Hyperfine Q1 2023 Earnings Call Transcript

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May 11, 2023

There are 7 speakers on the call.

Operator

You for standing by, and welcome to the Hyperfine First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. You will then hear an automated message advising that your hand has been raised. Please be advised that today's conference is being recorded.

Operator

It is now my pleasure to introduce Marissa Beich from Investor Relations.

Speaker 1

Great. Thanks for joining today's call. Earlier today, Hyperfine Inc. Released financial results For the quarter ended March 31, 2023, 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.

Speaker 1

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 All 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 listing description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our latest periodic filing with the Securities and Exchange Commission.

Speaker 1

This conference call contains time sensitive information and is accurate only as of the live broadcast today, May 11, 2023. Paperfine, 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. With that, I will turn the call over to Maria Faines, President and Chief Executive Officer.

Speaker 2

Good afternoon, and thank you all for joining us. On the call with me today is our Chief Administrative Officer and Chief Financial Officer, Fred Hale. We achieved measurable growth in the Q1 of 2023 with an all time record revenue of $2,600,000 driven by the sale of 10 commercial tube systems. In addition, we have continued to execute with the financial discipline that allows our cash I am pleased with our progress this quarter, and I am confident that we are As we mentioned in March, we are focused on 3 strategic pillars: Innovation, clinical evidence and commercial expansion with a strong focus in the U. S.

Speaker 2

On innovation, we continue to lead and advance ultra low field MRI with technology iterations and enhancements That further improves image quality as well as the provider and patient experience with Swoop. In February, we announced the receipt of 2 FDA has 10 ks clearances for AI powered software updates to the Soute system. The latest AI powered software has now been installed in the units in the field, and the feedback from existing users has been very positive, especially on the diffusion weighted imaging or DWI sequence. Our commercial team is now using images and cases With our latest software in their discussions and demos with prospective accounts and feedback has been very positive from prospective users as well. Despite our heightened OpEx discipline, we remain committed to investing in innovation and evidence, We have allocated a healthy budget to R and D through the next several years.

Speaker 2

We have active development programs working on next generation hardware, Additional upgrades to software and AI for our current critical care application and future To a network of leading experts in the field of MRI across the globe, who work in a collaborative manner with our development and clinical science team. On clinical evidence, we are pleased to see abstract papers and symposia Focusing on ultra low field MRI and the use of our soup system at major scientific conferences Like the International Stroke Conference, ISD and the American Society of Neuroradiology, ASNR. At ASNR in Chicago last week, we held an interactive case review session with a panel of 6 leading neuroradiologists Evaluating patients based on soup images with our latest software. This interactive session brought nearly 300 attendees and there was We also have strong resource partnerships with leading institutions working on other applications Our major clinical initiative in 2023 is the Action PMR project. Action PMR is a global multi center evaluation that will assess the use of the TUV system in the acute ischemic stroke use case, And we're fortunate to be working with prominent, experienced and passionate clinical teams in the field of stroke.

Speaker 2

As a reminder, this is an exciting project for us as it represents the first step in pursuing The use of Zoop Systems in Acute Stroke Imaging. We look forward to beginning action CMR enrollment midyear and sharing our progress on upcoming calls. Turning to commercial expense. We're pleased with the pipeline of deals driven by our commercial team for 2023 and beyond. The commercial team has also begun implementing our higher pricing, and we are encouraged by the Call is momentum across multiple territories in the U.

Speaker 2

S. As we shared in the fall of 2022, We received a purchase order from King's College London for 20 commercial systems in association with the Bill and Melinda Gates Foundation And a signed letter of intent for 7 commercial units from BJC Healthcare Instant Flu is one of the leading hospital systems in the U. S. We continue to execute the delivery of these commercial systems in 2023. We're very pleased with our new clear leadership and commercial structure.

Speaker 2

Our sales and clinical support teams are in place, And we feel this combination of an experienced capital sales team and a clinical and MR Building relationships and executing contracts with U. S. Hospital systems with a specific focus on multisystem placement opportunities. Clinically, our field team remains focused on selling subsystems within the broad critical care opportunity for neuroimaging, while our innovation and clinical evidence teams are setting the stage for much broader use in the future. Internationally, we maintain our small commercial footprint, but see compelling opportunities for future expansion into new markets.

Speaker 2

We remain excited about CE Marking, which we received in February of this year. We also See the immense long term opportunity in low- and middle income countries through the work that hospitals affiliated All of that said, we remain focused on the U. S. Our number one commercial priority for this year. Finally, as it relates to our commercial process, Our commitment to meeting the highest standards for data protection and information security for our customers, We were pleased that in the Q1 of this year, our key platforms achieved the rigorous, high trust, risk based 2 year certification.

