clpt-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the quarterly period ended September 30, 2024

Or

o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the transition period from_____to _____

Commission file number: 001-34822

ClearPoint Neuro, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware			58-2394628
(State or Other Jurisdiction			(IRS Employer
of Incorporation or Organization)			Identification Number)


120 S. Sierra Ave., Suite 100
Solana Beach, California			92075
(Address of Principal Executive Offices)			(Zip Code)

(888) 287-9109

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CLPT	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer o			Accelerated filer ☐
Non-accelerated filer þ			Smaller reporting company þ
			Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of October 31, 2024, there were 27,584,699 shares of common stock outstanding.

CLEARPOINT NEURO, INC.

TABLE OF CONTENTS


		Page Number
PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023	1
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2024 and 2023	2
	Condensed Consolidated Statements of Operations for the nine months ended September 30, 2024 and 2023	2
	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29

SIGNATURES		30

Trademarks, Trade Names and Service Marks

ClearPoint Neuro®, ClearPoint®, SmartFlow®, SmartFrame®, SmartGrid®, Inflexion®, SmartTwist®, SmartTip®, ClearPoint Maestro®, SmartFrame Array®, SmartFrame OR™, ClearPoint Neuro Orchestra™, ClearPoint Prism®, SmartFlow Flex™, ClearPointer™, ClearPoint Pursuit®,, When Your Path is Unclear, We Point The Way® and ClearPoint Advanced Laboratories™, are all trademarks of ClearPoint Neuro, Inc. Any other trademarks, trade names or service marks referred to in this Quarterly Report on Form 10-Q (this “Quarterly Report”) are the property of their respective owners.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains "forward-looking statements" as defined under the U.S. federal securities laws. The forward-looking statements relate to our expectations for performance, revenues and costs, and the adequacy of cash and cash equivalent balances and short-term investments to support operations and meet future obligations. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements, expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "will," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain.

In evaluating forward-looking statements, you should refer to (i) the section titled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which we filed with the United States Securities and Exchange Commission ("SEC") on March 12, 2024 (the "2023 Form 10-K"), (ii) Item 2 of this Quarterly Report, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors Which May Influence Future Results of Operations" and (iii) Part II, Item 1.A of this Quarterly Report. As a result of these risk factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake to update any of the forward-looking statements after the date of this Quarterly Report, except to the extent required by applicable securities laws.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CLEARPOINT NEURO, INC.

Condensed Consolidated Balance Sheets

(in thousands, except for share and per share data)


	September 30, 2024		December 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	21,573	$	23,140
Accounts receivable, net	3,875		3,211
Inventory, net	7,059		7,911
Prepaid expenses and other current assets	1,823		1,910
Total current assets	34,330		36,172
Property and equipment, net	1,695		1,389
Operating lease, right-of-use assets	3,210		3,564
Software license inventory	198		386
Licensing rights	612		1,041
Other assets	148		109
Total assets	$	40,193	$	42,661

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	955	$	393
Accrued compensation	3,635		2,947
Other accrued liabilities	1,176		1,053
Operating lease liabilities, current portion	536		424
Deferred product and service revenue, current portion	1,252		2,613
Total current liabilities	7,554		7,430
Operating lease liabilities, net of current portion	3,158		3,568
Deferred product and service revenue, net of current portion	480		541
2020 senior secured convertible note payable, net	—		9,949
Total liabilities	11,192		21,488
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued and outstanding at September 30, 2024 and December 31, 2023	—		—
Common stock, $0.01 par value; 90,000,000 shares authorized at September 30, 2024 and December 31, 2023; 27,588,819 shares issued and outstanding at September 30, 2024; and 24,652,729 issued and outstanding at December 31, 2023	276		247
Additional paid-in capital	214,709		193,382
Accumulated deficit	(185,984)		(172,456)
Total stockholders’ equity	29,001		21,173
Total liabilities and stockholders’ equity	$	40,193	$	42,661

See accompanying notes to Condensed Consolidated Financial Statements.

CLEARPOINT NEURO, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except for share and per share data)


	For The Three Months Ended September 30,
	2024		2023
Revenue:
Product revenue	$	5,474	$	2,410
Service and other revenue	2,648		3,352
Total revenue	8,122		5,762
Cost of revenue	3,275		2,489
Gross profit	4,847		3,273
Research and development costs	3,315		2,429
Sales and marketing expenses	3,549		2,841
General and administrative expenses	3,155		2,900
Operating loss	(5,172)		(4,897)
Other income (expense):
Other expense, net	(11)		(12)
Interest income, net	209		100
Net loss	$	(4,974)	$	(4,809)
Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.18)	$	(0.20)
Weighted average shares used in computing net loss per share:
Basic and diluted	27,591,623		24,630,181


	For The Nine Months Ended September 30,
	2024		2023
Revenue:
Product revenue	$	14,053	$	7,377
Service and other revenue	9,566		9,768
Total revenue	23,619		17,145
Cost of revenue	9,259		7,544
Gross profit	14,360		9,601
Research and development costs	9,060		9,057
Sales and marketing expenses	10,673		9,248
General and administrative expenses	8,769		9,036
Operating loss	(14,142)		(17,740)
Other income (expense):
Other expense, net	(32)		(25)
Interest income, net	646		295
Net loss	$	(13,528)	$	(17,470)
Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.50)	$	(0.71)
Weighted average shares used in computing net loss per share:
Basic and diluted	26,840,119		24,599,191

See accompanying notes to Condensed Consolidated Financial Statements.

