Greetings and welcome to Pulse Biosciences' Third Quarter 2021 Earnings 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. I would now like to turn the conference over to your host, Philip Taylor, Investor Relations. Thank you, sir. You may begin your presentation.

Thank you, operator. Before we begin, I would like to inform you that comments and responses to your questions during today's call reflect management's views as of today November 15, 2021 only and will include forward-looking statements and opinion statements including, predictions, estimates, plans, expectations, and other information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission. Our SEC filings can be found on our website or on the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. We will also discuss certain non-GAAP financial measures. Disclosures regarding these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures, can be found in the press release. Please note, that this conference call will be available for audio replay on our website at pulsebiosciences.com on the News and Events section of our Investor Relations' page. With that, I would now like to turn the call over to President and Chief Executive Officer, Darrin Uecker.

Hello and thank you all for joining us this afternoon. 2021 has proven to be a transformational year for Pulse Biosciences as highlighted by our first recognized revenue in the third quarter. On today's call, we'll be discussing some of our recent accomplishments and plans to drive growth as we expand CellFX System commercial efforts. I will also touch on our clinical and regulatory pipeline. Then Ed will provide details from the field on the Controlled Launch program and the planned ramp up of commercial activities. Sandy will then share details around our financial results, and then I will conclude and open up the call for Q&A. Our product, the CellFX System with CellFX CloudConnect is a multi-application platform for the delivery of our novel and proprietary Nano-Pulse Stimulation or NPS technology. The post-electrical energy delivered by our CellFX System directly impacts cellular structures, leading to the clearance of cells, while sparing non-cellular structures, such as collagen. The differentiated non-thermal modality has been shown to clear benign skin lesions with a more favorable healing profile and aesthetic outcome than the thermal modalities currently used in dermatology practices today. In the third quarter, 12 dermatology practices that were participating in our Controlled Launch program opted to purchase their CellFX System and order initial cycle units to begin performing CellFX procedures commercially. The unique features and benefits of the CellFX System are enabling these clinics to launch a new category in dermatology, the treatment of benign skin lesions. These industry leaders took the time to learn and experience the unique features and benefits of the CellFX System and have determined that offering this unique procedure to clear common spot, bumps, and growth in a fashion that is not only acceptable, but ascetically pleasing for patients will meaningfully enhance the offerings of their…

Thank you, Darrin. I will start by reviewing the success we've had with the controlled launch. As of September 30, 2021, over 1,800 procedures were completed on the CellFX systems across 67 clinics in North America and Europe. To date, progress with a controlled launch is tracking largely in line with expectations and we could not be more pleased with the overwhelmingly positive feedback from KOLs on the CellFX system and how it is enabling a new avenue of expansion for their practices. Just as importantly, KOL feedback on best clinical and commercial practices from the controlled launch experience will lay the foundation of acceptance for the next wave of early adopters in the coming quarters. The controlled launch continues to provide us with many important learnings regarding real-world utilization, business model and franchise development, technical training, and the account on-boarding process. We've already begun utilizing some of these lessons to advance doctors and providers through the controlled launch process faster than the initial participants. Our sales force also had a unique opportunity to build understanding of the adoption dynamics with both physicians and consumers, while developing a process of best practices to drive both utilization, and future capital equipment sales. The lessons from the controlled launch will continue to reinforce the foundation for our future business, as we look to scale and expand our commercial operations. The application of these lessons will continue to support our KOLs and customers in the field, as the next phase of our broader launches rolled out. As part of the controlled launch, we are collecting vast amounts of data and feedback from both physicians and patients. We are seeing high physician satisfaction with the system functionality and treatment outcomes. We also saw exceptional patient satisfaction with procedure experience, procedure time and treatment results.…

