Hyperfine(HYPR) - 2023 Q3 - Quarterly Report

Cautionary Statement Regarding Forward-Looking Statements This report contains forward-looking statements based on management's beliefs and assumptions, subject to inherent risks, uncertainties, and assumptions - This report contains forward-looking statements based on management's beliefs and assumptions, which are subject to inherent risks, uncertainties, and assumptions. These statements are not guarantees of performance and readers should not place undue reliance on them[9][12] - Forward-looking statements include, but are not limited to, those concerning product development, commercialization, regulatory approval, technology acquisition, competition, market size, pricing, financial performance, and global economic factors[11][13] PART I — FINANCIAL INFORMATION This section provides the Company's unaudited condensed consolidated financial information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Hyperfine, Inc. and its subsidiaries, prepared in accordance with U.S. GAAP Condensed Consolidated Balance Sheets (unaudited) This statement provides a snapshot of the Company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Cash and cash equivalents | $85,424 | $117,472 | | Total current assets | $98,215 | $128,664 | | Total assets | $103,064 | $134,051 | | Total current liabilities | $8,211 | $8,803 | | Total liabilities | $9,297 | $10,329 | | Total stockholders' equity | $93,767 | $123,722 | Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) This statement details the Company's revenues, expenses, and net loss over specific reporting periods Metric (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total sales | $2,330 | $2,348 | $8,346 | $5,390 | | Gross margin | $1,124 | $688 | $3,723 | $607 | | Total operating expenses | $12,883 | $13,970 | $40,209 | $60,852 | | Loss from operations | $(11,759) | $(13,282) | $(36,486) | $(60,245) | | Net loss | $(10,757) | $(13,171) | $(33,554) | $(60,105) | | Net loss per share (basic & diluted) | $(0.15) | $(0.19) | $(0.47) | $(0.85) | Condensed Consolidated Statements of Changes in Stockholders' Equity (unaudited) This statement outlines changes in the Company's equity components, including net loss and stock-based compensation Metric (in thousands) | Metric (in thousands) | Balance, Dec 31, 2022 | Balance, Sep 30, 2023 | | :-------------------- | :-------------------- | :-------------------- | | Total Stockholders' Equity | $123,722 | $93,767 | | Net loss (9 months) | N/A | $(33,554) | | Stock-based compensation expense (9 months) | N/A | $3,453 | Condensed Consolidated Statements of Cash Flows (unaudited) This statement summarizes the Company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(31,871) | $(56,994) | | Net cash used in investing activities | $(546) | $(427) | | Net cash provided by financing activities | $146 | $2 | | Net decrease in cash, cash equivalents, and restricted cash | $(32,271) | $(57,419) | | Cash, cash equivalents and restricted cash, end of period | $85,972 | $133,741 | Notes to Condensed Consolidated Financial Statements (unaudited) These notes provide detailed information on the Company's organization, accounting policies, revenue, and other financial disclosures 1. Organization and Description of Business This section describes Hyperfine, Inc.'s core business, its flagship Swoop® system, and recent program changes - Hyperfine, Inc. is an innovative health technology business focused on revolutionizing patient care globally through its Swoop® Portable MR Imaging® System, an ultra-low-field (ULF) magnetic resonance diagnostic brain imaging device[26] - The Swoop® system received initial 510(k) clearance from the U.S. FDA in 2020, with additional AI-powered software updates cleared in February and October 2023, significantly improving image quality[26] - The Company suspended its Liminal program, which focused on developing a device to non-invasively measure key vital signs in the brain, in December 2022[26] 2. Summary of Significant Accounting Policies This section outlines the accounting principles and policies used in preparing the consolidated financial statements - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP and include the accounts of Hyperfine, Inc. and its subsidiaries[27] - The Company relies on single-source manufacturers and suppliers, and disruptions could negatively impact its business[32] - The Company operates as a single reportable segment (Legacy Hyperfine) and adopted ASU 2016-13 (Credit Losses) effective January 1, 2023, with no material impact[35][41] 3. Revenue Recognition This section details the Company's revenue streams, disaggregated by product type, and remaining performance obligations Disaggregated Revenue (in thousands) | Product Type | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Device | $1,728 | $1,945 | $6,670 | $4,305 | | Service | $602 | $403 | $1,676 | $1,085 | | Total Revenue | $2,330 | $2,348 | $8,346 | $5,390 | - Revenue recognized from deferred revenue balances at the beginning of the period was $477 thousand for the