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Stereotaxis, Inc. (NASDAQ:STXS)

Q1 2011 Earnings Call

May 2, 2011 4:30 PM ET

Executives

Greg Gin – IR, EVC Group Inc.

Mike Kaminski – President and CEO

Dan Johnston – CFO

Analysts

Sameer Harish – ThinkEquity Partners

Tao Levy – Collins Stewart Investments

Spencer Nam – Madison Williams & Company

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Stereotaxis to report First Quarter 2011 Financial Results and Conduct Conference Call. During today’s presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). Today’s conference is being recorded, May 2, 2011. I would now like to turn the conference over to our host, Greg Gin. Please go ahead.

Greg Gin

Thank you, Alisha [ph], and good afternoon everyone. Thank you for joining us for the Stereotaxis conference call and webcast to review the financial results for the first quarter of 2011, which ended on March 31, 2011. Before we get started, we would 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 reflect 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 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, 2010.

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 would turn the call over to Mike Kaminski, President and Chief Executive Officer of Stereotaxis.

Mike Kaminski

Thank you, Greg. Good afternoon everyone. Thank you for joining us today on our first quarter 2011 conference call. With me today is Dan Johnston, our Chief Financial Officer. I will start with our prepared remarks with a review of the first quarter and then preview our exciting key product introductions scheduled for the HRS meeting in San Francisco this week. Including in our new releases are the Epoch platform, that we announced in the press release a few days ago. Dan will then discuss the financials before we open it up to your questions.

So let me get started. In the first quarter, we generated $10.2 million in revenue including $4.3 million in capital and $5.9 million in recurring revenue. Gross margins remained strong at 71% and operating expenses were in line with our expectations reflecting an increased spending in the Odyssey infrastructure and the Asia-Pacific channel. New orders totaled $7.1 million, virtually identical to the $7.2 million reported in the prior year period, and reflecting first quarter seasonality.

Niobe orders at $4.6 million or less that our expectations due to delayed customer decisions. Conversely, our Niobe pipeline of late-stage customers continue to demonstrate a growing interest in our platform, driven by the rebounding of reference sites in North America, and the expansion into Eastern Europe and Asia. Modeling our sales process and the conversion of late-stage customers into order, supports our forecast for growth in new orders this year on the platform.

Odyssey incoming orders of $2.5 million including 45% of orders coming from standard labs, continue to demonstrate strong market interest for Odyssey, as the clinical networking platform for all interventional suits. Niobe utilization continued to grow in the fourth quarter – over the fourth quarter of 2010, although not reflected in the recurring revenue due to fluctuations and shipments of disposables.

As we indicated in our fourth quarter results call, we expected the first quarter would be challenging. I will now discuss the factors that impacted our first quarter and the actions we are taking that give us confidence that we will exceed our expectations for the year.

As we discussed in the fall, we did experience a delay in the imaging partners’ magnetic model being shipped for a six-month period. I am pleased to announce that this is on schedule to be resolved and shipments will resume this quarter. More importantly, I want to discuss the overall Niobe trends.

To start, let me provide some historical perspective on Niobe sales. Since 2003, we systematically grew new Niobe annual placements until the irrigated catheter delay and recall in 2007 and 2008. Since that period, Niobe orders that we converted to revenue in a given year have ranged from 20 to 30 per year, indicating an adoption rate that we believe does not reflect our system’s value in this high growth market. With approximately 400 newer renovated EP labs built per year globally, the market potential is much greater than the 20 or 30 Niobes we have historically sold. We firmly believe that we can accelerate the sales rate to 50 to 100 new platforms per year with the right system enhancements combined with Niobe’s proven safety and efficacy benefits.

We’ve conducted a comprehensive research to identify our customer needs for this important system enhancements and to drive optimum work flow. In discussions with customers, we identified areas of improvements to include controlling all devices throughout the robotic platform, not just the magnetic catheter, real-time movement, increased navigation speed and greater versatility.

