Stereotaxis Inc (STXS) 2007 Q2 法說會逐字稿

Good morning ladies and gentlemen and thank for standing by. Welcome to the Stereotaxis Second Quarter 2007 Results Conference Call. During today's presentation all parties will be a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded, Thursday, August 9th, 2007. At this time, I would like to turn the presentation over to Doug Shirk with the EBC Group. Please go ahead, sir.

Thank you, Operator. Good morning everyone. Thank you for joining us for the Stereotaxis conference call and webcast to review the financial results of the second quarter of 2007. 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 of the future financial performance of the company, including without limitation statements regarding operating results in calendar 2007, growth opportunity and other statements that refer to Stereotaxis' plans, prospects, expectations, strategies, intentions and beliefs. These statements are subject many risks and uncertainties that could cause actual results to differ materially from expectation.

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 10Q for the first quarter of 2007. The annual report on Form 10K, 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. And now I'd like to turn the call over to Bevil Hogg, Chief Executive Officer of Stereotaxis.

Thank you, Doug, and good morning everyone. On the call with me this morning is Jim Stolze, our CFO. Today I would like to provide you with an update on our progress since we last talked with you in May then Jim will walk through the second quarter financial performance before we take your questions.

We continue to generate excellent momentum in the market during the second quarter demonstrated by 100% year over year increase in revenue to $7.8 million, close to $14 million in new commitments and another record backlog of approximately $55 million. Our financial performance continues to be prone to quarterly fluctuations, frequently referred to by us as lumpiness, which is dependent on the customer's timetable for installing our systems. Delays in construction scheduling can mean that system installations can move from one quarter to the next or even beyond. This was certainly our experience in the second quarter impacting three systems which are now in our backlog.

It is interesting to note that since we started shipping Niobe systems in 2003, the time we have experienced between commitment and revenue has ranged from virtually the same day to over two years. The average has been nine months, which was our experience in the second quarter, although there can be no assurance that this will continue to be the case in the future quarters. What is important to note is that despite what is now a competitive environment, we reached a record backlog during the second quarter and we are reiterating our guidance for the full year 2007.

We recognized five new Niobe systems during the quarter and have shipped 77 systems worldwide. Utilization continued to grow in the second quarter and this is reflected in our highest ever recurring revenues for a quarter. There have now been more than 9,000 procedures completed with the Niobe system. Of those, roughly 7,500 were procedures conducted in electrophysiology labs, including more than 1,000 atrial fibrillation procedures. The remaining 1,500 were for lead placements and guide wires for stint delivery. We expect the number of procedures conducted on Niobe systems will surpass 10,000 in the near future, an important milestone for us. Furthermore, our growth in procedures does not reflect a full quarters' contribution from the 8 mm catheter which was launched during the quarter in both the U.S. and in Europe.

Our growing utilization is a testament to the exemplary safety and efficacy of the Niobe system which we believe is far superior to other competing modalities for treating a full spectrum of simple to complex arrhythmias as well as for vascular navigation.

There are over 250 accounts in our mid to late stage pipeline. In addition, there are over 300 accounts in what we would characterize as the early stage of our pipeline. Our target market comprises those roughly 1,500 to 1,800 electrophysiology interventional rooms worldwide that are equipped to perform complex procedures. Within this universe, we have specifically focused on the approximately 300 electrophysiology labs per year that we believe are upgraded, refurbished or in some instances newly built. Our store base, backlog and pipeline include many of the most prestigious institutions throughout the world, but a significant majority are non-academic centers that we believe you view our system as a way to build clinical practices and revenues.

We are aware of competitive activities in our market and have conducted a thorough review of the status of our 250 mid to late stage pipeline accounts and have found that to the best of our knowledge the measurable impact due to competition appears to be on only about 1% of this pipeline. Furthermore, as I previously mentioned, despite the arrival of competition, our backlog during the second quarter rose to an all time high. We have always reflected adjustments to this backlog and during the quarter we elected to remove one system because a hospital required a new budgetary submission due to cost increases associated with the decision to upgrade to our latest Niobe 2 model from a Niobe 1, and for Odyssey. We expect a new purchase order from this hospital in their new budget cycle.

