Hyperfine Inc

NASDAQ:HYPR

Earnings Call Analysis

Strong Revenue Growth and Optimistic Guidance

In the final quarter of 2023, revenue surged to $2.7 million, an 89% leap from the previous year, contributing to an impressive 62% annual growth, reaching $11.0 million. The gross profit followed suit, with the fourth quarter marking $1.0 million, up from $0.3 million. For the full year, gross profit rose to $4.8 million, a significant jump from $0.9 million, and gross margins improved dramatically by 30 percentage points to 43.1%. Operating expenses shrank, with R&D and SG&A expenses witnessing a 20% and 35% reduction respectively. While net loss diminished by 39.5% yearly, ending at $44.3 million, the cash burn rate also declined by 40%. Looking ahead to 2024, the company is positioned with confidence, providing revenue guidance of $12 million to $15 million.

Impressive Revenue Growth with Strengthened Gross Profit

The company had a breakout year in 2023, with annual revenues skyrocketing by 62% to reach $11.0 million, building off a strong fourth quarter that saw revenue jump by a remarkable 89% to $2.7 million compared to the same period in the previous year. This top-line growth translated into a gross profit for the year that quintupled to $4.8 million from $0.9 million in 2022, reflecting a gross margin increase of 30 percentage points to 43.1%.

Significant Reduction in Operating Expenses and Loss

The company has demonstrated fiscal responsibility, cutting Research and Development (R&D) expenses by 20% and Sales, General, and Administrative (SG&A) expenses by an impressive 35%. The overall net loss for the year was also reduced significantly by 39.5% to $44.3 million from a previous figure of $73.2 million. With a 40% reduction in cash burn from the prior year, the company's financial stability is bolstered by a cash reserve of $75.2 million.

Moderate Guidance in Line with Strategic Investments

For 2024, the company projects revenues to be in the range of $12 million to $15 million, slightly below market expectations of around $18 million. This conservative estimate takes into account investments in R&D and new opportunities, particularly in Alzheimer's and stroke treatment. These calculated investments are poised to advance the company's long-term goals without sacrificing current growth trajectory.

Strong Margin and Cash Burn Projections for 2024

Looking ahead, gross margins are anticipated to improve, with guidance set between 45% to 50% for the upcoming year, building on the previous year's margin gains. The company also plans to further tighten its financial discipline, limiting the cash burn to roughly $40 million for 2024, down from $42 million in 2023, while still funding innovation and growth avenues.

Steady and Predictable Revenue From Service Segment

The service revenue stream has been characterized as steady and predictably increasing, suggesting that this aspect of the business will continue to contribute positively to the overall revenue profile in 2024 in line with past performance trends.

Confidence in 2024 Guidance Bolstered by Strategic Wins

Executives expressed strong confidence in their 2024 guidance, highlighting the company's success in landing deals with marquee institutions and succeeding in initial deployments. They believe that these wins, along with focused international expansion efforts through third-party distributors, justify their conservative revenue outlook for the year.

Challenges in Deal Closures Amid High Variability

Despite high confidence in securing deals, the company faced challenges in Q4 due to the unpredictable nature of deal closures, experiencing unexpected delays in the administrative phases. This variability led to slight shortcomings in the fourth quarter but is viewed as an area for process refinement.

Earnings Call Transcript 2023-Q4

[Operator]

Thank you for standing by, and welcome to the Hyperfine Fourth Quarter 2023 and Fiscal Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Marissa Bych from the Gilmartin Group. Please, go ahead.

[Marissa Bych]

Thank you for joining today's call. Earlier today, Hyperfine, Inc. released financial results for the quarter and year ended December 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. 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 opportunity, 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 latest periodic filings with the Securities and Exchange Commission.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 21, 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.

[Maria Sainz, executive]

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.

