Good morning. Thank you for joining us for Stereotaxis First Quarter 2020 Earnings Conference Call. Certain statements during the conference 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 Security 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. At this time, all participants have been placed on a listen-only mode. The floor will be open for question and comments following the presentation. 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. Please go ahead, sir.

Thank you, operator and good morning, everyone. I hope you and your families are healthy and well. We last spoke two months ago in early March. Since then the tragedy, disruption and hardship inflicted broadly across society by COVID-19 has been extraordinary. For Stereotaxis, this period has been challenging, but it has also been an invigorating time of creativity, progress and positive change. On today's call, I want to provide transparency into the commercial impact we are seeing from COVID-19. I will then discuss the ways we are responding to the challenges and our approach to successfully navigate this period of uncertainty. Let's start with the commercial impact. Stereotaxis' hospital customers are on the front line in the battle against the pandemic. As an acute reaction, hospitals globally have dramatically reduced procedure volumes in order to lessen infection risk, preserve vital equipment and focus their resources towards battling the pandemic. The reduction in medical procedure volumes is unprecedented. With various surveys documenting 50% to 90% reductions in a broad range of procedures including those that would not typically be considered elective. The field of electrophysiology has not been immune to these procedure declines. Up through the first week of March, we experienced procedure volumes in North America and Europe that were consistent with expectations. Our procedure volume in Asia had been down over 50% compared to the prior year, but that decline was isolated to China and the impact was modest to our overall global business. In the second week of March, we started to see a sudden and steep deceleration in ablation procedures across North America and Europe to levels approximately 70% below normal. The decline was felt across hospitals with most severely curtailing their procedure volumes and other stopping procedures entirely. Over half of our hospital customers that…

Thanks, David, and good morning everyone. Revenue for the first quarter of 2020 totaled $5.8 million with recurring revenue of $5.5 million. Recurring revenue declined by 18% from $6.7 million in the same quarter last year, primarily due to lower procedure volumes and delayed service activities following the COVID-19 outbreak. Gross margin for the first quarter was approximately 83%. Operating expenses in the first quarter were $6.9 million, down 11% from the $7.7 million in the prior year quarter with the decrease predominantly driven by timing of R&D projects and also by pandemic-related reductions to sales and marketing activities. These cost reductions were partially offset by increased noncash general and administrative expenses. Operating loss and net loss for the first quarter were $2.1 million and $2 million. Negative free cash flow for the first quarter of 2020 was $2.2 million compared to $1.8 million for the first quarter of 2019. At quarter end, Stereotaxis had cash and cash equivalents of $28 million and no debt. I will now hand the call back to David.

Thank you, Kim. Given the impact of COVID-19, we believe it is prudent to suspend our guidance of robust double-digit revenue growth for the year. The uncertain duration and scope of both the pandemic and its economic impact make it difficult at this time to reliably provide an alternative guidance. Despite the uncertainty and challenge, we are comforted by a few key observations. We have a technology and team that positively impacts patients, physicians and medicine. We are creatively responding to our new reality with differentiated elegant capabilities whose adoption will be accelerated in this environment. We are continuing to energetically advance all critical innovation commercial and operational activities. We have an innovation strategy that is clinically and commercially sound and will transform Stereotaxis over the coming years. And we continue to manage our financial position in a prudent fashion to ensure we can invest in progress, while weathering a potentially extended period of broad global disruption. That concludes our prepared remarks. Operator, can you please open the line to questions?

[Operator Instructions] And your first question will come from the line of Josh Jennings with Cowen.

Hi, good morning. Thanks, David. I was hoping -- you mentioned -- to start with your mention of multiple Genesis purchase orders that you had potentially expected to announce in this quarter. Any incremental detail you can provide? Are these orders simply on pause? What do you think will be required going forward? Did it start to cross-sell over again, or can you pick up in the contract negotiation process where you left off? And anything you can share in terms of whether these potential orders were new centers or replacement orders?

