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spk05: ladies and gentlemen thank you for standing by and welcome to the hyperfine q2 2022 earnings call at this time all participants are on a listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session lead to press star one one i would like to turn the call over to your host mr sebastian maybe again thank you for joining today's call earlier today hyperfine released financial results for the fiscal quarter ended june 30 2022.
spk00: A copy of the press release is available on the company's website, as well as SEC.gov. Before we begin, I'd 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 1995. 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, including, without limitation, those relating to our operating trends and future financial performance, expense management, expectations for hiring, position training and adoption, growth in 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. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our 10Q 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. HyperSign declares 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 will turn the call over to Scott Honeckens, Interim President and Chief Executive Officer of Hyperfine.
spk04: Thank you, Marissa. Good afternoon, and thank you all for joining us. I'm also joined by our Chief Financial Officer, Alok Gupta. We are pleased to continue the conversation on Hyperfine's story with you today and highlight our recent progress. But first, I would like to reacquaint listeners with our vision as a company and our transformative solution in the field of medical imaging. Hyperfine's vision is to transform the healthcare by creating access to lifesaving diagnostics and actionable data at the patient bedside. Today, brain diagnostics are 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 portable bedside MRI system. Our initial product, our portable MRI system called Swoop, was FDA cleared in 2020. Today, we are driving adoption of the Swoop system in the hospital setting to solve significant unmet patient and provider needs. This device addresses an immense $20 billion-plus medical imaging market opportunity, considering the potential for installations across hospitals, clinics, outpatient centers over time. Today, just 10% of the world's population has access to MRI, and we are committed to improving that. As we have noted in the past, our near-term opportunities for improving patient care are, first, in the ICU, secondly, in pediatric hospitals to address hydrocephalus, and 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 too unstable to transport to the MRI suite for imaging, and it takes time to get imaging completed and can be prohibitively long in the process and consume valuable resources. There's simply not an effective way to perform MRI imaging for ICU patients today. We've been working with our clinical partners to build strong clinical validation to support the ICU use case. Turning to hydrocephalus, a disease that accounts for over 40,000 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 a shunt and tubing to drain that fluid. Although MRI is the preferred approach for regular imaging of these patients, patients are typically taken for CT scans due to lack of MRI availability. Our technology enables a quick, simple, radiation-free diagnosis process for shot failure. This July at the National Hydrocephalus Association Conference, HA Connect, we announced a new software enhancement that enables brain scans for hydrocephalus patients in under three minutes with no ionizing radiation. This development is especially significant for younger patients who may have difficulty staying still without sedation and have previously received a CT scan. HyperFi is an official partner with the Hydrocephalus Association, the nation's most widely respected organization dedicated to research and advocacy of hydrocephalus. These are just two examples of use cases where we have received overwhelmingly and early positive responses to the SWOOP system. We have 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 in both of these use cases. We also remain focused on building our base of clinical data in stroke. Data demonstrates that MRI scans can better detect ischemic stroke damage compared to and we are continuing to leverage research, including the independent publication by our partners at Yale and Harvard Massachusetts General in Science Advances earlier this year to build awareness of the value of SWOO in the detection and evaluation of stroke. As a reminder, this Science Advances paper concluded that hyperfine SWOO enables highly accessible and dynamic bedside evaluation of ischemic stroke. obtaining actionable bedside neuroimaging for 50 confirmed patients. Overall, SWOOP detected infarcts in 45 of 50 patients, or 90%, and captured lesions as small as 4 millimeters. The authors highlighted the safety and convenience of portable low-field MRI as a tool to expedite 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're continuing to engage multiple US hospitals to collect data demonstrating the clinical value of SWOOP in stroke patients. As we gather 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 and saving critical time for these use cases across ICU, hydrocephalus, and stroke patients, we remain hard at work on our next generation development to expand use cases beyond the intensive care unit and hydrocephalus into stroke and new anatomy such as C-spine. I would like to highlight a recent strategic initiative. We've had the exciting opportunity to launch a partnership with Viz.ai, 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 