Q2 2022 Hyperfine, Inc Earnings Call

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The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Ladies and gentlemen, thank you for standing by and welcome to the Hypersound in Q2 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press Star one one I would like to turn the call over to your host Mr. Bosch you may begin.

Thank you for joining today's call.

Earlier today Hypersound released financial results for the fiscal quarter ended June 32022, a.

A copy of the press release is available on the company's website as well as I said without that.

Before we begin I would like to remind you that management will make statements. During this call that include forward looking statements within the meaning of the federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

Any statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements.

All forward looking statements.

<unk> without limitation those relating to our operating trends and future financial performance expense management expectations for hiring physician training and adoption growth and our organization market opportunities commercial and international expansion regulatory approvals and product development are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.

Accordingly, you should not place undue reliance on these statements.

A list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our 10-Q filed with the SEC on May 12 2022.

This conference call contains time sensitive information and is accurate only as of the live broadcast today August 10 2022.

Hyperfine disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

And with that thank you again, I'll turn the call over to Scott <unk> interim President and Chief Executive Officer of Hypervisor.

Thank you Marisa good afternoon, and thank you all for joining US I'm also joined by our Chief Financial Officer.

We are pleased to continue the conversation on Hypersound story with you today and highlight our recent progress, but first I would like to replay listeners with our vision of the company and our transformative solution in the field of medical imaging Hypervisor vision is to transform the health care by creating <unk>.

Test lifesaving diagnostics and actionable data that the patient bedside today rain diagnostics or a single point in time and delay the time from door to discharge our mission remains to transform that experience first and foremost with our affordable bedside MRI system or <unk>.

Initial product our portable MRI system.

With FDA cleared in 2020 today, we are driving adoption of the <unk> system in the hospital setting to solve significant unmet patient and provider needs.

This device addresses that I meant $20 billion, plus medical imaging market opportunity considering the potential for installations across hospital clinic outpatient centers over time.

Today, just 10% of the world's population has access to MRI and we are committed to improving that.

We have noted in the past our near term opportunities for improving patient care. Our first in the ICU secondly in pediatric hospitals to address hydrocephalus.

Third in stroke.

Patients in the ICU for neurological conditions experience a variety of challenges when it comes to getting an MRI patients are typically two on stable the transport to the MRI suite for imaging and it takes.

And it takes time to get imaging completed and can be prohibitively long in the process and consume valuable resources. There is simply not an effective way to perform an MRI imaging for ICU patients today, we have been working with our clinical partners to build strong clinical validation to support.

At the ICU use case.

Turning to hydro southwest a disease that accounts for over 40000 hospital admissions each year and is an excellent use case for portable MRI hydrocephalus is characterized by a buildup of fluid in the brain addressed by introducing assurant and tubing to drain that fluid. Although MRI is the preferred approach.

Roche for regular imaging in these patients patients are typically taken for CTG scans due to lack of MRI availability. Our technology enables a quick simple radiation free diagnosis process for failure.

This July at the National Hydrocephalus Association Conference Hai connect we announced a new software enhancement enables brain scans for hydrocephalus patients in under three minutes with no ionizing radiation.

This development is essentially especially significant for younger patients who may have difficult G stage still without sedation and have previously received a C. T scan hypervisor and official partner with the Hydrocephalus Association the nation's most widely respected organization.

Decatur to research and advocacy of hydrocephalus.

These are just two examples of use cases, where we have received overwhelmingly and early positive responses to sweep system with systems located at leading institutions across the country with ongoing studies to add even greater validation to the utility and clinical efficacy of our technology and both of these use.

Cases.

We also remain focused on building our base of clinical data in stroke.

<unk> demonstrates that MRI scans can better detect ischemic stroke damage compared to Cts again, and we are continuing to leverage research, including the independent publication by our partners at Yale and Harvard, Massachusetts General and science advances earlier this year to build awareness of the value.

And the detection and evaluation of stroke.

As a reminder, this science advances paper concluded the hyperplane smooth enables highly accessible and dynamic best site evaluation of ischemic stroke, obtaining actionable bedside neuro imaging for 50 confirmed patients overall swoop detected in parks and 45 of 50 patients.

