Stereotaxis Inc (STXS) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Stereotaxis Q4 2008 earnings conference call on the 26th of February, 2009. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator Instructions)

I'll now hand the conference over to Doug Sherk. Thank you, sir, please go ahead.

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 fourth 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 limitations statements regarding future operating results, growth opportunities and other statements that refer for 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 qualified by the forward-looking statements made in this call, we refer you to the company's recent public filings filed with the SEC, specifically the Form 10-K for the fiscal year ended December 31, 2007.

The company's projections and forward-looking statements are based on factors that are subject to change and, therefore, the 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 Mike Kaminski, President and Chief Executive Officer of Stereotaxis.

Thank you, Doug, and good morning, everybody. On the call with me this morning is Jim Stolze, our CFO, and Lou Ruggiero, our Chief Commercial Officer. This morning we reported fourth quarter financial results in line with our pre-announcement in January. There were several positive financial and operating trends during the quarter, beginning with our revenue which was up 18% year-over-year.

Recurring revenue continued to show sequentially and was up 29% from the fourth quarter of 2007. Recurring revenue represented approximately 28% of the total fourth quarter revenue. We significantly reduced our net loss and cash consumption. We realized strong gross margins and our operating expenses continued to decrease. The net result was that we've lowered our operating loss by 48% compared to the last year's fourth quarter. This performance demonstrates substantial progress towards break even. Our entire organization is focused on becoming a profitable enterprise, and we're executing on a plan to achieve that in the foreseeable future.

Jim will review the financial performance in more detail in a few minutes but I'd first like to spend some time discussing our key accomplishments in 2008, and then I'll review the challenges we see ahead and the strategic actions we're taking to address them. Our team is proud of the achievements during the past year. On the product side there were three significant developments. First, the magnetic irrigated catheter was relaunched in November and has demonstrated excellent initial results. At last month's Boston AS Symposium, we provided a clinical update detailing data from a 170 cases performed at nine centers in both Europe and Canada. 75% of these cases were complex left sided procedures.

The catheter exceeded all pre-specified clinical endpoints during the evaluation period. Specifically in the complex left-sided procedures, we achieved a 97% acute success and the average time to complete mapping and ablation was nearly 13% below the same site's documented conventional procedures times. In these complex cases, radiation exposure to the patient was nearly cut in half when compared to historical benchmarks from the same centers. The average fluoroscopy exposure to the patient of only 16 minutes compares favorably to conventional and robotic techniques where exposure often exceeds 60 minutes for complex left atrial arrhythmias. The catheter also demonstrated an exceptional safety profile with no major adverse events.

While these results and complex left atrial are certainly impressive, it's the versatility of our system beyond these procedures that really underscores the value of Stereotaxis. In January professor Gerhard Hindricks and the group at University of Leipzig Heart Center published the first peer reviewed paper describing clinical results of pain with the magnetic irrigated catheter. In this small group of seriously ill patients who were experiencing electrical storm due to ventricular tachycardia, the magnetic irrigated catheter was used to both map and ablate the arrhythmias with minimal fluoroscopy required. At follow-up, all of these patients were free from this dangerous conditions.

The second product development in the past year, is ODYSSEY which continues to generate strong customer interest. New orders for ODYSSEY during 2008 increased significantly over 2007. We received 41 orders for the year and began selling ODYSSEY products in the non NIOBE lab. We expect that our recently introduced Cinema remote viewing feature will further strengthen demand due to its networking capability.

The third significant product line development during 2008 was the launch of our QuickCAS CARDIODRIVE system in the NAVIGANT 3.0 software which simplifies the user interface, reduces setup time and increases the responsiveness of our platform. These features further improve the value of our system in all four chambers of the heart. Despite our partner's recall of the magnetic irrigated catheter in 2008, we made good financial progress for the year.

Top line revenue grew 3%. Even with limited availability, the magnetic irrigated catheter recurring revenue grew 30%. Gross profits increased by 9% or $2.2 million. Operating expenses for 2008 fell by 8% versus 2007. This full-year decrease maps the dramatic progress we made in the later half of 2008.