In the fourth quarter, we achieved revenue of $2.7 million, up 89% compared to the same period last year. For the full year 2023, we achieved revenue of $11 million, up 62% compared to 2022. I am pleased with the growth we delivered as we continue to lead the development of this new category of ultra-low-field brain MRI with our unique portable Swoop system. We drove adoption in our beachhead market inside the hospital, which are critical care and pediatric, and we have made significant progress to expand our use cases through clinical evidence and innovation. In the fourth quarter, we sold 7 Swoop system predominantly U.S. direct sales and once again recognized a record average selling price. And we have highlighted in previous calls, our deals require alignment with multiple [indiscernible] and can often demand long and variable sales cycles. I am pleased with the deal traction we have seen so far in 2024, many of which started and were cultivated in 2023.

We're exiting 2023 with many commercial accomplishments. We have now sold Swoop system into flagship institutions such as [indiscernible] New York, Stanford and Children's Hospital of Philadelphia. Further, our Swoop implementation programs run by our clinical support team are yielded strong user [ advocates ] and champions across different departments inside the hospital setting. We now have Swoop pioneers across multiple settings inside the hospital, such as the operating room, critical care units, neurology clinics, emergency departments and pediatric wards. We entered 2024 with a stable of reference site and a deeper understanding of how to target and build strong Swoop programs which positions us well for further expansion.

Overall, the past year has been transformative to how we manage our business. We have exercised strong spending discipline and we are doing more with less across our operating expense lines without compromising investments in our 3 strategic pillars: innovation, clinical evidence and commercialization with the utmost focus on execution and operating teams. I'm proud of the execution of the team, the transformation of our financial profile and the strong foundation we have established for the future of our business.

This brings me to our priorities for the year ahead. In 2024, we remain committed to our 3 pillars and plan to maintain a robust cadence of innovation to augment clinical evidence supporting the use of Swoop especially evidence focused on stroke and in Alzheimer's and to grow commercially, including through our strategy to expand to select international markets.

Before I cover each of these in greater detail, let me highlight the opportunity for our technology in Alzheimer's. One of the greatest catalysts I've seen from the adoption of our technology is using Swoop in the Alzheimer's treatment workflow. There is a strong potential fit for Swoop to assist in reducing barriers to accessible and equitable Alzheimer's care.

As many of you know, there are currently over 50 million people suffering from Alzheimer's disease globally, and the cost and burden to patients and health care systems is enormous. In 2023 -- 2023, sorry, was a breakthrough year for advancements in the fight against Alzheimer's, with the FDA approval and CMS reimbursement of Biogen's [indiscernible] LEQEMBI, an amyloid-targeting therapy, or ATT, as well as advancements in blood testing for the diagnosis of Alzheimer's and separately, milestones related to additional coverage of PET scans to enable Alzheimer's diagnosis.

Lilly's, donanemab, another ATT is also expected to be FDA approved later this year. These approvals are opening a new category for therapy which show significant promise to delay the progression of the disease and potentially offer patients and their families additional years of independent living.

The developments have also brought 2 issues to the forefront. The first one is associated with the FDA labeling for amyloid targeting therapy, which requires at least 3 monitoring MRI during the patient's initial year on this medication. The monitored MRI must be conducted as prescribed intervals to screen for amyloid-related imaging abnormalities, also known as ARIA. As a result of these scanning requirements, the industry is seeing significantly greater demand for brain MRI technology against what is already backlog, burdensome and time-consuming imaging workflow that patients experience. This scanning requirements also creates significant care navigation challenges for patients on these drugs who must add imaging to their already complex monitoring and [indiscernible] schedule.

The second issue is one of access and equity for patients in low-resource settings globally. By 2050, it is estimated that over 70% of the people suffering from dementia will leave in low and middle-income countries. We believe that our portable Swoop system can play a significant role in addressing the pragmatic hurdles to getting treatments to patients in these low-resource settings and care for them appropriately.

Together, these advancements to address Alzheimer's disease offer an enormous incremental opportunity for brain imaging. Our portable Swoop system is highly differentiated for this use case and the ideal technology for patients taking ATT, providing a versatile convenience and streamlined alternative to conventional MRI.

