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

28 Nov 2023
www.biospace.com
Financial Statement
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: ● On September 29, 2023, the Company entered into a manufacture and supply agreement with Varex Imaging Corporation (“Varex,” Nasdaq: VREX), a leading innovator, designer and manufacturer of X-ray imaging components, under which Varex will supply X-ray tubes utilizing the Nanox digital X-ray source for the Nanox.ARC system. Under the agreement, the Company may order X-ray tubes from Varex for use in its Nanox.ARC system. Varex agreed to manufacture and supply the X-ray tubes in exchange for payment therefor in the form of a revenue-sharing fee (subject to a minimum annual amount per system) based on the Company’s pay-per-scan revenue from Nanox.ARC systems using Varex X-ray tubes worldwide. Subject to receipt of requisite local regulatory clearance, Nanox has also agreed to use Varex X-ray tubes in a minimum percentage of all Nanox.ARC systems that are deployed and operating. ● Generated $2.5 million in revenue in the third quarter of 2023, compared to $2.4 million in the third quarter of 2022. ● Established first U.S.-based commercial site and demonstration center at an imaging center in New Jersey, which operates patient imaging and demonstrates Nanox.ARC systems to medical imaging professionals. ● Entered into an Evaluation Agreement with 626 OpCo, LLC, a national healthcare technology & equipment management company, to provide services for the Nanox.ARC including warehousing, installation, training, maintenance, and customer support. ● Received regulatory approval from the Ghana Food and Drugs Authority for the Nanox.ARC system deployed at the University of Ghana Medical Centre, making it available for training and clinical use. ● Formally started the process of securing the CE mark designation in the European Union. ● Received regulatory clearance for the Nanox.ARC systems from the Medical Device Division of the Ministry of Health in Israel and a free sale certificate. “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 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 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. NANO-X IMAGING LTD. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands except share and per share data) September 30, 2023 December 31, 2022 U.S. Dollars in thousands Assets CURRENT ASSETS: Cash and cash equivalents 66,384 38,463 Marketable securities - short term 28,609 39,161 Accounts receivables net of allowance for credit losses of $43 and $34 as of September 30, 2023 and December 31, 2022, respectively 1,163 977 Prepaid expenses 203 2,414 Other current assets 1,262 1,446 TOTAL CURRENT ASSETS 97,621 82,461 NON-CURRENT ASSETS: Restricted cash 353 66 Property and equipment, net 45,147 43,545 Operating lease right-of-use asset 2,925 1,157 Marketable securities - long term 249 25,198 Intangible assets 83,260 91,219 Goodwill - 7,420 Other non-current assets 1,757 2,867 TOTAL NON-CURRENT ASSETS 133,691 171,472 TOTAL ASSETS 231,312 253,933 Liabilities and Shareholders’ Equity CURRENT LIABILITIES: Accounts payable 1,632 3,619 Accrued expenses 12,529 12,240 Deferred revenue 517 182 Contingent short term earnout liability 1,482 4,250 Current maturities of operating lease liabilities 603 740 Other current liabilities 3,277 4,043 TOTAL CURRENT LIABILITIES 20,040 25,074 NON-CURRENT LIABILITIES: Non-current operating lease liabilities 2,288 398 Long term loan 3,346 3,481 Non-current deferred revenue - 398 Contingent long-term earnout liability - 4,089 Deferred tax liability 3,047 3,330 Other long-term liabilities 560 483 TOTAL NON-CURRENT LIABILITIES 9,241 12,179 TOTAL LIABILITIES 29,281 37,253 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Ordinary Shares, par value NIS 0.01 per share 100,000,000 authorized at September 30, 2023 and December 31, 2022, 57,717,425 and 55,094,237 issued and outstanding at September 30, 2023 and December 31, 2022, respectively 165 158 Additional paid-in capital 512,497 477,953 Accumulated other comprehensive loss (646 ) (1,974 ) Accumulated deficit (309,985 ) (259,457 ) TOTAL SHAREHOLDERS’ EQUITY 202,031 216,680 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 231,312 253,933 NANO-X IMAGING LTD. