quarter of 2021 were $1 million as compared to $0.5 million for the comparable period in 2020 as we continue building…

[Operator Instructions] Our first question is from Steve Halper with Cantor.

A couple of questions. I appreciate the operational update on the 15,000 units by 2024. Could you give us an update on the 1,000 units in 2022? And then my second question, can you give us a framework of the revenue and EBITDA contribution from the companies that you're acquiring?

Yes, sure. So Steve, I will start with answering the first question, and then Itzhak will address the second one. So we are on plan and we do have all the confidence that at least 1,000 units will be shipped during 2022. As we see things today, we have everything ready. And we are getting the final integration V&V and of course, waiting for the regulatory path, but there is no reason for us to believe that we could not ship at least 1,000 units. As you know, we have at least 6,100 units booked by customers. So we should start to see a significant ramp up as of 2022 and all as planned and reported before. Itzhak, do you want to answer the second one?

Yes. I would just -- Steven, I will just say shortly, obviously, we are not giving at this state any kind of guidance on revenue, but I can tell you that our estimation, especially when it relates to Zebra that it will move to profitability as it's ramping up into the population health product offering. It will reach profitability somewhere around 2023. This is one. The second one as it relates to USARAD, this acquisition and the performance of USARAD currently is a cash-neutral basis.

The next question is from Jeffrey Cohen with Ladenburg.

So just a couple of questions from our side. And I think I may have missed part of it. As far as the Zebra acquisition in totality, it sounds like 60-40 shares in cash. And could you just recap that with me and then also talk a little bit about the 100 milestones behind it, how many milestones are there? And are they related solely to sales numbers?

Yes. Well, first of all, maybe I misspoke, it's only shares, and it's divided to three tranches of shares. The first one is $100 million in ordinary shares of Nano-X and that's upon closing. And then there are three agreements -- business development agreement, new ones, that will actually, if being signed will account for additional $16 million in ordinary shares, all shares. And lastly, there is maybe a group of seven different type of milestones that includes revenues, retention, et cetera, that is achieved will be granting up to additional $84 million in Nano-X ordinary shares. And one point that is important, that will be done at the price at the time of the achievement. So the price will be relevant when achieved. So it's all shares-based transaction. Itzhak, you want to add anything?

I think that was pretty accurate. Maybe I can just in terms of the milestone indeed, there are about seven different milestones. Some of them related to attaining the business projection that came along with the acquisition. Obviously, the other one is related to integrating the Zebra technology within the overall product offering at Nano-X which makes it a very attractive acquisition from a performance standpoint for us.

Okay. Got it. And then secondly, could you give us a little bit more color and update as far as the current manufacturing and it's transferred to your South Korean temporary facility and an update on the new facility in South Korea and also an update perhaps on specific to manufacturing of the ARC as far as production in Tubes go.

Yes, absolutely. So I will take this one. So first of all, we are meeting all our timelines in terms of transferring the knowledge from Japan to Korea. As you recall, currently, we have a semiconductor manufacturing facility in Japan that is providing a full solution for the chip. So the production line right now is in Japan, as we scale up and towards the really big demand that we have with transferring the knowledge and the manufacturing line in two phases. The first one is when we put our equipment in temporary manufacturing site in Korea. And that will be in charge of about half of the process. So half of it is in Korea, half in Japan. And this was a lot of work that was done in the last, I would say, six months, and this is done. So we can say that these capabilities of the combination of Japan/Korea temporary fab with our equipment is done, and we're ready for prime time there, ahead of time actually. The second initiative that we're doing and there, we're investing a lot of funds actually too during this year. This is the new factory, and this is also just developing on schedule, and we expect to finalize all the building and those infrastructures there by the end of this year, starting to run some, I would say, pilot early next year and be in full operation, let's say, before the end of the first half of next year. It's important to say that this is a timeline, but also important to say that we have full capabilities and really scalable type of capabilities within the attempt factory and Japan as we speak today. So this is not a concern at all. In terms of the tube making, we have…

Our next question is from Suraj Kalia with Oppenheimer & Company.

