Greetings, and welcome to the ClearPoint Neuro, Inc. Second Quarter 2024 Financial Results Conference Call. As a reminder, 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, the size of the total addressable market or the market opportunity for the company's products and services and management's expectations, beliefs, estimates or projections regarding future revenue, results of operations or the adequacy of cash and cash equivalent balances to support operations and meet future obligations. 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, 2023, and the company's quarterly report on Form 10-Q for the three months ended March 31, 2024, both of which have been filed with the Securities and Exchange Commission and the company's quarterly report on Form 10-Q for the three months ended June 30, 2024, which the company intends to file with the Securities and Exchange Commission on or before August 14, 2024. All the company's filings may be obtained from the SEC or the company's website at www.clearpointneuro.com. And it is now my pleasure to introduce your host, Joe Burnett, Chief Executive Officer.

Thank you, Morgan, and thank you to all of the investors and analysts on today's call for being a part of the ClearPoint Neuro vision and journey. Our mission and our priority is to help restore quality of life to patients and their families who are suffering from some of the most debilitating neurological disorders imaginable. In the second quarter of 2024, the entire ClearPoint Neuro team contributed to a record revenue quarter of $7.9 million and in our view, the strongest financial and strategic performance in our history. We made significant progress across all four of our growth pillars including: number one, biologics and drug delivery; number two, neurosurgery navigation; number three, therapy and access products; and number four, achieving global scale. Before we get started, I would like to frame the call by reminding everyone a bit about our history and why these four individual growth pillars are important. When we started our journey here at ClearPoint, we were reliant on just one of these four pillars, which was neurosurgery navigation. We were an MRI navigation company focused on guiding placement of deep brain stimulation lead, and that was about it. As leaders, we're always looking for that best analogy to help tell our story. Instead of pillars, maybe we should think about a growth engine. And back four years ago, we were essentially a one-cylinder engine. If that cylinder or piston was firing, then we were on the move. If anything happened to that one cylinder, we were stopped in our tracks as we saw at times in our history with COVID case cancellations and limited MRI access. As a team, we set out to improve the performance of this engine. We invested first in catheter and cannulas technology to focus on products for clinical trials sold directly to pharmaceutical partners. We added preclinical services to incorporate our technology into the drug discovery process and to build relationships with pharmaceutical companies well in advance of those first patients being treated. We added laser therapy to control larger portions of the procedure and offer not only the surgical navigation, but also the therapy itself. We realized that MRI access can be a barrier at some hospitals. So we added technology to enable our platform to work not only in the MRI, but also in the operating room using CT as the primary imaging tool. We partnered with technology companies to build out unique software and artificial intelligence modeling capabilities to aid in precisely delivering therapeutics and also grow our installed base. We invested in regulatory submissions to expand access to our technology beyond the United States by growing into the European Union, Asia Pacific and other countries to further support the growing cell and gene therapy market. We now feel that we have successfully added additional cylinders to our company's growth engine as our year-to-date 2024 results show. The expansion and increased depth of our products and services portfolio will not only help us accelerate our growth, but also allow us to diversify our revenue stream and reach more patients. We are no longer that one cylinder engine, but rather a multicylinder engine that is ready for the next stage of our journey. What we have seen here in the second quarter has been the start of that next phase of ClearPoint where we are now seeing the contribution of all of these cylinders starting to ramp up and to propel us forward. I will now turn the call over to Danilo, our CFO, to review our financial performance in the quarter, after which, I will add some additional detail to our four pillar growth strategy and expectations for the second half of 2024.