Following this research in early 2010, we made the decision to enhance the magnetic platform. The results of our investment are seen in our new Epoch platform, that we are very excited to be launching at HRS this week. We designed our Epoch platform to deliver a more efficient and enhanced EP workflow and offer dynamic magnetic catheter control as a foundation of modular platform for the EP lab while maintaining Niobe’s established advantage and procedure safety, radiation induction and clinical outcome.

In terms of improved efficiency, initial lab testing on the Epoch suggests we will reduce complex ablation times by 30 to 40 minutes from our current performance. Epoch improves the magnetic platform while expanding the robotic or mechanical manipulation of a broad set of disposable devices when in use with Vdrive.

Let me provide some more specifics on the operating performance of Epoch. First, a significant increase in the system responsiveness. The Epoch platform will improve catheter response time from two to five seconds after a command to below 200 milliseconds. This faster response time is nearly equal to real time movement for physicians. Shortly after HRS, you can view the improvements on our company website.

Second, faster and improved accuracy in targeting the catheter movement to clinical end points. This is achieved through a combination of software upgrades along with the integration of the CARTO 3 to our systems.

Third, improved user interface or UI. The Epoch will have a new UI that simplifies commands, add new features such as contact monitoring, all focused on the goal of automatically duplicating users’ proven techniques and shortening the learning curve.

Fourth, reduce size. The volume of space that the magnets take up have been decreased by 20%. We believe this will enhance our ability to move outside of EP applications such as renal ablation for hypertension.

Fifth, built-in electronics for Vdrive upgrade. It’s an important addition to our platform that allow us to capture and manipulate manual devices used in conjunction with an ablation catheter. Early use of the Vdrive in Europe has been extremely positive, with clinicians asking us to expand the platform to include sheaths, ICE catheters, and potentially other devices. The Vdrive platform has an independent growth capability beyond the magnetic lines.

Sixth, the Odyssey integration into the Epoch platform. The Odyssey sales ratio to Niobe is approaching 90%. In creating a seamless UI with Odyssey allows us to improve the Epoch workflow and increase the average new platform revenue per system. Importantly, the Epoch solution has been market-tested. Over the past several months, we have brought in physicians to run the system in St. Louis and we’ve delivered and tested components such as the Vdrive in Europe.

Last week, one of our customers performed their first Vdrive fixed curve sheath procedure which allowed easy manipulation of the combination of the sheath and the magnetic catheter. The next planned expansion is a release of a deflectable sheath designed to enhance the ability to shift pivot point and to access different areas of the heart with greater ease and consistent contact. It’s just the beginning of this important product extension.

Early market feedback has been very positive and resulted in users adopting the Vdrive module for a high percent of the magnetic procedures. Additionally, the launch of the Vdrive will enhance our ability to capture innovation and incorporate it into our robotic solution. We currently expect the Epoch installations to begin in Q3, with the full release of the Epoch solution in Q4. Importantly, all of Niobe II installations are upgradable to the Epoch product. We are discontinuing the Niobe II platform and we recognize that any product changeover requires careful management. We’ve had preliminary discussions with customers and we are confident that launching the Epoch will change the excitement in adoption of our platform. The sales teams will be discussing the transitions with the impacted customers during the HRS and EUROPACE symposiums.

Now let’s turn to the Odyssey product line. Odyssey revenue in the first quarter was $2.7 million, up 200% from the $800,000 in 2010. Revenue for standard labs represented 52% of the total which is a reflection of our continued progress in this important segment. New products or new orders were $2.5 million with 45% weighted towards standard labs. To-date approximately 170 Odyssey systems, including Cinema products have been sold in more than 24 countries. We continue to receive strong interest in our Odyssey offering due to its ability to provide a seamless integration of lab information into a proprietary network which sends data efficiently inside and outside of the hospital network. This potentially transforms the way healthcare is delivered. Although telemedicine has been available for sometime, our product solution meets the unique need in interventional labs to integrate multiple live data streams into a patient record, condense the record through bookmarks and to a seamless transmitting of the data over a standard Internet.

Odyssey surpasses boundaries often thought of as impossible to overcome, opening the door for a whole new way of thinking. Hospital executives are empowered by Odyssey to drive initiatives that improve care, enhance educational programs, as well as implement performance metrics, increased referrals and market services throughout global communities.