We find that our greatest challenge is not the competitive dynamic, but executing our own strategy and managing our own growth opportunity. Our pipeline or sales funnel which includes over 550 accounts represents, we believe, close to one third of advanced EP labs in the world and converting those prospects to predictable revenues and satisfied customers is our principal focus. To meet this challenge, we have built up our organization particularly on the sales and marketing side and in clinical support during the first half of the year and will continue to do so albeit at a slower pace.

We've also very effectively deployed our mobile lab covering eight cities so far with close to 60 institutional visits. We believe this has been a very useful tool for building sales momentum. In addition, we've devoted incremental R&D resources toward technology expansion in two areas, namely our vascular platform for navigation and lesion crossing, targeted at coronary and peripheral applications, which we expect to announce in the fourth quarter, and Odyssey, our revolutionary, fully networked single stream cath lab control station that we expect to commercialize in the same time frame.

Of course, we believe the biggest near-term prior to our utilization will come from the introduction and adoption of new EP catheters. In the second quarter, we launched our partnered 8 mm catheter and we anticipate the European launch of our partnered irrigated catheter no later than October. The anticipation of this product is clearly very high in the marketplace and its launch should coincide with the release of [Navaline], our new automated linear lesion software.

We expect the initial users in Europe will involve a number of the world's most prestigious electrophysiology labs, including the soon to open Bordeaux Hospital in France, San Raffaele in Milan and St. Georg in Hamburg. We expect that early usage will focus on the treatment of atrial fibrillation and that initial results will be discussed by doctors at the AF Conference in Boston in January. The European launch of the irrigated catheter will be the culmination of many years of intense development effort and close cooperation with our partners Johnson & Johnson. We believe this catheter has broad implications for establishing Stereotaxis as the new standard of care in the treatment of complex arrhythmias.

Our atrial fibrillation program has proceeded well with over 1,000 Niobe procedures performed to date and as our clinicians gain experience in treating atrial fibrillation with our system, they're discovering some important advantages resulting from its automated features. For example, at a number of major sites clinicians have developed a novel technique for performing pulmonary vein isolation, known as a single catheter isolation or SCI procedure, which allows them to eliminate certain support catheters such as the lasso catheter by relying only on the magnetic catheter and automation software. This not only saves the hospitals about $1,500 per procedure in disposable cost versus manual addressing their operating costs concerns, but also we believe reduces the risk of complications by eliminating the need for a second transept or puncture. Needless to say, we believe this also widens our disposable cost advantage versus competitive approaches to at least $2,500 per case.

In summary, the second quarter was highlighted by strong orders, a record backlog and a significant improvement in reducing back end loading of our revenues, reiteration of our guidance for 90% to 100% revenue growth over 2006, little impact from the competitive effort, and the preparation to execute our strategic entry into interventional cardiology, a market that is many, many times larger than the EP market.

I will now ask our CFO Jim Stolze to provide a more detailed discussion of the second quarter results and guidance for 2007.

Thank you, Bevil. Stereotaxis reported total revenue of $7.8 million in the second quarter, compared with $3.8 million in the second quarter last year. Included in the total was system revenue of $5.8 million in the recent second quarter compared with $2.9 million in the 2006 second quarter. We sold five systems during this quarter. Of these, three were placed in the U.S. and two were international. Our disposable service and accessories revenue was a record $2.1 million this quarter compared with $954,000 last year, reflecting growth in the installed base and continued improvement in utilization.

The gross profit margin was $3.5 million in the second quarter or 45% of revenue. Included in the margin was a $1.9 million impairment charge that we took on several Legacy Niobe 1 systems which were replaced by our current Niobe 2 system in 2004. While we believe there is still decent potential to sell several of these older systems, we recorded an adjustment to reduce the carrying value to an amount we believe is realizable from these sales. Without this one-time charge, gross profit would have been $5.4 million or 68% of revenue. This compares with a gross profit margin last year of 43%. The year over year improvement reflects growth in the number of systems installed in recent second quarter compared to a year ago as well as an increase in average selling price of approximately 21%.

