Ladies and gentlemen, thank you for standing by and welcome to the Hyperfine Q2 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentations, there will a question-and-answer session. [Operator Instructions] I would now like to turn the call over to your host Ms. Bych. You may begin.

Thank you for joining today's call. Earlier today, Hyperfine released financial results for the fiscal quarter ended June 30, 2022. A copy of the press release is available on the company's website as well as sec.gov. Before we begin, I would like to remind you that management will make statements during this call that includes 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, physician 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 form 10-Q filed with the SEC on May 12, 2022. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 10, 2022. Hyperfine 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, thank you again. I will turn the call over to Scott Huennekens, Interim President and Chief Executive Officer of Hyperfine.

Thank you, Marissa. Good afternoon and thank you all for joining us. I am also joined by our Chief Financial Officer, Alok Gupta. We are pleased to continue the conversation on Hyperfine story with you today and highlight our recent progress. But first I would like to repoint listeners with our vision as a company and our transformative solution in the field of medical imaging. Hyperfine's vision is to transform the healthcare by creating access to life saving diagnostics and actionable data at the patient bedside. Today, brain diagnostics are a single point in time and delay the time from door to discharge. Our mission remains to transform that experience, first and foremost, with our portable bedside MRI system. Our initial product, our portable MRI system called Swoop was FDA cleared in 2020. Today, we are driving adoption of the Swoop system in the hospital setting to solve significant unmet patient and provider needs. This device addresses an immense 20 billion-plus medical imaging market opportunity considering the potential for installations across hospitals, clinics, outpatient centers over time. Today, just 10% of the world's population has access to MRI. And we are committed to improving that. As we have noted in the past, our near-term opportunities for improving patient care are first in the ICU; secondly, in pediatric hospitals to address hydrocephalus; and third, in stroke. Patients in the ICU for neurological conditions experience a variety of challenges when it comes to getting an MRI. Patients are typically too unstable to transport to the MRI suite for imaging and it takes time to get imaging completed and can be prohibitively long in a process and consume valuable resources. There's simply not an effective way to perform MRI imaging for ICU patients today. We've been working with our clinical partners to build…

Thank you, Scott. Turning to our financial results for the second quarter 2022, revenue for the quarter ended on June 30th, 2022 was $1.5 million compared to $400,000 in the second quarter of 2021. Gross margin for the second quarter of 2022 was negative $0.2 million compared to negative $0.1 million in the second quarter of 2021. R&D expenses for the second quarter of 2022 was $7.3 million compared to $6 million in the second quarter of 2021. Sales, general and administrative expenses for the second quarter of 2022 were $15.8 million compared to $8.5 million in the second quarter of 2021. Net loss for the second quarter was $23.2 million equaling to a net loss of $0.33 per share as compared to the net loss of $14.6 million or a net loss of $88.80 per share for the same period of prior year. We ended the second quarter of 2022 with $145.1 million in cash and cash equivalents. Turning to over 2022 outlook. As Scott mentioned, based on our first and second quarter progress and current trends in the business, we now anticipate installing 35 to 45 commercial systems in 2022. This compares to four commercial system installations in 2020, 23 commercial systems in 2021 and implies that at year-end 2022, we expect to have a total commercial install base of 62 to 72 Swoop systems. In conjunction with our lower system placement expectations, we are revising our full year revenue expectation to be in between $7 million to $8 million. Shifting to our additional expectations for the year. Based on the trend of our business on as Scott described, we currently anticipate a relatively flat to slightly down third quarter in terms of system placements and revenue versus our second quarter results. We now anticipate total cash burn of $70 million to $80 million in 2022, as we focus on investments in our business, which offer the greatest growth return potential. At this point, I would like to turn the call back to Scott for closing comments.

Thank you, Alok. Despite transitory headwinds in our operating environment, I want to reiterate our differentiated value proposition and our confidence in the future of Hyperfine. We believe greater access to medical imaging through portable point-of-care MRI is inevitable, and we are determined to continue delivering high-quality imaging to new sites of care, to improve provider workflow and patient care. With our early success marked by a total global installed base of over 90 Swoop systems today, we are setting the stage for affordable point-of-care imaging to transform lives and enhance patient care around the world. With that, I want to thank you for your time and open it up to any question.

[Operator Instructions] Our first question comes from Larry Biegelsen with Wells Fargo. Your line is open.

Hey, guys. Good afternoon. Thanks for taking the question. Can you hear me okay?

We can.

Hey, Scott. Hey, Scott, first, on the Barnes seven systems and the College of London 20 systems, what's in the commercial and revenue guidance for 2022? I mean, the guidance implies only 20 systems at the midpoint of the second -- at the mid -- only 20 systems in the second half at the midpoint of the guidance. Are those College of London systems I heard you say, Bill & Melinda Gates Foundation, are those not commercial systems and how derisk are those systems? And I had a couple follow ups.