clinician's fingertips for timely decision making. The partnership between Hyperfine and Viz.ai further validates our aligned mission statements to provide fast and accurate point of care Through intelligent software, together we are opening doors to expedite clinical access to MRI imaging and increasing access to time-critical diagnostics in acute and post-acute care phase. With Viz AI, we are hoping to introduce SWOOP 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 $1.53 million. Our progress included broadening our global footprint to Australia and New Zealand, where we placed commercial units and established the foundation for additional installations over time. We are pleased that we have continued to develop and enhance our customer relationships, working closely with neurosurgeons, interventional neuroradiologists, and critical care clinicians alongside radiology and hospital executives, all influential stakeholders to roll out successful new programs and placements. However, our business has not been immune to the challenges of today's selling environment. These include limitations to accessing hospital administrative personnel and department leadership, staffing 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 in the timing we had projected. As 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 expectations to 35 to 45 commercial system installations and 7 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 stimulating awareness of our technology, and we have a robust network of ongoing communications with existing and new potential customers that leave us optimistic for the future. We continue to expand our commercial footprint and are not losing opportunities in our pipeline. the time to close sales is simply proving longer than we projected at the start of the year. For example, just this week we received a signed letter of intent for seven commercial units from Barnes-Jewish Healthcare System in St. Louis, which is one of the leading hospital systems in the United States. We expect to receive a final purchase order from BJC 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'm pleased to announce that we've received a letter of intent from King's College London to order 20 commercial systems. This is in association with the Bill and Melinda Gates Foundation. We expect to receive a final order shortly and begin shipment of 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, and 2024, and we are continuing to prioritize our commercialization, clinical and R&D spending 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 Liminal, our brain-sensing platform which is in the early stages of development with a view towards maximizing shareholder value creation across all of HyperFi. In summary, we are pleased with our progress towards achieving our long-term goals. Before I turn the call over to Alok, 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 Alok to review our second quarter performance and financial outlook in greater detail. Alok?
spk02: Thank you, Todd. Turning to our financial results for the second quarter 2022, Revenue for the quarter ended on June 30th, 2022 was $1.5 million compared to $400,000 in the second quarter of 2021. Growth 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 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 $8.80 per share for the same period of prior year. We ended the second quarter of 2022 with $145.1 million in cash and cash equivalents. Turning to our 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 four commercial system installations in 2020, 23 commercial systems in 2021, and implies that at year end 2022, we expect to have a total commercial install base of 62 to 72 sewage systems. In conjunction with our lower system placement expectations, we are revising our full year revenue expectation to be in between $7 to $8 million. Shifting to our additional expectations for the year. Based on the trend of our business, as Scott described, we currently anticipate a relatively flat to slightly down third quarter in terms of system placement and revenue versus our second quarter results. We now anticipate total cash burn of $70 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.
spk04: Thank you, Elo. Despite transitory headwinds in our operating environment, I want to reiterate our differentiated value proposition and our confidence in the future of HyperFi. We believe greater access to medical imaging through portable point-of-care MRI is inevitable, and we are determined to continue delivering high-quality imaging to 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 systems today, we are setting the stage for affordable point-of-care imaging to transform lives and enhance patient care around the world. With that, I want to thank you for your time and open it up to any questions.
spk05: Ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone. We'll pause for a moment while I compile our Q&A roster.
spk01: Our first question comes from Larry Beagleson with Wells Fargo. Your line is open.
spk05: Hey, guys. Good afternoon.
spk06: Thanks for taking the question. Can you hear me okay?
spk04: We can.
spk06: Hey, Scott. Hey, Scott. First, on the Barnes 7 systems and the College of London 20 systems, what's in the commercial and revenue guidance for 2022? I mean, the guidance implies only 20 systems at the midpoint. There's 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 de-risked are those systems? And I had a couple follow-ups.
spk04: Yeah, those are commercial systems, all 20 of them. And 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. But Alok, anything to add there?
