Stereotaxis CEO Discusses Q3 2010 Results - Earnings Call Transcript

Nov. 1.10 | About: Stereotaxis, Inc. (STXS)

Stereotaxis, Inc. (NASDAQ:STXS)

Q3 2010 Earnings Call

November 01, 2010 04:30 pm ET

Executives

Greg Gin - IR

Pierre Rivaux - Vice President, Europe

Mike Kaminski - President and CEO

Dan Johnston - CFO

Analysts

Steven Lichtman - Oppenheimer & Company

Sameer Harish - Needham & Company

Jose Haresco - JMP Securities

Ben Forrest - Madison Williams

Operator

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Stereotaxis third quarter 2010 financial results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Monday, November 1, 2010.

And I would now like to turn the conference over to Mr. Greg Gin. Please go ahead sir.

Greg Gin

Thank you, Brittney and good afternoon everyone. Thank you for joining us for the Stereotaxis conference call and webcast to review the financial results for the third quarter 2010, which ended on September 30, 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 future events or the future financial performance of the company, including without limitation, statements regarding future operating results, growth opportunities and other statements that reflex 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 backlogs, 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 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, Greg good afternoon everybody. Thank you for joining us today on our third quarter conference call. With me today is Dan Johnston, our Chief Financial Officer and Pierre Rivaux our new VP of Europe, Middle East and Africa. Let me start by introducing Pierre who comes to us from Intuitive Surgical where he was responsible for their European, Middle East and Africa business for the past five years. We are excited to Pierre join the team and today marks his first day with Stereotaxis. Pierre will give everybody a quick overview of your background please.

Pierre Rivaux

Thank you Mike and good afternoon everyone. I am very happy to become a member of the senior leadership team at the Stereotaxis. I am very excited by the Stereotaxis technology and the opportunity today with my past experience gained through what I believe was a very similar business model. What I started with Intuitive in Europe, the revenue and organization was a very similar in size and scope to where Stereotaxis is today. Over our five year period, we reached world class organization with stronger processes that delivered superior results. I am confident that we at Stereotaxis can do the same with the Niobe and Odyssey platforms which are well positioned for adoption for EP relations.

Mike Kaminski

Thank you Pierre and welcome. Our results for the third quarter, particularly for our leading indicators were very positive. These indicators include new capital orders, record recurring revenues, strong gross margin and reductions in both operating loss and operating cash. I want to highlight this last point specifically that in the quarter we used 1.7 million of cash and paid down the Biosense debt by 1.6 million. Without the paydown of Biosense debt, we would have consumed only 100,000 in cash from operation.

Let me restate that. We consumed only 100,000 in cash from our operation. Clearly utilization of cash during the quarter was at the lowest for any quarterly period since we became public and as an indication of how focused we are at getting to breakeven in the next phase of our growth. Total revenue for the quarter was 13.9 million, a 5% increase from the 13.3 million reported in third quarter 2009.

As we released in the pre-announcement a couple of weeks ago, we experienced some lumpiness in the systems originally planned to go to revenue in Q3 and Q4, due to hospitals construction cycle we're spending in the next year and a temporary delay in the imaging partners of (inaudible) 3rd replay 1:19 installed system. We fully expect to see any system delayed from this year to convert to revenue next year. Even though our revenue experiences delay we achieved significant progress on many fronts.

First, new capital orders for the quarter totaled 12.2 million, a 94% increase from the third quarter 2009. Second, the continued growth of standard lab sales for the Odyssey product line accounting for one third of the Odyssey orders. Third, recurring revenue hit another record high despite the expected summer seasonality for ablation procedures. Fourth, gross margins reached 72% even though the higher margin recurring revenue was only 41% of the total revenue. This gross margin performance demonstrates the strength of our capital value to customers.

Operating expenses were relatively flat with last year both for the quarter and year-to-date. It should be noted that we continue to shift our operating expenses from our fixed infrastructure to sales and marketing.

And turning to the details of our business model. First I want to review the progress and driving clinical adoption. This number one initiative continues to dominate our daily focus. We had a strong quarter highlighted by the record 5.7 million of recurring revenue. We anticipated this metric being down from the second quarter due to the seasonality especially in Europe. In comparison to the third quarter 2009, we have grown 31% in total EP utilization and 44% on left side of the ablation. Niobe’s emerging value and market excitement in VT has allowed us to accelerate adoption in AF and other complex left sided ablation.

