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Stereotaxis, Inc. (NASDAQ:STXS)

Q1 2010 Earnings Call Transcript

May 6, 2010 8:30 am ET

Executives

Doug Sherk – IR, EVC Group

Mike Kaminski – President and CEO

Dan Johnston – CFO

Analysts

Imran Zafar – Deutsche Bank

Mimi Pham – Soleil Securities

Sameer Harish – Needham & Company

Spencer Nam – Summer Street Research

Charley Jones – Barrington Research

Chris Nix – UBS

Operator

Good morning, ladies and gentlemen and thank you for standing by, and welcome to the Stereotaxis first quarter 2010 financial results conference call. At this time, all participants are in a listen-only mode and following the presentation, instructions will be given for the question-and-answer session. (Operator Instructions) And as a reminder, this conference is being recorded today, May 6, 2010.

At this time, I would now like to turn the conference over to Mr. Doug Sherk, who is with EVC Group. Please go ahead.

Doug Sherk

Thank you, Craig and good morning everyone. Thank you for joining us for the Stereotaxis conference call and webcast to review the financial results for the first quarter of 2010, which ended on March 31, 2010. 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 the future events or the future financial performance of the company, including without limitation, statements regarding future operating results, growth opportunities and other statements that refer to 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, 2009. 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 assumes no obligation to update any projections or forward-looking statements.

In addition, regarding orders and backlog, 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 of some of these purchase orders and other commitments are subject to contingencies that are outside of our control. In addition, these orders and commitments may be revised, modified or canceled either by their express terms as a result of negotiations or by project changes or delays.

Now, I'd like to turn the call over to Mike Kaminski, President and Chief Executive Officer of Stereotaxis.

Mike Kaminski

Thank you, Doug and good morning everybody. On the call with me this morning is Dan Johnston, our CFO. Total revenue for the first quarter was $10.6 million, comprised of four Niobes, $5.2 million in capital revenue and $5.4 million in recurring revenue.

For the quarter, there were several highlights. First, another record quarterly revenue quarter which reflects the success of our ongoing focus on clinical adoption. Second, record gross margins of 72.5%, third continued expense control resulting in the improved bottom line and fourth, backlog grew for the first quarter and over a year.

Even though, we reduced our operating loss by nearly $1million – $1billion over last year, we acknowledged that we still have work to do to drive improvements in the company’s bottom line and achieve breakeven. We pass through this milestone and it’s clear delineated and it's with moving current Niobe users to this option curve and leveraging them to increase the penetration of magnetic platforms, more specifically in North America.

These specific steps we have taken include, beginning in the first half over the last half of 2009, we transformed the commercial team in the U.S. to accelerate utilization growth. This includes adding new – key new talent in training, site support and management, to understand how to move customers through a disruptive technological learning curve.

Second, we have focused our resources on key sites which can be leveraged as advanced training sites. We have now identified three sites in U.S. where we will host advanced training courses. Third, we’ve developed the North American reference sites, which are capable of host perspective customers and demonstrate the full value of Niobe platform.

All of these points are reflected in our recurring revenue growth but more importantly provide the foundation for our rebound in North American Capital Sales. Our number one initiative remains driving adoption of the Niobe platform throughout the installed base.

Previously, we discussed the strong usage of our system in Europe and the relatively weaker pattern in North America. This morning, I’m very pleased to share with you that the program we discussed at late February to build the utilization in the U.S. is beginning to show signs of success.

We transformed our approach to clinical adoption in the U.S. to a comprehensive effort inclusive of a clearly defined clinical plan which focuses on continual learning, clinical and marketing support and a mutual commitment to build a Stereotaxis magnetic treatment program.

Our goal is to drive our step improvement in the number of sites embracing our technology while we collectively drive patient awareness and substantially increase the number of procedures using Niobe systems. Under this new program, we’ve seen a significant and meaningful increase in the U.S. Niobe utilization rate.

Utilization rates in the U.S. are up market late since the beginning of the year and we expect this trend to continue. Importantly, the increased adoption in the U.S. has led to stronger reference sites, to host advanced training and improved procedure skills. It is important to note that in addition to changing the adoption process, we’ve also increased our field staff for clinical support, dramatically change their training process and we’re scheduled to release several new products that will continue to enhance our value proposition.

The new products release scheduled for this year are the new introduction of the magnetic version of the CARTO 3 advanced mapping system which will improve our combined efficiency for mapping and ablation. The mapping of 3.2 UI software is scheduled for release in the second half of 2010 leverages the CARTO 3 capabilities for targeting an automation of capital movement.

