Stereotaxis Inc (STXS) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome, welcome to the Stereotaxis Q1 2009Earnings Conference Call on the seventh of May, 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. If any participant has difficulty hearing the presentation, please press the star followed by the zero on your telephone for operator assistance.

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

Thank you Operator, and good morning everyone. Thank you for joining us for the Stereotaxis conference call and web cast to review the financial results for the first quarter of 2009.

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 the future events, or the future financial performance of the Company, including without limitation, statements regarding operating results, 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 filed with the SEC, specifically the Form 10K for the fiscal year ended December 31, 2008.

The Company's projections and forward-looking statements are based on factors that are subject to change, and therefore, these statements speak only as of the date they are given. The Company assumes no obligation to update any projections or forward-looking statements.

In addition, regarding the Company's comments, and regarding orders and backlog, 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 of some of these purchase orders and other commitments are contingencies that are outside of our control.

In addition, these orders and commitments may be revised, modified, or canceled either by their express terms as a result of negotiations, or by project changes or delays.

Now I'd like to turn the call over to Mike Kaminski, President and Chief Executive Officer of Stereotaxis.

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 a strong first quarter, demonstrating excellent progress since the launch of our partnered magnetic irrigated catheter in Europe back in November, and the same launch in the US early this March.

First quarter revenue increased 58% compared to the first quarter of 2008, and we reported a record gross margin of 69%. Recurring revenue also set a record of $4.3 million, a 61% increase over the prior year's first quarter, and a 26% sequential increase over the fourth quarter of 2008.

We continue to manage our operating expenses with a mindful eye on maximizing revenue, while driving the Company profitability. For the quarter, we received a 17% reduction in operating expenses compared to last year. While total spending is down, sales and marketing as a percent of spending continues to grow. The net result for the quarter was a 46% reduction in our operating loss compared with last year's first quarter.

Financially, we're off to a strong start, and we continue to stay focused on business fundamentals that are building the foundation for long-term success.

Jim will review our first quarter financial performance in more detail in a few moments, but first I'd like to discuss these fundamental improvements in the business, as well as address the capital equipment market headwinds, and what we are doing to optimize our results.

First, concerning business operations; while we were always positive and thankful for capital revenue and placements, we know that, like all platform companies, sustained success comes through usage and customer value realization. Vary to ramping utilization has been the availability of our partnered magnetic irrigated catheter for use in the left side of the heart. We have completed the rollout of the magnetic irrigated catheter in Europe, and began shipment of the device in early March to our top US sites.

To drive the adoption process properly throughout the installed base of over 100 sites, we have developed a robust training process segmented into three phases. Phase one includes onsite training and support, with a goal of confirming that individual physicians are confident about performing all the macro and micro movements needed to complete specific cases.

The second phase is the advanced training on best practices. The goal of phase two is to ensure physicians are capable of performing a more complex set of movements, and to shorten the learning curve by using the best practices from the most experienced users.

The last phase is to move each physician to the level of successful independent use. It is important to note that this is a physician-by-physician training process. Many sites have multiple physicians who learn and adopt at different rates. As physicians become more versed with our system, we will increasingly leverage the Odyssey network to provide ongoing support through a virtual clinical support presence network. This complex matrix is being managed closely so we can ensure we are aligning the proper resources needed to drive adoption.

Let me share with you some of the early results of our efforts. All of the 34 European sites have entered at least phase one of the training program. Five of the European sites have completed all three phases, and are now independent users. In the five independent sites in Europe, they are using the system on average over four times per week.

In the US, 28 sites are in phase one of the training process. Of these 28 sites, the top five sites in the US have sequentially increased utilization 50% in the first quarter over the fourth quarter, and now average more than two cases per week for the quarter, even though the irrigated catheter was only introduced in March.

Importantly, the clinical results from the magnetic irrigated catheter remain strong. The data from the early cases continues to support excellent clinical utility of the catheter across the broad range of arrhythmias. It is interesting to note that despite the fact that many of the US users are relatively inexperienced with magnetic navigation, we have maintained the same outstanding safety record with the irrigated catheter as was documented in the European experience.