The recurring revenue margins were 87% in the quarter with our net revenue well above the $1,000 per case. We will continue to increase our revenue per case as the Vdrive is commercially released over the next few quarters. Since our last quarterly update, we've seen an increase in scientific studies coming from leading sites around the world. There have been several new presentations and international scientific meetings and publications that significantly added to the body of evidence supporting our value proposition.

We recently announced the excellent results from Rotterdam Group and the comparative and VT ablation study. In this direct head-to-head comparison with conventional methods, Stereotaxis VT ablation with Niobe was associated with better outcomes, fewer recurrences, lower adverse events and shorter procedure and X-ray.

Recently Stereotaxis was prominently featured in the sixth annual international symposium on VT in New York. Dr. Jackman of the University of Oklahoma provided details of how the Niobe provided the ability to perform highly detailed maps of patients with scar related VT. He noted that the Niobe and the resolution of these maps while minimizing both the total mapping time as well as the fluoroscopy time when compared to non-magnetic methods.

VT is one of the most challenging arrhythmias facing electrophysiologists due to complex anatomy, the sensitive nature of the ventricular tissue, and potentially lethal outcomes. In 2010 VT ablations will reach approximately 30,000 procedures worldwide with an estimated 20% annual growth rate. We believe the Niobe system has demonstrated an ability to treat VT at a level that is comparable to the best hands in the world. We achieved this through exceptional capability to generate very precise maps important in the targeting and treatment of this complex arrhythmia. We are optimistic that Stereotaxis VT ablation is on the path to become the worldwide standard of care for VT.

Although we've recently highlighted our value in VT, there has also been several new publications on the use of the magnetic navigation platform for AF ablation. Professor Carlo Pappone of Villa Maria Hospital in Italy recently published the long-term results of the 130 patients who underwent magnetic AF ablation. Using rigorous follow-up methods, they reported an 81% freedom from AF at more than one year of follow-up. This compares very favorably to a large multi-center FDA trial of the non-magnetic irrigated catheter whose data showed only 59% freedom from AF using similar follow-up methodology.

An additional paper has been published from the group of professor Haissaguerre in Bordeaux, France comparing their very early magnetic AF ablation experience to a concurrent group of non-magnetic patients. Even though this data was collected very early in their learning experience with the system, they still noted a nearly 10% improvement in freedom from arrhythmias and anti- arrhythmias drugs at a 12 month follow-up. Another recent comparison from professor [Henrik’s group] in [indiscernible] Germany had a similar clinical results at a six month follow-up and noted a significant 60% reduction in fluro time when compared to the non-magnetic AF cases.

This scientific evidence along with physician feedback leaves us to conclude that we can become the gold goal standard for complex ablations. Our every growing bibliography is available on our recently upgraded corporate website.

Lastly, we are committed to continuous improvement of our product performance. We're excited about the potential of several new product releases on the adoption of our platform for AF. The newly released Vdrive expands the platform's capability by allowing physicians to remotely manipulate multiple diagnostic devices at the same time as the magnetic ablation catheter. Early tests that demonstrated a significant improvement in the ease and the efficiency of managing all the devices typically associated with AF patients.

We will place our first system in Europe in Q4 and expect the launch in the US in the mid part of 2011. In addition to the Vdrive, we will launch the CARTO 3 RMT and the new Navigant 3.2 software over the next few quarters.

Now turning to the capital part of our business model. In the third quarter new capital orders increased 94% from the level in a comparable period in 2009. New capital orders in North America were 6.3 million or 52% of total orders in the third quarter. Global orders for Niobe system totaled 8.1 million, while Odyssey systems order increased 140% to a record 4.1 million from a year ago period.

Driving system adoption in the installed base leads to stronger reference sites and training centers. This foundation allows us to generate greater market excitement which can be seen both in our sales pipeline and new Niobe order rates. The strong new order momentum confirmed that we continue to execute in this commercial strategy. Additionally with increase in Niobe sales we have generated opportunities for Odyssey, and subsequently the Odyssey business expanding beyond the Niobe suites in the standard labs.

We are very encouraged by the increasingly strong recovery in North America, steady progress in Europe and early signs of a significant growth opportunity for robotic penetration in Asia pacific. In North America, the rebounding orders are consistent with our expectation. These expectations were a reflection of the increase in activity in the sales pipeline and improved discussions with customers we have seen since the beginning of the year. We have strengthened our sales organization, improved our reference sites and the pipeline continues to grow, all factors leading us to be bullish for the visible future.