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (U.S. dollars in thousands except share and per share data) Nine Months Ended September 30, Three Months Ended September 30, 2023 2022 2023 2022 REVENUE 7,508 6,446 2,479 2,438 COST OF REVENUE 12,384 11,579 4,141 3,897 GROSS LOSS (4,876 ) (5,133 ) (1,662 ) (1,459 ) OPERATING EXPENSES: Research and development 19,237 19,412 6,038 6,089 Sales and marketing 3,134 2,882 1,146 698 General and administrative 20,481 33,069 5,047 10,630 Goodwill impairment 7,420 14,338 7,420 - Change in contingent earnout liability (4,506 ) (11,303 ) 17 953 Other expenses, net 1,260 423 663 - TOTAL OPERATING EXPENSES 47,026 58,821 20,331 18,370 OPERATING LOSS (51,902 ) (63,954 ) (21,993 ) (19,829 ) REALIZED LOSS FROM SALE OF MARKETABLE SECURITIES (178 ) - - - FINANCIAL INCOME, net 1,292 902 511 305 OPERATING LOSS BEFORE INCOME TAXES (50,788 ) (63,052 ) (21,482 ) (19,524 ) INCOME TAX BENEFIT 260 2,646 79 398 NET LOSS (50,528 ) (60,406 ) (21,403 ) (19,126 ) BASIC AND DILUTED LOSS PER SHARE (0.90 ) (1.16 ) (0.37 ) (0.37 ) Weighted average number of basic and diluted ordinary shares outstanding (in thousands) 55,900 52,180 57,148 52,276 Comprehensive Loss: Net Loss (50,528 ) (60,406 ) (21,403 ) (19,126 ) Other comprehensive gain (loss): Unrealized gain (loss) from available for-sale securities 1,328 (1,852 ) 367 (254 ) Total comprehensive loss (49,200 ) (62,258 ) (21,036 ) (19,380 ) NANO-X IMAGING LTD. UNAUDITED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (U.S. dollars in thousands, except share and per share data) Accumulated Ordinary shares Additional other Number of paid-in comprehensive Accumulated shares Amount capital deficit deficit Total U.S. Dollars in thousands BALANCE AT JANUARY 1, 2023 55,094,237 158 477,953 (1,974 ) (259,457 ) 216,680 Changes during the period: Issuance of ordinary shares and warrants, net of issuance expenses ** 2,142,858 6 27,133 - - 27,139 Issuance of ordinary shares upon exercise of options 224,938 * 870 - - 870 Issuance of ordinary shares under settlement agreement with former shareholders of USARAD Holding Inc. 255,392 1 1,560 - - 1,561 Other comprehensive gain - - - 1,328 - 1,328 Share-based compensation - - 4,981 - - 4,981 Net loss for the period - - - - (50,528 ) (50,528 ) BALANCE AT SEPTEMBER 30, 2023 57,717,425 165 512,497 (646 ) (309,985 ) 202,031 * Less than $1. ** Issuance expenses totaled to $2,861 Accumulated Ordinary shares Additional other Number of paid-in comprehensive Accumulated shares Amount capital deficit deficit Total U.S. Dollars in thousands BALANCE AT JULY 1, 2023 55,559,767 159 482,971 (1,013 ) (288,582 ) 193,535 Changes during the period: Issuance of ordinary shares and warrants, net of issuance expenses ** 2,142,858 6 27,133 - - 27,139 Issuance of ordinary shares upon exercise of options 14,800 * 275 - - 275 Other comprehensive gain - - - 367 - 367 Share-based compensation - - 2,118 - - 2,118 Net loss for the period - - - - (21,403 ) (21,403 ) BALANCE AT SEPTEMBER 30, 2023 57,717,425 165 512,497 (646 ) (309,985 ) 202,031 * Less than $1. ** Issuance expenses totaled to $2,861 NANO-X IMAGING LTD. UNAUDITED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (U.S. dollars in thousands, except share and per share data) Ordinary