During the first half of 2008, operating expenses were flat with the first six months of 2007, a decrease of more than 18% during the second six months as compared to the second half of 2007. Operating expenses were down $4 million in the fourth quarter and then we ended the year at an annualized operating run rate of approximately $60 million. We generated $51 million of new orders and installed our hundredth NIOBE system during the year. Outside the US where early positive experience with the magnetic irrigated catheter allowed us to establish robust reference sites, new NIOBE orders increased 80% versus 2007.

Finally we ended 2008 with $30 million in cash and an unused credit line of approximately $15 million. We consumed $5 million of cash per quarter in the last half of 2008.

While we're proud of our accomplishments during 2008, we know we have a lot of work to do. We're focused on three key objectives for 2009. First, successfully launching the magnetic irrigated catheter in the U.S. and driving recurring revenue growth. Second, continuing to grow capital sales despite the economic environment. And lastly, tightening the management of our expenses while we continue to invest in programs that drive revenue growth and product line expansion. We were pleased with the 30% growth from recurring revenue growth in recurring revenue achieved without the magnetic irrigated and we're optimistic that the introduction of this product will accelerate both system utilization and new orders.

The commercial roll out of the magnetic irrigated catheter in Europe began in late November and 29 of 31 sites were completed by the end of January. Since the launch, weekly EP procedures have increased substantially. Our European customers fall naturally into three categories. First, the customers who have already used NIOBE as ablation standard of care with four, eight millimeter catheters. This group quickly adopted the magnetic irrigated catheter because of its excellent ablation characteristics. And in these accounts, we continue to experience high weekly utilization.

The second group is comprised of infrequent users most of whom have been waiting for the magnetic irrigated catheter to use a NIOBE for left sided procedures. In these sites we've seen a disproportional higher increase in utilization as compared to the overall increase in usage.

Lastly, a small number of sites have had practically no usage in the past 12 months due to the lack of magnetic irrigated. In these sites we have more work to do including basic training to drive adoption. And we expect utilization to ramp more slowly. In the US, our goal is to drive utilization to levels currently seen in the top sites in Europe. We're hopeful about our partner receiving the FDA approval in the current quarter.

The hospital capital spending environment remains challenging. Our strategic partners are forecasting the US market to decline by 15% to 20% for the year and markets outside of the US to be flat to slightly up. However as our fourth quarter revenue and orders illustrate, spending in the EP lab appears to be faring better than overall capital equipment market. One major reason is this huge, largely unmet market to treat atrial fib which impacts approximately 5 million patients in the US. Ablations to treat afib in the EP lab are experiencing a double digit growth rate, and hospitals are moving the equipment needs of their EP labs up the priority list. And while substantial investments have been made by major medical device companies in promising technologies, Stereotaxis NIOBE System offers the hospital a proven track record of safety, efficiency, efficacy that includes nearly 4,000 afib cases.

Based on our most recent market intelligence, there continues to be roughly 250 to 300 EP labs made up of both replacement and new labs installing x-ray systems each year. Our penetration of this replacement market is under 20% so we believe there's still significant potential for market share expansion. Our pipeline continues to grow in markets where irrigated catheter availability has allowed us to establish strong reference sites. For instance, in Europe we've generated a 75% increase in late-stage prospects during 2008. In contrast, the US sales pipeline growth was flat as customers waited for the approval of the magnetic irrigated catheter.

Turning now to the ODYSSEY network solutions, we are forecasting that this product line will continue to grow despite the current capital environment. ODYSSEY has exceeded our expectations and has become a very strong third leg of revenue. ODYSSEY is taking Stereotaxis outside of the NIOBE EP lab and is providing a backbone for real-time integration of information and management in the lab which leads to improved work flow. Clinicians tell us with ODYSSEY they can spend less time managing equipment and more time focusing on the patient. Additionally, clinicians are excited about the Cinema network capabilities because of the enhanced procedure productivity it allows.

As a reminder by providing a DVR for the lab, Cinema allows clinicians to focus on the crucial, often very short intervals during a case around which decisions resolve. The demand for Cinema has outpaced our expectations. We are on track to deliver non NIOBE lab products in the fourth quarter of this year.

