Stereotaxis Inc (STXS) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Stereotaxis fourth quarter 2009 financial results conference call. (Operator instructions.) This conference is being recorded today, Thursday, February 25, 2010.

I would now like to turn the conference over to Mr. Doug Sherk. Go ahead, sir.

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 and full year 2009, which ended on December 31, 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 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 to Stereotaxis's 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 10-K 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 orders and backlogs, there can be no assurance the company will recognize revenue related to its purchase orders and other commitments at any particular period or at all because some of these purchase orders and other commitments are subject to contingencies that are outside of our control. In addition, these orders and commitments may be revised, modified, or canceled either by their express terms as a result of negotiations or by project changes or delays.

And now with that out of the way, I'd like to turn the call over to Mike Kaminski, President and Chief Executive Officer of Stereotaxis.

Thank you, Doug.

Good morning, everybody. On the call with me this morning is Dan Johnston, our CFO.

Stereotaxis today reported a strong fourth quarter and a great 2009. During the quarter we generated a significant increase in revenue, up 16%. Disposable service and accessories revenue grew 51%, setting another quarterly record at $5.1 million. The strong recurring revenue growth is due to both increased procedures during the quarter, as well as pricing made possible with the introduction of both the THERMOCOOL RMT catheter in the year, as well as the [newcas], both of which strengthened our value proposition.

We generated our second consecutive quarter of new capital order growth in Q4. New orders totaled $7.7 million, compared with $6.3 million in the third quarter and $5 million in the second quarter, and we ended the year with $37 million in backlog that we expect to convert to revenue within an 18-month period. We anticipate that hospital budgets for capital expenditures will improve during 2010, resulting in growing customer orders.

Our progress on key financial metrics was especially evident in a full-year review. Revenue grew 27%, reflecting a 54% increase in recurring revenue, as well as strong performance of our ODYSSEY business, which almost doubled.

The 2009 gross margin percent increased to 66.7% of revenue on the strength of NIOBE pricing and the growth of recurring revenue as a percent of total revenue.

We continued to demonstrate good expense control. Operating expenses declined 14% for the year. The net result was a 42% improvement in operating loss, moving us closer towards achieving breakeven.

During the year we launched eight new products, and we now have a significance presence in North America, Europe, and a growing footprint in Asia Pacific. US pipeline activity for our NIOBE systems continued to grow as 2010 progressed. During the year we saw our first placements of ODYSSEY in non-NIOBE or standard labs, demonstrating its broadening appeal, as well as its potential to be a significant driver of future growth.

On balance, we've very pleased with the financial and operating progress, and we're encouraged about the outlook for 2010. As we enter 2010, nine months after the launch of the magnetic irrigated catheter in North America, we believe we have made great strides in proving the safety and efficacy of our platform for complex ablations. In total during the year, we had 31 papers, were added to the peer-reviewed literature, and a multitude of scientific abstracts were presented at key electrophysiology conferences.

The ability of the magnetic catheter to address patients with AF was a subject of several abstracts and recently described in a publication by Professor Pappone and his colleagues in Italy. In a study of 25 patients, he showed that these patients had excellent long-term results, 90% of the paroxysmal patients were in sinus rhythm and off anti-arrhythmic drugs at one year. For the more difficult, persistent AF patients, the success rate was 80% at one year. This data gives more support to our assertion that the precision of the magnetic navigation can lead to better long-term outcomes for those patients with complex atrial arrhythmias.

Ventricular tachycardia, or VT, arguably the most complex of the arrhythmias, is an application that is particularly well suited for the treatment of -- with our system. Data published from [Lifesic] this past year demonstrated excellent acute results with a statistically significant reduction in (inaudible) compared to their own (inaudible) cases. We've had many of our physicians tell us that Stereotaxis increases their -- its efficiency and efficacy in VT cases due to the ability of the system to help create an accurate and detailed map without inducing additional arrhythmias.

Dr. Szili-Torok and his team from Rotterdam also recently published a very compelling series of patients with ventricular outflow tract arrhythmias who were treated with the Stereotaxis system. In this patient -- in this paper, he highlighted the precision of the diagnostic maps that enabled -- that were enabled by a consistent contact of the magnetic catheter. All of the patients in this small series were successful and the precise and informative maps created with the magnetic catheter allowed him to treat these patients with only one ablation lesion.