shares Additional Accumulated other Number of shares Amount paid-in capital comprehensive deficit Accumulated deficit Total U.S. Dollars in thousands BALANCE AT JANUARY 1, 2022 51,791,441 149 438,820 (607 ) (146,214 ) 292,148 Changes during the period: Issuance of ordinary shares upon exercise of options under the ESOP Plan 192, 820 * 280 - - 280 Other comprehensive loss - - - (1,852 ) - (1,852 ) Issuance of ordinary shares upon achievement of a milestone 89,286 * 953 - - 953 Issuance of ordinary shares upon exercise of warrants 192,927 1 369 - - 370 Share-based compensation - - 16,339 - - 16,339 Net loss for the period - - - - (60,406 ) (60,406 ) BALANCE AT SEPTEMBER 30, 2022 52,266,474 150 456,761 (2,459 ) (206,620 ) 247,832 * Less than $1. Ordinary shares Additional Accumulated other Number of shares Amount paid-in capital comprehensive deficit Accumulated deficit Total U.S. Dollars in thousands BALANCE AT JULY 1, 2022 52,214,721 150 451,825 (2,205 ) (187,494 ) 262,276 Changes during the period: Issuance of ordinary shares upon exercise of options under the ESOP Plan 51,753 - 125 - - 125 Other comprehensive loss - - - (254 ) - (254 ) Share-based compensation - - 4,811 - - 4,811 Net loss for the period - - - - (19,126 ) (19,126 ) BALANCE AT SEPTEMBER 30, 2022 52,266,474 150 456,761 (2,459 ) (206,620 ) 247,832 NANO-X IMAGING LTD. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands) Nine Months Ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss for the period (50,528 ) (60,406 ) Adjustments required to reconcile net loss to net cash used in operating activities: Share-based compensation 4,981 16,339 Amortization of intangible assets 7,959 7,958 Impairment of Goodwill 7,420 14,338 Exchange rate differentials (228 ) (227 ) Change in contingent earnout liability (4,506 ) (11,303 ) Depreciation 753 626 Deferred tax liability, net (283 ) (2,725 ) Realized loss from sale of marketable securities 178 - Amortization of premium, discount and accrued interest on marketable securities 717 1,093 Impairment of property and equipment 883 133 Changes in Operating Assets and Liabilities: Accounts receivable (186 ) (70 ) Prepaid expenses and other current assets 2,395 3,663 Other non-current assets 38 (726 ) Accounts payable (1,378 ) 2,438 Operating lease assets and liabilities (15 ) (105 ) Accrued expenses and other liabilities (477 ) 425 Deferred Revenue (63 ) (30 ) Other long-term liabilities 77 (179 ) Net cash used in operating activities (32,263 ) (28,758 ) CASH FLOWS PROVIDED BY INVESTING ACTIVITIES: Purchase of property and equipment (2,775 ) (7,387 ) Purchase of marketable securities - (8,454 ) Proceeds from maturity of marketable securities 35,112 18,691 Proceeds from sale of marketable securities 822 - Investment in equity securities - (1,010 ) Net cash provided by investing activities 33,159 1,840 CASH FLOWS FROM FINANCING ACTIVITIES: Payment due to settlement of contingent earnout liabilities (790 ) - Proceeds from issuance of ordinary shares and warrants, net of issuance expenses 27,139 - Proceeds from issuance of ordinary shares upon exercise of warrants - 370 Proceeds from issuance of ordinary shares upon exercise of options 870 260 Net cash provided by financing activities 27,219 630 EFFECT OF CHANGES IN EXCHANGES RATE ON CASH BALANCES IN FOREIGN CURRENCIES 93 (88 ) NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 28,208 (26,376 ) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD 38,529 66,772 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD 66,737 40,396 SUPPLEMENTARY INFORMATION ON ACTIVITIES INVOLVING CASH FLOWS Cash paid for interest 99 58 Cash paid for income taxes 22 146 SUPPLEMENTARY INFORMATION ON ACTIVITIES NOT INVOLVING CASH FLOWS - Purchase of property and equipment, not yet paid - 