To assist our capital constraint hospital customers, we're actively finalizing an agreement to offer them a new financing option through a major leasing company based in North America. Under this arrangement we would sell our system to the leasing company, the hospital would make regular leasing payments to the leasing company obviating the need to capitalize their equipment and allowing them to match their expenses to the projected procedure revenue. We hope to have this in place in the near future.

Let me turn this over to Jim so he can add more color to the operating results before I summarize expectations and direction.

Thank you, Mike. Stereotaxis reported total revenue of $12.1 million for the fourth quarter. Systems revenue was $8.7 million and reflected revenue recognized on seven NIOBE systems and four ODYSSEY systems. Of the seven NIOBEs six were placed in the US and one was outside the US. We generated $3.4 million in recurring revenue from disposable service and accessories in the recent fourth quarter, a significant increase from the $2.6 million in the fourth quarter of 2007, and above the $3.2 million in the 2008 third quarter. The increase continues to reflect our growing install base, increasing sales of disposable products and improving royalties earned.

For the full year 2008, revenue was $40.4 million compared with $39.3 million in 2007. 2008 revenue includes 25 NIOBE and 14 ODYSSEY system sales. Backlog at year end totaled $69 million, $6 million below the level at September 30 of $75 million. The decrease was the result of our efforts to carefully review and evaluate the orders we have in backlog to make sure that there was a high likelihood that they would eventually transition to sale. We removed six projects from the backlog as a result of this valuation.

I want to remind you again that 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 the company's control. In addition, these orders and commitments may be revised, modified or cancelled either by their express terms as a result of negotiations or by project changes or delays.

Gross margin for the quarter was $8.2 million or 68% of revenue, a continuing improvement over the $6.5 million or 64% of revenue earned in the fourth quarter of 2007, and $6.9 million or 65% of revenue in the third quarter of 2008. Our average selling price for the NIOBE System and ODYSSEY product remains solid with the margins for each of these two product lines at approximately 63% for the quarter. Recurring revenue continues to generate margins in the 80% range. As we have noted, the company has made significant efforts to contain operating expenses in order to move toward break-even. The fourth quarter operating expenses of $14.6 million represent a 23% reduction compared to the prior year fourth quarter and a 9.5% reduction compared to the third quarter of 2008.

We should note that there were certain adjustments relating to non-cash compensation and other charges made during the quarter and that we anticipate a normalized quarter to have a run rate in the $15 million to $15.5 million range, setting the stage to achieve the target Mike mentioned of controlling operating expenses to levels below those of 2008.

We reported a net loss of $7.5 million or $0.20 per share in the recent fourth quarter, much improved from the $12.2 million or $0.34 per share loss in the fourth quarter last year, and the $10 million or $0.28 per share lost in the third quarter. Average shares outstanding were 36.7 million compared with 36.3 million in the same period last year. The net loss for the full year 2008 was $43.9 million or $1.20 per share compared to $48.1 million or $1.34 per share in 2007. Cash and investments totaled $30.4 million at December 31st. The increase in cash reflects the $20 million equity raise that we completed as part of a registered direct offering of stock and warrants at the end of 2008. Of the $20 million in gross proceeds, $10 million came from two existing shareholders and $10 million represented a new institutional investor.

Total bank and investor debt at year end was $29.2 million at December 31st, with $13.2 million drawn against the $30 million bank working capital line. Also included in debt is approximately $15 million of Biosense Webster related to the $18 million facility that was finalized in July of this year. Repayment of this liability will be from royalties, otherwise payable from Biosense to Stereotaxis with no minimum cash outlay requirements until May 2010.

We used approximately $3.5 million of cash in operations in the fourth quarter, an improvement from the $5.5 million used in the third quarter. We used $30 million of cash in 2008, an improvement of $10 million compared to the $40 million used in 2007. We have recently finalized a continuing $10 million guarantee of the two shareholders in accordance with the plans disclosed in December and are well on our way to finalizing our bank working capital line renewal on basically the same terms as exist today. With the cash on hand, our line of credit from the bank, the Biosense Webster facility, the company is very well positioned to execute on its plans for 2009 to drive to profitability and begin to generate cash.

