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Greetings and welcome to the ClearPoint Neuro, Inc. First Quarter 2022 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. [Operator Instructions] As a reminder, this call 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, 2021 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 March 31, 2022 which the Company intends to file with the Securities and Exchange Commission on or before May 16, 2022. 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.

Thanks, Danilo. As I mentioned earlier, it was important for ClearPoint to get off to a good start here in 2022 and we did exactly that in the first quarter with record revenue and installs despite challenges with Omicron transmission, hospital staffing shortages and supply chain delays [ph]. We also made significant progress across our development pipeline and added a number of new product and pharma partnerships. Now, let's break that progress down into our four growth pillars. First, our Biologics and Drug Delivery team continued to add additional partners and services here in the first quarter, increasing our total partner list to approximately 45. Over the past two years, we have been adding partners at a rate of more than one per month and believe that there is still a significant number of potential partners in neuro and spine that can benefit from ClearPoint's hardware, software and cannulas. As expected, each new partner brings new revenue, particularly early-stage service revenue which grew 75% in the quarter. As a reminder, a key part of our strategy is to start working with our biologics partners well before they treat their first patient, so that we build relationships and familiarity with our products throughout the entire drug development process. Growth in this segment will continue from four primary sources: one, the addition of new partners and new indications into our portfolio to provide additional shots on goal and additional sources of revenue. Two, the addition of new services that we can provide to partners and become a more valuable provider to these companies that need our specific device expertise. Three, the progression through the development cycle from consulting to bench testing to preclinical testing to clinical trials to commercialization, each progression creating larger revenue opportunities for ClearPoint. And finally, number four, new creative ways to partner with pharma through co-development, milestones and potential royalties in the future. If we can continue to grow on all four of these axes, this will be a very exciting and diversified platform business for us. We continue to believe that a commercial gene therapy could be achieved in Europe later this year and we expect that more information should become available in the coming months. An initial therapy approval will be an important milestone for the entire biologics community, as regulators continue to define appropriate and achievable pathways to commercial availability. Now moving to our second pillar, our Functional Neurosurgery business also showed growth of approximately 17%. We believe that this number could have been higher in the first quarter and it was impacted by a six week disruption in case volume, primarily in January and the first half of February, although our March case volume was our highest monthly total in our history. Our cancellation and postponement rate remains at historic highs, as daily COVID testing for patients, surgeons, staff and even our own employees routinely identifies a key party to the procedure, as COVID positive. When a patient shows up at the day of their surgery, they're administered a COVID test. If they test positive, the procedure is postponed regardless if they are asymptomatic or vaccinated. Similarly, if a surgeon test positive, they could be sidelined for weeks postponing all procedures during that time. Unfortunately, we believe this higher postponement rate will continue for the foreseeable future, as long as this COVID testing remains a significant requirement. On the bright side, we did place four new systems here in the first quarter and expect those sites to all perform their first cases in Q2, a couple of which have already become active. We see this as a positive sign that hospitals are once again committing to capital purchases and importantly, allowing new technologies and vendors access to the hospital for installation and training. From a pipeline standpoint, we did recently achieve FDA clearance for the ClearPoint Array 1.1 software which now includes an important preplanning module to facilitate more efficient planning and data transfer. The Array system is ClearPoint's first foray into the operating room environment. Here, we are going to walk before we run as we focus first on hybrid operating room MR suite and we will move into full operating procedures in 2023 and beyond. We had originally planned to do our first cases with the 1.1 software version in the second half of 2022, so this approval came a bit early versus our projected internal time line. We have continued development across the rest of our pipeline as well, including the 2.1 ClearPoint software, the Maestro Brain Model, the Orchestra multitrajectory head frame, our co-developed MER system in collaboration with BlackRock and our robotic-assisted system called Revolution 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. Our