Speaker 2

We believe this will streamline the information security reviews associated with contracting and hospital implementation. Now turning to our Q1 results. I am pleased to announce that we achieved record revenue of 2 point 1,010,000 Commercial Soup Systems Placements in the Q1 of 2023, driven in large part by Placements to new U. S. Customers.

Speaker 2

I am incredibly proud of our team and remain optimistic in our commercial pipeline for the future. Alongside our 3 strategic pillars, we remain laser focused on spending discipline. We continue to operate and implement initiatives in support of cash runway extension while investing in innovation, clinical evidence and commercial expansion. We continue to see a cash runway for the business through 2025. Now turning to our 2023 revenue outlook.

Speaker 2

We are maintaining our revenue guidance for the full year in the range of $10,000,000 to $14,000,000 In line with our disciplined approach to spending, we're also maintaining guidance for cash burn of $40,000,000 to $45,000,000 for the full year 2023. I want to reiterate from the fundamentals of Souqh are access and affordability. Through our commercial progress over the last 2 years, We know that our clinical value proposition with customers is strong. As mentioned in our last earnings call, we have implemented a new pricing For the tube system in early 2023, our guidance reflects a gradual continued increase in the tube average selling price in 2023 I will now turn the call over to Brett Hale, our Chief Administrative Officer and Chief Financial Officer, to review

Speaker 3

Thank you, Maria. Turning to our financial results for the Q1 2023. Revenue for the quarter ended March 31, 2023 was $2,600,000 compared to $1,500,000 in the Q1 of 2022. Gross profit for the Q1 of 2023 was 1,200,000 compared to $100,000 in the Q1 of 2022 and reflecting a 44% gross margin. R and D expenses for the Q1 of 2023 were $5,500,000 compared to $8,300,000 in the Q1 of 2022.

Speaker 3

Sales, general and administrative expenses for the Q1 of 2023 were $8,700,000 compared to $15,500,000 in the Q1 of 2022. Net loss for the Q1 was $12,200,000 equating to a net loss of $0.17 per share as compared to a net loss of $23,800,000 or a net loss of $0.34 per share for the same period of the prior year. Our cash burn in the Q1 was $13,400,000 and we ended the Q1 of 2023 with $104,000,000 in cash and cash equivalents. Turning to our 2023 outlook. Based on the progress and current trends of the business, we are maintaining full year expectations for revenue To be in the range of $10,000,000 to $14,000,000 As Maria mentioned, the Swoop clinical value proposition with customers is strong.

Speaker 3

The new pricing is now in effect. As we mentioned last quarter, we will not be providing an exact average selling price For unit volume expectation, but our guidance is predicated on the assumption that the Swoop system pricing will continue increasing in 2023 relative to 2022. And based on our position in the market today, we remain confident in that steady price improvement. To help you with modeling, please note, we still expect our second half to be stronger than our first half as our new sales team gains experience and continues to drive the pipeline. For the year, we now expect gross margins to be approximately 40% to 50% as we begin recognizing scale and average food pricing moves gradually higher.

Speaker 3

And lastly, we are maintaining expectations for total cash burn of $40,000,000 to $45,000,000 for the full year 2023. This incorporates an expectation for continued investment in R and D and substantially streamline investments in SG and A while maintaining customer facing resources to continue to drive the adoption of growth. In line with this, we have allocated a greater relative portion of OpEx spending to R and D in 2023 versus prior year At approximately 40% to 50% of total OpEx dollars, we will continue to focus on our 3 strategic pillars and maintain Spending discipline as we realize the benefits of our recent rightsizing and reorganization. As we shared in March, we are Excited about the momentum we are building for the remainder of the year and beyond. And we are pleased to have the cash and flexibility to invest in the right areas and afford the business the right runway to execute post reset.

Speaker 3

At this point, I'd like to turn the call back to Maria for closing comments.

Speaker 2

Thank you, Brett. I'm proud of the progress the hyperfine team has made in recent months and I am very bullish as to what this team can deliver. Just a week ago, I attended ASNR in Chicago and was able to witness firsthand the interest that our SUE system is drawing from clinicians as well as the patient care conversations that continue to open opportunities for soup where conventional MRI is not practical or not available. The opportunity for HytoFi is increasingly compelling as we develop use cases for ultra low tip MRI and expand geographically. And I am confident that we will have exciting progress to discuss with you all on calls to come.

Speaker 2

With that, I want to thank you for your time and open it up to any questions.

Operator

Thank And our first question comes from the line of Larry Biegelsen with Wells Fargo.