Let me now turn it back over to Mike to discuss the opportunities we have in 2009.

Thank you, Jim. I would now like to outline our thinking regarding financial objective for 2009. Let me start with the construction of our sales forecast. Our forecast begins with the backlog at year-end 2008. We've segmented our backlog into two groups, those sites which are active in the installation process and those which are not. This suggests that orders most at risk of cancellation are those which are not yet in active installation or planned. From this analysis we concluded that approximately $45 million of the backlog is made up of sites actively planning to install our capital product in either the NIOBE or the ODYSSEY in the next 18 months. We believe the primary risk associated with this $45 million is the timing of the installation.

We've also reviewed incoming orders and the order to cash cycle. In the past two years, approximately 20% to 25% of the incoming new orders in the calendar year have been converted to revenue in that year. Of course, most of these orders are entered in the first half of the year. ODYSSEY may well, increase this percent since its order to cash cycle of two to three months is much faster than that of NIOBE. While we expect the NIOBE revenue for 2009 to exceed 2008, our outlook is highly dependent on the overall economic climate and its impact on hospital capital expenditures as well as the US reference site development for magnetic irrigated catheters. We need to gain more clarity on both of these variables before providing more specific guidance regarding NIOBE revenue.

ODYSSEY revenue is expected to grow significantly this year. With our forecast for Q2 US ramp of the magnetic irrigated catheter, recurring revenue will increase by approximately 50% versus 2008. We project that gross margins will remain strong at the 65% to 70% level for the year, and as I mentioned, full year operating expenses for 2009 will be lower than 2008 expenses of $67.5 million. Sales and marketing are expected to be in line or above 2008 levels, while R&D and G&A expenses will be below 2008.

If we meet these operational and financial objectives, we believe our break-even level of quarterly revenue will be less than $24 million. In addition to the growth in revenues, and reduction in operating expenses, we expect a favorable shift of sales towards the higher margin recurring revenue products in 2009.

So in summary, our strategy for the near future is clear. First we seek to drive EP utilization and recurring revenue for our installed base of over 200 NIOBE systems. We will leverage key users as reference sites to accelerate system purchase decisions. We believe our offering is broad enough and the market is big enough that this alone can bring our company to break-even, even in a capital constrained environment.

Second we'll manage our spending and investments with the aim of achieving near term break-even while still investing in growth platforms. Our plan is to be in a position to accelerate investments and an expansion of the platform and other applications once the company achieves break-even.

Lastly, we'll continue to build out the ODYSSEY platform. In the near term ODYSSEY will help us achieve our first two objectives through more efficient and cost-effective service, training and sales support. Longer term it offers the potential of expansion into work flow and information management in non NIOBE labs and ultimately into interventional and surgical suites beyond electrophysiology.

With that I'd like to open it up to any questions.

Thank you, sir. (Operator Instructions). And the first question comes from Mimi Pham from JMP Securities. Please go ahead with your question.

Hi, good morning. Can you just clarify again the way you're breaking out the back order, the $69 million, $45 million is active. You plan to install in the next 18 months. Can you explain what that means for the other $24 million that could sit longer in terms of sitting there for two years or that may not also close for the year?

It's either inactive in that it's not currently in an active planning or installation process or the project is planned outside that 18 month window. So it could be a new building, for example, that would be constructed at the end of 2010.

Okay. And then of the $45 million, can you give us what percent is NIOBE, about?

It's probably close to 90/10; is that right?

That's a good guess.

I think it's relatively close to 90/10 NIOBE versus ODYSSEY.

Can you clarify your comments when you said the US being down 15%, 20% and O-US flat. Is that all hospital capex you're talking about, or were you talking about this 250 to 350 EP labs that are upgraded or built out every year?

Yes, just our specific area, just what we're gathering from the expectations of the replacement cycle for imaging systems.

So when you say 250 to 350 is that for 2009 incorporating the US market being down 15% to 20%?

Yes, I mean, that's the range of numbers that we're getting, correct.

For 2009 in terms of your potential base for new orders? I'm sorry, that's your potential market for new orders this year is that 250 to 350?