We have reported acute success data in previous calls, and we are now beginning to see some of the chronic results from the irrigated catheter. Professor Proppone and his associates in Milan reported on a series of 69 patients treated for A-Fib with the catheter in last month's ACC Annual Scientific Sessions in Orlando. Acute success was achieved in 96% of these patients in an average case time of only one hour and twenty minutes. There were no adverse events or catheter charring reported in any of these cases.

At a one-year follow up, 86% of the patients were free from A-Fib, and were completely off their anti-arrhythmetic medication, which compares very favorably to chronic AF outcomes in peer-reviewed literature.

These results will also be presented at the upcoming HRS meeting in Boston, along with long-term results from Copenhagen and Hamburg. In total, there will be 13 podium presentation and eight poster sessions at the HRS session which will either feature or discuss our technology.

Utilization growth is the first step to improving our recurring revenue. In addition to the irrigated catheter in the first quarter, we released our new NAVIGANT software and our second-generation CARDIODRIVE called QuickCast Disposable Product Line, which in combination improves the simplicity of our user interface and responsiveness of our system. With the introduction of the new QuickCast, and its corresponding price increase, along with the increased royalty, dollars we receive from the irrigated catheter, we have surpassed our goal of realizing $1,000 of net revenue per EP case during the quarter.

Additionally, we continue to refine our ability to provide onsite daily clinical support that enables adoption but recognizes the challenge and cost associated with this requirement.

Customer support needs can be significant as individual sites demand different levels of daily support. With the introduction of the Odyssey network, we are redefining how we can provide superior real-time support in a cost-effective manner. In fact, by using the Odyssey network, one clinical support representative is five times more efficient than having that same representative provide onsite support.

As you can see, we've put in place those building blocks, which will continue to drive increasing revenue, improved margins, and provide superior real-time support, but at a significantly lower cost, leading to a stronger, sustainable recurring revenue business for Stereotaxis.

Before we move to the capital equipment part of our business, it's important to note that building utilization is the cornerstone for building capital equipment sales. Increasing utilization builds a stronger reference base that enables a company to increase the Niobe and Odyssey interest, and accelerate the decision-making process.

Our first quarter capital revenue was driven entirely from backlog conversion. In our last call, we outlined how we have segmented our backlog into those orders which we are forecasting will convert to revenue in the near future, and those orders that are beyond that horizon. 2009 capital will be primarily driven by converting our backlog, which will help insulate us from some of the short-term compression in the US hospital capital market.

In the first quarter, we secured $8.8 million of new orders, with approximately half coming from Europe. The EU's exceptionally strong first quarter order rate reflects our increased penetration of the EU replacement market, driven by the strengthening of our European reference sites.

In the US, we are experiencing a mixed picture, and like many companies in our industry, we are feeling the effects of the cutback in hospital capital spending. Our strategic partners are forecasting that the US X-ray market will decline by approximately 20% for the year, but conversely, catheter companies are reporting bullish numbers, reflecting growth in the EP ablation market. We remain convinced that the EP space will fare better than the overall average for hospital capital spending in the US, but still may be down from 2008.

Additionally, we have estimated that the Niobe penetration is 10% to 15% of the total annual EP X-ray business. Thus, even in a US capital-constrained market, we fully expect that we can grow penetration rates as reference sites strengthen.

In forecasting our capital sales, we track closely the number of accounts in the pipeline and the movement of these accounts through a decision process. A few of the leading indicators are -- late-stage prospect customers for all geographic customers increased slightly from the end of 2008 through the end of the first quarter 2009.

Additionally, we continue to fund and focus on programs and projects that we believe will drive revenue. An example of this is the new customer education center in St. Louis, where we are effectively demonstrating the capabilities of both the Niobe and Odyssey. This center is set up to facilitate live case demonstrations from around the world via the Odyssey Backbone, thus highlighting our value proposition in various environments. We believe these investments ensure that we are maximizing capital revenue opportunities and providing educational environments that drive clinical adoption. The center opened in February, and for the first quarter, we hosted more than 20 site visits in St. Louis.

We recognize that growing customer interest in the US doesn't directly translate into new orders in a capital-constrained environment. We have met with many customers who are interested in purchasing, but do not have access to capital funding. In order to provide these customers access to capital, we've introduced and seen growing interest in operating leases, which can match costs to revenues for institutions. We believe our recent introduction of an operating lease through our partner, RTS, will gain in importance as the year progresses.

