Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Doug Sherk – IR, EVC Group

Mike Kaminski – President & CEO

Jim Stolze – CFO

Lou Ruggiero – Chief Commercial Officer

Analysts

Mimi Pham – JMP Securities

Keay Nakae – Collins Stewart

Ed Shenkan – Needham

Imron Zafar – Deutsche Bank

Stereotaxis, Inc. (STXS) Q4 2008 Earnings Call Transcript February 26, 2009 8:30 AM ET

Operator

Ladies and gentlemen, welcome to the Stereotaxis Q4 2008 Earnings Conference Call on the 26th of February, 2009. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator instructions).

I'll now hand the conference over to Doug Sherk. Thank you, sir. Please go ahead.

Doug Sherk

Thank you, operator, and good morning, everyone. Thank you for joining us for the Stereotaxis conference call and webcast to review financial results for the fourth quarter of 2008. Before we get started, we'd like to remind you that during the course of this conference call, the company may make projections and other forward-looking statements regarding future events or the future financial performance of the company, including without limitations statements regarding future operating results, growth opportunities and other statements that refer for Stereotaxis plans, prospects, expectations, strategies, intentions and beliefs.

These statements are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. For a detailed discussion of the risks and uncertainties that affect the company's business, and qualify the forward-looking statements made in this call we refer you to the company's recent public filings filed with the SEC, specifically the Form 10-K for the fiscal year ended December 31, 2007. The company’s projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The company is under no obligation to update any projections of forward-looking statements.

And now I'd like to turn the call over to Mike Kaminski, President and CEO of Stereotaxis.

Mike Kaminski

Thank you, Doug, and good morning, everybody. On the call with me this morning is Jim Stolze, our CFO and Lou Rouggiero, our Chief Commercial Officer.

This morning we reported fourth quarter financial results in line with our preannouncement in January. There were several positive financial and operating trends during the quarter beginning with our revenue which was up 18% year-over-year. Recurring revenue continued to show sequentially and was up 29% from the fourth quarter of 2007. Recurring revenue represented approximately 28% of the total fourth quarter revenue.

We significantly reduced our net loss and cash consumption. We realized strong gross margins and our operating expenses continued to decrease. The net result was that we've lowered our operating loss by 48% compared to the last year's fourth quarter. This performance demonstrates substantial progress towards break even. Our entire organization is focused on becoming at a profitable enterprise, and we're executing on a plan to achieve that in the foreseeable future.

Jim will review the financial performance in more detail in a few minutes but I'd first like to spend some time discussing our key accomplishments in 2008. Then I will review the challenges we see ahead in the strategic actions we're taking to address them. Our team is proud of the achievements during the past year.

On the product side, there were three significant developments. First, the magnetic irrigated catheter was relaunched in Europe in November and has demonstrated excellent initial results. At last month's Boston AF Symposium, we provided a clinical update detailed data from a 170 cases performed at nine centers in both Europe and Canada. 75% of these cases were complex left sided procedures. The catheter exceeded all pre-specified clinical end points during the evaluation period. Specifically in the complex left sided procedures, we achieved a 97% acute success and the average time to complete mapping and ablation was nearly 13% below the same sites documented conventional procedure time.

In these complex cases, radiation exposure to the patient was nearly cut in half when compared to historical benchmarks from the same centers. The average fluoroscopy exposure to the patient of only 16 minutes compares favorably to conventional and robotic techniques where exposure often exceeds 60 minutes for complex left atrial arrhythmias. The catheter also demonstrated an exceptional safety profile of no major adverse events.

While these results and complex left atrial procedures are certainly impressive, it's the versatility of our system beyond these procedures that really underscores the value of Stereotaxis. In January, Prof. Gerhard Hendricks and the Group at University of Leipzig Herzzentrum, published the first peer review paper describing clinical results obtained with the magnetic irrigated catheter.

In this small group of seriously ill patients who were experiencing electrical storm due to ventricular tachycardia, the magnetic irrigated catheter was used to both map and ablate arrhythmias with minimal fluoroscopy required. As follow-up, all of these patients were free from those dangerous conditions.

