Good afternoon, and welcome to the Stereotaxis, Inc. Second Quarter 2024 Earnings Conference Call. Certain statements during the call and question-and-answer period to follow may relate to future events, expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company in the future to be materially different from the statements that the company's executives make today. These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements. [Operator Instructions] As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to your host, David Fischel, Chairman and CEO of Stereotaxis.

Thank you, operator, and good afternoon, everyone. We have made significant progress this quarter on several key aspects of our strategic transformation. I want to spend the majority of today's call reviewing those advances and how we are establishing a solid foundation upon which to build a substantial and successful company. Before getting to that, though, I want to address head on our commercial results and financial position. I recognize the quarterly numbers were disappointing. Our results for the first half of this year were significantly impacted by reduced capital revenue. These results do not reflect a steady state reality. We are confident in a significantly stronger second half of this year from both a revenue and cash flow perspective. Let me briefly address the weak first half and share the source of our optimism in an improved second half. Despite our significant backlog of Genesis orders, the timing of multiple hospital projects and associated system shipments became elongated, leading to minimal capital revenue in the first and second quarters. Capital sales are inherently lumpy, and the first half was far below our normalized level. Our visibility into system shipments during this third quarter and the remainder of this year gives us high confidence in significantly higher revenue recognition and cash flow. There are currently two Genesis systems in transit to European customers as we speak, with revenue recognition taking place upon delivery of those systems. There's one additional system ready to be shipped within the coming days, and we have signed purchase orders with down payments for two additional systems planned to be shipped before year-end. One of those has a contractual requirement dictated by a tender to deliver the system in the fourth quarter. The three Genesis systems currently being shipped will generate $5.5 million in revenue recognition…

Thank you, David, and good afternoon, everyone. Revenue for the second quarter of 2024 totaled $4.5 million compared to $7.9 million in the prior year second quarter. System revenue for the second quarter was $0.2 million, and recurring revenue was $4.3 million compared to $3.3 million and $4.6 million in the prior year second quarter. The majority of the revenue decline in the current quarter is driven by timing of system deliveries delayed by elongated customer construction projects. System revenue in the current quarter reflects minimal revenue recognized on system installations compared to more substantial system revenue recognized in the prior year quarter from system delivery. System revenue is inherently uneven from period to period, and the performance in the quarter is not reflective of our expectations for the balance of the year. We maintain system backlog of $15.3 million as of the end of the second quarter. Gross margin for the second quarter of 2024 was 74% of revenue. Recurring revenue gross margin was 76%, and system gross margin was 22%. Operating expenses in the quarter of $9.3 million included $2.5 million in noncash stock compensation expense. Excluding noncash stock compensation expense, adjusted operating expenses were $6.8 million, comparable to prior year adjusted operating expenses of $6.9 million. Operating expenses in the quarter were impacted by higher acquisition-related legal costs and regulatory-related activities counteracted by the reversal of a historical approved liability. Operating loss and net loss for the second quarter of 2024 were $6 million and $5.8 million compared to $5.3 million and $5 million in the previous year. Adjusted operating loss and adjusted net loss for the quarter, excluding noncash stock compensation expense, were $3.5 million and $3.3 million compared to $2.7 million and $2.4 million in the previous year. Negative free cash flow for the second quarter was $3.1 million. Our financial statements for the second quarter do not reflect any consolidation or impact from the APT acquisition beyond legal expenses incurred during the acquisition process. We are consolidating APT's results starting August 1. Our third quarter financial results will therefore include two months of APT results. At June 30, we had cash and cash equivalents of $15.2 million and no debt. I will now hand the call back to David.

Thank you, Kim. As mentioned previously, we continue to focus on realizing our strategic transformation while maintaining commercial momentum in preserving financial strength. Substantial value creation is ultimately predicated on establishing the right foundations for the company upon which we can profitably grow orders of magnitude larger. While our short-term results had a minimal impact on our long-term value, we recognize the quarterly numbers are disappointing. Our visibility into the second half of this year gives us high confidence in significantly improved performance compared to the first half of the year. We expect greater than $14 million in revenue in the second half of this year, with stable recurring revenue and the minimum revenue from the Genesis systems currently being shipped. We expect likely upside to that minimum expectation, with full year revenue approximately equal to the previous year. These expectations do not incorporate contributions of revenue from APT or potential revenue from the launch of GenesisX and MAGiC. We are cognizant of the importance of protecting our balance sheet, protecting shareholders from unnecessary dilution and managing Stereotaxis in a financially prudent fashion. We expect to end this year with $13 million in cash and no debt. We view our existing balance sheet as allowing us to reach key milestones, commercialize our new innovation and profitably grow our business. We have no intention of diluting shareholders at current valuation levels, and will be thoughtful in how we manage our financial position and protect shareholder value. Operator, can you please open the line to Q&A?