Yes. So thanks, Josh, and good morning. So we've been - obviously if you look at our record in historical years, we've been conservative with guidance in the past. And so when we put out that guidance in -- on the last call, we were very confident and being able to meet it given what we saw on the -- from -- in terms of kind of interest in the Genesis system from various hospitals. And that includes both replacement cycles to existing customers and new system sales either to new customers or second labs at existing customers. And what we've seen is not -- we haven't heard from anyone that a project has been canceled. What we saw though is starting in the middle of March that really kind of most administrators seem to have been fully pulled away from any activity that was not COVID-related. And so the entire attention of hospital administrators was shifted to scrambling to how to best respond to the pandemic preparing their organizations for accepting COVID patients purchasing all, sorts of, materials that would be necessary to battle the pandemic. And so really there wasn't the bandwidth to focus on systems like ours or equipment like ours. We are starting to feel that most hospitals seem to be -- and so they have gone through this scramble time just to prepare themselves and they now are prepared to accept COVID patients there's less of that feeling of scrambling. I think there's a little bit still a lack of clarity on exactly how their financials look exactly how government support that has been promised and has been put into law, how that exactly will play out and when they will receive payments and what type of payments they receive. So I think we can start to be in a position to reengage a little bit with those administrators that have -- but again it's not clear to us exactly at this stage, how that will play out or how many will play out and how quickly that will play out.

Understood. Thanks for that. And then a follow-up, I know it's hard to forecast how procedure, elective procedures reopen and their ramp back to historic levels. But in some of the states that are currently reopening and some of the executive orders from governors that have been removed and with hospitals starting up elective procedures again. Have you received any insight from your customers about how cardiac ablation procedures could potentially ramp up? I know, there's wide variance probably in every state and every center. But any high-level commentary you can share that you received from your customers?

Sure. So in all of our telerobotic test drive discussions, we ask a similar question. And it is like you inferred there's a huge amount of variability, a huge dispersion in the responses we receive. We do get from many hospitals both in the U.S. and Europe, a feeling that there's a desire to open up much more fully not just from the physicians but from the administrations and that there are plans in place to open up much more active ablation practices. We also hear some that still feel that there might be a reduced level for several months. And, obviously, it's not fully under also the physician in the hospital's control. It's also going to depend on the confidence of patients to come in for ablations. And so I think there is still a huge amount of uncertainty even by those closest to the situation they're not sure exactly how it's going to progress. But there is definitely a feeling, again similar almost to the comments on the capital sales side on the procedure side where in the beginning everyone was busy and nervous and scared just scrambling to respond to the rapidly changing reality around us. I think that now there has been a settling into this new normal, I think most hospitals are confident that they're not going to be overwhelmed with COVID patients and that they can start to go back to operating regularly in a more restricted, more cautious environment. But again exactly how that plays out in the numbers isn't easy. In the second half of April with about 10% more procedures than in the first half of April, so again I see signs that we can see growth from here and that what we saw in the beginning of April, end of March was probably the worst of it. But again there's so much volatility in daily procedure numbers still. It's very hard to give a good confident guidance off of short-term data.

That makes sense. And just one last question. You referred to some of the R&D efforts your team is working on internally. I just wanted to make sure we were not missing opportunity here, anything deeper on the pipeline both EP-related work, as well as non-EP-related projects that your team is moving forward on. I'm not sure if this is the appropriate time to get a little bit more color, but just want to make sure I ask that question. Thanks for taking them.

Sure. Thanks. So I won't go into specific projects. What I'll point people to is the slide in our investor presentation, which is on our website. And if you -- historically we've always talked about five core technologies that are necessary for robotic cardiac ablation procedures and four guiding goals to those innovations. And the five core technologies were the ablation catheter, mapping system integrations, the x-ray, the robot, and the user interface that allows a physician to interact with the robot. And then -- and we said that all five of those technologies need to be continuously advanced. Those are really core technologies critical to robotic cardiac ablation procedure. And the four guiding goals of all innovation should be to improve patient care to improve the physician experience, to make the technology more accessible and affordable and to create this open ecosystem around our technology, which facilitates physician choice. And so that was really the framework that we had always discussed when speaking about innovation. And that framework holds true today. We have added to that at the start of this year as we've started to show the investment community, the physician community that we are able to innovate across all five of those core technologies. We've started to also present to the investment community two other buckets of innovation effort. And one is a bucket that we call digital surgery and that includes things like telemedicine. It includes things like automation of our -- of navigation. It includes, what we call, kind of pulling in patient specific data into the procedure similar to what we described late last year when we announced collaborations with three preoperative imaging companies, how do you bring in as much patient specific data into a procedure to help inform the surgeon. And then the fourth is then, how do you use the cumulated data from thousands or tens of thousands of procedures to help inform innovation to help inform best practices and how do you use that data in a useful fashion. And so that's really kind of a broader category of digital surgery that we're now starting to put increasing focus on. And the last bucket was applications outside of electrophysiology, both endovascular and endoluminal. And so I think that kind of looking at that -- those buckets of the five core technologies, digital surgery and applications outside of EP, those are kind of categorized there in order of what we have been able to act most rapidly on and what's kind of more in the mid-term our focus, and I guess that gives you some context for how we think about innovation. I know it's not very specific beyond that, but hopefully that helps.

