Stereotaxis, Inc.

Good afternoon and welcome to the Stereo Taxis, Inc. Second Quarter 2024 Earnings Conference Call. Certain statements during the call question and answer period to follow may relate to future events, expectations, and as such constitute 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 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 Fischel, Chairman and CEO of Stereo Taxis.

Thank you, Operator, and good afternoon, everyone. We have made significant progress this quarter on several key aspects of our strategic transformation. I want to spend the majority of today's call reviewing those advances and how we are establishing a solid foundation upon which to build a substantial and successful company. Before getting to that, though, I want to address head-on our commercial results and financial position. I recognize the quarterly numbers were disappointing. Our results for the first half of this year were significantly impacted by reduced capital revenue. These results do not reflect a steady state reality. We are confident in a significantly stronger second half of this year from both the revenue and cash flow perspectives. Let me briefly address the week first half and share the source of our optimism in an improved second half. Despite our significant backlog of Genesis orders, the timing of multiple hospital projects and associated system shipments became elongated, leading to minimal capital revenue in the first and second quarters. Capital sales are inherently lumpy, and the first half was far below a normalized level. Our visibility into system shipments during this third quarter and the remainder of this year gives us high confidence in significantly higher revenue recognition and cash flow. There are currently two Genesis systems in transit to European customers as we speak, with revenue recognition taking place upon delivery of those systems. There's one additional system ready to be shipped within the coming days, and we have signed purchase orders with down payments for two additional systems planned to be shipped before year end. One of those has a contractual requirement dictated by a tender to deliver the system in the fourth quarter. The three Genesis systems currently being shipped will generate $5.5 million in revenue recognition upon delivery. The two additional systems I noted would add an additional $3 million. There remains a backlog of ordered systems beyond these five, which are still waiting on hospitals to be ready for delivery and will likely take longer but could accelerate. We also have an active late-stage sales pipeline in all three of our key geographies, and we expect additional purchase orders for Genesis systems in the coming months. Our cash utilization in the first half of this year was significantly impacted by the weakness we had in capital sales. We can model the substantial cash receipts due with delivery of the systems I just referenced, and based on those, our best assessment is to end this year with approximately $13 million in cash and no debt. While it would be nice to have a more substantial balance sheet, we feel confident in our upcoming milestones and the incremental revenue and profit they will deliver. Our existing balance sheet allows us to reach key milestones, commercialize our new innovations, and profitably grow our business. Shifting now to the progress I mentioned on our strategic innovation efforts. On the past several calls, I reviewed the full spectrum of strategic efforts we're advancing in parallel and how those are establishing a solid foundation upon which to build a substantial and successful company. I'll focus today's call going in more depth on three of the most impactful areas for future commercial success. for which we have made significant progress in the last quarter, Genesis X, MAGIC, and the APT acquisition. Let me start with Genesis X. In a press release this afternoon, we were excited to introduce Genesis X publicly and to share the accomplishment of key regulatory milestones, obtaining CE mark for the system in Europe and submitting a 510 application with FDA. Genesis X is an entirely new robotic platform the third for Stereotaxis after Niobe, which was released in 2003, and Genesis in 2020. It incorporates newly designed magnets that are significantly smaller than before, a particularly innovative robotic base with built-in magnetic shielding, and more streamlined, distributed, and sophisticated electronics throughout the system. Genesis X builds upon the well-established proprietary technology Stereotaxis has pioneered and mastered robotic magnetic navigation. It's designed with the same uncompromising eye towards clinical performance, robust real-world reliability, and intuitive ease of use. It retains the speed and immediate responsiveness of Genesis, which has been well-received by our physician users. What is special about Genesis X is that we have made robotic magnetic navigation available in a form factor that supports broad accessibility and commercial scalability. I've mentioned in the past the challenges of translating physician interest in robotics into adoption and commercial growth. We operate in a huge and highly attractive market in which we hold less than 1% market share despite our established clinical benefits and unique differentiation. We have had hundreds of physicians express genuine interest in our technology since launching Genesis. Over 95% never end up getting a robot. The single largest impediment is the reliance on hospital construction and the long extended timeline that creates along with the complexity of translating physician clinical interest into full organizational movement at the hospital. Our Niobe and Genesis systems require architectural planning and construction to accommodate their installation. Preparing an operating room to accommodate a system entails significant structural modification. including the installation of thousands of pounds of magnetic shielding in the walls, reinforcement of the floor, high-power electrical work, and extensive cabling through conduits