Ran and Itzhak, can you hear me all right?

Yes.

Yes, Suraj. It's perfect.

So before I go on to my questions, Itzhak it's been a pleasure working with you. We wish you the best in your next endeavor.

Appreciate it.

A lot of things happening, right? So I want to ask the obvious why the management changed now? Just -- and I'm curious how the process has gone about the timing and when this all came just kind of thread the needle for us in terms -- especially the timing and the switch in terms of other management.

Absolutely, absolutely. No, that's all good news. And I think it's pretty obvious. I think 2021 for us was a year of infrastructure building. We invested over $40 million in Korea and just establishing the new factories. We went through a very, very rapid growth in the teams in terms of a regulatory team as well as the V&V skill set you need for really scaling up everything from what we've shown in the RSNA last year to what is expected from the Company in terms of deliveries and fulfill our commitment to our customers. So the year of 2021 is really about building the infrastructure and getting ready to prime time. As such, I think that we had to deal with what is it that is missing in terms of in terms of the components needed in order to fulfill our mission. And I think we spoke always about our vision of democratizing medical imaging that includes not only the medical devices, but also the software part of the cloud, the AI component as well as the radiologist. So that's pretty obvious why early on this year when we saw that everything is on plan, we started to look at the proposed acquisition that we announced today. And I would tell you, that's a long process. It's not started today. And in terms of management, what we also realized is what we knew already that the year of 2022, while we are going to ship a lot of products as we believe, is going to be really the year of execution. It's going to be execution, execution, execution. And as such, we really wanted to make sure that we put the right teams that can really globally manage this efforts, including the integration of both USARAD and Zebra Medical…

So on two additional questions from my side, and I'll hop back in the queue. First on Zebra. And forgive me, I haven't looked at the filings in terms of additional information on Zebra. So maybe it's buried in there. Is there a color on the stock price for Zebra? And also, as I understand it, Zebra has like a chest X-ray AI software cleared. And I'm curious how you see the implementation or integration playing out with Zebra. Because at least from what personally, I was able to glean, their AI is talking about deeper imaging or relatively deeper tissue and bone imaging. And based on at least what Nano-X's filings are, this is just kind of thread the needle again for us, Ran, in terms of timing? How you all thought that as a strategic fit in terms of what you guys are doing and especially the valuation?

Yes, absolutely. So I would just refer to that from a high level, as you all understand, we just completed a very, very long due diligence with some thoughts about the actual integration. But from signing to closing, we have sometimes, and that will allow us really to perfect our operational plan. But overall, from 30,000 feet, there is no doubt that diagnostics of AI for radiology will be part of the future. In developing -- in developed countries that may be a support system for radiologist. And in developing countries, there are a lot of talks of this being -- this software-based AI being the first line of defense to see if something is normal or not. Now so the first [indiscernible] of -- the way we look at the strategic usage of the very, very deep knowledge of Zebra into this domain is to perfect the products that are most frequent in terms of radiology and try to come up with modules that will enable, in essence, coupling each one of our Nanox.ARC into this software solution that will go after the most common and frequent type of modalities. And that's something that we believe after a lot of due diligence that is within the capabilities of Zebra's team. They are one of the most impressive team, I ever seen in terms of algorithm and AI. And also, they are very much well known in this domain for their ability to close the loop and actually get something to regulatory clearance and also with partners. So this is the first part. The second part is that Zebra is very busy now with some payers actually to build what will become I mean if we're talking in terms of annotation, this is like early detection, I would say, annotation.…

And finally, Ran, on USARAD, if I could. When did the discussions with the USARAD start? How does the accounting now work for your USARAD contracts? And is the goal moving forward now to essentially, let's say, you have contracts in Belarus and Brazil and other places that even if the scans are done and radiologists are not present the U.S. remote monitoring, but USARAD is going to facilitate that. Just kind of -- and if that is the case, maybe you can walk us through how you enforce the logistics and the payment portion.

