Earnings Call Transcript - CLPT Q1 2021

Operator, Operator

Greetings. Welcome to the ClearPoint Neuro, Inc.’s First Quarter Financial Results Conference Call. At this time all participants are in a listen-only mode. Operator instructions. 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’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, 2020, which has been filed with the Securities and Exchange Commission, and the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2021, which the company intends to file with the Securities and Exchange Commission on or before May 17, 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 your host Mr. Joe Burnett, Chief Executive Officer. Thank you. You may begin.

Joe Burnett, Chief Executive Officer

Thank you, Devin. And thank you to all of the investors and analysts on the call today for being a part of the ClearPoint vision and journey. We are here 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 first quarter of 2021, we made substantial progress across all four of our pillars of growth, including functional neurosurgery navigation, biologics and drug delivery, ClearPoint owned therapeutic products and achieving global scale. Importantly, we made this progress in our portfolio against the backdrop of record revenue in the quarter, the resumption of elective procedures at a majority of our hospitals and the addition of multiple pharma partners to our growing list of active customers. The significant infusion of capital that we closed in the quarter also supports not only the expansion and acceleration of our product portfolio, but also our geographic and quality system expansion to a more global scale. 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. Danilo?

Danilo D'Alessandro, Chief Financial Officer

Thank you, Joe. And thank you for joining us today. Looking at the first quarter of 2021 results, total revenue was $4 million for the three months ended March 31, 2021, and $3.1 million for the three months ended March 31, 2020, which represents an increase of $0.9 million or 29%. Our revenue is made up of three components, functional neurosurgery navigation therapy, biologics and drug delivery, and capital equipment. Functional neurosurgery navigation revenue, which consists of disposable product commercial sales related to cases utilizing the ClearPoint system, increased 10% to $1.9 million for the three months ended March 31, 2021, from $1.7 million for the same period in 2020. This increase reflects the resumption in the three months ended March 31, 2021, of elective surgical procedures, which were postponed or cancelled over the past months due to the COVID-19 pandemic. Case volume increased each month in the quarter. Biologics and drug delivery revenue, which include sales of disposable products and services related to customer-sponsored clinical trials utilizing our products, increased 61% to $1.7 million for the three months ended March 31, from $1 million for the same period in 2020, due primarily to the resumption of clinical trial activities that led to increased sales of biologics and drug delivery products. Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software, and of related services, increased 31% to $0.5 million for the three months ended March 31, from $0.3 million for the same period in 2020. While revenue from this product line historically has varied from quarter-to-quarter, we believe that the increase represents the partial resumption of hospitals’ capital equipment acquisition activities following the onset of the COVID-19 pandemic. While hospital budget constraints caused by the pandemic continue to be a real headwind, the current funnel of potential installs is very healthy. Gross margin for the three months ended March 31 was 65%, compared to 70% for the same period in 2020. This decrease was primarily due to a greater contribution in the first quarter of 2020 to total sales of service revenue, which contribute higher gross margins in comparison to other product lines, and a portion of overhead allocated to cost of revenue resulting from larger production output volume during the three months ended March 31, 2021, relative to the same period in 2020. Research and development costs were $1.6 million for the three months ended March 31, compared to $0.8 million for the same period in 2020, an increase of $0.8 million, or 91%. Sales and marketing expenses were $1.6 million for the three months ended March 31, compared to $1.3 million for the same period in 2020, an increase of $0.3 million, or 21%. Both these increases reflect additions in key areas to our team, as it builds the infrastructure necessary to expand product lines, launch new indications, and comply with global standards as we plan our international expansion. General and administrative expenses were $1.7 million for the three months ended March 31, 2021, compared to $1.3 million for the same period in 2020, an increase of $0.4 million, or 30%. This increase was due primarily to increases in insurance, occupancy costs, and incentive-based and share-based compensation. At March 31, 2021, we had cash and cash equivalents totaling $64.9 million as compared to $20.1 million at March 31, 2020, with the increase resulting primarily from the completion of a public offering of the company’s common stock in February 2021. I will now turn the call back to Joe.