16 Ordinary shares issued in connection with earnout liability 1,561 953 Operating lease liabilities arising from obtaining operating right-of use assets 2,495 - Ordinary shares issued due to exercise of warrants and options - 20 RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: Cash and cash equivalents 66,384 40,331 Restricted cash 353 65 Total cash, cash equivalents and restricted cash 66,737 40,396 UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS (U.S. dollars in thousands (except per share data)) 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) Nine Months Ended Three Months Ended September 30, September 30, 2023 2022 2023 2022 GAAP net loss attributable to ordinary shares 50,528 60,406 21,403 19,126 Non-GAAP adjustments: Less: Class-action litigation and SEC investigation 4,203 5,225 (214 ) 2,642 Less: Amortization of intangible assets 7,959 7,958 2,653 2,654 Less: Impairment of goodwill 7,420 14,338 7,420 - Less (Add): Change in the fair value of earn out liabilities’ obligation (4,506 ) (11,303 ) 17 953 Less: accrual in connection with the estimated settlement of the SEC investigation 650 - - - Less: Share-based compensation 4,981 16,339 2,118 4,811 Non-GAAP net loss attributable to ordinary shares 29,821 27,849 9,409 8,066 BASIC AND DILUTED LOSS PER SHARE 0.53 0.53 0.16 0.15 WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES (in thousands) 55,900 52,180 57,148 52,276 Reconciliation of GAAP cost of revenue to Non-GAAP cost of revenue (U.S. dollars in thousands) GAAP cost of revenue 12,384 11,579 4,141 3,897 Non-GAAP adjustments: Amortization of intangible assets 7,668 7,668 2,556 2,557 Share-based compensation 41 81 13 25 Non-GAAP cost of revenue 4,675 3,830 1,572 1,315 Reconciliation of GAAP gross loss to Non-GAAP gross profit (U.S. dollars in thousands) GAAP gross loss (4,876 ) (5,133 ) (1,662 ) (1,459 ) Non-GAAP adjustments: Amortization of intangible assets 7,668 7,668 2,556 2,557 Share-based compensation 41 81 13 25 Non-GAAP gross profit 2,833 2,616 907 1,123 Reconciliation of GAAP gross loss margin to Non-GAAP gross profit margin (in percentage of revenue) GAAP gross loss margin (65 )% (79 )% (67 )% (60 )% Non-GAAP adjustments: Amortization of intangible assets 102 % 119 % 103 % 105 % Share-based compensation 1 % 1 % 1 % 1 % Non-GAAP gross profit margin 38 % 41 % 37 % 46 % Reconciliation of GAAP research and development expenses to Non-GAAP research and development expenses (U.S. dollars in thousands) GAAP research and development expenses 19,237 19,412 6,038 6,089 Non-GAAP adjustments: Share-based compensation 2,893 3,879 1,158 1,093 Non-GAAP research and development expenses 16,344 15,533 4,880 4,996 Reconciliation of GAAP sales and marketing expenses to Non-GAAP sales and marketing expenses (U.S. dollars in thousands) GAAP sales and marketing expenses 3,134 2,882 1,146 698 Non-GAAP adjustments: Amortization of intangible assets 291 290 97 97 Share-based compensation 334 663 149 229 Non-GAAP sales and marketing expenses 2,509 1,929 900 372 Reconciliation of GAAP general and administrative expenses to Non-GAAP general and administrative expenses (U.S. dollars in thousands) GAAP general and administrative expenses 20,481 33,069 5,047 10,630 Non-GAAP adjustments: Class-action litigation and SEC investigation 4,203 5,225 (214 ) 2,642 Share-based compensation 1,713 11,716 798 3,464 Non-GAAP general and administrative expenses 14,565 16,128 4,463 4,524 Reconciliation of GAAP other expenses to Non-GAAP other expenses (income) (U.S. dollars in thousands) GAAP other expenses 1,260 423 663 - Non-GAAP adjustments: Accrual in connection with the estimated settlement of the SEC investigation 650 - - - Non-GAAP other expenses 610 423 663 -
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