In Asia Pacific, earlier in this year we added several employees, including two physicians with a specific focus on clinical support and capital sale. We’ve just completed the APHRS show last week and with Stereotaxis was highlighted in a live case, a lunch symposium and several talk.

In Japan, which is currently the third largest ablation market behind the US and Europe, we will complete enrollment this year of our trial and submit for approval in the first half of 2011. Between both China and Japan, we are positioned to capitalize on these emerging growth opportunities and are investing on pace with regulatory timing. We believe this is a large market potential in 2011 and beyond.

Now turning to the Odyssey product line. This product offering generated 140% increase in new orders for the third quarter. Over 80% of the Niobe orders now include an Odyssey system. Importantly, this year we have seen the acceptance of the odyssey platform for non-Niobe or standard lab. Entering this market opens up a tremendous growth opportunity in the 3,000 EP labs and approximately 10,000 non-EP interventional labs.

Our sales pipeline which has grown over 70% from this time last year is a reflection of the market interest. Customer perceives our unique value in both, our ability to provide an efficient single control workstation and an ability for the data from the perspective to be organized, stored and viewed real-time due to the our state-of-the-art video compression. The product is capable as an educational platform and it was recently displayed in our Odyssey international network and in recent meetings where the Odyssey provided the center piece of live BT case presentation.

To summarize, the number of new EP labs and treatment of complex ablations are rapidly expanding and we believe we have continued and will continue to do so for year to come. The EP complex ablation market represents an attractive opportunity of over 150,000 patients and growing at a rate greater than 20%.

With close to 3,000 labs worldwide performing these ablations, we’ve just begun to penetrate this high growth opportunity. We are continuing to enhance the value proposition of our product and the body of scientific evidence. Finally, we’ve strengthened our executive management team and have added the necessary leadership and expertise to enhance our selling efforts in the US, Europe and other key international markets which will help us drive long-term growth. We believe we have a sound strategy to become the standard of care for complex ablation and we’ll continue to execute on that strategy. Now I would like to turn the call over to Dan for more a detailed look at our third quarter financials. Dan?

Dan Johnston

Thanks Mike, good afternoon. Revenue for the third quarter of 2010 was $13.9 million inline with the preliminary results reported on October 13, 2010, compared to the $13.3 million in the third quarter of 2009. Systems revenue was approximately $8.2 million in the third quarter. We recognized revenue on 5.5 million in Niobe systems and 2.6 million in Odyssey and Cinema systems.

Current deferred revenue on the balance sheet was 7.2 million at September 30, 2010, flat compared to deferred revenue at year end. Recurring revenue grew 24% or $1.1 million to set another record of $5.7 million. The sequential growth from the second quarter of 2010 related to procedure revenue.

New capital orders in the third quarter of 2010 totaled $12.2 million, including 8.1 million for seven Niobe systems. The seven new systems in backlog breakdown geographically as three to the US, one in the Europe, two in Asia-pacific and one into the rest of the world. New orders for the third quarter of 2010 for Odyssey and Cinema included $4.1 million, a third of which went into non-Niobe labs.

Backlog at the end of September increased to $43 million up from $39 million at June 30. We have now posted three sequential quarters of increased backlog. For the third quarter of 2010, gross margins continue to be strong and increase 11% to $10 million from the third quarter 2009. As a percentage of revenue, the third quarter of 2009 gross margin percent of 72.2% increased from 67.8% reported in third quarter a year ago. The increase was driven by strong margins in all product groups driven by both strong pricing and good cost control. Operating expenses for the recent third quarter were $13.6 million compared to 13.2 million in the third quarter of last year. The increase of $400,000 is the net of rebouncing or spending priorities towards more market facing activities.

As you can see in the face of the P&L that the third quarter 2010 investment in sales and marketing is up significantly from last year. In addition, general administration costs are lower on administrative savings and currency gains partially offset by an increase in clinical training of a $0.5 million. The net result was continued improvement in the reduction of our operating loss of 3.6 million in the third quarter of 2010 compared to an operating loss of 4.2 million in the third quarter of last year.

