ClearPoint Neuro Inc.

Greetings, and welcome to ClearPoint Neuro's second quarter and six-month 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. Comments made on this call may include statements. These forward-looking statements may include, without limitation, statements related to anticipated industry trends, the company's plans, prospects, and strategies, both preliminary and projected, and management's expectations, beliefs, estimates, or projections regarding future results of operations. Actual results or trends could differ materially. The company undertakes no obligation to revise forward-looking statements for new information or future events. For more information, please refer to the company's annual report on Form 10-K for the year ended December 31, 2019, and the company's quarterly report on Form 10-Q for the quarter ended March 31, 2020, both of which have been filed with the Securities and Exchange Commission, and the company's quarterly report on Form 10-Q for the quarter ended June 30, 2020, which the company intends to file with the Securities and Exchange Commission on or before August 14, 2020. All the company's filings may be obtained from the SEC or the company's website at www.clearpointneuro.com. I would now like to turn the call over to Joe Burnett, Chief Executive Officer. Please go ahead, sir.

Thank you, Brock, and thank you to everyone listening on today's call. The second quarter of 2020 brought about new personal and professional challenges to the entire world, and we here at ClearPoint Neuro were no exception. Our priorities during the second quarter for the company and for our team and culture were threefold. Number one, to make sure that every patient that needed treatment felt supported by the availability of ClearPoint products and our team members. We wanted to ensure that surgeries performed during COVID restrictions gave the patients the best possible chance of success. 2. While cases decreased in the quarter, we wanted to ensure our development projects and investments in our talented team continue to move forward so that our strategy is intact and so that we exit the crisis in a stronger position than when the pandemic started. 3. To protect our employees from layoffs or furloughs so that they can be a pillar of strength for friends and family who have all been impacted by the health or financial impact of the crisis. I can tell you now today that we accomplished all three of these goals In parallel to achieving these three cultural goals, we believe our financial performance indicates that we made the most of the situation, and we were encouraged by the speed in which elective case procedures bounced back in June to about 85% of the pre-COVID run rate. This combined with our diversification into biologics and drug delivery enabled us to still have a successful quarter from a financial standpoint and deliver $2.5 million in top-line revenues. I will have Hal Hurwitz, our CFO, take you through some of the detail, and then I will provide an update on our four-pillar growth strategy and expectations moving forward. Hal?

Thanks, Joe. Total revenues were $2.5 million for the three months ended June 30, 2020, and $2.6 million for the three months ended June 30, 2019, which represents a decrease of $129,000, or 5%. Drilling down on these revenue numbers, one can see the effects of the COVID-19 pandemic that Joe described in his opening remarks. Functional neurosurgery revenue, which consists of disposable product commercial sales related to cases using our ClearPoint system, decreased 38% to $1 million for the three months ended June 30, 2020, from $1.7 million for the same period in 2019. This decrease was due to the effects of the COVID-19 pandemic in which substantially all elective surgical procedures, historically representing approximately 80% of our ClearPoint system case volume, were postponed or canceled in April 2020 and resumed modestly compared to pre-pandemic levels in May and June 2020. Biologics and drug delivery revenues, which include sales of disposable products and services related to customer-sponsored clinical trials, utilizing the ClearPoint system increased 183% to $1.2 million for the three months ended June 30, 2020 from $413,000 for the same period in 2019. This increase was due primarily to an increase in biologic and drug delivery service revenues attributable to the establishment of relationships with biologic and drug delivery companies that included period-based retainers for clinical services in support of such companies' respective clinical trials. Also contributing to the increase in biologics and drug delivery revenues was an increase in related product revenues. Capital equipment revenue consisting of sales of ClearPoint reusable hardware and software and services related thereto decreased 51% to $240,000 for the three months ended June 30, 2020 from $485,000 for the same period in 2019. While revenues from this product line historically have varied from quarter to quarter, we believe that many hospitals have postponed capital equipment evaluations and acquisition activities during the pandemic, resulting in this decrease. Gross margin for the three months ended June 30, 2020 was 74% as compared to 60% for the same period in 2019. This increase in gross margin was due primarily to a shift in the mix of revenues by line of business that resulted in service revenues, which bear higher gross margins in comparison to other product lines, representing a greater contribution to total sales. Turning to operating expenses, total operating expenses for the three months ended June 30, 2020 were $3.3 million, a 15% increase from operating expenses of $2.9 million for the same period in 2019. Breaking down the components of operating expenses, research and development costs were $822,000 for the three months ended June 30, 2020, compared to $698,000 for the same period in 2019, an increase of 18%. The increase was due primarily to increases in headcount and related personnel costs. Sales and marketing expenses were $1.1 million for each of the three months ended June 30, 2020 and 2019. Travel and entertainment expenses decreased during the three months ended June 30, 2020 as compared to the same period in 2019, resulting primarily from reduced activity due to the COVID-19 pandemic. Also decreasing was incentive compensation resulting from the reduced product sales I previously discussed. These decreases were offset by an increase in personnel costs resulting primarily from headcount increases in our clinical and marketing teams. General and administrative expenses were $1.4 million for the three months ended June 30, 2020, compared to $1 million for the same period in 2019, an increase of 33%. This increase was due primarily to increases in share-based compensation, professional fees, and a reduction of the allocation of shared departmental resources to production due to the reduced manufacturing activity as an effect of the COVID-19 pandemic. Net interest expense for the three months ended June 30, 2020 was $197,000 compared with $259,000 for the same period in 2019. This decrease was primarily due to a decrease in the amortization of the discount associated with secured notes that were repaid and retired in the first quarter of 2020 and to the repayment and retirement in June 2019 of other secured notes. This decrease was partially offset by the interest expense associated with the secured notes issued in January 2020. Cash used in operations for the three months ended June 30, 2020 was $1.7 million. and our cash balance at June 30, 2020 was $16 million. I will now turn the call back to Joe.