Hyperfine, Inc.

Good afternoon, and welcome to Hyperfine's first quarter 2024 earnings conference call. Currently, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Marissa Beitsch from Gil Martin Group for introductory disclosures.

Thank you for joining today's call. Earlier today, Hyperfine Inc. released financial results for the quarter ended March 31, 2024. 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, 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 risks factor section of our latest periodic filing with the Securities and Exchange Commission. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 13, 2024. Hyperfine, Inc. 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, I will turn the call over to Maria Sainz, President and Chief Executive Officer.

Good afternoon and thank you all for joining us. On the call with me today is our Chief Administrative Officer and Chief Financial Officer, Brett Hale. We're off to a solid start in 2024 with healthy top line growth and a 3.3 million revenue quarter. We continue to ask flagship institutions in the US and build strong programs, giving us a solid foundation to drive the development of these new markets of affordable brain MR. We also recognize significant international contributions in Q1 driven by the addition of select outside of the U.S. markets to our commercial focus. And I'm also very excited about the progress we've made in the quarter on our Alzheimer's program and our stroke study. As a team, We delivered a strong success across all fronts while maintaining spending discipline and preserving capital. I am very proud of the lean execution of the Hyperfine team in Q1. Innovation, clinical evidence, and commercialization drive our success near and long term. In 2024, we remain an early commercial stage company while investing healthily in development and clinical activities that will drive commercial growth through expansion into new clinical applications and new sites of care in 2025 and beyond. We continue to have a significant focus on innovation. We launched our latest AI power software in January and have received very positive feedback from users on the image quality of our DWI sequence, which is clinically important for stroke detection. The latest software includes proprietary AI and deep learning algorithms and expands denoising to all sequences available on the subsystem. Looking forward, we continue to invest in all areas of innovation, including hardware, software, and AI. We remain committed to launching a steady cadence of AI-powered software and sequence development improvement. And we expect to release our next AI power software by late summer. We plan to continue to improve image quality and shorten acquisition time, which is important for the use of the soup system in acute settings. Technology improvements on image quality and usability make the portable soup brain MR scanner more relevant across more clinical applications and sites of care. I want to now focus on clinical evidence. As I have mentioned before, we are developing a new market of portable brain MR. The value of our platform technology is that it enables timely and early clinical decisions at multiple sites of care. Our clinical work is intended to yield the data to drive awareness and adoption of our differentiated technology across different clinical applications, as we already benefit from a very broad, clear indication by FDA for brain imaging of patients of any age. The subsystem scans are also covered by the same reimbursement codes used for conventional MRIs. First, our clinical development aims to position the subsystem as a clinical tool in the hands of clinicians that perform neurointervention. In this area, our immediate focus is our study to assess the detection and workflow value of soup in acute stroke triage. Our second focus is on soup position as a tool for clinicians managing and caring for patients suffering from chronic neurodegenerative diseases. Here, our greatest opportunity is our active Alzheimer's program. These two near-term areas of clinical use expansion stroke, and Alzheimer's are massive, multi-billion dollar markets for the soup system in the U.S. alone. These are also markets with unmet needs that align with the strengths of soup technology, namely soup's portability, small footprint, easy access, and high ease of use. As a reminder, our technology aims to broaden the reach of brain MRIs in the new clinical uses and sites of care, complementing conventional MRI. Turning to a more detailed update on our Alzheimer's efforts, MRI is becoming a key component of Alzheimer's care, and there is a strong potential for the subsystem to become a very valuable tool to enable more scalable patient-centric care models. Over 50 million people globally suffer from Alzheimer's. Even the vast and compelling opportunity this presents, we have mobilized to be the comprehensive Alzheimer's program, beginning with our Alzheimer's utility study, CARE-PMR. CARE-PMR is led by Dr. Benzinger at Washington University School of Medicine. In the study, clinicians have placed subsystems at local Lekembe infusion centers. The studies comparing high-field MRIs and portable ultra-low-field MRIs to assess the ability of SOOP to detect ARIA complications in patients who are taking this amyloid targeting therapy. By bringing imaging closer to the patient than a conventional MRI, we expect to significantly optimize workflow and ultimately open up the opportunity for more patients to be treated safely and efficiently. We expect preliminary data from this study to be shared by the end of 2024. In stroke, we continue to enroll patients in our ACTION-PMR study, which has now surpassed 100 patients. ACTION-PMR is a multicenter evaluation assessing the use of SUP systems in detecting acute ischemic stroke. We remain bullish about this opportunity, which will open up the placement of SUP units in emergency departments and hub-unspoke stroke networks and look forward to sharing updates in the coming quarters. Additionally, our technology was highlighted in four abstracts at the International Stroke Conference, which was held in February. These abstracts highlighted the clinical utility and applications of portable ultra-low-field brain MR imaging. I also want to provide additional detail on our commercial progress in Q1. In the US, we continue to add flagship institutions to our user base, most recently through the addition of MedStar Washington Hospital Center in Washington, DC. We remain very focused on building stroke programs. We have newly established a SUP user community to share best practices for the clinical use of SUP to propel further adoption of this transformative technology. In international markets, we have established a distribution infrastructure to support additional commercial efforts. As we announced late last week, we have now appointed distributors in three key European markets and have hired an experienced market development resource to coordinate our international efforts. The distributor model allows us to focus on driving international revenue growth without significant OPEX use. I am very pleased with the progress we're making on the three areas of focus and investment for our company and doing so while maintaining spending discipline. Our efforts in innovation, clinical evidence, and commercialization support a comprehensive strategy which will yield an acceleration of our business and growth in 2025 and beyond. The opportunities ahead are incredibly large and compelling, and our execution is very strong. I will now turn the call over to Brett to review our performance in the quarter.