The last significant business development during the quarter is the strengthening of our Odyssey product line. Growing market interest demonstrates the potential for Odyssey to be a significant contributor to our future financial success. We are scheduled to introduce three new odyssey products this year. First is the Cinema product, which is the archiving and data distribution hub for the platform. We are pleased to announce that we have installed our first Cinema product in April, and the customer reaction has been exceptional. As a reminder, the Cinema enables intra and inter-hospital communication, creating the beginning of a networked clinical environment.

Secondly, at HRS we are introducing our new quad, high-definition display which provides clinicians the ability to obtain resolution on large-screen format comparable to native smaller screens. This product is scheduled to begin shipping in the third quarter.

The third Odyssey product we are developing is for standard labs. This version of the Odyssey is for cath labs which do not have Niobe systems. Requests for this product have continued to grow as customers look at standardizing cath lab data management. The standard lab version of the Odyssey product will be available to ship and install in the fourth quarter of this year. The pipeline of the standard lab customers has increased over 25 accounts in a short period of time, and we are confident even in this capital-constrained market that the Odyssey line will continue to experience revenue growth.

Lastly, we continue to invest in our sales and marketing efforts in the Odyssey product lines to ensure that we are taking advantage of the first mover opportunities.

As we look into 2009, our key objectives remain consistent and clear. We're focused on first, ensuring the successful launch of the magnetic irrigated catheter and driving recurring revenue growth, and developing reference sites.

Second, we will ensure that we maximize our capital business through investments in our channel, leveraging the Odyssey network to highlight reference sites, creating financing options, and continuing to develop robust sales processes.

Thirdly, we'll expand our Odyssey offering and capitalize on first mover opportunities.

Finally, but importantly, we're tightly managing cash and expenses as we march towards break even.

Now I'd like to turn the call over to Jim to discuss our financial results in more detail; Jim?

Thank you Mike. I'm going to focus my comments this morning on some specific financial metrics for the first quarter. Of course, if you have any questions about the financials issued with our new release this morning, please feel free to ask them during the Q&A.

Stereotaxis reported total revenue of $11.1 million for the first quarter. Systems revenue was $6.9 million of this, and included revenue recognized on five Niobe systems and five Odyssey systems. Of the five Niobe systems, three were placed in Europe, and two were placed in the US.

Purchase orders in the quarter for both Niobe and Odyssey systems totaled $8.8 million. The new orders included approximately $1.3 million of orders for our Odyssey systems.

Backlog at the end of March was $67 million, $2 million below the level of December 31, reflecting sales of Niobe and Odyssey systems, as well as the removal of two Niobe system orders, partially offset by the new orders.

Gross margin for the first quarter was $7.7 million, or 69% of revenue, another record for the Company. This represented continued improvement over the 68% of revenue for the fourth quarter of 2008, and 65% of revenue for the first quarter of 2008.

Average selling prices for the Niobe and Odyssey systems remain strong, with system margins for the quarter of approximately 63%. Incoming Niobe order ASP continues above our recent historical levels, and bodes well for a continuation of our system margins.

During the quarter, we introduced our next-generation CARDIODRIVE disposable in conjunction with our enhanced Niobe software operating system. The improved pricing of this CARDIODRIVE, as well as the increased royalty dollars associated with the magnetic irrigated catheters has allowed us to exceed our target of $1,000 of revenue per EP procedure. As a result of this pricing and our success in controlling product costs, our margins from disposable services and accessories are in the 80% range.

Operating expenses were $14.8 million in the recent first quarter, compared with $17.8 million in the first quarter of 2008.

R&D expenses declined 30%, reflecting the completion of several major product development initiatives.

General and Administrative expenses decreased 26%, and sales and marketing dropped 3% compared with the prior year's first quarter.

We continue to expect that our run rate for a normalized quarter will be between $15 million and $16 million.