Other income and expense includes the mark to market loss related to the outstanding warrants we have which must be adjusted quarterly under derivative accounting rules. We reported net loss for the third quarter of 2010 of $5.1 million or $0.10 per share versus a loss of 5.8 million or $0.14 a share in the third quarter a year ago. Average shares outstanding for the third quarter were 50.1 million to about 42 million in the same quarter last year reflecting the issuance of 7.5 million shares as part of our follow-on stock offering completed in October of 2009.

For the first nine months of 2010 revenue increased 7%, or $39.5 million from the first nine months of 2009. Gross margins grew almost twice as fast up 13% to $27.8 million or 70.4% of revenue compared to $24.7 million or 66.5% in the first nine months of 2009.

Year-to-date orders to backlog are up 47% or 29.6 million through September 30th. Operating expenses for the first nine months of 2010 were up about $660,000 from the first nine months of 2009, again driven by investment in sales and marketing as well as training. Operating loss for the first nine months of 2010 declined 14% to $15.5 million compared with $18 million for the first nine months of 2009. The net loss for the first nine months of 2010 was $70.4 million compared to $20.8 million for the corresponding period 2009.

On a per share basis, the loss per share was $0.35 in the recent nine months versus $0.50 for the same nine months of 2009. On a year-to-date basis we continue to make strong progress in producing our cash burn, which include cash use in operation, capital expenditures and the repayment of the Biosense advance. We have historically included the repayment of the Biosense advance as part of our cash burns as operationally, the advance is reduced by the earning of royalty. For the first nine months of 2010, our cash burn was $16 million compared to 20.9 million in the first nine months of 2009. Of the 16 million in cash burn on a year-to-date basis 3.8 is related to the repayment of the Biosense advance. During the third quarter our cash burn was $1.7 million which included 1.6 in Biosense advance reductions. As such, cash burn in a more classic sense would have been less than 100,000 driven by the lowest operating loss in our history and strong cash management.

Now turning to the balance sheet, cash totaled $21.8 million at September 30th 2010, and total debt was up $26.5 million. Last year at this time, we had cash of $12 million and total debt of $30.8 million. As such, our net liquidity position is about $14 million better than a year ago. Or said in another way, we've used about half of the net equity raised $27.8 million from a year ago.

Finally, we updated our 2010 outlook today. We expect the following. New capital order growth in dollars in the range of 45 to 50%, total revenue growth in the high single digit percentage range, gross margins to approach 70% and operating expenses between 59 million and $61 million.

With that I'll turn it back to Mike.

Mike Kaminski

Operator we are ready for questions.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Steven Lichtman with Oppenheimer & Company. Please go ahead.

Steven Lichtman - Oppenheimer & Company

Just a few questions. So, in terms of the delays, I guess a couple of them were out of Asia. What steps do you think Mike you guys need to take to decrease the sales cycle in Asia and may be improve the visibility there?

Mike Kaminski

Well, there is two parts of that Steve. One is, and I think definitely we can get better looking at our order to cash cycle, but I think specifically when we're forecasting backlog to revenue, the Asian orders tend to be associated with more significant construction. So they don’t fit, you can take a normal order and just forecast it out where Asia tends to be new buildings, new facilities. So I think its going to be a little longer out. Now interestingly enough, all those that we looked at late this year are going to come to revenue. They will just be scattered throughout 2011. So I think its going to have a little longer cycle because of the construction, but we will factor that in as we look at 2011.

Steven Lichtman - Oppenheimer & Company

And then with Pierre on board now, what are the next steps you think we'll see in terms of expansion in Europe? What are the key steps we should be looking for from you guys?

Mike Kaminski

And fairness to Pierre since it’s his first day. I’ll add to it. First thing is obviously, Pierre to get his arms around our business model where we are, look at the sales pipeline and begin to look at the processes and the opportunities that we have in front of us. I think that will take probably a quarter to get through, to really access the state of the business, and Europe is going well, I think it can go better and I think Pierre will add that energy and punch to really get us up on a different curve in Europe, and I am not disappointed at all, I just think there is much opportunity over there. And we see a large opening up in the eastern block. I think that we continue to do very well in Germany and Scandinavia. I think we can do better in some of the other countries like France and England. So I think Pierre’s background allows us an opportunity really look at similar business models and drive a robust process. And we saw the same thing with [Paige] in the US. This should be begun to look at it. We began to really see an accelerant of our company.

an opportunity really look at similar business models and driver robust busses and we saw the same thing with page in the US, so we should began to look at it, we began to really see an (inaudible) of our company.