Speaker 4

Good afternoon. Thanks for taking the question and congrats on a good start to the year. Just a few for me here. First, you beat consensus and I know there are only a few estimates by about $500,000 and you're in a run rate now of over $10,000,000 So why not raise the low end of the guidance range? Was there anything kind of one time or one time benefit in Q1?

Speaker 4

Then I had a couple of follow ups.

Speaker 2

Sure. Thanks for the question and good afternoon. I think it is really about being prudent. As we said last Call, we have just put in place new sales leadership. We have also hired a relatively new sales So we're very I am particularly very, very pleased with the momentum I am seeing with the new reps, But I want to make sure that they have a little bit more run time before we start feeling really confident in how they're predicting quarters to come.

Speaker 2

There was not Anything there that was one time, we have those two orders that we continue to deliver a little bit every quarter and that just continued on the same Pattern. So it was strong from the U. S. It had a little bit of contribution from international, a little bit of contribution from Gates. I just want to make sure that we keep our new leadership and sales professionals a little bit more run time until we can be more confident about where we're going to land The plane at the end of the year.

Speaker 4

That's fair. And a couple of follow ups. 1, the action PMR Trial, how long do you think that will take to enroll? What's the follow-up there? How long before we potentially see data?

Speaker 2

Okay. So it's a little hard to predict. We are doing this as we continue to also improve what I Call our offering on the stroke side. So our first order of business with that evaluation is to make sure that our Latest software, which is going to be one more than the one that is commercially available, is able to detect as Clinicians want the stroke in the acute setting. We have to do a little bit more work to shorten the time that it takes to gather those sequences Those images.

Speaker 2

So we need to shorten the length of the sequences. So we will be Continued on that development work and want to actually include faster sequences at some point in time also in the action PMR. There really is no follow-up to the study. All of it is really in the acute setting, the ability to really detect stroke And be able to get to a clinical decision about what is best for that patient in this evaluation. So no Time to wait for follow-up data, but I want to be a little bit prudent that our enrollment may take a little longer as I want to make sure that we have the opportunity to put in the The latest software, which is now embedded testing, but also faster sequences, which are currently in development and available later in the year.

Speaker 4

That's fair. And just one more for me. There are 2 Alzheimer's drugs That have shown positive data recently and I think the reimbursement requires 4 MRIs per year. So, I guess my question is first, are you seeing increased interest in your technology because of that? And what are you doing Capitalize on that opportunity.

Speaker 4

Do you need to do an equivalent study with standard MRI? Do you need to partner with the company? I'd love to hear your thoughts on that. Thank you.

Speaker 2

Excellent question. Thank you, Larry. It definitely is a phenomenal opportunity that has presented in front of us. And you are right, There is a Biogen drug that got conditional approval a few months ago, should get reimbursed and infusion should start in the fall. And there are even more attractive therapies coming behind them, I believe, from Lilly for 1, and I believe it is Roche, the 3rd one.

Speaker 2

We have gotten ourselves deep in the debate that is right now in the clinical community. We have some current users of our system that believe that we can play a role in that Initial triaging of those patients as they are monitored with multiple scans, the numbers sometimes are even higher than 4 a year. So we're working at the individual center level. There is also an ASNR working group that has Actually, focus on this topic. They had a meeting last week and big magnet people were there and so were we.

Speaker 2

Learning how the field from a clinical perspective is not fully aligned as to whether an ultra low field scanner is going to be as Effective as the 15 or a 3T, but we are not watching the movie from a distance. We are right in the movie. We have started to try to reach out to the companies to see if there is an opportunity to partner. And last but not least, we are, As a company working to really put together what I would call an Alzheimer's package that may include 2 things. 1 may be A package of sequences, as you know, in we develop sequences separately and then we also combine them into the protocols that allow people to use them in Clinical conditions, so that will be one.

Speaker 2

The other one is that one of the clear trends where there is more alignment from the clinical community Is that a lot of these scanners are going to be sort of used or read by physicians that are not necessarily your Traditional rats or neuro rats, they are going to be a little bit more in the hands of dementia clinics Professionals, memory loss, clinic professionals, geriatric physicians. So there is a number of software companies that are looking to standardize sort of Trend reports, monitoring reports to really understand how these patients evolve over the course of subsequent diffusions or subsequent doses Of the drug. So the short of it is hopefully I've given you a sense that we are speaking to everything that is happening. I don't know yet and I can't quite paint the picture as to how big the opportunity is for us and how near term it is. But it's definitely something that we're going to push really hard to play a role in.

Speaker 2

And in a few months or short quarters, I hope I can give you more Clarity as to the size of the opportunity and the timing of it.

Speaker 4

Okay. Thank you so much.

Speaker 2

Of course.