With this body of evidence, we're confident that we've demonstrated our system's ability to deliver safety to the patient due to the significant reduced adverse events and lower x-ray exposure, safety to the clinicians due to the reduction and x-ray exposure as well as orthopedic burden, efficacy for complex ablations at or above the success rates of the best clinicians in the world, and our leading physicians around the world have best summarized their value by stating that the NIOBE platform optimizes every patient's outcome. We look forward to additional scientific data being presented on both AF and VT at the upcoming HRS meeting in May.

In addition to improved safety and efficacy, we remain focused on delivering an efficient procedure for our clinicians. There are several new products scheduled out in 2010 which will enhance the efficiency of the system. We expect to see a stepped improvement with the introduction of the new [CARDO3] RMT system, as well as the new NAVIGANT improvements, which are engineered to reduce mapping time, improve accuracy, and simplify navigation. These products are due out by mid-2010 and will continue to strengthen our value proposition. Importantly, we've now established ten worldwide reference sites, which will afford us the opportunity to leverage the success and accelerate market awareness, adoption, and capital penetration.

Finally, patient demand to be treated on the Stereotaxis system is emerging as awareness of the safety and efficacy is becoming more widespread. A live procedure featuring the NIOBE was broadcast on the "Today" show on NBC earlier in the month and led to several-hundred inquiries into the University of Cleveland, where the procedure was performed, within a 24-hour period following the broadcast. The hospital also informed us that several patients throughout North America have been scheduled for the procedure.

We also were featured in a BBC documentary, and individual hospitals, such as Henry Ford in Michigan, have advertised the Stereotaxis procedure in "The Wall Street Journal" and "New York Times," generating inquiries in the scheduling of procedures.

While we're pleased with our progress in 2009, we still have much work to do in 2010. The clinical adoption of the NIOBE platform continues to be our central focus. We've reviewed what went well and what we can improve, and as a result, we've transformed our approach to driving clinical adoption from a process of onsite education and case support to a more comprehensive approach inclusive of a clearly defined clinical plan that focuses on continual learning, clinical and marketing support, and a mutual commitment to build a Stereotaxis magnetic treatment program.

This programmatic approach was launched at the beginning of this year, and we expect that it'll drive a stepped improvement in the number of sites that embrace the Stereotaxis technology, increase patient awareness, and a substantial growth in the number of cases where NIOBE systems are employed. This new approach aligns with our customer strategic initiatives to provide quality clinical outcomes, grow patient referrals, recruit top clinical talent, and for them to be seen as a destination of choice for superior health care.

This systematic approach is a collaborative effort requiring an institutional steering committee, including both clinical and administrative champions, as well as other elements, such as a tailored regional marketing program. With this integrated approach, we're ensuring physicians and their clinical teams are able to quickly and successfully move through the clinical pathway allowing them to treat heart arrhythmias of various complexities.

Although we are pleased with the record $5.1 million in recurring revenue during Q4, the fundamental change to driving adoption will result in Stereotaxis becoming a key part of the customers' complex EP ablation program. We have launched this programmatic approach at a handful of sites, and we expect to see accelerating success on procedure growth to be reflected in the second half of 2010.

Now let's turn to the ODYSSEY success story.

To date we have secured $15 million in cumulative ODYSSEY orders worldwide, primarily in NIOBE labs. We've experienced a strong market acceptance of ODYSSEY in NIOBE labs. We believe that the non-NIOBE standard labs, can also benefit from this ODYSSEY system, which is designed to optimize workflow, improve productivity, and help build world-class practices.

Considering the worldwide market of more than 12,000 electrophysiology and interventional cardiology labs combined, ODYSSEY represents a tremendous market opportunity. As a result, one of our key initiatives for 2010 will be to drive the market penetration of ODYSSEY in standard labs. To support this initiative, we recently hired Donna [Karris] as a general manager of ODYSSEY reporting directly to me. Donna brings to Stereotaxis more than 17 years of health-care IT experience and has held strategic leadership positions at companies like GE Healthcare and Siemens Medical Solutions.

