Stereotaxis, Inc.

Good morning. Thank you for joining us for a Stereo Taxes fourth quarter and full year 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 constitute forward-looking statements within the meeting 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 filings with the Securities 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. My prepared remarks today will be a bit longer than normal. as I use the occasion of our annual call to provide broader context on Stereotaxis, our technology, and our path to building a highly impactful company. I will then review our recent results as well as the key goals and expectations for the coming year. Stereotaxis is the pioneer and leader of robotics for endovascular surgery. We have developed an innovative suite of technologies that address the inherent limitations, risks, and challenges posed by manual handheld catheters. Our mission is to make minimally invasive endovascular surgery more broadly available, to improve its safety and outcomes, and to modernize it with the benefits of digitization and robotics. Endovascular surgery is a broad and growing field of medicine where small interventional devices are navigated through a patient's vascular system. Endovascular procedures positively impact millions of patients annually, but the mechanism of action of manual handheld catheters has fundamental flaws. During a procedure, therapy takes place at the catheter tip, but a manual catheter is held and manipulated several feet away at the handle. It's like holding a pencil from its eraser. It is not precise, not stable, and there is limited reach. Manual catheters need to be rigid to allow for any control of the tip, increasing the risk of patient injury. Procedures are complex, and operator-dependent, and visualization of a catheter exposes patients and physicians to X-ray radiation. Stereotaxis' robotic technology addresses the inherent limitations, risks, and challenges of traditional endovascular surgery by allowing for direct control of a catheter tip using precise, computer-controlled magnetic fields. This allows for unprecedented precision and stability enables reaching areas previously unreachable, and enhances patient and physician safety. Physicians operate our robot from a computer cockpit, seated and protected from radiation, with full control over the procedure, and with an ability to focus on the cognitive aspects of their profession. These benefits are not theoretical, as hundreds of physicians at over 100 leading hospitals globally have treated nearly 150,000 patients with our technology and there are over 400 scientific publications documenting our clinical value. A highly differentiated platform technology that confers meaningful clinical value in a large field of medicine serves as the perfect foundation on which to build a preeminent surgical robotics company. We are the best suited and see a clear path towards positively transforming the broad field of endovascular surgery in a fashion similar to how laparoscopic and orthopedic surgeries are being transformed. But while our technology has significant clinical and commercial validation, our ability to grow a flourishing business has been constrained by several structural limitations. We are clear-eyed on these challenges and well on the way to addressing them. Our product ecosystem has three primary structural limitations. First, A robotic system can only be adopted as part of a construction process. It requires architects and contractors, room modifications, and significant planning. It can obviously be done, but the effort is significant and leads to multi-year sales cycles with significant attrition in the sales pipeline. Second, our existing procedural focus, cardiac ablation procedures to treat heart arrhythmias, was built with significant dependencies on another company. Stereotaxis' robotic technology is highly differentiated and sophisticated, conferring significant benefits in the EP field. However, in every procedure, the actual ablation catheter used is owned, manufactured, and sold by another company. Our users were also made largely dependent on that company's diagnostic mapping technology. That dependency creates various challenges for our customers led to extended periods of limited innovation and creates operational, financial, and strategic hurdles for stereotaxis. Third, and the last structural limitation, is that stereotaxis robot has remained a single application technology. Despite the technology having the ability and even the regulatory clearances to serve as a broader platform for robotic endovascular surgery, the company has not made the interventional tools to turn potential clinical applications like neuro, coronary, and peripheral surgery into our reality. This limited scope reduces our market opportunity and the attraction of our technology to hospital purchasers. A clear-eyed diagnosis allows for strategic focus. With focus, creativity, and effort, we have developed and advanced an elegant strategy that addresses each of these limitations. Simultaneously addressing multiple significant structural limitations involving sophisticated technologies in a complex, highly regulated environment is not done easily or rapidly. For several years now, we've been working energetically to make that strategic transformation of our product ecosystem a reality. This year, 2023, is poised to be an exciting year for us. as we expect multiple technologies that address each of these limitations to achieve major regulatory and commercial milestones. Let me review the cornerstones of that new product ecosystem, along with the status and expected progress of each. Theriotaxis's proprietary, robotically navigated ablation catheter, MAGIC, is the closest to commercialization. It improves upon the aging catheter technology our current users are limited to and addresses the operational, financial, and strategic challenges posed by our dependency in the EP field. We were pleased last summer to submit MAGIC for European CE mark in line with the timeline we shared on this same call a year ago. In the fourth quarter, we updated you that our submission successfully passed the completeness check of the EU regulator. The next step in the review process involves us receiving questions on the submission in three distinct categories. technical, clinical, and microbiology. We received our technical questions in December and responded to them early this year. We have not yet received any feedback on our response, but viewed the technical questions as unconcerning. We