They rolled out at the point one test for future enabling a 25% improvement in magnetic strength. And in the balance of the year, we’re also planning for release of several new products which will expand the capability of the Niobe platform, some of which, which will be unveiled at HRS.

Additionally, as we released last week, we’re in discussions with J&J regarding an expanded strategic partnership. These discussions are focused on advancing the design of the magnetic catheter offering and the potential relationship around our Odyssey product line.

We expanded the current agreement, that’s on, August 1st, to give us ample time to work through these discussions. With our increased adoption, we’ve also experienced an increase in our clinical science and proof-of-value. There has only been few weeks since our last update. There have been several new clinical releases that further underscores Stereotaxis clinical value.

During the ACC meeting in Atlanta in March, the group from St. David’s in Austin, Texas presented data from a series of patients, treated with the magnetic irrigated catheter for atrial fib. In this series, they were able to obtain a 100% of acute success in pulmonary vein isolation when using their preferred circular mapping catheter guided approach and noted no complications in any procedures.

At the German Society of Cardiology Meeting in our time [ph], the group from Heart Center in Munich published a paper detailing how the advanced mapping and navigation capabilities of Stereotaxis allowed them to achieve 97% success rate in a group of 27 patients with extremely complex anatomy due to previous congenital heart surgery.

They concluded that Stereotaxis allows them to successfully treat these patients and significantly reduce the patient’s exposure to radiation. On the subject of pediatric and congenital application, we were recently made aware of another success story about a five-year-old boy at Tulsa, Oklahoma, whose life was saved with the help of our technology.

This child was diagnosed with the dangerous ventricular tachycardia during a routine physical exam and was rushed to the University of Oklahoma. Fortunately, this primary physician was able to reach Dr. Shah, who performed an emergent magnetic ablation of the boy’s arrhythmia. Dr. Shah noted in a newspaper article letter, system allowed him to place the catheter right on top of the abnormal tissue and to safely avoid the arrhythmia with only one lesion and the tissue that was only 1 millimeter fib.

So recently, as this will be becoming common place within Stereotaxis and we cannot over emphasize the power that our technology can have in improving or even saving patient’s life. In addition to this stage, we are very excited about the new information that will be shared with the scientific community at next week’s Heart Rhythm Society in Denver. There will be 60 podium presentations and eight posted presentations that will detail our continued leadership in complex ablation.

Specifically several Stereotaxis physician-users present their clinical outcomes for atrial fib, ventricular tachycardia and pediatric and congenital arrhythmias. Stereotaxis will also be featured as one of the four live cases presented at the meeting. We’re well aware of several additional very compelling publications, which we believe will come out later this year, highlighting the broad applications for our platform.

We look forward to sharing of specifics of this data, once it’s made available. Our confidence in the adoption of Niobe platform is reaffirmed by the feedback, we continue to receive from EP clinicians. They have expressed several important advantages of our system to a broad number of applications in every chamber of the heart.

These include – our system provides unparalleled capability to generate precise maps [ph] allowing better targeting for complex arrhythmias without the pitfalls of manual mapping and ablation. It easily performs high-density mapping with minimal geometric distortion in catheter-induced arrhythmias that allows vastly improved map quality.

Ablation lesions are more precise, uniform and predictable compared to manual lesions. The capability addresses the most difficult arrhythmias such as ventricular and atrial tachycardia's and supported by our merging data highlighting this unique benefit. Second, due to the safety profile, our system allows for automated movement of the catheter on line which is designed to consistently generate and more contiguous lesion line thus targeting the redo rate for AF patients.

Finally, our system can address areas which are particularly challenging and potentially dangerous such as a coronary sinus pediatric patients and the atrial appendage. In some cases, we enabled procedures which could not have been performed with mainly our catheters even by the world’s best physician.

This gives us great confidence that for EP application, we have a superior technological solution which can address a broad set of patient arrhythmias and become the standard care. The financial results of approved adoption are highlighted by the momentum in our recurring revenue which at 5.4 million is 26% over prior year.

During now, the capital portion of our business model and the leading indicator of new capital sales. New orders totaled $7.3 million for the first quarter. There were five new Niobe orders in the quarter, four of which came from outside the U.S.

Although backlog grew in the first quarter, it was a result of the new orders generated from outside the North America. We are very pleased with the result of the world penetration and believe this will continue but not satisfied with the results in the U.S. There are three major factors that impact U.S. capital penetration. First is the macro trends and hospital spending in releasing of moneys for capital.

We continue to see signs of this macro trend is improving and a positive in more favorable direction. This is confirmed by our partners in another industry capital companies. Second is the strengthening of our reference sites in the U.S. until recently. This has been a real challenge.