between the operating room, control room, and cabin room. This adds cost for the hospital, but more importantly, turns a purchase into a long, complex process. The complexity of coordinating site planners, architects, and contractors leads many potential deals to stall or fizzle away. In the fortunate cases where a robotic sale comes to fruition, we and the interested customers work through a multi-year sales cycle before translating interest into actual use. Genesis X allows us to transition from a construction model to a placement model. The system's smaller magnets are stored in magnetic shielding built into the robotic base itself, negating the need for the shielding otherwise installed in the walls of operating rooms. Genesis X requires no structural anchoring through the floor and operates using standard 120 or 230-volt power outlets, the same it would use for your laptop or iPhone. A single thin fiber is routed from each robot to the system cabinet with 96% and 99% reduced volume compared to the cable bundles routed to the cabinets of Genesis or Niobe. The cabinet of GenesisX is itself 80% smaller than the cabinet of Genesis and can fit under a table in the operating or control room rather than in a separate dedicated cabinet room. We expect to be able to install a GenesisX system over the weekend and for it to be a viable solution for the majority of labs. Accessibility for customers is of primary importance. Also important is ensuring scalability of manufacturing and operations. We designed Genesis X to support improved supply chain, manufacturing, and installation operations. The two sides of the Genesis X robot are identical to each other, rather than mirrors of each other like in Genesis or Niobe. This substantially reduces the number of unique components in Genesis X, improving supply chain management and simplifying assembly and testing. We're reducing the shipping requirements from 12 big crates per Genesis system to six crates with Genesis X. The system will be shipped nearly fully assembled with the magnets already installed, allowing for rapid installation with less time spent on site. Simplifying site planning, shipping, and installation allows us to scale our business without the strains and investment of scaling those organizational capabilities. Transitioning from a construction model to a placement model may sound minor, but it is a world of difference. Being freed from complex planning or construction enables a more streamlined and rapid translation of clinical interest into clinical use. It allows us to confidently offer alternative financial models for adoption. While Genesis X will demand a premium over Genesis, it will be available for purchase, operating lease, or for placement with disposable commitments. As we look at the EP field and then the broader universe of endovascular surgery, there's easily room for thousands of robotic magnetic navigation systems. Genesis X comes in an architecture that allows us to envision realistically scaling a business that can positively transform our large market. Obtaining CE mark and filing our 510 case submission are major milestones. We look forward to supporting the FDA review of Genesis X and it is reasonable to expect regulatory clearance by year end. There is some additional work to be done prior to full commercial launch. First and foremost, and I'll discuss this in more detail in a moment, we are advancing towards regulatory approval of the compatible MAGIC ablation catheter, which is necessary to use Genesis X. In parallel to the regulatory efforts, we will use the coming months to enhance compatibility of Genesis X with various x-rays, prepare our supply chain, manufacturing, installation, and commercial processes, and demonstrate real-world use of the system. We expect a full launch of the system and initial significant adoption of Genesis X in 2025. This segues into the second critical puzzle piece in our new foundational product ecosystem, our proprietary, robotically-navigated ablation catheter, Magic. As we have discussed in the past, we've been hampered clinically, commercially, and strategically by our dependence on the JMJ catheter used in every robotic procedure. That ablation catheter is a 20-year-old design with significant room for improvement in clinical performance. MAGIC incorporates many design enhancements that we believe will improve the experience of our physician users and the outcomes of their patients, including increased stability, more intuitive navigation, better information from the ablation tip, and reduced fluid load. Commercially, Theria Texas receives no revenue or economic value from J&J sales of the current catheter, robbing us of the vast majority of disposable revenue in every robotic procedure. While we have a razor, razor blade business model, we've been giving up 80% of the razor blade. Magic will fairly rapidly allow us to multiply our disposable revenue and gross profit from every robotic procedure. That improved revenue model allows us to profitably scale a commercial organization in a much more robust fashion. Lastly, strategically, our dependence on J&J's catheter has limited our ability to collaborate and develop a healthy ecosystem around our robots. You've already seen some of the collaborations that have come from the realization that Magic is approaching commercialization and additional opportunities are becoming increasingly possible. The development, clinical, and regulatory process for an ablation catheter is an arduous path. We have invested many years of effort and millions of dollars getting our proprietary MAGIC catheter to the cusp of commercialization. Earlier this year, we announced submission of a CE application to the EU-notified body and submission of a PMA application to the FDA for MAGIC. we have made meaningful progress on both submissions. The European regulatory review consists of three distinct sections, a clinical, technical, and microbiology assessment. Since our last call, we successfully completed both the clinical and technical reviews by the EU-notified body with receipt of