Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed combined and consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed combined and consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the combined and consolidated financial statements and notes thereto for the year ended December 31, 2021 contained in our Annual Report on Form 10-K filed with the SEC on March 25, 2022. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2021, and of this Quarterly Report on Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, and “the Company” are intended to mean the business and operations of Hyperfine, Inc. and its consolidated subsidiaries. The unaudited condensed combined and consolidated financial statements for the three and nine months ended September 30, 2022 and 2021, respectively, present the financial position and results of operations of Hyperfine, Inc. and its wholly owned subsidiaries.
Overview
We are an innovative digital health business with a mission to provide affordable and accessible imaging and monitoring through magnetic resonance imaging (“MRI”) to revolutionize healthcare for people around the world. Our Swoop® Portable Magnetic Resonance (“MR”) Imaging SystemTM (“Swoop”) produces high-quality images at a lower magnetic field strength than conventional MRI systems, and can be used by healthcare professionals to make effective clinical diagnoses on a patient in a variety of settings where MRI devices have previously been inaccessible. The easy-to-use interface and portable design of our Swoop system make it accessible for use anywhere in a hospital, clinic or patient care site. We are working to realize our vision of providing affordable and accessible imaging of health conditions around the world.
MRI is a medical imaging technique used in radiology to image the anatomy and the physiological processes of the human body. It is typically used in a variety of clinical settings for medical diagnosis, staging of disease and follow-up treatment. Unlike X-ray computed tomography (“CT”) or positron emission tomography (“PET”), MRI does not expose patients to harmful ionizing radiation. We believe MRI offers the most sensitive and objective measures of brain tissue and injury. Despite its advantages, many healthcare institutions throughout the world lack the facilities, qualified operators and capital necessary to acquire and maintain expensive MRI devices. The Swoop system is intended for use at the patient’s bedside in any hospital room or clinical setting, such as a physician’s office or a local urgent care facility. The demand for MRI has been augmented by the aging population and rising prevalence of cancer and cardiovascular, neurological and orthopedic conditions. Healthcare professionals and insurers are recognizing imaging as a cost-effective and non-invasive diagnostic tool for evaluation and ongoing monitoring. Swoop is a next generation MRI device designed to drive costs down and expand the current imaging market.
We believe the adoption of the Swoop system by healthcare professionals has benefits across healthcare communities in both high and low resource settings. Through our collaborations with the healthcare community, we have begun to optimize Hyperfine’s software ecosystem to harness Artificial Intelligence (“AI”) to transform the system into a true bedside clinical decision support platform. These efforts seek to improve image quality, help users analyze images, and reduce time to diagnosis. Our technology allows us to provide decision support and immediate feedback for diagnostic insight for clinicians of all levels of expertise. In the future, we hope to develop an ecosystem of products, expanding the capabilities of our core MRI product platform while introducing a brain sensing platform to offer a more complete solution and increase access to life saving technology across the care continuum.
Legacy Hyperfine received 510(k) clearance from the U.S. Food and Drug Administration (“FDA”) in 2020 for its Swoop Portable MR Imaging System, which is commercially available in the United States. In 2021, we obtained a Medical Device License issued by Health Canada and expanded into the Canadian market. We also received regulatory authorization in Australia, New Zealand and Pakistan. During the three and nine months ended September 30, 2022, we continue to seek the necessary regulatory authorizations in other major markets, including
21
the United Kingdom and the European Union. We are building our direct commercial infrastructure in the United States and also have plans to sell our products in other countries either through direct sales or through distributors.
COVID-19
In March 2020, the World Health Organization declared the global outbreak of COVID-19 to be a pandemic. We continue to closely monitor the recent COVID-19 developments, including the lifting of COVID-19 safety measures, the drop in COVID-19 vaccination rates, the implementation of, and reaction to, vaccine mandates, the spread of new strains or variants of the coronavirus, and supply chain and labor shortages. The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our operations.