Yeah. Those are commercial systems, all 20 of them. And in our projections, we have five to 10 coming from that group. And that kind of explains the bandwidth around the 35 to 45 to a large degree. But Alok, anything to add there?

No, I think you covered that. So, it is a commercial contract with King's College, London, Larry, and supported by Bill & Melinda Gates Foundation for King's College. It's not a direct -- unlike the first grant, this is not a grant. This is a commercial system sales.

So, I heard you say, that you're going to be shipping these systems in the next few months. So, why is the midpoint of the guidance now 20 systems in the second half when you have these letters of intent for 27 systems?

As I mentioned, only five to 10 of the Gates -- King's London, which during the second half of the year and potentially three to five of the BJC units. So.

I understand.

They're only a portion of the 20 systems in the second half of the year.

Okay. And Scott -- go ahead.

I was just going to say, so hopefully we're starting to build a backlog running into quarters to, have a little better predictability as we move forward.

Scott, I guess, you reaffirmed -- I feel compelled to ask this. You reaffirmed the guidance on June 29th, obviously you're lowering it pretty significantly here. What changed from June 29th, when you did the CEO call and reaffirmed and today?

Alok, do you want to take a crack at that first with the detail and I can answer as well?

Yeah. So, I think, look, as Scott pointed out, some of these orders, like Barnes-Jewish for example, we were expecting this order to come earlier in the quarter, but we were still anticipating towards the end of the quarter. And order timing as expect will not happen. I mean, we just got the LOI last week. So, you can see the extension of the order -- the sales order process by at least six weeks, even for just one order. And those are the reasons why we -- when we originally thought that we'll be able to meet our second quarter guidance, realizing that the elongated sales cycle and taking more time to get these orders in place.

Yeah. I think that's entirely at it. It's -- we're just living in a little bit of a -- we're living in a relatively uncertain time. You've heard it across other medical device companies with general business conditions. And we're just trying to be very thoughtful here as we go forward with what we're seeing with elongated sales cycles. And again, not losing deals, it's just -- we're getting stack up of deals in the pipeline. So, you take -- I think it's a combination, Larry, of three things. It's general business environment and dynamics, a salesforce that's maturing as we go here with, the time that they've been on board and their ability to predict. Business is already -- it's hard when you're introduced in a new technology like this, it's even harder in today's environment. And then I would say that the third thing is that it is proving -- the value proposition is there for customers, but there are workflow changes. There are different people that have to prove in a hospital, radiology departments, local departments, administration. And that also is something that in a lot of cases, it's taking us longer to get those POs done, where I think some of the original participation, the first half of the year with Dave Scott and that management group was that you didn't -- you may not need all of those approvals, which also. So you got a combination of factors that are elongating the sales cycle, but not changing the value proposition. So, just kind of pushing the demand curve to the right in time.

Lastly, Alok, to get to that burn rate, you talked about, what's the OpEx implied for the second half or for the full year?

So the full year OpEx, Larry, we are still expecting slightly over $80 million, which by the way, includes all the non-cash, stock-based comp included in it. But the cash burn commentary, if you recall, originally, we were expecting it to be $80 million to $90 million. We have revised it down $70 million to $80 million now.

Okay.

Yeah. And as you looked out in 2023 and 2024, the combination of reasonable assumptions on revenue increases with the combination of units and pricing, gross margin expansion relative to cost, a little bit of volume, our gross margin goes up, our R&D and sales and marketing vis-à-vis this year flat to down, G&A a level of leverage. So cash burn goes down rather significantly in 2023 and 2024, which allows us to extend cash in our plan to the -- so we have that cash balance at the end of 2024, going into 2025.

Okay. Thank you.

One moment for our next question. Our next question comes from Vijay Kumar with Evercore. Your line is open.

Hey, guys. Thanks for taking my question. Scott, maybe a big picture question for you, right? Given the guidance change, and I understand your commentary around the macro environment. I guess for investors, the question is why isn't this an indicator of underlying demand that maybe the technology is too new for the market? Like what gives you the confidence? I know you sort of alluded to the demand shifting to the right, just talk about what gives you confidence? Why is this not a demand issue and why you're optimistic about the business?

Because the pipeline continues to grow and the interest by deal is still there. Whether it's for ICU, whether it's hydrocephalus, whether it's for stroke relative to improvements in the software and what we're seeing in hearing, the customers want the product and they're figuring out ways to get the product, it's just taking longer and/or they're having to prioritize when they can budget and get it. So, you're -- if you're -- so relative to demand, the demand is there for this large market, the demand in the particular timeframe is lower. Maybe that -- hopefully that clarifies. Yeah. But we don't -- I don't think we have an overall demand problem. We've got a timing problem with it taking longer.