spk02: No, I think you 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 sale.
spk06: So I heard you say that you're going to be shipping these systems in the next few months. So why is the midpoint of the guidance now 20 systems in the second half when you have these letters of intent for 27 systems?
spk04: As I mentioned, only 5 to 10 of the Gates King's Lemon would ship during the second half of the year. and potentially three to five of the BJC units. So they're only a portion of the 20 systems in the second half of the year.
spk06: Okay.
spk04: And Scott, you know, I was just going to say, so hopefully we're starting to build, you know, a backlog running into quarters to have a little better predictability as we move forward.
spk06: Scott, I guess, you know, you reaffirmed, you know, I feel compelled to ask this. You reaffirmed the guidance on June 29th. Obviously, you're lowering it, you know, pretty significantly here. You know, what changed from, you know, June 29th when you did the CEO call and reaffirmed and today?
spk04: Hello, do you want to take a crack at that first with the detail and I can answer as well?
spk02: Yeah, so I think, look, as Scott pointed out, some of these orders, like for example, we were expecting this order to come earlier in the quarter, but we were still anticipating towards the end of the quarter. 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 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 we 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.
spk04: I think that's entirely it. We're just living in a little bit of a, not a little bit, we're living in a relatively uncertain time you've 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 a stack up of deals and the pipelines. So you take, I think it's a combination of three things. It's general business environment and dynamics, a sales force that's maturing as we go here with the time that they've been on board and their ability to predict the business. It's hard when you're introducing a new technology like this. It's even harder in today's environment. And then I would say that the third thing is that it is proving the value proposition is there for customers, but there are workflow changes. There are different people that have to prove in a hospital, radiology departments, local departments, administration. And that also is something that in a lot of cases, it's taking us longer to get those POs done where I think some of the original the first half of the year with Dave Scott and that management group was that you may not need all of those approvals, which also, so you've got a combination of factors that are elongating the sales cycle, but not changing the value proposition. So just kind of pushing the demand curve to the right in time.
spk06: Lastly, Luke, to get to that burn rate you talked about, what's the OPEX implied for the second half or for the full year?
spk02: It's still a full year of effects, Larry. We're still expecting slightly over $80 million, which, by the way, includes all the non-cash stock-based comp included in it. But the cash burn commentary, if you recall, originally we were expecting it to be $80 to $90 million. We have to revise it down $70 to $80 million now.
spk04: Yeah, and as you looked out in 23 and 24, the combination of reasonable assumptions on revenue increases with with a combination of units and pricing, gross margin expansion relative to cost with a little bit of volume, our gross margin goes up, our R&D and sales marketing vis-a-vis this year, flat to down, G&A, a level of leverage. So cash burn goes down rather significantly in 23 and 24, which allows us to extend cash in our plan so we have a cash balance at the end of 24. going into 25.
spk01: Okay. Thank you. One moment for our next question. Our next question comes from Vijay Kumar with Evercore.
spk05: Your line is open.
spk03: Hey, guys. Thanks for taking my question. Scott, maybe a big picture question for you, right? Given the guidance change, and I understand your commentary around the macro environment, I guess for investors, the question is, well, why isn't this an indicator of underlying demand? Maybe the technology is too new for the market. What gives you the confidence? I know 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?
spk04: uh because the the pipeline continues to grow and the interest by deal is still there the whether it's for icu whether it's for hydrocephalus whether it's for stroke relative to improvements in the 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 and or You know, they're having to prioritize when they can budget and get it. So relative to demand, the demand is there for this large market. The demand in a particular timeframe is lower. Hopefully that clarifies it. But I don't think we have an overall demand problem. We've got a timing problem with it taking longer
spk03: If you just had to unpack that a little bit, what you're saying is when you look at the funnel, your indication of interest at funnel, that remains healthy or has a change over the past six months. It's just the sales cycle. Once it goes beyond the physician point of contact is where we're seeing a slowdown in the ability to close deals.
