Greetings and welcome to MRI Interventions Third Quarter 2019 Financial Results Conference Call. [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, 2018 and the company’s quarterly report on Form 10-Q for the quarter ended June 30, 2019 both of which have been filed with Securities and Exchange Commission and the company’s quarterly report on Form 10-Q for the quarter ended September 30, 2019, which the company intends to file with the Securities and Exchange Commission on or before November 14, 2019.

All of the company’s filings maybe obtained from the SEC or the company’s website at www.mriinterventions.com. It is now my pleasure to introduce your host, Joe Burnett, Chief Executive Officer. Thank you, sir. You may begin..

Thank you, Jessie and good afternoon, everyone. Welcome to our Q3 2019 earnings call. With me on today’s call is our Chief Financial Officer, Hal Hurwitz. As always, we thank you for your continued support as our team works relentlessly to improve the quality of life for patients that only some of the most debilitating neurological disorders.

On our last quarterly call, we discussed our strong momentum through the first half of 2019 in each of our four growth pillars. I am pleased to share that we have posted another record quarter for revenue and supported cases. We remain on track to achieving our goal for a record 800 to 850 ClearPoint cases in 2019.

Additionally, we are increasing our full year revenue outlook to a range of $10.5 million to $11.5 million. This is representing expected revenue growth of between 42% and 55% for the full year.

I hope these numbers give you a sense of the excitement and focus across our entire team, as we work every day to grow our company and make positive impacts in our patients' lives.

At this point, I'd like to turn the call over to Hal for a few minutes to highlight our operating results for the third quarter of 2019, after which I will provide some additional detail on our activities in the quarter that support our four pillar growth strategy.

Hal?.

Thank you, Joe. For the third quarter ended September 30, 2019, total revenues were a record $2.9 million. This follows a prior revenue record of $2.6 million set last quarter which also followed a record first quarter revenue report.

Revenue reflected an increase of 62% from $1.8 million for the same period in 2018, breaking that down a bit to the underlying product areas. Functional neurosurgery revenues increased 28% to a record $1.9 million compared with $1.4 million for the same period in 2018. A record 233 procedures were supported in the third quarter of 2019.

Biologics and drug delivery revenue which includes sales of disposable products and services related to customer sponsored clinical trials were $564,000 in the third quarter, an increase of 188%, compared with $196,000 in the third quarter of 2018, and driven primarily by increased product sales to new and existing customers.

Capital equipment product sales and related service revenue increased 144% to $395,000 for the third quarter due primarily to nuclear point system installations and equipment service contracts in connection with our rollout of the ClearPoint 2.0 software.

We now have 57 active surgical centers, 29 of which are utilizing our ClearPoint 2.0 software, up from 22 such centers last quarter. In the third quarter, therapy revenue increase to $64,000 up from $17, 000 in the second quarter when we initiated our first revenue in this category.

Therapy revenue summarizes sales under our US distribution agreement for laser applicators with clinical Laserthermia Systems or CLS. Gross margin for the 2019 third quarter was 66% compared to gross margin of 69% for the same period in 2018.

Gross margin vary slightly quarter-to-quarter based upon our revenue mix between capital equipment, services and disposables. Gross margin benefits from a favorable mix of product sold and greater contribution from disposables and services that carry a relatively higher gross margin.

That said sales of capital equipment while carrying a lower gross margin relative to disposables, is the initial building block and expanding our installed base and enabling our razor and razor blade model.

Detailing our operating costs, research and development expenses were $762,000 for the three months ended September 30, 2019 compared to $617,000 for the same period in 2018, an increase of 23%.

Sales and marketing expenses were $1.1 million for the three months ended September 30, 2019 compared to $765,000 for the third quarter of 2018, an increase of 39%. General and administrative expenses were $1 million for the three months ended September 30, 2019 compared to $1.1 million for the same period in 2018, a decrease of 4%.

In the aggregate, we experienced an increase in operating expenses of 16% while driving a 62% increase in third quarter revenue on a year-over-year basis. Our loss from operations for the 2019 third quarter was $911,000, down from $1.2 million in the prior year third quarter, an improvement of 21% year-over-year.

Cash at September 30, 2019 was $6.2 million compared to $2.5 million at June 30. As of September 30, we had 15 million shares outstanding including the exercise of in the money warrants during the quarter. With that I will now turn the call back to Joe..

Thank you, Hal. Following a great first half, we have continued to execute diligently in the third quarter toward what we expect to be a pivotal year for MRI Interventions. We have set records every quarter this year most notably for quarterly revenue and patient cases, two key metrics for our success.

We believe this clearly demonstrates the growing market penetration and uptake of ClearPoint by the neurosurgical community. With our increasing revenue from disposable sales and biologics activity, we are also seeing the benefits of scale and our margins which flow through the rest of our income statement.

This enables us to focus our balance sheet on actions that drive business growth and operating efficiency, such as hiring impressive team members and stocking up inventory levels for future quarters. Let me cover a few highlights within our for growth pillars to bring you up to date on our efforts.

In pillar number one, continued growth in functional neurosurgery navigation, sales continues to accelerate as demand for our products grew. We completed a record 233 cases in the quarter across our portfolio up from 197 in the second quarter and 175 in the first quarter.

