Odysight.ai Inc. — Q2 2023 Form 10-Q Summary
Reporting period: Quarter ended June 30, 2023; financial statements are unaudited. Unless otherwise stated, amounts below are in USD thousands. The company develops and sells visual-sensing and AI video-analytics solutions for predictive maintenance and condition monitoring, alongside miniature imaging products. It changed its name from ScoutCam Inc. to Odysight.ai Inc. effective June 5, 2023.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | 674 | 370 | 977 | 372 |
| Cost of revenue | 777 | 561 | 1,327 | 849 |
| Gross loss | (103) | (191) | (350) | (477) |
| Operating loss | (3,119) | (2,581) | (5,898) | (5,350) |
| Net loss | (2,876) | (2,772) | (5,562) | (5,560) |
| Basic and diluted loss per share | $(0.28) | $(0.39) | $(0.63) | $(0.78) |
- Revenue grew 82% in Q2 and 163% for the first half, driven principally by production sales to a Fortune 500 healthcare customer. That customer accounted for approximately $645 thousand of Q2 revenue and $933 thousand for the first half.
- Gross losses narrowed year over year, but cost of revenue remained greater than revenue. Gross margin was approximately negative 15% in Q2 and negative 36% for the first half, versus approximately negative 52% and negative 128%, respectively, in 2022.
- First-half R&D expense increased 39% to $2,753; sales and marketing increased 50% to $669; G&A fell 13% to $2,126. Management attributed R&D growth to hiring for its Industry 4.0 focus and marketing growth mainly to rebranding and the Paris Air Show.
Cash, liquidity and capitalization
- At June 30, cash and cash equivalents were $3,319 and short-term deposits were $18,736, together $22,055, compared with $13,146 at December 31, 2022. The company reports current assets of $23,605 and current liabilities of $2,983.
- For the first half, operating cash use was $5,083, investing cash use was $15,557 (primarily net investment in short-term deposits), and financing provided $13,913. Cash and cash equivalents ended the period at $3,319.
- Total liabilities were $5,613, including $571 of operating lease liabilities and $2,961 of contract liabilities. The filing reports no debt borrowings in the presented balance-sheet categories. Accumulated deficit was $30,324.
- In March, the company issued 3,294,117 shares and warrants for gross proceeds of $14 million ($13,913 net proceeds reported in cash flows). The placement warrants are exercisable at $5.50 per share; 5,763,273 warrants were outstanding at quarter-end. Shares outstanding increased from 7,121,737 at year-end to 10,436,684 at June 30.
Changes, outlook and risks
- Revenue growth reflects a customer-specific miniature-camera product moving from development into production. The company recognized $211 of development-services revenue and $722 of product revenue for that product in the first half; total first-half revenue from the Fortune 500 customer was approximately $933.
- Remaining performance obligations were approximately $2.9 million at June 30, expected to be recognized over the product’s estimated manufacturing term. Contract liabilities declined to $2,961 from $3,644 at year-end.
- Management said available cash and resources were expected to fund the operating plan for at least 12 months from the financial-statement filing date. It also expects higher R&D, commercialization, marketing, manufacturing and distribution costs, anticipates continued unprofitability, and says substantial additional funding will be needed. Additional financing may dilute shareholders; no assurance of obtaining funding on acceptable terms is given.
- Revenue depends substantially on a limited number of customers. The company is expanding R&D and hiring in Industry 4.0 markets, including aerospace, maritime, energy and other industrial applications. No formal revenue or earnings guidance is provided.
- The company received a $96 thousand Israel Innovation Authority advance, recorded as a short-term liability; repayment may be required if its production-enhancement plans are not completed or are abandoned. If the plans are completed and generate sales, royalties of 3% apply up to the grant amount plus accrued interest. The enhancement plan had not begun as of June 30.
- Medigus sold all of its holdings in the company on June 1, 2023. Management reported no material pending legal claims, no material change to previously disclosed risk factors, and effective disclosure controls at quarter-end.
Important facts for investors to verify
- Customer concentration, production volumes, customer commitments and the durability and profitability of the Fortune 500 relationship.
- Whether gross losses narrow as production scales, and whether revenue growth can cover rising R&D and commercialization costs.
- The timing and conversion of the $2.9 million remaining performance obligations into recognized revenue and cash collections.
- Cash burn, availability and maturity terms of short-term deposits, the stated 12-month runway, and the timing and terms of additional financing.
- Potential dilution from outstanding warrants, options and future capital raises, and the conditions attached to the IIA advance and grant.