CLEARPOINT NEURO, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(Dollars in thousands)


For The Three and Nine Months Ended September 30, 2024
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount
Balances, January 1, 2024	24,652,729	$	247	$	193,382	$	(172,456)	$	21,173
Issuances of common stock:
Public offering of common stock, net of offering costs	2,653,848	26		16,157		—		16,183
Share-based compensation	126,315	1		1,503		—		1,504
Option exercises	7,500	—		21		—		21
Payments for taxes related to net share settlement of equity awards	(24,047)	—		(151)		—		(151)
Net loss for the period	—	—		—		(4,146)		(4,146)
Balances, March 31, 2024	27,416,345	$	274	$	210,912	$	(176,602)	$	34,584
Issuances of common stock:
Share-based compensation	130,447	1		1,795		—		1,796
Option exercises (cashless)	1,373	—		—		—		—
Payments for taxes related to net share settlement of equity awards	(22,153)	—		(128)		—		(128)
Issuance of common stock under employee stock purchase plan	62,800	1		287		—		288
Net loss for the period	—	—		—		(4,408)		(4,408)
Balances, June 30, 2024	27,588,812	$	276	$	212,866	$	(181,010)	$	32,132
Issuances of common stock:
Share-based compensation	4,547	—		1,904		—		1,904
Option exercises (cashless)	860	—		—		—		—
Payments for taxes related to net share settlement of equity awards	(5,400)	—		(61)		—		(61)
Net loss for the period	—	—		—		(4,974)		(4,974)
Balances, September 30, 2024	27,588,819	$	276	$	214,709	$	(185,984)	$	29,001


For The Three and Nine Months Ended September 30, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount
Balances, January 1, 2023	24,578,983	$	246	$	187,008	$	(150,367)	$	36,887
Issuances of common stock:
Share-based compensation	3,782	—		1,307		—		1,307
Payments for taxes related to net share settlement of equity awards	(514)	—		(5)		—		(5)
Net loss for the period	—	—		—		(5,609)		(5,609)
Balances, March 31, 2023	24,582,251	$	246	$	188,310	$	(155,976)	$	32,580
Issuances of common stock:
Share-based compensation	5,484	—		1,645		—		1,645
Payments for taxes related to net share settlement of equity awards	(11,102)	—		(77)		—		(77)
Issuance of common stock under employee stock purchase plan	51,041	—		314		—		314
Net loss for the period	—	—		—		(7,052)		(7,052)
Balances, June 30, 2023	24,627,674	$	246	$	190,192	$	(163,028)	$	27,410
Issuances of common stock:
Share-based compensation	(1,001)	—		1,584		—		1,584
Option exercises (cashless)	14,312	—		—		—		—
Payments for taxes related to net share settlement of equity awards	(15,315)	—		(91)		—		(91)
Net loss for the period	—	—		—		(4,809)		(4,809)
Balances, September 30, 2023	24,625,670	$	246	$	191,685	$	(167,837)	$	24,094

See accompanying notes to Condensed Consolidated Financial Statements.

CLEARPOINT NEURO, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	For The Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(13,528)	$	(17,470)
Adjustments to reconcile net loss to net cash flows from operating activities:
Allowance for credit losses (recoveries)	(507)		903
Depreciation and amortization	740		443
Share-based compensation	5,204		4,536
Amortization of debt issuance costs and original issue discounts	51		42
Amortization of lease right-of-use, net of accretion in lease liabilities	692		590
Accretion of discounts on short-term investments	—		(126)
Increase (decrease) in cash resulting from changes in:
Accounts receivable	(157)		(662)
Inventory, net	434		263
Prepaid expenses and other current assets	88		241
Other assets	(40)		22
Accounts payable and accrued expenses	1,373		(1,023)

Lease liabilities	(635)		(553)
Deferred revenue	(1,422)		243
Net cash flows from operating activities	(7,707)		(12,551)
Cash flows from investing activities:
Purchases of property and equipment	(12)		(696)
Acquisition of licensing rights	—		(167)
Proceeds from maturities of short-term investments	—		10,000
Net cash flows from investing activities	(12)		9,137
Cash flows from financing activities:
Proceeds from public offering of common stock, net of offering costs	16,183		—
Repayment of 2020 senior secured convertible note	(10,000)		—
Proceeds from stock option exercises	21		—
Payments for taxes related to net share settlement of equity awards	(340)		(173)
Proceeds from issuance of common stock under employee stock purchase plan	288		314
Net cash flows from financing activities	6,152		141
Net change in cash and cash equivalents	(1,567)		(3,273)
Cash and cash equivalents, beginning of period	23,140		27,615
Cash and cash equivalents, end of period	$	21,573	$	24,342

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Income taxes	$	—	$	—
Interest	$	480	$	554

NON-CASH INVESTING AND FINANCING TRANSACTIONS:


•			During the nine months ended September 30, 2024 and 2023, the Company recorded net transfers of ClearPoint reusable components having an aggregate net book value of $0.4 million and less than $0.1 million, respectively, between loaned systems, which are included in property and equipment in the accompanying condensed consolidated balance sheets, and inventory.


•			As discussed in Note 7, the Company entered into a lease for a manufacturing facility in Carlsbad, California, which commenced in June 2023. In connection with the new lease, the Company recorded a right-of-use asset in exchange for an operating lease liability in the amount of approximately $2.5 million.

See accompanying notes to Condensed Consolidated Financial Statements.

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


1.						Description of the Business and Financial Condition

ClearPoint Neuro, Inc. (the "Company") is a commercial-stage medical device company focused on the development and commercialization of innovative platforms for performing minimally invasive surgical procedures in the brain. From the Company’s inception in 1998, the Company has deployed significant resources to fund its efforts to develop the capabilities for enabling neurosurgery interventions, building an intellectual property portfolio, and identifying and building out commercial applications for the technologies it develops. In 2021, the Company’s efforts expanded beyond the MRI suite to encompass development and commercialization of new neurosurgical device products for the operating room setting. In 2022, the Company commercialized the ClearPoint Prism Neuro Laser Therapy System as its first therapy product offering. The Company has exclusive global commercialization rights to the ClearPoint Prism Neuro Laser Therapy System through its Swedish partner, Clinical Laserthermia Systems ("CLS").

Since 2021, a growing part of the Company’s revenue is derived from professional services to pharmaceutical and biotech companies, academic institutions, and contract research organizations having a focus on biologics and drug delivery. The Company’s services include protocol consultation and solutions for preclinical study design and execution for the delivery of pharmaceutical agents to the brain. The Company also partners with customers to develop devices used for administration of therapies into the central nervous system. Currently, the Company has more than 50 biologics and drug delivery customers who are evaluating or using its products and services in trials to inject gene and cell therapies directly into the brain. These relationships involve drug development programs that are at various stages of development ranging from preclinical research to late-stage regulatory trials for multiple distinct disease states. This part of the Company’s business potentially represents the largest opportunity for growth; however, the Company’s ability to grow in this market is dependent on its ability to maintain and establish new relationships with customers, such customers' continuation of research and product development plans, and such customers' achievement of success in completion of clinical trials and subsequent regulatory approvals of their biologics and drugs.