three months and $1,119 thousand for the nine months ended September 30, 2023[48] - As of September 30, 2023, remaining performance obligations amounted to $5,499 thousand, with approximately 11% expected to be recognized in fiscal year 2023 and 89% in fiscal year 2024 and thereafter[53] 4. Fair Value of Financial Instruments This section explains the Company's fair value measurement hierarchy for financial instruments - The Company measures fair value using a three-tier hierarchy, with all classified assets being Level 1 (quoted prices in active markets)[55][57] - As of September 30, 2023, $85.96 million in money market funds, demand deposit, and savings accounts were classified as Level 1 assets[59] 5. Inventories This section provides a breakdown of the Company's inventory components, including raw materials and finished goods Inventories (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :------------ | :----------------- | :---------------- | | Raw materials | $2,725 | $2,241 | | Finished goods | $4,215 | $2,381 | | Total Inventories | $6,940 | $4,622 | 6. Property and Equipment, Net This section details the Company's property and equipment, net of accumulated depreciation and amortization Property and Equipment, Net (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :------------------------ | :----------------- | :---------------- | | Total historical cost | $6,106 | $5,570 | | Less: Accumulated depreciation and amortization | $(2,948) | $(2,322) | | Property and equipment, net | $3,158 | $3,248 | - Depreciation expense was $278 thousand for the three months and $791 thousand for the nine months ended September 30, 2023[61] 7. Accrued Expenses and Other Current Liabilities This section itemizes the Company's accrued expenses and other current liabilities at period-end Accrued Expenses and Other Current Liabilities (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :------------------------ | :----------------- | :---------------- | | Bonus | $2,340 | $2,674 | | Contracted services | $964 | $1,127 | | Legal fees | $284 | $261 | | Payroll and related benefits | $1,290 | $1,876 | | Other | $375 | $38 | | Total | $5,253 | $5,976 | 8. Equity Incentive Plan This section outlines the Company's stock option and restricted stock unit activity and related compensation expense Stock Option Activity (Number of Options) | Activity | Nine Months Ended Sep 30, 2023 | | :------------------------ | :----------------------------- | | Outstanding at January 1, 2023 | 10,719,564 | | Granted | 4,974,648 | | Exercised | (160,787) | | Forfeited / Cancelled / Expired | (879,190) | | Outstanding at September 30, 2023 | 14,654,235 | Restricted Stock Unit (RSU) Activity (Number of RSUs) | Activity | Nine Months Ended Sep 30, 2023 | | :------------------------ | :----------------------------- | | Outstanding at January 1, 2023 | 1,585,359 | | Granted | 29,000 | | Vested | (754,679) | | Forfeited | (173,165) | | Outstanding at September 30, 2023 | 686,515 | Stock-Based Compensation Expense by Functional Line Item (in thousands) | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of sales | $26 | $34 | $77 | $85 | | Research and development | $371 | $339 | $805 | $1,851 | | Sales and marketing | $44 | $79 | $139 | $291 | | General and administrative | $753 | $(2,806) | $2,432 | $6,632 | | Total | $1,194 | $(2,354) | $3,453 | $8,859 | 9. Net Loss Per Share This section presents the calculation of basic and diluted net loss per common share and anti-dilutive shares Net Loss Per Common Share (Basic and Diluted) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Loss (in thousands) | $(10,757) | $(13,171) | $(33,554) | $(60,105) | | Weighted-average shares | 71,464,315 | 70,509,639 | 71,178,769 | 70,398,103 | | Basic and dilutive net loss per share | $(0.15) | $(0.19) | $(0.47) | $(0.85) | Anti-Dilutive Common Equivalent Shares | Category | September 30, 2023 | September 30, 2022 | | :------------------------ | :----------------- | :----------------- | | Outstanding options | 14,654,235 | 8,544,480 | | Outstanding RSUs | 686,515 | 2,037,517 | | Earn-Out Shares | 9,357,835 | 9,450,862 | | Total anti-dilutive common equivalent shares | 24,698,585 | 20,032,859 | 10. Income Taxes This section discusses the Company's income tax rate and the valuation allowance against deferred tax assets - The Company's estimated annual effective income tax rate was 0.0% for the three and nine months ended September 30, 2023 and 2022[73] - A full valuation allowance has been recorded against net deferred tax assets, as management believes it is more likely than not that the benefits will not be realized[74] 11. Related Party Transactions This section discloses transactions with related parties, including sublease agreements and service arrangements - The Company subleases office and lab space from 4Catalyzer Corporation (4C), a related party, paying approximately $122 thousand (3 months) and $255 thousand (9 months) in rent during 2023[75] - The Company incurred expenses from 4C of $26 thousand (3 months) and $71 thousand (9 months) in 2023 