The second product development in the past year is Odyssey, which continues to generate strong customer interest. New orders for ODYSSEY during 2008 increased significantly over 2007. We received 41 orders for the year and began selling Odyssey products in the non-Niobe lab. We expect that we are recently introduce cinema remote viewing feature will further strengthen demand due to its networking capability.

The third significant product line development during 2008 was the launch of our QuickCAS Cardiodrive system and the Navigant 3.0 software which simplifies the user interface, reduces set up time and increases the responsiveness of our platform. These features further improve the value of our system in all four chambers of the heart. During our partner's recall of the magnetic irrigated catheter in early 2008, we made good financial progress for the year.

Top line revenue grew 3%, even with limited availability the magnetic irrigated catheter recurring revenue grew 30%. Gross profits increased by 9% or $2.2 million. Operating expenses for 2008 fell by 8% versus 2007. This full year decrease masks the dramatic progress we made in the later half of 2008.

During the first half of 2008, operating expenses were flat with the six months of 2007, a decrease more than 18% during the second six months as compared to the second half of 2007. Operating expenses were down $4 million in the fourth quarter and then we ended the year at an annualized operating run rate of approximately $60 million. We generated $51 million of new orders and installed our hundred Niobe system during the year.

Outside the U.S. where early positive experience with the magnetic irrigated catheter allowed us to establish robust reference sites. New Niobe orders increased 80% versus 2007

Finally we ended 2008 with $30 million in cash and an unused credit line of approximately $15 million. We consumed $5 million of cash per quarter in the last half of 2008.

While we're proud of our accomplishments during 2008, we know that we have a lot of work to do. We're focused on three key objectives for 2009. First, successfully launching the magnetic irrigated catheter in the U.S. and driving recurring revenue growth. Second, continuing to grow the catheter sales despite the economic environment. And lastly, tightening the management of our expenses while we continue to invest in programs that drive revenue growth and product line expansion.

We were pleased with the 30% growth from recurring revenue achieved without the magnetic irrigated and we're optimistic that the introduction of this product will accelerate both system utilization and new orders.

The commercial rollout of the magnetic irrigated catheter in Europe began in late November and 29 sites of 31 sites were completed by the end of January. Since the launch, weekly EP procedures have increased substantially. Our European customers fall naturally into three categories.

First, the customers who have already used Niobe as an ablation standard of care with a four mm catheters. This group quickly adopted the magnetic irrigated catheter because of its excellent ablation characteristics. And in these accounts we continue to experience high weekly utilization.

The second group is comprised of infrequent users, most of whom have been waiting for the magnetic irrigated catheter to use a Niobe for left sided procedures. In these sites we've seen a disproportionately higher increase in utilization as compared to the overall increase in usage.

Lastly, a small number of sites have had practically no usage in the past 12 months due to the lack of magnetic irrigated. In these sites we have more work to do including basic training to drive adoption and we expect the utilization to ramp more slowly.

In the U.S. our goal is to drive utilization to levels currently seen in the top sites in Europe. We're hopeful about our partner receiving the FDA approval in the current quarter.

The hospital capital spending environment remains challenging. Our strategic partners are forecasting the U.S. market to decline by 15% to 20% for the year and markets outside of the U.S. to be flat to slightly up. However, as our fourth quarter revenue and orders illustrate spending in the EP lab appears to be fair and better than overall catheter equipment market.

One major reason why this huge largely – one major reason is this huge largely unmet market to atrial fib, which impacts approximately five million patients in the U.S. Patients are treated here in the EP lab, we're experiencing a double-digit growth rate and hospitals are moving the equipment needs of their EP labs up to priority list. And while substantial investments have been made by major medical device companies in promising technologies, Stereotaxis Niobe system offers a hospital proven track record of safety, efficiency, efficacy that includes nearly 4,000 afib cases.

Based on our most recent market intelligence, there continues to be roughly 250 to 300 EP labs made up of both replacements in new labs, installing x-ray systems each year. Our penetration of this replacement market is under 20%. So we believe there's still significant potential for market share expansion.

Our pipeline continues to grow when markets for irrigated catheter availability has allowed us to establish strong reference sites. For instance, in Europe, we've generated a 75% increase in late stage prospects during 2008. In contrast, the U.S. sales pipeline growth was flat as customers waited for the approval of the magnetic irrigated catheter.