Thank you, Ed. As Darrin mentioned, in the third quarter, we recorded our first revenue as a company. For the third quarter of 2021, revenue was $574,000. Revenue was driven by the conversion of 12 controlled launch participants, opting to purchase their CellFX Systems following completion of the program. System sales of $490,000 for recognized on a non-cash basis, revenue related to cycle units was $84,000 recognizes cash for the initial cycle units purchase for commercial systems. Revenue in North America was $405,000, representing 71% of total revenue. Moving down to income statement, I'll focus my comments on our adjusted or non-GAAP results to provide insights into the underlying trends of our business. Please refer to today's press release for a detailed reconciliation of non-GAAP measures with the most comparable GAAP measures. As we have now shifted to a commercial organization recognizing revenue. All uncapitalized manufacturing operation costs are now recorded in cost of revenue. Previously, these costs were recorded in research and development expense. Non-GAAP gross loss in the third quarter of 2021 was $113,000. Gross loss is calculated as total revenues, less cost of revenues. For the third quarter of 2021, non-GAAP operating expenses, representing research and development, sales and marketing and general and administrative expenses were $12.3 million compared to $10 million for the prior year period, and approximate $2.3 million increase year-over-year. The year-over-year increase in operating expenses was primarily driven by the expansion of commercial and operational infrastructure, including increased headcount to support commercialization activities. Non-GAAP research and development expenses increased by approximately $0.3 million to $6 million for the three month period ended September 30, 2021, primarily due to increases in personnel, clinical trial costs and consulting and outside services in support of our FDA submissions, and new application development. These additional costs were…

Thank you, Sandy. 2021 continues to be a transformational year for Pulse Biosciences as the business recorded its first ever revenues. As we wrap up enrollment in our controlled launch program, we're taking the lessons we learned from participating clinicians and their patients to build the foundation for our business in 2022 and beyond. Q4 is continuing to shape up into an exciting quarter as those KOLs that participated in the Controlled Launch program begin to converge commercial use. And we look forward to our first commercial sales with CellFX System as we capitalize on the positive feedback and momentum we have received from the Controlled Launch program. Our dedication to developing new applications for the CellFX System, for the benefit of both patients and clinicians is unwavering. And we were pleased with the recent cadence of developments. We look forward to providing more details around our commercial launch and clinical trials on our next earnings call. Before we open the call to questions, we want to welcome Laureen DeBuono, to our Board of Directors. She is an experienced healthcare executive who has been successful driving strategy and operational excellence at several medical technology and esthetics companies. We look forward to her contributions. And with that, joining me for Q&A are; Ed Ebbers, Executive Vice President and General Manager Dermatology, and Sandy Gardiner, Executive Vice President and Chief Financial Officer. Operator, please open the call for questions.

Thank you. Good afternoon, Darrin and Sandy. And this is RK from H.C. Wainwright. Good. Good. Congratulations on recording your first quarterly sales. That is certainly exciting. So I totally apologize for asking a kind of a negative question. But that's just my only negative question. I promise. You folks said there were some clinics that opted out. Just want to understand, you said few -- I'm just trying to figure out what the few means?

Yeah, so that's okay, RK. It's a good question. And, at the end of the quarter, I think we had had two clinics that had opted out. And, like I mentioned, those are those clinics, I think we developed a -- what we believed was a pretty detailed process for selecting clinics and setting expectations with clinics and getting them involved. You could imagine there's a lot of interest in a new technology like this that we feel has a lot of unique capability and applications and there's a lot of interest on the clinician side. But I think even with all the filtering and selectivity that we did, I think some clinics as you begin to get them involved in the program, they start to realize sort of how much we're asking of their time, in terms of not just using the technology, but surveys from the patients, from physicians, from the staff and how much we want to work with him. And I think there -- there's a handful of clinics and as I mentioned too an early going, that sort of opted out and said, look we're -- you know, this is a lot for us right now, we're probably not in a good spot to be able to take on a new technology participant in a program like this. But of course, we think they'll be excited to take it on later in the process. So, I think it was -- it's more -- our observation is that, it's more kind of that process that's going on with some of these early clinics, as opposed to anything else.

Okay, that's fantastic. So as opposed to those to 2, the 12 that converted into commercial, couple of things come to my mind as to, how long did it take for these folks after they completed their trial period to decide to go commercial? And also, do you think the -- what these 12 clinics are experiencing, both from their side and from your side, is sort of the typical experience that the clinics that are coming on board, continue to handle? Just trying to understand how that process is working?