As we waited for the right products to be launched, the physicians to become advocate and the science to emerge. In this past quarter, we have made large strides to improve this foundation for the top sites in the U.S. Lastly, our internal sales capabilities.

We made several key changes in our U.S. sales organization and albeit early, the market traction is impacting the size and velocity of our sales prospect. Our confidence in the U.S. performance has built not only on these strengths but also the leading internal indicators which include the number of medium-to-late stage customers in the sales pipeline for Niobe orders. It is four times the size of the number of new orders we closed in 2009.

Of course, this may not – we may not secure all of these but having a large number of customers in the decision-making process along with stronger reference site is a positive trend. The number of meetings with high level or sea level hospital magistrators [ph] is increasing. Again, a leading indicator of hospital interest and the movement of a decision drew the process.

And third, there are now 17 hospitals throughout the U.S., who we now consider in use as reference sites. Thus in the U.S., we made internal changes, generated significant traction and utilization and with the market – and macro markets are improving. Our expectations are for new orders to show significant improvements in the last half of the year.

Outside the U.S. our capitals origin Europe remain on track while Asia as emerging as an untapped professional for robotic interventional medicine. In Asia, we’ve sold 16 systems largely throughout Northern Asia. We believe Japan is the largest EP market in Asia and we’re on plan to complete our regulatory trial in November 2010. In addition, we recognized large opportunity in China where we recently increased our staff for both clinical adoption and new capital sales. Due to continued results outside the U.S. and the leading indicators in the U.S., we remained committed to our guidance for a 40% increase in the new capital orders in 2010.

Let me now turn to Odyssey. Odyssey-sustained labs was released in the fourth quarter of 2009. The vast majority of the market for Odyssey must go through the normal capital allocation but the process and approvals take some time. Customer interest in Odyssey continues to build and we expect to make significant progress during 2010 in terms of sales to book for additional and magnetical apps.

We believe there are multiple opportunities build in marketing partnership for Odyssey that will increase the market awareness and sales of the system. And next we take HRS. The Odyssey network backbone will be highlighted at various locations throughout the show.

So on summary, our team is extremely optimistic about the direction and progress. The optimism is illustrated by our reiteration of today’s 2010 guidance. We’re doing the right thing to see significant progress in our efforts to drive clinical adoption of the Niobe in the U.S. and abroad.

We believe this is an important catalyst to drive demand of our technology as clinician understand the full value, we can bring to the treatment of complex arrhythmias and as we expand the number of reference centers, we believe this will result in an increase in orders.

Odyssey is a significant opportunity for the company and we expect sales to increase in the second half of the year. With strong gross margins and good expense control, we believe we will be able to leverage our revenue to improve operating results in 2010.

Now, I’d like to turn the call over to Dan for more detailed outlook at our first quarter results. Dan.

Dan Johnston

Thanks Mike and good morning. Revenue for the first quarter was $10.6 million, a decrease of 4.6% versus $11.1 million in revenue for the prior year. Systems revenue totaled $5.2 million versus $6.9 million a year ago. We recognized revenue of 4 Niobe systems, one less than a year ago.

Deferred revenue on our balance sheet of $8.1 million at March 31st, an increase of 900,000 from December 31st 2009. The increase in deferred revenue was principally driven by the deferral of 1 Niobe system. This system titled transferred within the quarter. However, other revenue recognition criteria were not met by March 31st.

Odyssey revenue was essentially flat last year. Recurring revenue grew 26%, set another record of $5.4 million. The growth was due to a greater number of procedures in capable pricing. Procedure growth was driven by a successful clinical adoption and the growth in our installed base.

New orders for the first quarter totaled $7.3 million, including $5.8 million for five Niobe systems, one in the U.S., three in Europe and one in Asia-Pacific. The balance of our new orders relate to ODYSSEY.

Backlog at the end of March increased to $38 million from $37 million at year end. Deferred increased in our backlog in over a year. Gross margin for the year was $7.7 million as a percentage of revenue, the first quarter gross margin of 72.5% was substantially improved from the 68.9% reported in the first quarter, a year ago. The increase was attributed to strong recurring revenue pricing and the mix of recurring revenues, to systems revenue versus the first quarter of 2009.

We continue to maintain good control of our operating expenses. Operating expenses were just under $14 million in the first quarter of 2010 compared with $14.8 million in the first quarter of last year, a decrease of 6%.

R&D expenses increased 2% in the prior year, reflecting growth in development cost related to new product introduction. Sales and marketing expenses declined about 10%. Two-thirds of this reduction in sales and marketing costs, relate to lower non-cash compensation cost due to the changes in forfeiture rates. The remaining third is the result of lower cash spending.