Turning now to the Odyssey network solutions, we're forecasting that this product line will continue to grow despite the current capital environment. ODYSSEY has exceeded our expectations and has become despite the current capital environment.

Odyssey has exceeded our expectations and has become a very strong third leg of revenue. Odyssey is taking Stereotaxis outside of the Niobe EP lab and is providing a backbone for real time integration of information and management in the lab which leads to improved work flow. Physicians tell us with Odyssey they can spend less time managing equipment and more time focusing on the patient.

Additionally, clinicians are excited about the cinema network capabilities because of the enhanced procedure productivity it allows. As a reminder by providing a DVR for the lab cinema allows clinicians to focus on the crucial, often very short intervals during a case around which decisions resolve. The demand for cinema has outpaced our expectations. We are on track to delivering non-Niobe lab products in the fourth quarter of this year.

To assist our capital constrained hospital customers we're actively finalizing an agreement to offer them a new financing option through a major leasing company based in North America. Under this arrangement we would sell our system to the leasing company, the hospital would make regular leasing payments to the leasing company obviating the need to capitalize the equipment and allowing them to match their expenses to the projected procedure revenue. We hope to have this in place in the near future.

Let me turn this over to Jim so he can add more color to the operating results before I summarize expectations and directions.

Jim Stolze

Thank you, Mike. Stereotaxis reported total revenue of $12.1 million for the quarter. Systems revenue was $8.7 million and reflected revenue recognized on seven Niobe systems and four Odyssey systems. Of the seven Niobe's six were placed in the U.S. and one was outside the U.S.

We generated $3.4 million in recurring revenue from disposable service and accessories in the recent fourth quarter, a significant increase from the $2.6 million in the fourth quarter of 2007 and above the $3.2 million in the 2008 third quarter. The increase continues to reflect our growing install base, increasing sales of disposable products and improving royalties earned.

For the full year 2008, revenue was $40.4 million compared with $39.3 million in 2007. 2008 revenue includes 25 Niobe and 14 Odyssey system sales. Backlog at year-end totaled $69 million, $6 million below the level of September 30 of $75 million. The decrease was the result of our efforts to carefully review and evaluate the orders we have in backlog to make sure there was a high likelihood that they would eventually transition to a sale. We removed six projects from the backlog as a result of this evaluation.

I want to remind you again that there can be no assurance that the company will recognize revenue related to its purchase orders and other commitments in any particular period or at all because some of these purchase orders and other commitments are subject to contingencies that are outside of the company's control.

In addition, these orders and commitments may be revised, modified or cancelled either by their expressed terms as a result of negotiations or by project changes or delays.

Gross margin for the quarter was $8.2 million or 68%of revenue, a continuing improvement over the $6.5 million or 64% of revenue earned in the fourth quarter 2007 and $6.9 million or 65% of revenue in the third quarter 2008.

Our average selling price for Niobe system and Odyssey product remains solid with the margins for each of these two product lines at approximately 63% for the quarter. The current revenue continues to generate margins in the 80% range.

As we have noted the company has made significant efforts to contain the operating expenses in order to move toward breakeven.

The fourth quarter operating expenses of $14.6 million represent a 23% reduction compared to the prior year fourth quarter and a 9.5% reduction compared to the third quarter of 2008. We should note that there were certain adjustments relating to non-cash compensation and other charges made during the quarter and that we anticipate a normalized quarter to have a run rate in the $15 million to $15.5 million range setting the stage to achieve the target Mike mentioned of controlling operating expenses to levels below those of 2008.

We reported a net loss of $7.5 million or $0.20 per share in the recent fourth quarter, much improved from the 12.2 million or $0.34 per share loss in the fourth quarter last year and the $10 million or $0.28 per share loss in the third quarter.

Average shares outstanding were 36.7 million compared with 36.3 million in the same period last year. The net loss for the full year 2008 was $43.9 million or $1.20 per share compared to 48.1 million or $1.34 per share in 2007.