Macroeconomic Trends

The Company continues to monitor the impact of various macroeconomic trends, such as global economic and supply chain disruptions, geopolitical instability (including instability resulting from military conflicts), labor shortages, inflationary conditions, and legislative and political developments. Impacts from inflationary pressures, such as increasing costs for research and development of the Company's products, administrative and other costs of doing business, and the Company's access to capital markets and other sources of funding in the future could adversely affect the Company's business, financial condition and results of operations. Additionally, these trends could adversely affect the Company's customers, which could impact their willingness to spend on the Company's products and services, or their ability to make payment, which could harm the Company's collection of accounts receivable and financial results. The continued development and fluidity of these situations preclude any prediction as to the ultimate impact they will have on the Company's business, financial condition, results of operation and cash flows.

Liquidity

The Company has incurred net losses since its inception, which has resulted in a cumulative deficit at September 30, 2024 of $186.0 million. In addition, the Company’s use of cash from operations amounted to $7.7 million for the nine months ended September 30, 2024, and $13.7 million for the year ended December 31, 2023. Since its inception, the Company has financed its operations principally from the sale of equity securities and the issuance of notes payable, however, there is no assurance a future sale of equity securities and/or issuance of notes payable will be at terms favorable to the Company or available at all. As required by generally accepted accounting principles in the U.S., the Company has evaluated its ability to continue as a going concern and has determined that based on current forecasts, existing cash and cash equivalent balances at September 30, 2024 are sufficient to support the Company's operations and meet its obligations for at least the next twelve months.

In March 2024, the Company completed a public offering of 2,653,848 shares of its common stock from which the net proceeds totaled approximately $16.2 million after deducting underwriting discounts and commissions, and other offering expenses paid by the Company. See Note 8 below for additional information with respect to the common stock offering.

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In August 2024, the Company repaid in full the remaining $10 million outstanding under a Securities Purchase Agreement entered into in 2020 (the "SPA"), pursuant to which the Company issued secured convertible notes to two investors raising gross proceeds of $25 million, of which $15 million had been previously converted to common stock. See Note 6 below for additional information with respect to these notes.


2.						Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2023 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC"). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and in accordance with the rules and regulations of the SEC related to a quarterly report on Form 10-Q. Accordingly, since they are interim statements, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are necessary for a fair statement of financial position, results of operations, cash flows, and stockholders' equity for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Inventory

Inventory is carried at the lower of cost or net realizable value. The costs of inventory are determined using the standard cost method, which approximates actual cost based on a first-in, first-out method. Items in inventory relate predominantly to the Company’s ClearPoint system and related disposables. Software license inventory related to ClearPoint systems undergoing on-site customer evaluation is included in inventory in the accompanying condensed consolidated balance sheets. All other software license inventory is classified as a non-current asset. The Company periodically reviews its inventory for excess and obsolete items and provides a reserve upon identification of potentially excess or obsolete items.

Intangible Assets

The Company is a party to a license agreement that provides rights to the Company for the development and commercialization of products. Under the terms of the license agreement, the Company made payments to the licensor upon execution of the license agreement for access to the underlying technology, and future payments will be based upon achievement of regulatory and commercialization milestones as defined in the license agreement. In 2022, the Company made a payment to the licensor for the achievement of a regulatory milestone, which acts as a prepayment for future royalties.

In conformity with Accounting Standards Codification Section (ASC) 350, "Intangibles – Goodwill and Other," the Company amortizes the payments related to the license rights described above over an expected useful life of up to five years, or as commercial sales occur that are related to the royalty prepayment. In addition, the Company periodically evaluates the recoverability of its investment in the license rights and records an impairment charge in the event such evaluation indicates that the Company’s investment is not likely to be recovered.

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Revenue Recognition

The Company’s revenue is comprised primarily of: (1) product revenue resulting from the sale of neurosurgery, navigation, therapy, and biologics and drug delivery disposable products; (2) product revenue resulting from the sale of ClearPoint capital equipment and software; (3) service revenue and case support revenue in connection with customer-sponsored preclinical and clinical trials; (4) license revenue for the granting of licenses to develop and commercialize the Company's SmartFlow Cannula devices with the Company's customers' proprietary biologics as a combination product; and (5) revenue resulting from the service, installation, training, and shipping related to ClearPoint capital equipment and software. The Company recognizes revenue when (i) control of the Company’s products is transferred to its customers or (ii) services are provided to customers, each in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products and services, in a process that involves identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when or as the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. When a contract calls for the satisfaction of multiple performance obligations for a single contract price, the Company typically allocates the contract price among the performance obligations based on the relative stand-alone selling prices for each such performance obligation customarily charged by the Company. The Company considers a performance obligation satisfied once it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. The Company recognizes revenue for satisfied performance obligations only when it determines there are no uncertainties regarding payment terms or transfer of control.

Lines of Business; Timing of Revenue Recognition

•Neurosurgery navigation product, biologics and drug delivery systems product, and therapy product sales: Revenue from the sale of neurosurgery navigation products (consisting of disposable products sold commercially and related to cases utilizing the Company's ClearPoint system), biologics and drug delivery products (consisting primarily of disposable products related to customer-sponsored clinical trials utilizing the ClearPoint system), and therapy products (consisting primarily of disposable laser-related products used in neurosurgical procedures) is generally based on customer purchase orders, the predominance of which require delivery within one week of the order having been placed, and is generally recognized at the point in time of shipping to the customer, which is the point at which legal title, and risks and rewards of ownership, transfer to the customer. For certain customers, legal title and risks and rewards of ownership transfer upon delivery to the customer as stated in their respective contracts, in which case revenue is recognized upon delivery.

•Capital equipment and software sales:

◦Capital equipment and software sales preceded by evaluation periods: The predominance of capital equipment and software sales (consisting of integrated computer hardware and software that are integral components of the Company's ClearPoint system) are preceded by customer evaluation periods. During these evaluation periods, installation of, and training of customer personnel on, the systems have been completed and the systems have been in operation. Accordingly, revenue from capital equipment and software sales following such evaluation periods is recognized at the point in time that the Company is in receipt of an executed purchase agreement or purchase order.

◦Capital equipment and software sales not preceded by evaluation periods: Revenue from sales of capital equipment and software not having been preceded by an evaluation period is recognized upon delivery to the customer and installation. For capital equipment that does not require installation, revenue is recognized upon shipment; however, for those customers where legal title and risks and rewards of ownership transfer upon delivery, revenue is recognized at such time.

