Nano X Imaging Q1 2026 Earnings Call Transcript

Nano X Imaging (NASDAQ:NNOX) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

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The full earnings call is available at https://edge.media-server.com/mmc/p/idyomoop/

Summary

Nano X Imaging Limited reported early revenue generation from Nano X Arc systems, with momentum in deployments and expanding partnerships.

The company restructured its US commercial model to emphasize partnerships, securing multiple agreements with medical equipment distributors.

Nano X Arc systems are operational at high-visibility sites like RadNet and are part of a multichannel model to increase scan volumes and revenues.

Despite progress, the company no longer expects to meet its 2026 revenue target due to longer-than-anticipated deployment timelines and external factors affecting revenue recognition.

Financial performance showed a revenue increase to $4.3 million, with a GAAP net loss of $14.3 million and cash reserves raising concerns about the company's ability to continue as a going concern without additional funding.

Management is shifting focus away from annual revenue guidance to operational and strategic milestones, such as deployments and customer adoption.

The company's AI and teleradiology businesses are growing, with significant partnerships and pilot programs contributing to commercial deployments and revenue generation.

Cost reduction initiatives are underway, particularly in South Korean operations, to optimize cost structure and improve capital efficiency.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to the Nano X Imaging first quarter 2026 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Cavanaugh, Investor Relations. Please go ahead.

Mike Cavanaugh, Investor Relations

Good morning and welcome to the Nano X Imaging First Quarter 2026 Investor Call. Earlier today, Nano X Imaging Limited released financial results for the quarter ending March 31, 2026. The release is currently available on the Investors section of the Company's website. With me today is Erez Meltzer, Chief Executive Officer and Acting Chairman. 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, commercialization activities, regulatory process and clinical activities, 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 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, and non-GAAP gross loss per share.

With that, I'd now like to turn the call over to Erez Meltzer.

Hitoshi Masuya, Chief Executive Officer

Good morning and thank you for joining us today for the Nano X Imaging First Quarter 2026 Financial Results Conference call. I'm pleased to report that as previously indicated, we are beginning to see early signs of revenue from Nano X Arc. We are seeing momentum across multiple fronts, from record deployments to expanding partnerships supporting our technology and business model. We have worked diligently over the past two years to place a new technology in the medical imaging market.

This process takes significant time and effort. We have learned many lessons during this time and we are using those lessons learned to help reshape our go-to-market strategy. Specifically, we have made various adaptations to our company strategy and operating model to better position us for long-term success. Changing behaviors is a long process and we need to educate customers not only on the medical utility of the Nano X systems, but also demonstrate why using them will benefit their practices financially.

Here are some of the changes we have implemented based on lessons learned. First, we have restructured our US commercial model to emphasize partnerships. This multichannel approach supplements our direct sales efforts and provides broader market coverage more efficiently. In the first quarter alone, we secured multiple commercial agreements in the US with established medical equipment distributors who have existing relationships and credibility in the market.

Second, we are prioritizing deployments of Nano X Arc Systems at high visibility reference sites like RadNet, the largest outpatient imaging center operator in the United States, where it is now in commercial use and integrated into routine clinical workflows. Third, we created the Nano X Imaging Network to seek out business segments which offer potentially higher reimbursement rates such as workers' compensation groups and concierge medical providers.

Fourth, we initiated a restructuring process designed to optimize our cost structure, improve capital efficiency, reduce burn rate, and better align our operations with our long-term business objectives. I will share more details about all of these changes in my remarks today. While shifting the standard of care in medical imaging is a long-term endeavor, we believe these adjustments will better align our resources and position us to capitalize on the substantial market opportunity of Nano X. With that, let me share some of the accomplishments we have achieved since our last call. We are seeing early signs that our multichannel model is beginning to work with deployments increasing, scan-based activities starting to contribute to revenues, increased scan volume at active sites and partners, beginning to generate pipeline and initial commercial activity, and engaging directly with customers to support sales and adoption. The Nano X Imaging Network proof of concept is also beginning to contribute to our progress.