Yes. Okay. So I will let Itzhak to answer the accounting. But again, I will answer a very simple question -- a simple answer. Part of our total value to customers is also the ability, if they want to get access to our AI modality as well as radiologists. And USARAD have already demonstrated, they have a business in the U.S. and also serving outside of the U.S. that is EPA compliant, that is able today without Nano-X actually to generate a lot of transactions that are connecting between patients or imaging centers into radiologists. So they've already done that. The only thing we ask him -- we ask them or we envision that this proposed acquisition will do it that it will give us immediately the ability to offer that from within and will enable us to really climb up the value chain. As you recall, our business model is $14 per scan, but then up to $40, if we provide diagnosis. So that's the first thing. And then, of course, for all those countries that we signed contracts with that do not have not only medical devices, but also, they do not have any radiologist around. That would be an instant and very important component to fulfill this mission. And again, I will just say again that having many, many devices that generate brilliant extra images will not be sufficient without the ability to read them. And that's really how we view their current operation is very relevant to where we start to ramp up in the U.S. following the FDA clearance. And it will pretty much be -- we should see the fruit of that actually early 2022 in the U.S. and outside. The second one is actually that their geologists are committed through the Nano-X Academy to educate other skill other skilled clinicians in order to read Nanox images, and that's an initiative that will also take that also will take place of So this is my answer to the synergies and why it's very relevant immediately. And I would like it's hard to talk about the accounting, please.

Yes. No, Suraj, it's going to be very, very hard at this earlier as to go into specific, but I want to lay out the principle of what we're doing. When you think about it, when we have initiated the goal of targeting $40 per scan to the patient, we were speaking about three different parties within that $40 framework, we were talking about Nanox with the famous $14 per scan. We are talking about the service provider, and we are also talking about the radiologist obviously, on the low end, radiology and annotation. Well, I think those two acquisitions is enabling us is actually to vertically integrate two of the different business offering that until now, we will completely relied on third parties. So even though that we still intend to maintain our third-party agreement with the AI companies, we do intend to vertically integrate the AI capability within the offering and obviously take bigger share of the margin associated with the AI portion within the $14. And the same thing when it comes to the radiology and notation, as a result of integrating USARAD within the overall framework of Nano-X, it will allow us to take a higher margin on something that until now was mostly a follow-through to the offering that went all the way straight to the third-party radiology and notation. So without going to the principle, obviously, that will allow Nano-X to maintain a higher margin profile once we fully vertically integrate the two businesses within the overall product offering.

The next question is from Ravi Misra with Berenberg.

Congrats Itzhak, best of luck to you on future endeavors. So just, I guess, more questions on the acquisitions that you're announcing. First, you haven't mentioned as far as I can tell any kind of expectations around deal close timing. If you could kind of give us a sense of when you think that could happen if these agreements go through? Second, it's a little bit of a kind of grander strategy. It sounds like that you're going after with both of these acquisitions and kind of the hardware and MSaaS provider model that where we've all been thinking about. So just help me understand in terms of -- I thought you gave a little bit of color on margin. But when you make that margin commentary, is that on gross margin? Like how should we think about the kind of longer-term operating margin performance of the business here? Are the 300 radiologists that you're getting through, let's say, RAD potentially? Are those now going to be part of your kind of employee headcount? How should we think about some of the imaging AI integration that deeper brings with your other partners? I mean, is this kind of mutually exclusive or complementary what else needs to be done to kind of develop that Nano-X CLOUD and Academy aspect of the engine? And I guess I'll just put my second follow-up really quick. There have been a lot of questions. The public streaming event that you discussed on August 16, can you just give us some understanding of what that's all about?

Sure. So maybe, Itzhak, you'll start on the numbers question, and I will try to provide some view on the strategy and also on the event on the 16th.