Joe Burnett, Chief Executive Officer

Thanks Danilo. As mentioned, our commercial team enjoyed a record quarter supported by recovering elective case volumes, new biologics partners added to the funnel and even capital sales and service agreements. Let’s break down that progress into our four growth pillars. First, functional neurosurgery navigation continued to rebound with 214 cases covered by our specialist team in the quarter versus our prior estimate of 190 to 200. The deviation versus our earlier expectation came in the last few weeks of the quarter as many of our hospitals that had halted elective procedures in January and February returned to action. It is encouraging that March was our highest month of the quarter and gives us confidence that U.S. case volume is returning to pre-pandemic levels. From a development standpoint, we continued progress across our portfolio and solidified budgets, schedules and team members using the capital infusion in the first quarter. Importantly, we achieved FDA clearance for our Array navigation system, and we are in the process of starting our limited market release for the product. As a reminder, the Array is designed to not only streamline the workflow and reduce time, but it’s also the first product designed by ClearPoint to be used in both the MRI suite and the operating room. This is an important step in our strategy of becoming a true neurosurgery platform that can be used with multiple imaging modalities and not only the MRI. We expect first cases to be performed here in the second quarter and the limited market release to extend throughout the second half of 2021. We have continued development across the rest of our pipeline as well, including the 2.1 ClearPoint software, the Maestro Brain Model, the orchestra multi-trajectory Headframe, our co-developed MER system in collaboration with Blackrock and our robotics assisted system, which was announced yesterday and we are building in partnership with D&K Engineering. We feel that we have an exciting cadence of new and improved products over the next few years, which will continue to demonstrate ClearPoint as one of the true innovative companies in the neurosurgery space. With our additional funding, we are now better able to communicate estimated timelines for the first human cases with each of these products. For example, we expect first cases of SmartFrame Array in 2021, ClearPoint 2.1 and Maestro in 2022, and orchestra MER and the robotics platform in 2023. Second, our biologics and drug delivery team continued to add additional partners and capabilities to the team in the first quarter. By the end of Q1, we hit the threshold of 30 active customers in the biologic space, adding an additional indication and shots on goal in gene-therapy and cell delivery programs. As a reminder, it is common that each customer or partner has a drug platform of their own meaning they are not planning to use their drugs only for one indication. Our decision to expand into Europe has already helped us to win additional European-based pharma business and academic researchers. We plan to continue adding partners and still believe that initial commercial gene-therapy approval for neuro could take place in 2022. It is also important to note that the majority of our investment into the navigation system mentioned in pillar one applies also to biologics and drug delivery. That is the beauty of the platform strategy as much of this investment is applied across many indications in both biologics and medical device navigation. For our third pillar, which is our own therapeutic products, these are primarily development activities today. The laser program in concert with CLS in Sweden and IGT in France continues to make progress as we prepare for an FDA submission in the second half of 2021. We expect first clinical cases with the complete neuro system in 2022. After laser, our biopsy and smart biopsy programs continue to progress, and we expect first clinical uses of these products in 2022 and 2023 respectively. Finally, our fourth pillar of achieving global scale has made progress as well. Most substantially, the new European MDR guidelines are meant to go into effect later this month; our project to update our quality system to ensure compliance with the new directive has been successful. And we fully expect to meet these new guidelines. This is a tall order for many companies, and while the investment into our quality system has been extensive, we believe the fact that we made and will continue that investment creates another barrier where many companies have decided not to continue in Europe for certain product lines. We want to be there to fill the void for hospitals and patients that need ClearPoint. We also obtained CE Mark for our 4 Fr, 5 Fr and 7 Fr Accessory Kits showing that we continue to demonstrate the capability of getting new products CE Marked, even in this challenging environment. As many of you are aware the pandemic has continued to rage in Europe across the first quarter, so our case volume and installation schedule was put on pause. However, we are encouraged by the more aggressive vaccination distribution across Western Europe, which is our next focus for expansion. As it appears, elective case volume is rebounding and some of our pharma partners have resumed clinical trial work. We are more comfortable providing a forecast for the full year of 2021. We believe revenue will be in the range of $16 million to $17.5 million for the year and case volume supported by our clinical teams will be in the range of 900 to 1,000 cases. While we are encouraged by the return of cases, the wider than usual range is primarily driven by two things. First, the timing of capital: while we do expect the resumption of a number of evaluation systems being installed in the second half of 2021, the timing of turning an eval into a formal purchase order has slowed and there is a chance that sales might cross over into 2022. Second, the timing of the initiation of new pharma trials: we are encouraged as a number of our partners continue to progress through the FDA protocol review and internal hospital IRB. However, the comprehensive review of protocols, delivery, drug manufacturing and storage are all hurdles that certainly need to take place beforehand. With that, I would like to open up the call to any questions.