COVID-19 created multiple commercial challenges in 2020 and 2021 and has continued to do so in 2022. We experienced restrictions on our salesforce’s ability to visit sites during the first nine months of 2022. During the three months ended September 30, 2022, hospitals and other healthcare providers have started to ease restrictions and our salesforce’s ability to visit sites has improved. Commercially, many hospitals and other healthcare providers decreased spending and limited physical access to facilities, slowing our ability to demonstrate our Swoop device. In addition, many hospitals and other healthcare providers continue to focus their attention on addressing COVID-19, which we believe has resulted in lower sales volume. Trade shows and conferences moved to a virtual platform creating difficulty in demonstrating our device to key stakeholders. It was not uncommon to host virtual product demonstrations with 6-10 physicians, something that would ordinarily not happen or would take many weeks of planning to produce. While physician society conferences are beginning to ramp, attendance has remained below pre-pandemic levels. As such we continue to supplement the conferences with “Demo at Your Door” demonstrations providing target customers hands-on device experience at a place of their choosing. Virtual demonstrations, even though they generated a lot of interest in our product, often did not result in sales, and all sales required an in-person product demonstration. As more conferences begin to be held in-person, we expect to improve our ability to provide product demonstrations to potential customers. It is unclear whether or not conferences will have the same in-person attendance as they would have had in the past.
Because the manufacturing of our Swoop system was developed, and our commercial launch of our Swoop system occurred, during the COVID-19 pandemic market and manufacturing conditions, we did not have to materially adjust our existing resource allocation or our factors of production because of the COVID-19 pandemic. However, if there are further waves of the COVID-19 pandemic driven by variants like Delta, Omicron or otherwise, we may experience a greater negative impact in our supply chain than we have previously.
During the COVID-19 pandemic and the variants that followed, our suppliers agreed to shift new work to domestic suppliers to help reduce the risk of manufacturing delays. Our supplier and sub tier suppliers have been adversely affected by COVID-19. Although we work closely with our suppliers to attempt to ensure continuity of supply, the supply of certain components and raw materials used in our product has been and may continue to be slowed as a direct result of COVID-19 and its variants. We have also experienced increases in product costs as raw materials have been constrained. Prices have risen sharply over the past year, and lead times have extended dramatically, particularly on semiconductor products. Over the next 12 months, we expect prices to increase due to the raw material demand surges across numerous industries, along with labor and transportation related constraints. We also expect lead times to reduce as component production levels recover to meet demand. We helped to minimize the impact of the COVID-19 pandemic on the manufacturing of our product and operations by using our manufacturer’s preferred suppliers, increasing communications with suppliers and freight carriers, and providing advanced forecasts and purchase orders for new and existing devices.
In addition, future regulatory authorizations by the FDA or other regulatory authorities may take longer because of COVID-19 pandemic-related delays, though we have not been impacted by such delays to date.
Please refer to the section titled, "Item 1A. Risk Factors” included in our Annual Report on Form 10-K filed with the SEC on March 25, 2022 for more information. We are unable to predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the duration of the pandemic and actions that may be taken by government authorities across the United States and elsewhere. We will continue to monitor the performance of our business and reassess the impacts of COVID-19.
22
Key Performance Metrics
We review the key performance measures discussed below to evaluate the business and measure performance, identify trends, formulate plans and make strategic decisions.
Installed Base
The Swoop total installed base consists of three components, discussed in further detail below: Commercial system installations (which make up total revenue), grant fulfillment installations, and research unit installations. The Swoop total installed base (or total installed units) is the number of Swoop devices deployed to hospitals, other healthcare providers, and research institutions. We view the total installed base as a key metric of the growth of our business and is measured from period over period. As of September 30, 2022, the Company had a total of 100 Swoop systems installed including 23 research units which are installed, at no cost to the institutions, to expand clinical use cases.