To expand our offering even further, we plan to launch the sale of the Odyssey Cinema studio at this year’s HRS, the revolutionary product platform for collaboration broadcasting and presentation editing. This product combines the capabilities of our premier cinema solution, with the studio production console to place every element needed for professional collaboration and broadcast events at your fingertips, including PowerPoint, Cinema case viewing, audio-visual tele-presence, moderator chat, among other items. Even in – events of this magnitude today generally require significant cost complexity and time to prepare, while Odyssey studio offers an integrated solution to conduct these types of events with ease.

Sales outside of Niobe labs provide the greatest opportunity for Odyssey with Stereotaxis with more than 16,000 interventional labs worldwide representing an estimated 1 billion addressable global market. The previously announced Siemens relationship further validates our Odyssey technology and the significant market opportunity to establish it as a leading clinical network platform.

While the highlights of HRS for us will certainly be the launch of the Epoch solution in the Odyssey product line enhancement since it’s important not to lose sight of the exceptional science that will be presented at this year’s conference by our physicians on our current technology. There will be ten podium discussions and ten poster presentations on the scientific – at the scientific program during the meeting that detail our continued leadership in complex ablation. These abstracts cover the whole spectrum of electrophysiology including afib, atrial tach, VT and SVT as well as congenital heart.

It’s worth mentioning again that there will be an atrial fib outcome data presented from highly respected centers such as Texas Cardiac Arrhythmia Institute, Ohio State; Asklepios Klinik from Hamburg as well others. We continue to demonstrate our leadership in VT ablation with several key and very visible presentations from groups such as University of Oklahoma, Heart Center in Leipzig, and Na Holmoce Hospital in Prague. We are also well aware of additional very compelling abstracts that are now being developed into publication. We look forward to sharing the specifics of data as they become available.

But first, let me share with you the results of a stellar publication that just came out within the last two weeks. Dr. Szili-Torok in the Group of Rotterdam have been working for sometime in a very large series comparing magnetic to non-magnetic ablation. And we previously reported an interim data that was presented at the EUROPACE in last year’s meeting. This research has now been completed and published in a peer-reviewed journal, EUROPACE. In a series of 610 total ablation patients, both the major and total complications rates were significantly less than the Stereotaxis group when compared to a statistically similar conventional ablation group. In addition, total [ph] was significantly reduced with no sacrifice of either acute or chronic success.

We’ve previously talked with many of you about the positive impacts on patient safety, but it’s extremely rewarding to see the clear benefit detailed on the peer-reviewed journal.

In summary, we remain confident on the potential of Stereotaxis. We are increasingly strong in large growing markets, and we are focused on innovation to drive long-term growth. With our new Epoch platform and our key product enhancements, we are poised to become a standard of care for complex VT procedures. We remain focused on enhancing our value proposition, increasing clinical adoption, and driving a long-term growth.

Now let me turn it over to Dan, who can review with you the first quarter financials.

Dan Johnston

Thanks Mike and good afternoon. Revenue for the first quarter was $10.2 million, a decrease of 3.7% versus $10.6 million in revenue for the prior year. Systems revenue totaled $4.3 million versus $5.2 million a year ago. We recognized revenue on one Niobe system, three less than the year ago. This year’s first quarter system was placed in North America.

Odyssey revenue came in at $2.7 million, a 240% increase from last year’s first quarter. Over half of Odyssey’s revenue came from non-Niobe labs.

Recurring revenue grew 10.3% versus last year to $5.9 million. The growth was due to greater number of procedures and favorable pricing. Procedure growth was driven by improved clinical adoption and the expansion of our installed base. New orders for the first quarter totaled $7.1 million including $4.6 million for four Niobe systems. One was placed in North America, and three in our EMEA region. We had $2.5 million in new Odyssey orders which are concentrated in North America. Backlog at the end of March increased to $44 million, up from $43 million at year end.