previous time lines remain intact and we continue to expect first cases of ClearPoint 2.1 and Maestro software here in 2022 and Orchestra, MER, Revolution and our brain computer interface navigation system sometime in 2023. While the team is doing what we can to keep these time lines intact, we do recognize the risk introduced by the global supply chain prices on raw materials and components. So far, we have been successful in finding solutions to keep projects on track. But as you have heard from many firms and hospitals, there are issues that arise almost daily and our team spends an inordinate amount of time, firefighting, qualifying new materials and suppliers and making sure that supplying products for current patients is still the number one priority. For our third pillar, our therapeutic products and access devices, we have continued our development progress and remain on schedule for our previously communicated time lines again. The ClearPoint exclusive laser ablation system that is in development with CLS in Sweden continues to make progress and has been submitted to the FDA for review. We remain on track for our first human cases to be performed later this year. We have received our first inventory of access drill solutions from adeor and expect to enter a full market release of the operating room version of the drill in 2022. Similarly, we remain on track to evaluate prototypes of the MRI conditional version in 2022 with an estimated first clinical use sometime in 2023. Access technologies, like our partnership with adeor, are important across our entire portfolio, as they are designed to make procedures faster and more predictable, enabling more and more centers to perform two procedures a day in the same MRI suite or the same operating room. It is also important to note that the majority of our investment into the navigation system mentioned at Pillar 2 applies to Biologics and Drug Delivery, as well as our therapy product. That's the beauty of a platform strategy as much of the investment is applied across many indications, including biologics, deep brain stimulation, laser ablation catheter placement, biopsy, brain computer interfaces and perhaps even more in the future. This is crucial from a training standpoint as well. Every biopsy case, laser ablation case or DBS case that a hospital does with ClearPoint today is, in fact, training and preparing them to do biologics and bring computer interface cases in the future. Finally, our fourth pillar of achieving global scale has made progress as well. Our quality system has been successfully updated to be compliant with the new European MDR rules that went into effect in May of the past year. This is not a small task and has been daunting enough to some companies that they have decided not to sell certain products in Europe under these new regulations. We believe our quality system and knowledge is the strength and something that helps us differentiate ourselves in the eyes of our pharma and our device partners. We have been successful thus far in securing additional inventory ahead of the supply chain backlog that are very real and very challenging. We have used our existing capital to purchase materials ahead of time, particularly raw materials which you can see by the expansion of inventory investment on our balance sheet today. Our cash burn for the quarter was approximately $4.5 million, leaving us with a balance of just under $50 million [ph] at the end of Q1. And at present, we do not have plans to raise any significant capital this year. If you add up the global opportunities across all of our current and future product lines, the results are quite impressive. Today, we are actively working directly or through partnerships on more than 35 different indications which is estimated to include more than one million new patients diagnosed each year. If those one million plus patients were all treated with ClearPoint's enabling technology, the potential market is in excess of $12 billion annually. These markets, of course, will take time to develop but the sheer number of partnerships and opportunities we have today has diversified ClearPoint in a way that many individual therapy technologies cannot. We have many ways to win and to positively impact a large number of patient lives. At this point, we are adjusting our full year 2022 revenue guidance to between $21.0 million and, $22.0 million, up from $20 million to $22 million which was previously announced. We do expect further growth versus our Q1 results and think it's appropriate to increase the lower end of the range to reflect that. Our revenue guidance of $21 million to $22 million does include the impact of certain risks. First, we assume that the effect of any new COVID-19 variant will have a modest impact on elective procedures that is somewhat transient and lasts for a month or 2. Second, we assume that supply chain issues persist but that no meaningful back orders or supply issues take place to our customers for our products or for the therapeutic partners product. Finally, the geopolitical issues in Europe are very difficult to predict relative to travel, new installations, material costs, hospital overcrowding, et cetera. So that risk is really not understood at this point and, therefore, not included in that guidance. With that, Rob, I would love it, if you could open up the call to any questions.