Cash and investments totaled $30.4 million at December 31st. The increase in cash reflects the $20 million equity raise that we completed as part of a registered direct offering in stock and warrants at the end of 2008. Of the $20 million gross proceeds, $10 million came from two existing shareholders and $10 million represented a new institutional investor.

Total bank and investor debt at year-end was $29.2 million at December 31st with $13.2 million drawn against the $30 million bank working capital line. Also included in debt is approximately $15 million to Biosense Webster related to the $18 million facility that was finalized in July of this year. Repayment of this liability will be from royalties, otherwise payable from Biosense Stereotaxis with no minimum cash outlay requirements until May 2010.

We used approximately $3.5 million of cash operations in the fourth quarter and improvement from the $5.5 million used in the third quarter. We used $30 million of cash in 2008, an improvement of $10 million compared to the $40 million used in 2007.

We have recently finalized a continuing $10 million guarantee of the two shareholders in accordance with the plans disclosed in December and are well on our way to finalizing our bank working capital line renewal on basically the same terms as exist today.

With the cash on hand our line of credit from the bank to Biosense Webster facility, the company is very well positioned to execute on its plans for 2009 to drive to profitability and began to generate cash.

Let me now turn it back over to Mike to discuss the opportunities we have in 2009.

Mike Kaminski

Thank you, Jim. I would now like to outline our thinking regarding financial objectives for 2009. Let me start with the construction of our sales forecast. Our forecast begins with the backlog at year-end 2008. We segmented our backlog into two groups. Those sites which are active in the installation process and those which are not. As we suggest that orders most of it risk of cancellation or those which are not yet in active installation or planning. From this analysis we concluded that approximately $45 million of the backlog is made up of sites actively planning to install or capital product in either the Niobe or the Odyssey in the next 18 months.

We believe the primary risk associated with this $45 million is the timing of the installation. We've also reviewed incoming orders and the order to cash cycle. In the past two years, approximately 20% to 25% of the incoming new orders in a calendar year have been converted to revenue in that year. Of course, most of these orders are entered in the first half of the year. Odyssey may well increase its percent since its order to cash cycle of two months to three months is much faster than that of Niobe.

While we expect the Niobe revenue for 2009 to exceed 2008, our outlook is highly dependent on the overall economic climate and its impact on hospital capital expenditures as well as the U.S. reference site development for magnetic irrigated catheters. We need to gain more clarity on both of these variables before providing more specific guidance regarding Niobe revenue.

Odyssey revenue is expected to grow significantly this year. With our forecast for Q2 U.S. ramp of the magnetic irrigated catheter, recurring revenue will increase by approximately 50% versus 2008. We project the gross margins will remain strong at the 65% to 70% level for the year and as I mentioned full year operating expenses for 2009 will be lower than 2008 expenses of $67.5 million.

Sales and marketing are expected to be in line or above 2008 levels while R&D and G&A expenses will be below 2008. If we meet these operational and financial objectives we believe that our breakeven level of quarterly revenue will be less than $24 million.

In addition to the growth in revenues and reduction in operating expenses, we expect a favorable shift of sales towards the higher margin recurring revenue products in 2009.

So in summary, our strategy for the near future is clear. First, we seek to drive EP utilization and recurring revenue through our install base of over 100 Niobe systems. We will leverage key users as reference sites to accelerate system purchase decisions. We believe our offering is broad enough and the market is big enough that this alone can bring our company to breakeven even in a capital constrained environment.

Second we'll manage our spending and investments with the aim of achieving near term breakeven while still investing in growth platforms. Our plan is to be in a position to accelerate investments and expansion of the platform and other applications once the company achieves breakeven.

Lastly, we'll continue to build out the Odyssey platform. In the near-term Odyssey will help us achieve our first two objectives through more efficient and cost-effective service, training and sales support. Longer term it offers the potential to expansion into work flow and information management in non-Niobe labs and ultimately into interventional and surgical suites beyond electrophysiology.

With that I'd like to open it up to any questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions). And the first question today comes from Mimi Pham from JMP securities. Please go ahead with your question.

Mimi Pham – JMP Securities

Hi, good morning.

Mike Kaminski

Good morning, Mimi.