Correct.

And last question, on the magnetic irrigated, once you get approval, can you just walk us through the rollout plans. Do you plan to have a different clinical rep at each site, how many sites and do you plan to have a clinical rep at each site or different rep?

Let me turn this over to Lou and he can go through specifics.

Hi, Mimi. It's Lou Ruggiero. As it relates to the rollout, our approach is going to be a phase approach, so it's broken into three phases, a certain number of customers within each phase. And in answer to your question, yes, there will be a dedicated clinical specialist responsible for a specific account in each of those phases. A fair amount of work has already been undertaken by our team in terms of establishing those specific accounts, specific game plans and working in close cooperation with our partner in that regard. So, yes, we'll have a very, very dedicated effort in that respect.

And Mimi, I'll just add one thing. Our intention is to put our resources and assure ourselves that the initial roll out and the success with those initial customers is at maximum results before we move our resources on to the next group. So we're going to make sure we do it in a systematic that really logically builds our reference base as we go through it.

I'm wondering how many sites we could potentially hear from in the US once we get to HRS?

Phase I --

It depends on the launch date.

It really depends on the launch date so that certainly is going to be our restriction, but Phase I is roughly 10 accounts.

Thank you very much.

You're welcome.

Thank you, sir. The next question comes from from Keay Nakae from Collins Stewart. Please go ahead with your question.

Couple questions regarding the US launch of the irrigated catheter. First of all, when you talk about potentially doubling your recurring revenue, how much of that do you anticipate will come from increased US utilization of the irrigated catheter?

50% increase and recurring. During the year, since our install base is about 60/40 US/overseas, but it'll take us a while to roll out the utilization throughout the whole US. You probably will see that utilization come almost evenly between the US and overseas.

How much of the 50% growth she's asking?

Probably about even.

Does that answer your question, Keay?

It does. With 50% of that growth coming from the US, what is your assumption for when you launch the irrigated catheter?

Our assumption is that we would receive approval in Q1, this quarter, and that we would begin ramping in Q2.

Okay. As far as in Europe where doctors now have an alternative irrigated catheter to use where you don't get a royalty, we're assuming, do you have a creative way of perhaps capturing more per procedure case based on how you price the CARDIODRIVE.

The new CARDIODRIVE, the QuickCAS is coming out at a price point higher than the one previously used, the regular cath system. That enables us to capture some of that value and revenue stream. Secondly, I don't believe it's accurate to estimate that a competitive magnetic irrigated catheter will necessarily cannibalize one-to-one usage. There are usages for this catheter which would be -- flutter is a good example. They classically don't use a 3-D map for a flutter so not having a Navistar would be okay if you went into the flutter market. So we'll get some incremental growth in which we grow the cath revenue out of it and not necessarily just cannibalize royalties.

With respect to the FDA approval of the catheter, are you getting any insight from J&J as to what might possibly be delaying the approval?

We have no insight. I think that they believe it's in its final phases but as far as that goes, we're just waiting for final determination on the catheter.

Okay. And as far as the potential AF labeling for the catheter, I thought it was encouraging that the FDA extended the AF labeling to the biodirectional catheter. Do you have an opinion about how quickly or difficult it would be for the FDA to extend the AF labeling to the magnetically enabled catheter?

My understanding is that we would just file a simple supplement much like we did for catheter approval, that we'd just go through a similar process and so it would be fairly straightforward. Now, obviously we would look at that after we got the approval for the first catheter so it's kind of a --

But you don't have any greater sense of what the FDA would be requiring in terms of safety data?

I don't.

For the AF labeling?

No, I don't have any clarity on that, no.

Okay. Very good. Thanks.

Thank you. And the next question comes from Ed Shenkan from Needham. Please go ahead with your question.

Thanks. First I wanted to clarify your operating expenses expectations about $15 million to $15.5 million going forward; is that right?

Yes.

And could you tell us, as far as the first quarter, we're now two months through it, what would you expect operating expenses to be in the first quarter?

That number is holding pretty reasonable.

$15 million to $15.5 million. And what quarters would be the highest throughout the year then?