G&A expenses fell about 4% largely due to a reduction in bad debt expense. The net result was continued improvement in reduction of operating loss to $6.3 million, compared to $7.1 million in the first quarter of last year.

We reported net loss of $8.4 million, or $0.17 per share versus a net loss of $ 7.5 million or $0.18 per share in the first quarter, a year ago. $0.3 per share of our $0.17 per share loss is related to the mark-to-market impact, of the revaluation of the warrants we issued is part of our December 2008, financing. This non-cash charge of $1.5 million reported, as other expense on the P&L is driven by the increase in our stock price from year end to March 31. Absent this charge, our loss per share would have been $0.14.

Average shares outstanding for the first quarter were $49.6 million compared to $41.3 million in the same quarter a year ago, reflecting the issuance of those 7.5 million shares as part of our follow on stock offering completed in October of 2009.

We continue to make good progress in reducing our cash burn. We used $6.4 million in cash during the quarter, compared to $11.5 million last year. This represents a 44% decrease in cash burn from the same period last year. These burns rate approximately, the operating loss for the quarter which in turns speaks to our continued success in managing our working capital.

Now, turning to the balance sheet. Cash at the end of the quarter was $24.5 million, total current and long-term debt is $22.7 million at March 31, down about a $1 million from year end and down $6.5 million from last year.

Our borrowings include $10 million drawn against the $30 million working capital line, we have with Silicon Valley Bank, the same as last year, last year end.

Finally, I will like to reiterate our goals for 2010. We expect the following. New capital order growth in dollars greater than 40%, total revenue growth in the mid-20% range, Odyssey growth greater than 75% and operating expenses in approximately $60 to $65 million for the year.

Revenue and order growth will be decisively weighted towards the back half of the year and gross margins on average will be above 65%. With that, I'll turn it back to Mike.

Mike Kaminski

Operator, we are ready for questions.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions) And our first question does come from the line of Tao Levy with Deutsche Bank. Please go ahead.

Imran Zafar – Deutsche Bank

Hi. Good morning. This is actually Imran Zafar [ph] in for Tao. Thanks for taking my question.

Mike Kaminski

Hi, Imran..

Imran Zafar – Deutsche Bank

Good morning. So, if you look at the Q1 results, you guys did (inaudible) valued year-over-year, yet you maintained your full-year guidance and talked about the back-end molded nature of the year. What gives you the confidence so that you can have such strong growth in the back half relative to the first half, is that just improvement in the CapEx environment, is it the freights of your reference side, what gives you that confidence?

Mike Kaminski

The first quarter with margin, Imran, if that one system that moved?

Imran Zafar – Deutsche Bank

But if you have that system at the backend, its still – you still get growth, single-digit growth.

Mike Kaminski

Yeah. So then if you start with – obviously, we would start with backlog and the conversion of backlog and feeling comfortable that we now, what will convert the share from capital backlog to revenue.

And secondly is the expectations on recurring revenue as part of our income statement are tracking to above plan. So we know those are tracking very well. And then Odyssey, I think we know we have a long period of time, Imran, to get orders and convert those orders to revenue. So that indication in the – the pipeline is building nicely for that.

So we are comfortable – largely the Niobe orders we're talking about will dictate the growth rate in 2011, more than in 2010.

Imran Zafar – Deutsche Bank

Got you. There was a slowdown in Niobe – excuse me in ODYSSEY sales and orders in Q1. Can you talk about that?

Mike Kaminski

We expected that as we flip to the standard lines, we'll have to go through its budgeting process, which was disconnected from our Niobe. So the Niobe is already, obviously, work through a process if you add an ODYSSEY on to that, it classically doesn't require another process to go on. But as you start selling this to non-Niobe Labs, that's an independent capital process.

So they will be some timed away as those processes happen, but to funnel is building, feel very good about the prospects we got, several partners are in discussion about – and I think that you will see the results of that in the last half of the year. And again, we've done some order to cash on Odyssey in a matter of few weeks. So we have almost the whole year to take orders for Odyssey.

Imran Zafar – Deutsche Bank

Okay. And then – I'm sorry if I miss this on the call, but what looks to bull the backlog in the quarter, end of the quarter?

Mike Kaminski

They are in at $338 million, Imran.

Imran Zafar – Deutsche Bank

$338 million. Okay. Great. I'll get back in queue. Thank you.

Mike Kaminski

Thank you.

Operator

And your next question comes from the line of Mimi Pham with Soleil Securities. Please go ahead.

Mimi Pham – Soleil Securities

Hi. Good morning.

Mike Kaminski

Hi, Mimi.