That was helpful. Thank you.

Thank you.

And your next question comes from the line of Frank Takkinen with Lake Street Capital.

Good evening, and thanks for taking my questions. Just a few for you guys today. Firstly on the 51 hosted physicians and 29 hospitals, what was the mix of new versus existing prospects or customers?

Hi, Frank. Good morning. So it was a mix of both. The majority of the physicians and kind of hospital customers would be existing customers. So those that have a Niobe system that might be either interested in a replacement or might be interested potentially in a new lab at another location or we're just engaging with, because that's the right thing to do, because they're existing customers of us. A significant minority of the customers have been kind of completely new customers that don't have a robotic system that are engaging with us for that purpose.

Got it. That makes sense. And then also on virtual tours, given you're able to get a little bit better, you're likely able to get a little better EP mind share given the procedural delays and impacts right now. Do you see there being potential for a little bit stronger than anticipated rebound to a full replacement cycle post C-19 as you're able to fill the top of the funnel right now?

So that's really driven I think, by the hospital budgets and by the administrative budgets. And so I agree that kind of in terms of the engagement with physicians, this has been -- the last 2.5 weeks have been extremely busy and exhilarating in terms of the number of kind of discussions and visits that we've had. And to some extent, this has been kind of really a highlight of the last 2.5 weeks. And I think that kind of -- when I mentioned that sometimes during periods like this, we are -- refined solutions that actually are great solutions also for the long-term. I think that something like the telerobotic test drives is something that we will institute forever also past COVID-19, because it does work so well in allowing for kind of personal one-on-one or one on a small group engagement with physicians. And it gives them really a great opportunity to experience the technology and to experience things like navigating a catheter from hundreds or thousands of miles away. In terms of how that translate exactly into a replacement cycle, I think that's less in the control of the physicians and that's more in the hands of the administrators. And again, we sense an openness and obviously replacement cycles have to happen at some point. If they have a catalog, they're going to have to replace their x-ray, they're going to have to redo the lab. But how exactly that plays out, I just still don't have enough information to say. I think we're just now starting to get to the point where we can reengage with administrators in a substantive fashion and hear from them how they are experiencing their own business and when they're going to restart moving forward on the projects that we were anticipating.

Okay. Just two more for me here. Could you tease out in the first quarter of 2020, the different impacts of disposables versus service activities? And then, was there any service age outs as well in the quarter?

Sure. So if you look at the kind of decline in revenue from the first quarter of 2019 to the first quarter of 2020, approximately 30% of that decline was due to the two specific service projects that were just kind of at the end of that quarter. In March, we had to scramble and our team had to leave those sites and we couldn't complete them. And the remaining 70%, almost entirely is due to reduced disposable sales. In a geography like Asia Pacific, we sold I think almost nothing or a negligible amount of disposables in the first quarter. And then obviously, across the U.S. and Europe, at least in the back half of March, there were almost no disposable orders.

Got it. And then just last one for me, and thank you very much for answering all my questions. Can you talk a little bit more about some of the variable expense that you could throttle back a little bit to weather the storm in the next couple of quarters if need be?