Presented below is a breakout of total Swoop systems installed as of the nine months ended September 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INSTALLED UNITS |
|
|
As of September 30, 2022 |
|
|
As of September 30, 2021 |
|
|
Commercial systems installations |
|
|
57 |
|
|
|
20 |
|
|
Grant fulfillment installations |
|
|
20 |
|
|
|
8 |
|
|
|
|
|
77 |
|
|
|
28 |
|
|
Research units |
|
|
23 |
|
|
|
22 |
|
|
Total Installed Units |
|
|
100 |
|
|
|
50 |
|
|
Commercial system installations reflect device sales and subscription services through commercial agreements (commercial sales) or through research transfer agreements ("RTA") sales. Commercial sales are made to hospitals and other healthcare providers as direct sales of devices and software subscription services or through subscriptions for the use of the device and software. RTA sales represent the sale of Swoop units for research use purposes. Our revenue for the three and nine months ended September 30, 2022 and 2021 is derived from commercial sales and RTA sales.
Grant fulfillment installations consist of shipments of Swoop units to hospitals and other clinical facilities designated by the Bill & Melinda Gates Foundation (“BMGF”). The corresponding funding for these installations from BMGF is recorded as a reduction in the research and development expenses when realized during the period.
Research units represent installed units, at no cost to the institutions, to expand clinical use cases. The installation of research units is recorded as a fixed asset with the related depreciation recorded as research and development expense over the life of the research unit.
23
Factors Affecting Results of Operations
The following factors have been important to our business and we expect them to impact our results of operations and financial condition in future periods:
Strategic partnerships and accelerated international expansion
We believe that market expansion is a key to our continued growth and the success of our device. In line with our vision to democratize healthcare imaging by providing affordable and accessible imaging of health conditions around the world, we are building an international sales strategy that includes direct sales to customers and sales through distribution partners in target regions. In 2021, we obtained a Medical Device License issued by Health Canada and expanded into the Canadian market. We also received regulatory authorization in New Zealand and Pakistan. In 2022, we received regulatory authorization in Australia. During the three and nine months ended September 30, 2022, we are continuing our plans for international commercial expansion into other countries in which we are planning to commercialize our Swoop system including New Zealand, Pakistan, Australia and subject to regulatory authorization, the United Kingdom. Through the BMGF partnership, we are deploying Swoop systems in these target areas for research and clinical settings. We expect the utilization of our Swoop systems as part of this program will allow us to begin building relationships across key stakeholders in these countries or regions to better understand and meet required regulatory hurdles in anticipation of filing for regulatory authorization and ultimately expand into clinical use with patients. In addition, we are considering commercial expansion into several of the larger EU countries following our initial international commercial expansion. We believe these countries have the market size, regulatory environment, commercial access, and mature healthcare systems necessary, subject to regulatory authorization, for a successful launch of our Swoop system. We believe our partnership with the BMGF demonstrates our commitment to the vision of providing affordable and accessible imaging that enables earlier detection and remote management of health conditions around the world. Through our engagement with nonprofit organizations, we aim to deploy the Swoop system to low-middle resource settings without readily-accessible MRI technology. During 2020, we were awarded a $1.6 million grant from the BMGF for the provision and equipping of 20 sites with the Hyperfine portable point-of-care MRI system to enable the performance of a multi-site study focused on optimizing diagnostic image quality (the “Project”). During the third quarter of 2021, we were awarded an additional $3.3 million grant, of which we received $2.5 million from the BMGF in September 2021. During the nine months ended September 30, 2022, we received the remaining $0.8 million of the grant. Both of the grants are designed to support the deployment of a total of 25 Swoop devices and other services to investigators, which commenced in the spring of 2021, and are expected to fund the program for approximately two years. At September 30, 2022, 20 Swoop system units were provisioned and delivered to BMGF. These grants are designed to provide data to validate the use of our Swoop system in measuring the impact of maternal anemia, malnutrition, infection and birth related injury.
Technical innovation
We have developed our device through extensive research and development activities. Our Swoop system is designed to make the customer experience as easy as possible through our integrated, easy-to-use interface that portrays images on a tablet, smartphone or other WiFi capable device. In addition to this design, our team is focused on customer success programs that help integrate the Swoop system into any hospital or clinic workflow. We believe that as the Swoop system becomes integrated into intensive care units (ICUs) and sites across medical practices, we will gain more insights into our product’s usability and potentially develop automated analysis of images that we believe will lead to further efficiencies in patient diagnosis. We plan to continue developing our technology to expand into new imaging applications to enable us to reach the broader care continuum through diagnosis and treatment. In the future, we plan to introduce a further enhanced MRI system designed to conduct neuroimaging and imaging of other extremities for interventional procedures. In addition to our efforts to disrupt the MRI market, we see a significant opportunity to help patients in the neuromonitoring space. Although we expect these activities in technical innovation of the current device and new devices will increase our research and development expenses, we expect them to positively impact our results of operations and profitability in the future.
