ClearPoint Neuro Inc.

Greetings. Welcome to the ClearPoint Neuro full year 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. Please note this conference is being recorded. Comments made on this call may include statements that are forward-looking within the meaning of securities laws. 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 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 September 30, 2020, both of which have been filed with the Securities and Exchange Commission. and the company's annual report on Form 10-K for the year ended December 31, 2020, which the company intends to file with the Securities and Exchange Commission on or before March 31, 2021. 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 conference over to Joe Burnett, Chief Executive Officer. Please go ahead, Mr. Burnett.

Thank you, Brock, and thank you to all of the investors in ClearPoint listening to today's call. I am joined here by our Chief Financial Officer, Danilo D'Alessandro. 2020 taught us all a lot about ourselves, from friends and family to work and life balance to everyday priorities and attitudes. We at ClearPoint learned a lot about who we are and how we respond to challenges beyond our control. We are almost there. During the past year, however, we did not stand by idly, waiting or hoping for cases to return. We kept our team fully intact and redeployed our resources to further our development programs and bring new partners in both the biologics and medical devices parts of our business. Our innovative pipeline of products is more exciting than it has ever been, and we are now in a position to prove our role as innovators with a cadence of annual product releases that solve real problems for both surgeons and for patients. Further, our successful capital raise just a few weeks ago leaves us with more than 65 million in cash on our balance sheet as of today to ensure the funding of these portfolio programs is something that is fully in our control. I will now turn the call over to Danilo for the financial detail from 2020, after which I will provide additional commentary on our continued four-pillar growth strategy. Danilo?

Thank you, Joe, and good afternoon, everyone. Let me start by looking at the full year 2020 results. ClearPoint Neuro total revenues were 12.8 million for the year ended December 31st, 2020, a 14% increase over revenue of 11.2 million in 2019. Our revenue is made up of three components, functional neurosurgery navigation and therapy, biologics and drug delivery, and capital equipment. Functional neurosurgery navigation and therapy revenue which consists primarily of disposable product sales related to cases utilizing the ClearPoint system decreased 12% to $6.3 million in 2020 from $7.1 million in 2019. Revenues here reflect the continuing impact of the COVID-19 pandemic on elective procedures. Biologics and drug delivery revenue which includes sales of services related to customer-sponsored clinical trials utilizing the ClearPoint system and related disposable products increased 109% to $5 million in 2020, up from $2.4 million in 2019. This increase was due primarily to an increase of approximately $2.7 million or 302% in biologics and drug delivery services. Capital equipment revenue consisting of sales of ClearPoint reusable hardware and software and of related services decreased 10% to $1.5 million in 2020, as compared with $1.7 million for 2019. While revenues from this product line historically have varied from quarter to quarter, we believe that many hospitals have postponed capital equipment acquisition activities due to the COVID-19 pandemic as evaluations of new technology have been postponed. We achieved a gross margin of 71% on sales for 2020 compared to a gross margin of 65% for 2019. This increase was due primarily to our revenue mix shifting toward higher margin service revenues in 2020 relative to 2019. Research and development costs were $4.7 million for 2020 compared to $2.8 million in 2019, an increase of 66% resulting primarily from cost increases in additional personnel, collaborative research, intellectual property, including amortization of acquired license rights. Sales and marketing expenses were $5.4 million for 2020 compared to $4.8 million in 2019, an increase of 13%, resulting primarily from an increase in base compensation costs attributable primarily to headcount increases in our clinical and marketing teams that were partially offset by decreases in travel costs and incentive-based compensation. General and administrative expenses were $5.3 million in 2020, compared to $4.3 million for 2019, an increase of 22%, resulting primarily from increases in compensation, consisting primarily of stock-based compensation and transition costs, occupancy costs, and legal fees. I will now turn to the fourth quarter 2020 results. Total revenues were approximately $3.7 million for three months ended December 31, 2020. an increase of 16% over 3.2 million in the fourth quarter of 2019. Functional neurosurgery and therapy revenue decreased 5% to 1.6 million for the fourth quarter of 2020 from 1.7 million for the same period in 2019 due to the previously mentioned effects of the COVID-19 pandemic. Biologics and drug delivery revenue increased 40% to 1.5 million in the fourth quarter of 2020 from 1.1 million in the same period in 2019. This was primarily due to an 81% increase in biologics and drug delivery services. Capital equipment product and related service revenue increased 41% to 0.6 million for the fourth quarter of 2020 as compared with 0.4 million in the same period in 2019 due primarily to an increase in system placements in the fourth quarter of 2020 relative to the same period in 2019. We realized a gross margin of 61% on sales for the fourth quarter of 2020 compared to a gross margin of 69% for the same period in 2019 due primarily to a one-time, year-to-date reclassification of certain costs previously classified during 2020 as operating expenses into costs of revenues. Research and development costs were $1.8 million for the fourth quarter of 2020 compared to $0.8 million for the same period in 2019. An increase of 120%, resulting primarily from cost increases in compensation, collaborative research, intellectual property, including amortization of acquired license rights. Sales and marketing expenses were $1.5 million for the fourth quarter of 2020, compared to $1.5 million for 2019, due primarily to decrease in travel costs and incentive-based compensation, which were offset by increases in compensation costs due to headcount increases in our clinical and marketing teams. General administrative expenses were $1.3 million for the fourth quarter of 2020, flat from fourth quarter 2019 levels.