On the sales front, and in order to maximize our sales opportunities, we remain focused on both ODYSSEY as a sales team -- dedicated sales team targeting standard labs, while the NIOBE sales representatives remain focused on driving EP penetration. These sales focus -- individual focused areas have resulted in our standard lab prospects doubling in the last 90 days.

On the ODYSSEY development front, we recently expanded our first (inaudible) advantage by releasing an ODYSSEY Enterprise Link solution. Link allows customers to consolidate data sources from disparate systems in the lab and to aggregate views of clinical information that can be archived and networked for live collaboration, education, and training within a single institution or across hospitals around the world.

Following the release of ODYSSEY in standard labs in the fourth quarter of 2009, we also announced that St. David's Medical Center in Austin has been one of the first institutions to install three ODYSSEY systems. This installation at a very prestigious, world-class site will begin our process of establishing reference sites around the world and will help us accelerate adoption and market penetration.

New capital order growth in dollars of greater than 40%.

Total revenue growth in the mid-20% range.

ODYSSEY revenue growth of greater than 75%.

Revenue growth will be decidedly weighted towards the back half of the year.

Gross margins on average about 65% for the year.

Operating expenses of approximately $16 million per quarter.

And with that, I'll turn the call over to Dan and discuss -- who will discuss our fourth quarter in more detail.

Dan?

Thanks, Mike, and good morning.

Revenue for the fourth quarter was $14.1 million, an increase of 16% over the $12.1 million in revenue from the prior year.

Systems revenue totaled $9 million and included revenue recognized on six NIOBE's, nine ODYSSEY's, and four CINEMA's.

As we discussed during our third quarter call, early in the fourth quarter we learned that three customers had moved their installation of NIOBE systems from the fourth quarter of 2009 into 2010.

In the US, three NIOBE systems, seven ODYSSEY's, and two CINEMA's were recognized in revenue in Q4.

Recurring revenue grew 51% to a record $5.1 million, reflecting favorable pricing, growth in procedures, and the growth in our install base.

EP procedures grew 43% in 2009 to just over 7,000 with the roll out of THERMOCOOL catheter in Q1 2009.

As Mike mentioned, new orders in the fourth quarter were $7.7 million. $4.5 million of these were for NIOBE systems. We're also pleased that half of the new orders for NIOBE came from the US.

Backlog at the end of December was $37.2 million, compared to $38.4 million at the end of September, reflecting the recognition of slightly more revenue in new orders.

Gross margin for the fourth quarter was $9.5 million, or 67.3% of revenue. This represents 16% from $8.2 million in the fourth quarter of 2008, and this follows the 16% increase in revenue.

Gross margin percentage for the quarter was slightly below last year's quarter due to two offsetting items. Strong recurring revenue, which benefits overall gross margin, was offset by lower CINEMA margin as we moved through our initial system placements. NIOBE selling price remained strong and was slightly above the fourth quarter of 2008.

Operating expenses totaled $15.3 million for the fourth quarter of 2009, compared to $13.2 million in the third quarter and $14.6 million in the fourth quarter of last year.

In bridging the increase from Q3, we saw an $700,000 increase in R&D spending on new product development.

Compensation costs were lower in Q3 by about $600,000, as we reduced our bonus accrual in Q3 to reflect our expected 2009 payouts.

Finally, we had about $400,000 in higher head count and recruiting costs as we ramped up our clinical adoption and ODYSSEY activities in -- for 2010.

As such, I see the fourth quarter of 2009 spend as a good (inaudible) for operating expenses going forward.

Our 2009 fourth quarter operating expenses are $700,000 higher than last year. However, the increase is actually related to nonrecurring activity recorded in Q4 of 2008, which had the effect of reducing overall expenses.

Last year, noncash stock compensation expense was lower by $1.8 million with the reversal of an accrual in this regard in the fourth quarter. The benefit was partially offset by a $900,000 charge for severance also taken in Q4 of 2008. As such, after these 2008 items, our operating expenses in Q4 2009 were largely the same as Q4 2008.