[Operator Instructions] Our first question comes from the line of Adam Maeder with Piper Sandler. Please go ahead.

Hi. Good afternoon, David and Kim. Thank you for taking the questions, and congrats on the approval for X in Europe. I guess a couple of questions from me. The first one would be on the MAGiC catheter and wanted to, I guess, better understand the CE mark commentary there. So it sounds like you're getting pretty close. I think I heard you use the verbiage, hope to complete the microbiology part of the submission or review shortly and then you'll kind of be off to the races, and I also heard there's no assumed contribution in the guidance from MAGiC. So David, maybe you can kind of help square that up for us? Once you have CE mark approval in hand for the MAGiC catheter, how aggressively will you launch into the marketplace? That's my first question, and I have a follow-up or two. Thanks.

Sure. Thanks, Adam. Good afternoon. So you understood our regulatory progress and status correctly in Europe. There are three areas of review that the notified body does as part of the review of the submission, and two out of those three including the most important one for us, which was the clinical area, which a year ago prompted us to have to do the clinical study, we passed successfully. So those kind of are buttoned up and final kind of success marks. The microbiology question, we have not yet received. And so we're waiting to receive. We've been told that they should come any day. We thought that they would already have arrived last week, and we're waiting with bated breath for those questions. We never know exactly what to expect whether those are going to be few questions or many questions, whether there's going to be any questions that require more significant effort to respond to or whether they're largely administrative responses to them. So as we get that, we're obviously going to have a much better feeling for the status. About a year ago or a little bit over a year ago when we went through the review process, at the time, there were essentially no material questions on the microbiology side of things when they asked us to do a clinical study because they couldn't pass us on the clinical side. So we're hopeful that we'll have something similar like that when we get the first round of questions, but obviously, we have to wait to see those questions. And once the microbiology questions are received, we respond to them. Let's kind of hope that, that goes smoothly and we get kind of also written confirmation that we passed the microbiology review. Then really, there's no additional…

That's very helpful color, David. Thank you for all that. And for the follow-up, just a multipart question on the GenesisX system. And I guess one part is just trying to better understand the pricing strategy and margin profile of the system. And then I also heard you, I think, reference different selling models there. I think I heard outright capital purchase, operating lease and volume-based agreements. So I would love for you to kind of flesh those out for us. And then just any color in terms of speed of launch. I mean it certainly sounds like 2025 is really when you're going to kind of be making a bigger push in Europe with X and, I guess, the U.S., for that matter, but I would love just to hear a little bit more about kind of the initial launch plans. Thanks so much for taking the questions.

Sure. Thanks for the good question. So we -- obviously, we can't launch GenesisX until we get MAGiC approved both in Europe and the U.S. And so that is a little bit holding us back at this point from trying to launch the system or even announce it in a more complete way. We're going to use the remainder of this year to get those approvals, to prepare ourselves for a full launch. And I view some of the larger conferences next year in Europe and the U.S. as the ideal setting in which to launch GenesisX. In many ways, this is not just a product launch. This is reframing, reintroducing Stereotaxis' to the community, to our EP community, in a way that breaks down many of their historical misperceptions or perceptions on the technology. And so kind of we view kind of doing the good launch of the technology when we're able to do so as kind of very important, and we plan to make a lot more noise than we're doing today given that today, again, we're not really at the point of launching the technology fully. And from a pricing margin, revenue model or sales model perspective, I don't want to give too much detail at this point. There will be an opportunity in the future to provide more details. So I'll just kind of talk philosophically how we're approaching it. And again, when we do a full launch, there'll be opportunities to speak kind of with more details. And philosophically, GenesisX will command a premium over Genesis. It is the latest technology. It saves the hospital significant amounts of investment that they would otherwise make in the system. And so I think that's kind of a warranted natural move for us. In terms of the complexity…

Thanks for all the color. David, I'll hop back in queue.

Thank you.

Our next question comes from the line of Josh Jennings with TD Cowen. Please go ahead.

Hi. Good afternoon. Thanks for taking questions. Great to see the GenesisX CE mark approval in hand. I wanted to ask David about the MAGiC-FEST study, and I think we saw a glimpse of the first 40 patients at HRS. But maybe just anything else you can share just on the results from that study? And on top of that, is the dataset that's submitted to CE mark, that will be submitted for CE mark approval, already has been actually, as you disclosed, the same dataset that you can submit for -- in the U.S. to the FDA for the PMA filing? Or is there going to be more patients that have been enrolled and where longer follow-up is required?