We reported a net loss of $7.5 million, or $0.18 per share, for the recent first quarter, a significant improvement from the $13.5 million net loss, or $0.37 per share in the first quarter a year ago. Average shares outstanding for the recent first quarter were 41.3 million, compared with 36.5 million in the same quarter last year, reflecting the 4.4 million shares issued as part of the simultaneous offerings that we completed at the end of December 2008.

Cash and investments totaled $18.8 million at March 31. This represented a decrease of $11.6 million from the end of December. We used $10.4 million of cash flow from operations, compared to an EBITDA for the quarter of negative-$5-plus million. We used an additional $1 million in capital expenditures during the quarter.

As I anticipated in our last conference call, the cash used this quarter was greater than the fourth quarter due to approximately $4 million of advances and prepayments received in the fourth quarter related to fourth quarter's revenue systems. These prepayments benefited our fourth quarter cash flows, and negatively impacted any normal first quarter.

Additionally, we collected approximately $1.5 million in the first two days after the end of the first quarter. Historically, we have used less cash than the related period EBITDA. For example, for the years 2006 through 2008, our cash used in operations was anywhere from $1 million to $6 million better than the related EBITDA.

In additional, our average quarterly cash used in operations for the three quarters ended March 31 was approximately $6.5 million. As a result, even with the anomaly of the first quarter, I would expect cash used in operations for the second quarter of 2009 to be significantly less than that used in the first quarter, and for the remainder of 2009 to more closely match the related period EBITDA. Thus, we believe that our cash consumption for the full year 2009 will be less than the $30 million consumed during 2008.

Total bank and investor debt was $29.1 million at March 31, with $13.2 million drawn against our $25 million working capital line that we recently extended with Silicon Valley Bank. Included in the debt is approximately $15 million owed to Biosense Webster related to the $18 million facility that was finalized in July of last year. Repayment of this liability will be from royalties otherwise payable from Biosense to Stereotaxis, with no minimum cash outlay requirements until May 2010.

At the end of the first quarter, we had approximately $19 million cash, and approximately $12 million remaining under the bank working capital line.

Now let me turn the call back to Mike to provide an update on our outlook for 2009.

Thanks Jim. Before we take your questions, I'd like to just make a few final remarks regarding 2009.

Our general guidance remains unchanged from what we provided you in February. We expect the Niobe revenue for 2009 to exceed 2008, although the level will depend on the overall economic climate in the hospital capital expenditures.

Odyssey revenue is expected to grow significantly this year. With full commercial US launch of the magnetic irrigated catheter, we anticipate an increase of more than 50% in our recurring revenue in 2009 versus 2008.

We project gross margins will remain between 65% and 70% for the year. We anticipate that this will be driven in large part by the favorable shift at sales mix towards higher margin recurring revenue products.

Full-year operating expenses for 2009 will be lower than full-year 2008 expenses of $67.4 million.

Sales and marketing expenses are expected to be in line, at 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 will be below $24 million in quarterly revenue.

With that, I'd like to open it up to the call for any questions.

Thank you, sir. (Operator instructors)

Thank you, and the first question comes from Tao Levy from Deutsche Bank. Please go ahead with your question.

Good morning everyone.

Hi Tao.

Hey. I was wondering if you could provide us with some, you know, procedure numbers that -- we talked about growth rate some. But again, if you have some specific numbers in EP, you know sort of like Q4 versus the first quarter.

Tao, we want to stay away from giving actual utilization numbers because, you know, we track closer to the revenue. And obviously, the procedures are up because you see it in the recurring revenue. But if you look at how we have segmented the accounts, the top users have accelerated usage. And I think we said last time, if you look at the very top group, it's over three cases, obviously. I said the top five sites were over four cases a week.

The bottom groups, we haven't rolled out everybody in the US yet, so they still remain very low usage. And then the middle group has increased about 100% in usage. So we're till tracking along with all of those trends.

You mentioned, you know, five sites in Europe are independent out of the 34. When do you expect all 34 to be fully independent?

I'll let Lou cover that.

Hi Tao, it's Lou. We have the remaining customers going through an aggressive training cycle, so we have a portion of those customers that are, as Mike indicated, in phase two of the training, which is best practice sharing, and we expect that we'll be migrating a substantial number of those customers into the advanced stage here over the next couple of months.