We're positioned to offer a unique solution by placing affordable MRI in an easy location to support patients through their treatment. On a global scale, an affordable and portable brain MRI tool is highly desirable to improve equity in Alzheimer's care and increase access to the latest treatments available in low-resource settings.

Given the vast and compelling opportunity this represents for Hyperfine, we have mobilized to build a robust and comprehensive Alzheimer's program quickly, which is a key focus for us in 2024.

Before I discuss the aspects of the program, I want to remind everyone that scanning brains of Alzheimer's patients of any age is already covered under our current FDA labeling. Therefore, we do not need any additional regulatory clearances to access this new business vertical.

Our work on Alzheimer's is focused specifically on the opportunity to simplify and streamline the imaging workflow for patients who received LEQEMBI and soon donanemab, making portable Swoop brain MR available in a convenient and less burdensome location for patients and care partners.

Our Alzheimer's program has several components, including data generation, market building and optimizing workflow. For the most part, clinicians caring for Alzheimer's patients are not familiar with portable brain MRI as these clinicians have not been within our initial commercial target.

Today, we're most focused on the data generation and clinical evidence element of our program. On that front, we are excited to share that we have initiated a new study called CARE PMR. CARE PMR is a utility study led by Dr. [ Ben Zinger ] at Washington University School of Medicine in connection with BJC Healthcare. In this study, clinicians have played Swoop system at local infusion centers and are comparing high-field MRI and portable ultra-low-field MRI to assess the ability of Swoop to detect ARIA complications.

By bringing imaging closer to the patient than a conventional MRI system, we hope to significantly optimize workflow and ultimately open up the opportunity for more patients to be treated daily and efficiently. We expect to see a readout of CARE PMR data before the end of the year.

Alongside our investment in Alzheimer's, we remain committed to our 3 strategic pillars, which I will provide an update on right now. Starting with innovation in the fourth quarter, we received FDA clearance for our latest AI power software update and launched it in the past few months across our installed base. Systems now have our updated DWI sequence, an additional ease-of-use features designed to aid users with patient positioning and faster image upload processes. This is our eighth FDA clearance since our initial system launch in 2020. It includes proprietary AI and deep learning algorithms in the DWI sequence and expand our AID noising capabilities by incorporating advanced image post processing into the DWI sequence.

The system's other sequences, which are the T1, the T2 and FLAIR already incorporated this AI feature. The noising enables a crisper image that potentially help clinicians more accurately diagnose and make clinical decisions for their patients undergoing brain imaging. As we move forward, we will continuously invest in improving our AI-powered image quality and system usability, leveraging each image focused software release to further improve the performance of our Swoop system.

In 2024, we have a strong cadence of technology iterations across hardware and AI power software plan to further advance the image quality, the speed of image acquisition, clinical utility, ease of use and clinical applications of ultra-low-field MRI. I look forward to sharing updates here throughout the year.

Turning to clinical evidence. Starting with the stroke. We have now enrolled over 100 patients in our ACTION PMR study, a multicenter evaluation to assess the use of the Swoop system in detecting acute ischemic stroke. We remain bullish about this opportunity, which will open up the placement of Swoop unit in ED and hub-and-stroke networks and look forward to sharing updates in the coming quarters.

Additionally, our technology was highlighted in 4 abstracts at the recent International Stroke Conference in February. The abstract [ spoke ] to the depth and breadth of research into the clinical utility and applications affordable ultra-low-field brain MR imaging.

Now relevant to the [ detailed ] use case today inside the hospital, imaging patients in critical care, 3 studies highlighting ultra-low-field imaging data were presented at the RSNA meeting in November. These studies analyze how portable MR brain imaging may assist decisions in the diagnosis and management of neurological conditions in critical care settings. This is in addition to data from the SAFE-MRI ECMO study that was presented at the [indiscernible] South Korea and has now been accepted for publication.

This study further underscores the role of MR [ brain ] neuro imaging in acute brain injury detection and the potential for enabling improvement in neurological outcomes.