spk04: In a number of instances, that is accurate. Correct. I don't want to blame everything on the environment. It's multifactorial. It's the environment, which is maybe 50%. It's 25%, you know, a sales channel that is maturing to understand all of the things it takes to close a deal. In every geography, there's a lot of subtle differences required. and then there's 25 of it's it's a new technology and so they they want it but then they there's going to be workflow differences radiology department needs to approve it support it so in the icu they maybe want it they got to work things out with you know the icu i mean the radiology department and that coordination and figuring out new workflows even though they want it and they both want it the administration wants clarity from the two groups before they approve a purchase. That's a little bit of the Barnes-Jewish situation. Get the clarity, get it resolved, and now have an order for seven systems and arguably one of the top 10 healthcare systems in the U.S.
spk03: I understand that. That's helpful. On the 20 system order from King's College, are there any other large companies IDN sort of contract that are in the pipeline, which would be something similar to what you're seeing along the lines of King's College of London border?
spk04: No, not at this time. There are things in the multiple unit status in the pipeline, but not of that magnitude.
spk03: Got you. Got you. And then, Alok, maybe a couple for you. I think I heard you say third quarter sequentially flattish to down. Was it a system placement commentary or revenue commentary?
spk02: Both, because revenue are driven by the system placement. So it is both. So we had nine units, but we're guiding flattish to down, but still at a big point, like we talked about, from 35 to 45, we expect. And the midpoint, if you take a midpoint, it's 40 units. And sequentially Q3 to Q4, it will be slightly higher. So that's what we're guiding to today. And sequentially Q3 to Q4, it will be slightly higher. So that's what we're guiding to today.
spk03: If you hit the guidance, the revenue guidance at the midpoint seven and a half, assuming sequential revenues are flattish, A big step up from one and a half to three plus million in Q4. Sorry, go ahead.
spk02: No, so what I was going to tell you is, as we talked about it in our very first earnings call, since January 1st when we changed our pricing model, that impact hasn't flown through. As we originally indicated, all of those transitions 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 higher revenue for the 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 was 110,000. For this quarter, the nine units and 1.2 million device revenue total is 1.5, but device revenues are 1.2. That has gone up to 130. So that's another 16, 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 the pricing transition into 250,000 or 200,000 plus will happen in the future contracts as we are talking about it. And that's the reason that gives us confidence that the second half revenue is at a midpoint four and a half versus three for the first half. Does that make sense, Vijay?
spk03: That does, that does. And then maybe my last one on that. your commentary on cash burn. Is that a good starting number for fiscal 23? And the reason I ask is obviously with 145, 146 of cash on hand, I think I heard Scott mentioned looking at strategic optionality for the brain sensing part of the business. How, you know, When you think about that existing cash in hand, how long can you run the business, make the necessary investments before thinking about additional raises?
spk02: So I'll let Scott talk about additional raises. But we're not commenting on the 23 cash burn, Vijay. But what Scott did say is we have built a plan to last this cash. We started the year at 188.5. And like I guided, we will burn $70 to $80 million this year. That will give us enough cash to lead us through 24. So we will have cash at the end of December 24. I'll let Scott comment on the other one.
spk04: No, that's absolutely correct. And not only have cash at the end of 24, I think we'll demonstrate over that time significant revenue growth, expansion of clinical indications, progression of the technology and the next version of the product, expanding gross margins as well. And that's from price as well as that's from cost. So I think we'll be in a strong position and hit significant milestones for value creation over that time frame. By the time we would need to raise additional capital. And so like all programs, you're looking at them to try and figure out how you can advance them vis-a-vis other programs as efficiently capital-wise to create the best returns for shareholders. So as we progress in that regard, we'll share that appropriately.
spk03: Understood.
spk05: Thanks, guys. And am I showing any further questions at this time? Will I turn the call back over to Scott?
spk04: Well, thank you all for joining today, and we look forward to sharing our continued progress as we go forward. Thanks again. Rest of the week.
spk05: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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