Operator, Operator

Operator instructions. Our first question comes from the line of Andrew D’Silva with B. Riley Securities. Please proceed with your question.

Andrew D'Silva, Analyst, B. Riley Securities

Hey, good afternoon. Congrats on the progress and thanks for taking my questions. So I just opened up your 10-Q and I was actually surprised on the biologics and drug delivery side of the business and the strength — it really looked like it was almost completely tied to the disposable side of the business. Can you give a little color on why that has such a big uptick? I didn’t see any commercial activity that would drive that; it wasn’t just off the new partners or anything. Any color there would be useful from a caller standpoint.

Joe Burnett, Chief Executive Officer

Yes, thanks for the question, Andrew. I think the one comment I’d make on this topic is that we still enjoyed a significant part of that revenue being service-based. So I think that did continue. What we saw as you pointed out was the resumption of some of these clinical trials that have started to take place again, and some of the preclinical work that often happens behind the scenes. So where we saw an increase in the first quarter was many of the toxicology studies that might be done at certain preclinical labs and CROs. Those started to return both based on new customers, as well as existing customers. So I think the primary uptake and change to the mix was a number of SmartFlow cannulas for example, or custom cannulas that were delivered to these labs to perform these preclinical tests prior to a submission to the FDA for a new protocol.

Andrew D'Silva, Analyst, B. Riley Securities

Okay. And with your guidance as it relates to the biologics and drug delivery disposable side of the business, is your guidance kind of figuring Q1, the numbers are fairly stable for the remaining three quarters as it relates to disposables or is there other kind of variance in there that we should be thinking about?

Joe Burnett, Chief Executive Officer

Yes. I mean, some of the biologic revenue often comes in sort of buckets similar to capital deals closing. For example, we might hit a milestone for development revenue for a project in one quarter. So if we’re making a custom device for one of our partners, we might get a significant milestone payment in one quarter, but then we won’t cross a milestone in the next quarter, so that one would be zero, or vice versa. So that can be a little bit choppy. Similarly, these large orders that you can sometimes see for toxicology studies could be sizable because they’re ordering, say, 100 catheters and doing all of that testing in the quarter, but the next quarter might just be protocol writing and preparing for an FDA submission. So, as we continue to add partners, I think those numbers will absolutely stabilize. But for the time being, as we’re still early with some of these new partners, it can be a little choppy quarter-to-quarter.

Andrew D'Silva, Analyst, B. Riley Securities

Okay, great. I got one more on the biologic drug delivery and then one on DBS. So I think you touched on this in your prepared comments, but I’m assuming you’re still preparing for a potential commercial launch by the end of this year or early next year for your first drug delivery partner. If that’s correct, can you give us a little color on how the infrastructure readiness is going as it relates to some of the international and domestic needs for the translational services that you intend to offer there?

Joe Burnett, Chief Executive Officer

Yes. To answer your first question, yes, we are still in preparation and supporting multiple partners on their first commercial release. I believe one partner indicated on their earnings call last week that they have delayed the U.S. BLA application by about three months due to some of the delays that we’re all experiencing. But as I touched on, we believe things are on track for a 2022 commercial release, hopefully in the first half of the year, but we’re still putting a lot of energy into preparation for getting ready for that. Some of that preparation can be identification of potential patients, communication with pharmacy, and all those different things. To be clear, these are not things that we do alone: the larger pharma companies that we partner with have teams associated with them as well, and we’re trying to handle as much of the device training and education as we possibly can when necessary. So that’s one side on the biologic side.

Andrew D'Silva, Analyst, B. Riley Securities

No, you answered that. I was actually going to have a DBS follow-up and it just related to where you are in the sleep procedure protocols as far as either your partners running tests or you have started a clinical trial. I’m just really curious where you are in getting the sleep procedure label and what the next steps are?

