Nano-X Imaging Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
June 25, 2026

Key Takeaways

  • Neutral Sentiment: Nanox said it is seeing early revenue signs from Nanox.ARC, with record deployments, rising scan activity, and expanding partnerships starting to contribute to growth.
  • Positive Sentiment: The company highlighted a major milestone at RadNet, where a Nanox.ARC system is now in commercial use and integrated into routine workflow, and management is exploring expansion to additional sites.
  • Positive Sentiment: Nanox secured multiple U.S. distributor agreements that it says could support roughly 360 CapEx system sales over the next two to three years, while also adding partnerships in Latin America.
  • Negative Sentiment: Management withdrew its 2026 revenue target, saying commercialization and revenue recognition are taking longer than expected due to factors like site readiness, activation timing, and third-party execution.
  • Negative Sentiment: The quarter ended with $44.2 million of cash and deposits, but the company reported a $14.0 million cash burn from operations and said there is still substantial doubt about its ability to continue as a going concern without additional financing.
AI Generated. May Contain Errors.
Earnings Conference Call
Nano-X Imaging Q1 2026
00:00 / 00:00

There are 6 speakers on the call.

Speaker 3

Good day. Thank you for standing by. Welcome to the Nanox 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 one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one 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.

Speaker 2

Good morning. Welcome to the Nano-X Imaging first quarter 2026 investor call. Earlier today, Nano-X Imaging Ltd. 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 are 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. These statements should not be relied upon as representing the company's views as of any subsequent date.

Speaker 2

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.

Operator

Good morning. Thank you for joining us today for the Nanox 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 Nanox 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. 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.

Operator

Changing behaviors is a long process. We need to educate customers not only on the medical utility of the Nanox 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 U.S. commercial model to emphasize partnerships. This multi-channel 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 U.S. with established medical equipment distributors who have existing relationship and credibilities in the market. Second, we are prioritizing deployments of Nanox.ARC systems at high visibility reference sites like RadNet, the largest outpatient imaging center operator in the United States, where it is now commercial use and integrated into routine clinical workflows.

Operator

Third, we created the Nanox 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 rates, 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 Nanox.ARC. With that, let me share some of the accomplishments we have achieved since our last call.

Operator

We are seeing early signs that our multi-channel model is beginning to work with deployments increasing, scan-based activities starting to contribute to revenue, increased scan volume at active sites. Partners beginning to generate pipeline and initial commercial activity and engage directly with customers to support sales and adoption. The Nanox 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. Important. I'm very excited to share a strategic deployment.

Operator

The Nanox.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 Nanox.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 Nanox.ARC clinical value in a 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 U.S. with established medical equipment distributors that have a strong market presence, credibility, and existing customer relationships.

Operator

Collectively, these agreements represent the potential for approximately 360 CapEx system sales over the next two or three 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 Nanox.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, regulatory processes. For example, some segments may involve additional regulatory and SOC 2 requirements. We've also advanced partnerships in Latin America, where we signed a distribution agreement with TopMed SAC in Peru late May. Additional agreements are in advanced stages of negotiation.

Operator

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 the Nanox.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 breakeven. Finally, let me also provide an update regarding our South Korean operations.

Operator

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 operation and related assets, or an orderly wind-down of all the parts of those operations. No decision has 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 throughout the lens of a long-term shareholder value. Looking ahead, we remain focused on three key priorities.

Operator

Continue to scale our deployment numbers, converting our pipelines of direct sales and partnerships discussions into purchase order and signed agreements, and supporting our partners to drive system sales and utilization. The foundations we have built positions 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 reinforce 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 and return on investment calculator for the downstream economy of follow-ups for the patients that will be flagged by the AI cardio solution.

Operator

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, identified 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 251st Hellenic Air Force General 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.

Operator

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 in our endocrinologists who utilized the solution to evaluate the images. Beyond expanding our AI capabilities, we have begun to realize some of our anticipated synergies between Health IT, Nanox.AI, Nanox.ARC, and USARAD. As example, we have recently completed integration and performed a customer demo utilizing Nanox.AI algorithms with a Health IT partner PACS system. We have presented the Nanox.ARC to multiple Health IT customers, and we have gained new business for both USARAD 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.