Steven Lichtman - Oppenheimer & Company

And then lastly, Dan, could you talk a little bit about the working capital changes you are putting in place to lead to that, the improved burn rate I guess in addition to the expense management?

Dan Johnston

Yes, Steve, the cash we generated off the balance sheet from working capital and another balance sheet items offset the operating loss and that’s essentially why we were at breakeven from that metric. We spent about $60,000 on CapEx and that’s what put us into a negative position. It’s pretty classic stuff with regards to monitoring inventory levels. It was actually a little more difficult from an inventory number for us in the quarter because of the orders being pushed out. We had built some systems. So we didn’t do as well on inventory as we did in cash collections and just managing our payables. So, the lion share that came from good collections and we made up for the disappointment in inventory with better management of our payables.

Operator

Thank you. Our next question comes from the line of Sameer Harish with Needham & Company. Please go ahead.

Sameer Harish - Needham & Company

I thought I would ask couple of questions in regards to guidance. Given the delays that you’ve seen with the partner, could you talk a little bit about expectations for fourth quarter? You expect systems to kind of be flattish, up or down from third quarter, how should we think about that?

Mike Kaminski

Systems will be up at fourth quarter, and our guidance, just looking at Dan’s number, single-digits which show a growth over the last year and growth over this third quarter.

Dan Johnston

On the order break, Sameer, I would expect it to kind of continue. We reported year-to-date numbers up about 47%. So, we think that’s in the ballpark what we’ll achieve in the fourth quarter as well.

Sameer Harish - Needham & Company

And in terms of company profitability, obviously you guys have excelled in terms of, monitoring the cash level and improving the operations. Does this change your thoughts on when you can achieve profitability or at what revenue run rate, maybe could you just update us on kind of what you are thinking there?

Dan Johnston

No, Sameer, I think it’s about the same. I think there has certainly been a shifting or rebouncing of investments in OpEx towards more market facing activities, but I still think we tend to think about breakeven as a quarter in the $21 million range which is the number I think we’ve talked about for a little while. Actually, more powerful the up-tick in margins that we’ve seen, you get to break through the high 60s into the 70 range and then I’d say we’ll continue that indefinitely but that’s also very, very encouraging and if anything that will shorten that road a little bit but right now I think we’d still think about it in terms of an $84 million top-line year or $21 million quarter.

Sameer Harish - Needham & Company

And to follow-up on Steve’s question, how much do you think is less in terms of working capital benefits that you can see?

Dan Johnston

I don’t think a lot. I think we’ve taken it pretty quickly. I mean you can actually go back a year and see that we started picking up. We had very good cash burn numbers in the later half of 2009 and we’ve continued that path and we’ve taken the philosophy that we are going to finance our payables, our inventory actually has, they were payables and to the extent that we can negotiate better terms on collections will do better, on receivable side, but I don’t think you would see the big steps that you saw late last year and we have been able to accomplish. It’s just the number are getting pretty much where they should be and it gets harder and harder to improve it quarter-after-quarter. People hold it there. We are not going to give up any ground.

Sameer Harish - Needham & Company

In terms of your last question, in terms of Japan, obviously that’s a big market and I think you perhaps, you can correct me if I am wrong. I think you said you are expecting to start generating some revenues there in 2011. Can you talk about timelines in terms of how that falls? I think you require just some reimbursement in Japan. Do you expect to be able to get back off of Biosense reimbursement that’s already there or is that something that may take a little bit of time to develop in addition to just product approval?

Dan Johnston

Yes, I think both will have to come, Sameer. We will finish enrollment this year, and we will submit it to the 90-day follow-up, so we will have a submission in the first half. The most aggressive would be an approval late 2011 and then obviously you can go into ‘12 pretty easily, based on just the normal shown and approval process. And I think you can begin commercial activities which obviously in a long lead-time item like capital you want to start doing. And then, we should see financial ramping probably in ‘12-‘13 timeframe as far as revenues that comes through the income statement.

Now I think China has a much shorter period. Obviously, we’ve already sold several systems into China. We think that can be a significant opportunity in 2011, we are starting to invest heavier in the whole infrastructure, but specifically in the near term, more in China than there is Japan and if you look at some of the conversations with other capital people, but in particular the imaging partners, they are looking at the great opportunity because of expansion in China. So I think that can be near term, Japan will complement that probably 12-18 months later.