We're 90% and captured legions of smallest four millimeters.

Also as highlighted the safety and convenience of portables low field MRI as a tool to expedite expedited the stroke treatment pathway.

And concluded that results validated the use of low field MRI to obtain clinically useful imaging of stroke setting the stage for broader use.

We are continuing to engage multiple U S hospital to collect data demonstrating the clinical value of Swift and stroke patients as we gather critical greater clinical data, we will increase our focus on driving awareness and educating the field about swoop utilization for the stroke use case, we look forward to sharing our progress.

Over the coming quarters.

In addition to improving patient workflow of saving critical time for these use cases across ICU hydrocephalus in stroke patients. We remain hard at work on our next generation development to expand use cases beyond the intensive care unit and hydrocephalus industry and new anatomy, such as <unk>.

<unk> spine.

I would like to highlight a recent strategic initiatives, which are the exciting opportunity to launch a partnership with <unk>.

<unk>, a leading AI powered disease detection and intelligent care coordination platform to bring MRI to the patient's bedside and deliver valuable insights to the <unk> fingertips for timely decision, making the partnership between hyperfine and further validates our aligned mission statements.

To provide fast and accurate point of care through intelligence software together, we are opening doors to expedite clinical access to MRI imaging and increasing access to time critical diagnostics in the acute and post acute care phase with this AI, we are hoping to introduce.

Luke to new sites of care as we continue generating awareness of our value proposition.

Now turning to our recent commercial progress we installed nine commercial swoop systems in the second quarter of 2022, driving revenue of $1 $5 $3 million. Our progress included broadening our global footprint to Australia, New Zealand, where we placed commercial units.

And establish the foundation for additional installations overtime.

We are pleased that we have continued to develop and enhance our customer relationships working closely with neurosurgeons interventional neural radiologist and critical cleared commission alongside radiology and hospital executives all influential stakeholders to rollout a successful new programs in place.

Thanks.

However, our business has not been immune to the challenges of today's selling environment. These include limitations to access in hospital administrative personnel and department leadership.

Tapping shortages at hospitals, local regulatory and administrative approval timing of new purchases and spending constraints in today's inflationary environment, all resulting in an overall elongated sales cycle. These factors have detracted from our ability to finalize contracts.

And the timing we had projected.

The macro environment continues to impact order timing.

We are also projecting an elongated sales cycle going forward as a result, we are revising our 2022 expectation to 35% to 45 commercial system installation and $7 million to $8 million in total revenue.

Despite our lower near term expectations, we remain highly confident in our value proposition and long term goals. Our team remains hard at work stimulate an awareness of our technology and we have a robust network of ongoing communications with existing and new potential customers that leave us optimistic.

Mystic for the future we continue to expand our commercial footprint and are not losing opportunities in our pipeline. The time to closed sales is simply proving longer than we projected at the start of the year.

For example, just this week we received received a signed letter of intent for seven commercial units from Barnes Jewish Health care system and St. Louis which is one of the leading hospital systems in the United States.

We expect to receive a final purchase order from GP JC healthcare within the quarter and we anticipate delivering these systems over the next six months. We originally expected. This order in June a testament to the slower selling process or approval process, we are experiencing today.

Separately I am pleased to announce that we received a letter of intent from King's College, London to order 20 commercial system. This is an association with the Bill <unk> Melinda Gates Foundation, we expect to receive a final order shortly and begin shipments.

These units over the next several months.

Lastly, given market conditions and the elongated sales cycle, we have updated our intermediate term operational plan with a focus on prioritizing projects and extending our cash runway. We feel good about the momentum we are building for sales growth in 2023.

In 2024, and we are continuing to prioritize our commercialization clinical and R&D spending and accordingly, we are confident that we have adequate capitalization. Given this plan through year end 2024, we will continue to be diligent in our Opex planning.

While continuing to invest where we see potential for the greatest growth as part of the prioritization of all projects and expenditures, we will be assessing the company's strategic options for aluminum or brain sensing platform, which is in the early stages of development with a view towards maximizing.

Shareholder value creation across all of hybrid.

In summary, we are pleased with our progress toward achieving our long term goals before I turn the call over to elope, our Chief Financial Officer, a quick note on our CEO search we are working with a leading global search firm.