Operator

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 customers' solutions go live this year. This includes some sales made pre-acquisition that have since been implemented, I want to confirm that we have begun to receive monthly recurring revenues from those accounts. Next month, Nanox.AI will be featured at the SCCT annual scientific meeting in San Diego, where Dr. Blendstein, a member of our advisory board, will present early results from our multi-site AI-informed clinical trial. The data highlights two important points. First, that AI-enabled opportunistic coronary calcium detection can help drive earlier preventive care.

Operator

Second, that our cardiac solution, also known as HealthCCSng, 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 Nanox.ARC X systems. Regarding the Oak Ridge National Laboratory prototypes, tube assembly has begun, 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 We will update as soon as appropriate. Overall, interest in the Nanox chip source technology remains quite strong, As stated, we are in various stages of development, fabrication, testing, and technology assessment on multiple fronts.

Operator

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've 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.

Operator

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'll also continue to grow and advance our businesses across imaging, AI, teleradiology, OEM, and health IT.

Operator

Based on our experience to date, the variability associated with deployment timelines, implementation schedule, and the revenue recognition, we have 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, 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.

Operator

With Nanox getting closer to an operational inflection point, let me step back and remind the challenges that we set out to address and 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 develop our proprietary digital X-ray technology, which enable the cloud-connected and AI-compatible Nanox.ARC systems and support 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.

Operator

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, Ran Daniel, is in the process of transitioning out of his role. As part of this transition, Guy Nathansohn will be joining the company and is working alongside the team to ensure a smooth handover. Today's 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.

Operator

All figures refer to the quarter ended March 31st, 2026, and all comparables figures refer to the comparable quarter of 2025, unless otherwise stated. The increase largely stems from an increase of $0.9 million due to the consolidation of VasoHealthcare 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, gross profit margin of approximately 24%, compared to $4.4 million, gross profit margin of approximately 17%.

Operator

Non-GAAP gross profit of the company's teleradiology services was $1.1 million, gross profit margin of approximately 36%, compared to a gross profit of $1 million, gross profit margin of approximately 39%. The increase in the revenue was mainly attributed to a customer retention and increased volume of the company 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 Nanox.CONNECT 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 revenues from its AI and software solutions for the reported period was $1 million compared to a revenue of $0.2 million.

Operator

Revenue of $0.9 million was generated in the reporting period by Nanox Health IT Inc. 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 $0.3 million in sales and marketing activities. General and 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.

Operator

The increase of $1.1 million was largely due to the increase of $0.9 million in operating expenses. Non-GAAP net loss attributable 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 31st, 2026, the company had total cash and cash equivalent, short-term deposits, long-term restricted deposits of $44.2 million compared to $60 million as of December 31st, 2025. During the reported period, the company experienced negative cash flow from operations of $14 million, and an additional $1.8 million on a purchasing property and equipment, mainly for the building of ArcX.

Operator

Management expect that the company's cash and cash equivalent and net deposits as of 31st of March 2026 are now 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 to the company ability to continue as a going concern. On a preliminary unaudited basis, the company estimate that its cash and cash equivalent 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.

Operator

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, in incurrence of the 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 an increased fixed payment obligations. In order to finance our operations, we may also raise funds through collaborations, strategic partnerships, or marketing, distribution or licensing arrangement with the third parties, which may require us to relinquish valuable rights to our technologies, future revenue streams, research programs, or products, or grant license 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.

Operator

If we're 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 do not include any adjustment that may 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 31st, 2025. The increase was mainly attributable to 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 31st, 2026 and December 31st, 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.

Operator

To the concluding remarks. While commercializations has not gone as rapidly as had planned two years ago, we remain confident in the ultimate success of the comprehensive suite of Nanox.AI solutions. Looking ahead, we remain focused on three key priorities. Continue to scale our deployment numbers, converting our pipeline of partnerships discussions into signed agreement, and supporting our partners to drive system sales and utilization. The foundations we have built in the beginning to result in growing deployments and positions 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.

Operator

Thank you for joining our call today, and as always, we appreciate your continued support. Operator, please open the call to questions.

Speaker 3

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&A roster. Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann and Company. Your line is now open.

Speaker 1

Hi. Thanks for taking our question. Two from our end. Firstly, could you talk about the telerad 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 and number of customers and volumes and utilization? Thank you.

Operator

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

Speaker 1

Could you talk about the rates and the customers and volumes and utilization?

Operator

Of the teleradiology?

Speaker 1

Yes, please.