just received the clinical questions two days ago and are reviewing them and preparing a response. We are eager to receive the microbiology questions, but so far have not received them. The slow pace of the regulatory review process is frustrating as we are eager to launch the technology, but ultimately that timeline is outside of our control. We will do our part to speed this process by responding to questions rapidly and thoughtfully, and we'll use this time to set the stage for robust commercialization. We expect your PMC mark and launch of Magic as most likely to occur later in the second quarter or in the summertime. There's a substantial interest from our physician customers to start using MAGIC, and we're excited for the impact of the launch. In the U.S., our IDE submission remains dependent on successfully completing a few preclinical survival studies. We established an official institutional animal care and use program of GLP-level quality in November and ran several pilot studies to ensure the new facility and processes worked well. The development of that internal infrastructure and capability was a significant undertaking, but we have done it successfully and will do our first pivotal on-the-record study this weekend. We expect to complete all the pivotal studies in the second quarter, submit our IDE application to FDA in the third quarter, and initiate the human IDE trial before year-end. We continue to see U.S. FDA approval of the MAGIC catheter approximately two years after CMARC as a reasonable timeline. Our second major innovation effort is a smaller self-shielding robot that frees us from the extensive architectural planning and construction currently necessary to adopt our technology. It makes our robotic technology more accessible to many physicians and customers that have wanted to adopt or try it, but were unable to navigate the logistic and economic hurdles. We are methodically advancing through mechanical and electrical and software development in line with previously shared timelines. We expect regulatory clearance in Europe in the third quarter of this year, an initial limited launch of the system concurrent with that regulatory approval, and a broader launch of the new robot in both Europe and the US in 2024. The robot itself is a transformative innovation for stereotaxis and the accessibility of our technology, but along with this technological innovation, We will also be innovating our site assessment, installation, integration, and sales efforts to take full advantage of what is now possible. Our third significant innovation is a family of interventional guide wires and guide catheters that expand the benefits of our robot into new endovascular indications. We have previously shared five specific clinical indications where navigating tortuous anatomy is challenging and where we've believe we can improve patient care. Neurointerventions, coronary angioplasty, peripheral intervention, tumor embolization, and abdominal aortic aneurysm grafts. The first guide wire in this family is fully designed and we have been grinding through the process of improving the manufacturing process. We believe we are nearing the end of that effort and that we will be able to begin formal testing within the next few months, allowing for regulatory submissions in the U.S. and Europe before year end. This is a 510K product with a relatively streamlined regulatory review timeline. Behind this first guide wire, we expect a broader family of guide catheters and wires to steadily advance to market. We have shared these devices and our strategy with several prominent physicians in multiple clinical specialties. They are excited by what we are building and view the technology as very practical and capable in addressing serious unmet medical needs. Once we have made a regulatory submission for the first guidewire, we will host an innovation day to allow several of these physicians to share their perspective and experience. These three innovations, the Magic Catheter, Neur Mobile Robot, and Endovascular Devices, are our strategic response to the three structural limitations described earlier. We have line of sight to each of them, reaching significant regulatory and commercial milestones this year, with growing commercial impact next year. Beyond these big three innovations, we were fortunate to nurture two additional opportunistic growth drivers that are synergistic and additive to our core strategic innovation efforts. In China, we entered into a strategic collaboration with MicroPort to establish a China-specific EP product ecosystem. And internally, we are developing a digital platform for broad operating room connectivity. MicroPort submitted Genesys for Chinese NMPA approval late last year and has been working on some additional documentation and testing to supplement that submission. In parallel, they have completed the software efforts to integrate their mapping system with our robots and are preparing magic and an additional ablation catheter for near-term regulatory submissions. Given extended review timelines they've seen at China's NMDA, they now expect this whole product ecosystem to be available on the market in approximately a year from now in the first half of 2024. They are investing in a capital sales team training and commercial infrastructure in anticipation of that launch and we already see a pipeline of engaged future customers. We are impressed with these preparatory commercial efforts and anticipate it translating into a very robust launch soon after that ecosystem gains Chinese regulatory clearance. Our connectivity platform involves both a cloud-based connectivity app called Sync and a next generation version of our large integrated display called Synchrony. Sync has been released internally for initial testing by our team to simulate an external release. We expect to continue to refine the app in the coming weeks such that it is ready for an external release to select physicians in summer. The large screen display is on track for regulatory submission in the fourth quarter and full launch early next year. The combination of Synchrony and Sync should be an attractive solution enabling streamlined workflow connectivity, and collaboration broadly in any operating room. The Synchrony hardware will provide us an incremental upfront capital sales opportunity, while Sync will be available with a freemium SaaS business model with premium subscriptions for hospitals, medical device sales forces, and physician users. Each of these innovations individually serve as