As a reminder, this is a focused initiative targeting segments such as workers' compensation, concierge medicine, and outpatient specialty care where positive reimbursement development may support higher per scan pricing. We are exploring opportunities across three segments: a large integrated healthcare campus, an independent rehab and pain clinic, and an orthopedic physician's practice. These engagements will support our strategy of driving adoption across enterprise specialty, outpatient, and physician-led settings.

Importantly, I'm very excited to share a strategic deployment. The Nano X Arc system has been operational for several months at the RadNet site. RadNet is the largest outpatient imaging center operator in the United States and has deployed a Nano X Arc system in one of its facilities where it is now in commercial use and integrated into routine clinical workflow. Based on this experience, we are exploring opportunities for expanded deployment across additional outpatient imaging centers and for clinical research including early lung nodule detection.

We believe this represents an important step in demonstrating the Nano X clinical value in major outpatient imaging settings and we are excited to continue this collaboration. I'd also like to talk about how we are working to get our growing commercial relationship activated. In the first quarter, we secured multiple commercial agreements in the US with established medical equipment distributors that have a strong market presence, credibility, and existing customer relationships.

Collectively, these agreements represent the potential for approximately 360 CapEx system sales over the next 2 or 3 years. During the second quarter, our primary focus was on onboarding these partners, training their teams, aligning go-to-market activities, and building the operational foundations required to support commercialization. We are now beginning to see the early results of these efforts, including initial leads for the Nano X Arc and engaging with their customers and driving early commercial opportunities.

That said, commercialization in medical imaging takes time. The transition from signed agreements to active sales, installation, and revenue recognition depends on various factors that may affect commercialization, including site readiness and regulatory processes. For example, some segments may involve additional regulatory and SOC2 requirements. We've also advanced partnerships in Latin America where we signed a distribution agreement with Top Med SAC in Peru late May.

Additional agreements are in advanced stages of negotiation. Importantly, these agreements are already contributing to a growing pipeline of potential system deployment and expanded deployment opportunities, generating new sales leads which have resulted in new discussions with medical imaging providers. We expect to announce more partnerships soon, further extending our commercial reach and market penetration. We believe these highly focused medical imaging partners will play a key role in accelerating the commercial adoption of Nano X Arc and helping us reach an inflection point in the growth of our business.

Indeed, we are now leading a shift toward a more CapEx-driven commercial model supported by our partner network and initial purchase activity. We believe this evolution can contribute to revenue growth while helping reduce future cash needs and enhance our path to break-even. And finally, let me also provide an update regarding our South Korean operations. As previously announced, we initiated a restructuring process designed to optimize our cost structure, improve capital efficiency, and better align our operations with our long-term business objectives.

We have now commenced implementation of that restructuring plan. At the same time, we are evaluating additional alternatives to further optimize the economics of our South Korea operation and maximize the value of the related assets. These alternatives include a broader restructuring initiative that originally contemplated a potential sale of South Korea operations and related assets or an orderly wind-down of all or parts of those operations. No decision has been made at this stage and our evaluation remains ongoing.

What is important is that we are taking a disciplined approach to capital allocation and operational efficiency and are evaluating all available options through the lens of long-term shareholder value. Looking ahead, we remain focused on three key priorities: continue to scale our deployment numbers, converting our pipelines of direct sales and partnership discussions into purchase orders and signed agreements, and supporting our partners to drive system sales and utilization.

The foundations we have built position us well for sustained growth throughout 2026 and beyond. We believe we are at the beginning of transforming access to medical imaging globally and the progress we have made this quarter reinforces our confidence in the path ahead. Turning to our AI business, I'd like to update you on the previously announced clinical trial partnership with Cedars-Sinai in Los Angeles. This strategic health system partnership continues to support our clinical validation efforts.