So our expectation is by the, you know, by the end of the third quarter, we should substantially have those customers migrating through that cycle. So we're making good progress. We're managing it on a physician-by-physician basis, so I expect that we'll see significant progress by the end of the third quarter.

And in the US, you said, you know, 28 sites are in the first phase. When do you expect, you know, the first ones to be independent?

Yeah, there again, we just rolled those out in March. So we're expecting customers to migrate -- we have weekly calls and daily discussions about every physician. We expect, you know, a substantial number of those 28 to migrate into phase two here over the next couple of months. So I would work on the same timeline. By the end of third quarter, you'll see a substantial number of customers having migrated through that cycle.

Okay great, and in terms of Odyssey, how many, how many of these sort of early irrigated catheter users are, have either, you know, have an Odyssey system, or are part of the backlog?

We have approximately 20 or so Odyssey system in place today. I would say at least half of those are within sites that are currently using that catheter, using the Thermacool cath.

Right, right.

And we have several in the backlog. So it is a fair number, and it continues to grow, it continues to grow.

All right, and then my last question, could you remind us, you know, I think it's this year you start to, you know, some of the exclusivity arrangements with Biosense start to expire. Can you remind us what's left, what happens this year, and what opportunities could be open to you guys thereafter?

Yeah, so in May of this year, our month right now, the Carto-exclusivity expires. And at the end of 2009 -- actually, January 1, 2010 -- the four and eight catheters exclusivity expires. And then the irrigated catheter is at the end of 2011.

Okay, thank you.

Thanks.

Thank you, and the next question comes from Mimi Pham from JMP Securities. Please go ahead with your question.

Hi, good morning.

Hi Mimi.

In terms of the end and late-stage pipeline, could you further define that for us? I know you used to talk about a 300 system pipeline number. Can we assume at least 10% or 30 systems are in this end-stage pipeline category?

Yeah, I'll let Lou -- he's got all the pipeline numbers.

Right, so -- hi Mimi, it's Lou.

Hi.

So there are over 700 opportunities in the pipeline right now, and that's up, that's up marginally from the last time we had this call. And the way that that's migrated is you see an increase coming out of Europe, which is consistent with European orders increasing, and is flat in the US, slightly and roughly flat coming out of the rest of the world.

And then late stage.

And in late stage, it's up. In late state, it is up. That's where you find most of the growth is coming out of the latest stage opportunities.

I guess I'm just trying to get -- you said 700?

Yeah, it's over 700.

In the whole pipeline.

In the whole pipeline.

In the whole pipeline.

It's over 700, and then the latest stage --

Yes.

--we're up marginally.

But can you say if that's 10% of the 700, around, ballpark?

I wouldn't say it's 10%. It's less than that.

Okay.

It's less than that. But that growth is coming, is coming largely from overseas.

And in the US, you talked about there's good interest. It's just they don't have the financing. So is there anything that they, you know, if they hear something at HRS, or if they hear something near-term about feedback from your initial US sites, is that going to change anything, or it's just all about financing in terms of new orders picking up at the end of the year in the US for Niobe?

Let me take the top level, and I'll turn it over to Lou on this. I think there's two parts to this Mimi. One is we need to focus on making sure the CEOs of hospital recognize the growth in EP and the potential profitability out of the EP, because it oftentimes, you know, they get a complex job and it isn't always as easy to see that as we think it should be.

And then when we do that, what we've found, is that there's interest to look at how we could expand on the opportunity in EP. Now, there may not be capital availability, or capital available when we do that. So in those account -- now, some accounts just have a moratorium on capital, but in some others accounts, obviously, they're looking to invest in areas where they think it's going to grow in the future, but they don't have access to the bond market. So that's the perfect foray to an operating lease, or a capital lease.

You want to add anything Lou?

The only thing I'd add to that, Mimi, is for those, for those hospitals that do not have a moratorium, but certainly we have to compete for those capital dollars, building the story around the financial benefit and the growth associated with the space that we play in is highly valuable. So to the extent that we can show the benefit associated with utilization, it just gives us a more powerful story. So you know, that's the approach we take, we take with this. And that's the interest level by perspective customers.

So would you say that you're still expecting the orders to pick up exiting the year, then, based on earlier feedback in the US and HRS data?