Thank you, Joe, and good afternoon, everyone. Looking at the second quarter 2024 results, total revenue was $7.9 million for the three months ended June 30, 2024, and $6 million for the three months ended June 30, 2023, which represents 32% growth versus the second quarter of 2023. As a reminder, our revenue is made up of three components: biologics and drug delivery; neurosurgery navigation and therapy; and capital equipment and software. Biologics and drug delivery revenue include sales of disposable products and services related to customer-sponsored preclinical and clinical trials utilizing our products. Biologics and drug delivery revenue increased 28% to $4.3 million in the second quarter, up from $3.4 million in 2023. This increase was fueled by $1.3 million or 383% increase in biologics and drug delivery product revenue as multiple pharmaceutical customers progressed in their preclinical and clinical development. The biologics and drug delivery growth was partially offset by a $0.4 million decrease in service revenue. Neurosurgery navigation revenue consists of commercial sales of disposable products related to cases utilizing the ClearPoint system, the PRISM laser system or SmartFrame OR. This revenue segment increased 17% to $2.6 million for the second quarter of 2024. The revenue growth is primarily attributable to our new product offerings and our recent placements. Capital equipment and software revenue consisting of sales of ClearPoint reusable hardware and software and of related services increased 148% to $0.9 million in the quarter from $0.4 million for the same period in 2023 due to an increase in the placement of ClearPoint Navigation capital and software and PRISM laser units. Gross margin for the second quarter of 2024 was 63% as compared to a gross margin of 53% for the second quarter of 2023. The increase in gross margin was primarily due to lower cost for the three months ended June 30, 2024, due to the transition to the new manufacturing facility occurring in 2023 and higher volumes in 2024. In the second quarter of 2024, our operating expenses were $9.7 million compared to $10.3 million for the second quarter of 2023 as we continue to gain operating leverage. Research and development costs were $3.1 million for the three months ended June 30, 2024, compared to $3.6 million for the same period in 2023, a decrease of $0.5 million or 13%. The decrease was due primarily to lower product and software development costs of $1 million as a result of reprioritization of certain research and development initiatives, partially offset by increased personnel costs of $0.3 million and trial cost of $0.2 million. Sales and marketing expenses were $3.8 million for the second quarter compared to $3.5 million for the same period in 2023, an increase of $0.4 million or 10%. This increase was due to additional personnel costs and travel expenses as we expand our commercial reach as we execute on our new product launches and prepare for increased procedural volume. General and administrative expenses were $2.8 million for the second quarter compared to $3.2 million for the same period in 2023, a decrease of $0.4 million or 13%. This decrease was due primarily to lower bad debt expense of $0.7 million, mainly as a result of subsequent recoveries, partially offset by higher personnel costs and share-based compensation of $0.2 million. As of June 30, 2024, our year-to-date operating expenses were about 4% lower than our operating expenses in the same period of the prior year despite growing our revenue 36% in the first half of 2024. With respect to our cash position, as of June 30, 2024, we held cash and cash equivalents of $32.8 million compared to $23.1 million as of December 31, 2023. In line with the prior quarters, we continue to meaningfully reduce our operational cash burn. Our operational cash burn in the second quarter of 2024 was $2.7 million or 47% lower than our operational cash burn in Q2 2023. In the past trailing 12 months, our operational cash burn was $9.5 million. This represents a 46% reduction compared to the corresponding prior 12-month period, that is, from July 2022 to June 2023.