Based on the retrospective pilot at Cedars-Sinai, we created a return on investment calculator for the downstream economy of follow-ups for the patients that will be flagged by the Arcardio solution. This calculator shows that analyzing a random group of 5,000 cases, we can expect almost 1,800 patients with aortic calcification, out of which 49 will be categorized as severe cases. This is expected to generate $3.8 million in the first year from downstream follow-ups to the medical center.

More importantly, identifying severe cases early supports earlier clinical intervention which may help improve patient outcomes. For another AI customer update, following a highly successful prospective pilot and supported by a paper presented at the World Congress on Osteoporosis last month, the 259th General Air Force Hospital in Greece has transitioned to a revenue-generating commercial deployment. We view this as a meaningful milestone achieved in advancing the commercial rollout of our AI solutions.

Highlights from the paper demonstrate that the AI bone solution was significantly better at correctly flagging vertebral fractures and estimated that utilizing the solution showed a 14-fold increase in identified fractures compared to radiologists with no solution and a nearly five-fold improvement. Endocrinologists who utilize the solution to evaluate images beyond expanding our AI capabilities, we have begun to realize some of our anticipated synergies between Health IT, Nano X AI, Nano X Arc, and US ARAD.

As an example, we have recently completed integration and performed a customer demo utilizing Nano X AI algorithms with the Health IT partner PAC systems. We have presented the Nano X Arc to multiple Health IT customers and we have gained new business for both US ARAD from Health IT by partnering together on a new opportunity and a flow of opportunities is also coming back to Health IT from its sister divisions. The pipeline of cross-division lead generation is growing by the week.

Regarding our new Health IT business year-to-date, we've executed contracts with several new clients and received additional services add-on orders from existing clients. In terms of implementation, we have had customer solutions go live this year. This includes some sales made pre-acquisition that have since been implemented and I want to confirm that we have begun to receive monthly recurring revenues from those accounts. Next month, Nano X AI will be featured at the SCCT Annual Scientific Meeting in San Diego where Dr. Blenstein, a member of our Advisory Board, will present early results from our multi-site AI-informed clinical trial. The data highlight two important points. First, that AI-enabled opportunistic coronary calcium detection can help drive earlier preventive care and second, that our cardiac solution, also known as HealthCCS, performs reliably across multiple U.S. clinical sites and real-world workflows. Together, these studies build the case that AI-enabled opportunistic CAC detection is both clinically reliable and clinically meaningful.

I'd like to share a few additional updates on our OEM relationship and pursuits. Varex Tubes are undergoing the final integration process to become our main X-ray tube source for the Nano X ArcX systems. Regarding Oak Ridge National Laboratory prototypes, tube assembly has begun and we anticipate testing. Completion and delivery in early Q3. We have initiated Nanox technology assessments with multiple global industry leaders in the security and inspection fields and will update as soon as appropriate. Overall interest in the Nanox chip source technology remains quite strong, and as stated, we are in various stages of development, fabrication, testing, and technology assessment on multiple fronts. Before I hand the call over to our financials, I would like to address our previously issued 2026 revenue target.

Since providing this target earlier this year, we have continued to advance our commercialization efforts across the business and have made meaningful progress across a number of commercial, operational, and strategic initiatives. At the same time, we have experienced longer than anticipated timelines between the execution of commercial agreements, system deployment activations, commencement of services, and the related recognition of revenue. As we have gained additional experience across multiple markets and customer deployments, we have seen the timing of revenue generation and revenue recognition can vary significantly and is influenced by a number of factors that are often outside of our control, including site readiness, infrastructure completion, customer implementation schedules, activation timings, utilization, ramp-up, and third-party execution. While we remain encouraged by the customer interest, commercial activity, and market adoption, these factors can materially affect the timing at which revenue is recognized in a particular reporting period. As a result, we no longer expect to achieve the revenue target previously announced for 2026.

Importantly, what we are seeing is not a reduction in our confidence in the market opportunity, customer demand, or the value proposition of our solutions. We continue to expand our installed base, advance customer implementation, and execute against commercial agreements that contemplate the deployment of hundreds of systems over the coming years. We're also continuing to grow and advance our businesses across imaging, AI, teleradiology, OEM, and health IT.