Absolutely. I think the US will continue to look at reference sites as the way of proving the value, and then interest will grow as a result of that, and decisions will be made probably late this year or early next year to reflect the order rates from decisions made around Thermacool.

Okay, and then if you could just, the sequential increase in your disposable revenue from 3.4 to 4.3, is the bulk of that from royalties from catheters?

Jim?

There's a disproportionate percentage increase in the royalty in disposables as opposed to the service and software, yes.

Okay, and then a last question, you know you talked about annually, you typically see some new orders that you get in the first half of the year convert by year-end. Should we expect that, or do the lengthening cycles know?

There's certainly opportunity for that, but I think we should expect the substantial piece of our shipments coming from our backlog, which in and of itself, we're constantly managing and working those timelines through the process, Mimi, so a substantial number of those will come out of the backlogs.

Okay, thank you so much.

Thanks Mimi.

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

Yes, good morning.

Hi Kay.

In terms of the CARDIO drive ASP, help us understand how many folks, or what's your procedure in terms of folks who were buying, were buying that particular piece of equipment under prior arrangements versus the increase in pricing. You know, what percent are paying the higher ASP at this point?

It is a different product which works with a different software. So largely, I think it's more than 50% of these rolled out now.

Yes.

Yeah, so the new software in the hardware that's associated with the QuickCast go together. And more than half of our installed base are using that now.

Okay, very good. And is that, is that consistent US, OUS?

Yes it is.

Very good, and then as far as the initial experience with the irrigated catheter in the US, are you getting any issues raised by docs in terms of, you know how to properly manipulate? Are you seeing any challenges there that you're having to help them with?

This is Lou. I wouldn't necessarily characterize them as problems. I would say that, as Mike mentioned in his opening, the experience level by some of the physicians in the US is early stage, and as a result of that, we you know, we're highly focused on providing the proper training, the manipulation training, the basic training associated with that. So it's more about the learning curve, it's more about them getting accustomed to the using this catheter, and frankly to using magnetics on a more regular basis. And our experience is that the more they use the product, the more proficient they get, and that learning curve accelerates.

Kay, the only thing I would add is that's the advantage of the phase two best practices, so who has put in place, they go through somewhere around ten cases, get their experience so they understand where they're challenged, come in for best practice learning, and then we can move them through those phases pretty easily and the challenges they have. So we've established it as a kind of a phase approach in order to address those things in a timely way.

Okay, and then just using the same product category back over to Europe and thinking how that might extrapolate to the US, what type of success are you seeing now that you've had the catheter over there for a while in terms of turning on what had been dormant accounts? So you know, they've had an IOV but weren't using it, and now that you have this catheter, and you're in there showing it to them, is that making a difference in those dormant accounts?

Yes, on the whole, that is a true statement. Soon the whole, having Thermacool has revitalized accounts that were once dormant. Now of course, that varies by account, but on the whole, we're seeing -- well, with Thermacool -- we're seeing, you know significant interest and significant growth in Europe. So that is a true statement.

Okay, very good, thanks.

Thank you.

Thank you, and the next question comes from Sameer Harish from Needham & Company. Please go ahead with your question.

Hi guys, can you hear me?

Yeah, hi Sameer.

Great, thanks for taking the question. I wanted to start off as far as, you know, the phasing that you're talking about in getting the accounts to transfer to the irrigated catheter. From an infrastructure standpoint in the organization, who's involved in that transition? Is it all sales? Is it, you know, are you involving some research staff? And just, you know maybe comment on just how much time this has maybe taken away from, you know active new selling.

So we have a dedicated selling team. We call them account executives, and the selling team clearly have relationships with physicians. But they're largely focused on selling new equipment, and also helping to sell service contracts and the like.

The folks that we have highly focused on the rollout come in a couple of categories. One is we have a clinical team that has a few layers to it. One is the field-based folks are the account managers. They're the hands-on people, who are working in concert with J&J to do the rollout, to do the training, to set the stage for the customer to ramp up, etc.

In addition to that, we have a training group here, and those are the advanced team, combination of the training folks and other advanced folks from engineering who are supplementing those advance training efforts, and who go out into the field to do that as well.