Operator

Thank you. Our next question comes from the line of Jose Haresco with JMP Securities. Please go ahead.

Jose Haresco - JMP Securities

On the gross margin side as you mentioned you guys have been pretty steady now for a couple of quarters. On a year-over-year basis can you just walk us through again the things that you put in place that kind of led to this, is this just purely volume on the recurring revenue side. Are there manufacturing games here? Just something a little bit long term year on how stable this could be?

Dan Johnston

Yes, I think there are some manufacturing gains on the Niobe side. I think there is more to be gained frankly on the Odyssey side. I am not sure we are there yet as that production in the order numbers pick up, I think there’s a bigger opportunity there. So I think that’s the larger upside and I think we’ve been very discipline on pricing. We’ve got fewer abnormal show systems. Last year we probably had a better pricing than a few systems in Odyssey because we were establishing the product line. So I think as that matured I think the pricing have been quite stable. Frankly, where the dollar is, the European backlog becomes more valuable, the Asian backlog becomes more valuable. So I think there some benefit, a little bit of a tailwind there if the dollar stays where it is, and we don’t source too much of our material outside of US. So, really that’s a pretty good arbitrage for us.

On the recurring side, we’ve taken some pricing opportunities late in ‘09 and that’s benefited throughout the early part 2010, but I think that’s largely been anniversary now. So I don’t think there is much tailwind there, although I think we’ll be selective and with the advent of Vdrive in the new product lines, we will be looking to see how that impacts overall margins. But we’ve also done a very, very good job of keeping our COGS down with services and part of business on licensing that’s been very, very favorable. And again, I think that is more attributed to the fact that the company is just matured more and we don’t have the bumps in the road that used to come around from a service and software perspective.

Mike Kaminski

So Jose, I’ll just add a little bit of color to that. For incoming Niobe order pricing is consistent with what’s on the revenue. So we feel good that the conversion will remain consistent. The other thing to note that I said in my commentary is exceptionally strong margins with recurring only being 41% of total. That we had great margins in Q1, but recurring was a little big part of the total.

Dan Johnston

That was a mixed issue there.

Mike Kaminski

This was mix, this was a strong quarter. This was a very strong quarter.

Jose Haresco - JMP Securities

And as you think about the recurring revenue component, but is all about 50-50 split between tools and services this quarter?

Dan Johnston

Yeah that’s fair, we don’t get into on a quarter-over-quarter basis, but I think that’s still a good rule of (inaudible). I think that will continue for a while though. A couple of years down the road you’ll have to look at that a little bit more because the Odyssey platform doesn’t have recurring revenue and some procedure revenue. It only has license and software, so that mix can change with Odysseys, so let’s keep an eye on that from a modeling perspective, but right now it’s pretty much the 50-50 split.

Mike Kaminski

And it will change with Vdrive. So Vdrive will be an incremental disposal product that will come into light next year, so you will that mix begin to…

Dan Johnston

It’s a capital element and the disposal element.

Jose Haresco - JMP Securities

And the margins on that are somewhat at the corporate level markets or should we get in the long haul or an incremental benefit?

Mike Kaminski

We haven’t finalized pricing yet. We are still going through a couple of really different models of how to price that, so we will roll that out in the first quarter, but we would anticipate if we price it the same way, we’d be very close to where we are.

Jose Haresco - JMP Securities

Turning to Europe for a second, again recognizing this is just Pierre, so as we go drop, when you think about expansion, resources in your, can you give us a sense of is this looking at more headcount, I think you had a deal up in terms of tackling new territories or do you see more resource deployment, newly being focused on driving utilization in areas that you are already very strong, and just getting more docks onboard and utilizing machine you got in the ground?

Mike Kaminski

And again in fairness to Pierre, I’ll let him at least get 24 hours under his belt before he answer some question. I think what Pierre will do first if it’s similar to help pay generatives, look at our processes, look at where we are and understand how we can drive a more disciplined, more process oriented company. And it’s kind of the lifecycle where we are, drives up the curve, high growth, process discipline.

Look at expansion, I think there’s opportunities work, we have opportunities to have better coverage and particularly if you start looking at the eastern block and how we use distributors, I think the whole distribution channel development doesn’t have to be direct. I mean we can use in-directed business channels as well.