24
Results of Operations
The following is a discussion of our results of operations for the three and nine months ended September 30, 2022 and 2021. Our accounting policies are described under "Summary of Significant Accounting Policies" in Note 2 to our unaudited condensed combined and consolidated financial statements included in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Nine Months Ended September 30, |
|
|
Change |
|
($ Amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
% |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Device |
|
$ |
1,945 |
|
|
$ |
200 |
|
|
|
872.5 |
% |
|
$ |
4,305 |
|
|
$ |
521 |
|
|
|
726.3 |
% |
Service |
|
|
403 |
|
|
|
171 |
|
|
|
135.7 |
% |
|
|
1,085 |
|
|
|
539 |
|
|
|
101.3 |
% |
Total sales |
|
$ |
2,348 |
|
|
$ |
371 |
|
|
|
532.9 |
% |
|
$ |
5,390 |
|
|
$ |
1,060 |
|
|
|
408.5 |
% |
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Device |
|
$ |
1,215 |
|
|
$ |
508 |
|
|
|
139.2 |
% |
|
$ |
3,511 |
|
|
$ |
1,420 |
|
|
|
147.3 |
% |
Service |
|
|
445 |
|
|
|
201 |
|
|
|
121.4 |
% |
|
|
1,272 |
|
|
|
354 |
|
|
|
259.3 |
% |
Cost of sales |
|
$ |
1,660 |
|
|
$ |
709 |
|
|
|
134.1 |
% |
|
$ |
4,783 |
|
|
$ |
1,774 |
|
|
|
169.6 |
% |
Gross margin |
|
|
688 |
|
|
|
(338 |
) |
|
NM |
|
|
|
607 |
|
|
|
(714 |
) |
|
NM |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
7,338 |
|
|
$ |
6,438 |
|
|
|
14.0 |
% |
|
$ |
22,937 |
|
|
$ |
16,949 |
|
|
|
35.3 |
% |
General and administrative |
|
|
3,198 |
|
|
|
6,827 |
|
|
|
(53 |
)% |
|
|
26,570 |
|
|
|
15,348 |
|
|
|
73.1 |
% |
Sales and marketing |
|
|
3,434 |
|
|
|
2,787 |
|
|
|
23.2 |
% |
|
|
11,345 |
|
|
|
5,770 |
|
|
|
96.6 |
% |
Total operating expenses |
|
|
13,970 |
|
|
|
16,052 |
|
|
|
(13 |
)% |
|
|
60,852 |
|
|
|
38,067 |
|
|
|
59.9 |
% |
Loss from operations |
|
$ |
(13,282 |
) |
|
$ |
(16,390 |
) |
|
|
(19 |
)% |
|
$ |
(60,245 |
) |
|
$ |
(38,781 |
) |
|
|
55.3 |
% |
Interest income |
|
$ |
170 |
|
|
$ |
3 |
|
|
NM |
|
|
$ |
203 |
|
|
$ |
13 |
|
|
NM |
|
Other expense, net |
|
|
(59 |
) |
|
|
(5 |
) |
|
NM |
|
|
|
(63 |
) |
|
|
2 |
|
|
NM |
|
Loss before provision for income taxes |
|
$ |
(13,171 |
) |
|
$ |
(16,392 |
) |
|
|
(20 |
)% |
|
$ |
(60,105 |
) |
|
$ |
(38,766 |
) |
|
|
55.0 |
% |
Provision for income taxes |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
Net loss and comprehensive loss |
|
$ |
(13,171 |
) |
|
$ |
(16,392 |
) |
|
|
(20 |
)% |
|
$ |
(60,105 |
) |
|
$ |
(38,766 |
) |
|
|
55.0 |
% |
Comparison of the Three and Nine Months Ended September 30, 2022 and 2021 ($ Amounts shown in tables in thousands)
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
Device |
|
$ |
1,945 |
|
|
$ |
200 |
|
|
$ |
1,745 |
|
|
|
872.5 |
% |
|
$ |
4,305 |
|
|
$ |
521 |
|
|
$ |
3,784 |
|
|
|
726.3 |
% |
Service |
|
|
403 |
|
|
|
171 |
|
|
|
232 |
|
|
|
135.7 |
% |
|
|
1,085 |
|
|
|
539 |
|
|
|
546 |
|
|
|
101.3 |
% |
Total sales |
|
$ |
2,348 |
|
|
$ |
371 |
|
|
$ |
1,977 |
|
|
|
532.9 |
% |
|
$ |
5,390 |
|
|
$ |
1,060 |
|
|
$ |
4,330 |
|
|
|
408.5 |
% |
Device sales increased by $1.7 million, or 872.5%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was driven by an increase in the volume of device sales and sales price of the device. In the first quarter of 2022, we took a pricing action by increasing the price of the device while lowering the price of the annual subscription. This pricing action resulted in higher device revenue per unit and lower service revenue per unit for sales under the subscription plus ownership model. In addition, revenue is typically recognized for sales of hardware devices where control of the product transfers to the customer upon shipment of goods.