Based on our experience to date, the variability associated with deployment timelines, implementation schedules, and revenue recognition, we've concluded that the annual revenue guidance is not currently the most effective way to evaluate the progress of our business. Accordingly, we do not currently intend to provide annual revenue guidance going forward. Instead, we intend to focus investors on the operational, commercial, and strategic milestones that we believe are more meaningful indications of our progress, including deployments, activations, utilization growth, customer adoption, service expansion, and execution against our commercial agreements. We remain highly confident in the long-term opportunity across our imaging, AI, teleradiology, OEM, and health IT businesses.

We believe the progress we have made to date positions us well for long-term growth, and we remain focused on disciplined execution and building long-term shareholder value. With Nanox getting closer to an operational inflection point, let me step back and remind the challenges that we set out to address and the vision behind it. Our vision is to expand access to medical imaging and support a shift toward more preventive healthcare. Today, imaging remains constrained by cost, complexity, and infrastructure, which limits access across many care settings.

To address this, we developed our proprietary digital X-ray technology, which enables the cloud-connected and AI-compatible Nanox ARC systems and supports broader deployment and simpler operation across a range of clinical environments. With development behind us, our focus is now on execution, converting pipelines into deployments, activating sites, and integrating systems into routine clinical use throughout our direct efforts and partner network.

To better support our growth, we have recently taken steps to streamline the organization and align our cost structure with this stage while remaining fully focused on commercialization. Going forward, progress will be driven by continued deployments, site activity, and expansion throughout our partnerships. Taken together, the progress we have made to date across deployment, partnerships, and operational alignment is beginning to translate into a more visible and developing commercial trajectory.

Before we begin the financial review, I'd like to note that, as previously announced, our CFO Rand Daniel is in the process of transitioning out of his role. As part of this transition, Guy Nathanson will be joining the company and is working alongside the team to ensure a smooth handover. Today, the financial review will be presented by me, and Guy is with me here today. Revenue for the reported period was $4.3 million compared to revenue of $2.8 million in the comparable period.

All figures refer to the quarter ended March 31, 2026, and all comparable figures refer to the comparable quarter of 2025 unless otherwise stated. The increase largely stems from the increase of $0.9 million due to the consolidation of Vaso Healthcare IT, now Nanox Health IT Inc., and an increase of $0.5 million in our revenue from our teleradiology services. Gross loss for the reported period was $2.6 million on a GAAP basis compared to a gross loss of $3 million.

Non-GAAP gross loss for the reported period was $2.2 million as compared to a gross loss of $0.4 million. Revenue from teleradiology services for the reported period was $3.1 million compared to revenue of $2.6 million. The company's GAAP gross profit from teleradiology services for the reported period was $0.7 million, with a gross profit margin of approximately 24% compared to $4.4 million, with a gross profit margin of approximately 17%. Non-GAAP gross profit of the company's teleradiology services was $1.1 million, with a gross profit margin of approximately 36% compared to a gross profit of $1 million, with a gross profit margin of approximately 39%. The increase in the revenue was mainly attributed to customer retention and increased volume of the company's reading services during the reported period. The company generated revenues through the sales and deployment of its imaging systems, which amounted to $167,000 compared to revenue of $33,000. The revenue stems from the sales and deployment of two NAS Connects units in the amount of $118,000, deployment of its imaging systems in the amount of $11,000, and the revenue due to our OEM services in the amount of $38,000.

The company's revenues from its AI and software solutions for the reported period was $1 million compared to revenue of $0.2 million. Revenue of $0.9 million was generated in the reporting period by NANO sales. The company gross loss from its AI and software solutions for the reported period was $1.7 million on a GAAP basis compared to a gross loss of $1.9 million. Non-GAAP gross profit to the company's AI and software solutions for the reported period was $0.3 million compared to $81,000.