Gross margins for the first quarter were $7.2 million. As a percentage of revenue, the first quarter gross margin of 70.6% was down from 72.5% reported in the first quarter a year ago. Systems gross margin percentage was down due to the mix of Odyssey versus Niobe sales. Recurring revenue margins remained strong during the quarter.

Operating expenses were just under $16 million for the first quarter of 2011 compared with $14 million in the first quarter of last year, an increase of 14.5%.

R&D expenses were flat, as last year’s cost for Vdrive development have been shifted to the Epoch product line. Sales and marketing expenses increased 25% or about $1.6 million year-to-year. 25% of this increase is related to non-cash compensation expense driven by equity grants. Another 25% of the increase is driven by the expansion of our marketing team. Balance relates to additional costs associated with strengthening and enlarging the European and Odyssey sales teams.

G&A expenses increased approximately 9%, largely due to an increase in the training programs designed to drive utilization. The net result was an operating loss of $8.8 million, compared with $6.3 million in the first quarter of last year. We reported a net loss of $9.5 million or $0.17 per share versus a net loss of $8.4 million or $0.17 per share in the first quarter a year ago.

Average shares outstanding for the first quarter were 54.7 million shares compared with 49.6 million shares in the same quarter last year, reflecting the issuance of 4.6 million shares as part of our follow-on stock offering completed in November of 2010.

We used $11 million in cash during the quarter compared with $6.4 million last year. $2.1 million of this $4.6 million increase relates to higher operating losses. $600,000 is related to higher payments to Biosense for debt repayment, and the remaining balance comes from working capital.

Now, turning to the balance sheet. Cash totaled $30.4 million at March 31, 2011. Total current long-term debt is $33.5 million at March 31, up about $4.6 million from year-end 2010. We have $17 million drawn on our $30 million working capital line we have with Silicon Valley Bank.

Finally, I would like to discuss our goals for 2011. In February, we indicated that total revenue would range from $65.1 million to $70.1 million. While Q1 orders for Niobe were weaker than expected, we are extremely excited about the rollout of our new Epoch platform. And we believe the expected benefits surrounding procedural efficacy and efficiency will re-energize our robotic market. In migrating customers to this new platform, we will need to be highly focused on meeting their expectations for possessing and upgrading to the latest technology. As such, near-term execution of this migration will be critical.

With the Epoch transition and the soft order pattern in Q1, achieving our outlook for new capital orders and revenue growth will largely depend on the market acceptance of Epoch. We are pleased with continued strength of Odyssey. Our commercial teams are now expecting Odyssey to deliver from the high end to above our range for Odyssey revenue for the full year. As such, we think the next few months will be important in clarifying our 2011 and 2012 revenue and new order growth rates. Today, our internal forecast remains within the overall revenue, new order, and gross margin percentage ranges, provided during our last call. Obviously, we will continue to update you as the year progresses.

Closer in, from the second quarter revenue perspective, we see total revenue in the low to mid-teen range in millions of dollars. Regarding our operating expenses, we have elected to increase our spending on our Epoch R&D and Odyssey commercial costs. Our aim is to ensure we invest in those activities that drive execution. As such we are now anticipating spending in the $64 million to $65 million range for the full year.

With that I will turn it back over to Mike.

Mike Kaminski

Alisha [ph], we are now ready to open up to questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And our first question is from the line of Sameer Harish with ThinkEquity. Please go ahead.

Sameer Harish – ThinkEquity Partners

Hi guys, good afternoon.

Mike Kaminski

Hi Sameer, how are you?

Sameer Harish – ThinkEquity Partners

Good, good. I thought, maybe we could start off with Vdrive. Can you maybe talk about the opportunities there in non-EP labs, and you know, can it be used independently of the Niobe? Just maybe any comments there.

Mike Kaminski

Yes, so Vdrive, the answer to your question is technically yes. It can be independent of Niobe. This year, it will be largely, it will be only used with Niobe. We are beginning to get requests to look at manipulation of other devices that could be outside of just the Niobe footprint. For example, like an ICE catheter, some other diagnostic instruments that the physician want to manipulate in relation to any procedure they are doing, not just the magnetic procedure. So we’re going to consider that. I think it certainly can help us also outside of EP procedures, as you know in the vascular platform, being able to anchor the sheath, or guide sheath as well as using the ability to navigate through a distal lesion. It’s a useful combination for both products.