Service sales increased by $0.2 million, or 135.7%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was driven by an increase in the volume of devices installed as generally all commercial systems installations generate service revenue. Service sales revenue is generally recognized over time as we are providing the customer with ongoing access to our resources throughout the subscription period. This type of revenue is recurring in nature and we expect will continue to grow as more devices are sold.
25
Device sales increased by $3.8 million, or 726.3%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was driven by an increase in the volume of device sales and sales price of the device.
Service sales increased by $0.5 million, or 101.3%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was driven by an increase in the volume of devices installed as generally all commercial systems installations generate service revenue.
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
Device |
|
$ |
1,215 |
|
|
$ |
508 |
|
|
$ |
707 |
|
|
|
139.2 |
% |
|
$ |
3,511 |
|
|
$ |
1,420 |
|
|
$ |
2,091 |
|
|
|
147.3 |
% |
Service |
|
|
445 |
|
|
|
201 |
|
|
|
244 |
|
|
|
121.4 |
% |
|
|
1,272 |
|
|
|
354 |
|
|
|
918 |
|
|
|
259.3 |
% |
Total cost of sales |
|
$ |
1,660 |
|
|
$ |
709 |
|
|
$ |
951 |
|
|
|
134.1 |
% |
|
$ |
4,783 |
|
|
$ |
1,774 |
|
|
$ |
3,009 |
|
|
|
169.6 |
% |
Cost of device sales increased by $0.7 million, or 139.2%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was driven primarily by third party manufacturing costs and higher labor cost as a result of the increased volume of products sold. The increase is comprised of a $0.3 million increase in product hardware costs and a $0.4 million increase in labor cost as a result of the increase in the volume of products sold.
Cost of service sales increased by $0.2 million, or 121.4% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was driven primarily by an increase of $0.2 million in internal overheads and labor costs.
Cost of device sales increased by $2.1 million, or 147.3%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was driven primarily by third party manufacturing costs and higher labor cost as a result of increased volume of products sold. The increase is comprised of a $0.7 million increase in product hardware costs and a $1.4 million increase in labor cost as a result of the increase in the volume of products sold.
Cost of service sales increased by $0.9 million, or 259.3% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was driven primarily by an increase of $0.9 million in internal overhead and labor costs.
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
Research and development |
|
$ |
7,338 |
|
|
$ |
6,438 |
|
|
$ |
900 |
|
|
|
14.0 |
% |
|
$ |
22,937 |
|
|
$ |
16,949 |
|
|
$ |
5,988 |
|
|
|
35.3 |
% |
Research and development expenses increased by $0.9 million, or 14.0%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was driven primarily by an increase in personnel related costs of $0.6 million as a result of increased headcount, an increase in stock-based compensation expense of $0.1 million due to stock option and restricted stock unit awards granted, and an increase in consulting and outsource costs of $0.6 million, partially offset by grant fulfilments recorded as credits to research and development expenses of $0.4 million.
