Stereotaxis, Inc.

Good morning. Thank you for joining us for Stereotaxis second quarter 2022 earnings conference call. Certain statements during the conference call and question and answer period to follow may relate to future events, expectations, and as such, consistent forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks uncertainties and other factors which may cause the actual results, performance or achievements of the company in the future to be materially different from the statements that the company's executives may make today. These risks are described in detail in our public feelings with the Security and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments following the presentation. As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to your host, David Fishel, Chairman and CEO of Stereo Taxes.

Thank you, Operator, and good morning, everyone. I'm joined today by Kim Peary, our Chief Financial Officer. We are operating in an environment that remains very similar to what I described on our last call in May. It is both a challenging and exciting period for stereo taxes. The macro business environment remains littered with a host of pandemic related supply chain, regulatory personnel and economic disruptions. We saw nearly 70% reduction in China procedure volumes during the second quarter, continue to see delays to hospital purchasing decisions and construction projects have not yet observed an improvement in supply chain reliability and see inflationary pressures on various expenses. The optics of our financial results in the quarter reflect these challenges, particularly the delays in hospital construction with negligible system revenue recognized in the quarter contributing to reduced revenue compared to last year's second quarter. Despite these pressures and the poor optics of our financial results, Stereotaxis is making significant progress commercially and technologically. I'm pleased with our progress and confident in where we stand and the path ahead of us. We have continued demand for our technology. We are advancing a transformative innovation pipeline. We are assembling an all-star commercial team, and we are doing all this while maintaining financial stability and strength. Let me first touch upon our recent commercial performance. During the second quarter, we received three orders for Genesys systems, two of which were received since our last call. All three of the orders came from the United States. Two orders are replacement cycle systems where Genesys will replace aged Niobe's at existing hospitals. The third order is unique and exciting. An existing hospital customer who already operates a successful robotic EP program decided to establish a second robotic lab at the same hospital. This is a prestigious hospital led by a key opinion leader in the field and will be the first EP program in the U.S. with two of our robotic systems. Our continued pace of Genesis orders bodes well for future financial results as we now have over $12 million in backlog of system orders waiting to be shipped, installed, and converted into revenue. While timing of revenue recognition is often outside of our control and dependent on hospital construction, orders in our backlog are essentially guaranteed with an over 99% conversion rate and significant non-refundable down payments providing confidence in their realization. Our efforts to grow capital sales are performed alongside a continued commitment to the success of existing robotic practices, and the development of the holistic commercial infrastructure that drives such success. Two highlights from the second quarter include graduation of an additional cohort of fellows in our robotic EP fellows program and the publication of the robotic special issue in the Journal of AFib. Eleven electrophysiology fellows graduated from our fellows program in the past quarter. We expect to graduate 19 this year, and in total, 65 fellows have graduated from our program globally since it was launched. These fellows represent the future of the field and enter it with appreciation and confidence in our technology, which bodes well for us going forward. The body of clinical literature supporting the clinical value of robotics in EP also substantially increased with 16 peer-reviewed publications included in a special issue of the Journal of AFib in June. The publications covered the broad range of topics, including the use of our technology across the spectrum of arrhythmias and in several more novel ways, alongside various preoperative imaging and intraoperative mapping technologies without the use of x-ray and remotely over long distances. We continue to view the quantity and quality of clinical data on our technology as a strong foundation for future adoption. Most impactful to our mid- and long-term commercial performance remains the realization of Stereotaxis' Strategic Innovation Plan. As a reminder, Our innovation strategy consists of five key pillars, a mobile system that enables broad accessibility of robotics, our own independent ablation catheter portfolio, devices that expand our technology to new endovascular indications, a China-specific product ecosystem, and a digital platform for broad operating room connectivity. Each of these will individually serve as substantial growth drivers that dwarf our existing business, but the five efforts are also synergistic and collectively serve as the foundational product ecosystem in our mission to transform endovascular surgery with robotics. We were very pleased a month ago to announce the EMARC submission of our proprietary, robotically navigated ablation catheter, MAGIC. Submission of MAGIC reflects the culmination of an extensive design, development, manufacturing, and testing effort, and I want to congratulate the many individuals who were instrumental in that effort. The submission was made on schedule with the timeline we provided at the start of this year and complies with the recent more stringent MDR regulations in Europe. While the timeline for approval of the catheter is not knowable at this stage, we're preparing for commercialization upon receipt of CE mark as early as year end. The catheter design builds upon nearly 20 years of experience and learning since the existing biosense magnetic catheter was developed and we are very excited for the clinical, commercial, and strategic benefits MAGIC will provide. Beyond the significant milestone with MAGIC, we are methodically advancing the other technological pillars to our innovation strategy. These are advancing against the headwinds of supply chain challenges, a COVID quarantine in China, personnel disruptions, and the regulatory distractions caused by MDR in Europe. Despite those, we still view an initial launch of the mobile robot around this time next year as realistic, and the hardware, electronics, and software aspects of the system are advancing nicely. The microport and stereotaxis collaboration continues to progress well, and we view a comprehensive product ecosystem in China coming together during the second half of 2023. Ramping up production of guide wires for the required regulatory testing has gone slower than projected at our contract manufacturer, and we now expect regulatory approvals and an initial launch in the first half of 2023, rather than at the start of the year. Finally, submission of an application to the FDA to initiate a prospective IDE trial for the MAGIC catheter is currently waiting on certain animal trials that we expect to complete by year end. Development progress is inherently nonlinear, particularly in this environment, but we are pleased by the breadth and quality of impactful developments being advanced. The methodical progress across multiple fronts on our innovation strategy brings us closer to a commercial breakout and consistent long-term revenue growth. As our technology pipeline becomes de-risked and approaches the market, we are placing increased focus on ensuring the right commercial team, infrastructure, and processes are in place to drive substantial revenue growth. I was very excited to be able to announce last week that two highly experienced and successful commercial leaders are joining Stereotaxis. Frank Van Heft and Tim Glynn bring to Stereotaxis decades of significant and highly relevant experience. They have scaled businesses like ours in order of magnitude larger and lived through the complexity and rapid pace of pioneering new markets. Their skill sets and geographical focuses are complementary to each other. and are complimentary and additive to our commercial leaders, Mike Tropea and Casey Payne. That we were able to find leaders of this caliber to enthusiastically join us is a testament to the opportunity in front of us and the company we are building. I personally feel grateful to have these commercial leaders as partners in our journey and encouraged by the fact that their leadership will guide our commercial activities. The puzzle pieces are starting to come together on both the technological ecosystem and commercial organizations. Our progress on both these fronts support substantial long-term growth in electrophysiology and more broadly in endovascular interventions. Kim will now provide some commentary on our financial results, and then I'll make a few financial comments as well before opening the call to Q&A.

