Joe Burnett – Chief Executive Officer Hal Hurwitz – Chief Financial Officer.

Scott Billeadeau – Walrus Partners Kris Tuttle – SoundView Technology Group.

Greetings, and welcome to the MRI Interventions’ Second 2018 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 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, 2017, and the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 both of which have been filed with the Securities and Exchange Commission.

All the Company’s filings may be obtained from the SEC or the Company’s website at www.mriinterventions.com. I would now like to turn the conference over to your host Mr. Joe Burnett, Chief Executive Officer. Thank you, Mr. Burnett. You may begin..

Thank you, Broc and good afternoon everyone. Thanks for joining us for the second quarter 2018 earnings call and for your interest in MRI Interventions. With me for today’s call is Hal Hurwitz, our CFO.

We have made a lot of progress over the past quarter on each and every one of our four growth pillars and we are excited to share some of those updates with you today.

All of these efforts expand the addressable market for MRI in new geographies and with new applications as we progress toward our vision of a portfolio of products and services that will help surgeon to decide, guide, treat and confirm these precision therapies for their patients.

We continue to believe that our market opportunity is in excess of $1 billion and we are focused on the strategy we described earlier in the year centered around our hub, which is the ClearPoint Neuro Navigation System and our talented team of product and clinical specialist.

I’m going to briefly call – turn the call over to Hal to summarize the financial results released earlier today then I’ll come back on the line to update several aspects of the quarter and add some details regarding our progress on those four key strategic pillars that we announced previously. After that we’ll open the call up for Q&A.

Hal?.

Thank you, Joe. For the second quarter ended June 30, 2018 total revenues were $1.6 million compared with $1.6 million for the first quarter and $2 million for the same period in 2017.

Breaking that down a bit to the underlying product areas functional neurology product sales decreased 14% to $1.2 million compared with $1.3 million for the same period in 2017. 147 ClearPoint procedures were performed in the second quarter of 2018 compared with 160 in the prior quarter and 162 in the year ago quarter.

The difference in revenue and ClearPoint cases include the impact of approximately 25 cases lost or postponed in the quarter representing approximately $125,000 in revenue from disposables related to FDA actions adversely affecting the two leading providers in the laser ablation space.

These providers expectation is that this is an issue that will be resolved after which we expect to return to full case volumes and growth. Capital equipment revenue was $141,000 for the second quarter down 69% from a very robust of $457,000 for the same period in 2017.

Although capital equipment sales fluctuate from quarter-to-quarter, we believe that this decrease was primarily attributable to two potential capital equipment sales we expected to close in the second quarter that were put on hold by the customers due to the FDA actions in the laser ablation space that I previously mentioned and on which Joe will have further comment in a moment.

Biologic and drug delivery revenues which include sales of disposable products and services related to customers sponsored clinical trials was $274,000, up 196% year-over-year as we prepare for commencement of Voyager’s Phase 2-3 trial.

Going forward we expect that a growing portion of our biologic and drug delivery revenue will consist of fees earned for onsite surgical and clinical support, training, preparation and ordering of products on Voyager’s behalf as required for cases performed pursuant to its clinical trial.

And in the future for other biologics and drug delivery partners as well. Gross margin for the 2018 second quarter was 63% compared to gross margin of 60% for the same period in 2017. The increase in gross margin primarily reflected a favorable mix of products sold.

Research and development costs were $665,000 for the three months ended June 30, 2018 compared to $1.1 million for the same period in 2017, a decrease of 39%. This decrease was due primarily to the upfront payments required under certain license and co-development agreements that we entered into in April 2017.

Sales and marketing expenses were $926,000 for the three months ended June 30, 2018 compared to $980,000 for the same period in 2017 a decrease of 5%. General and administrative expenses were $1.1 million for the three months ended June 30, 2018 compared to $935,000 for the same period in 2017 an increase of $153,000 or 16%.

This increase was due primarily to an increase in stock-based compensation. Our loss from operations for the 2018 second quarter was $1.6 million down 10% from $1.8 million for the same period in 2017. Turning briefly to the balance sheet.