Research and development expenses increased by $6.0 million, or 35.3%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was driven primarily by an increase in
26
personnel related costs of $5.8 million as a result of increased headcount, an increase in stock-based compensation expense of $1.0 million due to stock option and restricted stock unit awards granted, and an increase in consulting costs of $0.9 million, partially offset by grant fulfilments recorded as credits to research and development expenses of $1.8 million.
General and administrative
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
General and administrative |
|
$ |
3,198 |
|
|
$ |
6,827 |
|
|
$ |
(3,629 |
) |
|
|
(53.2 |
)% |
|
$ |
26,570 |
|
|
$ |
15,348 |
|
|
$ |
11,222 |
|
|
|
73.1 |
% |
General and administrative expenses decreased by $3.6 million, or 53.2%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This decrease was driven primarily by a credit to stock based compensation expense for the previously recognized expense of $4.5 million related to forfeited awards of our former CEO, a decrease in recruitment expense of $0.7 million and a decrease in bonus expense of $0.7 million, partially offset by an increase in personnel salary and wages of $0.9 million as a result of increased headcount, an increase in insurance cost of $0.8 million and an increase in accounting and auditing fees of $0.6 million.
General and administrative expenses increased by $11.2 million, or 73.1%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was driven primarily by an increase in stock-based compensation expense of $4.4 million when compared to the prior year, including $2.5 million related to the costs associated with 0.6 million RSU awards granted to our former CEO partially offset by a credit to stock-based compensation expense for the previously recognized expense of $4.5 million related to the Company's former CEO forfeited awards; an increase in personnel related costs of $3.6 million as a result of increased headcount; an increase in insurance cost of $2.4 million; an increase in recruitment expenses of $0.4 million and an increase in board of directors fees and expenses of $0.3 million.
Sales and marketing
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|
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|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
Sales and marketing |
|
$ |
3,434 |
|
|
$ |
2,787 |
|
|
$ |
647 |
|
|
|
23.2 |
% |
|
$ |
11,345 |
|
|
$ |
5,770 |
|
|
$ |
5,575 |
|
|
|
96.6 |
% |
Sales and marketing expenses increased by $0.6 million, or 23.2%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was driven primarily by an increase in personnel related expenses of $0.9 million due to increased headcount, an increase in stock-based compensation expense of $0.1 million due to stock option and restricted stock unit awards granted, an increase in travel expense of $0.2 million and an increase in consulting expenses of $0.2 million, partially offset by a decrease in marketing costs of $0.7 million and a decrease in marketing events of $0.1 million.
Sales and marketing expenses increased by $5.6 million, or 96.6%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was driven primarily by an increase in personnel related expenses of $4.2 million due to increased headcount, an increase in stock-based compensation expense of $0.2 million due to stock option and restricted stock unit awards granted, an increase in travel expense of $0.7 million and an increase in consulting expenses of $0.4 million.
27
Interest income
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|
Three Months Ended September 30, |
|
|
Change |
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
Interest income |
|
$ |
170 |
|
|
$ |
3 |
|
|
$ |
167 |
|
|
|
5,567 |
% |
|
$ |
203 |
|
|
$ |
13 |
|
|
$ |
190 |
|
|
|
1,462 |
% |
Interest income increased by $167 thousand for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The increase was driven primarily by higher interest rates during the three months ended September 30, 2022 compared to the three months ended September 30, 2021.
Interest income increased by $190 thousand for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase was driven primarily by higher interest rates during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.
Other income (expense), net
|
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|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
Other income (expense), net |
|
$ |
(59 |
) |
|
$ |
(5 |
) |
|
$ |
(54 |
) |
|
|
1,080 |
% |
|
$ |
(63 |
) |
|
$ |
2 |
|
|
$ |
(65 |
) |
|
|
(3,250.0 |
)% |
Other income (expense), net had an unfavorable increase in other expense by $54 thousand for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This unfavorable increase in other expense was driven primarily by realized loss on foreign currencies.