With regard to interest expense, the fourth quarter of 2009 includes a $900,000 noncash write-off for the value of warrants that were issued to guarantee a portion of our 2008 credit facility. With the execution of our new 2009 credit facility, the unamortized cost in the previous deal needed to be written off.

We reported improved operating loss for the fourth quarter of $5.8 million, compared with the loss of $6.4 million in the fourth quarter of the prior year.

Our net loss was $6.7 million, or a loss of $0.14 pre share, for the recent fourth quarter versus a net loss of $7.5 million, or $0.20 per share, in the fourth quarter a year ago.

Average shares outstanding for the fourth quarter were 48.4 million, compared to 36.7 million in the same quarter of last year, reflecting an issuance of 7.5 million shares as part of our follow-on stock offering completed in October and 4.4 million shares issued late in December of 2008.

Importantly, we continue to lower our cash burn. We used $2.9 million in cash during the quarter, compared to $4.5 million last year. For the year we used $23.8 million in cash versus $30.3 million in 2008.

Our operating team did a great job managing our investment and inventory in the fourth quarter. Inventory decreased by $2.6 million from September 30th, which had a positive impact on our cash burn.

For the full year, revenue grew 27% to $51.1 million, compared with $40.4 million in 2008.

Gross margin dollars for the year increased 30% to $34.1 million and represents 56.7% of revenue. This compares favorably to the gross margin of $26.2 million in 2008, which was at 64.9% of revenue.

Operating expenses decreased 14% from the prior year, reflecting the success of our strong expense control efforts. The result was a 42% reduction in the operating loss to $23.8 million from a loss of $41 million last year.

The net loss for 2009 was $27.5 million, compared to a loss of $43.9 million in 2008. This equates to a net loss per share of $0.63 in 2009 versus $1.20 per share in 2008.

Now turning to the balance sheet, cash and investments totaled $30.5 million at year end. Included in this was approximately $28 million in net proceeds received from the follow-on stock offering completed in October.

Total bank and other debt was $23.7 million at the end of December, with $10 million drawn against the working capital line with Silicon Valley Bank.

Finally, you'll recall that in October we increased our working capital line with the bank to $30 million from $25 million and extended the maturity of the line through March of 2011.

With that, I'll turn it back to Mike.

Thank you, Dan.

We're very pleased with the significant progress we made on many fronts in 2009, but, more importantly, we look forward to the expansion and opportunities ahead of us in 2010 and beyond. We're committed to delivering value to our customers and shareholders, we have a lot to accomplish in 2010, but our objectives are clear, and we're focused on the successful execution. The objectives are driving clinical adoption in the NIOBE platform, continuing to revitalize the North American NIOBE orders, growing ODYSSEY in the standard labs, and bringing the company to operational breakeven and becoming self-funding in the next two years.

I want to thank all the Stereotaxis employees for their hard work and dedication in achieving this past year's results and look forward to working with them this year.

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

Thank you, sir.

(Operator instructions.) Our first question comes from the line of Mimi Pham with Soleil Securities. Go ahead, please.

Hi. Good morning.

Good morning, Mimi.

In terms of your new orders, I think you've broken it out -- NIOBE and ODYSSEY -- four -- I think you had four units last quarter and second quarter. Can you give us the NIOBE new order breakout for this quarter?

You're talking about international versus North America --

No. Just in terms of -- you gave us your total new orders including NIOBE and ODYSSEY, but you didn't break it out.

Yes. So it's $4.5 million, I believe, in NIOBE --

Right.

-- and the balance in ODYSSEY. And half of the NIOBE's came from the US. So we saw an uptick in US activity this quarter.

Okay. And then, I guess, you alluded to it in your guidance of -- for new orders in total to be up 40% and ODYSSEY to be greater than 75% growth. Is that what you said?

Yes.

So what does that mean, I guess -- I didn't do the math, but what do you -- where do you see NIOBE new orders heading throughout 2010?

Let me make sure I understand the question. Yes, we think there will be a recovery in the US -- a significant recovery, Europe will continue to grow -- and it has been a nice growth year in 2009, it'll continue in 2010 -- and Asia is just an emerging opportunity for us.

