Stereotaxis Inc. Q2 2008 Earnings Call Transcript

| About: Stereotaxis, Inc. (STXS)

Stereotaxis Inc. (NASDAQ:STXS)

Q2 2008 Earnings Call

August 5, 2008 8:30 am ET

Executives

Doug Sherk - Investor Relations

Bevil Hogg - Chief Executive Officer

Jim Stolze - Chief Financial Officer

Analysts

Imron Zafar - Deutsche Bank

Mimi Pham - JMP Securities

Spencer Nam - Summer Street Research Partners

Keay Nakae - Collins Stewart

Ed Shenkan - Needham & Company

Steve Ogilvie - ThinkPanmure

Charlie Jones - Barrington Research

Karl Van Stutterheim - Deutsche Bank

Gabe Hoffman - Accipiter Capital Management

Operator

Ladies and gentlemen, thank you very much for standing by and welcome to the Stereotaxis Q2 2008 Earnings Conference Call on the August 05, 2008. Prior today’s recorded presentation all parties will be in a listen-only mode, after the presentation there will be an opportunity to ask questions. (Operator Instructions).

I will hand the conference over to Doug Sherk. Please go ahead, sir.

Doug Sherk – Investor Relations

Thank you, operator, and good morning, everyone. Thank you for joining us for the Stereotaxis conference call and webcast to review financial results for the first quarter of 2008.

Before we get started we’d like to remind you that during the course of this conference call the company may make projections and other forward-looking statements regarding future events or the future financial performance of the Company, including without limitation statements regarding operating results for calendar 2008 and 2009, 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 with the SEC, specifically the Form 10-K for the fiscal year ended December 31, 2007.

The Company’s projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The company assumes no obligation to update any projections or forward-looking statements. Finally, during today’s question and answer session we would like to each participant to limit themselves to two questions and then re-queue if you have additional questions. In advance we thank for your cooperation with this process.

And now I’d like to turn the call over to Bevil Hogg, Chief Executive Officer of Stereotaxis.

Bevil Hogg - Chief Executive Officer

Thank you, Doug, and good morning, everyone. On the call with me this morning is Jim Stolze, our CFO. This morning we reported excellent second quarter financial results. Our revenue grew 36% from the prior year second quarter and new second quarter record and we also achieved $14 million in new orders ending June with the backlog of $72 million. Both our new orders and record backlog position us well for future revenue growth. During the quarter we recognized revenue on eight Niobe Magnetic Navigation Systems and note that we achieved this increase as well as the increase in orders and backlog despite the continued lack of availability of a magnetic irrigated catheter.

The visibility on the timing of the availability of this irrigated catheter has improved dramatically. Our partner Biosense Webster made very good progress during the quarter in resolving the specification conformance issues that caused the irrigated catheter to be withdrawn from the European market earlier this year.

During the week of July 7, Biosense filed a PMA supplement with the US Food and Drug Administration immediately followed with a CE mark filing with the European regulators. These filings were approximately one month ahead of our expectations. The PMA supplement filing is believed to provide the surest approval process for the return to market of the irrigated catheter in the United States.

According to an FDA report PMA supplement approvals took an average of 126 days in 2007, although this timeframe may not necessarily apply for the current application. Pending regulatory approvals we are optimistic that we will able to resume shipments of the irrigated catheter in Europe in the fourth quarter of 2008 and shortly thereafter in the United States.

Our collaboration with Biosense Webster has been successful in establishing a new standard for safe and effective in electrophysiology. We believe this relationship has been further strengthened with our recently announced amended agreement. Under its terms Biosense Webster will provide Stereotaxis with $18 million comprised to advance us against royalties on catheter sales and deferrals of ongoing research and development costs associated with current and future products. This financial arrangement provides us with significant financial resources on very favorable terms.

In addition we have agreed to co-promote and expand our Odyssey Information Management Technology by permitting Biosense Webster the non-exclusive right to use the Odyssey network to provide its customers with clinical and technical support. We believe that the opportunity co-mark of this technology to Biosense customer base has the potential to significantly accelerate Odyssey’s adoption across the broad spectrum of the interventional labs.