Other income (expense), net had an unfavorable decrease in other income by $65 thousand for the nine months ended September 30, 2022 compared to the three months ended September 30, 2021. This unfavorable decrease in other income was driven primarily by realized loss on foreign currencies.
Liquidity and Capital Resources
We have funded our operations primarily with proceeds from the issuance of common and preferred stock. We have incurred significant cash burn and recurring net losses, which includes a net loss of $60.1 million for the nine months ended September 30, 2022, and an accumulated deficit of $196.4 million as of September 30, 2022. On December 22, 2021, we completed the Business Combination with HealthCor, and as a result we received gross proceeds of approximately $162.1 million and net proceeds of approximately $141.5 million. As of September 30, 2022, we had cash and cash equivalents of $132.5 million. As we continue to invest in research and development of our products and sales and marketing, we expect to continue to incur a significant cash burn and recurring net losses for the foreseeable future until such time that our product and services sales generate enough gross profit to cover our operating expenses. However, we can provide no assurance that our product and service sales will generate a net profit in the future or that our cash resources will be sufficient to continue our commercialization and development activities.
Our ability to access capital when needed is not assured and, if capital is not available when, and in the amounts needed, we could be required to delay, scale back or abandon some or all of our development programs, commercialization of our products, and other operations which could materially harm our operations, financial condition and operating results. We expect that our existing cash and cash equivalents, together with proceeds from the sales of our products and services, will enable us to conduct our planned operations for at least the next 12 months. Factors that could accelerate cash needs include: (i) delays in achieving scientific and technical milestones; (ii) unforeseen capital expenditures and fabrication costs related to manufacturing; (iii) changes we may make in our business or commercialization and hiring strategy; (iv) the impact of the COVID-19 pandemic; (v) costs of running a public company; (vi) higher inflation and increases in product transportation and labor costs; and (vii) other items affecting our forecasted level of expenditures and use of cash resources including potential acquisitions. As part of
28
the prioritization of our projects and expenditures, we will be assessing our strategic options for Liminal, our brain sensing platform, which is in the early stages of development.
We expect to use our funds to further invest in the development of our products and services, commercial expansion, and for working capital and general corporate purposes.
Our future cash requirements will depend on many factors, including market acceptance of our products, the cost and timing of establishing additional sales, marketing and distribution capabilities; the cost of our research and development activities; our ability to enter into and maintain collaborations; the cost and timing of potential future regulatory clearances or approvals for our products; and the effect of competing technological and market developments. We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we do not have or are not able to obtain sufficient funds, we may have to delay development or commercialization of our products. We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations.
Cash
As of September 30, 2022, we had cash and cash equivalents of $132.5 million. Our future capital requirements may vary from those currently planned and will depend on various factors including further development costs, commercialization strategy, international expansion, and regulatory costs. If we need additional funds and are unable to obtain funding on a timely basis, we may need to curtail significantly our product development and commercialization efforts to provide sufficient funds to continue our operations, which could adversely affect our business prospects.
Cash flows
The following table summarizes our cash flows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(In thousands) |
|
2022 |
|
|
2021 |
|
Net cash used in operating activities |
|
$ |
(56,994 |
) |
|
$ |
(29,047 |
) |
Net cash used in investing activities |
|
|
(427 |
) |
|
|
(1,736 |
) |
Net cash provided by financing activities |
|
|
2 |
|
|
|
35,439 |
|
Net (decrease) increase in cash, cash equivalents, and restricted cash |
|
$ |
(57,419 |
) |
|
$ |
4,656 |
|
Net cash used in operating activities
For the nine months ended September 30, 2022, net cash used in operating activities of $57.0 million was due primarily to a net loss of $60.1 million and changes in operating assets and liabilities of $6.5 million, partially offset by non-cash items of $9.6 million. Non-cash items were primarily stock-based compensation expense of $8.9 million, including $2.5 million related to costs associated with 0.6 million RSU awards granted to our former CEO, and depreciation expense of $0.8 million. Changes in operating assets and liabilities were driven primarily by an increase in accounts receivable of $2.1 million, a decrease in due to related party of $1.9 million, a decrease in accounts payable of $1.5 million, a decrease in deferred grant funding of $1.4 million, an increase in unbilled receivables of $1.4 million, an increase in prepaid expenses and other current assets of $0.4 million, partially offset by an increase in deferred revenue of $1.1 million, an increase in accrued expenses and other liabilities of $0.8 million, a decrease in inventory of $0.3 million, and a decrease in other long term assets of $0.1 million.