We will add clinical support on that are like real added as a function of kind of installed based growth. So it would be a derivative of how we are driving revenue up. And we have some ability to try efficiencies in that. We are going to continue to push both our ability to get independent and our ability to be networked. Both can drive an efficient model, but it’s different than today. So and we’ll continue to push that. And I think Pierre’s experience and in of the business model capital the gross clinical adoption is invaluable and it isn’t viable for us to leverage that and we’ve seen it in the US and what we can do and we will expect the same thing in Europe.

Jose Haresco - JMP Securities

And I guess the last question is trading in the US, in regards to a couple of quarters now built out here on the centers of excellent model and the data that’s coming out just continues to drive the interest. And then what you guys are doing. How should we think about the next 12 months of activities domestically both in terms of what’s happening within the centers of excellence model and then just how that might there? We require more resources, we’ll not require more resources or are you making any changes to the kind of the physician that their physician market that you guys are doing in terms of driving the interest?

Mike Kaminski

There is a slight change in Q3 which is interesting. We are still going to leverage the centers of excellence because they have the experience and the knowledge that everybody wants to hear from and go see, but we did in Q3 which was interesting as we put on a symposium from a center of excellence, and then had networked a couple of different centers into it and then broadcast that and I think we have an opportunity with Odyssey, that’s where the complementary nature of Odyssey and Niobe can really be leveraged. So that we actually had web cast and 10 independent sites, those center of excellence cases and education forums and so the people that came in person obviously saw the whole eight hours.

We subset the session so that for a 40 segments we would broadcast that out and then we organize the local teams, organize this so that positions would be online to watch that session. And that seemed to work very well we are going to really push our ability to do a low costs more on education and secondly do low cost market building excitement, you know for those who haven’t brought. They may not want that educated, they don’t want eight hours of education at how they use Niobe. They want to see a 30 minute clip on why should I they want to see a 30 clip on why should I be interested enough to buy, and we are doing both and I think we get a lot of opportunity to continue to grow that that.

Jose Haresco - JMP Securities

Okay. Once to where you put on something to create were you have one you have two seats simultaneously, on one operator. Is that something worth exploring in the future demand, pretty eventful in terms of their capabilities, so that’s something you have to generate a lot of interest and should we expect more of that like I have seen a live case or…

Mike Kaminski

I think what you are referring to is the opening in Professor Pappone’s opening in Italy. I can say in this high growth market there is a really opportunity to pract your cases, and I think the need is out there and if you look at any market the need is out there to take, and if you look at any market, the need is out there to take very experienced people and have them teach others how to do the procedure the way they are capable of doing it. And I think that that’s one of the benefits to the Niobe platform and that’s one of the things that Prof. Pappone highlighted is, it doesn’t replace a local physician being there, but having an experienced physician online teaching them, the ins and outs or what they have learned by doing 5,000 cases, it can't be replaced.

So there really is a unique proctoring capability. Now he actually has even a vision beyond that, but I think in the near term, education and proctoring online either through webinars or real-time like you just described, is something that can be a reality of how healthcare can disseminate.

Jose Haresco - JMP Securities

And one attrition house keeping issue. How many procedures did he think we'd do in the quarter?

Mike Kaminski

Yes, we really update our procedures out at the year end, from Q3 last year we're up 31% on EP and 44% on left side.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of Ben Forrest with Madison Williams. Please go ahead.

Ben Forrest - Madison Williams

I'm wondering if you could talk a little bit more about the demand that’s coming from non-Niobe centers. I'm wondering if you can give us an idea of how many senders are out there that have the traditional labs, they are calmly considering the Odyssey's system?

Mike Kaminski

Ben, I don’t have that level of detail. The pipeline, I mentioned there is over 70% growth in the sales pipeline interest. I know a large percent of that is standard land. Now what's interesting about the standard land is, the profile of those is usually a multi-lab discussion, where the Niobe is one-to-one. You're buying a Niobe you want an Odyssey. Once you begin to go into these other discussions, generally if you look at the profile of that discussion and that opportunity, its multi-lab. So it’s a bigger deal, usually a bigger revenue deal that has more products encompass and so the average deal size will see but the expectations are there will begin to grow.

Dan Johnston

Ben we typically think about the EP space what might be around 2,500…

Mike Kaminski

3,000 EP and then we are largely focused then on EP today but we are getting some visibility in the interventional labs, obviously that’s about 10,000. We serve because other interventional labs is about 10,000 of those. When you think about our near term focus, its leverage Niobe and expanded in to other EP opportunity.