for services under a Master Services Agreement[78] - Technology and Services Exchange Agreements (TSEA) exist with other participant companies controlled by the Rothbergs, allowing use of non-core technologies[79] 12. Commitments and Contingencies This section details the Company's commitments, grant funding, and absence of material legal proceedings - The Company did not make any matching contributions to its 401(k) plan for the three and nine months ended September 30, 2023 or 2022[80] - The Company received an additional $3.35 million grant from the Bill & Melinda Gates Foundation (BMGF) in May 2023 to develop a scalable approach to measuring neurodevelopment via low-field MRI in children in low-to-middle income countries[81] - The Company is not currently a party to any material legal proceedings and has not recorded any liability under indemnification provisions[84][85] 13. Subsequent Events This section confirms the evaluation of events occurring after the balance sheet date for disclosure requirements - The Company has evaluated subsequent events through the financial statement issuance date and determined no events require disclosure[87] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, including an overview of the business, key performance metrics, factors affecting results, and a detailed analysis of financial performance and liquidity Overview This section introduces Hyperfine's mission, the Swoop® system's market impact, and recent organizational changes - Hyperfine's mission is to revolutionize patient care globally with its Swoop® Portable MR Imaging® System, an ultra-low-field (ULF) magnetic resonance diagnostic brain imaging device[89] - The Swoop® system addresses the increasing demand for MR imaging, aiming to expand the $35 billion imaging market by providing accessible, cost-effective MRI in various care settings[90][91] - The Company suspended its Liminal brain sensing platform development and underwent an organizational restructuring in December 2022, terminating approximately 13% of its global workforce to decrease costs[95] Key Performance Metrics This section highlights the total installed base of Swoop® systems as a crucial indicator of business growth - The total installed base of Swoop® systems is a key metric for business growth, comprising commercial, grant fulfillment, and research units[97] Total Swoop® Systems Installed Units | Category | As of September 30, 2023 | As of September 30, 2022 | | :------------------------ | :----------------------- | :----------------------- | | Commercial system units | 91 | 57 | | Grant fulfillment units | 21 | 20 | | Research units | 21 | 23 | | Total Installed Units | 133 | 100 | Factors Affecting Results of Operations This section discusses the impact of technical innovation, commercialization strategies, and international expansion on financial performance - The Company continuously invests in technical innovation, improving AI-powered image quality and developing new imaging applications to broaden clinical uses and explore the Swoop® system's role as a clinical decision support platform[101] - Commercialization efforts are primarily focused on the United States, building direct sales and field support to increase adoption and routine use in hospital systems[102] - International expansion includes commercialization in Canada, Australia, New Zealand, and Pakistan, with grant funding from the BMGF supporting deployments in low-to-middle income countries[103][104] Results of Operations This section provides a detailed analysis of the Company's revenues, costs, expenses, and net loss for the reporting periods Consolidated Statement of Operations Summary (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Change % (3M) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change % (9M) | | :------------------------ | :------------------------------ | :------------------------------ | :------------ | :----------------------------- | :----------------------------- | :------------ | | Device Sales | $1,728 | $1,945 | (11.2)% | $6,670 | $4,305 | 54.9% | | Service Sales | $602 | $403 | 49.4% | $1,676 | $1,085 | 54.5% | | Total Sales | $2,330 | $2,348 | (0.8)% | $8,346 | $5,390 | 54.8% | | Cost of Sales | $1,206 | $1,660 | (27.3)% | $4,623 | $4,783 | (3.3)% | | Gross Margin | $1,124 | $688 | 63.37% | $3,723 | $607 | 513.34% | | Research and development | $5,739 | $7,338 | (21.8)% | $16,531 | $22,937 | (27.9)% | | General and administrative | $4,615 | $3,198 | 44.3% | $16,103 | $26,570 | (39.4)% | | Sales and marketing | $2,529 | $3,434 | (26.4)% | $7,575 | $11,345 | (33.2)% | | Total Operating Expenses | $12,883 | $13,970 | (7.8)% | $40,209 | $60,852 | (33.9)% | | Loss from Operations | $(11,759) | $(13,282) | (11.5)% | $(36,486) | $(60,245) | (39.4)% | | Interest income | $1,021 | $170 | 500.6% | $2,920 | $203 | 1,338.4% | | Net Loss | $(10,757) | $(13,171) | (18.3)% | $(33,554) | $(60,105) | (44.2)% | - Device sales decreased by $0.2 million (11.2%) for the three months ended September 30, 2023, primarily due to decreased volume, but