And when -- I'm sorry.

Yes, so that -- that's order rate for NIOBE.

Okay. And what -- and for the US recovery, can you -- is it something where, I mean, based on some of the activity you're seeing at your reference sites, is that something we can start seeing tick up first quarter? second quarter?

Yes, I -- I think we'll see it earlier in the year -- in the first half of the year you'll start to see the US come back. We're seeing a lot of activity now. I mean, I think it's fairly consistent with what you've heard from other companies where we're getting meetings that we haven't got before, there's starting to be activity and proposal -- more activity in proposals, more activity in site visits. So all the trends are in a positive way in the US.

Okay. And then last question, just -- you talked about EP procedures grew 40% --

Yes, 43 --

-- in 2009 versus 2008 to 7,000. Can you -- I guess you also sometimes give us these utilization breakouts at your top reference sites in the US and Europe. Can you talk about how that's going?

Yes, so we've -- I think last time I mentioned that 25% of Europe and 10% of the US are running -- I believe it was around three cases a week. I think I mentioned foreign too. But if I (inaudible) the data and kind of -- we've progressed that a little further so we've increased the number of sites. It's now about 20 -- it's in the mid-20s -- 22% to 23% of total sites in Europe and the US are using it more than three cases a week.

Okay. Great. Thank you very much.

Thanks, Mimi.

And our next question comes from the line of Amit Hazan with Oppenheimer. Go ahead, please.

Amit.

Thank you. Hey, good morning, guys. Just a couple from me. I wanted to ask first about the gross margin on recurring revenue was -- it was -- is quite nice in the quarter, I think one of the better gross margins numbers you've had in a while there. So I'm wondering if you can just give us a little bit of color as to the sustainability of that number and what's driving that.

Hi, Amit., It's Dan here. I think the sustainability is good. I don't think we'll see the increases. I think what we're seeing here is some pricing that we impacted in 2009 over 2008, and that's kind of a one-time opportunity until new products are released down the pipe. So I think it's sustainable, but I'm not sure it will continue to increase at the same rate that it increased in '09.

Okay. All right. And then I just -- I wanted to jump to, kind of, the broader question of profitability and ask again, kind of, to walk us through what you are doing or can do from an operating expense savings perspective and how we should be thinking about getting to, kind of, cash flow breakeven for you and timing of that.

I'll let Dan walk through the mechanics of the income statement on that. But we are mindful of balancing driving growth in the company and controlling expenses. So we're shifting, as you would expect, into spending money in the commercial operations, which result in market penetration and adoption, and being careful of what we spend in G&A and making sure that the R&D investments are lined up so that they will translate to products that will drive revenue in the next two to three years.

So with that said, Dan can walk through the mechanics of getting to breakeven.

Yes, Amit, I think our thoughts on that are pretty similar to what they've been in the past. To us, a breakeven quarter is probably something like a $23 million revenue quarter, and if you think about that at a 65% margin -- which is a little -- it's not quite as good as what we've done, but just to be conservative -- that gives you about $15 million in margin. And then what currently, like I said on the call, we -- I think we feel like the burn rate or the OpEx rate is going to be right around 15, maybe just a little bit higher than that in 2010, and, again, that kind of reflects on the investments that Mike just spoke about.

So that's kind of what it looks like so it's probably -- looks like something, like, 10 NIOBE's, 20 ODYSSEY's, 10 CINEMA's. That's what, kind of, the quarter would look like for us. Is that helpful?

Yes. That's great, actually. And then just the last one from me, back on the recurring revenue side, I wonder if you can break it down, even generally, just to give us a sense of what part of the growth in recurring revenue that you see in either over the quarter or even over 2009 has come from benefit from new products and pricing or mix versus volume.

The volume number is probably about a third to maybe 40% of the increase from year to year. The rest is pricing and new products rolling out.

Okay. Terrific. Thanks very much, guys.

Thank you.

And our next question comes from the line of Tao Levy with Deutsche Bank. Please go ahead, sir.

Good morning.

How are you?

I'm good. Quick question on your guidance first. The capital order growth in excess of 40%, does that include ODYSSEY?