Now turning to our final seller commercialization, it's a more tenured and experienced commercial team in the U.S., our deal pipeline is definitely growing. As I mentioned earlier, our recent Swoop sales include system additions within several flagship U.S. institutions. We're very pleased that we are continuing to build traction with new U.S. institutions. This year, we're also expanding our commercial focus to select international markets. We have a strong track record of international clearances, including CE and UKCA approval of our latest AI power software, and we have now begun building up commercial infrastructure and relationships in certain countries where we see immense opportunity. I am very encouraged by the level of interest and activity we are seeing for the Swoop system internationally, and I remain excited about global expansion as a growth opportunity this year and beyond.

Before I turn the line over to Brett, I would like to reflect on the strong progress we have made over the past year. And the fact that we have demonstrated our ability to drive meaningful progress on our 3 strategic pillars while significantly reducing spending. This has translated into strong growth, gross margin improvement and cash burn reduction.

I will now turn the call over to Brett to review our recent performance and discuss our 2024 financial outlook in detail.

[Brett Hale, executive]

Thank you, Maria. Turning to our financial results for the fourth quarter 2023. Revenue for the quarter ended on December 31, 2023, was $2.7 million, up 89% compared to the fourth quarter of 2022. For the full year 2023, we generated $11.0 million in revenue, up 62% from the prior year. Gross profit for the fourth quarter of 2023 was $1.0 million compared to $0.3 million in the fourth quarter of 2022.

For the full year, we generated $4.8 million in gross profit compared to $0.9 million in the prior year 2022. For the full year, gross margin was 43.1%, up 30 percentage points from the prior year.

R&D expenses for the fourth quarter of 2023 were $6.0 million compared to $5.2 million in the fourth quarter of 2022. Sales, general and administrative expenses for the fourth quarter of 2023 were $4.2 million compared to $5.8 million in the fourth quarter of 2022. For the full year, R&D expenses were $22.5 million, down from $28.2 million in the prior year, representing a 20% reduction.

For the full year, SG&A expenses were $20.3 million, down from $32.4 million in the prior year, representing a 35% reduction. Net loss for the fourth quarter was $10.7 million, equating to a net loss of $0.15 per share as compared to a net loss of $13.1 million or a net loss of $0.19 per share for the same period of the prior year.

For the full year, net loss of $44.3 million is down 39.5% from $73.2 million in the prior year. Our cash burn in the fourth quarter was $10.2 million. And as of December 31, 2023, we have $75.2 million in cash and cash equivalents on our balance sheet. Our full year cash burn of $42 million is down 40% from $71 million in 2022.

Now turning to our financial guidance. Beginning with our 2024 revenue outlook, we are initiating guidance for the full year in the range of $12 million to $15 million. Although we do not typically provide quarterly guidance and do not intend to do so on a regular basis, we want to provide you some visibility into our first quarter performance, given where we stand in the quarter. For the first quarter of 2024, we expect revenue to be over $3 million.

Looking at gross margins. We are initiating a range of 45% to 50% for the year as we grow, continue our commercial sales traction and realize strong Swoop system pricing. We are very pleased to be driving healthy gross margins in our business even at small scale. Lastly, we are initiating total cash burn expectations of approximately $40 million for the full year 2024. We expect our cash burn to be below our 2023 levels, and we will execute this plan while sustaining investments in our 3 pillars, including our robust Alzheimer's program. We see a cash runway for the business into early 2026.

We are excited about the catalysts for our business in 2024, and we are pleased to have the cash and flexibility to invest in the right areas for continued Swoop system adoption.

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

[Maria Sainz, executive]

Thank you, Brett. I'm proud of the progress the Hyperfine team made in 2023, and I remain very optimistic as to what this team can deliver. I look forward to seeing many of you at upcoming industry as well as investor conferences, providing updates across our 3 pillars and the Alzheimer's program. Given the immense excitement we have and the potential we see for our system in the use case of Alzheimer's, I would also like to share that we are working to plan an analyst and investor webinar with a spotlight on this topic. We intend to host this webinar midyear. We look forward to sharing more details with you over the coming months and accepting more of your questions at that time.