Research and development expenses net for the reported period were $4.8 million compared to $5 million. Sales and marketing expenses for the reported period were $2.2 million compared to $0.9 million, mainly due to an increase of $0.8 million in salaries and wages and $4 million in sales and marketing activities. General administrative expenses for the reported period were $5.2 million compared to $5.1 million. GAAP net loss of the reported period was $14.3 million compared with a net loss of $13.2 million.

The increase of $1.1 million was largely due to the increase of $0.9 million in operating expenses. Non-GAAP net loss attributed to the ordinary shares for the reported period was $11.1 million compared to $9.4 million, mainly due to an increase of $1.4 million in the non-GAAP operating expenses. Please refer to the non-GAAP adjustments which were included in the financial portion of the PR that we have issued today. Turning to our balance sheet as of March 31, 2026, the company had total cash and cash equivalents, short-term deposits, and long-term restricted deposits of $44.2 million compared to $60 million as of December 31, 2025.

During the reported period, the company experienced negative cash flow from operations of $14 million and an additional $1.8 million on purchasing property and equipment, mainly for the building of Arkx Management. Expect that the company's cash and cash equivalents and net deposits as of March 31, 2026, are not sufficient to support the company operations under its current operating plans for at least one year from the date of the press release.

These factors raise substantial doubt as does the company's ability to continue as an ongoing concern. On a preliminary unaudited basis, the company estimates that its cash and cash equivalents, net of short-term bank loan, to be approximately $27 million as of the date of the press release. Management is continuing in the process of seeking to raise funds in the private equity and capital markets as the company will need to finance its operation.

However, there is no assurance that the company will be able to obtain such funding. To the extent additional funding is provided by the sales of security or the issuance or incurrence of indebtedness, ordinary shareholder ownership interest may be diluted, and the terms of the financing may adversely affect rights of ordinary shareholders, impose restrictive covenants on the company, and result in increased fixed payment obligations in order to finance our operations.

We may also raise funds through collaborations, strategic partnerships, or marketing, distributing distribution of flat or licensing arrangements with third parties, which may require us to relinquish valuable rights to our technologies, future revenue streams, research programs, or products, or grant licenses on terms that may not be favorable for us. In addition, the company is exploring the use of mitigation actions such as postponing expenses that are not based on firm commitment.

If we are unable to raise additional funds when needed, we may be required to delay, reduce, or eliminate our product development or future commercialization efforts or grant rights to develop market products that we would otherwise prefer to develop market by ourselves. The consolidated financial statement does not include any adjustment that may be necessary should the company be unable to continue as a going concern. We ended the quarter with property and equipment net of $30.6 million, compared to $29.7 million as of December 31, 2025.

The increase was mainly attributable to the purchase of property and equipment in the amount of $1.8 million during the reported period. We had approximately 69.6 million shares outstanding as of March 31, 2026, and December 31, 2025, respectively. During the first quarter of 2026, the company granted officers, employees, and consultants of the company a total of approximately 1 million RSUs. And to the concluding remarks, while commercialization has not gone as rapidly as had planned two years ago, we remain confident in the ultimate success of the comprehensive suite of Nanox ARC solutions. Looking ahead, we remain focused on three key areas: continue to scale our deployment numbers, converting our pipeline of partnerships discussions into signed agreements, and supporting our partners to drive system sales and utilization. The foundations we have built are beginning to result in growing deployments and position us well for continued progress through 2026.

We remain focused on the execution and believe we are building the right framework to support sustained commercialization over time. We believe we are at the beginning of expanding access to medical imaging, and the progress we have made this quarter reinforces our confidence in the path ahead. Thank you for joining our call today and, as always, we appreciate your continued support.

OPERATOR

Operator, please open the call to questions. Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann and Company. Your line is now open.

Jeffrey Cohen (Equity Analyst)

Oh, hi. Thanks for taking our questions. So two from our end. Firstly, could you talk about the teleradiology business? You did call out customer retention, increased rates, and increased volumes. Could you kind of drill into that a little bit for our benefit as far as rates go, number of customers, volumes, and utilization? Thank you.