Operating expenses in the second quarter were $18.8 million, 22% above the second quarter a year ago. The operating expenditure increases principally reflect incremental spending for Odyssey development, platform expansion, new device introduction, as well as increased sales and marketing in general administrative expenses. We generated a net loss of $15 million or $0.42 per share. This compares with a net loss of $13.6 million or $0.41 per share in the 2006 second quarter.

In the recent second quarter, average shares outstanding were 36.2 million compared with 33.2 million in the same period last year. The increase primarily reflects the issuance of 1.9 million shares of stock and a registered direct offering completed in March. We used approximately $16 million in cash and operations during the quarter. The cash use in the second quarter was larger than I had projected internally primarily related to approximately $5 million of international receivables, which were uncollected at June 30, but for which we expect to receive payment in the near term.

Cash investments at June 30, 2007 totaled $32.8 million. Total debt at the end of the quarter was $2.5 million with no funds drawn against the company's $25 million working capital facility. Looking ahead as Bevil mentioned, we continue to reiterate our guidance for 2007 revenue of an increase of 90% to 100% above 2006 revenue. As we've commented before, our sales are subject to lumpiness on a quarter to quarter basis, based on hospital budget decisions and installation schedules.

As Bevil has indicated, our backlog net of systems taken to revenue and the adjustment grew to $55 million currently from $49 million at the beginning of the quarter. As a reminder, we do not include orders for disposable service or accessories in this data. Now Bevil and I would be happy to answer any of your questions. Operator?

Thank you, Management. Ladies and gentlemen at this time, we will begin the question and answer session. (Operator Instructions). Our first question will come from the line of Rick Wise with Bear Stearns. Please go ahead.

Good morning Bevil.

Rick, hi, good morning.

Can we start off with the orders, the backlog. Help me understand a couple things. Again, always appreciating that there's going to be lumpiness and that the outlook for the year hasn't changed, still this was the lowest number of orders delivered, if I'm looking out my numbers correctly, in four quarters; one less than the first quarter and overall revenue to look for. Was this folks holding off waiting for U.S. catheter approvals? Was this household budget related? Maybe tie that in if you would to the backlog which is certainly up a record level and certainly above our projection, but it looks like something got delayed from the second quarter or it got pushed into the backlog. Can you help us think through all that?

With regard to the order rate, Rick, we don't see anything unusual in the orders for the quarter. We always have a lot of activity in converting pipeline to backlog. And in this particular quarter, there was nothing that stood out as being any different than a typical quarter. Our order rate was more or less in line with our own expectations. I will say that a couple orders in Europe were delayed principally because of tender delays, but there was nothing unusual with regard to orders and nothing of concern to us.

With regard to revenues, clearly we were impacted by lumpiness and very specifically we know of three systems that were expected in the second quarter that actually fell beyond the second quarter.

Again, if I'm summarizing this incorrectly, the European orders that experienced tender delays are still in backlog and so you might have hoped to see them in the second. It does look like we'll see them in the third and that might make the third a little stronger than maybe a seasonal slower period might imply and suggest?

Rick, just for further precision, the European orders I've referred to were potential orders. In other words, I was talking about our order flow. They haven't come to backlog yet, but presumably would in the second quarter or beyond. With regard to actual revenues, there were three specific systems around which I don't have more detail than that other than the fact that they were pushed out of a period because of construction delays.

Okay. Two last questions. Gross margins were quite strong. I assume this is the mix of consumable disposables relative to systems or is it something else? Should we now be thinking about 68% gross margins going forward? Just any perspective on that we'd welcome. At last, Bevil, if you could just update us on the timing of the irrigated tip catheter in the U.S. I think you said, if I heard you correctly, October internationally. Thanks.