Finally, Biosense and Stereotaxis have sort of agreed to enter into negotiations regarding other matters related to our future relationship including the possibility of Stereotaxis distributing certain Biosense magnetic [appellation] catheters. Negotiations will begin soon and we will provide more details when appropriate.

The under electrophysiology we remain cautiously optimistic about expanding the use of Niobe into interventional cardiology, we recently announced a very successful first of its kind procedure to treat a Congenital Heart Defect in a ten year old boy in Bad Oeynhausen, Germany using a Niobe system. The patient in this case had pulmonary atresia, a congenital malformation of the pulmonary valve which obstructs the flow of blood from the heart to the lungs. A team of physicians lead by Dr. Nikolaus Haas, Director of the Catheterization Laboratory in the Department of Congenital Heart Defects at the Heart and Diabetes Center, used the Niobe system to navigate a magnetic guidewire through a circuitous route through small, winding vessels to place the specialized stent that permits increased blood flow from the aorta to the left lung.

Within two days of the procedure the patient was discharged from the hospital, his blood flow has improved and he has been able to resume many normal physical activities. The success of this outcome demonstrate the potential of the Niobe system as a safe and effective tool for cardiology treatments outside the EP lab.

Also within the arena of cardiology treatments we remain very excited about the potential of our new RF magnetic wires ability to address the most difficult total inclusions. As you know we have filed for regulatory approval for the wire and the product continues to make its way through the regulatory approval process.

Moving on to Odyssey, the Odyssey network continues its strong momentum with orders increasing to 2.1 million in the second quarter. We sold our first Odyssey for use outside of the Niobe system lab during the quarter and we expect this will be the first of many. This first sale illustrates the potential we have to expand our current graceful opportunity beyond the replacement segment of EP lab market and also valuable solutions to the effective management of information within every EP lab. Serving is the information and networking have for the EP and potentially other labs, the Odyssey platform allows clinicians to improve their efficiency and efficacy by making it possible to consolidate and better manage information and work flow. This information can then be stored or shared remotely for training or consultation purposes.

We introduced the Odyssey cinema product to the Heart Rhythm Society conference in May. Odyssey cinema records interventional lab procedures providing physicians with the high definition real-time view for many point in the network of Odyssey systems. In addition the cinema archive feature allows clinicians to store and replay procedures in their entirety or in segments offering users an effective tool for collaboration for most consultation and training.

The new product was extremely well received by the physician in attendance at HRS and we expect Odyssey cinema to contribute meaningfully to our revenue in 2009. While the clinical utilization rate among arm [sole] constrained by the absence of the magnetic irrigated catheter we expect strong procedure growth following its return. The irrigated catheter is expected to drive procedure growth principally by facilitating the ability to do more complex left side procedures including treatment for atrial fibrillation and we anticipate this could increase week 3 procedure volume to 3 or more procedures to a system per week in the mid term increasing over the time to as many as one per day.

We further note that Cordis has recently their pursuit of an atrial fibrillation label in the United States for Biosense Webster irrigated catheter and we are optimistic that if successful this will serve as a catalyst for accelerated growth in the treatment of complex arrhythmia.

The pending return is the magnetic irrigated catheter and the commence in increase in procedural volume when combined with the higher ASPs of CardioDrive II which is on schedule to be commercialized in the fourth quarter and incremental royalties payable on the irrigated catheter should rise Stereotaxis’ per procedure revenue to well over $1,000 in 2009. These per procedure revenues would be augmented by service and software licensing fees and in the future connection fees for our Odyssey users allowing us to full realize the potential of our recurring revenue model.

In addition to the favorable outlook for recurring revenue growth in 2009 and beyond we expect to generate significant improvements from the Niobe and Odyssey systems. We also remain very focused on increasing our overall gross margins to 70% by the end of 2009 and in reducing our operating expenditures. In this regard we continued to make good progress in the second quarter with a $1.3 million decrease in operating expenses from the prior year excluding our one time contribution to the reengineering costs associated with the irrigated catheter remediation. Our goal is to set the stage for profitability.