During the 2018 second quarter cash used in operating activities was $1.1 million as compared to $2 million in the first quarter of 2018. This decline and burn over the preceding quarter is in line with our previously provided cash flow guidance.

Overall after taking into consideration the proceeds we received from exercise of warrants the net change in cash for the second quarter was $816,000 resulting in cash on hand at June 30, 2018 of $6.7 million. With that, I will now turn the call back to Joe..

Thanks, Hal. You may recall that the first quarter represented a reset for MRIC, as we redefined our growth strategies and set baselines for accountability going forward. The second quarter showed significant progress on all four priorities we identified for the next five years.

You may do recall these priorities were the following; number one, focusing on new efforts to grow our core functional neurosurgery business which is used for deep brain stimulation, laser ablation, and tumor biopsy procedures; number two, leveraging our leadership in live image guidance for precision delivery of biologics and drugs to key and often deep structures of the brain; number three, launching our own new therapy products starting with our precision guided neuro aspiration therapy device; and finally number four, scaling our business model to both expand globally and better monetize our established sales channel to distribute additional products and services.

We believe these four pillars expand our addressable market to more than $1 billion of total opportunity. Our ClearPoint System remains at the center of our platform as the hub enabling surgeons and hospitals to perform different types of procedures while increasingly relying on ClearPoint accuracy for their guidance.

With regard to the first point growing our procedures, the quarter came in as expected based on our prior commentary in May and again in June. Approximately 25 cases were lost or pushed out due to the FDA actions that have affected the two major players in the laser ablation space representing an estimated $125,000 in revenue.

This situation has had an impact but we are pleased to note that Monteris has filed their proposed resolution with the FDA and is currently maintaining their communicated schedule, which they believe could lead to a launch of their proposed solution before the end of the year.

We expect that case volume for Monteris sites will start to rebound starting in Q1 of 2019. Looking ahead to the second half of 2018, we expect case volume to rebound from a low in the second quarter as new sites began evaluations with the ClearPoint System and current sites continue to improve workflow and move toward two cases a day.

Additionally, new deep brain stimulation Abbott and Boston Scientific if not yet have labeling for MRI compatibility of their leads during the 2018 second quarter. As a result some hospitals elected to wait on MRI guided placement until the labeling had been updated.

We estimate that this would adversely impacted our case count by about five to eight cases in the quarter as well. Abbott has now received the clearance to include MRI compatibility in it’s labeling as was disclosed in its August second press release about two weeks ago. We also understand that Boston Scientific clearance is still pending.

We have also applied for FDA clearance for our ClearPoint 2.0 software, which is a platform upgrade incorporating new huge in-software features that we believe will save procedure and pre-planning time. It also incorporates new drug delivery software application that should make documentation and monitoring during clinical trials more efficient.

We expect that these software upgrades will be available under a limited market release in Q4 of this year and will also represent a hardware-software and service sales opportunity for us before the end of the year.

For the second bucket with regard to progress in biologics and drug delivery, case volume from drug delivery cases was very low in Q2, as our primary customer Voyager prepared to initiate their Phase 2 study.

Voyager reports that the pivotal program for it’s gene therapy VY-AADC for Parkinson’s disease is progressing with nine neurosurgical sites selected for participation in the base to randomize placebo-controlled trial and the institutional review board submission and site activation are underway.

During the remainder of the year, Voyager had stated that it plans to provide updates on the enrollment status of the trial. Additionally, I know that some of you are aware of the recent FDA clearance of Voyager’s V-TAG device for navigation.

After V-TAG was submitted to the FDA in the first quarter of this year, we together announced the strategic agreement with Voyager that includes a number of areas of collaboration including product supply, clinical case coverage and importantly joint collaboration of next-generation navigation systems, software and cannula advices that are tailored for Voyager’s gene therapy program.

A key to that collaboration is ramping up to support Voyager’s plan Phase 2-3 pivotal program for Parkinson’s disease. We are keeping additional information about that collaboration confidential at this point as we would do so for other industry partners as well.

