David Fischel - Chairman, Chief Executive Officer Marty Stammer - Chief Financial Officer

Good morning. Thank you for joining us for the Stereotaxis Fourth Quarter and Full Year 2018 Earnings Conference Call. Certain statements during the conference call and question-and-answer session 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 may 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. Good morning everyone. I'm joined today by Marty Stammer our Chief Financial Officer. My prepared remarks today are a bit longer than normal, as I want to use the occasion of this being our annual call to provide a broader overview on Stereotaxis, our vision and goals, our accomplishments in 2018 and our focus in 2019. Stereotaxis is the global pioneer and leader of robotics for endovascular Surgery. We have developed and are commercializing a suite of robotic technology that address the inherent limitations, risks and challenges posed by manual catheters. Endovascular catheter based surgery has emerged in recent decades as the least invasive approach to a broad range of procedures. Various surgeries that once required large open incisions have been transformed into minimally invasive operations where a catheter is inserted into a blood vessel, navigated through the vascular system to an area of interest and then used to perform a surgery directly from the catheter tip. Some examples include the shift from open chest bypass heart surgery to angioplasty and stenting, from invasive brain surgery to thrombectomy and coiling for stroke, and more recently from surgical to Transcatheter Heart Valve Replacement. This progress takes place because catheter based approaches are less invasive and thus reduce surgical risk and improve access to therapy for a broad range of patients. Many millions of catheter base surgeries are performed annually, and the technology is a testament to human ingenuity and progress. That being said, the mechanism of catheters has fundamental flaws. While therapy takes place at the catheter tip, a manual catheter is held and manipulated by a physician's hand several feet away at the catheter based. The technique is akin to gardening delicate flowers by holding a hose from its base or writing in small font while holding…

Thanks David and good morning everyone. Revenue for the fourth quarter of 2018 totaled $7.3 million. Recurring revenue for the quarter was $6.7 million and system revenue was $500,000. Revenue for the full year 2018 totaled $29.3 million. Recurring revenue for the full year 2018 of $27.8 million represents a 3% increase above the recurring revenue for the full year 2017. System revenue for the full year 2018 of $1.6 million declined from $4.3 million in 2017, primarily reflecting the impact from the shipment two Niobe systems to an international distributor in 2017. Gross margin for the fourth quarter and full year 2018 was approximately 80%. Operating expenses in the fourth quarter were $6.4 million, up from $5.9 million in the prior year quarter, predominantly driven by increased investment in R&D. Operating expenses for the full year 2018 totaled $26.1 million, down slightly from $26.3 million in 2017, with increased R&D investment offset by decreased general and administrative expenses. Operating loss and net lost in the fourth quarter were approximately $600,000. Operating loss and net income for the full year 2018 were $2.5 million and $100,000 respectively. This was the first year in the company's history that we achieve annual positive net income. Negative free cash flow for the full year 2018 was $2.8 million, compared to $4.8 million for the full year 2017. At December 31, 2018 Stereotaxis taxes had cash and cash equivalents of $10.8 million, no debt and $3.3 million in unused borrowing capacity on its revolving credit facility, for total net liquidity of $14.1 million. I will now hand the call back to David.

Thank you, Marty. We entered 2019 with a solid financial foundation to execute our strategic plans. 2019 is setting up to be a very exciting year. We look forward to sharing our broader innovation plans at the Heart Rhythm Society Meeting in May and are comfortable that our balance sheet will allow us to deliver on our commercial and innovation initiative over the coming years and reach profitability without the need for additional financing. That concludes our prepared remarks. Operator, can you please open the line to questions.

[Operator Instructions]. We’ll take our first question from Chris Vaster, a Private Investor. Please go ahead.

Good morning guys. Congrats on the continued progress and record procedures in 2018.

Good morning Chris.

David, on the last call you stated that the innovation plan which frankly I’m looking forward to hearing more about in a couple of months, would or could more than double the annual revenue opportunity for the company in just its existing commercial footprint of active hospital customers? Can you provide a timeline for when you expect this potential doubling of revenues within the customer base, when it may occur?

So I recognize greater disclosure would be appreciated. When we showcase our innovation plan in May that will become much clearer. I think there are certain aspects that I have hinted at before on previous calls, there’s other aspects that I have not mentioned at all. It will not happen all in one sweep. It will happen in stages, so it includes multiple innovation plans coming together, some of which are very near term and some of which will take kind of over the mid-term and I think again it will become much, much, clearer in May.

Okay, and then again, I just want to be sure this is existing customer base, right. Outside of that you talked about under penetration of the overall markets. So outside that opportunity will be significantly larger.

Exactly, so that comment was related to our existing installed base of hospital customers and the current number of procedures that they are performing. Obviously our innovation plans are not meant to just address the existing installed base. So while it should support our existing customers and provide a more solid foundation to work with our existing customers, it also is obviously meant to increase our market size.

Okay, great. And then one more, with respect to the expansion of opportunities or use cases for the Stereotaxis system in the future that you alluded to earlier, obviously there's a lot of conversation around J&Js acquisition of Auris for a significant number not so long ago, and Auris has bought one of your primary competitors in Hansen Medical. Is the potential future use cases that you foresee Stereotaxis tackling? Can they do what Auris does? Is that a possibility?

So I think kind of one of the large challenges, if you look at interventional medicine more broadly is navigating tortuous anatomy. Navigating blood vessels and in Auris’s case navigating the lung tree, kind of in a more efficient manner, because it's oftentimes difficult to move guide wires, to move catheters through tortuous twists and turns of the blood vessels. I would think that that would be a natural place for us to play and one of the difficulties that Hanson at the time had in operating in the endovascular suite was that its robotic mechanism of action increased the size of a catheter and increased the rigidity of the catheter. And that led to various safety risks insensitive anatomy that's perhaps why that mechanism of action was better suited for the lung and the endovascular system. Stereotaxis’s key benefit is the safety aspect and so while we can operate in the lungs we also have a benefit of being able to operate safely across the vascular system and I think that those are kind of benefits and advantages that we should take advantage over the coming years. Again, I think our focus on shoring up our footing and our place in electrophysiology is the right thing to do. We have a great product there. It's being used by hundreds of physicians at 100 site. It generates great clinical data. We really have to make sure we focus on that market first; start to become successful there as I described in my prepared remarks, but as we're doing that, we're starting to think about how to expand applications beyond.

Thanks David. I will say I think continue to be successful is probably better than start to be successful, but again, congrats on the success and I look forward to hearing more about the innovation plan in a few months.

Thank you very much.

[Operator Instructions]. There are no questions over the phone. This will conclude today's question-and-answer session. I would now like to turn the conference back your host, David Fischel for any additional or closing remarks.

Okay. Thank you very much for your continued support and interest in Stereotaxis. We are excited for the year ahead of us. This is really a transformational period for Stereotaxis. We look forward to showing you what we've been busy with in two months. Thanks.

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