Thanks, Danilo. As mentioned previously, 2024 is off to a great start with a 36% increase in revenue, a 39% reduction in operational cash burn, multiple new product launches, additional long-term pharma partnerships, global expansion of our portfolio and a strong cash position and balance sheet. As always, let's now break down that progress into our four growth pillars. Starting with pillar number one, biologics and drug delivery. We had a terrific quarter on numerous fronts. Let's talk about four recent key milestones in our gene and cell therapy business. First, as Danilo mentioned, we saw a significant increase in product sales to pharma partners, representing $1.3 million of growth for the quarter. This is very important as it shows the progression of our partners who are advancing along the regulatory pathway and moving beyond the benchtop where product sales are limited and into large multi-subject GLP preclinical trials and first-in-human clinical trial. Second, we have now seen multiple partners selected for various accelerated FDA pathways designed to speed the clinical trial execution and eventual regulatory approval of these new-to-world cell and gene therapies, often referred to as regenerative therapies. We now have seven partnered programs that have been designated as Fast Track, Priority Review or RMAT, which highlights the importance that the FDA has placed on the entire cell and gene therapy market and the recognition of the life-altering impact these drugs may have to patients. While there is never a guarantee of timeline or approval, it is very reassuring and exciting that the FDA has created these accelerated pathways and that many of our partners have demonstrated significant enough progress and clinical results to be eligible for these programs. In total, if we add together all of the indications that are now included in these expedited programs, the total patient prevalence is measured in the millions of patients globally. Third, we continue to make progress expanding our preclinical services and capacity with the next strategic goal to be GLP ready this year and to commence with our initial GLP studies in 2025. Our team continues to feel confident in the demand for our products and services as well as our team's unique expertise. We believe in our ability to execute larger studies under GLP compliant procedures and in GLP facilities. This further evolution of our drug delivery business will continue to expand not just the value that we provide, but also help us build even stronger long-term relationships with the pharmaceutical industry. And fourth, speaking of those relationships with pharma, we are excited to share that we have now executed strategic agreements across all of our desired frameworks, proving that we do, in fact, provide unique capabilities that are valued by the cell and gene therapy community. These frameworks also demonstrate our creativity and flexibility on how we can partner based on the needs of each individual pharma partner. We obviously cannot provide detailed pricing or confidential strategic information, but what I can share is that we now have successful signed agreements, representing four different parameters and sometimes a combination of those. For example, number one, co-development where a partner pays a development fee and development milestones to ClearPoint for custom development of a delivery device or software that will be used in their preclinical and clinical trials. Number two, commercial pricing, where a partner intends to provide their drug in a kit with the ClearPoint Neuro technology to simplify the commercial delivery of the product and purchase the devices directly from ClearPoint instead of ClearPoint having to sell the product to hospitals. The commercial pricing is at a premium when compared to the bench and preclinical trial patients. Number three, clinical milestones, whereby ClearPoint Neuro gets a cash payment upon progression of a drug through the regulatory pathway. For example, approval of an IDE or IND study protocol being granted by the FDA or the first patient enrolled in a clinical trial. Importantly, these milestones can happen during the drug discovery and regulatory process and do not have to take place at the very end with commercial approval. And finally, number four, a royalty payment to ClearPoint Neuro based on the drug itself and the commercial sales of that cell or gene therapy, which is delivered using the ClearPoint delivery devices. As a reminder, while not assured, we believe it is likely that these new-to-world drugs will be approved as combination devices with the ClearPoint Neuro cannulas and catheters as was seen in the European Union for the very first neurogene therapy already approved. Our company, therefore, becomes an essential supplier to our pharma partners. As a result, our partners are looking for very long-term agreements, assurances of supply, access to ClearPoint Neuro's unique intellectual property, redundancy of manufacturing and more. It is this long-term need and partnership that puts us in a position to earn more than just an arm's length transaction for our products. Moving on to pillar number two, which is neurosurgery navigation, we saw accelerated customer site activations and product sales in the quarter, fueled by both placements of our traditional MRI-guided navigation system as well as the full market release of our SmartFrame OR system designed for use with CT scans. Sorry, I think we're having a couple of technical issues. Can you hear me now?

Your audio is back, sir.