Yes. It’s good question. And unfortunately, maybe I'll answer it, as you know, each clinic is a little bit different, as you know. So it's a little tough to generalize on all 12 of those. But I would say that for the most part answering kind of the first part of your question, which was, how long after kind of going through the program, did these clinics opt to acquire the system and begin to use it commercially. And I would say that for the most part, these clinics, as soon as they completed, we're pretty much ready to go. Now, it took a different amount of time for each one of these clinics to get through the program, which is very much, very much what we're experiencing across the board. So some clinics come on. They go through their 40 sessions, very quickly, maybe in two months to three months, and they're ready to convert. Others -- take a bit longer. And a lot of that, again has to do with their own clinic dynamics and the amount of time they have to spend on these things. And I think we've mentioned on previous calls, the controlled launches is a very measured program. And from our perspective, we try to keep it as a very controlled program, meaning that we want to be there kind of high touch, high service, every step of the way. So we go in and do initial training and education of their staff. And we want to be present, both during all treatments, if we can be as well as at 30 day post, 60 day post treatment observations. And so we spend a lot of time with the clinics during this process. And so, the amount of time it takes them to get…

Okay. One question to Sandy. Sandy, you stated that 70% of the 574,000 came from North America is 70% also the representation of the 68 clinics that you have gone out, and done the – done the – in our initial beta launch? Is that – is that how we should think of, or it just so happened that 70% of this 12 happened to be in North America?

No, I actually think that that's how you should roughly think about it, when you think about the geographic regions that we're in, roughly 70% to 75% will continue to be in North America, and the remaining 25% to 30% will be in the EU.

Okay. One last question that's for Ed and Darrin. So when you're looking at this expansion, the 510(k) filing that you're going in. And I'm assuming it's a 90 day review period. But however, on the other end of it, let's – once you have a positive decision on this – how should we think about the dynamics in terms of usage? Will it be a lot different than what you're expecting without it? Just try to understand, how we should think about the dynamics of usage of cycle times?

Yeah. And it's also a very good question. So with regard to the review time, I think the one expectation, I would said is, we really not sure in terms of the overall timing of this review from FDA. So you're right on FDAs, 510(k) reviews, if 90 days is what they try to hit, and that's the period of time that they are on their review clock, there's usually time that is also taken up by whatever questions they may ask the company. And so the only reason, I bring that up is, this is the first sort of FDA approved IDE study 510(k) that we were submitting to FDA for the CellFX system. And so I think I would, temper some expectations it's probably going to be longer than 90 days, I think, many of these can go, 120, maybe up to 150 days. So, I think, we're excited to start getting this data into the FDA, and get into the review process and, be able to engage with them. But I think we would expect they would take their 90 days and then also have questions for us. So that's just on the timing side. As it relates to, what the impact will be in the market? I think what we believe from the beginning is that in the US, we certainly believe that it's important to get specific indications on lesions that we think there's a significant opportunity, and getting those specific indications is really for the purposes of allowing the clinics to promote these specific indications, more directly to their patients and at large. But I think, what we've said before is, we don't really think that, through the control launch, and even in to some of the early adopters, which we're now starting to talk to. It's not as – it's not as important to them, I think a lot of those clinics are very savvy, in terms of how to incorporate a new technology into their clinic. They're very used to talking to patients about new technologies and new applications. So I think it's – it's a little bit more of a downstream need, as we kind of reach past the early adopters into the larger population of these ascetic physicians and clinics. But we do think, it's important as we get to those clinics to have these indications and to give them the ability to market to their patients in that way. So I think it's -- these are milestones, sort of along the path of commercialization. We already have, as you know, these indications outside the US. So both in Europe and in Canada. And so this is sort of a stepwise expansion, I guess, in the US.

Thank you all. Thanks for taking my questions.

Yeah, thank you, RK. Appreciate it.

Our next question comes from the line of Chris Cooley with Stephens. You may proceed with your question?

Good afternoon, and let me echo those positive sentiments on generating your first revenues. That's great news. Maybe just from me a big picture question and just make a clarification one. On the big picture side, help us think a little bit about how you're prioritizing and queuing potential new indications for use, clearly CellFX system has significant potential use and a number of different indications. I'm just kind of curious how you're assigning focus and kind of letting these all fall into the funnel and then sort them out. Such that you can not only continue to advance the pipeline, not only within dermatology, but outside of dermatology, but also do so in a cost effective manner and targeting those syndications have the highest probability of approval and also highest probability of commercial success? And I've got a quick follow up.