We made very good progress towards achieving our financial model in the second quarter. For the remainder of 2008 we will be focused on continued execution of our plan, while the lack of availability of the irrigated catheter makes us reluctant to provide specific guidance for the remainder of the year we can offer these observations. First, we are heartened by our substantial growth and backlog, which agues well for the long term revenue growth. Second, the absence of the irrigated catheter will continue to influence our revenue growth during the second half of the year.

Currently we expect sequential revenue growth for the third quarter as compared to the second quarter we have reported today and in similar fashion for the fourth quarter over the third. In addition we expect modest overall revenue growth in the second half of 2008 when compared to the second half of 2007 with this sort of recurring in the fourth quarter.

Operating expenses are expected to decline in the third quarter as well as in the fourth quarter through our efforts to reduce R&D and G&A expenses while we continue invest in sales and marketing and clinical resources.2008, while a difficult year because of the withdrawal of the irrigated catheter has enabled us to put in place the essential building blocks for growth in 2009 and beyond. With the likely full availability of the irrigated catheter by 2009, the results are beginning to emerge from our overall business strategy and recently bolstered capital resources, Stereotaxis has a clearly defined path to profitability. The company is no longer a start-up, and the management skills required to moving towards operations and execution rather than the skills required to create and build a company. With this in mind, we are continuing to build and strengthen the senior management team. The recent appointments of Magnus Holm, Lou Ruggiero and Kevin Shifrin to leadership positions at Stereotaxis illustrate how we’re expanding our management capability to foster the successful, profitable growth of the company.

Now, I would like to turn the call over to Jim for a more detailed review of the second quarter financial results. Jim?

Jim Stolze - Chief Financial Officer

Thank you, Bevil. Stereotaxis reported total revenue of $10.7 million in the second quarter compared with $7.8 million in the second quarter last year. Total revenue included $7.9 million generated from sales of our systems with five Niobe systems recognized in the US and three in Europe as well as four Odyssey systems recognized this quarter. We also generated $2.8 million in revenue from disposables, services and accessories. This compared with $2.1 million recognized in the second quarter of 2007. The increase continues to reflect the growing installed base of our systems end usage across a broad range of applications.

Year-to-date 2008, we reported approximately $17.7 million in total revenue compared to approximately $17 million in 2007. Year-to-date revenue includes 12 Niobe systems and six Odyssey systems compared to 11Niobe systems year-to-date 2007. The second quarter 2008 Niobe systems revenue was unusually negatively impacted by several lower ASP transactions as well as the contractual deferral mentioned previously. However, I should note that our backlog average ASP exceeds $1.1 million and should hold us in good stead as we bring these systems to revenue in the coming months and quarters.

Gross margin for the quarter was $6.5 million, comprising 61% of revenue, compared to a gross margin of 45% of revenue in the comparable 2007 quarter. Gross margin for the 2008 second quarter was impacted by the sale of one Niobe I legacy system from backlog, which carried a significant lower ASP than our current Niobe II systems as well as one contract, which contained terms requiring us to defer a higher than normal portion of the total revenue until the installation was complete, which occurred in July. Margin was also impacted by the cost for Odyssey systems delivered and installed this quarter as we experienced the start-up production volumes and associated costs. Absent these items, margins would have been in the 65% range. Margin for the 2007 quarter was likewise impacted by an unusual charge for the Niobe I inventory evaluation adjustment, which reduced margin by approximately 23 percentage points down to the 45%.

Operating expenses in the first quarter were $18.7 million, a slight decreased compared to the $18.9 million recorded in the second quarter last year. Adjusting second quarter 2008 for the $1.1 million of spending related to the irrigated catheter issue, second quarter expenses were $17.6 million $1.3 million or 7% lower than 2007 second quarter and $300,000 sequentially lower than the first quarter of 2008. Research and development expenses adjusted for the $1.1 million were $3.7 million or approximately 50% less than the prior-year quarter.

Sales and marketing expenses increased compared to prior-year quarter while general and administrative expenses, exclusive of the training component included within G&A, remained flat. Looking to the remainder of the year 2008, as we indicated in our release, we expect to see a sequential reduction in operating expenses and note that this quarter’s adjusted $17.6 million run rate of operating expenses is more than $1 million favorable to each of the third and fourth quarter of 2007 operating expense levels. Thus, we are well on our way to achieving our goal of having operating expenses for 2008 be less than those for 2007. We reported a net loss of $12.8 million in the quarter, or $0.35 per share. This compares with a net loss of $15 million, or $0.42 per share, in the prior year’s first quarter.