Operator

Thank you. One moment please for our next question. And our next question comes from the line of Vijay Kumar with Evercore

Speaker 5

Hi. This is Kevin on for BJ. Just one on gross margin, 42% in the quarter, can you talk to the drivers behind that number? I know in the past you pointed to price, volume and cost As the overall driver, how about from a device versus services perspective? Is there any color you can provide there?

Speaker 5

And Is the about 50% device margin and about 20% service margin a good base to follow and build upon as the new progresses? Thanks.

Speaker 2

I think I'm going to let Brett address that. It's a little your line was a little hard to understand. So I'll pass it over to Brett.

Speaker 3

Yes. I'll walk through this and clarify if I don't capture the full essence of the question. But I think the question was effectively on margin And the drivers and whether there are any sub components to that. So if you look from a progressive basis, we talked about the increase in ASP. If you go back to early 2022, we put new pricing in place that followed into the pricing we had in 2021.

Speaker 3

We've put new pricing in place here in 2023. Really, most of the margin increase that we've seen sequentially and year over year It is a real direct result of the pricing that we've been able to realize as a business. We do break out the Margin or the device and the service components that may vary over time, but really I think the vast majority of our revenue is coming from device and you can think about the ASP playing a very heavy role on that. And then I think from a guidance on margin, I think we've guided to the 40% to 50% range for the full year. So we landed kind of in the middle of that year for Q1.

Operator

Thank you. One moment please for our next question. And our next question comes from the line of Neil Chatterjee with B. Riley.

Speaker 6

Hey, guys. Thanks for taking the questions. I might have dismissed this, but just quickly just on the sales funnel and installs for the quarter. I know there were some that slipped from 4th quarter. Do we say if any of those hit in Q1 and what kind of expectations for those?

Speaker 2

Sorry, I'm not sure I got your question. You were talking about whether things slipped from Q4 and made it into Q1. Maybe repeat it, sorry.

Speaker 6

Yes, that and then if and if not like how that's tracking.

Speaker 2

Okay. So there was okay. There were some deals that took a little longer and didn't close in Q4 and ended up Materializing in Q1, that's a little bit of the nature of the beast, which our deal flow is strong, but the deals do take long. We You made an average of 6 months, but sometimes they end up taking longer through MR Safety scrutiny or cyber I think overall, the quarter was healthy. We also had, as you remember, The putting in place of the full sales team, so there was a little bit of a topic quarter in a way with Territories with brand new people versus other territories open for a few weeks.

Speaker 2

So I overall feel that the results in Q1 We're very good, and I feel really good about the pipeline that I see. I don't see the deals taking shorter, but I do see a robust Pipeline and I'm encouraged that it is, as I've said before, well distributed across all of our U. S. Territories and in some cases, Very positive reissues from some of the newer reps that seem to have hit the ground running, although for the most We need to give them their 6 months to really get totally comfortable with the sales process, implementation process, Customer knowledge, customer application, all of the different sub functions within the new role.

Speaker 6

Got it. Great. And again, sorry, I might have missed this. But on the gross margin guidance, the 40 to 50, Just curious on the cadence, how to think about that after this Q1? Is that going to be sequentially Stronger through the year or what how to think about that?

Speaker 3

Yes, I'll take that. Neil, this is Brett. So we talked about I think in our Prepared remarks about a gradual increase in pricing throughout the year. And so I think you can think about margins kind of Going along with that, one thing that we've talked about I think previously, mix does have an impact in terms of any individual quarter. We have 3 different channels.

Speaker 3

We've got the U. S. Direct commercial. We've got our international distributors. And then we have The units that are part of the KCL, King's College.

Speaker 3

So any individual quarter may have some variability based on mix, But the general trend of pricing we talked about being sequentially stronger and gradually increasing given the price increases that we've taken in the U. S.

Speaker 6

Great. And then just one last one for me. Just Yes. Just curious if there's any update. It sounds like there was maybe some

Speaker 4

of them prepared, but just on

Speaker 6

the Viz AI Partnership, Is there any progress there?

Speaker 2

We continue to make the progress that we expected. Again, we're gearing towards starting Pilot evaluations in accounts with the sort of technology development, which has been around the integration of our images into their workflow And making sure that they can actually use the VSeeI platform to manage their patients with the use of our images. So I can't give you an exact time frame as to when we will see it go live at the couple of accounts that have been identified, But that continues to move along well.

Speaker 6

Great. That's it for me. Thanks, guys.

Operator

Thank you. Thank you. I would now like to hand the call back over to Hyperfind's CEO, Maria Steins, for any closing remarks.

Speaker 2

Well, thank you very much for your interest in Cipher Fine. I look forward to updating you again in a quarter. Talk to you soon.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.

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Hyperfine Q1 2023
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