Yeah, sure. Thanks, Chris. Thanks a lot for joining the call and good question. And congratulating us on the revenue, we're certainly excited about it. So, with regard to the pipeline, it's a very good question. As you can imagine, and I think, we've talked about, we get a lot of inbound from physicians on various indications that they're excited about. And I think the more we've been out in sort of a commercial and an early commercial environment, in the US and in Europe, and in Canada, the more inbound we get from physicians about their interests and new lesions. So our -- internally, I think, we really try to focus pretty much as you just said, at the end there, which is, what are the indications where we see a significant clinical unmet need, and I think, in dermatology, this is along the lines of things where physicians are telling us, I don't really have a good treatment for this or the treatments that I have don't really work very well. And so, some of our early indications, sebaceous hyperplasia is one where you talk to physicians, and we know, by our surveys that largely 60% to 70% of these patients go untreated. And this is physicians telling us, that they just feel like they don't have good solutions. And so, they steer their patients away from those treatments. And another one I would say is warts and warts is slightly different. I think most people can understand that warts can oftentimes be treated with cryo, some form of cryo spray or liquid nitrogen. But I think most people also realize that, that is not a very good solution for warts in the sense that those warts often come back. And physicians will say that, they'll see patients…

Super. And maybe just very -- very briefly for me, maybe just clarification. Sandy, when I look at the systems -- the 12 systems and I'm just looking back to the model in the first and the second quarters, can you confirm that there are no more systems that were on boarded during the 1Q, which have not flipped? And I guess maybe as the offshoot to that, I know Ed in the past, you've mentioned that there's been some learnings here in these initial stages that would help you go faster in some select markets. I'm just curious based upon that, is that still holding true? And so that you think as you own board this last wave, the potential to flip those to commercial is in a shorter fashion than those initial ones were? And that's -- then I'll hop back in queue. Thanks so much.

Thank you. Thank you for that question. Great question. I'll start with the last portion of your question first. Indeed the early lessons of Controlled Launch are being applied to the more recently installed sites and we are seeing an acceleration of their adoption because they are applying the lessons of their predecessors. And we're seeing a more rapid transition to a willingness to charge revenues or charge a price to the patient during the Controlled Launch, because they have others who have preceded them, and sort of set the stage for the commercial value of a cosmetically elegant clearance of these various benign lesions. So, I'd say generally speaking, we're seeing the benefit of the early pioneers on the later participants in the Controlled Launch and we certainly anticipate that going forward. And I think Canada actually is a great example, where we have the full labeling, the ability to promote all the tools that you need to help someone build a business. We see that moving, moving – moving quickly, where – generally speaking, the US sites that are seeing others show success, and we're able to show them more things, both clinically and commercially. We're seeing more rapid uptake. So I would say that, it's sort of a bell shaped curve in terms of the distribution of early converters versus late converters. Some people just have different scheduling challenges than others. But generally, the more recently installed sites are going faster.

Thank you.

Our next question comes from the line of Anthony Vendetti with Maxim Group. You may proceed with your question.

Thank you. Yeah. I think most of my questions have been answered. Just on the specific learning's from the KOL launch, was there anything specifically that you learned during this process that has caused you to tweak the protocol or the system as you – as you move to the commercial launch? And then on the commercial launch, I understand it is starting this quarter. I know most of the commercial launch will be in 2022. But we're halfway through this quarter. So has the commercial launch actually started, or are you expecting to start it between now and the end of the year?