Joe Burnett, Chief Executive Officer

Yes, in some ways it’s sort of twofold. One, there’s preparation work that we can do and are doing — organizing all of the clinical evidence that supports both awake and sleep procedures. Again, it is up to the surgeon on how they want to pursue treating an individual patient, and we support them in either manner. That being said, we’re also developing the rest of the portfolio that would support these types of procedures as well. So some of the products that I mentioned in my prepared remarks — MER, the Array system that can be used in the operating room, and the Maestro Brain Model — all of these tools together are going to create an excellent workflow for both awake procedures and sleep procedures. As we continue to see a higher percentage of sleep procedures being done, it’s quickly becoming an accepted practice at this point and that helps. As we shared before, we have an indication for MRI-guided lead placement. Because we are not the DBS company itself, we rely on the specific labeling of the DBS companies. I think you can see from a number of communications from DBS companies that image-guided placement of DBS systems is becoming more prominent in training and education. As that continues to evolve, we will certainly be evolving with it. To answer one of your questions, at this point, we don’t believe that a prospective clinical trial would necessarily be required to get that sort of indication for some training materials. We think there’s already significant data that shows the safety and efficacy of these procedures.

Andrew D'Silva, Analyst, B. Riley Securities

Right, I remember you talked about that a bit in the last quarter. That’s useful context. Thank you very much for all the color and best of luck on board.

Joe Burnett, Chief Executive Officer

All right. Thank you, Andrew.

Operator, Operator

Our next question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed with your question.

Frank Takkinen, Analyst, Lake Street Capital Markets

Hey guys, thanks for taking my questions and congrats on the progress this quarter.

Joe Burnett, Chief Executive Officer

All right, thanks Frank.

Frank Takkinen, Analyst, Lake Street Capital Markets

Starting with the FDA clearance of SmartFrame Array, I was hoping you could take us a little deeper on the importance of that SmartFrame. I heard your comments about a limited launch throughout this year. Maybe you could talk to how you anticipate this scaling in further out years, and then explain the importance of the increased automation and enabling software and how this could more broadly expand your TAM in this area?

Joe Burnett, Chief Executive Officer

Yes, happy to. As a quick reminder, we currently do not do much DBS work in Europe or outside of the U.S., and even in the U.S., we have less than 10% market share today of total DBS procedures done in the MRI. More than 90% today are still done in the operating room using optical navigation, CT guidance or EM navigation. So really what this tool allows us to do is instead of only focusing our efforts on taking a customer that’s used to doing an operating room procedure for the past 20 years and trying to convince them to adopt an entirely new workflow in the MRI suite, this is a tool that will allow us to offer them a device designed for the operating room as well. We can say, look, we know ClearPoint has developed incredible algorithms, navigation tools, and very precise movements on our disposable frames. In the past, you could only experience that in the MRI suite. Now we have something you can try in the operating room as well. So that’s really the power of this product. It’s 95% of the workflow and the navigation steps and the pre-planning and the importation and fusion of different data — if those can all be the same between both environments, it becomes much more likely that once our system is in the operating room, some surgeons at that hospital would be willing to give it a try in the MRI suite as well. From a platform standpoint, it’s crucial to what we want to do because we don’t want to be known as only an MRI company. We want to be the neurosurgery platform company, the therapy-enabling company. This gives us a very powerful tool set to do it. On scaling, as with anything in neurosurgery we want to be incredibly careful because the stakes are high. So we plan a metered approach as we roll this out: first in labs that want to do the MRI procedure where we learn; after that in more hybrid workflows where they can transition intraoperative MRI from the operating room to the MRI with the same patient and our system in place; and final step would be to do an operating-room-only procedure where the entire navigation would be done either by optical navigation, CT, or something other than MRI. There’s a progression in the rollout and we’ll do it in an organized fashion to create white papers, case reviews, training materials, etc., for a broader rollout early in 2022.

Frank Takkinen, Analyst, Lake Street Capital Markets

Got it. That makes sense. And then sticking with functional neurosurgery, I wanted a little more depth about the D&K Engineering partnership you announced. Can you talk to exactly what pieces of the procedure you’re looking to roboticize and exactly what this could do for a surgeon as far as patient throughput or procedural times and how impactful that could be once launched in a few years?

