Time To Exit Nano-X Imaging?
Taking a Look at Nano-X Imaging's (NNOX) Business Update.
I've transitioned to exclusively logging my weekly activity and tracking my portfolio in real-time on Savvy Trader.
For those not yet in the loop, I invite you to join me on this journey. Subscribe using the link below to gain direct insights:
By subscribing, you'll engage directly with me regarding specific companies, access my performance in real-time (with data starting just over a year), and get detailed views of my investments, real-time trading actions, cash positions, and more. This move is driven by my commitment to transparency. I believe that sharing my analytical insights and the reasoning behind my investment choices offers immense value, empowering you with the information you need to make informed decisions.
Nano-X Announces Business Update, Still No Revenue From ARC
Today before market open, Nano-X Imaging (NNOX) gave a business update on their operations for Q3 2024.
Key Highlights:
Revenue Growth: The company reported $3M in revenue for Q3 2024, up from $2.5M in Q3 2023.
U.S. Expansion: Expanded its U.S. sales and support teams, a strategic move to bolster global growth.
Product Deployment: Made significant progress in deploying the Nanox solution, including Nanox.ARC and Nanox.AI, with dozens of units now operational worldwide.
AI Business Expansion: Continued growth in the Nanox.AI segment, securing new distribution agreements with SpinexMedical and extending partnerships with Corewell Health, Dandelion Health, and Oxford University Hospitals.
Clinical Trials: Initiated a multi-site clinical trial at Beilinson Hospital in Israel and in Ghana to generate data supporting the clinical value of the Nanox.ARC system.
Liquidity and Capital Resources:
Cash Holdings: As of September 30, 2024, Nanox held $57.1M in cash, cash equivalents, restricted deposits, and marketable securities.
Cash Decrease: This represents a decrease from $82.8M as of December 31, 2023, mainly due to negative cash flow from operations amounting to $26.1M.
Detailed Financial Results for Q3 2024:
Net Loss: The company reported a net loss of $13.6M, a substantial improvement from the $21.4M net loss in Q3 2023. This $7.8M decrease is largely attributed to a $7.4M reduction in goodwill impairment expenses.
Revenue Breakdown:
Teleradiology Services: Generated $2.6M in revenue, up from $2.2M in the same period last year. The increase is due to customer retention and higher service volumes during weekday shifts.
Imaging Devices & Services: Reported $29,000 in revenue from the sale and deployment of imaging systems, including 2D systems in Africa and Nanox.ARC systems in the U.S.
AI Solutions: Revenue from AI solutions rose to $0.4M, compared to $141,000 in Q3 2023.
Gross Loss: The GAAP gross loss was $2.8M (a 93% gross loss margin), compared to $1.7M (a 67% gross loss margin) in Q3 2023. The Non-GAAP gross loss stood at $0.2M (a 6% gross loss margin), versus a Non-GAAP gross profit of $0.9M (a 37% gross profit margin) in the previous year.
Operating Expenses:
R&D: Expenses decreased to $4.7M from $6M, mainly due to reductions in salaries, stock-based comp, and research activities.
Sales & Marketing: Expenses were $0.9M, slightly down from $1.1M in Q3 2023.
General & Administrative: Expenses increased to $5.7M from $5M, primarily due to higher SBC and legal expenses, offset by a decrease in directors’ and officers’ liability insurance premiums.
My Take
As a shareholder of NNOX since the second half of 2021 with a cost basis just over $19 per share, I feel that something isn't adding up with this company, and I see red flags everywhere. While I'm frustrated, I'm not here to be irrational. Instead, I want to reasonably present these concerns and encourage everyone to consider whether this situation is acceptable.
Back when Ron Poliakine was CEO of Nanox, the company envisioned deploying their revolutionary Nanox.ARC imaging systems to underserved areas of the world at no cost. They even signed agreements to deploy thousands (actually 5,150) of ARC systems once the devices were cleared to commence immediate commercialization. Fast forward to early 2023 when Nanox.ARC received clearance, yet we still see no revenue generation from ARC. Management continues to claim they have 47 deployments without specifying whether these are 2D systems or Nanox.ARC units. Regardless, the company is already cleared for musculoskeletal imaging, which represents one of the largest markets in medical imaging. So why haven't they rapidly deployed the thousands of units as initially planned? What are they waiting for?
Musculoskeletal imaging is a significant area of medical imaging. It addresses common and high-demand applications like:
Bone fractures and injuries: Very frequent in emergency rooms and urgent care settings.
Arthritis and joint issues: Common among older adults and athletes.
Ligament and tendon tears: Regularly diagnosed in sports medicine and orthopedic clinics.
Spinal conditions: Such as scoliosis or vertebral fractures.
These use cases represent a large portion of the imaging market, especially in orthopedics, sports medicine, and trauma care, making musculoskeletal imaging a highly valuable niche.
However, some argue that the real challenge lies in adoption:
Many healthcare providers prefer multi-functional systems capable of imaging both musculoskeletal structures and internal organs to maximize utility and cost-effectiveness.
The musculoskeletal-only limitation might deter providers who want an all-in-one solution, which could explain why broader regulatory approvals (full-body imaging) are a key focus for NNOX.