Mimi Pham – Soleil Securities

In terms of the U.S. new orders for Niobe, just give a sense of what you think that could ramp – I guess by mid year end, by year end? I just want to get some more color on if those tenures, you talked about late stage, could get through this process in the next three months or next six months.

Mike Kaminski

Yeah. We certainly think in the late stage, I'll get through by year end. And as I mentioned that – in the ones in the next quarter or so may fall into shift in the share, I think they may have a construction cycle that would move in line with that. And then the last half of the year, largely it's for backlog for 2011.

So if you look at that – there's quite a few customers in the decision process between now and end of the year. And most of them – late, in the mid-to-late stage would back decisions by the end of 2010.

Mimi Pham – Soleil Securities

I guess you were also looking for new ramp, maybe starting more like mid-year. Does that – seem like that's too early like that we should kind of reset our expectations? Then I guess, feel like a fourth quarter end in that U.S new order number?

Mike Kaminski

No. I think, third and fourth quarter. We should see a nice increase.

Mimi Pham – Soleil Securities

Okay. And then can you talk about – you said the new catheter for CARTO 3. What can you do for catheter that you can’t do now, one of your new products?

Mike Kaminski

That means you are referring to – when we extended the J&J relationship. Those three different pieces I think to this, may be one is, I talked about CARTO 3 that that was being release now and the CARTO 3 was – is a J&J product. But what it does, is it allows efficiency in mapping and ablation in combination with RUI which takes that – the ability of CARTO 3 and really updates and improves our automated features. So those are scheduled to release this year. The extension of the J&J agreement is encountered with, discussions around advancing the catheter line.

Mimi Pham – Soleil Securities

Okay. And then your utilization, you said that there are currently 17 high volumes U.S. slabs that were accompanied with this reference side, let's check efficient for that number exiting the year, that you expect to add more to that?

Mike Kaminski

That typically reference was in regards to establishing geographic locations for reference side, so somebody in Saint Louis wouldn't have to fly to the other coast to find somebody, to sit down with and to look at the – for potential purchase.

So we think we have a nice foundation for that. As far as the A accounts, we continue to focus on and stratify our user base in to A's and largely put our resources around the top third to 40% of our accounts to make sure we drive them all the way to the adoption process. So we anticipate that will continue to go – go on throughout the share and will be disproportionately focused on the top half of our customer base.

Mimi Pham – Soleil Securities

Okay. Thank you very much.

Mike Kaminski

Thanks.

Operator

And our next question comes from the line of Sameer Harish with Needham & Company. Please go ahead.

Mike Kaminski

Good morning, Sameer.

Sameer Harish – Needham & Company

Good morning. Thanks for taking the question. I just wanted to – if you could for us – we haven't today, numbers in terms of utilization. Can you frame for us what you are seeing in terms of trends for utilization, from last quarter or from last year in U.S. and Europe?

Mike Kaminski

Europe. Let me start with the U.S. The U.S, if you take the A accounts from January to March, there was a significant increase. So in January it was slightly down and the reason it was down, as we were transforming into the small problematic, but then the stepped improvements between January through March, it was considerable.

They didn't quite double, but it was significant and those trends will continue. In Europe, it’s more of an increase, a gradual increase in Europe. Because obviously we think that we were well penetrated and continuing to go through the normal adoption curve in Europe.

Sameer Harish – Needham & Company

Okay. And just in terms of how physicians think about Niobe. I think historically it's kind of a case-by-case decision point. Is there a way to try to convert that in to more broadly, thinking about Niobe for like – hopefully these cases are all ablation and how do you think, you can achieve that?

Mike Kaminski

Well, I think that – what's happening now is the three point dimension really are beginning to resonate in everybody's mind. We have an incredible ability and a technological advantage in our ability to map. And that is where it plays out, of course, is Atropac [ph] and BT. And you can get a density mapping, manually, is very difficult to get a high density map without causing an inherent arrhythmias, right at PBC.

The Niobe has that right combination of mapping ability and leasing quality. For AF, I think what people are saying is the automated features in the targeting can bring this contiguous line. In fact, there was a paper by Chairman, has come out in the fall which showed the redo rates were down on first applications for AF patients, based on using the contiguous line from surtaxes.

And then the safety profile, as I mentioned those congenital heart. So what's happening is the profile of left side of the ablation and very difficult cases are getting three hours into the room on a more standard basis. And so part of the learning curve is going through broad applications and how do use their system and to also move through several physicians, not just one.

In certain sites, there's multiple positions who come into the lab, so we have to – put their learning curve with each position.