To the third point in launching our own therapy products we have now applied for FDA clearance of the ClearPoint PURSUIT, which is the brand name for our neuro aspiration device developed in concert with the Mayo Clinic.

We submitted this first application ahead of our target schedule in Q2 instead of Q3 and we believe that we remain on track for the first human case using ClearPoint PURSUIT before the end of the year.

This is an exciting opportunity for us to enter the therapeutic market directly and to do so with the device that serves a significant unmet need with some very sick patients. And finally we make great strides toward entering new global markets and better leveraging our assets.

Operationally we reduced operating expenses in the second quarter by about $128,000 or 6% and improved gross margin by 300 basis points, which we believe is pretty remarkable in light of the headwinds that I mentioned earlier.

On a global perspective, we have CE mark clearance for our SmartFlow cannula under the broad indication of delivery of foods to the brain. This CE mark clearance has unlocked shipments to two European customers already, which assumes commenced here in Q3. We expect these cannula to be used clinically in Europe before the end of the year.

In summary, we believe our four-part growth strategy and that the activities here in Q2 despite a few near-term headwinds in this quarter continue to propel us forward. We look forward to providing further updates at Investor Conference at this fall and in our reporting of third quarter results.

With that, I will turn the call over to the operator for any questions and answers that you might have..

Thank you, sir. [Operator Instructions] The first question today comes from Scott Billeadeau of Walrus Partners. Please go ahead..

Well, hey guys. I just have a couple questions.

One just confirming, you mentioned that you probably lost about 25 cases, $125,000 the revenues, so $5,000 a case that’s kind of the number that you talked about that is correct, right?.

That is correct. Most of these laser ablation cases are in fact what we described as unilateral cases meaning only one of our kits is used for procedure..

Great. And then when you think about the PURSUIT product, do you have any – was it too earlier or what do you think about in terms of pricing or what per procedure again these are sick kind of very – kind of unique individualized cases.

But do you have any thoughts of what the pricing or what that might look like?.

That is Joe. We’re still exploring what that pricing program would look like. As far as level of kind of order of magnitude it will include two parts, that it will include a kit which is the same ClearPoint SmartFrame navigation kit that we told today and then it will also include an additional kit which supplies the cannula itself.

So from an ASP standpoint it will certainly be more than the current device. However, we’re still not quite sure where that’s going to land, we want to get some clinical experience in our limited market release first..

Okay, great. And then, I’m not sure what you can talk about just in terms of Voyager’s as they start to enroll and do they kind of order kits as they get in enrollment or what do you – how does that work. Maybe give us any thoughts on how that may play out as that enrollment in that trial occurs..

Sure. I think that’s an important question as well. In the past when Voyager would start a trial, we would often sell all of the kits required for that trial upfront, which would include sometimes a kind of choppy revenue stream based on these larger orders.

As part of our new agreement with Voyager, we’ve agreed to not sell them equipment that way and much more sell them as the product is used. So that’s kind of why you’re not [Audio Dip] choppy orders right now, we’re interested in actually carrying inventory and kind of lending that out so it’s a little better gauge of how the business is doing..

Great.

And then in terms of kind of the current sales, maybe give us a little update on kind of what the force looks like right now and where is the focus? What that looks like six or 12 months from now?.

Sure, I can do. So kind of one of the biggest changes in Q2, I took over as the Head of Commercial as well. So the selling is reporting directly into me at this point. And it’s currently made of four regional business managers that are responsible for placing new capital equipment sort of opening new stores if you will.

As well as selling and training on new indications for existing sites.

And what I mean by that is that even if we already have a site up and running that is using ClearPoint for deep brain stimulation their role doesn’t stop there it’s their responsibility to get that same hospital and maybe a few other doctors excited and not just using it for deep brain stimulation but also for tumor biopsy also for laser ablation.

So that’s kind of the four groups today and they’re based in the United States. We also have on top of that 10 clinical specialists that are the team that really the farmers if you will. They’re the ones that are in the lab every single day working with the surgeons and assisting during the procedure itself.

The one other change I would bring up is that one of those regional business managers has partnered with me personally.