Yes. That's all capital order.

So if I look at the quarter -- and you broke that down with $3.2 million of ODYSSEY orders in the quarter and about -- I mean, I guess the math gets you to $4.5 million of NIOBE's.

Uh-huh.

So pretty much the last three quarters you've seen this $4.5 million of NIOBE orders. Is that the pace that you're going to be on for the next --

No. NIOBE will -- our full expectation is NIOBE is going to pick up in 2010 too, and all the activity would suggest that as well. So we're forecasting a strong uptick in NIOBE this year.

But I think what's interesting about ODYSSEY is that in many of the sales opportunities -- once you go outside of a NIOBE room, we have multiple lab deals that are getting discussed. For example, the -- particularly the -- and a good example is the St. David's order, where we had three systems, and there's a lot of three-system deals so that the dollars associated with a standard lab deal on ODYSSEY can be quite significant.

And you talked about in the past whether the ODYSSEY -- the time to record to revenues obviously a lot shorter. If you start, kind of, bundling a NIOBE with several ODYSSEY's, both NIOBE and non-NIOBE labs, does it all get recorded at the same time, or can you start installing the non-NIOBE ODYSSEY's ahead of time and recording that to revenue?

It's actually, Tao -- there's -- we've adopted a new accounting standard, which was just promulgated in the fourth quarter, and it's going to allow us -- it's going to make it actually a little easier for us to recognize revenue on the individual elements that are bundled based upon establishing fair value. So I think there's going to be less delay. And there, quite frankly, hasn't been much delay, but as we roll out new products like CINEMA, there's going to be less opportunity for delay. So I think you're going to see it flow through faster.

Yes, the book-to-bill time on ODYSSEY is very short, and I think we mentioned that. We took -- I believe the timing -- and this is roughly correct -- we took St. David's order in mid-September and began installing in beginning of October. So it was -- from order to installation was probably under a month.

And just so -- I don't know if you might have mentioned it and I missed it, but the backlog that you have right now?

Yes, $37 million for the next 18 months.

Thirty-seven for the next 18. And that 40% growth, is that off of that number or your --

No. It's 40% over the new orders that we took in '09.

New orders -- '09 -- 2010 over 2009.

Okay. Great. Thanks a lot.

Thank you.

Thank you. And our next question comes from the line of Charley Jones with Barrington Research. Go ahead, please.

Hi, Charley.

Good morning. Thanks for taking the questions, Mike.

I know.

Sorry. Do you guys think that the pickup in the NIOBE orders in revenue in 2010 is more a result of the availability of your reference sites and clinical data, or do you think it's more economically driven?

It's a little of both, Charley. I think that, if you look at having strong reference sites, that will obviously be a positive indicator, and Europe has led the way on that. And what I have done is looked at the percent penetration of our new order rate to the X rays replaced in Europe, and it's about twice as high as it was in the US because I think we've led the way with reference sites. So, as we pick up and establish those reference sites in the US, I fully expect that we'll at least get to that rate, and as the economy continues to show signs of improving, I think that will help as well.

Any expectation -- to bring it up -- about the number of x-ray systems that will go into EP labs or new EP labs or redone EP labs in 2010 either in the US, globally, or split up?

Yes, we're triangulating a number still between 250 and low 300's depending on -- and we get that through our partners.

And that's worldwide?

Yes, worldwide. About half of them in the US and half -- most of the -- the lion's share of the rest is in Europe, and then the balance sprinkled, and China's coming up, obviously, as a very strong market.

Sorry if you've already talked about any of these, but can you give us your assumption for procedure growth in 2010?

Yes, we're thinking right around 25%.

And what percentage of revenue do you expect ODYSSEY to be, and could you split it up between capital and service?

Yes, I can't break the service out between ODYSSEY but -- I mean, the service part of ODYSSEY, but ODYSSEY as a percent of capital in '09 was about 15% of the total capital. If you just looked at capital, not total -- not 15% of the total, but of the capital, which is about two thirds. That's going to grow because we see the order rate and ODYSSEY substantially above the NIOBE increased order rate so -- the 40% new orders that we're forecasting for 2010 is -- from a percentage perspective, ODYSSEY's probably over double what we're expecting as a growth rate from NIOBE.