Thank you, David, and good morning, everyone. Revenue for the second quarter of 2022 totaled $6.2 million. This is down from $9.1 million in the prior year's second quarter, primarily due to recognizing revenue on just a partial robotic system this quarter compared to two systems last year. Recurring revenue for the quarter was $5.6 million compared to $6.1 million in the prior year's second quarter, reflecting headwinds in procedure volumes and some reduction in service revenue as hospitals approach replacement cycles. Gross margin for the second quarter of 2022 was 76% of revenue, with system gross margin of 16%, and recurring revenue gross margin of 83%. Operating expenses in the quarter of 9.8 million included 2.7 million in non-cash stock compensation expense. Excluding stock compensation expense, adjusted operating expenses were 7.2 million, consistent with the prior year's second quarter. Operating loss and net loss for the second quarter of 2022 were both 5.2 million compared to 3.4 million and 1.2 million in the previous year. Adjusted operating loss and adjusted net loss, excluding non-cash stock compensation expense, were 2.5 million in the current year quarter compared to negative 0.6 million and positive 1.6 million in the prior year quarter. Negative free cash flow for the second quarter was 1.8 million compared to 0.1 million in the prior year second quarter and $1.2 million in the second quarter of 2020. At June 30th, we had cash and cash equivalents of $35.1 million and no debt. I will now hand the call back to David.