Indeed, Rick.

On the gross margin front, Rick, yes the introduction of our increasing recurring revenues helps that, but I would have to say that the ASP on the systems side continues to support a good gross margin and I have prognosticated earlier to be in the mid '60s for the year. And we said last quarter this gross margin can bounce up and down quarter by quarter, depending on which systems come out of backlog into revenue.

It looks like, Jim, it might be more in the upper 60s based on this sustainable?

It will depend on which systems come out in the third and fourth quarter, but it's certainly a good omen for the prediction that we've made so far.

Rick, with regard to the irrigated catheter, we are expecting to commercialize the irrigated catheter in Europe by October, some time in October, at the latest. That means start delivering them and selling them commercially. In the U.S., we're still awaiting regulatory approval on the irrigated catheter, but we have not changed our anticipation that we will get that by the end of the year.

Okay. And there are no particular issues or delays or questions from FDA on this that might make us anxious about timing?

I believe there have been a couple questions from FDA which were relatively minor and we believe is absolutely on track. In fact, we would view the minor nature of the questions as being very positive at this stage.

Thanks so much.

Thank you.

Before moving to our next question, we'd like to remind everyone to please ask three questions and then re cue for all additional questions. Our next question will come from the line of Larry Keusch with Goldman Sachs. Please go ahead.

Hi. Good morning everyone.

Hi, Larry.

Bevil, you mentioned it quickly in your prepared comments that you've been focusing on your sales and marketing organization. Can you just give us some color as to how many people you have there? How you're thinking about building it. Just an update on that would be helpful.

Larry, currently we have approximately 25 direct people selling plus distributors. Most of them are in the United States; probably 20 approximately in the United States and the rest overseas. And they are backed by 32 clinical support people so that if you regard them as working in tandem, we're looking at a number in high 60s who have some impact on the customer.

Where do you want to take that? How big should that be in the next 12 months or so?

We think that it will continue to grow commensurate with our desire to drive revenues and convert pipeline to backlog and into sales, probably slowing down a bit, certainly for this year. I wouldn't expect that our overall commitment in this area would exceed a 25% to 50% growth over the next 12 months or 18 months. We've got to keep in mind that we're moving towards a networked model for clinical support through our Odyssey system which should enable us to cap our clinical support functions.

Right. Okay. And then just two other questions. Can you help us just think about the U.S./O.U.S. mix in your backlog because that helps us think about the time that these things get revenue recognized as well as the gross margin?

Our backlog as we had predicted is shifting in favor of the U.S. and I would say about a year ago it might have been 60/40. Now it's more in the order of 80/20 in favor of the U.S. Does that answer question, Larry?

Yes. That's perfect. That's what I needed. And then lastly -- two last things. Number one, I want to just ask about how the quarter progressed in terms of the order activity and what I'm getting at is how meaningful an event HRS was in continuing to educate physicians and hospital administrators and did a lot of this order activity come post that or has it been more linear through the quarter. And the other thing I just want clarify is the three orders that fell out -- excuse me, the three that were supposed to be revenue recognized in the quarter that fell out that those were just typical construction delays, the electrician didn't show up or whatever have it and those should come back into the mix in the next quarter or two.

Two questions, first of all with regard to HRS. We had a very, very positive response from HRS which has significantly impacted the early stage of our pipeline. Although we don't reflect growth above 300 accounts in the early stage pipeline, I do state that our early stage pipeline is more than 300. There's certainly quite the bit more than 300 as a result of HRS. We're in the process of trying to sort through our early stage pipeline and possibly into two categories sort of very early stage and advanced early stage and we may be taking our total sales funnel to six stages.

This is just for internal management purposes. We could possibly offer more detail in the future, but suffice it to say, very good, positive response from HRS and consequent to HRS favorably impacting the early stages of our pipeline. And of course, lending a hand to the progression of the rest of our pipeline, at least psychologically. With regard to the specific delays in the second quarter, they were absolutely related to construction/installation factors.

Okay. Terrific. Thanks very much, Bevil.