increased by $2.4 million (54.9%) for the nine months, driven by higher sales prices[106][108] - Service sales increased by $0.2 million (49.4%) for the three months and $0.6 million (54.5%) for the nine months ended September 30, 2023, driven by an increase in commercial system units installed[107][109] - Interest income significantly increased by $0.9 million (500.6%) for the three months and $2.7 million (1,338.4%) for the nine months ended September 30, 2023, due to higher interest rates and cash balances[120][121] Liquidity and Capital Resources This section assesses the Company's cash position, funding outlook, and cash flow from operating activities - As of September 30, 2023, the Company had cash and cash equivalents of $85.4 million, with an accumulated deficit of $243.0 million[125] - The Company expects to incur significant cash burn and recurring net losses, but anticipates existing cash and sales proceeds will fund operations for at least the next 12 months[125][126] - Net cash used in operating activities decreased to $31.9 million for the nine months ended September 30, 2023, from $57.0 million in the prior year, primarily due to a lower net loss and non-cash adjustments[132][133] Critical Accounting Policies and Significant Judgments and Estimates This section confirms no material changes to the Company's critical accounting policies and estimates - There have been no material changes to the Company's critical accounting policies and estimates as compared to those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022[143] Recently Issued Accounting Pronouncements This section refers to disclosures regarding recently issued accounting pronouncements in the financial statement notes - A description of recently issued accounting pronouncements is provided in Note 2 to the unaudited condensed consolidated financial statements[144] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the Company's exposure to market risks, including interest rate risk, inflation risk, and foreign exchange risk, and management's approach to these exposures - The Company's primary market risk exposure is from fluctuations in interest rates, inflation, and foreign exchange[146] - A 0.5 percentage point decrease in interest rates would decrease earnings before income taxes by $0.4 million, based on the balance sheet position at September 30, 2023[147] - Inflation affects manufacturing costs, and the Company may not be able to fully offset higher costs through price increases or efficiencies. Foreign exchange risk is limited, and no hedging strategies are utilized[148][149] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023[150] - There were no material changes in the Company's internal control over financial reporting during the three months ended September 30, 2023[151] PART II — OTHER INFORMATION This section contains additional information not included in the financial statements, such as legal proceedings and risk factors Item 1. Legal Proceedings This section confirms the Company's current status regarding legal proceedings - The Company is not currently a party to any material legal proceedings[153] Item 1A. Risk Factors This section refers to the Company's risk factors as previously disclosed - There have been no material changes to the risk factors described in the Company's 2022 Annual Report on Form 10-K[154] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section reports on any unregistered sales of equity securities, use of proceeds, and issuer purchases of equity securities - The Company did not have any unregistered sales of equity securities or issuer purchases of equity securities during the three months ended September 30, 2023[155][156] Item 3. Defaults Upon Senior Securities This section addresses any defaults upon senior securities - This item is not applicable to the Company[157] Item 4. Mine Safety Disclosures This section provides mine safety disclosures - This item is not applicable to the Company[158] Item 5. Other Information This section covers other information not disclosed elsewhere - This item is not applicable to the Company[159] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q Exhibit Index Highlights | Exhibit Number | Exhibit Description | Filed Herewith | | :------------- | :------------------------------------------------------------------------------- | :------------- | | 10.1+ | Letter Agreement with Thomas Teisseyre, Ph.D. (July 17, 2023) | | | 10.4+ | Separation Agreement with Khan Siddiqui, M.D. (September 30, 2023) | | | 31.1 | Certification of the Principal Executive Officer pursuant to Section 302 | X | | 31.2 | Certification of the Principal Financial Officer pursuant to Section 302 | X | | 32* | Certifications of CEO and CFO pursuant to Section 906 | X | Signatures This section provides the official signatures for the Quarterly Report on Form 10-Q - The report was signed on November 9, 2023, by Maria Sainz, President and Chief Executive Officer, and Brett Hale, Chief Administrative Officer, Chief Financial Officer, Treasurer and Corporate Secretary[166]