For both types of capital equipment and software sales described above, the determination of the point in time at which to recognize revenue represents that point at which the customer has legal title, physical possession, and the risks and rewards of ownership, and the Company has a present right to payment.

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

•Neurosurgery navigation and therapy services: The Company recognizes revenue for such services over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation.

•Biologics and drug delivery services and other revenue:

◦Professional and Consulting Services: The Company recognizes professional and consulting revenue over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation. The Company may use output methods, such as time elapsed, or input methods, such as labor hours expended or costs incurred, to measure progress depending on which better depicts the transfer of control to the customer.

◦Clinical Service Access Fees: For contracts in which the Company receives a periodic fixed fee, irrespective of the number of cases attended by the Company's personnel or hours incurred during such periods, revenue is recognized ratably over the period covered by such fees. A time-elapsed output method is used for such fees because the Company transfers control evenly by providing a stand-ready service.

◦Procedure-Based Service Fees: The Company recognizes revenue at the point in time a relevant case is completed.

◦License fees: License fees represent the use of functional intellectual property as it exists at the point in time at which the license is granted and does not require any significant development or customization. Accordingly, the Company recognizes license revenue at the point in time in which the license becomes effective and the intellectual property is made available to the customer.

◦Milestone fees: Event-based payments which are subject to the customer's achievement of specified development or regulatory milestones are included in the transaction price if, in the Company's judgment, it is probable that these milestones will be achieved and a significant future reversal of cumulative revenue under the contract will not occur. The Company re-evaluates the probability of achievement of such milestones at the end of each reporting period and adjusts the transaction price as necessary.

•Capital equipment-related services:

◦Equipment service: Revenue from service of ClearPoint capital equipment and software previously sold to customers is based on agreements with terms ranging from one to three years and is recognized ratably on a monthly basis over the term of the service agreement. A time-elapsed output method is used for service revenue because the Company transfers control evenly by providing a stand-ready service.

The Company may also enter into contracts with customers who own ClearPoint capital equipment, which bundle maintenance and support services and access to software and hardware upgrades made commercially available over the term of the contract, for a single contract price, typically paid on an annual basis. The Company allocates the contract price among the performance obligations based on the relative stand-alone prices for each such performance obligation and recognizes the revenue ratably on a monthly basis. A time-elapsed output method is used as the Company is providing a stand-ready service for each of the performance obligations.

◦Installation, training and shipping: Consistent with the Company’s recognition of revenue for capital equipment and software sales as described above, fees for installation, training and shipping in connection with sales of capital equipment and software that have been preceded by customer evaluation periods are recognized as revenue at the point in time the Company is in receipt of an executed purchase agreement or purchase order for the equipment and software. Installation, training and shipping fees related to capital equipment and software sales not having been preceded by an evaluation period are recognized as revenue concurrent with the recognition of revenue from sales of the related capital equipment.

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company operates in one industry segment, and the predominance of its sales are to U.S.-based customers.

Payment terms under contracts with customers generally are in a range of 30-60 days after the customers’ receipt of the Company’s invoices.

The Company’s terms and conditions do not provide for a right of return unless for: (a) product defects; or (b) other conditions subject to the Company’s approval.

See Note 3 for additional information regarding revenue recognition.

Net Loss Per Share

The Company computes net loss per share using the weighted-average number of common shares outstanding during the period. Basic and diluted net loss per share are the same because the conversion, exercise or issuance of all potential common stock equivalents, which comprise the Company’s outstanding common stock options and unvested restricted stock units, as described in Note 8, would be anti-dilutive, due to the reporting of a net loss for each of the periods in the accompanying condensed consolidated statements of operations.

Concentration Risks and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company may at times invest its excess cash in interest bearing accounts and U.S. government debt securities. It classifies all highly liquid investments with original stated maturities of three months or less from the date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months but less than twelve months as short-term investments.

The Company holds the remainder of its cash and cash equivalents on deposit with financial institutions in the U.S. insured by the Federal Deposit Insurance Corporation. At September 30, 2024, the Company had approximately $1.1 million in bank balances that were in excess of the insured limits.

At September 30, 2024, there was one customer whose accounts receivable balance represented 11% of accounts receivable at that date. At December 31, 2023, there were four customers whose accounts receivable balances represented 80% of accounts receivable at that date.

One pharmaceutical customer, a related party who is a stockholder and whose chief executive officer is a member of the Company's Board of Directors, for whom the Company provides hardware, software, clinical services and market development services in support of the customer's clinical trials, and from whom the Company earns a quarterly fee, accounted for 9% and 12% of total sales in both the three and nine-month periods ended September 30, 2024 and 2023, respectively. There was one additional customer, who comprised 13% of the total sales in the three-month period ended September 30, 2024, and another customer who comprised 10% of the total sales in the three-month period ended September 30, 2023.

Prior to granting credit to a customer, the Company generally performs credit evaluations of the customer's financial condition. In general, the Company does not require collateral from customers in connection with an extension of credit. The accounts receivable balance is reduced by an allowance for credit losses from the potential inability of the Company's customers to make required payments. The allowance for credit losses at September 30, 2024, and December 31, 2023, was $0.9 million and $1.4 million, respectively. The Company evaluates the historic loss experience on the accounts receivable balance and also considers separately customers with receivable balances that may be negatively impacted by current economic developments and market conditions. The estimate is a result of the Company's ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses and future expectations.

The Company is subject to risks common to emerging companies in the medical device industry, including, but not limited to: new technological innovations; acceptance and competitiveness of its products; dependence on key personnel; dependence on key suppliers; its ability to maintain its third-party collaboration, license and joint development partners, and enter into new relationships; changes in general economic conditions and interest rates; its

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

ability to obtain additional funding to support its business; regulatory uncertainty; protection of proprietary technology; compliance with changing government regulations; uncertainty of widespread market acceptance of products; access to credit for capital purchases by customers; and intellectual property and product liability claims. Certain components used in manufacturing have relatively few alternative sources of supply and establishing additional or replacement suppliers for such components cannot be accomplished quickly. The inability of any of these suppliers to fulfill the Company’s supply requirements may negatively impact future operating results.