Sure. Good afternoon. Josh, thanks for that question. So like you mentioned, the MAGiC-FEST study is the clinical human study that's taking place at two centers in Europe. They used MAGiC over the last several months from the beginning of this year in treating a broad range of arrhythmia patients. Over that time, we submitted initial data at the end of February on the patients that had enrolled up to that point with our CE mark submission, and we included it in the PMA submission as well. Those sites have continued to enroll patients. And while initially, the study was designed with a maximum of 30 patients per site, we did expand that upper bound. And so they're continuing to enroll patients as we speak. And we're overall very pleased with the performance of MAGiC. So the physicians did present some of the data at HRS, so that's available through them. They're working together on -- they submitted for publication additional data beyond that. I don't -- it's not my place to share exact results, given that they're trying to get it published. So I think I'll kind of -- I'll leave that for them to publish. But overall, we're delighted with the performance of MAGiC. It's definitely good catheter. It's working in humans. It's treating patients on a regular basis, and the clinical improvements and performance improvements versus the THERMOCOOL RMT catheter of J&J are real and are being seen in the real world. And when we look at FDA, I mentioned in the prepared remarks kind of the regular discussions we're having with FDA, and a lot of that is tied towards what would be the most useful data for FDA to see at this point to be able to provide regulatory approval in the U.S., leveraging the data that's coming out of Europe and what data and what study designs would be useful for a post-approval study in the U.S. both to corroborate the data through a U.S. study and to expand label, expand indications in the U.S. to kind of have a broader label. And so that's been -- the majority of the discussions have been around that topic. There is some, let's call it, focusing of the types of patients, types of data that's being collected in Europe based off of the feedback that's being received from FDA and those discussions with FDA. So there's continuous enrollment in Europe. And I think, again, that we have a good kind of shot and good alignment in terms of that data, assuming it continues to enroll well, will be good for our FDA submission.

Excellent. Thanks for that. And just on the MAGiC catheter, I mean, a lot of enhancements and capabilities. One, and it's exciting to hear about all the PFA development programs that are underway under your roof now, but are you going to ultimately pursue a high-power, short-duration energy delivery approach with MAGiC cath? I believe that you can get to 100 watts with MAGiC, but I guess J&J's having some success with QDOT. I just wanted to touch on that topic.

Sure. So high-power short duration radio frequency ablation is an exciting and interesting part of the EP landscape. We tested the MAGiC catheter through bench and preclinical testing up to 100 watts, and one of the beautiful features of the MAGiC catheter and the gold tip specifically is how stable the temperature of the tip stays even at very, very high powers. So usually, as you increase power, you run the risk of char and heating up of the tip, which can lead to coagulation and kind of other clinical risks. The tip of MAGiC stays extremely stable even at very high wattage, which is kind of, again, a beautiful kind of aspect. It's related to both the material of the tip and the way the irrigation flows through the tip, even when you have very low irrigation use, kind of reducing the fluid load that typically a patient is receiving during an ablation procedure. Catheters in the U.S. almost all radiofrequency ablation catheters, are approved only up to 50 watts from a power setting. And so we have only pursued -- in terms of the pivotal animal studies and what was submitted for a label, we pursued up to 50 watts. And so while the device is definitely built towards things beyond that and can accommodate powers beyond that, that's not part of the label that we're pursuing, and that won't be part of any initial device. And so I think kind of we'll have the opportunity to pursue higher power short duration post-approval. We can do additional studies, but we haven't been attempting to do that at this point. But even at 50 watts, we have a beautiful lesions that form overall in a very rapid fashion, so I think the performance of the catheter is very much in line with that evolution of the field.

Thanks for that. I'm sorry. One more in here, but I think you're going to get -- we're going to be able to -- your MAGNETIC VT study results, the Traverse data was presented as a late breaker at ACC. Just thinking about those two datasets, if they're positive and how that could benefit kind of your marketing to EP labs for the clinical value proposition for robotic magnetic navigation once those datasets are read or the MAGNETIC VT study is read out? Thanks a lot.

Yes, sure. So the MAGNETIC VT study was a prospective randomized study comparing robotics versus manual cardiac ablation for ischemic VT patients. We completed -- or well, we decided to stop enrollment early just because it was enrolling relatively slowly and it wasn't strategically critical to our path in terms of building this new product ecosystem. So we enrolled it. At the end of the day, it's probably actually the largest randomized prospective VT study that's out there in the ablation field. It's enrolled roughly 180 patients. All the patients finished their follow-up, and we've been working with statisticians and the PIs to get the results ready for a presentation at one of the upcoming conferences. So again, I'd expect that at one of the upcoming conferences, the PIs are going to present the results, and we'll do a concurrent release at the time.

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

Hi. This is Nelson Cox on for Frank. Good to see all the progress, and congrats on the CE mark.

Thanks, Nelson.

I wanted to follow up on the earlier question on the manufacturing scale-up process for GenesisX. It sounds like confidence there is strong, but can you help us quantify the scale you will be able to build versus how that compares with Genesis and maybe how the timelines of production compare?