While those points are valid for established healthcare providers, the entire goal was to deploy these units to parts of the world that lack access to this technology—areas with unestablished healthcare providers. So, what are we waiting for in these target regions?
My urgency stems from their poor liquidity position, as they are rapidly burning through cash—$26M net cash used in operations, adjusted to $18M through financing and investing activities. This is a significant problem that could lead to a shareholder’s worst nightmare, more dilution. Moreover, this cash burn apparently corresponds to only a couple dozen ARC deployments, if that's even accurate, since their filings and calls lack clarity—they mention "47" deployments but it's unclear whether these are 2D systems or ARC units. They need to start commercializing, but more deployments mean more cash burn. This concern doesn't bode well for me or many shareholders, especially after management has overpromised and underdelivered on their vision. What happened to those signed agreements from years ago?
Returning to the current situation that doesn’t make sense: musculoskeletal imaging—the largest market—is already cleared, while FDA and CE Mark approvals for full-body scanning and internal organ imaging are still undergoing trials. The potential revenue from these markets differs greatly, with musculoskeletal imaging offering substantial immediate opportunities.
Musculoskeletal Imaging:
Focused only on the bones, joints, muscles, tendons, and ligaments.
Used for conditions like fractures, arthritis, and tendon injuries.
Does not include imaging of internal organs (heart, lungs, liver).
This is what Nanox.ARC is currently FDA-cleared for.
Full-Body Imaging:
Includes everything, such as:
Internal organs (lungs, liver, kidneys, etc.)
Soft tissue structures (blood vessels, brain, etc.)
Requires additional testing to ensure the device is safe and effective for these broader applications.
Nanox is still conducting clinical trials to obtain the necessary regulatory clearances for this broader use.
So, if their original target was regions lacking access to these systems, why aren't they deploying them as promised in the signed agreements from 2020/2021? Instead, management has left shareholders in the lurch, burning through cash without deploying these systems. The ARC hasn't generated any revenue yet, and it's also odd that when you listen to the call and dig into the details of the filing, they mention $29K in revenue from their devices.
According to the SEC filing, the $29,000 in revenue explicitly stems from:
Sales of 2D imaging systems in Africa.
Deployment of Nanox.ARC systems in the United States (?).
This suggests that the revenue is primarily from 2D systems. The mention of "deployments" is confusing, especially if the ARC units are provided free of charge, as they wouldn't contribute to the $29K revenue if that's the case. Additionally, while we are on the topic of revenue, the total revenue of $3M for the quarter lacks relevance to the company's primary thesis or main medical device. According to the SEC filing, this total revenue includes:
Teleradiology services: $2.6M (as explicitly stated in the filing).
Other sources:
Imaging systems (Nanox.ARC and 2D systems): $29,000.
AI solutions: $0.4M.
So, $2.6 million of the $3 million total revenue came from teleradiology services, with the remainder attributed to hardware and AI solutions.
To the signed agreements, for anyone that didn’t follow, during Ran Poliakine's tenure as CEO of NNOX, the company announced that it had signed agreements to deploy approximately 5,150 Nanox.ARC units globally. These agreements were made with various distributors and service providers across multiple countries, aiming to bring affordable medical imaging technology to underserved regions. It's important to note that these planned deployments were contingent upon receiving necessary regulatory clearances.
Now specifically, this was upon receiving initial regulatory clearance for musculoskeletal imaging (surprise!), not after obtaining full clearance for full-body or internal organ imaging. And these agreements, upon clearance, were to deploy the 5,150 Nanox.ARC units globally. Again, these agreements were contingent on obtaining clearance to begin commercialization. The company's strategy was to start deploying the systems to underserved regions as soon as they received initial clearances, such as for musculoskeletal imaging. The whole goal was to provide accessible medical imaging solutions without waiting for the broader approvals required for full-body imaging. Therefore, the promised deployments were based on the initial system clearance and were not dependent on full-body or internal organ imaging approvals.
I may have rambled a bit… but all that I have mentioned—including the lack of transparency from this management team regarding the initial FDA clearance debacle (see previous articles archived)—worries me greatly. My intention isn't to harshly criticize NNOX or become a perpetual bear; that's not my objective. I'm simply trying to connect the dots through a reasonable lens, and it appears that dealing with NNOX is becoming increasingly difficult. I don't want to assume that the management team has been dishonest or misleading, but something seems very off with this company, and it's being reflected in their stock price, which I believe may deteriorate further. I previously thought we had turned a corner and hit an inflection point when we received clearance, and I think many investors like myself are disappointed by the poor execution and failure to commercialize those signed agreements. I would venture to say that investors who aren't questioning these issues are simply moving the goalposts. While it's possible—albeit with more speculation now—that this company could make a comeback, I don't see how that's feasible given their liquidity issues, execution problems, and lack of transparency with shareholders. After digesting all of this, I've decided to take a 71% boo boo and exit. This was .46% of my portfolio, so I had it positioned to where it won’t hurt my portfolio overall but if it did succeed (which is possible still, with an asterisk) it would reward me greatly.