Absolutely. [Operator Instructions] Our first question comes from Frank Takkinen with Lake Street Capital Markets. Please proceed with your question.

Hey, thanks for taking my questions. Congrats on the progress really impressive in a tough environment.

Thanks, Frank.

Yes, absolutely. I wanted to start with Array 1.1 -- yes, absolutely. I wanted to start with Array 1.1 how should we be thinking about commercial launch there? Is it going to be in a demo capacity in early days and then supposed to launch more aggressively throughout the latter half of the year. Just maybe talk about that product a little bit more and the significance of the 1.1 clearance?

Sure, yes. There's kind of three Phases that we sort of see with this product line today, maybe four phases and I'll kind of walk you through them real quick. So the first one is now that we have this preplanning module which is something that the early users in our limited market release have requested, we are rolling that product out to the existing sites that have been installed with Array which is just a handful of them across the United States today. So in addition to some of our preclinical partners like Charles River, for example, that does have the tool as well. So as we sort of just double check the installation process, the early use, the compatibility, the data transfer, things like that, we think that will quickly move into a full market release of the Array for specific targeted accounts. And many of those accounts will be sites like IMRIS accounts, for example, that have hybrid operating room MRI suite which allows the MRI magnet to move in and out of the room. So you can do part of the procedure using other navigation tools in combination with Array, operating room drills, things like that. And then, when it times -- when it comes time to actually perform the surgery itself or confirm the impact of the surgery, that's when the MRI magnet is moved into the room and those final images are taken. That will be kind of phase two of the launch which is a full market release to be used in MRI accounts or hybrid OR MRI accounts, okay. And we think that will -- that will take place in the second half of this year. The third level of release which we have currently planned for 2023 is procedures that would not use the MRI at all but rather they would be using other operation navigation systems with our hardware, a slight version of or a slight change to the current Array version which could be done using optical navigation, for example, in the operating room or CT navigation and things like that. So that's something that we have planned for 2023. And then sometime in 2024 will be the fourth iteration of that which will be a truly CT-guided version using our own software which is something that we highlighted in a press release a few weeks back, where we've partnered with Philips to a next generation of the Maestro Brain Model that will work with CT data in addition to MRI data. So you can kind of think of that as a progression. But the end result, let's say, by 2024, is that we would have three different options for deep brain stimulation guidance, for example, an optical navigation system that just uses our hardware, a CT navigation that uses our hardware and software and then the current version of the MRI version that can be used in any MRI suite today. So hopefully -- hopefully, that helps.

And then just for my second one, maybe asking about capital equipment placements, good to see a resurgence in placements in the quarter. Maybe give us your thoughts for capital placement expectations for the rest of 2022? And what specifically is baked in the guidance in -- on that line item?

Yes. I would say we've kind of carved out about $2 million or so into capital equipment placement which would also include service contracts on that capital equipment. So again, we charge between 12% and 14% of the purchase price and per year service contracts. So that probably makes up $600,000 to $700,000 of that. And then maybe another $1.3 million to $1.4 million [ph] would be on new capital placements. That number -- it's probably has the biggest range in our guidance because it is a little unpredictable. We're focused on getting the installs and getting people to get familiar with the technology, whether that capital PO comes in after the evaluation period, on the 31st of the prior quarter or the first of the next one, it can be a little choppy. So it's hard to say when it comes in, but give or take, $2 million for the year in that segment.

Perfect. Okay, that’s helpful. I’ll stop there. Congrats, again, on all the progress.

Great. Thanks, Frank.

[Operator Instructions] Our next question comes from Marc Weisenberger with B. Riley Securities. Please proceed with your question.

Yes, thanks. Good afternoon. And just following up on the last question. I think prior to the pandemic, you were on pace to maybe add six to eight new centers of excellence per year, four to start the year is pretty strong. Could you talk about the dynamics around the timing of those adds and the geography? Was there anything that might have resulted in pull forward? And then, as you think about the high-volume centers in the U.S. that aren't currently using the ClearPoint system, how many are still out there? And kind of what's the strategy and expectation for them to adopt ClearPoint?

Sure. Yes, I'll answer the first question first here. So you're correct. Our current pace is -- we're on pace now to have our biggest placement quarter in our -- or year rather in our history. Part of that is because we are starting to be viewed as arguably an essential part of the future of neurosurgery. Whether you're doing DBS and laser ablation with us today or you believe in the future of brain computer interfaces or Biologics and Drug Delivery or new indications of DBS and laser ablation in the future, you're starting to say, look, even if I don't use ClearPoint for every single case, it seems to be a technology that I need to be familiar with and I need to have around. So I think that demand is continuing to increase, as word gets out, as to the future of ClearPoint and what we'll be capable of. So, I think that's -- that's one thing working in our benefit. The other thing that's working is the catch-up factor, where we've had relationships with hospitals that have been really interested in using ClearPoint that are destined to participate in some clinical trials and the access to new technology has just been put on hold for a while and hospitals have to prioritize current patients and renovations versus adding anything new. As I mentioned, that's starting to change a little bit which is sort of unleashing a backlog, not of prepurchased products, like a lot of companies do have but at least a backlog of the interest to get those new capital things started. So, I think those are things working in our favor. I would say one of the primary negatives that are out there today and not necessarily isolated to ClearPoint alone is not necessarily access to capital but it's concerns about cybersecurity and new questionnaires and requirements that hospitals are adopting which any hospital tries to do it in the same way and they create a blanket document for everyone. But in line of cases, it takes a long time to negotiate through that and convince the hospital that some of the things in that document don't apply to ClearPoint. We're not a cloud service provider, for example. So we shouldn't be held to those particular requirements. And sometimes that takes a week, sometimes that takes months, sometimes, it might never happen. So I think that one kind of is working against us right now, again, in a heightened -- heightened environment, where cybersecurity is on everyone's mind. Then moving on to your second question, from a geographic standpoint, I think if you look at what we placed in the first quarter, there were two in the United States, two in Europe. I would still expect there to be more placements in the United States this year than Europe but I think placements will take place in both locations, as we continue to gain some interest on our current products and as the number of our pharma partners begin clinical trials across Europe, that's driving placements to some hospitals that have never used ClearPoint before. And then, what -- what's very common in those situations is that we don't want their first ClearPoint case to be a clinical patient in a Biologics Drug Delivery trial. So we generally start with simpler procedures or more predictable procedures like biopsy, like deep brain stimulation like laser ablation. So the hospital gets familiarity on three to five of these other applications first before they're ready to enroll their first patient in that trial. So it does -- it does help them to understand how to use our technology in a few different ways as well.