Recent Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The amendments improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 is effective for calendar year-end public business entities in 2024 annual reporting and in 2025 interim reporting. Early adoption is permitted. The Company expects to adopt ASU 2023-07 retrospectively in its 2024 annual financial reporting and its 2025 interim financial reporting, and is currently evaluating the impact of this ASU on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures," which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The provisions of the ASU are intended to enhance the transparency and decision usefulness of income tax disclosures. The guidance may be applied on a prospective basis with the option to apply the standard retrospectively and is effective for calendar year-end public business entities in the 2025 annual period and in 2026 for interim periods with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.


3.						Revenue Recognition

Revenue by Service Line


	Three Months Ended September 30,
(in thousands)	2024		2023
Biologics and drug delivery
Disposable products	$	2,062	$	455
Services and license fees	2,369		3,032
Subtotal – Biologics and drug delivery revenue	4,431		3,487
Neurosurgery navigation and therapy
Disposable products	2,860		1,874
Services	—		44
Subtotal – Neurosurgery navigation and therapy	2,860		1,918
Capital equipment and software
Systems and software products	552		81
Services	279		276
Subtotal – Capital equipment and software revenue	831		357
Total revenue	$	8,122	$	5,762

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Nine Months Ended September 30,
(in thousands)	2024		2023
Biologics and drug delivery
Disposable products	$	4,286	$	1,395
Services and license fees	8,779		8,136
Subtotal – Biologics and drug delivery revenue	13,065		9,531
Neurosurgery navigation and therapy
Disposable products	7,373		5,550
Services	—		930
Subtotal – Neurosurgery navigation and therapy	7,373		6,480
Capital equipment and software
Systems and software products	2,394		432
Services	787		702
Subtotal – Capital equipment and software revenue	3,181		1,134
Total revenue	$	23,619	$	17,145

Contract Balances

•Contract assets – The timing of revenue recognition may differ from the time of billing to the Company's customers. In most cases, customers are billed upon shipment of such products or delivery of such services and the related contract assets, which represent an unconditional right to consideration, comprise the accounts receivable balance. When revenue is recognized in advance of its right to bill and receive consideration, the Company records this unbilled receivable as a contract asset, which is classified as other current assets in the accompanying condensed consolidated balance sheets.


	September 30, 2024		December 31, 2023
(in thousands)
Accounts receivable, net	$	3,875	$	3,211
Other contract assets
Unbilled receivables	$	662	$	733

•Contract liabilities – Contract liabilities consist of amounts that have been invoiced and for which the Company has the right to bill, but that have not been recognized as revenue as the related goods or services have not been transferred. The Company's contract liabilities are generally comprised of the following: (1) capital equipment and software-related service fees that are typically billed and collected at the inception of the service agreements, which have terms ranging from one to three years; (2) annual fees for agreements with customers that bundle the capital equipment and software-related service fees with software and hardware upgrades that are made commercially available over the term of the contract; and (3) up-front payments from customers made in connection with consulting services. The unearned portion of all such fees is classified as deferred revenue.


	September 30, 2024		December 31, 2023
(in thousands)
Deferred revenues	$	1,732	$	3,154

During the three and nine months ended September 30, 2024, the Company recognized approximately $0.2 million and $2.2 million of revenue, respectively, which was previously included in deferred revenue in the accompanying condensed consolidated balance sheet at December 31, 2023.

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue that will be recognized as revenue in future periods. The majority of the remaining performance obligations relate to capital equipment and software-related service agreements and the upfront

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

payments discussed under the heading "Contract Liabilities" above, which amounted to approximately $1.7 million at September 30, 2024. The Company expects to recognize 71% of this revenue over the next twelve months and the remainder thereafter.


4.			Fair Value Measurement

Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The fair value of cash and cash equivalents of $21.6 million and $23.1 million as of September 30, 2024, and December 31, 2023, respectively, is derived using Level 1 inputs. The cash equivalents are comprised of short-term bank deposits, money market funds, and U.S. Government debt securities with original maturities of three months or less, and the carrying value is a reasonable estimate of fair value.


5.			Inventory

Inventory consists of the following as of September 30, 2024 and December 31, 2023:


(in thousands)	September 30, 2024		December 31, 2023
Raw materials and work in process	$	5,591	$	6,466
Software licenses	174		211
Finished goods	1,294		1,234
Inventory, net, included in current assets	7,059		7,911
Software licenses – non-current	198		386
Total	$	7,257	$	8,297


6.			Note Payable

In January 2020, the Company completed a financing transaction with two investors (the "2020 Convertible Noteholders"), whereby the Company issued an aggregate principal amount of $17.5 million of secured convertible notes (the "First Closing Notes") pursuant to the SPA, which, unless earlier converted or redeemed, were to mature on January 29, 2025, and bore interest at a rate equal to the sum of (i) the greater of (a) the three (3)-month Secured Overnight Financing Rate ("SOFR") and (b) two percent (2%), plus (ii) a margin of 2% on the outstanding balance of the First Closing Notes, payable quarterly on the first business day of each calendar quarter. The First Closing Notes were convertible at a price of $6.00 per share, subject to certain adjustments set forth in the SPA and the note agreement, and could not be pre-paid without the consent of the noteholder. In May 2021, one of the 2020 Convertible Noteholders (the "Converting Noteholder") converted the entire $7.5 million principal amount of such Converting Noteholder’s First Closing Note, and related accrued interest of approximately $0.04 million, into 1,256,143 shares of the Company’s common stock.

In December 2020, the Company issued the Second Closing Note (as defined in the SPA) to one of the 2020 Convertible Noteholders in an aggregate principal amount of $7.5 million. In November 2021, the holder of the Second Closing Note converted the entire $7.5 million principal amount of such note, along with related accrued and payment in-kind interest aggregating $0.3 million, into 773,446 shares of the Company's common stock.

On August 23, 2024, the Company repaid all amounts owing under the remaining First Closing Note, which included the principal amount of $10 million, and related accrued interest of $0.1 million. In connection with the prepayment, the noteholder waived all prohibitions on prepayment of the note, and all collateral securing the note was released.

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


7.			Leases

The Company subleases office space in Solana Beach, California, that serves as its corporate headquarters and houses certain management and personnel. The sublease term commenced on December 15, 2020, is set to expire on December 31, 2026, and is renewable for an additional five-year period, at the Company’s option, provided that the Company’s landlord has entered into an extension of its prime lease for the office space that encompasses the Company’s office space for at least five years.

The Company leases space in Carlsbad, California, that serves as office space and a manufacturing facility under a lease that commenced on June 1, 2023 and ends on May 31, 2033. The Company has two options to extend the lease term for thirty-six or sixty months, at the then fair market rental value. Upon establishment of the new manufacturing facility in Carlsbad, the Company terminated its prior manufacturing facility lease in Irvine, California, effective October 2023. The lease termination did not have a material impact to the financial statements.