Operator

As you can see, since the acquisition of USARAD, we have managed to more than double the sales, the revenues that comes from the teleradiology. This is mainly due to increase of the number of customers. Right now, it's a few hundred customers. Of course, they are vary from one to another. One can do like a few hundred thousand dollars, and the other can do a few thousand dollars. What we are trying to do is also change the mix to the benefit of high-price readings such as MRI and CT, on the expense of the X-ray. Of course, we don't choose what the customer is scanning, so we do it all.

Operator

I would say that one of the trends that we see, that we see a lot of increase in the scans of the MRI and the CT accordingly, this is one of the trends that impact the increase in revenues. We saw the increase year-over-year, we'll probably see, hopefully, an increase. We monitor it on a weekly basis, 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. On one hand, USARAD, the teleradiology business, gave us a lot of opportunities to sell the Arc. New customers to sell the AI, new customers to sell the Nanox Health IT.

Operator

On the other hand, every Arc that we deploy, it's a new system, that before they didn't have X-ray or CT, they ask us to provide the services in addition to the scans or the paper scan. They ask us to provide the reading services, teleradiology are adding to I would say they are reading a meaningful part of the scans that the Arc is scanning, I think we'll see a growth in this one as well.

Speaker 1

Thank you. Secondly, Erez, 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 second quarter and the balance of the year?

Operator

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 sale that our salespeople are doing. We mentioned that we have currently 360 units that we sign agreements in the next two, three years. I think that we mentioned that Howard estimate their part for 60 this year. 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 U.S. 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. There are many of them, and more countries are right now, we are planning to do.

Operator

The most important element, 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 medical imaging chain in the U.S., probably one of the biggest in the world. The system that was tested commercially, by the way, and clinically during the 2026, and even a bit before, was successfully implemented. 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, et cetera.

Operator

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 as of yesterday, two sites, the system arrived to the site, and as soon as they complete the preparations, it will start scanning.

Speaker 1

Perfect. Thanks for taking our questions.

Speaker 3

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

Speaker 4

Thank you. Good morning.

Operator

Hi.

Speaker 4

Couple questions. First, a little bit of a follow-up, how should we think about 2Q? There's only a couple of days left in the quarter, 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.

Operator

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

Speaker 4

Okay, fair enough. Spending levels, 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.

Operator

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. Based on early indication that we have for June, we can expect a reduction in the burn rate.

Speaker 4

Okay, great. Final question on the AI business. Certainly, the numbers getting notably higher. At what level would we expect that business to be break even as far as gross profit? Should we think about that as a 2027 event or a late 2026? Just want to get an idea how to model that. Thank you.

Operator

Yeah. Initially, we've indicated in the past that probably at the tail or at the end of 2026, we are going to be cash neutral or break even. I would say that it may be pushed to by quarter or so. I would say early 2027, probably, based on the current.

Speaker 4

Okay. No, for clarity, I was asking about the gross profit for the AI division. As you reach $2 million a quarter, would that be break even? As far as gross profit, not spending. I am just trying to model that out. Thank you.

Operator

Okay. The answer is even easier. Since the gross profit of the AI and IT is very high, I would say probably in the 80s. The answer is probably earlier than what you have asked for.

Speaker 4

Okay, great. Thank you for taking the question.

Operator

Thank you.

Speaker 3

Our next question comes from the line of Sarah James with Cantor Fitzgerald. Your line is now open.

Speaker 5

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 the consolidation of Nanox Health IT, and just any sort of framing on how you expect, what a more realistic 2026 revenue target is?

Operator

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

Speaker 5

Yeah. With the removal of the $35 million revenue guidance.

Operator

Yeah

Speaker 5

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.

Operator

Yeah

Speaker 5

Us with the full year.

Operator

First of all, the fact that we have removed guidance doesn't say anything that we're not going to work hard in order to be there where we want it to be. 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. Okay? We have indicated that we have another few of them that are coming soon, as well as the other countries in the rest of the world, Europe and Latin America. Q2, which is currently where we are right now, was mainly focused on the onboarding of the people, training the sales people, getting the list of many tens of customers that we have already engaged in meetings with the business partners.

Operator

Our channel managers and the business partners are going to these customers and meeting them. I would say that Q3 will probably be the implementation.

Speaker 5

Okay. That's super helpful. Thank you.

Speaker 3

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

Operator

Yeah, maybe I would 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. 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 put 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.

Speaker 3

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

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