With that, I want to thank you for your time, and we'll open up the line for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Larry Biegelsen from Wells Fargo.

[Unknown Analyst]

This is Simran on for Larry. Maybe just starting off with Q4. It's usually the strongest quarter for capital businesses, but you did come in a little bit below at least on the revenue side, the low end of your guidance range. So could you talk a little bit more about the trends you saw in Q4? And what led you to kind of deliver at the low end of the revenue guide? And just following up there, I appreciate the Q1 color. So maybe just talk about some of the trends that you've specifically seen on the systems side in Q1 thus far?

[Maria Sainz, executive]

Sure. So I'll start by addressing the Q4 question and then talk a little bit about the early 2024 traction. We do not fall exactly under the traditional capital budget where you do see a little bit of that [ bonus ] at the end of the year, more often than not, given our price point in that $400,000 range for MSRP. We are funded through strategic funds, dollar funds or some other mechanisms that have more variability throughout the year, but also more available -- sorry, more availabilities throughout the year. I still believe that we have to sort of continue to work towards higher predictability and less variability in our deal flow. So I am very confident in telling you that we do not lose deals that we end up with a very strong and predictable process to what we call the clinical yes from the initial [ page ], but we do go into a relatively variable phase still in the administrative section of deals all the way to closing, which sometimes goes into quite [ most ] for a bit and coming back up. So it was more around the variability on deal closure that starts us a little bit, and coming a little shy on Q4. And that is why we were also stating here in our prepared remarks that some of those deals have taken a little longer, but now have come to fruition, and that's why we were confident in providing more color than we usually do and that you should expect going forward around where we are tracking in the Q1 time frame.

[Unknown Analyst]

Understood. That's very helpful. And then maybe just looking at the 2024 guidance, $12 million to $15 million. I think the Street was modeling around $18 million heading into the print. So maybe help us to bridge the gap there? Can you just walk through key puts and takes to consider what gets you to the low end versus the high end of the guide? And Brett, it appears that you should continue to see OpEx growth step down nicely to get to that burn rate in 2024. So is that the right way to think about it?

[Maria Sainz, executive]

Okay. So maybe I'll lead and turn it over to Brett. I'd like to think ourselves a little bit of a hybrid stage company with 1/2 of our activity around what I would call the early commercial stage kind of company, but the other half of our activity being more of a late-stage still developmental company. There's only 130 of us. So we're trying to be balanced in how we're allocating our bandwidth to continue to make steady progress on our today's business, but definitely investing what we believe are incredibly compelling and very large -- near term, not very future, but near term, new opportunities, Alzheimer's some stroke being 2 really big ones.

So -- when I think about our priorities, there is a steady progress on adoption and commercialization, which continues to drive very healthy growth, but that's not the only thing on our board to do. We are heavily investing in R&D and clinical evidence, and we are also investing in programs really to flush out these brand-new opportunities, which are likely going to take that into customer target sites of service, potentially business models that might be different and incremental from where we are today. So I'd rather be balanced and moderate in our expectations so that we can keep doing all of the above, which I think is the right way of thinking about the kind of business we want to build.

[Brett Hale, executive]

Yes. On the question regarding cash burn, as I commented in the earlier remarks, we are giving guidance of approximately $40 million, which is down from 2023. We contend to be very laser-focused on our spending discipline. In terms of the mechanics of getting to that number, as I highlighted, we have a margin guidance of 45% to 50%, so an improvement from where we have been in 2023. And will be continue to be very laser disciplined in our spending, but continue to fund the innovation and the growth opportunities that we see going forward.

[Unknown Analyst]

Got it. That's very helpful. And sorry, last question for me. But I know you're not giving placement guidance, but any color on device versus service split in that $12 million to $15 million?