written confirmation of having met all requirements in those two sections. We are still waiting to receive the microbiology questions that have been advised that they should arrive momentarily and hope to similarly successfully complete that section in the coming weeks. With receipt of CE mark, we will initiate a full launch of MAGIC in Europe, benefiting from the clinical experience and awareness generated by the ongoing MAGIC clinical study. In the US, it's not as simple to describe the regulatory review process but there has also been significant progress in recent weeks. We've had continuous dialogue with FDA since the PMA submission and are very appreciative of the collaborative and thoughtful discussions and guidance. The PMA submission is being refined with that guidance, and the ongoing dialogue supports our expectation of achieving an initial regulatory approval leveraging the existing data being generated in the European MAGIC study with a clear plan for subsequent post-approval studies in the U.S. We appreciate the responsiveness and collaborative nature of these discussions and believe they are reflective of a shared appreciation for the importance of ensuring MAGICS becomes available for patients and physicians who depend on it. The final topic that I want to cover on this call and which will have significant importance to our trajectory is acquisition of access point technologies. We announced the agreement to acquire APT on our call in May and closed the acquisition just over a week ago at the end of July. This was Stereotaxis' first acquisition ever, reflective of our selectivity and focus. The acquisition was opportunistic and pursued in a financially prudent fashion But what is most important for significant value creation is the strong synergistic and strategic rationale for the acquisition. We were fortunate to announce the acquisition immediately before the largest conference in our field, HRS. APT's products were included in the Stereo Texas booth, and both teams worked together at the conference. We had entered into this agreement cognizant of the natural sales synergy. APT had minimal U.S. revenue from differentiated high-quality diagnostic EP catheters, a consequence of having no dedicated sales team. Cariotaxis has over 20 people in the field across the U.S. who are particularly skilled and focused on enabling and improving the treatment of the most complex arrhythmias. APT's products and Stereo Texas' commercial team aligned beautifully from a messaging perspective and from both a physician and procedure focus. These sales synergies were at full display at HRS. The Stereo Texas commercial team picked up on the products quickly and were enthusiastic about the new opportunity. Physician customers of Stereo Texas were very pleased and supportive of the acquisition strategy, and while the vast majority had never before been exposed to APT's products, They viewed the catheters as attractive and relevant. Following HRS, we did a more formal training of our entire team, began the process of establishing commercial plans, and started engagement in the field. We already have over a dozen physicians and hospitals newly exposed to APT that have tried the catheters or begun value analysis committee submissions at their hospitals to be able to purchase the catheters. APT's US catheter revenue in July was approximately 50% higher than the average monthly revenue in the first half of this year, or 2023. Working through VAC submissions and building commercial momentum is more like a snowball than flipping a light switch. But we are already seeing an initial impact and believe we can grow these products substantially in the coming months. The sales synergy also works both ways. APT's catheters contribute incremental revenue in the practices our team already calls upon, And in reverse, these catheters serve as a door opener at centers focused on complex arrhythmias to pave a path for the adoption of robotics. Our primary motivation for acquiring APT was not the opportunistic nature of the situation nor the sales synergy, but rather the strategic value of having in-house catheter development and manufacturing expertise. APT's team, expertise, and capabilities will significantly amplify and accelerate Stereotextis' next wave of innovation efforts as we look to develop a broader family of interventional devices that are navigated by our robots within electrophysiology and across a range of endovascular procedures. There are three specific areas of focus I want to touch upon. First, a broader family of robotically steered catheters to complement MAGIC in EP. Second, in emerging and tangible multi-like PFH strategy. And third, our expansion into new clinical applications. On the first topic, the emergence of high density mapping has been a significant change to the EP field over the past decade. Stereotaxis has never developed a robotically steered high density mapping catheter and so in a majority of our procedures, the physician navigates a manual mapping catheter by hand, separate from the robotically steered ablation catheter. The workflow is viable, but not ideal, and there has been strong physician interest, value from a procedure workflow perspective, and clinical merit for a robotically steered, dedicated mapping catheter. We had already begun developing such a catheter prior to the acquisition and are now accelerating that process with the catheter design complete and production of hundreds of units taking place for formal regulatory testing. We expect the catheter to receive regulatory approval within a year and to be highly synergistic with MAGIC. From a commercial perspective, if the introduction of MAGIC increases our expected revenue per procedure three to fourfold, the addition of a mapping catheter leads to a five to sixfold increase in revenue per procedure. Those numbers sound absurd given our current vantage point, but reflect the normal revenue model and pricing of any other participant in the EP field. They shine light onto the missed opportunity embedded into our current product ecosystem