In total, that's 605 cases and counting this year, a number that we believe keeps us on track for our goal of between 800 and 850 cases for the full year of 2019. In the quarter we installed ClearPoint at two additional sites for a total of 57 active surgical centers using ClearPoint today.

Utilization at sites has also been a focal point this year particularly our two a day approach that is fully supported by our ClearPoint 2.0 software. We added another hospital scheduling two a day procedures in the third quarter bringing our total count up to 10 sites using this protocol.

We believe this approach provides better economics and encourages greater adoption of our platform by neurosurgeons. Additionally, our ClearPoint 2.0 platform is now fully commercialized and available as an upgrade to any existing U.S. customer.

ClearPoint 2.0 is now installed at 29 of our 57 active surgical centers which are up from 22 in the last quarter. For pillar number two, growth in our biologics and drug delivery business, year-to-date we have now shipped product or performed service for 15 customers in the first nine months of this year, up from 10 last quarter.

In the quarter, we added an additional development agreement with a new partner that we expect will contribute meaningful revenue in the next 12-months. We continue to actively seek development and clinical trial agreements across our entire portfolio of partners and drugs and gene therapy.

We are very excited about this partnership approach as it further demonstrates the unique and important benefits of precise navigation and real-time monitoring for critical and high-cost clinical programs. Pillar number three is the launch of our own therapy products.

We initiated our very first therapy product orders in Q2 driven by our distribution partnership for non neuro applications of laser ablation with CLS. These sales continue to grow in Q3 and we expect additional growth this quarter as we continue to roll this program and participate in clinical protocols.

Our internal development efforts continue to track for our neuro application of laser ablation and we still expect to perform our first human case in the second half of 2020. Turning to pillar number four, global scale and efficiency. We achieved a greater than 60% year-over-year growth rate on just mid-teens increase in operating expenses.

This was actually the third quarter in a row to achieve greater than 50% top-line growth on a much smaller increase in operating costs. Our focus remains on helping patients and growing the top-line, but we will not lose sight on the importance of progressing our company toward breakeven.

Based on three strong quarters of execution by the entire team, we are increasing our revenue forecast to between $10.5 million and $11.5 million in sales. This represents a forecasted growth rate between 42% and 55% year-over-year. We also continue to expect case volume across our portfolio to fall within our prior estimates of 800 to 850 cases.

With that I will turn the call over to the operator for our questions-and-answers session..

[Operator Instructions] Our first question comes from Braden Hedge Pass with RTM3. Please proceed with your questions..

Hey, guys. Congrats on the great quarter. I was just wondering if you guys could shed some more light on hospitals adopting the ClearPoint 2.0 in the MRI suite.

Is that more of a hospital demanding it or the sales team pushing it?.

Hey, Braden, thanks for the question. I would say it's the latter is certainly true because we wouldn't be doing our job if we weren't. But the former I think is correct as well. The way we think of 2.0 is an improvement in efficiency and pre procedure planning. So these are things that have kind of been on our list for a number of years.

The benefit of having participated in 3,000 cases now is that our people are there in the room and we get this direct feedback on how to improve our procedure. And many of those improvements have been rolled into this 2.0 software.

So it's-- I think it's a very comforting feeling to have our sales team be able to walk into an accountant and then be able to say, look, we know we've received the feedback from you in the past. We've now put that into motion and it's now an available feature. So I think it's a combination of the two..

Our next question comes from Joshua Lane, a Private Investor. Pleased proceed with your questions..

Hello. I wanted to ask you what you know about competition. In other words the regulatory environment. When I read the 10-K I see that there are people who are working but nobody so far as I know it's working in the same area that you are that is to say trying to develop equipment they can go straight into an MRI.

You would know if there was such an initiative, you list the number of people who are interested in the area or working in the area, but no competitors.

Wouldn't they have to file or say something so that you would know if they existed? Are you there?.

Yes. I am here. This is Joe. Thank you for that question as well. There are other companies that I believe are working in the space as well.

From our standpoint and our view, we feel that maybe 10% of total neurosurgery procedures that we could participate in are currently being done in the MRI scanner, which means 90% or more are still being done in the operating room.

So when we think of neurosurgery navigation and our competition in that space, I think our push to maintain leadership in the MRI guided segment is really a small part of our opportunity compared to our opportunity to pull more cases from the operating room into the MRI suite. So I think that's one part of the question.

As far as awareness about some of the other competitors, I think it's the fact that we're a small company, but we're also publicly traded so we have a number of disclosures that we make and we give updates to our investments on a quarterly basis here.

Many of the other companies either in the OR suite or potentially in the MRI suite as well are more of a private company or that region of the business is whole enough that it doesn't show up on a lot of their public records.

So we, at the same time that we want to disclose everything we can, we also try to keep some information to ourselves relative to not giving away too much competitive information..

Our next question comes from Elliot Messing, a private investor. Please proceed with your question..

Yes. Hi, I was once involved in a laser company and they were able to get a separate clear to bill for all procedures.

Have you ever tried to get a separate clear and without expanding the scope of people who would use you?.