29
For the nine months ended September 30, 2021, net cash used in operating activities of $29.0 million was due primarily to a net loss of $38.8 million, partially offset by changes in operating assets and liabilities of $6.2 million and non-cash items of $3.5 million. Non-cash items were primarily stock-based compensation expense of $3.1 million and depreciation expense of $0.4 million. Changes in operating assets and liabilities were driven primarily by an increase in accounts payable of $3.9 million, an increase in accrued expenses and other liabilities of $2.0 million, an increase in deferred grant funding of $1.9 million, a decrease in due from related party of $1.5 million, an increase in deferred revenue of $1.0 million, an increase in due to related party of $1.2 million, and a decrease in other assets of $0.2 million, partially offset by an increase in prepaid expenses and other current assets of $2.9 million, an increase in inventory of $1.1 million, an increase in accounts receivable of $0.8 million, and an increase in other long term assets of $0.6 million.
Net cash used for investing activities
For the nine months ended September 30, 2022, net cash used in investing activities of $0.4 million was from fixed assets purchased.
For the nine months ended September 30, 2021, net cash used in investing activities of $1.7 million was from fixed assets purchased.
Net cash provided by financing activities
For the nine months ended September 30, 2022, net cash provided by financing activities of $2.0 thousand was proceeds from option exercises.
For the nine months ended September 30, 2021, net cash provided by financing activities of $35.4 million was primarily due to proceeds from issuance of Series D convertible preferred stock of $30.5 million, investment from 4Bionics, LLC of $3.5 million and proceeds from options exercises of $1.5 million.
Contractual obligations
We sponsor a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. We did not make any matching contributions to the 401(k) plan for the three and nine months ended September 30, 2022 and 2021.
In April 2020, we received a $1.6 million grant from the BMGF for the provision and equipping of 20 sites with our portable point-of-care MRI system to enable the performance of a multi-site study focused on optimizing diagnostic image quality. During the third quarter of 2021, we were awarded an additional $3.3 million grant, of which $2.5 million was received from the BMGF in September 2021. During the second quarter of 2022, the Company received the remaining amount of $0.8 million. Refer to Note 12 in the notes to our condensed combined and consolidated financial statements for the three and nine months ended September 30, 2022 and 2021 included elsewhere in this Quarterly Report on Form 10-Q for a discussion of the BMGF grant. Any grant funds, plus any income, that have not been used for, or committed to, the project must be returned promptly to BMGF upon expiration of or termination of the agreement. Both of the grants are designed to support the deployment of a total of 25 Swoop devices and other services to investigators, which commenced in the spring of 2021, and is expected to fund the program for approximately two years. At September 30, 2022, 20 Swoop system units and 10 baby cradles were provisioned and delivered to BMGF and certain milestones for service deliverables were also met. These grants are designed to provide data to validate the use of our Swoop system in measuring the impact of maternal anemia, malnutrition, infection and birth related injury.
We had no other significant contractual obligations as of September 30, 2022.
For information on contingencies, refer to Note 12 in the notes to our condensed combined and consolidated financial statements for the three and nine months ended September 30, 2022 and 2021 included elsewhere in this Quarterly Report on Form 10-Q.
30
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed combined and consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed combined and consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed combined and consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Except as described in Note 2 “Summary of Significant Accounting Policies – Recent Accounting Pronouncements”, to our condensed combined and consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 25, 2022.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed combined and consolidated financial statements and notes thereto for the three and nine months ended September 30, 2022 and 2021 included elsewhere in this Quarterly Report on Form 10-Q.