Probably I'd say, Ed, we're also peaking Q2 because we have a lot of period expenses, there are a lot of things like conventions are strong between Europe and the U.S.

Q2 would generally be the high point.

And Q3 and 4 generally lower.

And the first quarter would be the lowest for the year?

Probably average, Q2 higher and then 3 and 4 would drop down below 2.

In the quarter, G&A was a little bit higher than we expected. Could you account for that?

Yes. There was some one-time adjustments that screwed up the Op Ex by category. And so I wouldn't look at those as indicative. I think that the best way to look at is, as Mike said, is that if you looked at the full year, we would expect 2009, you would see for the full year sales and marketing will increase somewhat. There will be an offset in both G&A and R&D such that we get to the point where we end the year at less than 2008 levels. It's just easier to look at it on a full-year basis.

Were there any one-time charges associated with the departure of the CEO in the fourth quarter or expected in the first quarter?

In the fourth quarter.

Fourth quarter.

Not in the first quarter. There won't be in the first quarter.

Was that partly why the first quarter was high for G&A?

Yes.

And you're doing a phased rollout in the US for the irrigated catheter. Why are you doing a phased rollout? Everybody's got the NIOBE, they know how to work it. Shouldn't they be able to just give them the irrigated and plug and play?

This is Lou Ruggiero. The rationale behind a phased rollout is for a couple reasons. One is, there is some additional training that we'll be providing to customers, navigation and skills training, for example. So we want to make sure there's enough of an experience base. And we're spending, as Mike had mentioned, that customized time and attention to insure their height comfort level with that product line. That's part of it. The other is also resource allocation. We are going to have these dedicated folks there and the phased approach allows us to really do it in a manner that they'll be sustainable and independent and then move on to the next case.

So how long is Phase I and then when is Phase II, how long is that, how many accounts?

It's a couple of months for each roughly. So, it really it's a little bit of a moving piece. We are planning on it being a couple of months in Phase I. It could be less. If the customers are embracing this and we feel that they're confident and they're comfortable and their navigational skills are exactly where they need to be, then we can move on more quickly.

I think we'll find, Ed, it's the same thing we found in Europe. People who use it frequently today can adapt to the irrigated very quickly. There's some basic training we'll do but very quickly they'll be independent and then we'll move on to the next group. And I think the group we spend the longest time with are those who haven't used it frequently. And we need to go back to do some basic training with. Right.

And Phase I are those who have had more experience. So the likelihood of us moving through that phase more quickly is higher. And then in Phase II, we might spend a little bit more time and in Phase III we might spend even more time. But I think we can get through Phase I pretty expeditiously.

And Phase II is how many accounts?

There's roughly, call it 10 to 12 in each phase. Could be more as you get down to the later phases.

So, Mike, your expectation, the guys who already use the robot, your top ten accounts, it's plug and play for them, a couple months. But I'm surprised that there's not more than 22 accounts in the country that are plug and play using the NIOBE frequently.

Where did you get the 22 from, Ed?

You said 10 or 12 in Phase II.

If you think about it, we're going to take, in principle, the top 10 accounts that would really be the reference sites, and make sure they're running well because these are the sites that we're going to parade potential customers through. That's Phase I. Once that's assured, and we're laying out resources conservatively, if it's done in a few days -- and there's some sites now that I think will be very quick, and then we'll make the determination to go to the next one. But we want to assure ourselves that that's completed before we go on to the next group. I think the total rollout I would expect to get down in probably two quarters. We'll begin in Q2 and be done in Q3.

And the speed of the rollout is contingent on you guys, not J&J, right? You set the rollout schedule?

Contingent on us, the adoption of the specific site and our ability to train and get training time.

And the ability of the catheters.

Thank you.

(Operator Instructions) We have a question from Imran Zafar from Deutsche Bank. Please go ahead with your question.

Good morning, thanks for taking my question. Most of my questions have been asked and answer, but a couple here. I can appreciate your comments about not really wanting to put forth any guidance on the placement side. But just maybe near term, maybe Q1, Q2, Mike, can you talk about what your expectations are, maybe sequential trends in terms of placements for the first half of 2009, maybe?