Yes. I mean in gravity, meaning it's going to be -- killer for me just to relate right now at this early stage on when it comes to accurate margin. But one way to think about it, and I want to make sure it's not being lost with all the details is the fact that as you think about the Zebra integration, moving forward, it has two different components when it comes to Nano-X. First of all, I don't want to be completely missed that Zebra is continuing to be operating as a stand-alone business under the under the Nano-X brand, what it means that they will continue and invest and deploy their move into population health as a transition from their very expensive triage-based business that they were very successful at building with seven FDAs and so forth. So first of all, we do we do forecast and we do project that over time, okay, Zebra will bring revenue off its own coming from those population health product offering beyond their contribution to the MSaaS model. So the overall margin impact as related to Zebra will have both components, both the impact on the Nano-X MSaaS offering, but also their own revenue as they're going to be rapidly building -- entering into the population health product offering. Ran, I think it's the hour.

Yes. So let me again -- yes, just were a little bit, I think, getting to the end of the hour. So let me -- Let me just simply talk about strategy again. I think that the grand strategy is there from the IPO last year. I mean the idea of democratizing Medical Imaging includes component of, number one, create access to medical devices. Number two, provide a secure platform that can actually create connectivity remotely between physicians and patients using and utilizing third-party services, including AI, radiologists and the third one is actually to have someone sufficient no matter what -- not exclusive, but no matter what, can read those images. Again, because those images are not that important without someone that can analyze them. So if you look at this strategy, both acquisitions actually play perfectly into the strategy because on the medical device side, we feel that we are very near to prime time. We have all the component needed. 2021 was really a great year of infrastructure, and we feel very confident that we are going to ship many units next year. The second level of connectivity and EPA compliance Cloud is actually what we needed to make sure we are there in terms of product readiness. And I think both MDW or USARAD and Zebra has far more experience in than we do, and they could shortcut a lot of our initiatives, and that's a huge immediate value to what we do. And the third one is really -- has to do with the, let's call it, the analysis, whether it's human or by academy or by software and both companies have proven actually their capabilities in terms of all of that. So USARAD is already operating consultants, by the way, that are the network…

Great. And just the August 16 event?

I'm sorry?

Just on that August 16 event, just curious what that can happen.

Yes. Yes. So no, no. So I think in August 16, we're going to -- I mean -- okay, so let me just tell you that -- we know that we are sharing today a lot of information in one call. And that's why we think that we need to be engaging in a very robust way and not only in August 16, but actually, I will announced later, we have other dates from now until RSNA, where we're going to devote much more time in order to not only talk about the things, but actually let everybody see, engaged with the, let's say, with the production line to see the actual device in action to see the actual images coming from the device to see those images being uploaded to the cloud of -- that includes also the USARAD Cloud to talk to the radiologist, and also to have the Zebra people just explaining everything about AI and how they fit into our strategy. So we start on August 16, it was the webinar where we prepared actually more informal, I would say, dialogue between the different component of what we have. And of course, the audience. We also will ask Erez Meltzer that will become the CEO as of January of '22 to join us. And so investors and analysts can actually meet him. And that say, I feel we will give much more color, and at the following event, as I will tell at the very soon, we'll have some more events planned because as you realize, this is a very important day but also a lot of information. So we will need to make sense out of all of it through some separate events devoted to, for instance, AI or the Academy or this August 16, where we are going to show practically our system at work.

The next question is from Rahul Rakhit with LifeSci Capital.

I know there's been a bunch of questions, so I'll try and make it quick. But I just want to get some clarification on regulatory timeline. I know you'd mentioned they've done the first 510(k) submission for the Nanox.ARC. But can you -- is this system commercial ready? Or are you expecting to make another submission for the commercial-ready system. What would be the timing of that? And I guess, what are the key differences between these two submissions? And then just following up from that, given the amount of back and forth that you had with the FDA for the single source system and the complexity of the multisource submission? And I guess, what is your thinking around the timing of an ultimate FDA clearance and whether you might see some ex-U.S. approvals prior to that?