Sameer Harish – ThinkEquity Partners

OK great. And in terms of the Epoch, have you talked about, as you transition out of Niobe II, what the pricing for the Epoch platform looks like and how do you – how are you expecting the handle upgraded systems that are already you know, Niobes that are placed that you want to upgrade?

Mike Kaminski

We – the pricing premium, we are working through right now, we think it certainly can be well over $100,000 for the Epoch features. We are going to – Sameer, we are working right now through the – how to handle the installed base for those getting a new installation of Niobe II versus those in the pipeline. And certainly what we will do is work through incentives to make it more interesting for customers to upgrade faster. So, we anticipate we will be in a position to upgrade in this existing installed based customers right at the end of the year. We are going first handle the new installs.

Sameer Harish – ThinkEquity Partners

Okay. And a quick housekeeping question. What was the J&J payment on the quarter, Dan?

Dan Johnston

It was $1.6 million.

Sameer Harish – ThinkEquity Partners

$1.6 million. Okay. Thank you.

Mike Kaminski

Okay. Thanks Sameer.

Operator

Thank you, our next question comes from the line of Tao Levy with Collins Stewart Investments. Please go ahead.

Tao Levy – Collins Stewart Investments

Hey Dan.

Mike Kaminski

Hey Tao.

Tao Levy – Collins Stewart Investments

First with the Epoch. Can you – can you take orders on those?

Mike Kaminski

Yes. So it’s released and we can take orders.

Tao Levy – Collins Stewart Investments

Okay.

Mike Kaminski

In the US, not the Vdrive. But the Epoch platform, yes. The Vdrive is where we anticipate approval in the first half of next year.

Tao Levy – Collins Stewart Investments

So you can always start taking orders for [inaudible] Epoch.

Mike Kaminski

Yes, for Epoch, for Epoch.

Tao Levy – Collins Stewart Investments

Okay. And if I look at the backlog, you know, it didn’t really, you know, it looks like it didn’t change from the fourth quarter. Sequentially you had some more orders, you had some minuses. Where there any systems that got pulled out of that?

Mike Kaminski

Yes, Tao, we started with $43 million, we wound up at $44 million. I may have said $43 million.

Tao Levy – Collins Stewart Investments

All right. Okay.

Mike Kaminski

But the – we had seven new orders and four in orders going out the door. We actually canceled two Niobe labs. One was in Korea, an old order that’s been around for over four years and just isn’t progressing. So we’ve taken that out of our backlog. And then we also took a system in Madrid. The hospital is having some financial issues that were – we decided to go ahead and take that out of backlog as well. So we canceled two.

Tao Levy – Collins Stewart Investments

Right. But the right number is $45 million [ph].

Mike Kaminski

Yes, I think I missed [inaudible].

Tao Levy – Collins Stewart Investments

And also, what’s the – if you are going to upgrade from Niobe II to an Epoch, you’d mentioned earlier, you know, maybe that potentiates thousand, you know $100,000 upgrade. What’s the cost for that transition?

Mike Kaminski

Go ahead.

Dan Johnston

Go ahead. Well lot of its program has already been expensed through our P&L, but the physical cost – there’s going to some physical things with regard to covers, which really will cause a whole lot of difference than what they are today. They are physically smaller, so they take up less room. If you upgrade somebody, you obviously have to replace those covers, somebody from the existing – from the installed base. And the rest of it is you know, probably less than $10,000 and complementary [ph] with regard to you know, computers and what not. But most of the upgrade is related to software. Now, again, that’s absent the Vdrive.

Mike Kaminski

And absent Odyssey too. Because you know, we are going to, obviously, use the opportunity to go back in to an installed base and talk about the new value proposition and how they should – if they haven’t bought Odyssey, how they should at upgrading [inaudible].