Average shares outstanding were 36.5 million compared with 36.2 million in the same period last year. Net loss to date 2008 was $26.3 million, or $0.72 per share, compared to $25.5 million, or $0.72 per share, in the 2007 period.

Cash and investments totaled $11.8 million at June 30. Total debt at the end of June was $20.6 million with $13 million drawn against our available credit, including $10 million against the $20 million commitment received from the two insiders in February of this year and includes approximately $6 million of amounts owed to Biosense Webster for ongoing research and development activities which has been classified as long term debt in the June balance sheet, as a result of the agreement we executed in July. We used approximately $7 million of cash in operations in the second quarter, down significantly from the $12 million used in the first quarter, as we had previously anticipated.

The June balance sheet does not reflect the advance received from Biosense Webster in July in connection with the execution of the agreement. We continue to believe that the cash on hand as well as the current availability under the bank and insider lines will provide sufficient liquidity to take the company into the first half of 2009. As Bevil indicated, our backlog, net of systems taken to revenue, grew to $72 million at the end of June; we do not include orders for disposables, service or accessories in this data.

As a reminder of there can be no assurance that company will recognize revenue related to its purchase orders and other commitments because if purchase order is not a commitment it’s subject to contingencies that are outside the company’s control. In addition these orders and commitments may be revised, modified or cancelled either by their expressed terms, as the results or negotiations are by project changes or delays.

Now Bevil and I would be happy to answer any of your questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). Thank you. The first question comes from Tao Levy. Please state your company followed by your question.

Imron Zafar

This is actually Imron in for Tao from Deutsche Bank. Thanks, for taking my questions. My first question is on the re-launch of the irrigated catheter. What’s the latest thinking there as far as -- are you going to require another beta launch? Or, is this just going to be a full commercial launch post approval?

Bevil Hogg

I believe that it is standard operating practice for Biosense Webster to undertake a beta launch for every product that is introduced to the market. So, this is likely to be the case with the return of the irrigated catheter. Although, we would anticipate an abbreviated beta launch.

Imron Zafar

Okay. And then couple of housekeeping questions. You commented in the release and your prepared remarks about the sale of legacy Niobe I systems; can you just comment on why you are still showing that order generation system and then also maybe comment on the one contract that you said where revenue was deferred to the third quarter was that the function of one the construction was completed?

Bevil Hogg

I will answer the first question and then I’ll handle the second question to Jim. We have a very small inventory of Niobe I systems. I believe two or three and these systems have essentially being written down beyond the one that was sold. So that every now and then we have an opportunity to disclose one of these systems through a sale to the customers looking for something less expansions of the Niobe II and we avail ourselves of that opportunity, going forward because the remaining two or so Niobe I systems in stock have been fully written down that the sale of one would contribute significantly to gross margin but in this quarter we sold the last Niobe I system that for some arcane accounting reason that I won’t go into and don’t fully comprehend was not completely written off and therefore gave us slow gross margins for that particular system.

Jim Stolze

Imron, the other just the function of how the contract are written and the amounts that are billable upon completion in separate phases in this particular contract had a deferral that carried into July.

Imron Zafar

Okay. And, then can you give us a rough sense of what the number procedures were in the quarter?

Bevil Hogg

We’ve been running roughly very roughly at around procedure and half per week and this has been pretty static or should I say stable, we don’t expected to change substantially until the return of the irrigated catheter. And by 1.5 procedures per week, I mean per trained, installed system.

Imron Zafar

Okay. And, then the last question obviously you had some challenges relative to delay with these irrigated catheter but can you just maybe comment on some of the external headwinds that you’re facing relative to maybe hospital capital spending and then also maybe some -- your latest observations on the competitive landscape?

Bevil Hogg

We have not felt significant headwinds related to hospital capital expenditures. We do have a very significant headwind run could almost call it a gale-force wind relating to the continued lack of availability of the irrigated catheter which makes our performance in the second quarter all the more heartening. We expect the irrigated catheter return to substantially change our business dynamic across the four spectrum of our business from system sales to device recurring revenues and the whole aspects of our business. With regard to the competitive landscape, we continue to see very little competitive activity in our space. And have noted no changes in that regard.