Joe Burnett, Chief Executive Officer

Yes. There are a couple of phases we’re rolling out. To be clear, this is not an attempt to build a massively complex robotic system; it is the automation of some of the more repetitive parts of the procedure that can save time and improve precision. One of the steps that delivers our precision is making fine-tune adjustments with our thumbwheel and then taking an additional image. Our software will automatically calculate how much more you need to adjust. The surgeon would stand up, walk over to the MRI suite, make those turns, and then take another scan. It’s a repetitive process to continuously get closer to the target. Surgeons may have to get up three or four times for each trajectory and run three or four scans for each trajectory; each scan could be one to three minutes. On a simple procedure we might spend 15 to 20 minutes on these navigation steps and on a more complicated multi-trajectory drug delivery case we could be spending an hour to an hour and a half on that particular step. The robotics platform does a few things: (1) the surgeon doesn’t have to get up to make adjustments and can control it from the control room with a button press; (2) a robotic motor can make more precise small turns than a human turning a thumbwheel, so there will be fewer adjustments needed; and (3) it can communicate directly with the scanner so that instead of making adjustments and then manually requesting a scan, the computer and scanner will talk to each other — the surgeon will push a button and the adjustments and scans will take place automatically. The surgeon then returns to confirm the final trajectory before insertion. The project requires both hardware and navigation software and D&K’s expertise supplements our internal team to accelerate the program.

Frank Takkinen, Analyst, Lake Street Capital Markets

Got it. That makes sense. And then last one on the biologic side — given the approval process PTC is going through, are they specifically writing into the documentation that the delivery is required to be done with a SmartFrame or SmartFlow Cannula, or how does the documentation look for a partner’s asset once it’s approved on the market?

Joe Burnett, Chief Executive Officer

That’s a good question. I don’t want to go into details on any one partner’s exact documentation. Speaking in generalities, there are two parts where we add value. First is the navigation system itself. It is common for companies to submit a protocol that provides an open-ended option for navigation, saying any commercially approved neuro-navigation system can be used. Whether the FDA or regulatory bodies agree with that can vary: in some cases they will accept that, and in others they might request that every patient be treated under a single specified navigation approach. Second, on the cannula side, it is very common that companies conduct extensive flow tests, toxicology tests and preclinical testing and then specify the cannula used in the protocol. If the company submits the cannula specification to the FDA, it’s common to have the cannula named, for example using our SmartFlow Cannula manufactured by ClearPoint Neuro. That helps the pharma company because it can speed review — the FDA has seen our cannula many times and understands how it fits. So, the likelihood of co-labeling the cannula with a drug is relatively high; the navigation system is more variable depending on what the regulatory authorities decide. But nothing has been finally approved yet, so exact labeling remains to be seen.

Frank Takkinen, Analyst, Lake Street Capital Markets

Got it. Perfect. Thanks for taking all my questions.

Joe Burnett, Chief Executive Officer

Yes, sure. Thanks.

Operator, Operator

Our next question comes from the line of an analyst with TenX Capital. Please proceed with your question.

Unidentified Analyst, Analyst, TenX Capital

Hey, Joe, congrats on a great quarter. I think that the growth pillars you set up for ClearPoint to achieve are very well thought out. I’m looking forward to the continued growth of ClearPoint under your leadership.

Joe Burnett, Chief Executive Officer

Thank you.

Unidentified Analyst, Analyst, TenX Capital

Yes. Joe, during the last earnings call you pointed out you had identified 75 additional potential customers for the biologics and drug delivery growth pillar. Could you share some updates on the progress in those conversations and what we are doing with them? Were the five new biologics partners from these 75 additional potential partners?

Joe Burnett, Chief Executive Officer

Thanks for the question. The way we measure partnerships is by active customers who have purchased products and services from us in recent history, let’s say in the last 12 to 18 months. We try to keep a common count, but it’s also possible we have a partner that comes in and only orders five cannulas to do initial testing; that’s not something we would count as an active customer since it’s a small entrance into a relationship. In the past we said 25 active accounts in the first quarter; we crossed that 30 threshold by the end of Q1, which is why we updated that number. It’s fair to say these additional five partners would have come from the 75-plus additional targets we had in our funnel. We plan to continue adding biologics customers to the top of the funnel and then converting customers already in the funnel to formal partnerships when we have a significant agreement or a master services agreement in place.