And are in the process of interviewing multiple high level seasoned executives for our CEO role. We are excited about the quality and depth of candidates for the position and are hopeful to have the role filled in Q4.

I will now turn the call over to a low to review, our second quarter performance and financial outlook in greater detail Hello.

Thank you Scott.

Turning to our financial results for the second quarter of 2022.

Revenue for the quarter ended on June 30 of 2022 was $1 $5 million.

Two $400000 in the second quarter of 2021.

Gross margin for the second quarter of 2022 was negative $2 million compared to negative $1 million.

In the second quarter of 2021.

R&D expenses for the second quarter of 2022 was $7 3 million compared to $6 million in the second quarter of 2021.

Sales general and administrative expenses for the second quarter of 2022 were $15 8 million compared.

Compared to $8 5 million in the second quarter of 2021.

Net loss for the second quarter was $23 $2 million equating to a net loss of 33 cents per share as compared to the net loss of $14 6 million or a net loss of $88 80 per share for the same period of prior year.

We ended the second quarter of 2022 with $145 1 million in cash and cash equivalence.

Turning to over 2022 outlook as Scott mentioned based on our first and second quarter progress and current trends in the business.

We now anticipate installing 35% to 45 commercial systems in 2022.

This compares to a full commercial system installations in 2000 2023 commercial systems in 2021.

It implies that at year end 2022, we expect to have a total commercial installed base.

62% to 72 <unk> systems.

In conjunction with other large system placement expectations.

Advising our full year revenue expectations to be between $7 million to $8 million.

Shifting to our additional expectations for the year.

Based on the trend of our business on as Scott described we currently anticipate a relatively flat to slightly down third quarter in terms of system placement placements and revenue what is our second quarter results.

We now anticipate total cash burn of $70 million to $80 million in 2022, as we focus on investments in our business, which offer the greatest growth return potential.

At this point I would like to turn the call back to Scott for closing comments.

Thank you Ella despite transitory headwinds in our operating environment I want to reiterate reiterate our differentiated value proposition and our confidence in the future of high profile.

We believe greater access to medical imaging portable point of care MRI is inevitable and we are determined to continue delivering high quality imaging two new sites of care to improve provider workflow and patient care.

With our early success marked by a total global installed base of over 90 swoop system. Today, we are setting the stage for affordable point of care imaging to transform lives and enhanced patient care around the world with that I want to thank you for your time and open it up to any questions.

Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone we will pause for a moment, while we compile the Q&A roster.

Our first question comes from Larry <unk> with Wells Fargo. Your line is open.

Hey, guys. Good afternoon. Thanks for taking the question can you hear me okay.

We can.

Hey, Scott Hey, Scott first.

On the barn seven systems in the college of London 2000 systems.

In the commercial and revenue guidance for 2022, I mean, the guidance implies only 20 systems.

The midpoint of the second half.

We have just only 20 systems in the second half at the midpoint of the guidance.

Are those college of London systems, I heard you say Bill and Melinda Gates Foundation are those not commercial systems, and how derisked or those systems and I had a couple of follow ups.

Yes, those are commercial systems.

All 20 of them in in our projections, we have five to 10 coming from that group and that kind of explains the bandwidth.

Around the 35 to 45 to a large degree.

<unk> anything to add there.

No I think you've covered that so.

It is a commercial contract with King's College, London, Larry and supported by Bill and Melinda Gates Foundation for King's College, it's not a direct unlike the first grant. This is not a grant this is a commercial system sales.

So I heard you say.

Is that youre going to be shipping. These systems in the next few months to why is the midpoint of the guidance now <unk> systems in the second half when you have these.

Letters of intent for 2017 systems.

As I mentioned only five to 10 of the game.

Teams lending would shift.

During the second half of the year.

And I essentially three to five of the Bj's units so.

Hi.

Currently a portion of the two.

<unk> systems in the second half of the year.

Okay and Scott.

So let me tell you.

Go ahead.

I was just going to say so hopefully we're starting to build a backlog run it into quarters to have a little better predictability.

As we move forward.

Scott I guess, you reaffirmed I feel compelled.

To ask this.

You reaffirmed the guidance on June 29th obviously, you are lowering it.