And as we mentioned our relationship with Voyager serving as a blueprint for future biologics and drug delivery opportunities, the two of us together are kind of knocking on doors at this point and trying to expand our relationship with some of these partners in that space.

So it’s kind of a new role if you will which we described as a biologics and drug delivery portfolio manager. And we’re kind of calling on current customers here in the second half of the year and then based on the flow of opportunities there it’s possible that we would turn that into a full time position.

So we would end up with four regional business managers and one portfolio manager. And then as far as looking at 2019, we think that sales team is fine to cover the customers that we have in place and in the pipeline. And we would simply be adding a couple clinical specialists to keep up with the volume of procedures..

Great. Currently with the 10 specialist, do you have any comfort factor, again the type of procedures vary.

But how many can they handle, 200 procedures, so there’s plenty of room, 200 plus 20 a piece? How do you think about that? Or how do you think about it as you populate that group or scale that group?.

Sure. Now I think the magic number for us that we would really want to get to is, every specialist covering about three cases per week and there’s a number of ways to do that. One is to have them visit three sites each week and another way to it, where a specialist is covering two in one day and then maybe one later in the week.

We are getting to that number, I think is a pretty good gauge on when we really truly achieve scale and are very close to breakeven. So right now we’re under two if you just play the averages, but also include us going through some training.

And it also includes the fact that as we mentioned previously very few of our customers today are doing two a day and that’s a big, big initiative for us to be able to get to that point as leveraging all the learning we’ve done of hospital that have really developed an excellent workflow and then training other sites specifically on that.

And I think this ClearPoint 2.0 software that I mentioned that has been submitted to the FDA, it’s got a number of workflow advantages that are going to really make that work flow much more consistent and give us a good platform to complete that training..

All right thanks guys. Appreciate it..

Thanks, Scott..

[Operator Instructions] The next question is from Kris Tuttle of SoundView Technology Group..

Hi. Thanks for taking my question.

You just mentioned that the new version of the software you touched on the improved workflow, I was going to ask more about what magnitude difference do you think the new software is going to make in helping you guys increase the utilization of your existing installations?.

Yes. I think it will help in a couple of different ways Kris, and thanks for the question. The first is just from a simple workflow standpoint and its ability to communicate with other sources of data in the lab. We estimate that it will save anywhere between 15 minutes and 45 minutes per procedure.

Because of the way it moves data around and because of the way it eliminates a number of redundant data entry steps.

And this is driven primarily by the fusion feature where with the pick – really the click of a button or a couple clicks you can take any of the pre-procedure planning that was done on older MRI images of that patient and automatically fuse it together with the live image that’s there in front of you.

Right now it’s a very manual process and this is really going to automate that. So that’s one part that we’re excited about today. The other thing this software does, sets this platform for a future aspect of our business, which is being able to do a lot of the pre-procedure planning before the patient is there on the table and even the night before.

So imagine us being able to provide a service where you can upload images via the cloud to be able to look at prior MRI guided and understand the target that you’re looking for and having a group of specialists similar to our team today being able to provide possible trajectories without the doctor having to do that procedure – that part of the procedure the night before or in the morning.

So we think this software will eventually unlock an additional service for us that we can then provide extra value to the customer in some cases monetize that – this being able to do pre-procedure planning via the cloud as well and not have to fly people around to do it in person. So that’s another opportunity in the future for us..

Okay. All right. Thanks guys, I appreciate that..

Thanks Kris..

There are no additional questions at this time. I would now like to turn the call back over to Joe Burnett for closing comments..

Okay. Well thanks again for joining us today and thanks for your interest in working with us. I hope you can feel our excitement for the progress that we have made this year and our enthusiasm for the second half of 2018 as we continue our four-pillar growth strategy.

In addition to continuing to report our progress and key milestones, we will be attending several investor events this fall including the Sidoti Conference in New York during September.

If you have interest in meeting in person at this or another event in the future please contact Matt Kreps at Darrow Associates, our Investor Relations firm using the contact information in our press release. They will work to ensure you are added to the meeting roster at each of these upcoming events. Thank you very much..

This concludes today’s conference. You may now disconnect your lines. Thank you for your participation..