The aforementioned leases are classified as operating leases in conformity with GAAP. The aggregate lease costs, included in general and administrative expense, were $0.2 million for each of the three months ended September 30, 2024 and 2023, and $0.7 million and $0.5 million for the nine months ended September 30, 2024 and 2023, respectively.


8.			Stockholders’ Equity

2024 Public Offering

In March 2024, the Company completed a public offering of 2,653,848 shares of its common stock, composed of 2,307,694 shares of common stock offered at a public offering price of $6.50 per share and an additional 346,154 shares of common stock sold pursuant to the exercise of the underwriters' option to purchase additional shares at the public offering price.

Net proceeds from the offering totaled approximately $16.2 million after deducting underwriting discounts and commissions, and other offering expenses paid by the Company.

The underwriting agreement contains representations, warranties, agreements and indemnification obligations by the Company that are customary for this type of transaction.

Equity Compensation Plans

In May 2024, the Company's stockholders approved the Fifth Amended and Restated 2013 Incentive Compensation Plan, which increased the number of shares of common stock available for awards under the plan by 1.95 million shares. The plan permits the issuance of options, restricted stock, restricted stock units and other awards to select

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

employees, directors and consultants of the Company. The equity incentive plans are more fully described in Note 9 to the consolidated financial statements in the 2023 Form 10-K.

Share-Based Compensation Expense

The Company records share-based compensation expense on a straight-line basis over the vesting periods of the related grants and recognizes forfeitures as they occur. The following table sets forth share-based compensation expense included in the condensed consolidated statements of operations:


	Three Months Ended September 30,
(in thousands)	2024		2023
Cost of revenue	$	31	$	26
Research and development	461		357
Sales and marketing	537		431
General and administrative	875		770
Share-based compensation expense	$	1,904	$	1,584


	Nine Months Ended September 30,
(in thousands)	2024		2023
Cost of revenue	$	82	$	74
Research and development	1,204		1,009
Sales and marketing	1,482		1,277
General and administrative	2,436		2,176
Share-based compensation expense	$	5,204	$	4,536

Share-based compensation expense by type of share-based award is summarized below:


	Three Months Ended September 30,
(in thousands)	2024		2023
Stock options	$	151	$	233
RSAs and RSUs	1,719		1,308
ESPP	34		43
	$	1,904	$	1,584


	Nine Months Ended September 30,
(in thousands)	2024		2023
Stock options	$	554	$	747
RSAs and RSUs	4,495		3,612
ESPP	155		177
	$	5,204	$	4,536

Total unrecognized compensation expense by type of award and the weighted-average remaining requisite holding period over which such expense is expected to be recognized is as follows (in thousands, unless otherwise noted):

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	September 30, 2024
	Unrecognized Expense		Remaining Weighted-Average Recognition Period (in years)
Stock options	$	446	1.13
RSAs and RSUs	$	9,548	1.85

Stock Option Activity

Stock option activity during the nine months ended September 30, 2024 is summarized below:


	Stock Options	Weighted-average Exercise price per share		Weighted-average Remaining Contractual Life (in years)	Intrinsic Value(1) (in thousands)
Outstanding at December 31, 2023	1,478,157	$	8.40
Exercised	(12,000)	$	2.89
Forfeited or expired	(7,237)	$	42.19
Outstanding at September 30, 2024	1,458,920	$	8.28	4.74	$	8,187
Exercisable at September 30, 2024	1,328,249	$	8.19	4.40	$	7,911
Vested and expected to vest at September 30, 2024	1,458,920	$	8.28	4.74	$	8,187

ClearPoint Neuro, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


(1)			Intrinsic value is calculated as the estimated fair value of the Company’s stock at the end of the related period less the option exercise price of in-the-money options.

Restricted Stock Award Activity

Restricted stock award ("RSA") activity for the nine months ended September 30, 2024 is summarized below:


	Restricted Stock Awards	Weighted - Average Grant Date Fair Value
Outstanding at December 31, 2023	376,914	$	12.02
Vested	(195,173)	$	12.93
Forfeited	(6,019)	$	12.35
Outstanding at September 30, 2024	175,722	$	10.99

Restricted Stock Unit Activity

Restricted stock unit ("RSU") activity for the nine months ended September 30, 2024 is summarized below:


	Restricted Stock Units	Weighted - Average Grant Date Fair Value
Outstanding at December 31, 2023	768,139	$	8.15
Granted	1,197,646	$	6.16
Vested	(267,328)	$	7.99
Forfeited	(17,849)	$	8.40
Outstanding at September 30, 2024	1,680,608	$	6.75

ESPP

On June 3, 2021, the Company’s stockholders adopted and approved the ClearPoint Neuro, Inc. Employee Stock Purchase Plan (the "ESPP"), which allows eligible employees to acquire shares of the Company’s common stock through payroll deductions at a discount to market price. A total of 400,000 shares of the Company’s common stock were made available for issuance pursuant to the terms of the ESPP. Each offering period is for six months, and the first offering period commenced on July 1, 2021. During the first offering period of 2024, 62,800 shares were purchased at an average per share price of $4.58.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and the related notes thereto appearing in Part I, Item 1 of this Quarterly Report. This discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks, assumptions and uncertainties. You should review the section titled "Risk Factors" appearing in the 2023 Form 10-K and in Part II, Item 1.A of this Quarterly Report for a discussion of important risk factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis. In addition, historical results and trends that might appear in this Quarterly Report should not be interpreted as being indicative of future operations.

Overview

We are a commercial-stage medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain. We have deployed significant resources to fund our efforts to develop the capabilities for enabling neurosurgery interventions, building an intellectual property portfolio, and identifying and building out commercial applications for the technologies developed by our company.

The foundational part of our business is providing medical devices for neurosurgery applications. Our primary medical device product, the ClearPoint system, is an integrated system comprised of hardware components, disposable components, and intuitive, menu-driven software, which is in commercial use globally. The primary applications for the ClearPoint system are to target and guide the insertion of deep brain stimulation electrodes, biopsy needles, and laser catheters, as well as the delivery of pharmaceuticals into the brain. The ClearPoint system was originally designed for use in an MRI setting. In 2021, we launched the SmartFrame Array Neuro Navigation System and Software, which allow for operating room placement of the ClearPoint system, and in 2024, we released the SmartFrame OR Stereotactic System, which allows for complete procedures to be performed in the operating room. In 2022, we commercialized the ClearPoint Prism Neuro Laser Therapy System as our first therapy product offering. We have exclusive global commercialization rights to the ClearPoint Prism Neuro Laser Therapy System through our Swedish partner, CLS.