Yeah. Hey, Anthony. Two good questions, I'll jump in. And then maybe I'll pass it to Ed, for a bit. So just in terms of, tweaking things and learning's, I think you mentioned the system and protocols, I think, from the system perspective, I would say not really, I mean, certainly, we're always looking to improve little things here and there in terms of the user interface, and how physicians interact with the system, but there hasn't been anything significant. I think, fortunately, that we've had a really change in terms of the hardware or the software outside of sort of continuous improvement, in particular in the software, which we're a company that sort of has, I think, we have the hardware piece, which is CellFX System, but we – a lot of the kind of value that we add, I think is on the software side, both in the system, but also in the cloud, as we've talked about. And so we continue to do a lot of development on the software side, whether it's sort of algorithm development, graphical user interface or even into the cloud and how we display some of that data. So I think nothing major has come out of that, except for, you know, as you go through the process, you learn things and you're continually improving the system. In terms of protocols, we've certainly learned things, physicians will share different techniques as they begin to see kind of how the tissue responds, what the healing response is, like, with different lesions and different patients. And so there's nothing specific that I would point to, but I would say, there are certainly things that physicians try, as they begin to learn the system that we appreciate, and we share those learnings across the board. You know, the probably the most significant is learnings about treating different types of lesions. So I mentioned dermatofibroma. I'll just bring it up again, I mean, that's something where a physician or two sort of said, look, this is a Benign Lesion. I think it's very interesting. I think, this based on what I'm seeing, this -- I have a good feeling that CellFX would work well on these types of lesions. And so we've, kind of, gone down that path and seen some good anecdotal evidence and will begin to put some resources behind it in terms of the clinical research. So I think, fundamentally those have probably been the things that, in terms of the system and the protocol. And then just in terms of overall clinic adoption maybe I'll hand it over to Ed, and let him talk a little bit about that, and sort of the economics because I think there have been some important learnings there as well.

Okay.

Ed, I think, you might be on mute.

I'd say, thanks for the question. I'd say first and foremost, our degree of confidence to take a physician in their practice from nothing to significant activity has grown. In part of it -- is that our sales team gets a sense for how the workflow works in practice, and how we can adapt what's required to move a patient through their clinics in an orderly and organized fashion by specifically citing other physicians and how they're doing it. And, of course, these things only learn through observation and iterative learning that continues. So I think especially the workflow management, we are able to go there with a clipboard and sort of check take charge and say to make these patients move through your system most efficiently in terms of consultation, anesthesia, actual treatment, billing, and post treatment management in terms of communications and other activities. We've just gotten a great deal more confidence in applying the lessons as the early participants, the more recent participants. So there's nothing really major. But in combination, all these little tweaks taken together lead to a more commercial like experience that happens earlier and earlier with each newly installed site, which is what we plan for an expected with the controlled launches to have this learning curve be applied to the subsequent installations, and we certainly see continued incremental learning. And each new lesion is its own little lesson plan of what's going to happen next. So, as Darrin mentioned, dermatofibroma is a new lesion that we're still learning on and physicians are still teaching us about where warts, we feel like we made a lot of progress really fast. And physicians are picking up on seeing the impressive clinical results and commercial victories of patients saying, I've had warts for years and years, and this is the first time I've been able to get treated and have it go in a single treatment session, and talk about paying more money than physicians thought was possible for wart treatment, because of those impressive results. So those are those are the kinds of lessons that when physicians pass them on to other physicians has real impact on the adoption curve.

Okay. And then on the marketing…

Yeah, yeah, I'll touch on the commercial progress question. So I think it's not, sort of, a binary transition, I would say from a Controlled Launch program to what we've call broad commercial launch. So we're phasing down as we've described in the Controlled Launch, as clinics get through the program. And we're converting them, that'll continue through this quarter and into the next quarter. And likewise, we we've already started with our field personnel, out talking to kind of early adopters. And you can imagine that as those clinics hear about and see, whether it's on social media or otherwise, their colleagues and local clinics, using the CellFX System, we get inbound. And so we started taking to those early adopters, those clinics that are outside of the Controlled Launch program, and we expect it, we'll see some commercial traction in this quarter. Our field team is really focused on a Controlled Launch and making that a -- successful as we can. But we are spending some time as we begin to sort of roll into the full commercial launch.

Excellent. Thanks for that color. Appreciate it.

Yep.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Darrin Uecker, for closing remarks.

All right, thank you, operator. And thank you, everybody for participating in the call. We really appreciate it. We're excited about where we're at, and we look forward to the next investor call where we can update you. Thank you.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.