Ben Forrest - Madison Williams

And then I was wondering if you could give us any update on how things are going within the imaging partner, any feedback from them yet, are confident what you guys did. Everything will be resolved in first quarter of 2011?

Mike Kaminski

Yes second quarter. We are very confident. There is no open issue that I am aware of. I think everything is on pace to begin shipping again in Q2. So it's about mid part of Q2 that we anticipate.

Operator

Thank you. Our next question comes from the line of Dennis [O'Hara] with Wells Fargo Advisors.

Unidentified Analyst

Mike I had a quick question on, wonder if you could give us an update on the development lines, some supply agreement which you sort of last updated us back on July 30 and subsequent to that, give us as much color as you can on what’s going on with those discussions and then subsequent, how do you guys think about Odyssey right now? Odyssey looks like pretty exceptional growth year-over-year, quarter-to-quarter. How do you take advantage of what seems to be a ramping business and make sure that you are able to maintain the first mover advantage you have? Do you look for a partner, do you bring somebody else in? Do you do a lot more hiring? What do you think about grand Odyssey stay on business?

Mike Kaminski

Sure Dennis, was your first question Biosense, I didn’t…

Unidentified Analyst

Yes, just an update on the development lines that you guys have?

Mike Kaminski

Yes so obviously we're discussion with Biosense as with any discussion, we're in the midst of talking about all the different components of what is beneficial for both companies. I think the last release we talked about extending it through the end of this year. We would anticipate getting through this by then. We have some calls ever earlier today. So I'll refrain a little bit talking about each of these because the open issues I don’t want to talk about until they are closed, right but I am very bullish on our relationship with Biosense. I think it has been very favorable for the company. I think that they are leveraging their capability to give us ablation catheters as been instrumental in our success. So I am bullish obviously some of the discussions as we announced have evolved around a potential to expand it to Odyssey which is your second question. And we're still working through some of that discussion. So I think to discuss fully the Odyssey opportunity, right now the question is how aggressively do we invest recognizing the opportunity in front of us but also recognizing that we got to get this company to breakeven. And so we're weighing both of those knowing that to getting to break is fundamentally important. So we're pushing ourselves to continue to refine our spending in G&A and then Dan talked a little bit about that.

And then internally fund as much as possible and look at partnering opportunities. All those are on the table. Clearly we have first move but we also have some unique technological advantages. Yes, I wouldn’t lose sight of the fact that we do have a pattern on the efficient kind of single keyboard mouth interface. We have some relationship with proprietary compression technology. There is some technological advances that we put together, that will keep us in our fresh mover position for a period of time. We'll continue to invest in R&D platform to expand beyond that. And that is what we are looking at right now. We had to surgically do that.

Unidentified Analyst

As a follow-up I mean have you actually considered actively partnering this up I mean we actually have a discussion with potential partners and do you have a road map of what you think that looks like. And then just doubling back for a second, do you think that we're going to wind up having to extend that development alliance agreement again or is that something you think that you can, do you think you have enough common grounds right now with Biosense that you can actually get something done before year end.

I hope the answer to that one is we don’t need to extend it again, but until you get to thinking the paper you don’t know the final answer. But my belief is we can through it and get it done. Now on the partnering, we’ve looked at the various market needs, we have a pretty well defined product road map and strategy and I think that, to execute that will require us developing products, us expanding channel opportunities and us looking at partners and we're open to all those things as we begin to expand the Odyssey foot print and clearly covering 12,000 labs Stereotaxis is not going to do that, prior to look at opportunities to expand our presence to do that, but those points are very valid.

Operator: Thank you. Ladies and gentlemen, this concludes our question-and-answer session for today's conference. I would like to turn the call back to Mr. Kaminski for any closing remarks at this time.

Mike Kaminski

Well thank you everybody for attending our conference and we look forward to talking to you in beginning of next year. So have a good holiday season. Thank you.

Operator

Thank you. Ladies and gentlemen this concludes the Stereotaxis third quarter 2010 financial results conference call. If you like to listen to a replay of today’s conference, please dial 303-590-3030 or 1800-406-7325, enter the access code of 437-7272 followed by the # sign. We thank you for your participation. You may now disconnect.

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