The second part of our business is focused on partnerships in the biologics and drug delivery space. Our services include protocol consultation and solutions for preclinical study design and execution for the delivery of pharmaceutical agents to the brain. We also partner with customers to develop devices used for administration of therapies into the central nervous system. Currently, we have more than 50 biologics and drug delivery customers who are evaluating or using our products and services in trials to inject gene and cell therapies directly into the brain. These partnerships involve drug development programs that are at various stages of development ranging from preclinical research to late-stage regulatory trials for multiple distinct disease states. This part of our business potentially represents the largest opportunity for growth; however, our ability to grow in this market is dependent on our ability to maintain and establish new relationships with customers, such customers' continuation of research and development plans, and such customers' achievement of success in completion of clinical trials and subsequent regulatory approvals of their biologics and drugs.

Substantially all our revenue for the three and nine months ended September 30, 2024 and 2023 relates to (i) sales of our ClearPoint system products and related services and (ii) providing services to our customers in the biologics and drug delivery space. We have financed our operations and internal growth primarily through the sale of equity securities and the issuance of notes payable. We have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development. As of September 30, 2024, we had accumulated losses of $186.0 million. We may continue to incur operating losses as we expand our ClearPoint system platform, services to our pharmaceutical and other medical technology customers, and our business generally.

Factors Which May Influence Future Results of Operations

The following is a description of factors that may influence our future results of operations, and that we believe are important to an understanding of our business and results of operations.

Macroeconomic Trends

We continue to monitor the impact of various macroeconomic trends, such as global economic and supply chain disruptions, geopolitical instability (including instability resulting from military conflicts), labor shortages, inflationary

conditions, and legislative and political developments. Impacts from inflationary pressures, such as increasing costs for research and development of our products, administrative and other costs of doing business, and our access to capital markets and other sources of funding in the future could adversely affect our business, financial condition and results of operations. Additionally, these trends could adversely affect our customers, which could impact their willingness to spend on our products and services, or their ability to make payment, which could harm the Company's collection of accounts receivable and financial results. The continued development and fluidity of these situations precludes any prediction as to the ultimate impact they will have on our business, financial condition, results of operation and cash flows.

Revenue

In 2010, we received 510(k) clearance from the U.S. Food and Drug Administration (the "FDA") to market our ClearPoint system in the U.S. for general neurosurgical procedures; in February 2011 and May 2018, we also obtained CE marking for our ClearPoint system and SmartFlow cannula, respectively; and in June 2020, we obtained CE marking for version 2.0 of our ClearPoint software and our Inflexion head fixation frame. In January 2021, we received 510(k) clearance for the SmartFrame Array Neuro Navigation System. In September 2022, the ClearPoint Prism Neuro Laser Therapy System, for which we have exclusive global rights to commercialize, received 510(k) clearance through our Swedish partner, CLS. The Prism laser represents the first therapy product we have commercialized. In January 2024, we received 510(k) clearance from the FDA for the SmartFrame OR Stereotactic System.

In 2021, we started providing services to our pharmaceutical and other medical technology customers for improving outcome predictability and optimizing preclinical and clinical workflows. Our expertise is concentrated in benchtop testing, preclinical studies, clinical trial support, regulatory consultation, and over-arching translation from the preclinical to the clinical setting to enhance accuracy and precision of drug delivery. In 2024, we expanded our services to our pharmaceutical and other medical technology customers to include development of devices used for administration of therapies into the central nervous system.

Future revenue from sales of products and services is difficult to predict and may not be sufficient to offset our continuing research and development expenses and selling, general and administrative expenses.

Generating recurring revenue from the sale of products is an important part of our business model for our ClearPoint system. Our product revenue was approximately $5.5 million and $14.1 million for the three and nine months ended September 30, 2024, respectively. Our service and other revenue was approximately $2.6 million and $9.6 million for the three and nine months ended September 30, 2024, respectively, of which 89% and 92%, respectively, is related to the biologics and drug delivery service line.

Our revenue recognition policies are more fully described in Note 2 to the Condensed Consolidated Financial Statements included above in Part I, Item 1 in this Quarterly Report.

Underlying the revenue from sales of products and services to our biologics and drug delivery customers is the number of direct customers and end users of our products and/or services ("Partners"). Our Partners consist of pharmaceutical and biotech companies, academic institutions, and customer-sponsored contract research organizations that are developing methods to deliver a wide variety of molecules, genes or proteins to targeted brain tissue or structures that would need to bypass the blood-brain barrier for the treatment of a variety of disorders. This is a novel area in which commercialization must be preceded by FDA-mandated clinical trials, which are expensive and time consuming to conduct, and for which the commercial success is uncertain, pending, in part, the outcome of those trials. While our revenue from sales of products and services to our biologics and drug delivery customers is indicative of growth, the number of Partner relationships is also of importance as we recognize the possibility that some Partners’ research will reach commercial success, and others may not. To the extent our Partners achieve commercial success, our expectation is that we will share in such success through our Partners’ use of our products and services in their delivery of therapies. At September 30, 2024, we had more than 50 Partners, which is similar to the number of Partners as of the same date in 2023.

Cost of Revenue

Cost of revenue includes the direct costs associated with the assembly and purchase of components for neurosurgery navigation products, biologics and drug delivery products, non-neurosurgery therapy products, and ClearPoint capital equipment and software that we have sold, and for which we have recognized the revenue in accordance with our revenue recognition policy, as well as labor hours and materials for the cost of providing preclinical, consulting, and service

revenue. Cost of revenue also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our ClearPoint placement program, as well as provisions for obsolete, impaired, or excess inventory.

Research and Development Costs

Our research and development costs consist primarily of costs associated with the conceptualization, design, testing, and prototyping of our ClearPoint system products and enhancements. Such costs include salaries, travel, and benefits for research and development personnel; materials and laboratory supplies in research and development activities; outside consultant costs; and licensing costs related to technology not yet commercialized. We anticipate that, over time, our research and development costs may increase as we: (i) develop devices and services for delivery of therapeutics into the central nervous system; (ii) expand products into the operating room and therapeutics space; and (iii) expand the application of our technological platforms internationally.