Significantly here.

What changed from June 2019, when you did the CEO call and reaffirmed in today.

Hello, do you want to take a crack at that first with the detail on that can answer as well.

Yes, so I think look.

Scott pointed out some of these orders like Barnes Jewish for example, we were expecting.

This order to come earlier in the in the in the quarter, but we were still anticipating towards the end of the quarter.

And and.

Order timing.

As expected will not happen I mean, we just got the LOI last week. So you can see the extension of the <unk>. The sales order process by at least six weeks even for just one order.

And those are the reasons why we when we originally thought that that that will be able to meet our second quarter guidance, realizing that the elongated sales cycle and taking more time to get these orders in place.

Okay.

Entirely it is.

We're just living in a little bit of a.

I had a little bit we're living in.

Relatively uncertain time.

<unk> heard it across other medical device companies with general business conditions.

And we're just trying to be very thoughtful here as we go forward with what we're seeing with elongated sales cycles and again not losing deals. It's just we're getting stack up of deals and the pipeline. So UK I think its a combination Larry three things.

General business environment and dynamics.

Salesforce this maturing.

As we go here.

The time that they've been on board and their ability to predict.

The business is already it's hard when you are introducing a new technology like this it's even harder in today's environment and then I would say the third thing is that it is it is proving the value proposition is there for customers, but there are workflow changes there are different people.

You have to prove in a hospital radiology departments local Department administration and that that also is something that.

And a lot of cases, it's taken us longer to get those.

<unk> done where I think some of the original anticipation in the first half of the year with Dave Scott Management Group was.

You didn't you may not need all of those approvals, which also so you've got a combination of factors that are elongated the sales cycle, but not changing the value proposition. So just kind of pushing the demand curve to the right in time.

Lastly, I'll look to get to that burn rate you talked about what's the opex implied for.

For the second half or for the full year.

So the full year Opex, Larry we are still expecting slightly over $80 million, which by the way includes all the noncash.

Stock based comp included in it.

But but the cash burn commentary if you recall originally we were expecting it to be $80 million to $90 million.

<unk> are down $70 million to $80 million now.

And as you look out to 'twenty.

Three and 24, the combination of reasonable assumptions on revenue increases.

With with a combination of units and pricing.

Gross margin expansion relative to cost a little bit of volume our gross margin goes up our R&D and sales marketing vis vis this year flat to down G&A our level of leverage so cash burn goes down rather significantly in 'twenty, three 'twenty, four which allows us to extend.

Our cash and our plan.

Yes.

So we have the cash balance at the end of 'twenty four.

Going into 'twenty five.

Okay. Thank you.

Okay.

One moment for our next question.

Our next question comes from Vijay Kumar with.

Evercore Your line is open.

Hey, guys. Thanks for taking my question.

Scott maybe a big picture question for you right.

Given the guidance change and then I understand.

Your commentary around the macro environment.

I guess for investors. The question is why isn't this an indicator indicator of underlying demand maybe the technology is too new.

After the market like what gives you the confidence unknown.

You sort of alluded to the demand shifting to the right just talk about what gives you confidence why is this not a demand issue and why you're optimistic about the business.

Okay.

Because the pipeline continues to grow and.

The interest by deal is still there.

Whether it's for ICU, whether it's Roger separately, whether it's for stroke relative to improvements in our software and what we're seeing and hearing.

The customers want the product and they're figuring out ways.

To get the product, it's just taking longer indoor theyre, having to prioritize when they can budget and get it.

Tier.

If you are.

So relative to demand the demand is there for this large market that demand.

A particular timeframe is lower.

Maybe that hopefully that clarifies.

Yes.

I don't think we have an overall demand problem.

We've got a.

A timing problem with it is taking longer.

If we just had to unpack that a little bit what youre seeing is when you look at the funnel.

Your indication of interest that funnel that remains healthy or has that changed over the past six months. It's just.

The sales cycle like once it goes beyond the physician.

Or contact us where we're seeing.

Slowdown in our ability to close deals.

And a number of instances that is accurate and correct.

Okay and then.

As I said I don't want to blame everything on.

The environment, it's multifactorial.

The environment, which made 50% it's 25%.

Sales.