All right, everybody, sorry about the technical issues here. I'm going to go ahead and pick up the script where I left off. So as a reminder, in Q1 of this year, we activated eight new customers, which was by far a new record. In fact, in prior years, opening eight new sites would take a full 12 months, and we accomplished that in the first quarter alone. In Q2, we followed on that success with an additional six customer activations, bringing our total to 14 so far this year. These accelerated placements have helped fuel not only our disposable product sales, which we will talk about in a second, but also capital rental and service sales, which more than doubled versus a year ago. We believe that we have a strong funnel of additional qualified global targets, giving us plenty of shots on goal to achieve 100 global sites by the end of 2025, if not sooner. The SmartFrame OR platform continues to gain traction with additional cases and experience. The early feedback we got from our limited market release gave us enough confidence to move quickly into full market release in concert with the ASSFN meeting in Nashville in June. We currently have the SmartFrame OR going through multiple VAC or VAC committee reviews around the country and expect additional growth here in the second half. I invite you to join our webinar led by Dr. Conner at the University of Oklahoma later this quarter, where he will share his early experiences with the SmartFrame OR product and how it has changed his practice at the university. Next, let's move on to pillar number three, which is therapy and access products. In the quarter, we obtained FDA clearance for the PRISM anchor bolt accessory, which has opened the door for use of our PRISM laser system with some existing robotics systems at sites that simply prefer to use the robotics navigation in place of our ClearPoint navigation. We have performed first cases using the standardized workflow, which enabled us to move into full market release for the PRISM system. While we do not expect some of these bolt customers to eventually move to a full ClearPoint navigated workflow for laser, it's an important first step to offer a solution that fits into their existing workflow so that we are not asking for too much change to their procedure flow on day one. Similar to the SmartFrame OR, we have a number of evaluations and VAC committee approvals underway. And we expect to see accelerated growth of these disposable laser fibers here in the second half. We do remain somewhat limited to about half of the laser market today as our system is currently only approved for three Tesla scanners. However, there are plenty of target hospitals to keep us busy while we develop the regulatory pathway for the other half of the market, responsible today by 1.5 Tesla scanners, which that approval we anticipate in 2025. We have also made significant progress on our MRI conditional power drill, which we believe will be a powerful complement to our therapy and access product portfolio. This tool in partnership with Adeor Medical is designed to provide significantly faster access for surgeons than our current hand drill and has the potential to meaningfully reduce procedure time. Our current plan is to submit this product before the end of the year with a commercial introduction sometime in 2025. Now when we report numbers for neurosurgery navigation and therapy, we bucket them together into medical device disposables. As Danilo mentioned, this segment grew 17% in the quarter. It is important to note that this growth was despite $400,000 in services from our brain-computer interface partners, which was not repeated here in 2024. Without the brain-computer interface service revenue from 2023 and only comparing product sales, the neurosurgery navigation and therapy segment actually grew 42% year-over-year and even grew 34% compared to last quarter alone. Overall, our product sales more than doubled versus a year ago, which has a positive impact on gross margin due to the increased throughput at our factory. Speaking of which, let's talk about pillar number four, which is achieving global scale. This was another disciplined quarter from a spending standpoint that saw a 32% revenue growth while keeping operating expenses generally flat. Our gross margin also expanded to 63%, which resulted in an operating cash burn reduction of 47% in the quarter, demonstrating our continued progress towards cash flow breakeven. We continue to believe that a cash flow breakeven quarter by the end of 2025 is possible and feel like we are in a strong cash position today with over $32 million in cash and cash equivalents. Based on the strong first half performance of the team, we feel comfortable increasing our revenue guidance for the year to a new range of between $30 million and $33 million in total revenue, representing growth of between 25% and 38% for the year.

At this time, we will now open up the call to any questions.

Great. Thanks for taking the questions and congrats on really the great progress across the entire board. Congrats on the increased guidance. Maybe I wanted to start there. Just curious what's contemplated versus the low end of the guidance versus the high end of the guidance, obviously, impressive growth profile regardless of where that comes into, but just was curious what you're thinking about needs to occur for the top end versus low end?

Yes, I'm happy to respond, and thank you for the question, Frank. By increasing our forecast from $30 million to $33 million, we believe we've accounted for enough uncertainty that can arise from quarter to quarter. For instance, as we've previously mentioned, we include several preclinical services for our pharmaceutical partners in our forecast, with any one of those services or trial support mechanisms potentially exceeding $1 million, possibly even reaching $1.5 million today. Depending on our partner's timing, if this were to occur in December or extend into January of next year, it could result in a $1 million to $1.5 million fluctuation. That essentially explains the difference. We believe our forecast remains robust, particularly towards the midpoint of the adjusted guidance. The upper and lower ranges primarily reflect the timing from the pharmaceutical side, if anything.

Got it. That's helpful. And then maybe for my second one, just wanted to ask about the new sites activated. Obviously, Q1 strong at 8%, Q2 strong again at 6%. Maybe talk about that onboarding process, how that has gone with this many new sites being activated in a short period of time, how quickly they can scale up, start ordering product? And then maybe as a last part to that question, any color related to how many of those sites adopted for both classic ClearPoint as well as the laser system?