[Brett Hale, executive]

Yes, we don't provide specific guidance, but I think you have seen perhaps in the postings of our service revenue, you can think about that as kind of a steady and predictable and kind of consistently increasing over time, line item in our P&L. So I think you can think about that in 2024, very similar to probably the trend rate you've seen in prior quarters.

[Operator]

And our next question comes from the line of Yuan Zhi from B. Riley.

[Yuan Zhi, analyst]

I think some of those have been addressed. But maybe you can -- we can talk about the cash flow. So the cash flow from operations was negative $42 million in 2023 and then the current 2024 guidance, our cash burn is about $40 million, while we have increased revenue and potentially lower cost. Brett, can you help us reconcile this understand you have completed the reorganization in early 2023?

[Brett Hale, executive]

Yes. So maybe -- thank you for the question. So you're correct. Our guidance is increased revenue from '23 to '24. And as I highlighted in the previous question, we're improving margin from we posted 43% gross margin in 2023, and our guidance is 45% to 50% for 2024. And then we will have continued investments in the growth drivers, but we'll be keeping our spending very laser-focused and really tied to our growth initiatives. So we feel comfortable with the approximately 40% -- or excuse me, $40 million of net cash burn for the year.

[Yuan Zhi, analyst]

Got it. I'm also curious about the visibility in 2024, given the performance in 4Q 2023. Maybe another way to ask about this question is regarding the 2024 guidance, how confident are you guys to convert the current lease into revenue in 2024? Any pushback you are hearing from the customer right now.

[Maria Sainz, executive]

Thank you, Yuan. I feel confident in the guidance we have provided. We have -- we are exiting 2023 with important accomplishments that feed my confidence. They are our ability to really land deals in flagship institutions and then translate those into very powerful initial successes with their use of our device in patients that otherwise would have had a very different prognosis or outcome or time frame. Some of those have actually been public from the likes of the [indiscernible] accounts that we implemented just a few weeks ago. So I feel really good about the kind of names that are now potentially reference sites for other sites to follow. I feel very confident in the way our customer success team is implementing programs.

I'm also incredibly enthusiastic by the international expansion that we have mentioned, which is not a peanut butter approach. We are definitely selecting market to really put in an incremental effort to grow commercial success from them. We're bringing the products that we are commercializing today in the U.S. than we have a lot of inbound interest from clinicians that I think are going to contribute to really the revenue. Our profile for 2024 and that actually allow me to feel that, that guidance is reasonable given where we're tracking on U.S. plus the select international opportunities.

[Yuan Zhi, analyst]

Got it. Maybe on the last point or a follow-up question there. How are you standing on the direct-to-consumer approach versus distributor approach in the international footprint, considering the need to preserve the cash and investment -- invest on where it matters the most?

[Maria Sainz, executive]

Excellent question. Thank you, Yuan. I would consider our international expansion to be a light investment as we are primarily going to operate international through third-party distributors. We are very fortunate that we have been in the background working to give ourselves the international optionality as we have made a lot of progress on regulatory clearances with a CE mark under [ NVR ], not the old [ MDD ] and the UKCA certification, which is now, of course, required after Brexit. So that gives us a bit of a readiness point in CE and U.K. geographies. But again, we will operate through third-party distributors. We will see that affect our OpEx very marginally. However, as we go forward, we feel very proud of sort of record ASPs. We're going to be posting more of a blended ASP where the distributor pricing is, of course, going to be a different price point that they direct to the customer sales that we do in the U.S. with 2 sort of pricing increases that we've had over the last couple of years.

[Brett Hale, executive]

Yes. I would add another point is that going back to the, I guess, confidence in the guidance. So our international expansion is included in our guidance. So I think that's kind of further gives us confidence in the range that we provided here at the beginning of the year.

[Operator]

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Maria Sainz for any further remarks.

[Maria Sainz, executive]

Thank you, operator. Thank you, everyone, for listening into our call today. I remain incredibly optimistic about what we're building and the future of our business. I look forward to providing additional reports and updates to all of you in the coming weeks.

[Operator]

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.