So we have varying levels of clinical and technical support that we provide physicians.

Okay, and how much support is J&J providing along this time?

A fair amount, especially early on. So when we roll out a new account, they are present for the first "x" number of cases, and then we, obviously it's our responsibility to stay there to drive towards sustainability. But when we roll it out initially, they're playing the role.

Okay, and Mike you know, you mentioned two Niobes removed from the backlog. Can you give any color as to, you know, were these delays or were they outright cancellations, and is it budget related?

Mike Kaminski;Both were from the US, and both were in the backlog that we put as outside of our 18-month window. So they both were significant, significantly longer than you know, the timeframe of what we'd recognize as revenue in the near future.

So we looked -- and Lou has gone through a robust process of continuing to look at those accounts and making sure that they're going to transfer to revenue within a reasonable amount of time, and these two, I know you have the detail on them, but these two came to a point in the first quarter where you were convinced that they weren't going to go to revenue in a reasonable amount of time.

That's correct, and they were well beyond the window.

Right, that's why we removed them.

I guess, was that delays due to financing, or due to you know, construction timelines, or any color there?

Yeah, in both cases, it was a funding-related matter.

Mm hmm.

And in one case, it got particularly complicated due to construction, and the additional finances that would be required to do that construction.

Okay, and where do you expect the backlog to be at year-end?

Yeah, we're going to not prognosticate that because obviously, we're going to watch the capital markets evolve here a little bit before we give any guidance on orders.

Okay, no problem. As to your new systems that you're placing, are they all QuickCast ready?

Yes.

They're all, so everything that you're installing is that, and then --

Everything rolling out has the NAVIGANT 3.0 software, so that makes it QuickCast capable.

And you mentioned 50% rollout to date. Is that driven by the customer demand, or is that the Company you know, making the switch on schedule, or who's driving that?

The Company mainly is the constraint there. We have to go into the site and upgrade each site to the new software and the hardware that's associated with QuickCast. We should get largely through that by Q2. There will be some accounts that aren't done by the end of Q2, but not -- it should be 80%, 90% done by the end of Q2.

Great, thanks again.

Mm hmm.

Thank you, and the next question comes from Spencer Nam from Summer Street Research. Please go ahead with your question.

Thanks for taking my questions; couple just quick questions. First one is the customers who are buying the system right now, Niobe system right now, are they -- what sort of situation are they in, you know in terms of funding, and what is driving their purchase decision, you know, some of the factors that are involved in making the decision? Is it based on the funding that they go last year, or are they actually actively making purchase decisions this year because they would like to have one?

Let me give a little color to the general environment. Then I'll let Lou take specifics. But if you think of the general environment, customers are making, you know the X-ray business is still going through replacements and new installs, right -- so in EP, we've forecasted that to be worldwide about 300 systems and growing in general. Now, even if that's down, that market continues to churn.

And so every time that happens, Spencer, there's a decision about what to put in that room. There is a general churning of the market about EP X-rays are getting replaced. Obviously, in a down market the benefit of that for us is as we walk in, we talk about before you make the final decision, let's look at what you're going to be using in that room over the next ten years, and what kind of patients are going to be presenting themselves. And that presents the opportunity for us to talk about the value of the system in that room as they make a capital decision they're going to live with for ten years.

And then now the specific ones, Lou has more color on them.

Right, so just in adding to Mike's point, there is the general flow, right, the turnover of those rooms, but in addition to that, when a hospital knows that these rooms will be ready for turnover, that's really when we come into play, and we sell the value of the growth in EP and in ablations in general. Then they put, they go through the normal budgetary cycle.

So we are usually in a budgetary cycle, earlier on, or when a need arises like this, if they know they have to replace a room that may have been unplanned several months ago, we go in and we work through getting access to the capital that's already been approved on a global basis within the hospital.

So we do have some situations like that. And this generally shows a nice return for EP, so the argument that we have to justify it is usually pretty self-evident.

I appreciate that. And then in terms of the HRS, are you planning any specific activities there, or what should be expected from you guys next week?

We don't have a dinner, we have user meetings for our physicians. We have two user, well one user meeting and one perspective customer meeting. We've elected not to have the dinner, so we have those just as general meetings. And then, obviously we have a booth and several scientific sessions, so we'll be pretty active at the show.