Sure. That's hard to do with specificity, given that we have only manufactured less than a handful of GenesisX systems to date, and we've not yet -- those have been manufactured largely by the R&D team rather than the dedicated manufacturing team. And so that is really part of this process over the next few months is how do you -- how do we make sure that it can be built by the manufacturing team directly in an efficient way? We know that we can build it reliably, but you want to kind of do all the little tricks and little processes that make it an efficient manufacturing process. Overall, in the past, we've talked about how the new headquarters that we established a couple of years ago that allowed us to manufacture in the tens of systems, let's say, the mid high tens of systems a year, in this facility, we would obviously have to scale our personnel as we go to those levels. But we can do -- we can manufacture roughly a system a month and have enough space to do more than four at a time. And so that's kind of -- that's one factor. I'd say with GenesisX, given that the systems do not have to be assembled facing each other and their -- again, the left and the right are identical to each other, you have definite efficiencies from a time, personnel, complexity perspective over Genesis. And so I don't know exactly where we're going to end up. But it's definitely, we can grow in order of magnitude from where we are right now in our current facility with the technologies we have, and I look forward to the challenges and problems of having to scale beyond that.

Perfect. That's great. And then with the CE mark and expected incoming FDA 510(k), it sounds like interest is strong. I guess one question there is will this cause hospitals to pause and wait for the next-generation system? Or is that not something you're really thinking about right now? Or any color there?

It's definitely a factor on our minds, and there is a little bit of that, that takes place and plays out. We did include it in the press release and the prepared remarks commentary about there being a late-stage pipeline of Genesis orders, Genesis systems, across three geographies. There is -- definitely, despite GenesisX, there are customers for whom Genesis is the most reasonable, best option, right? Imagine a hospital that already has a Niobe system wants to upgrade. They already have a lab that is shielded, that is reinforced, all of that kind of has already been built in. It just makes sense for them to get the Genesis robot. Doesn't make sense for them to wait for GenesisX. They've already done the construction work for it. So there are definitely labs like that where GenesisX won't cause any confusion or mix up or delays. There is an aspect of some of our greenfield pipeline wanting to wait for GenesisX, and I think that, that's kind of -- that's okay. We'll be able to -- we have enough clarity into our backlog of Genesis orders. We have enough clarity into our pipeline of newer term Genesis orders that can carry us through for the coming months. And then as GenesisX ramps up, in reality, that is an easier, again, product to scale from the organizational perspective. So I'm delighted. If customers decide that they ultimately want to choose GenesisX, we have no problem with that.

Perfect. And then maybe just one more quick one. I know a lot of it is construction timelines, but can you just walk us through at a high level, anything from a macro perspective in terms of capital equipment purchasing patterns or what you've seen there?

Sure. It's been asked sometimes in the past. I mean we feel like we're a tiny, tiny fish in a big ocean, and so whether the macro environment raises the tide a little bit, reduces the tide a little bit, to some extent, we're fighting our own fight, and it doesn't make a major difference for us. There's definitely some macro weakness, headwinds in China. There are kind of macro factors there that are making it difficult, not just for us, but we know all the other capital equipment companies. They have similar challenges now, and no one knows exactly when that's going to turn. But hopefully, by the time we are getting approval for the full ecosystem of robot catheter mapping system in China, it will be a better macro environment there. Despite that -- and again, even in bad macro environments, there still is always some opportunities, some purchasing. So we definitely have a pipeline of customers, real engaged customers, also in China. And in Europe and the U.S., I think that it's -- I don't sense any major changes to the overall environment. Since we started rebuilding a capital sales capability in 2020, it has been overall a macro headwind environment, right? We had the chaos of COVID, the chaos of personnel challenges where hospitals didn't have nurses, didn't have techs, were spending huge amounts to try to recruit and hire people just to run their daily operations. The macroeconomic environment hasn't been the easiest environment. So I think that's been kind of an overarching kind of reality since we restarted capital sales four years ago. And obviously, we've been able to make some headway despite that. So I think kind of we don't see things being particularly different, neither on the negative or the positive. If the environment changes where it's a macro tailwind environment, that will be awesome, but we're not betting on that. And to some extent, it's the things that we do in-house to make the -- to being the small fish in a very, very big ocean, becoming a stronger fish on our own that, to some extent, changes everything irrespective of whether the tides go up a few feet or down a few feet.

Great. Congrats again. Thanks, guys.

Thank you very much.

We have no further questions at this time. I will now turn the call back to David Fischel for closing remarks.

Okay. Thank you very much for your questions. We look forward to working hard on your behalf and speaking again next quarter. Thank you.

This will conclude today's conference call. Thank you all for your participation. You may now disconnect.