Sure. So we are – it's important to maintain financial stability for exactly the reasons that I described on the call. Our physician and hospital customers need to be confident that we are a long-term financially stable reliable partner for them and so do strategic industry partners that we collaborate with. And so that's a key focus. And we're proud that we've been able to maintain the financial stability of Stereotaxis and establish kind of that good foundation. There are various ways to also – to reduce expenses. Now we're also cautious there to not reduce expenses in a way that would damage the company's capabilities or damage our ability to make progress in a rapid good fashion. And so we have kind of a relatively lean team. It's a good team and that we have all internally our own sales teams in the U.S. and Europe and Asia. We have training. We have field service teams. We have manufacturing. We have site planning. We have R&D in every type of R&D, heavy engineering specialty. And we've kind of obviously, all the operations, in terms of finance and IT and HR and clinical and regulatory and quality. So we have kind of a broad team and you want to maintain that organizational capability because that's really an asset overall to the company and to our progress. And so that's why the expense reductions that we have made have been kind of delicate and surgical in their nature. There's always ways to reduce expenses that includes both within the team and it includes kind of externally in terms of kind of consultants or kind of other spending that sometimes you do in experiments to see how to kind of improve. And so again I think that there are kind of a range of ways that we have been reducing expenses and can reduce expenses if necessary that don't harm the company. Obviously, the success in receiving a PPP loan was great and ensuring that we wouldn't have to do any partial furloughs of the team and that we wouldn't have to do more significant reductions in the team. And overall, I'm confident that given what I see today we will end the year and we will continue to run the company in a financial prudence – need for hospital customers or physician customers to ever have any concern about our long-term financial stability and long-term reliability as a partner.

Got it. Very helpful. Thanks for taking my questions.

Thank you.

And your next question comes from the line of Kyle Bauser with Dougherty & Company.

Great. Thanks for taking my questions. I hope you're doing well, David. Just a couple of quick ones, following up on previous ones. So digging back into the innovation strategy here, you walked through kind of the five buckets. And how those kind of interact with the goals of improving care eventually to create a collaborative ecosystem? I'm wondering, if to the extent you can share or you're willing to share, you could tie in kind of how we should be thinking about timing here kind of for each of these buckets? Any color would be great.

Sure. So some of them – I mean obviously the ablation catheter is the largest most impactful innovation that is near-term innovation. And I described how we're finishing the design phase now and shifting into the manufacturing process and the regulatory path in Europe and the clinical path in the U.S. And so that's kind of the biggest innovation that will have the – both on our physician customers and on Stereotaxis, financially and strategically. And so that's kind of I think the one that is highest on our priority list and nearest term. Beyond that what we have is – in things like telemedicine, there are clearly – that is taking place, we have had physicians perform procedures from thousands of miles away from their lab. And we have like I mentioned now Stereotaxis team members that are supporting procedures on a daily basis using telemedicine. There are ways to enhance that capability such that it's – I don't know if the term perhaps could be more consumer-friendly or more easily accessible, where really kind of you reduce the barrier, sometimes the technical barriers or the setup barriers or the time barriers to broadly see telemedicine being used and not just by Stereotaxis team members but also in terms of peer-to-peer support and in terms of remote procedures. And so I think that there's things that we can do kind of to improve that and that's obviously not just a technical thing that also will require kind of a societal change or insurance and kind of acceptance of it by the community, more broadly. But there's obviously large tailwinds for that, particularly now given COVID-19 and particularly because of the desire to reduce the risk of infection which robotics already helps by reducing kind of interaction between physicians and…

Understood. That's helpful. And then you talked about being able to host 51 physicians from 29 hospitals. And you talked a little bit about kind of the makeup of them as it relates to existing or new potential clients. Can you talk about how these sorts of remote visits have been in the past? I mean is this something that's kind of relatively new that you anticipate kind of being able to carry forward and do more of in the future? Just kind of curious to understand how this kind of level of interest has progressed over time? Thank you.

Yes. So this is actually entirely new. Historically, we would invite physicians to come visit us physically in person to view our facilities and to experience the technology in a hands-on fashion. And I'd obviously have phone calls. We have phone calls with physicians, but those were really phone calls. The team, like I mentioned in periods of rapid change and stress and challenge were normal activities that kind of are desired or suddenly put on hold. It creates a type of ingenuity that really is beneficial not just then, but also for the long term. And so we established kind of a capability to be able to host physicians. We can have video conference calls with them. And I can walk around the office in a fairly easy fashion, show them our office show, them our manufacturing facilities, show them our systems, show them the lab that we have with Genesis and Stereotaxis Imaging Model S. And then, we can actually allow the main large screen display that a physician would normally navigate on in the cockpit. We can allow them to see that on their screen and to actually take control of the computer and navigate a catheter in real-life here in our lab. And so that has ended up working very well. Again, it's something that we started 2.5 -- two weeks ago and has been a fantastic capability and the type of things that we're continuing to do over the coming weeks. And I anticipate that we're going to continue doing it forever.