Sameer Harish – Needham & Company

Okay. And just a quick follow up on guidance, are you still expecting procedures for the up 25%? I think that was part of the previous guidance.

Mike Kaminski

Yes.

Dan Johnston

Yes.

Mike Kaminski

There is no change in that.

Sameer Harish – Needham & Company

Okay. Great. Thank you.

Mike Kaminski

Okay. Thanks, Sameer.

Operator

And our next question comes from the line of Spencer Nam with Summer Street Research. Please go ahead.

Spencer Nam – Summer Street Research

Thanks for taking my question. So, couple of questions here. On the backlog, is that based on what you guys reported this quarter, is it flat quarter-over-quarter, roughly?

Mike Kaminski

No. It's up a little over $1 million.

Spencer Nam – Summer Street Research

Okay. So it’s slightly up.

Mike Kaminski

Yeah. It's up.

Spencer Nam – Summer Street Research

Okay. And then in terms of – I know you guys have done in this in the past, but I wasn't sure that you did this – maybe I missed it during the call, but 12 months versus 24 month, what sensitive backlog is near near-term versus mid near-term, any sense on that?

Mike Kaminski

This backlog here what we are reporting is what we kind of think of is a very active backlog in active projects. We kind of think about it as – between a year and two years with activity. Those are the backlog, we talked about because it's just very active. It's on – it's multiple years out but there is additional dollars there, but we kind of just try to not talk about that as much, because it's just – we are not actively managing it and the certainty around it is less.

Spencer Nam – Summer Street Research

Okay. And then in terms of Odyssey, this year – what are you guys doing qualitatively discuss how much of the growth the Odyssey will be – will be accounted for the Q1, I guess you indicated – it will be slow, at start where would Odyssey be by end of this year?

Mike Kaminski

We think the revenue for Odyssey will be up over 75% in 2010 over '9. That's how we ended the year. We still believe that's true and part of that, it is a different business model on the sense of – we know we can take orders of almost into the mid part of the fourth quarter and still done a bit of revenue. So that the number standard and real effort there is pushing in the standard labs in our definition, of course, of the standard lab is a non-Niobe lab. And so as it moves to that process, we think the orders will begin to continue to pick up as we move in the last half and we can convert those two revenue pretty quickly.

Dan Johnston

And Spencer, while that’s a large percentage, it’s on a fairly small dollar base. Last year, we did Odyssey probably just under $5 million. So we are talking about achieving an $8 million number this year.

Spencer Nam – Summer Street Research

Right. Right.

Dan Johnston

We are not too concerned at this moment.

Spencer Nam – Summer Street Research

Okay. So you guys think that’s a fairly reasonable outlook for you for Odyssey at this point?

Mike Kaminski

Yes.

Spencer Nam – Summer Street Research

And then on the disposables, I thought you guys did little better then what this we may be – may have been expecting but how do you – do you still see a sequential growth on the disposables revenues and if so it’s – what kind of – where should we see these uptakes? Is it going to be through same instruments sales if you will versus new placements what – how would mix change?

Mike Kaminski

Answer your first question is yes. We will continue to see in part of the competence there as I mentioned, Spencer, we went into first quarter with a pretty low January and continues to build on that. And April, so we know the slope and April continues this slope right.

Spencer Nam – Summer Street Research

Accelerate…

Mike Kaminski

The slope is on a very positive trend. So we know the trend line is moving in a very big way. Now, we are concentrating on obviously new install and those sites that we’ve categorized and just named A accounts and which are – the sites that are either high volume or have the profile to adopt interest in the profile to adopt and we are focused on those. So it’s the combination of both, with same sites to the A accounts as well as new site coming on.

Spencer Nam – Summer Street Research

I see. The final question is, you want to be competitors announced that they going to launch its trial?

Mike Kaminski

Yeah.

Spencer Nam – Summer Street Research

Against manual procedures. What are your thoughts on maybe you guys running one of those trials, what does it mean if the outcome of the trial is positive and what impact maybe you could even comment. What it would be a positive outcome potentially for one of those trials against manual and what do you guys thinking about do you something like to yourself?

Mike Kaminski

Well, there is – trials are expensive and we are getting a lot of clinical science publications that are emerging right now. There are similar combined natures, I’m going to the circulation that we were – we don’t the specifics we just know that they are submitted. What interesting about that is there is already a standard established what the Biosense trial in late 2008 for the expectation, I assume you talk about the AF?

Spencer Nam – Summer Street Research

Yes.