Yes, certainly. The majority of the placements we've seen this year among those 14 sites have primarily involved traditional MRI navigation systems. Some of this was due to pent-up demand, while others were prompted by interest in our laser platform, leading them to adopt our navigation system as well. Additionally, there are hospitals preparing to engage in upcoming clinical trials in the gene and cell therapy field; they are installing the system and training their staff to become familiar with the technology. Typically, a hospital does not want their first clinical trial patients to be their initial ClearPoint patients. More often, hospitals interested in cell and gene therapy view our ClearPoint system as essential for participation and begin their practice with simpler procedures, such as biopsies, laser interventions, and DBS, to gain experience before enrolling the high-stake cell and gene therapy trial patients. This has been the primary source of demand. However, it’s important to note that we have yet to see significant impacts from SmartFrame OR. As I mentioned earlier, we are actively presenting our system and its economic justification to value committees at various hospitals. Sometimes, even obtaining approval for a disposable system can take considerable time, as hospitals are currently required to justify every expenditure. We are in that process now, but I can say that we haven’t encountered a situation where a VAC committee has rejected us. The delays tend to stem from the infrequency of these meetings, which may occur as seldom as once a month or every two months. Once we receive approval from a VAC committee, whether for an MRI-guided system or the operating room system, we have ample supply available, and we've hired additional clinical specialists who are currently in training to meet this demand. Our inventory levels remain somewhat elevated because we have capital products ready to be installed, allowing us to respond quickly once we get the go-ahead from the hospital.

Got it. That's helpful. Thanks, and congrats again.

Thanks, Frank.

Thank you for my questions, and I want to echo Frank's comments about a really strong and clean quarter, so congratulations. As you move towards being cash flow positive, the biologics business will be an important contributor. As a project progresses in this sector, you will generate more revenue. Could you elaborate on the economies of scale across these projects? I understand you have a focus on various indications, but I assume you aren't starting from scratch with each new project. I'm interested in hearing more about how this business will significantly drive margin expansion.

Yes, happy to. I'll give you a few examples here and there as well. But the biggest benefit that we get, that's clearly number one is the fact that the same ClearPoint platform and navigation system supports all of these different procedure types that we talked about, whether it's biopsy or deep brain stimulation or laser ablation or drug delivery, you're still talking about navigating with our same system and our same software and the disposable elements, the capital elements, even the software workflow is probably 90% to 95% identical across each one of those different things. So as we talked about with Frank's question, bringing a new site up and running is easy to do because they can practice on simpler procedures like biopsies to prepare them for more complex gene therapy ones. So we get economies of scale on the fact that it's the same capital equipment and the same navigation headframe that goes in, as well as the training and education of the site. So I think that's absolutely an important component. The second one is that as we get into these larger preclinical and clinical trials, a hospital is not buying or a pharma company is not buying five or 10 prototype cannulas at this point, but rather they're purchasing maybe 100, 200 cannulas in navigation system, sometimes all at once, which we can then produce in a batch manner as opposed to doing these small little shipments through sterilization and everything else. So as we get into these larger studies, we absolutely get margin expansion there because we are producing many more products at the same time as part of the same batch. So there's more examples than that, but those are the two that certainly pop front of mind.

Got it. I appreciate that. And maybe sticking with the biologics business. So you talked about adding new preclinical and clinical trial services in your prepared remarks, you talked about GLP-ready studies, which is great, a big new area. Can you provide a little bit more color here and talk about examples of other services that you could add? And are these mostly based on feedback you're receiving from your existing customers or just kind of obvious areas to move into?

Thank you. I believe ClearPoint has been cautious with our spending, avoiding large investments until we are confident in the demand. Unlike the idea that if we build it, they will come, we prefer to wait until our team is prepared. We are very confident that any additional investments we are making now in capacity, services, or quality control for GLP studies are based on a clear understanding of the potential value and revenue we can generate. This is also about fostering a long-term relationship with our pharmaceutical partners throughout the drug discovery and commercialization process. As for specific examples, our offerings aren't significantly different from what we provide today. The key aspect is that having a GLP-compliant facility allows us to conduct much larger studies, which aligns with your earlier question about gross margin. We will be able to batch procedures with many more subjects at once, which should help enhance our gross margin due to the increased efficiency.

Okay. Got it. I appreciate that. Well, congrats again. I'll jump back in queue.

Thanks, Kyle.

Hi. This is Emily on for Matt. Congrats on a great quarter, guys.

Thanks, Emily.

Just a couple from me. In terms of kind of zooming out a bit for the health of biopharma companies, company reported this morning, so think some weakness there. I'm just wondering if you've seen any of that. Obviously, you're still signing contracts, but any projects being paused in your pipeline? Anything along those lines?