And then, any notable changes in the case mix in the Functional Neurosurgery segment this quarter. Could you quantify maybe the impact you think Omicron had in the quarter? And then should we expect those deferrals to kind of be pushed in? Is it more likely 2Q or 3Q?

Yes. Hopefully, it comes back in Q2. Again, there's other things that always impacted as well which is access to the MRI magnet is we have a couple of hospitals that are getting their MRIs replaced, so they're not doing procedures at all in Q1. So it's hard to say when they fit in. But the most important thing is the vast majority of patients that are postponed because of COVID or hospital staffing shortage. Normally, that postponement is not long enough but it threatens the patient never getting the surgery and hopefully, it's in two to three weeks. Unfortunately, it just -- it plays around with our scale and our cost structure because we have clinical specialists flying around to cover these cases and it's pretty painful when you show up at the day of the procedure and the patient is unable to go forward. So -- but in general, we see most of those cases returning in Q2 and Q3, so long as another Omicron or similar version variant isn't on the theme [ph].

And then, just a final one for me. I think you noted that early-stage BDD revenue grew, I think you said 75% year-over-year in the quarter, kind of just ballpark, what percentage of that -- what percentage does that represent of the total BDD revenue? And how does the cadence kind of, of those cohorts usually progress? And I mean, should we expect some moderation from those customers kind of in 2Q or 3Q, as they digest some of their purchases?

Yes. I think as that number continues to grow and I think it was close to 50% or so, it's getting closer to that, that threshold between services and actual products that are sold to pharma partners or for using clinical trials. We -- there is some choppiness in that and I'll give you some examples where in some cases, a hospital might ship a large -- perform a large -- not a hospital, I'm sorry, a pharma partner might perform a large benchtop study, where they need 200 cannulas to do compatibility testing or flow testing or things like that. So those sort of one-off things can make it a little choppy. But the more partners that we add, the more consistency you're going to start to see quarter-to-quarter and it should be consistent growth as well because as I mentioned as well, our first year of engagement with a pharma company is generally sort of feeling each other out, doing a little bit of consulting, handling a few catheters here and there to do some simple benchtop testing. And then, if the partnership is a healthy one, it should continue to grow year after year after year after year. So that's -- that's really the strategy we're pursuing here is to now have 45 patients or 45 partners in this funnel and each one of them on average is growing slightly quarter-to-quarter, then you can have -- have something a little bit more expansive at that point. And again, this is all pre-commercialization. So we're talking about bench testing, preclinical testing, compatibility testing, Phase I through III pharma trials. All of those can be profitable parts of our business well before the commercialization of any singular drug.

Great, very helpful. Thanks for taking the questions. And congrats on a very strong quarter.

Thanks, Marc.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Joe Burnett for closing comments.

Thanks, Rob and once again, thank you to everyone interested and being a part of this team's journey here at ClearPoint. We recognize the challenging global environment that we are all forced to live in today. And we assure you that we are going to help patients around the world as best as we possibly can by keeping our heads down, staying focused and executing against our four pillar growth strategy to develop products that truly improve the quality of life for our patients and for their families. Good night, everyone.