Mimi Pham – JMP Securities

Can you just clarify again the way you're breaking out the back order, the $69 million, $45 million is active, you plan to install in the next 18 months. So – can you explain what that means for the other $24 million that just could sit longer in terms of sitting there for two years or that may not also close for the year?

Mike Kaminski

It's either inactive in that, it's not currently in an active planning or installation process or the project is planned outside of that 18 month window. So it could be a new building, for example. That would be constructed at the end of 2010.

Mimi Pham – JMP Securities

Okay. And then of the $45 million, can you give us what percent is Niobe?

Mike Kaminski

It's probably close to 90/10. Is that right?

Jim Stolze

It's a good guess.

Mike Kaminski

I think it's relatively close to 90/10 Niobe versus Odyssey.

Mimi Pham – JMP Securities

Okay. And then can you just clarify your comments when you said the U.S. market being down 15% to 20% and O-US flat. Is that all hospital CapEx you're talking about, or you were talking about this 250 EP labs to 350 EP labs that are upgraded or built out every year?

Mike Kaminski

Yes, these are specific area, just what we're gathering from the expectations of the replacement cycle for imaging systems.

Mimi Pham – JMP Securities

So when you say 250 EP labs to 350 EP labs is that for 2009 incorporating the U.S. market being down 15% to 20%?

Mike Kaminski

Yes, I mean, that's the range of numbers that we're getting, correct.

Mimi Pham – JMP Securities

For 2009 in terms of your potential base for new orders? I'm sorry, is that your potential market for new orders this year, is that 250 to 350?

Mike Kaminski

Correct.

Mimi Pham – JMP Securities

And then last question, on your magnetic irrigated, once you get approval, can you just walk us through the rollout plans? Do you plan to have a different clinical rep at each – the initial – like company sites and do you plan to have a clinical rep at each site or different rep?

Mike Kaminski

Let me turn this over to Lou and he can go through the specifics.

Lou Ruggiero

Hi, Mimi. It's Lou Ruggiero. As it relates to the rollout, our approach is going to be a phased approach. So it's broken into three phases, certain number of customers within each phase. And in answer to your question, yes, there will be a dedicated clinical specialist responsible for a specific account in each of those phases. Fair amount of work has already been undertaken by our team in terms of establishing those specific accounts, specific game plans and working in close cooperation with our partner in that regard. Yes, we'll have a very, very dedicated effort in that respect.

Mike Kaminski

Mimi, I'll just add one thing. Our intention is to put our resources and assure ourselves that the initial rollout and the success with those initial customers is at maximum results before we move our resources on to the next group. We're going to make sure that we do it in a systematic way that really logically builds our reference base as we go through it.

Mimi Pham – JMP Securities

I'm just wondering how many sites we could potentially hear from in the U.S. once we get to HRS?

Lou Ruggiero

Phase I –

Mike Kaminski

It depends on the launch date.

Lou Ruggiero

It really depends on the launch date so that certainly is going to be our restriction, but Phase I is roughly 10 accounts.

Mimi Pham – JMP Securities

Okay. Alright. Thank you very much.

Lou Ruggiero

You're welcome.

Operator

The next question comes from Keay Nakae from Collins Stewart. Please go ahead with your question.

Keay Nakae – Collins Stewart

Yes, couple questions regarding the U.S. launch of the irrigated catheter. First of all, when you talk about potentially doubling your recurring revenue, how much of that do you anticipate will come from U.S. – increased U.S. utilization of the irrigated catheter?

Mike Kaminski

50% increase and recurring. (inaudible) how much will come from the U.S.

Jim Stolze

During the year, since our install base is about 60/40 U.S. overseas, but it will take us a while to roll out the utilization throughout the whole U.S. You probably see that utilization come almost evenly between the U.S. and overseas.

Mike Kaminski

How much of the 50% growth he's asking?

Jim Stolze

Probably about even.

Mike Kaminski

Does that answer your question, Keay?

Keay Nakae – Collins Stewart

Yes, it does. With let's say 50% of that growth coming from the U.S., what is your assumption for when you launch the irrigated catheter?

Mike Kaminski

We're – our assumption is that we would receive approval in Q1 this quarter and that we would begin ramping in Q2.