Imron Zafar

Great. Thanks so much for taking my questions.

Operator

Thank you. The next question comes from Mimi Pham. Please state your company name followed by your question.

Mimi Pham

Hi, JMP Securities, good morning. Bevil, you gave us color on system sales for second half of the year. Can you clarify given what you are seeing in the pipeline what your expectations are for new Niobe orders in the second half of the year?

Bevil Hogg

Mimi, I’m not prepared at this stage to talk to future Niobe orders. Other than to say that our order momentum has been pretty good in the first quarter and it was good in the quarter, it was good. And clearly hospitals and institutions that are looking beyond the near term are continuing to show strong interest in our product.

Mimi Pham

I guess related to that did you comment on your -- the mid to late-stage pipeline numbers? Is it still around 300 systems at the end of --?

Bevil Hogg

It is and perhaps gone up slightly, but it has been hovering in that region, certainly hasn’t gone down and when we look at --ay be when we look at our current back log of $72 million with no cancellations and active and strong mid-to-late stage pipeline, we were very confident about our longer term prospects. We have a hiatus that was generated we believe by the withdrawal of irrigated catheter that is shortly going to come to an end and we look beyond that to some very refractive growth prospects.

Mimi Pham

Okay, thanks, and then last question on the Odyssey agreement with J&J does this hurt your ability to sell Odyssey into non J&J EP labs?

Bevil Hogg

Not at all, it is absolutely non exclusive and we expect that it would be additive to opportunities and in no way subtract from them.

Operator

Thank you. The next question comes from Mr. Spencer Nam. Please state your company name followed by your question.

Spencer Nam

Hi this is Spencer Nam from Summer Street Research Partners. Couple of questions for you guys. In terms of the financing side; how does with the cash position and with debt what kind of burn rate are we thinking about in the second half of this year and, you know, what are the terms of the long-term debt that you guys currently carry?

Bevil Hogg

The burn rate as we had anticipated in the second quarter decreased significantly in 2Q and should improve beyond that for the last half of the year. The amount sort of included in long term debt that include $6 million from an accounting perspective that is categorized out of the Biosense agreement, that has actually repaid out of future royalties and has no future cash impact in the near term, the other debt has a maturity in the mid 2009.

Spencer Nam

Thanks. And then the second question is in terms of the backlogs that are building up. What are the thoughts you know, how are the customers thinking about their decision to install Niobe here, are they looking towards the UN catheter, is that the kind of a drive for them or is it more broad need toward their interest in Niobe system?

Bevil Hogg

It’s irrigated catheter is an indirect but powerful component of a decision to purchase a system. Clearly this was our backlog is going out for now, order rates has been strong, customers are very interested in the value we can bring to their labs. However, until the irrigated catheters return we do not have any demonstration sites like customers can go and see complex cases being done with our system and that does serve to be, does turn out to be a hindrance in the near term. It’s very important in closing a transaction to be able to have reference sites, which we don’t have. However, that impact is the near term impact and we expect to be able to substantially build up our reference sites beginning in the fourth quarter with the return of the irrigated catheter in Europe and we expect this problem will be behind us. Customers who are placing orders on Niobe Systems today are tending to look beyond the current irrigated catheter withdrawal because J&J has expressed a strong confidence to them about the return of the irrigated catheter, and typically these systems that have being ordered today would be for delivery next year any way. So that the customers don’t see their deliveries being affected by the irrigated catheter temporary hiatus.

Operator

Thank you, the next question comes from Keay Nakae. Please state your company name followed by your question.

Keay Nakae

Yes, Keay Nakae from Collins Stewart. Jim can you tell us what the revenue contribution from Odyssey was in the quarter?

Jim Stolze

Yes, it was about 700,000 plus.

Keay Nakae

Okay. As far as the sales of marketing number, that number is increasing, how should we think about that going forward? I think you mentioned that it will continue to increase but what type of rate?