I see, and then in terms of the overall competitive landscape, are you seeing much of you know, actions with your competitors in terms of your customers making decisions about which direction they want to go with, any thoughts on the outlook there?

On the competitive landscape?

Yes.

I'm of the opinion, Stereotaxis' fate lies in its hands. You know, we've got to be successful in doing what we can do, and utilization will beget stronger reference sites, which will drive our success. I think that there's a lot of talk about -- and I think that, you know we're confident that our value proposition is strengthening. You know you see that in our ISP, you see that in the utilization. I think we're in a good position to leverage that, and I think we've got a very good position in the market today. You know that having to control the distal tip allows you to have some unique, safe, effective properties that just won't be mimicked.

So I think we're in good shape. You know, obviously, we've got to focus on executing ourselves, and I think if we do that, we'll be very successful.

Great, and final question if I could add is how long do you believe that your cash reserve will allow you to operate without need for financing at this point?

Well, as I said, if you look at our average run rate, it's $6.5 million for the last three quarters. Our EBITDA this quarter was about $5.5 million negative. We've accessed $30 million between cash on hand and bank line, and our OpEx is improving. And as the year goes on, one would hope to actually improve on those EBITDA numbers. So it's kind of a mathematic exercise at that point.

Great, thanks very much.

You bet.

Thank you.

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Operator, we can take the next question.

Thank you sir. The next question comes from Graham Marches from Deutsche Bank. Please go ahead with your question.

Could you discuss the nature of your relationships with Siemens and Philips, and how you're working together in this period of time of constraint on budgets. And then I have a follow up.

Hi Graham.

Hi.

We have, we're fortunate to have a relationship -- a good relationship -- with both. I think Lou's group works closely in the field with kind of the tactics of who's replacing and you know, what we can do to jointly go in and be successful. But then it seems, you know, we do our own individual mining of opportunities, as well as work with them where they see the replacement cycles. Obviously, we have development initiatives with the companies on improving some of the aspects of how we integrate 3D imaging and some of the other items in the platforms.

So we have a good working relationship. Lou, do you want to add any more color to that?

Yeah, it's, it is a good working relationship. We work on a deal-by-deal basis with both of them. We'll have several meetings with them at HRS, just go-forward strategic type of sessions on how we can both grow our business collectively. So I characterize it on the whole as a very close relationship and very cooperative to both of those vendors.

The follow up is that this morning, GE and Hansen announced a collaboration. Could you -- I mean that's current news -- but could you discuss how that might, what sort of relationship have you had with GE, if any, and does that collaboration have any impact on your business.

Yeah, let me answer the first question. The, our relationship -- obviously, we haven't had an integrated relationship with GE, and the reason is, in the past, if you look at the Innova platform, which is the GE X-ray system, it's not because either company is not interested -- and this is a historic statement -- but the Innova Collimator and Plate sits to the side of the X-ray, which hit the magnets at a very acute angle. So there wasn't a practical way to integrate the systems together.

So we, you know, because of that, you know we've worked with the companies who have more inline X-ray systems.

Now my understanding, to answer the second part, my understanding is our competitor's level of integration is really just getting X-rays to visually integrate in their system so that you can move the system and see the X-ray move. Now, that's a very high-level statements, so there's, the technical integration is more just visual, just to make it a more useful user interface.

That's much different that our level of integration. Our level of integration, obviously, is the systems have to move together. We have to understand where, you know the software has to talk to each system, and of course, we do integrate images, so we can see, you know as you move our system, you move the X-ray image as well.

So you know, the level of integration for the effort of Siemens and Philips for Stereotaxis is pretty deep. My understanding is theirs is less deep, and it's more just visually how you display the image.

Potential impact?

I don't think it has any potential impact. I mean, today -- potential impact from yesterday because you know, we don't work with GE.

Mm hmm, okay.

And so we shouldn't see anything in our pipeline change.

Thank you.

Okay, thank you.

Thank you. That seems to be the last audio question. Please continue with any points you wish to raise.

Well, thank you everybody and we look forward to seeing those who can make it at HRS. Thank you.

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