Keay Nakae – Collins Stewart

Okay. As far as in Europe where doctors now have an alternative irrigated catheter to use where you don't get a royalty, we're assuming, do you have a creative way of perhaps capturing more per procedure case based on how you price the Cardiodrive.

Mike Kaminski

The new Cardiodrive, the QuickCAS is coming out at a price point higher than the one previously used, the regular cath system. That enables us to capture some of that value and revenue stream. Secondly, I don't believe it's accurate to estimate that a competitive magnetic irrigated catheter will necessarily cannibalize one-to-one usage. There's usages for this catheter which would be flutter is a good example. They classically don't use a 3D map for a flutter. So not having a Navistar would be okay if you went into the flutter market. So we'll get some incremental growth in which we grow the cath revenue out of not necessarily just cannibalize royalties.

Keay Nakae – Collins Stewart

Okay. With respect to the FDA approval of the catheter, are you getting any insight from J&J as to what might be possibly delaying the approval?

Mike Kaminski

We have no insight. I think that they believe it's in its final phases but as far as that goes we're just waiting for final determination on the catheter.

Keay Nakae – Collins Stewart

Okay. And then as far as the potential AF labeling for the catheter, I thought it was encouraging that the FDA extended the AF labeling to the bi-directional catheter. So do you guys have any opinion about how quickly or difficult it would be for the FDA to extend the AF labeling to the magnetically enabled catheter?

Mike Kaminski

My understanding is that we would just file a simple supplement much like we did for catheter approval. We would just go through a similar process and so it would be fairly straightforward. Now, obviously, we would look at that after we got the approval for the first catheter so it's kind of a –

Keay Nakae – Collins Stewart

But you don't have any greater sense of what the FDA would be requiring in terms of safety data?

Mike Kaminski

I don't.

Keay Nakae – Collins Stewart

For the AF labeling?

Mike Kaminski

No, I don't have any clarity on that, no.

Keay Nakae – Collins Stewart

Okay. Very good. Thanks.

Operator

Thank you. And the next question comes from Ed Shenkan from Needham. Please go ahead with your question.

Ed Shenkan – Needham

Thanks. First just wanted to clarify your operating expenses expectations about $15 million to $15.5 million per quarter going forward, is that right?

Mike Kaminski

Yes.

Ed Shenkan – Needham

And could you tell us as far as the first quarter, we're now two months through it, what would you expect operating expenses to be in the first quarter?

Mike Kaminski

That number is holding pretty reasonable.

Ed Shenkan – Needham

$15 million to $15.5 million. And what quarters would be the highest throughout the year then?

Mike Kaminski

Probably, I'd say, Ed, we're also peaking Q2 because we have a lot of period expenses around thereafter. There's a lot of things like conventions are strong between Europe and the U.S.

Jim Stolze

Q2 would generally be the high point.

Mike Kaminski

And then Q3 and Q4 generally lower.

Ed Shenkan – Needham

Right. The first quarter would be the lowest for the year?

Mike Kaminski

Probably average, Q2 higher and then Q3 and Q4 would drop down below Q2.

Ed Shenkan – Needham

And in the quarter, G&A was a little bit higher than we expected. Could you account for that?

Jim Stolze

There was some one-time adjustments that screwed up the OpEx by category. And so I wouldn't look at those as indicative. I think that the best way to look at is, as, Mike, said is that if you look at the full year, we would expect 2009, you would see for the full year sales and marketing will increase somewhat. There will be an offset in both G&A and R&D such that we get to the point where we end the year less than 2008 levels. It's just easier to look at it on a full-year basis.

Ed Shenkan – Needham

Okay. Were there any one-time charges associated with the departure of the CEO in the fourth quarter or expected in the first quarter?

Mike Kaminski

In the fourth quarter.

Jim Stolze

In the fourth quarter.

Mike Kaminski

Not the first quarter. There won't be any first one.

Ed Shenkan – Needham

Was that partly why the first quarter was high for G&A?

Jim Stolze

Yes.

Ed Shenkan – Needham

And you're doing a phased rollout in the U.S. for the irrigated catheter. Why are you doing a phased rollout? Everybody's got the Niobe, they know how to work it. Shouldn't they be able to just give them the irrigated and plug and play?