Imran, we'd like to -- obviously we're very close to Q1 results and Q2, and we'd like to stay away from guidance on any quarter and just let the capital -- get a little more history of this capital market because it is fairly frothy right now. We're bullish that we'll grow this year NIOBE and ODYSSEY. Just how much in the timing and the delays is what we're looking very closely at.

Okay. I was just trying to get a qualitative sense of what the trends are with hospital CapExs. Would you say that things are worse now than they were in October? I know that there's some seasonality involved in Q4 versus Q1. Do you think things have bottomed out or do you think things are getting worse?

I'll let Lou answer that. He's closer to the marketing.

I don't see it having gotten worse. We understand what we're faced with. It's been fairly consistent and it's actually gotten more predictable in that manner. We understand what we have to deal with.

Having said that, clearly the domestic market is one that Mike had mentioned that we need to continue to sort out before we can give a better sense for what NIOBE will be, though we are confident that we will grow NIOBE and ODYSSEY. The really good news in all this is that the overseas markets, Europe and Asia, are appearing to meet our expectations. And the pipelines are growing, as Mike mentioned in his opening statement. And so we are expecting favorable results from overseas as an offset to perhaps some of the domestic risk.

The other added comment is that operating lease we think will have more merit this year than in the past. We've already had one deal that is going down in operating lease. And what is interesting about it, in this environment, the EP is a segment that still grows. I think in the US, CEOs, when they sort through the uncertainty of what's going on in the entire hospital, they can still see a path to profitability in EP and a growth area. And then this operating lease in this case allowed them the opportunity to match future revenue to cost. It could be a nice option that we'll have for customers as they elect to move forward.

Okay. Thank you. Can you give us the total number of procedures in the quarter and also maybe talk about what the current usage trends are in Europe? Is it four procedures a week, three, five? Give us a rough sense there? Thank you.

We don't want to give utilization numbers, but let me categorize the later question there. If you go back to the top sites, as I mentioned, or the breakout of the three groups, in the top group usage is over three a week in Europe. And the next group that I mentioned had the highest percent increase, they increased substantially more than the average and it's not at three a week yet. They've gone from sporadic use to consistent use. And then the bottom group continues to remain fairly sporadic. Our resources right now are just moving into that group to concentrate on moving them up.

Okay. Great. That's it for me, thank you very much.

Thank you, sir. We have a followup question from Mimi Pham from JMP Securities. Please go ahead with your question.

Hi, good morning. In terms of the breaking out of the three groups, if you could help us just gauge, of your current US installed base, is it a third, a third, a third in the three groups?

I'd probably go 15%, 20% in the bottom, 80% in the other two, with the top 15%, so 15%, 65%, and 20%. Or, 20%, 60%, 20%.

And that's US and also Europe too?

Yes, they're similar.

If you could give us without guidance, should we be expecting, with what we're seeing overseas and the US, new orders for the first half of the year in line with what we saw for fourth quarter in terms of new orders, and then that picking up end of the year once irrigated is in the US?

Yes, I think we can expect it to be pretty much in line. And so on the whole, we're optimistic that we can grow NIOBE on the whole, and ODYSSEY on the whole, as far as quarter-to-quarter. That's a little bit of a moving target. That would be tougher for me to comment on.

I think, Mimi, a little color on that. Europe will continue to bode well. The pipeline is strong, the activity is strong, so we should see nice there and the only question is the percent of US orders in a given quarter.

Okay, thank you.

Mr. Sherk, there are no further questions. I'll hand the call back to you for any further comments.

Thank you, everybody. And we look forward to talking to everybody in the next quarter, for the first quarter results, and please feel free to call us if there's any questions in the meantime. Thank you for your attendance.

Ladies and gentlemen this, conference will be available for replay after 8:30 mountain time today through March 5th, 2009. You may access the conference replay system at any time by dialing 1-800-405-2236 and entering access code 11125670 hash. International participants dial 303-590-3000. Those numbers again are 1-800-405-2236, and 303-590-3000, Access code 11125670-hash. That does conclude our conference call for today. Thank you for your participation and for using ACT Conferencing. You may now disconnect.