substantial growth drivers that dwarf our existing business, They have value being advanced independently, but are also synergistic and complement each other. Collectively, they serve as our core product ecosystem as we look to transform endovascular surgery with robotics. We are confident these technologies serve as the foundation for a preeminent, high-growth, high-value medical robotics company. While driving this multi-year strategic transformation, we've attempted to navigate to transitory years with three primary goals. show that we can restart revenue growth, put in place the infrastructure that will be needed to grow an order of magnitude larger, and become financially self-sufficient. Overall, we have made significant progress here, so our results last year demonstrate the challenges as well we navigated that path. From an infrastructure perspective, the highlight of the last year was moving into a new custom-built headquarters and manufacturing facility. It was a significant effort and expense, but will serve us well for many years. It enhances our operations, was financially prudent and facilitates the robust growth we anticipate. We've continued to refine and improve other aspects of our infrastructure across the company, including IT systems, quality processes and commercial capabilities. Revenue in 2022 was more challenged. On the heels of 2021, when we were able to demonstrate significant revenue growth and a restart in meaningful capital sales, We were disappointed by the reported revenue in 2022. Recurring revenue remained relatively stable and attractive, with a slight decline attributed predominantly to reduced procedures in China during COVID lockdowns and lower service revenue as various hospitals approach or undergo replacement cycles. System revenue, however, was down in 2022 compared to 2021. In some ways, the reported system revenue is not reflective of the actual progress we have been making in capital sales, nor the context for our efforts. In 2021, Stereo Texas demonstrated it can meaningfully restart capital sales after many years of minimal activity. We recognized revenue of $11 million on seven systems sold that year. In 2022, we received purchase orders for eight robotic systems, a slight increase over the previous year. Three of those orders were for greenfield systems and five orders came from the United States. We only recognize revenue, however, on four systems as hospital construction delays have pushed out timelines for when we can ship and install systems. That has driven a backlog entering this year of $14.8 million in capital orders that have not been recognized as revenue. As we look at 2023, This backlog supports an expectation of double-digit overall revenue growth. We expect to continue to grow orders for new robots above the eight system high watermark from last year and expect to recognize revenue on a portion of those orders as well as a substantial majority of our backlog. Financially, 2022 was a departure from several years of maintaining a very low near break-even financial posture. From 2019 through 2021, we were able to maintain free cash flow utilization of just about $1 million per quarter, despite substantial investments in R&D. In 2022, our cash utilization was approximately double that, with cash use of approximately $10 million for the year. About half of the cash utilization was spending on the new headquarters, as well as increased spending on robot inventory beyond the cash inflows that would correspond with that inventory. We start 2023 with approximately $30 million cash and no debt. That is a strong and comforting balance sheet given our history of financial prudence. We expect a lower burn rate in 2023 compared to 2022 with overall revenue growth, a lack of spending on the new facility, and tapering inventory purchasing, counteracting increased R&D spending, and a lack of royalty income. We are comfortable with our balance sheet allowing us to bring our transformative product ecosystem to market, to fund commercialization of that ecosystem, and to carry stare taxes to profitability. 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 fourth quarter of 2022 totaled $7.3 million, compared to $8.2 million in the prior year fourth quarter. System revenue was $2.2 million and recurring revenue was $5.1 million compared to $2.3 million and $5.7 million in the prior year fourth quarter. Revenue for the full year 2022 totaled $28.1 million compared to $35 million in 2021. Full year system revenue was $6.8 million compared to $11.2 million in the prior year as hospital construction delays impacted the timing of order conversion. We started 2023 with system backlog of $14.8 million. Full year recurring revenue was $21.3 million compared to $22.9 million, reflecting continued procedure volatility and the timing of service renewal. Gross margin for the fourth quarter and full year 2022 were approximately 59% and 66% of revenue. For the full year of 2022, we reported gross margins of 82% on recurring revenue and 15% for system revenue. System gross margins reflect significant allocations of fixed overhead expenses. Operating expenses in the fourth quarter were 8.8 million, excluding 2.6 million in non-cash stock compensation expense. Adjusted operating expenses in the current quarter were 6.2 million, down from the prior year adjusted operating expenses of $6.7 million. Adjusted operating expenses for the full year 2022 were $26.8 million, consistent with $26.9 million in the prior year. Operating loss and net loss for the fourth quarter of 2022 were $4.5 million and $4.2 million respectively, compared to the approximately $3.4 million for both in the previous year. Adjusted operating loss and adjusted net loss for the quarter, excluding non-cash stock compensation expense, were $1.9 million and $1.6 million, compared to $0.8 million for both in the previous year. For the full year 2022, adjusted operating loss of $8.3 million and adjusted net loss of $7.8 million compared to an adjusted operating loss of $3.6 million and an adjusted net loss of $1.4 million in the prior year. Net loss in the prior year included a favorable $2.2 million adjustment for the forgiveness of the Paycheck Protection Loan. Negative free cash flow for the full year 2022 was $10.8 million compared to $4.3 million for the full year 2021 and reflects a $2.4 million one-time facility investment and approximately $3 million increase in inventory. At December 31st, we had cash and investments of $29.7 million and no debt. I will now hand the call back to David.