Mike Kaminski

We have emerging data of different sites specific reports. We’re using almost the same criteria. In fact, I think Dr. Chen from Copenhagen came out with some data. I think there is some coming out from other parts of Europe that are going to be very favorable using the same standard that we used for the Biosense, meaning same follow-up, same process and it is showing favorable to us. So I’m not sure that at this point, it make sense for Stereotaxis to spend money on a trial when the clinical science is emerging without spending money.

Spencer Nam – Summer Street Research

Got it. Thank you.

Dan Johnston

Yeah. Thank you.

Operator

Your next question comes from the line of Charley Jones with Barrington Research. Please go ahead.

Mike Kaminski

Hi, Charley.

Charley Jones – Barrington Research

Thanks for taking my questions. Sorry I have called. Obviously, you had system shift out of the first quarter probably into the second. I’m curious if you saw anything else in the quarter that makes you believe that maybe there is some shift that can occur in the back part of the year that put your guidance somewhat more at risk then it was, that we saw in the fourth quarter call, already fulfilled, good about the timing of some of these bigger projects that could impact your numbers by the end of the year?

Mike Kaminski

Charley, actually feel better about it. And why is – when we talk about I didn’t get into in the script. But when we talked about hospitals in the U.S. making decisions and move into your capital process, the other side of that, that we are seeing is those hospitals in backlog are now committing to installation base. So they were sitting out letting construction kind of lapse and we are seeing that emerge to whether they are moving to and saying okay, now let’s commit to get that project done when the moneys are available. So it could have been in backlog kind of in – not hold but just kind of moving from quarter-to-quarter and I believe it’s much more aligned and predictable now than it has been.

Charley Jones – Barrington Research

That’s very helpful. Thank you, Mike. And Odyssey, a couple questions there. You talked about a partnership I think with Biosense, could you talk a little bit about how that would – whether or not you would continue to sell the product direct and how does it affect Odyssey systems that are kind of already in the Q or you already have hard or soft orders?

Mike Kaminski

Yeah. Let me – I rather not discuss Biosense since we’re in the discussions with that. So let me give me a general overview for Odyssey really has some market traction capability is. There is two parts for Odyssey, one is this – what everybody see is the physical strength which is kind of point of integration for the workstation around the lab.

In Niobe rooms, we are almost selling an Odyssey for everybody, because it make sense of the physician now is in the control room. But there are – absolutely in standard labs there is all sorts of ways to emerge and integrate that data and what’s happening is the other part of Odyssey, which is Cinema is the information backbone is really the point in which we can take data from emerging partners from capital partners. And we can integrate the screens in the lab to the backbone and that’s the part a Cinema backbone is really the part I think it has the biggest potential to have partnerships across the industry.

The screens really emerge with new labs but backbone can go into any lab. And there is a lot of discussions with people who want to take this data, send it off site, network it compressive and though – it’s a very robust and nice way to do that. And I think there is a real way that we can sell direct and we can facilitate without competing with anybody how this backbone gets establish that’s a standard.

Charley Jones – Barrington Research

Okay. That’s helpful. But so we shouldn’t assume – we shouldn’t be worried about second half of revenue being affected by partnership change?

Mike Kaminski

No. In fact, if anything it should be accelerated.

Charley Jones – Barrington Research

Okay. Great. And then the last question I know I touched on a little bit with utilization on, you share with us a year ago, I believe the A, B and C accounts I think it was the first quarter. Would you mind give us an update if you have them available? That’s it for me, thank you.

Mike Kaminski

I briefly look at it yesterday, I know we are penetrating more A’s in – I have to go back and do some more data analysis. But I think in general, the focus is the same obviously the result you see a very positive, there has been marked improvement in the U.S. and there is more now – so part of it is we recategorize more accounts as A’s.

Charley Jones – Barrington Research

Right.

Mike Kaminski

And it’s fluid structure in a sense that the way we categorize A is what we are focusing now because there is some definition of an account.

Charley Jones – Barrington Research

Right.

Mike Kaminski

So as we move more accounts in there and all new install over consider base those are the ones who are focused on and those are the ones that are going disproportionately faster.

Charley Jones – Barrington Research

Yeah. I mean maybe I just going little bit deeper that, that’s helpful. So but if you look at your growth and you look at the utilization, if it’s original A accounts and then the utilization of the DNC, is it fair to say that maybe we plat holder or we saw that growth decelerate – the growth rate decelerate a little bit in last couple of quarter with A accounts but the B and C continue to really ramp-up utilization and move into next kind of group utilization?

Mike Kaminski

I think it’s the A’s have accelerated the most, the B’s have grown a little and the C’s that I know they have changed at all.

Charley Jones – Barrington Research

Okay. Fair enough.

Mike Kaminski

I believe that’s right. We are not focusing in (inaudible).