No. I mean if you look back to the start of this year, I'd say, it's been the opposite. Barring the craziness of Monday earlier this week, I think funding has actually been pretty healthy coming into this particular space. And the simple fact on our end at this point is if you think about the meetings we're having here at our headquarters in San Diego or meetings we're having up in San Francisco and in Europe and other places as well, we've got a very diversified base of partners, anything from small start-up biotech companies to some of the largest pharmaceutical companies in the world. And obviously, the smaller companies have a little bit more risk there, but these large pharmaceutical companies are very, very cash fluid, let's call it. So we really have not seen any of those issues. Certainly not like we've seen over the last two or three years. This has been the healthiest it's been in quite some time.

Okay. Great. And in terms of the biologics partners, you had a couple of kind of advance in their trials to Phase 1, Phase 2. At that point in a trial, aside from the product purchases, the batch purchases that you talked about, are you involved in other kind of service revenue, like regulatory prep, data collection? I know you've talked a little bit about that in the past. So I'm just wondering kind of how you're involved as they are in that stage?

Yes. Once they get to that stage, we are not acting today as clinical trial monitors, for example. So that's something I think if we wanted to build a team around that, we could probably use our sort of unique neuro focus and expertise to be successful there, but it's not an investment we're making today, and it's not something we've moved forward with yet. But I'd say, it will be a nice adjacent service that we could go into. The primary role that we played during those studies is the product, as you pointed out, as well as the clinical education and support of the site. There's two primary components of these procedures. There's the part that has to do with the drug, which the pharmacy has to transport the drug in, sort out in an appropriate period of time, mix it in certain cases and have it ready for distribution into the patient. And then there's the surgical procedure itself, which includes the drilling, the pumps that puts the drug in, the cannulas that we make, which through which the drug is delivered, the navigation that get us to the target, the software that monitors the infusion and tells the surgeon, yes, everything is great, you can go ahead and close the patient, that's really the part of the ecosystem that we're trying to control. And we're getting more involved in training on pumps and everything required the day of the surgery. So if there's a clinical service that we provide is, again, it's not monitoring of the trial, but making sure everything the day of the surgery, even if it's a little bit beyond what the ClearPoint product does, some companies are hiring us to do additional services around pump infusions and things like that. Hopefully, that's helpful.

Got it. Yes, that's great. And then just one last one. In terms of the contract types that you're now kind of spreading your wings with royalties and such. Is there anything we should think about in terms of revenue cadence for those? I mean, is it going to remove some of the lumpiness with more of the long-term nature of some of those things? How should we be thinking about how the revenue is going to flow with your mix right now?

Yes. It's likely the opposite of reducing the inconsistency. If anything, it may create more variability for a while. The good news is we have seven partners with fast track expedited designations from the FDA. So certain milestones will occur. Additionally, we have other large pharmaceutical companies that are deeply involved in the GLP process and are expected to begin their clinical trials toward the end of 2024 and into 2025. Consequently, you might see a quarter where we receive a substantial cash milestone, which would have a 100% gross margin, then not see one in the following quarter. For those who are averse to fluctuations from quarter to quarter, this might be a little frustrating. However, if you consider a 6-month or 12-month period, the growth trend will undoubtedly be there, along with gross margins. I believe things will start to stabilize as we have multiple partners progressing through clinical trials in the next two to three years. At that point, the volume will be sufficient that one individual milestone won't dramatically impact our overall performance, as these milestones or royalties will help smooth out the fluctuations.

Got it. Great. Thank you.

Sure. Thanks, Emily.

At this time, there are no further questions in queue. I'd like to turn the call back over to Mr. Burnett for any further remarks.

Thanks again, Morgan. And once again, thank you to everyone interested in being a part of our team's journey here at ClearPoint. This is an exciting time as we plan for new product and service launches across all four of our growth pillars as well as additional first-in-human trials to initiate in the exciting cell and gene therapy market. We've worked very hard to get to this point and are very excited for our entire team, but we are even more excited for the patients that we hope to treat with these new devices and therapies in the near future. The patient and their family are why we are here, and they are ultimately who we are working for. Thank you, and good night.

This concludes the ClearPoint Neuro second quarter fiscal 2024 earnings call. Thank you for attending and have a great rest of your day.