Channel that is maturing to understand all of the things it takes to close a deal in every geography, there is a lot of subtle differences.

Required and then there is 25% of its a new technology and so one of attending theres going to be workflow differences radiology department needs to approve it supported in.

In the ICU, they maybe want it they got to work things out with.

In the ICU.

Radiology Department.

And that coordination and figuring out the workflow, even though they want it and they both want it.

The administration once clarity.

From the two groups before they approve.

That's a little bit of the <unk> situation, Jeff declared get it resolved and now have an order for seven systems.

Arguably one of the top 10 health care systems in the U S.

Understood. That's helpful on that two system order from King's College are there any other large.

IDM sort of contracts that are in the pipeline, which would be in.

Something similar to what Youre seeing.

Along the lines of Kings College, London quarter.

No not not at this time.

There is there are things.

In the multiple unit.

Yeah.

Status in the pipeline, but not of that magnitude.

Gotcha Gotcha.

And then I'll ask maybe a couple for US I think I heard you say good quarter.

Sequentially flattish or down with it.

System placement commentary of revenue commentary.

Both.

Revenue are driven by the system placements. So it is both so we had nine unit, we're guiding flattish to down but still at a bit point like we talked about from 35% to 45, we expect the midpoint. If you take the midpoint, it's 40 units.

And sequentially Q3 to Q4, it will be slightly higher so that's what that's what we're guiding to today.

And and.

In Q3 to Q4, it will be slightly higher so that's what that's what we're guiding to today.

And to hit the guidance the revenue guidance at the midpoint seven and a half assuming sequentially revenues are flattish.

The big step up from one and a half two.

Yes.

And in Q4.

Sorry go ahead.

No. So what I was going to tell you is as we talked about it in our very first earnings call. Since the January 1st when we change our pricing model.

That impact Hasnt flown through as we originally indicated all of those transmission will likely happen in the second half and we are seeing the data points on that so if I were to talk about why we are seeing a higher revenue important 20 units in the back half versus 20 units in the first half you can see on an average on a per device revenue in the first quarter because of one.

<unk> hundred 10000 for this quarter, but nine units and $1 2 million device 70 totaling $1 five.

Revenues of one point to that has gone up to $1 30. So that's another 16% to 17% increase in the second half the legacy devices are tailing off with a very if any one or two left in there. So we expect that pricing transition into 250000 or 200000, plus will happen in the <unk>.

<unk> contracts are as we are talking about it and Thats. The reason that gives us confidence that the second half revenue is is at.

At the midpoint $4 five three for the first half because that makes sense.

Does that does and then maybe my last one.

The commentary on cash burn.

Is that a good starting number for <unk>.

Fiscal 'twenty three and the reason I ask is obviously with 140 546 of cash on hand.

I think I heard Scott mentioned looking at strategic Optionality for the brain sensing a part of the business.

How when you think about that existing cash on hand, how long can you run the business make the necessary investments before.

Thinking about.

Additional phases.

So.

I'll, let Scott talk about initial rates, but we are not commenting on the 'twenty free cash burn Vijay, but what Scott did say.

We have build a plan to last this cash we started the year at $188 five.

And like I guided we will burn $70 million to $80 million. This year that will give us enough cash to.

Lead us through 'twenty four so we will have cash at the end of December 24th I'll, Let Scott comment on the other one.

No that's absolutely correct and not not only have cash at the end of 'twenty four I think we will demonstrate over that time.

Revenue growth expansion of clinical indications progression of the technology.

The next version of the product.

Expanding gross margin.

As well.

And thats from price as well as from cost. So I think we'll be in a strong position and hit significant milestones for value creation over that time.

By the time, we would need to.

Raise additional capital.

And so like all programs.

We're looking at them to try and figure out how you can advance them vis vis other programs.

Is sufficiently capitalized to create the best returns for shareholders. So as we progress in that regard.

Sure that appropriately.

Understood. Thanks, guys.

And I'm not showing any further questions at this time I will turn the call back over to Scott.

Well. Thank you all for joining today and we look forward to sharing our continued progress as we go forward. Thanks again press release.

Ladies and gentlemen. This does this does conclude today's presentation. You may now disconnect and have a wonderful day.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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