Unidentified Analyst, Analyst, TenX Capital

All right. Thanks a lot, Joe. I want to touch a little on the functional neurosurgery side. It’s great to see cases rebounding nicely, and we have been successful attending certain cases via the pilot support program. Given current headcount, how many procedures do you think we are able to do on a yearly basis should COVID-19 get lifted? And how would you think the remote support program would help increase the number of cases you can attend moving forward?

Joe Burnett, Chief Executive Officer

If you simply do the math across our entire team of folks that are either hired or positions we are openly recruiting for, that math says we have capacity to do about 3,000 procedures per year. As I mentioned in our forecast, we’re planning on doing about 900 to 1,000 this year. So we are building excess capacity not just for a full return to elective procedures after COVID, but because we plan to add new products like Array, MER, and the robotics platform that may expand our presence in an individual hospital into multiple rooms. So we’ll continue to hire ahead of the curve. The pilot program for remote support is designed to solve a couple needs. One, there are certain situations where the procedure is quick, such as a biopsy for a relatively large target, and the surgeon might not need the ClearPoint person to be there in person. Remote support lets us cover that without the travel expense. Two, sometimes we get late notice on a case, and it’s difficult for us to get there in person; remote service lets us offer support on short notice so the surgeon won’t be alone for a challenging procedure. Third, remote support allows us to bring new clinical specialists up to speed quickly: instead of attending only live cases, they can beam into additional cases for education. So there are three reasons we’re piloting the program and we think it will become a bigger part of our future.

Unidentified Analyst, Analyst, TenX Capital

Great. Thanks a lot, Joe. I have one last question. I listened to one of the podcasts where Jacqueline Keller, your VP of Marketing, spoke about how she got to know you and how capable you are as a leader. Could you share thoughts about the culture you are building at ClearPoint?

Joe Burnett, Chief Executive Officer

It’s a wonderful question. Culture is something a CEO can help set guardrails for, but the company builds it — it shouldn’t be top-down entirely. It starts with attracting top talent: self-motivated people who want to win and share a common purpose. That was present before and will grow here. Another element is trust and understanding how you can rely on teammates to come through when needed and share responsibility. What unites us all is a common purpose: recognizing the people we are helping. The stakes are incredibly high and these patients are truly suffering. We all share the desire to help those people and recognize that every day we waste may be another patient we could have helped, so that sense of urgency and purpose is central to our culture.

Unidentified Analyst, Analyst, TenX Capital

Great. That’s awesome, Joe. Thanks a lot for sharing. I have no doubt that ClearPoint will be the standard go-to option for neurosurgery in the future. It’s a privilege to be your shareholder and we are supporting you all the way. Thank you for all your hard work.

Joe Burnett, Chief Executive Officer

Thank you.

Operator, Operator

Our next question comes from Michael Lipka with an unknown affiliation. Please proceed with your question.

Michael Lipka, Analyst

Hey Joe, it’s good to talk to you again.

Joe Burnett, Chief Executive Officer

Hey Mike.

Michael Lipka, Analyst

I had a question about the general counsel that you hired — is that related to negotiating any kind of royalty agreements? I know you discussed that in the last conference call. And then have you guys negotiated any royalty or milestone agreements with any of your trial partners?

Joe Burnett, Chief Executive Officer

Great question. Ellisa, our General Counsel, was hired because she’s an excellent lawyer and operator — not just for negotiations on royalties. She brings broader expertise across device and pharma matters and a network to call in when we encounter something new. To date, we’re still in the exploration phase on royalty and milestone agreements. Part of it depends on the type of partner we’re dealing with: large companies with significant market caps have different appetites and resources for development and protection than startups that may want to share risk in a different way. We’ve had exploratory conversations, but I wouldn’t point to any substantive royalties or milestone agreements signed just yet.

Michael Lipka, Analyst

Okay. A bigger picture question: do you have any targets in mind for the next two to four years for revenue and EBITDA margins so analysts can model out the growth?

Joe Burnett, Chief Executive Officer

We’re in a tough spot and not quite prepared to provide multi-year targets publicly. I recently got my board to approve guidance for this year, which was a step. Internally we have budgets and models. One way to view our business is as a base navigation business where we can continue to place new sites and grow utilization a bit each year, which could deliver predictable growth in the mid- to high-teens over several years. The more variable element is the timing of larger revenue drivers — approvals of our laser system, approvals of one or more gene-therapy commercial partners, large Phase 3 clinical trials, or new products like MER or smart biopsy needles getting approved. These can significantly change revenue but are harder to predict in timing. So we’re not prepared to provide a public forecast for multi-year revenue and EBITDA at this time.