Jim Stolze

Because our overall goal Keay is to hold our OpEx at a relatively flat level, you will see it increased but I think if you keep in mind our overall target and you see R&D coming down as Bevil had mentioned I think in our last conference call. We are taken about $10 million really out of our R&D for the year and you’ll see the mix between R&D, G&A and sales of marketing realign itself. So, that we can keep that sub $73 million run rate going on 2009.

Operator

Thank you. The next question comes from Ed Shenkan. Please state your company name followed by your question.

Ed Shenkan

Thank you. From Needham & Company. And, the question is about the new irrigated catheter, which is being submitted, what did you change on it, what was the actual problem and the root cause that you identified and just gives us confidence that this has been fixed and you done all the necessarily testing on that product?

Bevil Hogg

Ed, hi. I don’t know all the things that were changed on the irrigated catheter and what was under the category of modification and what was under the category of remediation. However, I do know that J&J has their most senior engineering management on this project, that this project has the attention of the parent company all the way up to the Vice Chairman level. And, that very, very strong representations have been made by our partners to their clinicians that they expect this catheter to be back and functional. So, we have very high level of confidence in our partners engineering competency and dedication and commitment. And, we believe that they have thoroughly and exhaustively the issues and hard in the process of re-mediating them. They are now in the process of, we understand ramping the manufacturing capacity for these devices.

Ed Shenkan

Can you tell more about the ramp on manufacturing ahead of launch and if doesn’t get approved as it stands, they have to make another modification with those manufactured units need to be destroyed or what’s this plan there?

Bevil Hogg

I don’t think there is any expectations that it won’t be approved. I think that we have a very capable, very senior team that’s been able to dominate the ablaze in catheter landscape worldwide to the two and that having close to, we understand in our three quarters over the market share for ablaze in catheters. So, we think they know what they are doing and we believe that this catheter will be successfully returned and we are confident that they are going to have manufacturing in place in advance of their return.

Operator

Thank you. The next question comes from Larry Keusch. Please state your company name followed by your question.

Charlie Jones

Good morning, everyone it’s Charlie on for Larry. How are you?

Bevil Hogg

Hi.

Charlie Jones

I just had quick questions for you, to begin with, on the replacements of Niobe I. So, just having curiosity, how many of the system replacements during the quarter work for the replacements?

Bevil Hogg

There are no replacements. In other words we are not replacing Niobe I’s with Niobe-II’s. We made a transition from our first model which was Niobe I to Niobe II about three years ago and when we made that transition we still had a small handful of Niobe I in stock. We’ve on occasion sold Niobe I. Generally taking a hits to our gross margin in the process. In this instance we sold a Niobe I to an academic site that did not have the resources for Niobe II and there was no replacement and nor do we anticipate that there being any replacements ever.

Charlie Jones

Okay, thanks for that clarification. We can move on to just your cash position, so going forward here as you think about 2009, and we made a discussion with Jim. Jim, is 2009 going to be free cash flow negative for Stereotaxis because based on the current cash burn, looks as if may be you might have to tap additional financing before the end of 2008, and even though you can tap in to an additional $20 million just seems as if in to additional resources, just seen as that you might have to consider additional financing potentially by mid 2009. So with stock at current levels what other financing options are you considering?

Jim Stolze

There as you can see we’ve considered and accomplished a couple of things I think the Biosense transaction both well for us. The insider line has turned up to be a very good thing for us and I don’t think we would need to tap any financing on the rest of 2008; we were just continued to review where we are Charlie, I think obviously 2009, should be much, much better cash flow year then 2008 I’m not prepared to say to say it will be cash flow positive yet, should be significantly better and we’ll deal our situation as we move forward.

Operator

Thank you. The next question comes from Steve Ogilvie. Please state your company followed by your question.

Steve Ogilvie

Good morning. Steve Ogilvie ThinkPanmure. Could you help me understand how that $18 million coming from the J&J, how that impacts returning revenue going forward. And, then the second question would be as you look to get to a $1,000 per procedures in 2009, do you feel like you’re going to loose you leverage on your cost benefit augment versus your competition?