Product development timelines, likelihood of success, and total costs can vary widely by product candidate. There are also risks inherent in the regulatory clearance and approval process. At this time, we are unable to estimate with any certainty the costs that we will incur in our efforts to expand the application of our technological platforms.

Sales and Marketing, and General and Administrative Expenses

Our sales and marketing, and general and administrative expenses consist primarily of salaries, incentive-based compensation, travel and benefits, including share-based compensation; marketing costs; professional fees, including fees for outside attorneys and accountants; occupancy costs; insurance; and other general and administrative expenses, which include, but are not limited to, corporate licenses, director fees, hiring costs, taxes, postage, office supplies, information technology and meeting costs. Our sales and marketing expenses are expected to continue to increase due to costs associated with the continued commercialization of our products and services and the increased headcount necessary to support growth in operations.

Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2024, as compared to the critical accounting policies and estimates described in our 2023 Form 10-K.

Results of Operations

Three Months Ended September 30, 2024, Compared to the Three Months Ended September 30, 2023


	Three Months Ended September 30,
(Dollars in thousands)	2024		2023		Percentage Change
Product revenue	$	5,474	$	2,410	127	%
Service and other revenue	2,648		3,352		(21)	%
Total revenue	8,122		5,762		41	%
Cost of revenue	3,275		2,489		32	%
Gross profit	4,847		3,273		48	%
Research and development costs	3,315		2,429		36	%
Sales and marketing expenses	3,549		2,841		25	%
General and administrative expenses	3,155		2,900		9	%
Other income (expense):
Other expense, net	(11)		(12)		NM
Interest income, net	209		100		109	%
Net loss	$	(4,974)	$	(4,809)	3	%

NM – The percentage change is not meaningful.

Revenue. Total revenue was $8.1 million for the three months ended September 30, 2024, and $5.8 million for the three months ended September 30, 2023, which represents an increase of $2.4 million, or 41%.


	Three Months Ended September 30,
(Dollars in thousands)	2024		2023		Percentage Change
Biologics and drug delivery
Disposable products	$	2,062	$	455	353	%
Services and license fees	2,369		3,032		(22)	%
Subtotal – Biologics and drug delivery revenue	4,431		3,487		27	%
Neurosurgery navigation and therapy
Disposable products	2,860		1,874		53	%
Services	—		44		(100)	%
Subtotal – Neurosurgery navigation and therapy	2,860		1,918		49	%
Capital equipment and software
Systems and software products	552		81		581	%
Services	279		276		1	%
Subtotal – Capital equipment and software revenue	831		357		133	%
Total revenue	$	8,122	$	5,762	41	%

Biologics and drug delivery revenue, which includes sales of services and disposable products related to customer-sponsored preclinical and clinical trials utilizing our products, increased 27% to $4.4 million for the three months ended September 30, 2024, from $3.5 million for the same period in 2023. Our overall revenue growth is attributable to a $1.6 million increase in product revenue resulting from higher demand for disposables as multiple partners progress in their trials, partially offset by a decrease of $0.7 million in service and other revenue due to a reduction in the number of preclinical studies performed, during the three months ended September 30, 2024, compared to the same period in 2023.

Neurosurgery navigation and therapy revenue, which primarily consists of disposable product commercial sales related to cases utilizing the ClearPoint system, increased 49% to $2.9 million for the three months ended September 30, 2024, from $1.9 million for the same period in 2023. The increase is driven by higher product revenue of $1.0 million resulting from newly activated accounts, increased case count, and new product offerings, including the SmartFrame OR and Prism Laser Therapy, during the three months ended September 30, 2024, compared to the same period in 2023.

Capital equipment and software revenue, consisting of sales of ClearPoint reusable hardware and software and related services, increased 133% to $0.8 million for the three months ended September 30, 2024, from $0.4 million for the same period in 2023 due to an increase in the placements of ClearPoint navigation capital equipment and software and Prism laser units.

Cost of Revenue and Gross Profit. Cost of revenue was $3.3 million, resulting in gross profit of $4.8 million and gross margin of 60%, for the three months ended September 30, 2024, and was $2.5 million, resulting in gross profit of $3.3 million and gross margin of 57% for the three months ended September 30, 2023. The increase in gross margin was primarily due to lower costs for the three months ended September 30, 2024 due to the transition to the new manufacturing facility, occurring in 2023, and higher volumes for the three months ended September 30, 2024.

Research and Development Costs. Research and development costs were $3.3 million for the three months ended September 30, 2024, compared to $2.4 million for the same period in 2023, an increase of $0.9 million, or 36%. The increase was due primarily to higher personnel costs and product and software development costs, each in the amount of $0.5 million, partially offset by lower trial costs of $0.1 million.

Sales and Marketing Expenses. Sales and marketing expenses were $3.5 million for the three months ended September 30, 2024, compared to $2.8 million for the same period in 2023, an increase of $0.7 million, or 25%. This increase was due primarily to higher personnel costs, including share-based compensation, of $0.6 million resulting from increases in headcount, and increased travel costs of $0.1 million.

General and Administrative Expenses. General and administrative expenses were $3.2 million for the three months ended September 30, 2024, compared to $2.9 million for the same period in 2023, an increase of $0.3 million, or 9%. This increase was due primarily to higher personnel costs and share-based compensation of $0.4 million, higher occupancy costs of $0.2 million, and higher professional fees of $0.1 million, partially offset by lower bad debt expense of $0.5 million mainly as a result of subsequent recoveries.

Interest Income (Expense). Net interest income was $0.2 million for the three months ended September 30, 2024, compared to $0.1 million for the same period in 2023, as a result of increased investment in U.S. Government debt securities stemming from the capital raise in March 2024 as well as lower interest expense due to the early repayment of the First Closing Note.

Nine months ended September 30, 2024, Compared to the Nine months ended September 30, 2023


	Nine Months Ended September 30,
(Dollars in thousands)	2024		2023		Percentage Change
Product revenue	$	14,053	$	7,377	90	%
Service and other revenue	9,566		9,768		(2)	%
Total revenue	23,619		17,145		38	%
Cost of revenue	9,259		7,544		23	%
Gross profit	14,360		9,601		50

SEC Form 10-Q filed by ClearPoint Neuro Inc.