Michael Lipka, Analyst

Okay. And then on EBITDA margins and overhead costs, do you have a frame of reference for if you hit $50 million or $100 million in revenue what we could expect for margins and SG&A as you scale?

Joe Burnett, Chief Executive Officer

I think about our spending in a few buckets. After the capital infusion in February, two primary investments are product development and building our clinical specialist team. The extra capital lets us accelerate hiring and development over a shorter period rather than a slow hire over multiple years. We plan to spend on R&D to bring the organization to a steady state faster, hiring many of the roles we would have waited to fill. Where we can’t or don’t want to hire in-house, we’ll partner — as with D&K or Philips — to access expertise without building an entire team. On the clinical specialist side, we need to increase capacity for case coverage and to ensure career growth paths for clinical specialists. We are building ahead of demand; the capital allows that. Importantly, our strategy doesn’t require being in 1,000 hospitals. We see neurosurgery concentrating in specialized centers where patients travel to get these procedures. That means we need a strong clinical specialist presence but not a massive direct sales force. So we will balance sales, clinical, and R&D spending as we scale, which should be favorable to margins over time, but I can’t give a specific margin target at this time.

Michael Lipka, Analyst

Okay. Then a last question: what’s the general purpose of Maestro, and is it to speed up surgery times? Could you give an example of how it would work in a procedure and what the revenue model or margins might look like on it?

Joe Burnett, Chief Executive Officer

I’ll start with how it works and what it will do. The Maestro is designed to be the engine of our navigation system in the future. Instead of relying only on 2D or 3D images ported from CT or MRI, Maestro makes those images much more informative and adds applications. With a push of a button you could take a 3D MRI and have the software identify subcortical structures and their boundaries so the surgeon can see them in more detail. Applications include automatically identifying subnuclei targets used for DBS, which are often difficult to see on MRI alone. For drug delivery, Maestro can provide an infusion envelope and calculate percent coverage of a target structure during a procedure. For example, if the protocol requires achieving 50% or 80% coverage of a target, Maestro could calculate that in real time so the surgeon knows when the procedure objective has been met. That’s valuable for clinical trials and commercial therapies — it provides a precise patient record showing trajectory, infusion tip placement, and measured infusion coverage to help demonstrate that the surgeon achieved the intended delivery. Regarding speed, Maestro will be most useful if its calculations are fast enough to be used peri-procedurally. Other atlas technologies can take 8–15 minutes per calculation, which is not practical during a case. We believe Maestro can get calculations down to sub-15 or sub-20 seconds or at least into a range that permits intra-procedural updates, enabling repeated scans and model updates during the procedure when needed (such as drug delivery). For DBS procedures where everything is static, you might only need pre and post confirmation. The commercial model could vary: Maestro could be sold as capital software, as a single-use software charge, or bundled into the disposable ASP for procedures. In some cases, for longitudinal clinical trials or drug monitoring, Maestro might be used without our disposable, and the software could be licensed separately. So there are multiple commercial approaches depending on the use case.

Michael Lipka, Analyst

Right, that makes sense. So would this be an added fee to the total procedure revenue?

Joe Burnett, Chief Executive Officer

Yes, there are a number of ways. It could be a combination of capital with single-use software fees or an addition to the ASP of disposables used in the procedure. Or, in some situations — for example, a pharmaceutical trial tracking a patient longitudinally — the software could be licensed independently. The commercial model might change based on the intended use case and the customer.

Michael Lipka, Analyst

All right. Great. I’ll hop off. Thanks so much for answering my questions.

Joe Burnett, Chief Executive Officer

Thank you, Mike.

Operator, Operator

Ladies and gentlemen, we have reached the end of our question-and-answer session. And now I’d like to turn the call back over to Mr. Burnett for any closing remarks.

Joe Burnett, Chief Executive Officer

All right. Once again, thank you to everyone interested in being a part of our team story here at ClearPoint. We believe we are doing very important work and we’ll continue to put the patients and their families first as we take on greater and greater responsibility for their treatment across our portfolio. Good night, everyone.

Operator, Operator

This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.