Hyperfine, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Dollar amounts are in millions unless noted. Hyperfine develops and commercializes the Swoop portable MRI system; it also has an early-stage brain vital-signs device program that has generated no revenue. The Swoop system is FDA-cleared and commercially available in the U.S., with authorizations in Canada, New Zealand and Pakistan.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1.53 | $0.36 | $3.04 | $0.69 |
| Gross profit (loss) | $(0.17) | $(0.10) | $(0.08) | $(0.38) |
| Gross margin | (10.8%) | (27.7%) | (2.7%) | (54.6%) |
| Operating expenses | $23.03 | $14.49 | $46.88 | $22.02 |
| Operating loss | $(23.19) | $(14.59) | $(46.96) | $(22.39) |
| Net loss | $(23.16) | $(14.58) | $(46.93) | $(22.37) |
| Operating cash used | Not stated for quarter | Not stated for quarter | $(44.20) | $(19.10) |
- Q2 device revenue was $1.17 million and service revenue $0.37 million. First-half device revenue was $2.36 million and service revenue $0.68 million.
- At June 30, cash and cash equivalents were $145.1 million, plus $1.6 million restricted cash. Current assets were $157.0 million and current liabilities $10.5 million. Total liabilities were $11.2 million; the balance sheet reports no debt.
- Accumulated deficit was $183.3 million. Cash, cash equivalents and restricted cash fell by $44.5 million in the first half. Investing cash use was $0.25 million; financing provided $0.002 million.
- Stock-based compensation was $11.2 million in the first half, including $2.5 million associated with the CEO grant agreement and described as non-recurring equity-award expense.
Changes versus prior period and operating indicators
- Revenue rose 328% in Q2 and 342% in the first half, reflecting increased device sales and a larger installed base. The company said its first-quarter pricing action raised device prices and lowered annual subscription prices; device revenue is generally recognized upon shipment.
- Despite higher sales, gross loss persisted. Cost of sales increased 272% in Q2 and 193% in the first half, driven by manufacturing, labor and service overhead costs.
- Operating expenses rose 59% in Q2 and 113% in the first half. Higher headcount, stock compensation, insurance, sales and marketing, and research and development contributed; grant fulfillment credits partly offset R&D expense.
- As of June 30, 92 Swoop systems were installed: 47 commercial, 20 grant-funded and 25 research units, versus 39 total a year earlier. Remaining performance obligations were $3.9 million, with about 22% expected to be recognized in 2022 and 78% in 2023 and thereafter.
Outlook, risks and other notable matters
- Management expects existing cash and cash equivalents, together with product and service sales, to fund planned operations for at least the next 12 months. It expects continued losses and significant cash burn while investing in R&D, commercial expansion and inventory; additional financing may be required if cash needs exceed expectations.
- Risks cited include slower hospital access and product demonstrations, COVID-related commercial disruption, supply constraints and higher component, labor and transportation costs. The company relies on a limited supplier base, including a single-source European magnet supplier and Benchmark for Swoop manufacturing, testing and shipping.
- Management was pursuing regulatory authorizations in markets including the U.K. and Australia and considering further European expansion, subject to authorization. No specific revenue or earnings guidance was provided.
- CEO Dave Scott resigned effective July 29, 2022; R. Scott Huennekens became Interim President and CEO. Scott’s 649,350 April 2022 RSUs remain outstanding under their award terms. The Rothberg advisory agreement was terminated June 13, 2022.
- Disclosure controls were deemed ineffective due to two previously identified material weaknesses in internal control over financial reporting. Management said remediation was underway but not complete. Management nevertheless concluded the financial statements were fairly stated in all material respects.
- The company reported no material ongoing legal proceedings. It received the remaining $0.8 million of its Bill & Melinda Gates Foundation grant during Q2; unused funds or income may be returnable under the grant terms.
Important facts for investors to verify
- Whether revenue growth and commercial installations continue, and whether gross margins improve as device volume scales.
- Actual cash burn, operating milestones and funding runway relative to management’s stated at-least-12-month expectation.
- Supplier capacity, component availability and cost trends, particularly for the single-source magnet and Benchmark manufacturing relationship.
- Progress and testing of remediation for material weaknesses, and any subsequent changes in disclosure controls.
- CEO-transition effects, treatment and expense recognition of outstanding equity awards, and dilution from options, RSUs and potential earn-out shares.
- Timing and cost of international regulatory authorizations, and execution of planned commercial expansion.