Hyperfine, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial amounts below are in millions of dollars unless stated otherwise. Hyperfine develops and sells the Swoop portable MRI system; it also has an early-stage brain vital-signs device program with no revenue to date. The December 2021 business combination brought Legacy Hyperfine and Liminal together under the public company. Comparative results are for the combined Legacy Hyperfine and Liminal businesses.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior year-end |
|---|---|---|
| Revenue | $1.509 | $0.331 |
| Gross profit (loss) | $0.084 | ($0.277) |
| Gross margin | 5.6% | (83.7%) |
| Operating expenses | $23.855 | $7.528 |
| Net loss | ($23.775) | ($7.794) |
| Operating cash flow | ($27.289) | ($7.486) |
| Cash and cash equivalents at period-end | $161.580 | $188.498 at Dec. 31, 2021 |
| Total liabilities | $12.265 | $16.246 at Dec. 31, 2021 |
Device revenue was $1.192 million and service revenue was $0.317 million. Device and service cost of sales totaled $1.425 million. The filing reports no income tax provision. Basic and diluted net loss per share was $0.34, based on 70.3 million weighted-average shares; the prior-year $4.86 per share reflects a substantially different share count and is not directly comparable.
Cash, cash equivalents and restricted cash totaled $163.563 million at quarter-end, including $1.983 million of restricted grant funds. Financing cash flow was zero in Q1 2022; operating and investing activities reduced cash and restricted cash by $27.597 million. The balance sheet reports no debt balance. Current assets were $173.729 million versus current liabilities of $11.414 million.
Changes versus the prior comparable period
- Revenue grew 355.9%, led by device sales, which rose 605.3% to $1.192 million; service revenue increased 95.7% to $0.317 million.
- Gross result improved from a $0.277 million loss to $0.084 million profit, but the resulting gross margin remained low at 5.6%.
- Operating expenses increased 216.9% to $23.855 million. Net loss widened to $23.775 million from $7.794 million, and operating cash use rose to $27.289 million from $7.486 million.
- Management attributed expense growth to increased headcount, stock-based compensation, professional services and commercial investment. Q1 stock-based compensation was $4.111 million.
- The installed base reached 85 systems, versus 28 at March 31, 2021: 38 commercial, 20 grant-funded and 27 research systems.
Outlook, risks and notable items
- Management expects continued significant losses and cash burn while investing in research and development, sales and marketing, and inventory. It expects existing cash and product and service proceeds to fund planned operations for at least the next 12 months; this is not a profitability forecast.
- Management identifies potential additional funding needs if spending or development requirements exceed expectations. Financing may dilute shareholders or impose restrictive terms; without sufficient funds, the company may need to delay or reduce development and commercialization.
- COVID-19-related limits on hospital access and demonstrations have affected sales activity. Management also cites supply constraints, higher raw-material prices, longer component lead times, and potential manufacturing delays. The Swoop system has a single exclusive manufacturer.
- Customer and receivables concentration is notable: one customer represented 30% of Q1 revenue, while several others each represented 11%. The filing also identifies customer concentration in receivables.
- The Bill & Melinda Gates Foundation grants support deployment of up to 25 systems and related work. At March 31, 20 systems had been provisioned and delivered; $0.45 million was received in early May 2022, with $0.35 million expected in the second half of 2022. Unused or uncommitted grant funds may have to be returned under the agreement.
- Two material weaknesses in internal control over financial reporting remained unremediated, and management concluded disclosure controls were not effective. The weaknesses relate to prior outsourced accounting oversight and SPAC share classification. Management is implementing remediation, but effectiveness is not assured.
- The filing reports no material ongoing legal proceedings and no material changes to the risk factors in the 2021 Form 10-K. It provides no formal revenue or earnings guidance.
Important facts for investors to verify
- Whether revenue growth converts into materially higher gross margins, given Q1’s 5.6% margin.
- Quarterly cash consumption, hiring and investment plans, and whether management’s stated at-least-12-month liquidity expectation remains achievable.
- Commercial system placements and paid adoption versus grant-funded and no-cost research installations; the filing says virtual demonstrations often did not result in sales.
- Progress on supply diversification, component availability, and reliance on the single Swoop manufacturer.
- Customer concentration, receivable collections, and fulfillment of remaining performance obligations, reported at $3.975 million.
- Remediation and testing of the material weaknesses in internal control, and the impact of ongoing stock-based compensation and potential dilution.