Jim Stolze

Steve. The recurring revenue Steve, is not impacted at all, we’ll all continue to report the recurring revenue in the period that it occurred this is, think of it as a down payment. The cash advances or just cash side of the transaction. So, it won’t disrupt the P&L from a normal recognition of revenue as they go quarter-by-quarter.

Bevil Hogg

The second part of your questions Steve. If we look at our current recurring revenues to procedure, we have a CardioDrive I catheter advance device set, now commands on ASP of greater then $600 to which we had the income from royalties bit of payable on the catheter, depending on the catheter those royalties may range from say $200 to $500. In the fourth quarter of this year, we will introduce CardioDrive II version which will carry a list of $1,500; it has many advantages over the CardioDrive. One it is much faster, it comes pre-assembled so the set up time is significantly lower, and we expect it to have an ASP for that device alone approximating a $1,000 to which would be added royalties approaching $400 to $500 for irrigated catheter depending on the ASP of the irrigated catheter. These of course very rough round numbers, but we don’t expect this to change our value proposition at all. Because our understanding is that competition in as much as they are selling sheets for their devices or selling them for closed to a $1000 more.

Operator

Thank you, the next question comes from Mr. Charlie Jones. Please state your company name followed by your question.

Charlie Jones

Barrington Research. Good morning Jim, good morning Bevil. Bevil I appreciate that you cut my first question down by a half centers around CardioDrive, and CardioDrive II and you told us a little bit about ASPs and list. Can you tell us whether they will be available in the US and the internationally at the same time, and we’ll have a choice and I guess the final part of that question is do you still believe you can charge hospitals at different price for using the competitive catheter post to catheter you receive a royalty from, and if so have you talked your customers about that?

Bevil Hogg

The first part of our question is that the CardioDrive II should be launched domestically and internationally in the fourth quarter and we expect to be able to command a significantly higher ASP for it because it has significantly better features. So, our customers are getting value for money with this device. But we won’t differentiate between European launch and US launch for this device. I could not fully understand the second part of your question.

Charlie Jones

Sir, will hospitals have a choice in using either one?

Bevil Hogg

I see. Initially, yes. But overtime the advantages of CardioDrive II will be that it is in some ways more connected to and more enhanced by our software. So, their software evolves CardioDrive II would evolve with the software whereas CardioDrive I may not. And we would expect that both of our customers to shift their purchasing to CardioDrive II, certainly within about six months following the launch of CardioDrive II.

Charlie Jones

And parts where I quite didn’t understand were regarding these European hospitals that may eventually start to use your system with a competitive irrigated catheter. Do you still think you are going to need to differentiate between those of that using it, and those that are not? Where do you think that the higher overall ASP of the CardioDrive is enough?

Bevil Hogg

Yeah, we think that the higher overall ASP of CardioDrive will put us in good stead with hospitals that maybe using competitive devices.

Operator

Thank you. The next question comes from Karl Van Stutterheim. Please state your company name followed by your question.

Karl Van Stutterheim

It’s Deutsche Bank and lot of my questions has been answered. I must have missed one thing. What is the actual liquidity position, cash clubs whatever credit facility is available?

Bevil Hogg

About the 40 million

Karl Van Stutterheim

Okay, that’s all I needed to know thanks.

Bevil Hogg

Al right, thank you.

Operator

Thank you once again. (Operator Instructions). The next question comes from Gabe Hoffman. Please state your company name followed by your question.

Gabe Hoffman

Accipiter Capital Management. Thanks for taking the question this morning. So, just looking through the agreement with the Silicon Valley Bank when you made the change earlier this year, it replaced the quick ratio covenant set forth with a requirement that the company maintains certain amounts of tangible network at the end of each month. I was just curios what is the amount of tangible net work that you will need to have, as of let’s say June 30th, how as that calculated and were you above that at that time?

Bevil Hogg

I am above that yes.

Gabe Hoffman

Balance sheet?

Bevil Hogg

Balance varies by month. Very well in compliance with that number.

Gabe Hoffman

What is that number that you need it at that time in terms of tangible net worth?

Bevil Hogg

I don’t know if I put that numbers didn’t disclose in the financials you mean 8-K, but I am well in compliance with the number.

Operator

Thank you. You got a follow up question Mr. Charlie Jones. Please state your company name followed by your question.