Hitoshi Masuya, Chief Executive Officer

Okay, I heard the teleradiology. And what's the second question?

Jeffrey Cohen (Equity Analyst)

Jeff, could you talk about the rates and the customers and volumes and utilization of the teleradiology?

Hitoshi Masuya, Chief Executive Officer

Yes, please. So as you can see, since the acquisition of USARAD, we have managed to more than double the sales, the revenues that come from the teleradiology. This is mainly due to an increase in the number of customers. Right now, it's a few hundred customers. Of course, they vary from one to another. One can do like a few, and the other can do a few thousand dollars. And what we are trying to do is also change the mix to the benefit of high-price readings such as MRI and CT at the expense of X-ray.

Now, of course, we don't choose what the customer is scanning, so we have to do it all. But I would say that one of the trends that we see is a lot of increase in the scans of the MRI and the CT accordingly, and this is one of the trends that impact the increase in revenues. We saw the increase year over year, and we'll probably see, hopefully, an increase. We monitor it on a weekly basis, and even the number of scans that are being read are higher than last year.

The one thing that I would say is what I mentioned about the cross-selling between Nanox units. So, on one hand, USARAD, the teleradiology business, gave us a lot of opportunities to sell the ARC and new customers, to sell the AI and new customers, to sell the Nanox units. But on the other hand, every ARC that we deploy, and it's a new system that before they didn't have X-ray or CT, they asked us to provide the services in addition to the scans.

They asked us to provide the reading services. So teleradiology is adding to, I would say, they are reading a meaningful part of the scans that the ARC is scanning. And I think you will see a growth in this one as well.

Jeffrey Cohen (Equity Analyst)

Thank you. And then secondly, Eris, as a follow-up, can you talk about the cadence of deployments for the balance of the year? I know you did call out 40 units at various stages, of which some will come online in the back half. What should we expect for ARC units coming online for the second quarter and the balance of the year?

Hitoshi Masuya, Chief Executive Officer

I will talk about the balance of the year. We mentioned that right now we have in the business partners. This is, of course, in addition to the direct sales that our salespeople are doing. We mentioned that we have currently 360 units that we sign agreements for in the next two to three years. I think that we mentioned that the Howard's estimate their part for 60 this year, and this is in addition to all the other efforts which are being done to find more business partners that we mentioned.

This is only in the US. In the rest of the world, we mentioned that Greece is coming up, Romania is coming up, Peru is coming up, Argentina is coming up, Czech. We sold already in France; we have a system already, so there are many of them and more countries are. Right now, we are planning to do the most important element, and I think that for those of you who have listened carefully to my script today, RadNet is an interesting one. The system is there for quite some time.

As you all know, RadNet is the largest imaging medical imaging chain in the U.S., probably one of the biggest in the world. And the system that was tested commercially, by the way, and clinically in the last during the 2026 that even a bit before was successfully implemented. And the plan right now is indicated previously to expand this collaboration to more systems across the sites of RadNet. Last but not least, we mentioned that right now we are planning, once again, everything depends on regulation, on approvals, on permits, on site preparation, etc. But we're planning to install 21 sites of the Nanox Imaging Network, which, by the way, out of which one site, which is a retail, is already scanning, and two as of yesterday, two sites the system arrived to the site, and as soon as they complete the preparations, it will start scanning.

Jeffrey Cohen (Equity Analyst)

Perfect. Thanks for taking our questions.

OPERATOR

Thank you. Our next question comes from the line of Scott Henry with AGP. Your line is now open.

Scott Henry

Thank you. Good morning. Couple questions. First, a little bit of a follow-up, but how should we think about 2Q? There's only a couple days left in the quarter, so we should have a pretty good sense at this point. Sequentially, should we expect Q2 to be stronger than Q1? Not looking for specifics, but just curious your thoughts, obviously given that it's June 25th.