If we just had to unpack that a little bit. What you're saying is when you look at the funnel -- your indication of interest, that funnel that remains healthier, has a change over the past six months? It's just the sales cycle. Like once it goes beyond the physician point of contact is where we're seeing slow down and ability to close deal?

In a number of instances that is accurate. Correct.

Okay. And then, Alok …

Look, I don't want to blame everything on the environment. It's multi-factorial. It's the environment which maybe 50%. It's 25%, a sales channel that is maturing to understand all of the things it takes to close a deal. In every geography, there's a lot of subtle differences required. And then, there's 25% of it's, it's a new technology. And so, they want it if any -- there's going to be workflow differences. Radiology department needs to approve it, support it. So, in the ICU, they maybe want it, they got to work things out with the ICU, I mean, the radiology department and that coordination and figuring out new workflow, even though they want it and they both want it. The administration wants clarity -- from the two groups before they approve, first, that's a little bit of the Barnes-Jewish situation, get the clarity, get it resolved, and now have an order for seven systems, and arguably one of the top 10 healthcare systems in the U.S.

Understood. That's helpful. On the 20 system order from King's College, are there any other large, IDN sort of contractor in the pipeline, which would be in -- something similar to what you're seeing along the lines of King's College of London order?

No. Not at this time.

Okay.

There are things in the multiple unit status in the pipeline, but not of that magnitude.

Gotcha. Gotcha. And then, Alok, maybe a couple for you. I think I heard you say third quarter sequentially flatting or down, was it a system placement commentary or revenue commentary?

Both, because system -- revenue are driven by the system placement. So, it is both. So, we had nine units there, we are guiding flattish to down, but still at a midpoint, like we talked about from 35 to 45, we expect. And the midpoint, if you take a midpoint, it's 40 units. And sequentially Q3 to Q4, it will be slightly higher. So that's what we're guiding to today.

And to hit the guidance, the revenue guidance at the midpoint 7.5, assuming sequentially revenues are flattish, step up for 1.5 to $3 million-plus in Q4. Yeah. Sorry, go ahead.

No. So what I was going to tell you is, as we talked about it in our very first earning call, since the January 1st, when we change over pricing model, that impact hasn't flown through -- as we originally indicated, all of those transitions will likely happen in the second half, and we are seeing the data points on that. So, if I were to talk about why we are seeing higher revenue for the 20 units in the back half versus 20 units in the first half, you can see on an average on a per device revenue in the first quarter, it's 110,000. For this quarter with nine units and 1.2 million device revenue, total is 1.5. The device revenue is at 1.2, that has gone up to 130. So that's another 16%, 17% increase. In the second half, the legacy devices are tailing off, with a very -- if any, one or two left in there. So, we expect that pricing transition into 250,000 or 200,000-plus will happen in the future contracts as we are talking about it. And that's the reason -- that gives us confidence that the second half revenue is at a midpoint 4.5 versus 3 for the first half. Does that make sense, Vijay?

That does. That does. And then maybe my last one on-- your commentary on cash burn. Is that a good starting number for fiscal 2023? And the reason I ask is, obviously, with 145, 146 of cash on hand, I think I heard Scott mention looking at strategic optionality for the brain sensing part of the business. How -- when you think about that existing cash on hand, how long can you run the business, make the necessary investments before thinking about additional raises.

So, I'll let Scott talk about additional raises. But we are not commenting on the 2023 cash burn, Vijay. But what Scott did say is, we have built a plan to last this cash. We started the year at 188.5. And like I guided, we will burn $70 million to $80 million this year, that will give us enough cash to lead us through 2024. So, we will have cash at the end of December 24th. I will let Scott to comment on the other one.

No. That's absolutely correct. And not only have cash at the end of 2024, I think we'll demonstrate over that time, significant revenue growth, expansion of clinical indications, progression of the technology and the next version of the product, expanding gross margins, as well. And that's from price as well as that's from cost. So, I think we'll be in a strong position and hit significant milestones for value creation over that timeframe. By the time we would need to raise additional capital. And so like all programs, you're looking at them to try and figure out how you can advance them vis-à-vis other programs, as efficiently capital wise to create the best returns for shareholders. So as we progress in that regard, we'll share that appropriately.

Understood. Thanks guys.

And I'm not showing any further questions at this time. I turn the call back over to Scott.

Well, thank you all for joining today. And we look forward to sharing our continued progress as we go forward. Thanks again, [indiscernible].

Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.