Thank you. Our next question will come from the line from Keay Nakae with Unterberg. Please go ahead.

Good morning. Bevil, you mentioned competition and some analysis you guys did of your mid to late stage pipeline stating you thought that maybe 1% were affected by competition. Can you give us a sense for what you actually did there to assess that level of competition?

Absolutely. Good question. We had about 250 accounts or more in this Stage 2, 3 and 4 of our pipeline. We contacted our sales force and asked them to tell us which of these accounts that we were expecting to bring eventually to an order would be jeopardized by Hanson activity. In other words, which of these accounts did we think we had the possibility of losing? So the feedback was that on the order of about three accounts, the three out of 250 plus, that we had hoped would remain in our pipeline and progress into backlog are likely to go to Hanson. There may be, obviously, additional Hanson activity that were aware of where for example they would sell a system into a hospital where we already have a system, but we were not expecting to sell that hospital another system. In that case, it would not fall into the specific category.

And the nature of these centers, are they well characterized enough such that they are all pretty much committed to doing a lab refurbishing, whether or not they choose your system or Hanson?

Well, because they could be in a Stage 2 pipeline or Stage 3 pipeline which is to moving through the approval and budgetary process at a hospital, there's always a possibility that they could decide because they lost their clinicians or they got a new CEO or a different CFO that they could decide not to install any kind of robotic system. But I would say that that would be surprising. We would expect that these prospects would move sooner or later to the acquisition of the system. We think that might not always be in the same budgetary cycle that we would hope it to be in, but we don't expect a lot of them to disappear forever.

Okay. A question on R&D spending. It did pick up here. Jim, is that $7 million level is that what we should expect in the remaining quarters of the year?

No, I don't think so Larry. Keay, I'm sorry. We had a bit of a bump in 2Q. As you know, we spent a lot of energy on Odyssey this quarter. And so I think you'll see that moderate again. There may be a little bump over what I had expected on the total year basis, but I would not expect it to be at this run rate.

Okay. And then finally back to Odyssey and your mobile lab, you have been marketing that. Is there anything related to that activity along with perhaps the three delayed sales you talked about that gives you increased confidence in maintaining your guidance for the year? Are you seeing increased commitments in the first six weeks of the quarter that give you the confidence to maintain the guidance?

Kay, when we look backwards at last year, we see that at this point in time we were about 20% or under 20% of our way towards our annual number. This year we see ourselves at close to 35% of the way towards low end of our range. This gives us obviously more confidence than where we were last year and we were very pleased with the outcome last year. But obviously, in any guidance, particularly in a lumpy environment, there are risks. We think that there is a very good likelihood of making our guidance, otherwise we'd change it. We feel very optimistic about our prospects.

To provide some additional color, I would say that we expect to be at around 55% of our year by the end of the third quarter, which would still be well ahead of where we were the prior year at the same point. When we look at the activities around our truck, the prospects in our pipeline, the advent of the irrigated catheter, and now the expansion of our platforms, obviously there are always timing issues and there are always executional issues, but we're very confident about our broad prospects.

Okay. Thank you.

Thank you. Our next question will come from the line of Steve Ogilvie with ThinkEquity partners. Please go ahead.

Good morning. Could you maybe talk about [Navaline] and what the approval process looks like for that and is that something you're actively selling and marketing to attract attention?

The [Navaline] approval process is complete, so we will commercially launch [Navaline] just as soon as the software release is ready. We expect that to be in the September timeframe to roughly coincide with the arrival of the irrigated catheter.

Okay. Next question. You spoke about increased usage. Is there a metric that you're using to gauge that? It seems like the total number was up for recurring revenue, but on a per machine basis it was relatively flat. Is there some other metric we should look at?