Okay. That's helpful.

So it'll shift.

And what was the effect of ASP's in your recurring revenue in 2009 as a result of the new catheter advancer, and could you remind us when you put that into place?

It started rolling out in first quarter, and our average revenue per case is north of $1,000, and that includes both the price of the catheter advancer as well as the royalty we receive from --

So it's probably up 30%, 40% (inaudible) price alone?

Right. Yes. Volume -- I think Dan mentioned -- volume was up 43%.

Right.

In EP.

In EP.

In EP.

And then the balance is price primarily.

So we'll have a little bit of a tailwind Q1, Q2, kind of winding down Q3 --

Yes.

-- on price?

Yes.

Okay. Thanks a lot.

Well, with the -- obviously, there could be some more products come on as we get into the midyear from us.

Great. Thanks a lot, Mike. Appreciate it.

Thank you.

And our next question comes from the line of Spencer Nam with Summer Street Research Partners. Go ahead, sir.

The first question is the expense line for 2010 seems a little higher than expected. Where is this increase coming from?

Yes, so we're -- Spencer, we're investing in clinical adoption, which includes training and -- as I mentioned, the programmatic approach -- and I think it's a -- it's fundamentally going to drive an inflection point, which I think you'll see more in the back half of the year. We'll continue to drive our normal improvements, but then you'll see -- I believe it'll translate into an inflection point.

We're also investing in ODYSSEY standard lab channel development -- or that we've elected to -- and make sure that our current capital sales force stays focused on NIOBE penetration in EP labs and bundling the ODYSSEY when that opportunity emerges. But I didn't want them to run around hospitals where there wasn't a NIOBE opportunity so we've elected to start developing and investing in a small sales force to focus on standard lab sales, and most of the time they'll be looking outside of NIOBE hospitals and making sure that we've flushed through the opportunities there as well.

When you say "small sales force," are we -- what's the order of --

Yes, I think my -- when fully staffed, we've allocated seven positions there for the year. We have most of them in North America, we have some -- I think we have one or two in Europe, and then we'll cover Asia from North America.

So if we look at Q4 -- the ODYSSEY backlog buildup -- it seems like there was clearly a huge demand from non-NIOBE customers, and this increase of ODYSSEY sales people, you guys believe, will even accelerate this current, sort of, ramp up here? Is that how you guys --

Yes.

-- or we trying to, sort of -- trying to (inaudible) make a better quality, if you will?

Yes, very much so. And I think you can see it -- I mentioned that, just separating and focusing the channels, we've seen the immediate benefit in the pipeline for ODYSSEY standard labs doubling in the last 90 days. And in that pipeline, what's interesting, as I mentioned earlier, is it's not one customer, one lab. It's one -- I don't know what the average is, but it's -- there's many customers in there that have multiple lab opportunities they're discussing. So I clearly think that just early results would suggest there's a large market opportunity. The reason I wanted to focus a channel on that is to make sure that we didn't put at risk what we believe the NIOBE growth can be by having them being distracted and running after every ODYSSEY opportunity. So we think it's the right investment to maximize both parts of the business, and early indicators are ODYSSEY does have a tremendous opportunity.

Okay. Great. Thank you very much.

Thank you.

And our next question comes from the line of Sameer Harish with Needham & Company. Go ahead, please.

Good morning, Sameer.

Good morning. Thanks for taking the question.

Sure.

I just wanted to verify, I guess, in terms of the guidance -- the new capital orders, -- are you forecasting new order growth of 40% that will track into recurring -- or recognized revenue over 18 months or actual recognized revenue growth of 40%?

No. New order growth that will go into backlog. We're projecting total revenue growth in the mid-20s.

Got it. Okay. Okay. So in terms of procedure growth, you actually -- so that would be in excess of the actual recognized revenue growth for capital equipment -- 25% --

Yes. Yes. Right.

Okay. So --

Yes. Yes.

Perfect. And you touched on it just now, but other than the investment in the sales force that you're doing for standard labs for ODYSSEY, is there any other major investments for 2010 CapEx or other hires in other areas?