and the structural transformation at play. Onto the second topic, PFA. Pulse field ablation, or electroporation, is a new energy source available for cardiac ablation procedures as an alternative to radiofrequency or cryo. The first PFA catheters just entered the field and are already on track for over a couple billion dollars in annual revenue, partially through conversion of procedures from other energy sources, but principally through market expansion. Karyotaxis has been largely protected from the effects of PFA in our existing procedures, but we recognize the impact it is having in the field and the importance of offering choice and a broader ecosystem of catheter options with our robots. I can't yet fully share our activities in PFA, but I can shed some color on our efforts. We have three distinct, more advanced PFA opportunities being advanced in tandem. One leverages the Magic catheter, and the other two use unique PFA catheters. Two are done in collaboration with partners, and one is a fully-owned technology we acquired with APT that is being advanced in collaboration with the Mayo Clinic. We've had an accelerating pace of preclinical PFA studies in recent months and have line of sight towards first-in-human studies for at least two of these opportunities within the next 6 to 12 months. One is likely to even become commercially available in Europe in 2025. Our collaboration with the Mayo Clinic is exciting, and I had the opportunity to visit them last month. The PFA catheter they designed with APT is particularly differentiated, addressing some of the clinical challenges with efficacy, durability, and patient safety that are starting to emerge with commercial single-shot PFA catheters. After significant effort, we are starting to see green shoots emerge with multiple shots on goal, for clinically meaningful, technologically differentiated, and commercially impactful PFA catheters. The last topic, the expansion of our robotic technology into a broader set of applications, is something we've discussed previously. We are in the late stages of developing robotically-steered guide wires and guide catheters that expand the value of our robot into several large fields such as neurointervention, interventional cardiology, and interventional radiology. These are advancing on track for regulatory submissions within the next six months, and the guide catheter is being developed with APT. Having skilled in-house catheter design and manufacturing expertise will be particularly beneficial as we explore innovative ideas shared by physicians for ways our technology can add value in these new indications. It accelerates dramatically the time to an initial prototype, and the ability to iterate with feedback. While the first guide wire and guide catheter will allow for a strong initial offering as we begin to address the broad endovascular surgery field, the in-house capabilities of APT are of great strategic value to accelerating and improving our expansion. We are pleased with the significant progress we are making in establishing a healthy foundation for stereotaxis upon which to build a substantial, high-growth, profitable business. This was a busy quarter for us, particularly in these three key areas, but also in our other efforts, including regulatory efforts in China and the Synchrony and Sync Telesurgery platform. We see the puzzle pieces falling into place. In each of our three key geographies, the U.S., Europe, and China, we have opportunity for a full ecosystem coming together and driving breakout growth. The opportunity in any individual geography can dwarf our current entire business. I'll hand the call over to Kim now to discuss our financial results. Kim?

Thank you, David, and good afternoon, everyone. Revenue for the second quarter of 2024 totaled $4.5 million, compared to $7.9 million in the prior year's second quarter. System revenue for the second quarter was $0.2 million, and recurring revenue was $4.3 million. compared to $3.3 million and $4.6 million in the prior year second quarter. The majority of the revenue decline in the current quarter is driven by timing of system deliveries delayed by elongated customer construction projects. System revenue in the current quarter reflects minimal revenue recognized on system installation compared to more substantial system revenue recognized in the prior year quarter from system delivery. System revenue is inherently uneven from period to period, and the performance in the quarter is not reflective of our expectation for the balance of the year. We maintain system backlog of $15.3 million as of the end of the second quarter. Gross margin for the second quarter of 2024 was 74% of revenue. Recurring revenue gross margin was 76%, and system gross margin was 22%. Operating expenses in the quarter of $9.3 million included $2.5 million in non-cash stock compensation expense. Excluding non-cash stock compensation expense, adjusted operating expenses were $6.8 million, comparable to prior year adjusted operating expenses of $6.9 million. Operating expenses in the quarter were impacted by higher acquisition-related legal costs and regulatory-related activities counteracted by the reversal of a historical approved liability. Operating loss and net loss for the second quarter of 2024 were $6 million and $5.8 million compared to $5.3 million and $5 million in the previous year. Adjusted operating loss and adjusted net loss for the quarter, excluding non-cash stock compensation expense, were $3.5 million and $3.3 million compared to $2.7 million and $2.4 million in the previous year. Negative free cash flow for the second quarter was $3.1 million. Our financial statements for the second quarter do not reflect any consolidation or impact from the APT acquisition beyond legal expenses incurred during the acquisition process. We are consolidating APT's results starting August 1st. Our third quarter financial results will therefore include two months of APT results. At June 30th, we had cash and cash equivalents of $15.2 million and no debt. I will now hand the call back to David.