Thank you, Maria. Turning to our financial results for the first quarter of 2024, revenue for the quarter ended March 31, 2024 was $3.3 million, up 25% compared to the first quarter of 2023, driven by the sale of 13 Swoop systems. Although our global average selling price was lower in the quarter, primarily a function of heavier international mix, our value proposition has held very strong with U.S. institutions. Gross profit for the first quarter of 2024 was $1.4 million compared to $1.2 million in the first quarter of 2023, resulting in a gross margin of 41.1%. R&D expense for the first quarter of 2024 were $5.6 million compared to $5.5 million in the first quarter of 2023. Sales, general, and administrative expenses for the first quarter of 2024 were $6.4 million compared to $8.7 million in the first quarter of 2023. Our year-over-year reduction in SG&A and flat R&D spend is representative of our focus to fund future growth catalysts while maintaining spending discipline. Net loss for the first quarter was $9.8 million, equating to a net loss of 14 cents per share as compared to a net loss of $12.2 million or a net loss of $0.17 per share for the same period of the prior year. The improvement in net loss was a result primarily of cost savings initiatives implemented across the business over the past year. Our cash burn for the first quarter was $12.0 million, and as of March 31, 2024, we have $63.2 million in cash and cash equivalents on our balance sheets. similar to prior years our first quarter burn rate is seasonally higher than other quarters of the year we remain on track to execute our cash burn outlook for 2024 and end the year with a healthy remaining balance of cash and cash equivalents now turning to guidance we are maintaining our revenue outlook for the full year 2024 we expect revenue in the range of 12 to 15 million We continue to expect gross margins to be in the range of 45 to 50% for the year as we grow and scale commercially. Our current gross margin profile is attractive for an imaging company, and we are very pleased to be driving healthy gross margins even at small scale, putting us in position for future margin expansion. We continue to anticipate total cash burn of approximately $40 million for the full year 2024. We expect our cash burn to be lower than 2023 levels, and we will execute this plan while sustaining investments in our three focus areas, including our robust Alzheimer's program. We also continue to see a cash runway for the business into early 2026. At this point, I'd like to turn the call back to Maria for closing comments.

Thank you, Brett. I'm proud of the progress the Hyperfine team made in the first quarter, and I remain very optimistic as to what this team can deliver. The next few months will be busy for the Hyperfine team with important clinical conferences, as we will be participating in the American Society of Neuroradiology in May and the Alzheimer's Association International Conference in July. We also plan to host an analyst and investor webinar spotlighting our clinical advancements and strategy to actively expand into outpatient and office sites of care. We are committed to continue to drive execution at the highest level across technology development, clinical work, and commercialization, and do so with a strong spending discipline. With that, I want to thank you all for your time and open up the line for questions.

Thank you. And at this time, we'll conduct a question and answer session.

As a reminder, to ask a question, you will need to press star 101 on your telephone and wait for your name to be announced. To withdraw your question, please press star 101 again. Once again, that's star 101 for questions. Please stand by. We'll compile the Q&A roster.

One moment for our first question. And our first question will come from Larry Beagleson from Wells Fargo.