Charley Jones – Barrington Research

Right. Thanks a lot.

Mike Kaminski

Thanks, Charley.

Operator

(Operator Instructions) And our next question thus come from line of Chris Nix [ph] with UBS. Please go ahead.

Chris Nix – UBS

Yeah. Good morning. Two questions, one do you have a larger percentage of your sales force in Europe and you have do in the United States and if not and how do you account for the majority of your orders coming from Europe this quarter?

Mike Kaminski

The answer is no. The larger number of people are in the U.S. The reason that we believe Europe continues to be very positive was couple, for one is, Chris, we have the thermocol product, the catheter needed for left-sided ablation in Europe about a year had a time. And we establish stronger referenced side faster in Europe, one of the key items focused in the U.S. was to utilization and reference sides up. So there is perspective customers want to the decision process. They had an ability to talk to those who had bought. And they did want to go to Europe. They wanted to talk to the people in the U.S. So I think there was a disconnect in our ramps between the two markets.

Chris Nix – UBS

Okay. These were almost walk-ins that you have in European by same orders?

Mike Kaminski

Walk-ins, no. I mean those are normal sales process in the Europe and the sense that in both markets. There is a function of EP labs getting replaced or upgraded which then we walk – we start talking to that customer about the potential they have a Niobe. And then they – as interest emerges that becomes our sales funnel, right. So then the sales funnel we work through a wholesales process and steps. But what I’m saying is in Europe, it’s a much more robust process because you had customers who had bottom in the past who are very positive references.

So the success of people moving through that pipeline is higher, in the U.S. is either stagnated or – that we were unsuccessful. Now, we gotten to reference side in west up, they may not be in exact level as Europe but they are considerably better and now we believe we can leverage sales as well.

Chris Nix – UBS

Okay. And are you saying any positive impact from your relationship that you establish with Novation, are getting any sort of enquiries for that root?

Mike Kaminski

Yeah. It certainly Novation, we’re in continual discussions with Novation. I think it's certainly very positive. They do marketing programs we’ve discussed how we can do in EP marketing program with them. There is only upside to that relationship for our company.

Chris Nix – UBS

Okay. And last question I have forgive me, if you mentioned this before but are you actively seeking an ACC [ph] indication for Niobe?

Mike Kaminski

Well, the Niobe its actually the indication itself is help Biosense last year. It’s the cap that they have the indication not the system.

Chris Nix – UBS

Okay.

Mike Kaminski

The system itself is approved for Biosense [ph] in any chamber.

Chris Nix – UBS

Okay.

Mike Kaminski

And then J&J will have to go through a PMA supplement process to get the magnetic catheter approved for AF indication.

Chris Nix – UBS

Okay. Have they given any indication they are doing now or is that just something for the future?

Mike Kaminski

That has not started to date.

Chris Nix – UBS

Okay. Thank you.

Mike Kaminski

Yeah.

Operator

Thank you. And our next question is a follow-up question from the line of Mimi Pham with Soleil Securities. Please go ahead.

Mimi Pham – Soleil Securities

Hi, good morning. Just that quick follow-up, just regarding that kind of hitting the four order, four time the pipeline you are four time number of quarters close 2009, you are referencing that 19 (inaudible) that you got 2009, is that correct? There are 80 centers in (inaudible) is that right?

Mike Kaminski

It was a subset of that for U.S. Both the U.S. numbers not the total numbers.

Mimi Pham – Soleil Securities

Okay. I mean how much four times, you talking about four time U.S. centers meaning in the late page by four time the U.S. what it’s got last year?

Mike Kaminski

That’s exactly.

Mimi Pham – Soleil Securities

Okay. Thank you. Good night, Johnston [ph].

Operator

Management at this time, there are no further questions. I would like to turn it back for closing comments that you may have.

Mike Kaminski

Well, thank you very much everybody for attending the call. As I mentioned, we think we are making a lot of progress and holding cost, driving the dominos of full reutilization of our systems during our installed base, training sites and reference center develop and using those as the spring board and leverage to get the capital sales up. At the same time, we believe this Odyssey has tremendous potential to sell with Niobe labs as well as independent Niobe labs. So we are very bullish on that and we look forward to talking to again after 2Qs results. And for those attending HRS please stop by the booth and above charity [ph] further. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude the Stereotaxis first quarter 2010 financial result conference call. If you would like to listen to a replay in this conference you may do so by dialing either 303-590-3030 or 1800-406-7325. You will need to enter the access code of 4284791. The cell phone numbers once again are 303-590-3030 or 1800-406-7325 with the access code of 4284791. Again we thank for your participation in today’s call. You may now disconnect your line at this time.

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