Lou Ruggiero

Yes, this is Lou Ruggiero. The rationale behind a phased rollout is for a couple reasons. One is, there is some additional training that we'll be providing to customers, navigation, skills training, for example. So we want to make sure that there's enough of an experience base and we're spending that as Mike had mentioned that customized time and attention to ensure their height comfort level with that product line, that's part of it. The other is also resource allocation. We want to – we are going to have these dedicated folks there and the phased approach allows us to really do it in a manner that they will be sustainable and independent and then move on to the next case.

Ed Shenkan – Needham

And so how long is Phase I and then when is Phase II, how long is that, how many accounts?

Lou Ruggiero

It's a couple of months for each roughly. So it really it's a little bit of a moving piece. We are planning on it being a couple of months in Phase I. It could be less. If the customers are embracing this and we feel that they're confident and they're comfortable and their navigational skills are exactly where they need to be then we can move on more quickly.

Mike Kaminski

I think we'll find, Ed, the same thing we found in Europe is people who use it frequently today can adapt to the irrigated very quickly. And so there's some basic training we'll do, but very quickly they will be independent and we'll move on to the next group. Then and I think the group we spend the longest time with those who haven't used it frequently, we need to go back to do some basic training.

Lou Ruggiero

Right. And Phase I are those who have had more experience, so the likelihood of us moving through that phase more quickly is higher. And then in Phase II we might spend a little bit more time. In Phase III we might spend even more time. So I think we can get through Phase I pretty expeditiously.

Ed Shenkan – Needham

And Phase II is how many accounts?

Lou Ruggiero

Roughly, call it 10 to 12 in each phase. Could be more as you get down to the later phases.

Ed Shenkan – Needham

So, Mike, your expectation, the guys who already use the robot, your top ten accounts, it's plug and play with them, that's a couple months, but I'm surprised there is not more than 22 accounts in the country that are plug and play using the Niobe frequently.

Mike Kaminski

Where did you get 22 from, Ed?

Ed Shenkan – Needham

You said 10 or 12 in the Phase II.

Mike Kaminski

If you think about it, we're going to take, in principle, the top 10 accounts that would really be the reference sites and make sure they are running well because these are the sites that we're going to parade potential customers through. That's Phase I. Once that's assured – and we're laying out resources conservatively if it's done in a few days and there are some sites now that I think will be very quick. Then we'll make the determination to go to the next one. But we want to assure ourselves that that's completed before we go on to the next group. I think the total rollout I would expect to get down in probably two quarters. We will begin in Q2 and be done in Q3.

Ed Shenkan – Needham

And the speed of the rollout is contingent on you guys, not J&J, right? You set the rollout schedule.

Mike Kaminski

Contingent on us, kind of the adoption of the specific site and our ability to train and get training done.

Lou Ruggiero

And the ability of the (inaudible).

Ed Shenkan – Needham

Thank you.

Operator

(Operator instructions). And we have a question from Imron Zafar from Deutsche Bank. Please go ahead with your question.

Imron Zafar – Deutsche Bank

Hi, good morning, thanks for taking my question.

Mike Kaminski

Morning.

Imron Zafar – Deutsche Bank

Most of my questions have been asked and answered, but couple here. I can appreciate your comments about not really wanting to put forth any guidance on the placement side. But just maybe near term, maybe Q1, Q2, Mike, can you talk about what your expectations are, maybe sequential trends in terms of placements for the first half of 2009 maybe?

Mike Kaminski

Imron, we'd like to – obviously we're very close to Q1 results and Q2. We like to stay away from guidance on any quarter and just let the capital – get a little more history of this capital market because it is fairly frothy right now and we're bullish that we'll grow this year Niobe and odyssey. And just how much in the timing and the delays is what we're looking very closely at.

Imron Zafar – Deutsche Bank

Okay. I was just trying to get a qualitative sense of what the trends are with hospital CapEx is? Would you say that things are worse now than they were in October? I know that there is some seasonality involved in Q4 versus Q1. Do you think things have bottomed out or do you think things are getting worse?

Mike Kaminski

Yes, I'll let Lou answer that, he's closer to the marketing.