I guess I'm not too familiar with the term a separate clear.

Can you maybe explain that a little bit better for me?.

Yes. A separate clear is when a procedure is done instead of just the doc's ability for the procedure, he would bill for the procedure plus he would bill for whatever your charges are separate so it wouldn't come out of their pocket..

Okay, yes. I guess I don't have any direct experience with that. I think the way that our products are handled today including our partners in the laser space is that all of the materials used in the procedure itself are billed under a DRG. So it's a bundled code for a craniotomy or some other type of neuro procedure.

In addition to that, the hospital or the surgeon rather is able to bill certain CPT codes that allow them to charge for their time and services. And our products as well because they're being done in the MRI suite. You can actually bill for additional diagnostic codes as well.

So the radiologist or the neurologist interpretation of some of those images. So that's really the path that our current customers follow today, which I think is widely accepted. I'd have to look on the ability to kind of pass on some of those additional cost sides. I'm not familiar with that..

Our next question comes from Richard Eisenberg, a private investor. Please proceed with your questions..

Yes, good afternoon. What are your expectations for revenue growth from 2020? And as far as free cash flow, when you expect to be free cash flow positive 2020, 2021? Thank you..

Sure. Yes, so I'll answer partially. So number one on the revenue side of things, we have not given any sort of forecast to 2020 revenue. Last year, we did it I believe during our first quarter earnings call. So once we've recapped and closed the entire prior year, at that point our budget is also confirmed by our board.

And it puts us in a position where I think we would likely give forecast again this year. But I would imagine that we'll be coming about three months from now as opposed to now. So that's kind of where we are on that side.

On the question about when we could get to free cash flow breakeven, that's similarly if it's something that's very difficult for us to commit to at this point. The reason for that is that we do see some opportunities to accelerate top-line growth.

So if we wanted to prioritize breakeven above everything else then I would say by 2021 we could certainly have a breakeven quarter, if that was the most important thing for us to do. However, we're constantly evaluating new opportunities to accelerate that top-line growth.

And if that would come at an investment that pushes profitability out another year, it's certainly something that we and the board would evaluate..

Our next question comes from Bruce Conway, a private investor. Please proceed with your question..

Hi, Joe. Again congratulations on the quarter.

Joe, can you --I'm not sure if you're able to but can you comment on Voyager Therapeutics progress and maybe how that's impacting our revenues?.

I will leave any of the detail from Voyager standpoint to their own financial statements and public comments. They're obviously very, very close to it and closer than I am. So I don't want to make any commentary there.

I can tell you, like I have in the past that they're certainly making progress in their trials, as well as their partnership with Neurocrine that is publicly announced.

And from a scale standpoint, I again believe that partnership with Voyager and to some extent with Neurocrine given the partnership that they've created in totality is anywhere from a $2 million to $3 million potential partnership for us.

So from a timing standpoint again I'll leave it to them relative to enrollment of the trials and next generation systems and things like that.

But when we talk about trying to sign one additional Voyager type deal each year to continue to fuel our biologics and drug delivery business, that's the type of scale we're talking to that $1 million to $2 million plus range is how we think of it..

Our next question comes from Robert Nathan, a private investor. Please proceed with your question..

Congratulations on the quarter, Joe. I was wondering if there might be any synergistic acquisitions that could be a meaningful path to revenue growth..

Sure. It's a terrific question; it's certainly something we think about on a routine basis.

There's a time and a place for everything and what I think is great about our commercial team today is we really are getting to the point where we have that scale that we can cover the entire country between our territory managers or regional business managers as we describe them.

As well as our clinical specialists that scrub into each and every procedure. So now that we have that scale and we have that footprint, we're always looking and open to ideas of additional products that we can tuck into the bags and really gain leverage at right away since we're already bearing the expense of that footprint.

We haven't really had to do as much with acquisitions at this point. Our focus has been more on partnerships like with CLS, with Voyager and PTC and companies along those lines. But we're certainly open for business if you will and try to do it in a focused way where we're primarily calling specifically on neurosurgeons. End of Q&A.

Thank you. It appears we have no additional questions at this time. So I'd like to pass the floor back over to Mr. Burnett for any additional concluding comments..

Well, thank you for joining us today and for your partnership in treating these very, very sick patients. We see growth ahead in our core neuro surgical cases. Our biologics partnerships and in developing our own therapeutic tools.

We are very excited for continued success in the remainder of 2019 as we continue our journey to becoming a premier platform neurosurgery company. We will also be doing outreach through select conference and roadshow opportunities, including the upcoming Canaccord Med Tech and Diagnostics Conference in New York City this month.

And the LD Micro Conference in December. If you have interest in meeting in person, please contact Matt Kreps at Darrow Associates. Our Investor Relations firm using the contact information on our press releases. He will work to ensure you are added to our meeting rosters at these or any upcoming events.

On behalf of our entire team, we thank you for your continued support of our efforts to take on these debilitating neurological disorders and look forward to continued progress ahead. Thank you very much..

Ladies and gentlemen, this does conclude today's teleconference. Once again we thank you for your participation. And you may disconnect your lines at this time..