Your line is open.

Hi. Good afternoon. This is Simran on for Larry. Thanks for taking the question. Just first maybe starting off on guidance. You know, you beat the Q1 guide or, you know, consensus estimates by about a quarter of a million. And you're on a run right now of over 13 million for the year, you know, if we just take the Q1 performance. Why not raise the low end of the guidance range? You know, was there anything kind of one-time or one-time benefit in Q1? I know on the prior call you had mentioned some capital placements that might have slipped into Q1. So, you know, was that sort of beneficial to the quarter?

Oh, hi. How are you? There wasn't anything that was one time. There is constantly a rolling of orders and POs that we get. Sometimes we think they're going to fall at the back end of a quarter and then they fall at the beginning of the following. But there was nothing abnormal in Q1. We issued guidance only seven weeks ago and I feel really good and I feel we're off to a strong start, but I also don't want to get ahead of ourselves. So it's self-prudent to stick with guidance until we get a little bit more time under our belt, especially as we have now activated international partnerships and other things. There could be a time to be a little bit more aggressive, but this time it feels best to not get ahead of ourselves.

Great. Very helpful. And then, you know, gross margin in the quarter was maybe a bit softer than the street was modeling. And, you know, I think part of that was the device ASD came in a bit lower than we've seen in past quarters. So I guess one, what gives you the confidence to reaffirm the full year guide of 45 to 50% and two, how should we think about pricing and pricing durability going forward?

Yeah, thanks for the question. So I'll take that. So you're correct. Our ASP, I think we mentioned in our prepared remarks, was a bit lighter than our historical. If you recall, in the second half of the year, we had several U.S.-dominated quarters. With this quarter, we had a more international mix added to the portfolio. So it was at lower ASP. That was the direct impact for margin, which was up. from Q4, but maybe a little bit lighter than the full year guidance. And given how we see how the year playing out, we feel very confident that the margin will fall in the 45% to 50% range. The ASP that we had in Q1, you think about that maybe as a lower end. The gross margin or the ASP that we had in perhaps Q4 of last year may be at the higher end, but we'll bring that up from the lower end into the middle of those two ranges.

Got it. That's very helpful as well. And maybe just one last one for me on the international kind of distributors that you guys have signed. So the initial focus is France, the UK, and Italy. So maybe talk about the market opportunity and level of demand for Sloop in these geographies. And it sounds like you have placed initial systems there. So how should we think about revenue contribution from these three geographies in 2024, and is this contemplated into the guidance?

Sure. So, let me take that. I think we mentioned that in our last call where some international revenue was already in the guidance that we're issuing as we were planning to do exactly what we just did, which is set up some relatively small, but some infrastructure to start being more commercial in Europe and potentially others select outside of the US market. Remember that we had received CE certification as well as UKCA certification already in 2023. And we had a little bit of a pipeline of interest that had actually represented or activated for us from a number of different countries, many of which now have a distributor in place accountable for our business. So we were able to accelerate some of the placements that came out of interest over the last several weeks or short months with the appointment of these distributors. They may not be the only distributors we appoint. Those markets tend to be the larger medical technology markets. We're also actively looking at signing a partner in Germany. We just haven't done that just yet. We want to make sure that we are signing the right partner. The other thing that actually was very helpful was the appointment of our own business development manager, who is a seasoned and very experienced person that was very quickly able to facilitate the number of distributors that we were able to sign up relatively quickly. All of these markets have the same level of opportunity that the US. There's nothing different there. They have less penetration of conventional MRI. They have the Alzheimer's drugs coming to those markets this year, so probably about a six to a 12 month delay from the US. They have a lot of neuro intervention that needs follow up with brain MR. We feel that going to those markets is just strategically an extension of what we're doing in our direct market here in the U.S.

And the other thing I'd add to that is I think we commented in our last call as well as today's call is that the distributor targeting and going to distributors versus direct makes a lot of sense for us at this stage. It's very OPEX friendly and helps us drive the top line without a significant amount of spending. So it shows up mostly that investment in the gross margin line item.

Understood. Thank you. Sure. Thank you.

Thank you. One moment for the next question. And our next question comes from the line of Yuan Z from B Riley Securities. Your line is open.

Hi, this is Anderson on for you on a couple of questions on our end 1st, congratulations on the 1st patients enrolled in the Alzheimer study. Can you provide us with an update on the studies enrollment and remind us when we can expect to see imaging and data updates from this study?