Dan Johnston

And I think Mike’s comment about somewhere $100,000 will be somewhat time-dependent, but it also again, doesn’t include – Odyssey doesn’t include a Cinema, doesn’t include Vdrive. That’s just more of a standard Niobe to the new Epoch version of Niobe.

Tao Levy – Collins Stewart Investments

Got you. Okay. And then just last question is little bit more a bigger picture. You know, the Q1 was a little bit of a shortfall and you know, you are keeping essentially you know, the revenue guidance, the order outlook essentially intact. But it seems like you know, there’s probably a lot more risk to that guidance at this point, just in front of this new product launch than you would have anticipated a quarter ago. If you could talk about that and also if you could talk about you know, the dynamics that you are seeing out there in terms of EP labs looking to acquire capital equipment. Again, and making sure that what you are seeing in the first quarter isn’t you know, something that the industry is necessarily going through. Thanks.

Mike Kaminski

Yes. So, let me – let me address your question on guidance first. We are, you know, obviously, as Dan mentioned, we are going to have to handle Epoch every well, the transition from Niobe to Epoch. If you look at entering the year versus where we are now, I think there is upside in Odyssey versus what we discussed to you to the extent that there is a little bit of downside in Niobe. So I think if you look at the shifting, overall the range you feel comfortable with , the mixing of little bit, and it will really matter on – the key question will be how can transition customers from Niobe II to Epoch in a timely way.

As far as customer buying patterns, you know, we see the funnel continue to show a pretty robust pattern of growth. In fact, we are adding customers, our site visits are up. And I think largely that’s a direct reflection of, in North America, we have stronger reference sites. So you know, and then we are growing geographically. Our footprint, the eastern block picking up a lot of interest for us you know, that as we expand outside, and Asia, of course, as we have talked about. So, geographically, we are seeing a growth. And in the US, we are seeing more people in the funnel, in a later stage as a result of just stronger references between sides.

Tao Levy – Collins Stewart Investments

Okay. Thanks.

Operator

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

Spencer Nam – Madison Williams & Company

Can you hear me okay?

Mike Kaminski

Yes, hi, Spencer.

Spencer Nam – Madison Williams & Company

Hi, how are you guys doing?

Mike Kaminski

Good.

Spencer Nam – Madison Williams & Company

So, I’ve a couple of questions here. First of all, in terms of the Epoch transition, I was wondering if your Niobe – the new orders in Q1 was somewhat affected by Epoch, you know, the customers thinking about Epoch upgrade potentially, you know – I am curious how the conversations went with your – within the customers or target customers, you know, with respect to this new roll out and what kind of feedback you are getting from the customers and so forth?

Mike Kaminski

Yes, you know, we tried to keep Epoch as quiet as possible to the release last week. That didn’t mean that you know, we were entirely successful doing that. So it’s hard to measure the customer impact. I can tell you that once we begin customer discussions which would largely in the last few weeks, it has been very positive. So customers that we have exposure to – of course we had a selected group of physicians that helped us test it. But customers, we exposed it to have been very positive about what they believe the value would bring to them. So, you know, we think there’s a couple of impacts, obviously. It will facilitate moving people through the decision process, who have been sitting on the fence. And obviously, I think it will help us in a great way drive utilization because many of the things that have kept people from going through the learning curve have been the things that Epoch is going to address, the efficiency and the ease of use that allows them to – in a shorter period of time get up to full value. So, I think there’s a lot of good things. It’s hard for us to measure the impact on Q1, although the sales pipeline still looks very robust. Now, we are going to look at building that pipeline or accelerating decisions through. So we can go from first call to order faster.

Spencer Nam – Madison Williams & Company

Great. That’s helpful. Then you know, in terms of just the – I know you guys are making a lot of splash. Sounds like based on your comments, you are making a big splash at the HRS this year. I am just curious how the community is you know, is looking at the robotic ablation technology at this point. Whether there is you know, there’s been a change in the attitudes or the approach from the customers on adopting you know, Niobes of the world to Epochs of the world. You know, is that – what are you seeing, you know, that’s different from previous years or previous months that the next six months, next 12 months will have a difference of a trend or that things will get even more exciting?