Charlie Jones

Barrington Research. Thanks, this is the second question could you tell us, how many of the Niobes were sold in the US and international and how many orders came from each geographic area?

Bevil Hogg

Five of the Niobes were sold in the US and the balance OUS.

Charlie Jones

And, how about orders side?

Bevil Hogg

And the orders side the percentage is very roughly half and half or so.

Charlie Jones

And I was hoping that Bevil, you would just comment for us about whether or not your conversations with your customers have improved you’re confidence that, these guys are going to move out of backlog and into revenue and whether or not as a result of the difficulties that US have gone over the last six months its started to actually give you little bit better clarity at where these customers are out with their final excepting of the order? Thanks.

Bevil Hogg

When we put an order in backlog we’re pretty confident in fact we’re extremely confident that order is going to third revenue. And, there are only two questions. The first most obvious one is when will it go to revenue and there is final one and that is whether it will go to revenue and typically it never goes into backlog and is perhaps at least certain that it will go to revenue. We have had a small cancellation rate running around 7% of our backlog historically although I note there were no cancellations in the last quarter.

So, focusing on the question of when it will go to backlog, it will go to revenue. We continued to be influenced currently by the lack of availability of reference sites and the lack of availability of the irrigated catheter and that does have a near term drag on placements. Not necessarily order generation because people who have ordering systems are ordering them for delivery beyond the current follow period. We do expect that we will see a pick up in placements, as well as orders and off course also in terms of procedure volume following a return of the irrigated catheter. So, we are cautious about revenue recognition of systems being installed over the balance of the year. We are cautiously optimistic but we are very optimistic beyond the end of this year in 2009 and beyond.

Charlie Jones

Thank you that’s helpful.

Operator

Thank you, we will go follow up question from Mr. Larry Keusch. Please state your company name followed by your question.

Charlie Jones

Hi, everybody its Charlie again, just two follow ups on first of all on the irrigated catheter, it seems as if Stereotaxis and Biosense Webster have been really strong condition level on approvability here. To the extent that you can discuss this what needs to happen to get to an above one or some other required steps that we should be mindful, I mean are we talking about FDA inspection that will be required? And if so, then has an inspection date been scheduled? Is that’s what’s lending to all this confidence?

Bevil Hogg

To my knowledge, there are no FDA inspections required, that all the data that needs to be provided to the FDA has been provided to the FDA. So, the FDA should have all the information they require to make a decision on the regulatory submission. Of course, they could come back with a question about some data or a question about some wording in the filing. There are always reasons for FDA to ask for more information, but we’re, highly confident in the regulatory capacity and competency of our partner, their understanding of the process and we believe that the dossier is complete and that everything that needs to be done has been done.

Charlie Jones

Great, thanks for that clarity. And, then just another follow-up to a question on the backlog conversion, as you interact with your accounts, especially here in the US. Where, they are just in the early stages of planning capital budgets for 2009, are you seeing customer commitments to move forward with installations, because we’re coming across some disparate data points, some anecdote that some, that as hospitals contemplate their 2009 budgets, that they are not approving, or at least deferring, some spending programs. I’m just wondering what you guys are seeing there?

Bevil Hogg

Well, when we look at orders, our orders in the first quarter were very strong. Our orders in the second quarter were an all-time record for a second quarter. So, our order rate is very strong, and that would point to hospitals continuing to embrace this technology for the future. Our issue, in as much as we have an issue, is with near-term installations and revenue recognition around units that are being delivered and installed between now and the end of the year, and that’s where we have added the word cautious to our cautiously optimistic statement. But beyond that, we really see a strong demand and sustainable demand that we think, over time, will be augmented by the regulatory approach that Cordis has recently announced toward gaining an atrial fibrillation label for their catheter. And we think that that could serve to galvanize the industry as a whole.

Charlie Jones

Great, thank you very much.

Bevil Hogg

Thank you.

Operator

Thank you, sir. We seem to have no further audio questions. Please continue.

Bevil Hogg

If there are no further questions, I would like to thank all of you for your attendance, appreciate your questions and look forward to talking to you again soon. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today’s Stereotaxis Q2 2008 Conference Call. Thank you for participating and you may now disconnect.

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