Yes. Okay. Let me just address that. So actually, we view the Nanox.ARC, the Nanox.CLOUD as a very significant FDA approval because basically, it cleared the technology. And the multisource was submitted. And immediately, we got feedback from the FDA and some questions. So that's in process. As you all know, we cannot control the timing of the FDA, but we have all confident that we're in good shape there. We're going to submit a second submission of the Nanox.ARC with the final, I would say, and the best performance level of the Nanox.ARC, still during this year, and we expect that, as we said, that will allow us to -- in the U.S. and outside of the U.S. to ship to the very minimal 1,000 units during 2022. Nothing has changed in that domain. The experience we had by the delay during the corona time, et cetera, with the FDA is definitely not the same experience we have right now. And I can only say that we already have some communication there, which is all positive, and we feel confident that we are in a good shape to meet everything we said so far, which is basically submit and get clearance in a way that will allow us to ship products in the U.S. and outside of the U.S. as planned during 2022.

Got it. I appreciate that. And just one more quick one for me. Sorry, just I haven't heard much around potential Nanox.CLOUD filing. Is there anything that you could add there in terms of the timing of that? And ultimately, what that process may look like?

Yes. I mean -- yes, sure. I mean we're going to submit everything needed in order to operate, including the Nanox.CLOUD, but also, we are going to very closely look at the two proposed acquisition and what can we already utilize from there, just again to reiterate both Zebra and U.S. -- and MDW, actually have very, very strong cloud capability that's already working in terms of USARAD and MDW, they are already in operational for years, EPA compliance and everything is done. So we already integrated initial integration into their system just to see that it's working and it's working perfectly. And the same will be done with Zebra that also have very, very strong cloud capabilities. So the answer is, a, we're going to submit to the very least our Nanox.CLOUD, which is already in preparation for the submission. And we're going to also look very carefully and see if we can utilize what is already done for some time and cleared with our partners so that we can shortcut and streamline the way for prime time of our business ramp up. So that's really the answer.

This concludes the question-and-answer session. Pardon me. Go ahead, sir.

No, no. Okay. So this is Ran speaking. So -- we know this is a lot of information for one call, and that is why we will be engaging in a very robust investor outreach that includes both financial conferences and meeting roadshows, and we hope to meet with you either in person or virtually in the near future. Meantime, we have a few upcoming events to Ravi's point. First of all, we'll have an investor webinar. And this is where management will host a public streaming event on August 16 at 8:30 a.m. EST. Following that, on September 30, we will do what called the AI Day. It's been taken from the battery, the -- of Elon Musk. So we'll do AI Day basically. And this is where we're going to take you with the people of Zebra Medical and other people from our team through the AI initiative and will go through everything that you need to know in terms of what is the direction that AI in medical in general, but also specifically what we're going to do with all the skill sets that we just looking to acquire. We're also planning to participate in the RSNA, Radiology Society of North America, and that will be coming on November 28, when you will be able to see in actual practice and demonstration of our end-to-end vertically integrated medical imaging solution, assuming we'll also show -- that show some component that will be added if those proposed transaction will be consummated. So to conclude, if you have just heard, Nano-X continues to take significant steps to fulfill our vision, together for better health. We're doing this in three ways. The first one is really continuing to scale up manufacturing of the Nanox.ARC, while in parallel, advance a long regulatory pathway in key territories, most noticeably in the U.S. Our new relationship with two great companies, USARAD Holding and Zebra Medical Vision, if consummated, will position us to make significant progress in realizing our goal, a globally connected end-to-end radiology solution. And finally, bringing in a world-class CEO to sustain the momentum that we currently enjoy and lead our company forward with whom I will be working actively as Executive Chairman. So with that in mind, I would like to thank you for your time today and continued support, and especially for your belief in our vision, a vision that will improve the health of all of us. Thank you very much. With that, operator, we'd like to start -- I would like to finish the call, I'm sorry.

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.