Sure, so we're not going to provide sort of a month by month enrollment update. we have two sites actively enrolling and i would say we're very pleased with the cadence of enrollment i think it isn't a big secret out in the intern in the alzheimer's scene that washu is one of the probably most active they can be inclusion uh sites in the country so we're very pleased to have partnered with dr emmy bensinger to lead the study given the fact that um It does look like a lot of the activity on Lecambi is happening right there. There are a couple of Alzheimer's meetings we are participating in this year. AAIC, which is in Philadelphia at the end of July, and then there is TTAD, the Clinical Trials in Alzheimer's Disease, which is at the end of October in Madrid. So for sure, by the fall meeting in Madrid, we should see something. It could well be as early as the July timeframe. And until you have confirmation that abstracts and papers have been accepted, it's just not prudent to give you any more granularity. All right.

Got it. Thank you. And then also, we have seen new AI laws introduced in Connecticut and Utah. Considering the role of AI in SWOOPS imaging, Can you just help us understand the potential impact of these laws on SWOOP and adoption in these states?

Okay. I think I'm going to have to get back to you on that question because it's not anything that our technical team has bubbled up as of concern for us. I would say all of our deep learning algorithms are proprietary. We do not use anything that is and we are primarily using it not with any kind of patient influence, but more around the denoising of the images as well as the reconstruction of images. But if okay, let me check with our technical team and get back to you and see if there's anything else that I am just not aware of.

Okay. Thank you. I'll hop back in the queue.

Sure. Thank you.

Thank you. One moment for our next question. And our next question will come from Young Lee from Jefferies. Your line is open.

All right, great. Thanks very much for taking the question. I guess to follow up on the system ASPs question, so, I mean, heavier OUS mix drove the lower ASPs. I guess I'm kind of curious. How was U.S. ASPs? Was it still similar to prior record quarters as well?

I'll take that one. We don't disclose the individual ASP by different segments. We did comment, I think, in Q3 and Q4 that those were U.S.-dominated ASPs. In our prepared remarks, we talked about the ASP in the U.S. remaining very strong and the strong value proposition. The ASP for the U.S., you can think about it very similarly. I think what we're doing is we're entering into a period where we have a little bit of a mix that takes place between U.S. and international. In this particular quarter, we had a little bit heavier of an international mix versus prior quarters.

Okay, got it. Very helpful. I guess it seems like given the mix here, ASPs, overall is kind of lower a little bit versus prior expectations or maybe our models kind of suggest that, you know, you maintain revenue guidance so that, you know, there should be more system sales to sort of offset some of that. I guess I'm kind of curious about, you know, the visibility for orders, you know, in the US or globally Just thoughts on, you know, as your reps get more experience and the visibility they have in the business for the, I guess, for the rest of the year, ordering trends. If you have any, you know, color or visibility on that, that would be really helpful.

Sure. So I remain very strong about the pipelines. You are correct that our team in the U.S., our direct team, continues to gain experience and driving a broader pipeline. I would still say that the variability we have pointed to in previous quarters around when exactly deals close remains real, but the pipeline is richer and richer by the quarter. We also have now a mixed component, which is why you are rightfully pointing that there is some variability on our ASP because, as we said, by choosing to use gross margin and operating through distributors to build our international initial sort of stream of revenue, we've paid a small price with our ASP since we transact at distributor margins. But we now have also a number of additional sales channels in international markets that are driving their own individual pipelines. So overall, it's a richer set of opportunities. It's more people playing on our behalf out in the marketplace. But again, there is this variability around mix, which is going to play some variability around ASP. and there is always a little bit of that variability about the closing of the deals because we're still in complicated hospital buying processes that involve multiple functions from the legal connecting as well as the clinical stakeholders. We have now line of sight to continue to build our stable of flagship institutions and that applies both adult and pediatrics so i know we mentioned some adult flagship institution that we landed last quarter. The previous quarter, we had a mix of also pediatrics and adults. And I can tell you now we're working on something in the southeast of the country that involves one of each. And they are also going to be a pretty important reference center for us in the southeast.

All right. Thank you very much.

Sure. Thank you.

Thank you. And I'm not showing any further questions in the queue. I'd like to turn it back over to Maria for closing remarks.

Thank you all for attending today's call and for your questions. We look forward to subsequent updates over the coming weeks and in our next call. Thank you.

Thank you for your participation in today's conference. This does include the program. You may now disconnect. Everyone have a great day.