That’s great. Well, thanks for all the update here and for taking my question.

Thank you, very much.

And you have a follow-up question from the line of Josh Jennings with Cowen.

Thanks. Just two quick follow-ups. I guess first, I wanted to ask about just data accrual for robotic navigation. And there's International VT Catheter Ablation Collaborative Group and their VT ablation database like the magnetic VT study continues to enroll. Can you just talk about your sense of how impactful outcomes from these two trials could be? And then any other events data presentations or publications that we should have on our radar for 2020?

Sure. So I think those two that you mentioned are the most meaningful as well as obviously what we're anticipating is initiating an IDE trial or trials for the next-generation ablation catheter. In terms of outside of those trials, we do end up having in the order of about 30 peer-reviewed publications a year on our technology. Some are more meaningful, some are less meaningful. But we do share all of those on our website. We have a searchable database of all our publications on our technology. And by now, we have just about nearing 400 publications in a searchable database on our website. In terms of the impact of the magnetic VT trial, I think that that can have a very significant impact in that it is a really unique trial in the field. It is a randomized multicenter trial seeking superiority for robotic cardiac ablation versus manual cardiac ablation in VT patients. And so, that type of design is unprecedented in the field and the size of the study is also kind of unprecedented in this field. In most surgical specialties interventional procedures, you don't have that type of quality data that's ever generated. And we have confidence in that data given kind of some of the preliminary data that other sites have reported. And there is kind of data out there. There's a meta-analysis in VT. There's other studies that have shown superiority both in terms of safety and efficacy and efficiency for robotics in VT. And so we're continuing to enroll in that trial. Sometimes, the enrollment is slower than what we want that's sometimes driven, because physicians who are part of the trial don't want to randomize patients, because they dread having to do a VT procedure manually, and it includes very high-quality physicians who are extremely skilled electrophysiologists and yet they don't want to do it. And we hope that, we can complete the enrollment to – there's an interim kind of – an interim look – level of enrollment that it seems like we could potentially complete, let's say, within this year. And then it would be a one-year follow-up from them. So it would mean that, let's say in early 2022 we could have data from the magnetic VT trial. And again, if that shows kind of positive results in terms of superiority that I think hammers home, what we all feel that this is a better way to treat patients.

Excellent. And then just on a follow-up. Thinking about your robotic EP fellows program some of those fellows are going to be graduating in the coming month and/or months. And how should we be thinking about them as potential near-term or medium-term customers? I know that that fellowship program has been growing over the years, but just wanted to check in on that. And I appreciate taking the follow-up questions.

Yeah. Thank you. And the fellowship program has really been a highlight of our kind of commercial efforts. We have a little bit over 40 fellows now from over 20 hospitals that are part of the program either graduating this year or next year. And we do engage with them. So actually some of the physicians that kind of were included in those numbers are fellows that are graduating now. And kind of the fellows, generally, break down into three categories. Some of them stay on at sites that have our system or stay on at the same site that they did their fellowship in and become kind of continuous users of our technology in a day-to-day fashion. Another group, might kind of go – we will try to do a type of matchmaking, where we pair them with sites that have a robotic system that kind of is underused and we try to help them find jobs and we try to help those sites find highly skilled electrophysiologists and that serves as a type of matchmaking. And others receive offers and go to hospitals that don't have our system. And those are candidates for – for new greenfield opportunity. And so kind of we do – we do look at kind of those at the fellows kind of across those three categories, and we do think about them like that. And part of our efforts, when we think about the goals of the fellowship program, it really kind of is in three buckets. There's the technical skills and ensuring that they graduate from their electrophysiology program with real technical know-how and capabilities, in terms of robotic navigation. There's kind of a community aspect to it, building a community, a global community of physicians that think and are forward-looking in the same manner. And then the last just kind of careers and helping them in their careers and that can mean kind of the matchmaking aspect, it can mean kind of ensuring that when they move to new hospitals they have access to cutting-edge technology. And so again, we view them kind of as a – this is kind of a real strategic investment for us that fellowship program in terms of making sure that we're working with the future leaders of the field.

Great. Thanks again.

Thank you, Josh.

And there are no further questions in the queue.

Okay. Thank you very much for your questions and for your continued support. We wish you all a healthy, safe and successful coming months and look forward to speaking again in August. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.