Mike Kaminski

Well I – let me address it through kind of a global answer to that is, we saw a difference in interest when we hit VT as a key application. And with that, you know, came out some of scientific literature a while back. All of a sudden physicians were very – much more interested in looking at robotics as a platform. Now we have had some very compelling data come out from Professor Pappone and others. I think there’re five journals now that have produced some AF result. That also has kept people engaged in the efficacy part of robotics. And if you look at what robotics should do is bring precision and a consistency of output.

Now the next hurdle for us really was to drive efficiency. Because in the commercial sites, you know, safety was a given with us from early on. You know, efficacy was beginning to be proven in the last 12 months. And then they were looking at – I have to be more efficient. I might be a sole operator. So the opportunity to look at how we can help them be a remote sole operator and improve our consistency of efficiency really was the next step. And that will launch us into the majority of customers in a bigger way. And that’s why – as we go back and confirm that statement, that’s where we really are excited about breaking through to the majority of the EP sites, not just you know, the early adopters and innovators.

Spencer Nam – Madison Williams & Company

Great, that’s helpful. And then the – in terms of the operating expenses, that you know, you guys are guiding a little higher than previous estimates. Is that related to Epoch launch and just the sales and trading ramp up are associated with that? Should we think of it that way?

Dan Johnston

Spencer, I think that’s exactly right. Really, two elements. One is, driving Epoch to accelerate timeline to actually be able to keep this migration seamlessly. So we are spending a little more money at R&D to get things done quicker, outsource them, you know, non-recurring engineering type of items, things like that. And we are also investing in the Odyssey commercial team and expanding that footprint a little bit more as well. But most of the spending is around Epoch.

Spencer Nam – Madison Williams & Company

Got it. And then couple of quick housekeeping questions. Well, one of them may be housekeeping, the other one is just a clarification. My sense is that your disposables revenues for this quarter was sequentially down from last quarter. I was curious – it seems like that was the first time it had happened in a while. I was curious what may have led to that.

Mike Kaminski

As I mentioned, Spencer, I will let Dan give color to this. Utilization was up. There was some shipping of fourth quarter that could happen in first quarter, that kind of put some noise in that. But utilization in Q1 was up. So we saw a nice growth in Q1 in utilization.

Spencer Nam – Madison Williams & Company

Are you saying that per system in placement that the actual, the system utilization was the case – case volume was up per system on an average.

Dan Johnston

I am saying total cases completed was up. I’d have to look at that exact number. You know, it might be slightly up, but total cases were up. And there may be some currency mix in there, I don’t know. But in general, there’s nice growth in utilization for the quarter – quarter-over-quarter growth and year-over-year. And it’s not just installed base, it’s actually the utilization per site is increasing as well. There’s the answer.

Spencer Nam – Madison Williams & Company

Got it. And then the final question is the optics supply issue. I am not sure if I picked it up early on, whether you had addressed that. Has that been resolved and that it’s back to normal?

Mike Kaminski

Yes. It’s resolved.

Spencer Nam – Madison Williams & Company

Okay.

Mike Kaminski

It’s going to – the first shipment will occur this quarter as expected.

Spencer Nam – Madison Williams & Company

Okay great. Thank you.

Mike Kaminski

All right.

Operator

Thank you. I show no further questions at this time. I would like to turn the conference back to management for closing remarks.

Mike Kaminski

Well thank you everybody for attending. And we look forward to seeing whoever is attending the HRS conference, we do have an investor symposium at the show on Friday. If you want any more information on that, please get a hold of Greg Gin and he will be happy to share that. So thank you, and look forward to seeing you later this week.

Operator

Ladies and gentlemen, this concludes the Stereotaxis to report First Quarter 2011 Financial Results and Conduct Conference call. If you would like to listen to a replay of today’s conference, please dial 1-800-406-7325 or 303-590-3030 and enter the access code of 4434733 followed by the pound sign. Thank you for your participation. You may now disconnect.

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Source: Stereotaxis' CEO Discusses Q1 2011 Results - Earnings Call Transcript

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