Well, there is a metric that we measure which is feedback from our clinical specialists who tell us how many cases they think are being done. We don't publish that because that would be extraordinarily lumpy, given the fact that we do not have the full range of catheters available to us currently. So we prefer to just rest on what we've said. It's very important to note that our usage is up and this is in the context still of essentially and SBT catheter. We've had some impact from the 8mm. I think we may have done several hundred 8mm catheter cases, but essentially we are looking at right-sided activity and we're very, very pleased because we see atrial fibrillation and complex arrhythmias which are going to be done with irrigated catheter layered on top of this baseline. We don't expect this baseline to go away.

Okay. And then last question. You said you took one off of your backlog, but you expect it to come back. It seems like that's happened before. Do you ever lose any off the backlog that don't come back or pretty much when you take them off its because of some political things or the moving of a doctor and you get them back?

No. We have taken them off and have not come back. I can't remember specific instances, but there are hospitals that we're still beating on the door of to take a system that was originally in backlog. There are international transactions particularly where we have an order from a distributor who had identified an end user for the project and then we just determined that that end user was not going to reliably take the unit so we would take that out of backlog. Indeed, there have been disappearances, but also there have been recoveries and we expect to be able to continue to recover a good number of them. Typically, we don't say we expect to recover the system. This time we do say we expect to recover the system because the hospital has been fairly specific about their desire to upgrade.

Thank you. Our next question will come from the line of Tao Levy with Deutsche Bank. Please go ahead:

Good morning. I just want to flush out a couple quick things with the three systems that didn't sell or weren't completely installed this past quarter. How far along in the construction process are they now that we're somewhat halfway through the third quarter? Have any of those three completed construction?

One of the three.

Okay, so you'd expect the other two to be completed, I guess, some time this year or is it --?

We expect them to be completed this quarter, but we can't guarantee that because that would put me in the position of prognosticating completion of construction, which is already slipped that I don't want to do. Our anticipation is that these are near term events. This is not something that just suddenly went away for a long period of time. These are last minute hitches which happen to coincide at three different locations. We've had a fairly predictable revenue environment for some time and I guess to remind us that lumpiness does exist. We caught up in this quarter.

Clearly, with one already having taken place and the other two, it seems like it's close to being completed.

Very close.

What's the delay in the use of the launch of the irrigated catheter in Europe? What's that related to?

We have a large partner that we have a tremendous relationship with, but they like to dot the i's and cross the t's before they launch something. And also, obviously, I'm being a bit facetious, but that includes manufacturing validation and so on which typically comes after regulatory approval. But also you've got the vacation period in Europe and it would make no sense launching a brand new catheter of this importance into an empty marketplace.

Okay. Just two more quick questions. In the backlog, I think someone else had asked the U.S./O.U.S. breakdown. You mentioned around 80% is now coming from the U.S. If we look at the $55 million that you have in total, can you give us that breakdown or is that the 80/20 you mentioned?

That's the 80/20.

Okay, so the 55 80 U.S.; 20 International?

Right. That can change because as I said we had tender offers out in Europe that didn't come to materiality in the quarter. But for the time being, it's definitely shifted in favor of the U.S.

And interest level in Odyssey. When do you start taking orders for those and will those be in backlog or not?

That's a good question. We are inclined to treat Odyssey as a piece of equipment. We expect to sell it for somewhere around $250,000. The launch of Odyssey is really going to depend on our ability to get the system into production and have it ready to ship. We expect that to occur sometime in November. We do not currently reflect Odyssey orders in our backlog at all. It's possible that we will start to add firm Odyssey orders or commitments to our backlog, but when we do so we will let you know.

Thank you.

Thank you. Our next question will come from the line of Mimi Pham with HSBC. Please go ahead.

Hi. Good morning.

Hi, Mimi.

On the irrigated catheter for European launch is that October date a firm date or is there any potential for that to be delayed beyond January's (inaudible) Symposium?

Mimi, I would say that September is a firm date if we were to believe our partner. I just said October to be sure.

Okay.

I would be stunned if it slipped beyond that, but you know, stranger things have happened.

And if you get your approval of irrigated by year end, when would that be rolled out to the U.S.?