Hitoshi Masuya, Chief Executive Officer

Yeah, I think that probably we will be ready with these numbers shortly, and as soon as they are ready, we're going to share them.

Scott Henry

Okay, fair enough. And then spending levels, how should I mean it sounds like you're going to rationalize some of the costs. Should we expect spending as far as total operating expenses to start to decline sequentially? Just wanted to get a thought of how we should think about that in the rest of the year.

Hitoshi Masuya, Chief Executive Officer

The answer is yes. First of all, the outcome of the reduction in the Korean operation and the fact that we are doing all the efforts in order to save, we cut some costs in other places. We have reduced the headcount, mainly in Israel, by 15 employees and cut the scope of employment of others. So based on early indication that we have for June, we can expect a reduction in the burn rate.

Scott Henry

Okay, great. Final question on the AI business. Certainly the numbers getting notably higher, at what level would we expect that business to be breakeven? As far as gross profit, should we think about that as a 2027 event or a late 26? I just want to get an idea how to model that. Thank you.

Hitoshi Masuya, Chief Executive Officer

Yeah, so initially we have indicated in the past that probably at the tail or the end of 2026 we are going to be cash neutral or breakeven. But I would say that it may be pushed by a quarter or so. So I would say early 2027 probably based on the.

Scott Henry

No. For clarity. I was just asking about the gross profit for the AI division. Should that, you know, as you reach 2 million a quarter, would that be break even for as far as gross profit? Not spending. Just. I'm just trying to model that out. Thank you.

Hitoshi Masuya, Chief Executive Officer

Okay, the. So the answer is even easier from a gross profit since the gross profit of the AI and it is very high, I would say in the probably in the 80s. So the answer is probably earlier than what you have asked for.

Scott Henry

Okay, great. Thank you for taking the question.

OPERATOR

Thank you. Our next question comes from the line of Sarah Janes with Kantor Fitzgerald. Your line is now open.

Gabby

Hi guys. Thanks for taking the question. This is Gabby on for Sarah. I can appreciate removing the revenue guidance in terms of visibility, but could you help us size if you view the first quarter as sort of run rate once I back out to consolidation of Nanox Health IT and just kind of any sort of framing on how you expect what a more realistic 2026 revenue target is?

Hitoshi Masuya, Chief Executive Officer

I'm not sure I understand the question. Can you elaborate?

Gabby

Yeah. So with the removal of the $35 million revenue guidance, as I think about the rest of the year, can I think about the first quarter, 2026 as sort of a run rate for the rest of the year, do you expect the revenue to ramp, just anything that helps us with the full year.

Hitoshi Masuya, Chief Executive Officer

So, first of all, the fact that we have removed guidance doesn't mean that we're not going to work hard in order to be where we want to be. But I think that it probably may be pushed. I think that I've indicated in my remarks that we are planning the ramp up from Q3 and 4, because in Q1, following the RSNA, we signed most of the agreements with the business partners. We have indicated that we have another few of them, another few of them that are coming soon, as well as other countries in the rest of the world, Europe and Latin America.

And Q2, which is currently where we are right now, was mainly focused on the onboarding of the people, training the salespeople, getting the list of tens, many tens of customers that we have already engaged in meetings with the business partners. So our channel managers and the business partners are going to these customers and meeting them. And I would say that Q3 will probably be the implementation.

Gabby

Okay, that's super helpful. Thank you.

OPERATOR

Thank you. And I'm currently showing no further questions at this time. Eris, would you like to provide any further remarks?

Hitoshi Masuya, Chief Executive Officer

Yeah, maybe. I will say that we expect that Q2 will be better than Q1, whether it's much or more or little. This will be shared probably in the very near future. And I would end with what I said earlier. We are really confident that we are taking the right steps. Yes, it's step by step, but the way that we operate, the way that we operate with a framework for the success and for the scale, is something that will enable us to justify the confidence in our ability to transform and become what we want to be and what our mission is.

OPERATOR

Thank you. This does conclude today's conference. Thank you for participating. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.