Lou Ruggiero

Yes, I don't see it having gotten worse. We understand we're faced with, it's been fairly consistent and it's actually gotten more predictable in that manner. We understand how to – what we have to deal with. Having said that, clearly the domestic market is one that Mike had mentioned that we need to continue to sort out and – before we can give a better sense for what Niobe will be though we are confident that we will grow Niobe and Odyssey. The really good news in all this is that the overseas markets, Europe and Asia are appearing to meet our expectations. And the pipelines are growing, as Mike mentioned in his opening statement. And so we are expecting favorable results from overseas as an offset to perhaps some of the domestic risk.

Mike Kaminski

We think – the other added comment is that operating lease we think have more merit this year than in the past. We've already had one deal that is going down in operating lease. And what is interesting about it, in this environment, the EP is a segment that still grows. I think in the U.S., CEOs, when they sort through the uncertainty of what's going on in the entire hospital, they can still see a path to profitability in EP and a growth area. And then this operating lease in this case allowed them the opportunity to match future revenue to cost. It could be a nice option that we'll have for customers as they elect to move forward.

Imron Zafar – Deutsche Bank

Okay. Thank you. And then can you give us the total number of procedures in the quarter and also maybe talk about what the current usage trends are in Europe? Is it four procedures a week, three, five? Give us a rough sense there? Thank you.

Mike Kaminski

Yes, we don't want to give utilization numbers, but let me categorize related question there is we – if you go back to the top sites, as I mentioned or the breakout of the three groups, in the top group, usage is over three a week, in Europe. And the next group that I mentioned had the highest percent increase, they increased substantially more than the average and it's not at three a week yet. So they've gone from sporadic use to consistent use. And then the bottom group continues to remain fairly sporadic. Our resources right now are just moving into that group to concentrate on moving them up.

Imron Zafar – Deutsche Bank

Great. That's it from me. Thank you very much.

Mike Kaminski

Thank you.

Operator

Thank you, sir. We have a follow-up question from Mimi Pham from JMP Securities. Please go ahead with your question.

Mimi Pham – JMP Securities

Hi, good morning. I guess just in terms of the breaking out of the three groups, maybe if you could help us just gauge, of your current U.S. installed base, is it a third, third, third, that's in the three groups?

Mike Kaminski

I'd probably go 15%, 20% in the bottom, 80% in the other two, with the top 15%, so 15%, 65%, and 20% – or, 20%, 60%, 20%.

Mimi Pham – JMP Securities

And that's U.S. and also Europe too?

Mike Kaminski

Yes, they're very similar.

Mimi Pham – JMP Securities

And then I guess if you can give us without guidance that should we be expecting with what we're seeing overseas and the U.S., new orders for the first half of the year in line with what we saw for fourth quarter in terms of new orders and then that picking up end of the year once irrigated is in the U.S.?

Lou Ruggiero

Yes, I think we can expect it to be pretty much in line and so on the whole, we're optimistic that we can grow Niobe on the whole and Odyssey on the whole as far as quarter to quarter, that's a little bit of a moving target. That would be tougher for me to comment on.

Mike Kaminski

I think, Mimi, a little color on that. Europe will continue to bode well. The pipeline is strong, the activity is strong, so we should see nice there and then the only question is the percent of U.S. orders in a given quarter.

Lou Ruggiero

Correct.

Mimi Pham – JMP Securities

Okay. Thank you.

Operator

Mr. Sherk, there are no further questions. I'll hand the call back to you for any further comments.

Doug Sherk

Thank you, everybody, and we look forward to talking to everybody in the next quarter, the first quarter results, and please feel free to call us if there's any questions in the meantime. Thank you for your attendance.

Operator

Ladies and gentlemen, this conference will be available for replay after 8:30 mountain time today through March 5th, 2009. You may access the conference replay system at any time by dialing 1-800-405-2236 and entering access code 11125670#. International participants dial 303-590-3000. Those numbers again are 1-800-405-2236 and 303-590-3000. Access code 11125670#. That does conclude our conference call for today. Thank you for your participation and for using ACT Conferencing. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Stereotaxis, Inc. Q4 2008 Earnings Call Transcript
This Transcript
All Transcripts