I think likely Q1. Of course, all of the manufacturing validation and so on will have been done, but there's still labeling issues as you know for the U.S. of different packaging and so on. So I would expect Q1.

And then with the slowdown in the ICD market are you seeing increased focus on the EP catheter side, such that there's more interest in Niobe or do you think that the slowdown is negatively impacting the number of EP Labs that are going to be upgraded or built?

We think that the former is very much the truth. What we're seeing is that hospitals in a climate of declining ICD growth or the flattening ICD growth and also problems with their growth and the delivery of stints of PCI procedures, but they're looking at arrhythmia treatment with ablation as an engine for growth. We would say that there is a heightened anticipation that consensus around treatment of atrial fibrillation is going to drive a huge market opportunity.

It seems like that 300 number you quoted in terms of annual labs refurbished or build out, didn't that used to be like 450 years so a few years ago, that number?

No, I don't think so, Mimi. We look at total number of advanced labs and we get at that number by taking the total number of J&J Carter systems that we believe are out there and adding the total number of [Maverick] systems that are out there and that gives us about 1,500 to 1,600 labs. And we believe that they are refurbishing at least currently on about a five or six years ago because of accelerated technology advancements in electrophysiology. So that gets us to about 300 plus or minus and it's never been more than that. It's been less than that.

Okay. Thank you very much.

Thank you. (Operator Instructions). Our next question will come from the line of Mark Kronefeld with Ridgemark Capital. Please go ahead.

Hi Bevil and Jim. Let's get away from this backlog plus/minus system and talk a little bit about the opportunity. Can you talk to me how you see the opportunity what you said before was substantial in the interventional cardiology and the vascular area. Can you be somewhat specific in terms of what you see as the market size and how you plan on addressing that?

Mark, thank you for the question. We have been somewhat downplaying our perspective on interventional cardiology because we are approaching TCT and we're still formulating our plans to launch a platform at TCT. We should keep in mind that our initial launch into the vascular arena will be relatively moderate. We're not going to be commercializing a huge number of products initially, but expect to commercialize our broad vascular platform over the next 12 months.

That being said, there is, we believe, a huge opportunity. First of all, when you look at the problem is caused by diabetes; to name one area of focus for us. This disease results in problems with occlusions in the peripheral vasculature, complex occlusions in the heart, and is certainly driven by demographics. Now we believe that we bring a very solid solution to these problem patients to name one area. We reduce the amount of contrast used, which is important, although most people wouldn't think of it. We can greatly increase, we believe, the ability to navigate in complex and tortuous anatomy through complex or fully occluded lesions. This is a big, big market opportunity.

In the peripheral vasculature, this is the arena that is partially addressed by companies like Spectranetics and, I guess now, EB3. And obviously in the coronaries, there are hundreds of thousands of patients annually who are referred to by-pass because of complex blockages. Part of the problem in the past for us has been that we have not worked out a way of triaging complex patients and identifying candidates for Stereotaxis in interventional cardiology, nor have we had the sophisticated devices needed to bring a very complete solution to the problem. But we think we now have both.

In partnership with Siemens, who has developed some phenomenal 3 D vascular reconstruction software with us that enables us to image across lesions, we think that we are closing in on a big opportunity that will come to fruition starting next year with an initial launch late this year and build up over the years to come.

Thank you.

Thank you, sir. Management, at this time we have no additional questions in the queue. I'd like to turn the conference over to you for any closing remarks.

I'd like to thank you all for your time and look forward to talking to you at our next conference call. Thank you.

Thank you, Management. Ladies and gentlemen, at this time we will conclude today's teleconference. We do thank you for your participation on the program. If you would like to listen to a reply of today's teleconference, please dial 1 800 405 2236 or 303 590 3000. You will be asked to enter an access code 11094027 followed by the pound sign. Once again, if you would like to listen to a replay of today's program, please dial 1 800 405 2236 or 303-590 3000 with an access code of 11094027 followed by the pound sign. We do thank you for your participation on today's program. At this time, we will conclude. You may now disconnect and please have a pleasant day.