Yes, the hires -- we're adding clinical support staff -- clinical adoption staff -- and training. And I think, if you look at -- as a percent or an investment, the install base grows so you do need some staff to grow with that. But we're accelerating beyond that because we think it -- we can fundamentally do a better job of driving adoption in a more programmatic approach. So I think it's a key area for an investment. The benefit will be a accelerated adoption curve. Like I said, you'll -- my expectation is you'll see more of that.

And just in terms of our modeling, does most of that fall within the sales and marketing side versus G&A?

Yes.

Yes.

Okay.

Some of the training falls into G&A but the -- most of it will be marketing -- sales and marketing.

Got it. And as far as existing capacity for ODYSSEY, can you just talk about what you have in existence today, and in order to hit that 75% growth number, do you have to expand on current manufacturing or invest in that?

No, we're in good shape. It's -- you never have infinite capacity, but that's not a constraint of the business right now.

Yes, a lot of the assembly -- I mean, the major components are assembled -- we buy assembled offsite, and we just put final assembly here. So it's really not that intensive for us.

It's similar to our other processes. We believe in, obviously, leveraging a vendor base and then assuring quality standards are met by doing final assembly and check and then shipping it out.

Okay. And, finally, can you update us on the rollout for the irrigated catheter and physician training? Have you been able to expand to any new sites, and can you give us an indication of what utilization you'd like at the sites that have ramped up on irrigated?

Yes, I mentioned earlier -- I think Mimi asked a question -- if you (inaudible) sites in just percents, we -- I think 22%, 23% -- right in there -- in total -- now, this is Europe and US -- are now doing greater than three cases a week. So we continue to progress in adoption of those sites. Every -- I believe the majority of the sites in the US are rolled out. Obviously, I think even Moscow -- we mentioned all the sites in Europe are rolled out.

We're going back through, actually, and looking at this programmatic approach as the main thrust of 2010 and, with that, to reconstitute the learning curve in many of the sites that have been rolled out already. So it's kind of a new approach. I think it's a much more effective approach in the sense of assuring that they get through the learning curve and getting to more independent use. And if you think of it, the classic (inaudible) from education and case support to programmatic approach and driving adoption, where they truly implement it as part of the standards, that's the path we're taking on it. I think, as a result of that, you'll see the THERMOCOOL much more engrained into each site.

Great. Thanks for taking the question.

Thanks.

(Operator instructions.) And our next question comes from the line of Vincent [Gangio] with -- a private investor. Go ahead, sir.

Thank you. Good morning. I have some confusion on the concept of backlog. Am I to assume that the $4.5 million new orders of NIOBE has been added to the backlog and it takes a period of 18 months from book to bill?

No. The NIOBE, yes. The new orders are added to -- capital orders are added to backlog. The NIOBE falls into two buckets. Classically, it takes somewhere around one year from book to bill. The ODYSSEY is much shorter than that. And there's a bell-shaped curve around that one year. There's some that are much quicker than that and some that are waiting on a new wing to a building that take longer than that.

And is the backlog only the NIOBE?

No. It's capital orders only. So it would be both NIOBE and ODYSSEY.

It is both. Okay. Also, in prior conference calls you had mentioned arrangements with Novartis and also a financing arrangement. Has any of those arrangements resulted in orders?

We haven't -- yes, I think you're referring to some leasing arrangements.

Yes. Yes.

We've not executed any arrangements like that. Every sale so far has been a pure sale through a traditional manner.

And nothing from -- through Novartis?

No.

None.

I think it's RTS --

RTS out of Chicago.

Yes, the financing house.

And just a comment: I like what you've done with your Web site. It looks very nice.

Thank you.

Thank you.

And there are no further questions at this time. I'll turn it back to management for any closing remarks.

Well, thank you, everybody, for participation this morning, and we look forward to our call in early May. Thank you.

Ladies and gentlemen, that does conclude your conference for today. If you wish to listen to a replay of the call, you can dial 1 (800) 406-7325 or (303) 590-3030 with the access code 4207018 and the # sign. Thank you for using ACT Conferencing. You may now disconnect.