Stereotaxis Inc (STXS) 2010 Q3 法說會逐字稿

Welcome to the Stereotaxis third quarter 2010 financial results conference call. During today's presentation all parties will be in a listen-only mode. Followingthe presentation the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Monday, November 1 of 2010. I would now like to turn the conference over to Greg Gin. Please go ahead, sir.

Thank you, Brittany. Good afternoon everyone. Thank you for joining us for the Stereotaxis conference call and webcast to review the financial results for the third quarter 2010 which ended on September 30, 2010.

Before we get started we would like to remind you that during the course of this conference call the Company may make projections and other forward-looking statements regarding future events or the future financial performance of the Company, including without limitation, statements regarding future operating results, growth opportunities and other statements that reflect Stereotaxis' plans, prospects, expectations, strategies, intentions and beliefs.

These statements are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. For a detailed discussion of the risks and uncertainties that affect the Company's business and qualify the forward-looking statements made in this call we refer you to the Company's recent public filings with the SEC, specifically the Form 10-K for the Fiscal Year ended December 31, 2009. The Company's projections and forward-looking statements are based on factors that be 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 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 al, 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.

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

Thank you, Greg. Good afternoon everyone. Thank you for joining us today on our third quarter conference call. With me today is Dan Johnston, our Chief Financial Officer, and Pierre Rivaux, our new VP of Europe, Middle East and Africa. Let me start by introducing Pierre who comes to us from Intuitive Surgical, where he was responsible for their European Middle East and Africa business for the past five years. We are excited to have Pierre join the team, and today mark his first day with Stereotaxis.

Pierre would you give everybody a quick overview of your background, please?

Thank you, Mike. Good afternoon everyone. I am very happy to become a member of the senior leadership team at Stereotaxis. I am very excited by the Stereotaxis technology, and the opportunity to leverage my past experience, again through what I believe was a very similar business model.

When I started with Intuitive in Europe the revenue and organization was very similar in size and scope to where Stereotaxis is today. Over a five-year period, we have reached a world-class organization with strong processes that delivered superior results. I am confident that we at Stereotaxis can do the same with the Niobe and Odyssey platforms, which are well positioned for adoption for EP ablations.

Thank you Pierre, and welcome. Our results for the third quarter, particularly for our leading indicators, were very positive. These indicators include new capital orders, record recurring revenues, strong gross margins, and reductions in both operating loss and operating cash used. I want to highlight this last point. Specifically the quarter we used $1.7 million of cash and paid down the Biosense debt by $1.6 million. Without the paydown of Biosense debt, we would have consumed only 100,000 in cash from operations. Let me restate that, we consumed only $100,000 in cash from our operations. Clearly utilization of cash during the quarter was at the lowest for any quarterly period since we became public, and as an indication of how focused we are at getting to breakeven, and the next phase of our growth.

Total revenue for the quarter was $13.9 million, a 5% increase from the $13.3 million reported in third quarter 2009. As we released in the preannouncement a couple of weeks ago, we experienced some lumpiness in the systems originally planned to go to revenue in Q3 and Q4, due to hospital's construction cycles extending into next year, and a temporary delay in the imaging partner's ability to install the system. We fully expect to see any system delayed from this year to convert to revenue next year.

Even though revenue experiences delay we achieved significant progress on many fronts. First, new capital orders for the quarter totaled $12.2 million, a 94% increase from the third quarter 2009. Second, the continued growth of standard lab sales for the Odyssey product line accounting for one-third of the Odyssey orders. Third, recurring revenue hit another record high, despite the expected summer seasonality for ablation procedures. Fourth, gross margins reached 72%, even though the higher margin recurring revenue was only 41% of the total revenue. This gross margin performance demonstrates the strength of our capital value to customers.

Operating expenses were relatively flat with last year both for the quarter and year-to-date. It should be noted that we continue to shift our operating expenses from our fixed infrastructure to sales and marketing. And turning to the details of our business model, first I want to review the progress in driving clinical adoption. This number one initiative continues to dominate our daily focus. We had a strong quarter highlighted by the record $5.7 million of recurring revenue. We had anticipated this metric being down from the second quarter due to the seasonality especially in Europe.

In comparison to the third quarter 2009, we have grown 31% in total EP utilization, and 44% on left-sided ablation. Niobe's emerging value and market excitement in VT has allowed us to accelerate adoption in AF and other complex left-sided albations. Recurring revenue margins were 87% in the quarter, with our net revenue well above $1,000 per case. We will continue to increase our revenue per case as the Vdrive is commercially released over the next few quarters. Since our last quarterly update we have seen an increase in scientific studies coming from leading sites around the world. There have been several new presentations in international scientific meetings and publications that significantly added to the body of evidence supporting our value proposition.

We recently announced the excellent results from Rotterdam's group and their comparative VT ablation study. In this direct head-to-head comparison with conventional methods, Stereotaxis' VT ablation with Niobe was associated with better outcomes, fewer recurrences, lower adverse events, and shorter procedure and X-ray times. Recently Stereotaxis was prominently featured in the Sixth Annual International Symposium on VT in New York. Dr. Jackman of the University of Oklahoma provided details of how the Niobe provides the ability to perform highly detailed maps of patients with scar-related VT. He noted that Niobe improved the resolution of these maps while minimizing both the total mapping time, as well as the fluoroscopy time, when compared to non-magnetic methods.

VT is one of the most challenging arrhythmias facing electro physiologists due to the complex anatomy, the sensitive nature of the ventricular tissue, and the potentially lethal outcomes. In 2010, VT albations will reach approximately 30,000 procedures worldwide, with an estimated 20% annual growth rate. We believe the Niobe system has demonstrated an ability to treat VT at a level that is comparable to the best hands in the world. We achieved this through exceptional capability to generate very precise maps, important in the targeting and treatment of this complex arrhythmia. We are optimistic that Stereotaxis VT ablation is on the path to become the worldwide standard of care for VT.

Although we have recently highlighted our value in VT, there have also been several new publications on the use of the magnetic navigation platform for AFIB ablations. Professor Carlo Pappone of Villa Maria Hospital in Italy recently published long term results of 130 patients who underwent magnetic AF ablation. Using rigorous follow-up methods, they reported am 81% freedom from AF at more than one year of follow-up. This compares very favorably to a large multi-center FDA trial of the non-magnetic irrigated catheter, whose data showed only a 59% freedom from AF using similar follow-up methodology.

An additional paper has been published from the group of Professor [Hassager] in Bordeaux, France, comparing their very early magnetic AF ablation experience to a concurrent group of non-magnetic patients. Even though this data was collected very early in their learning experience with the system, they still noted a nearly 10% improvement in freedom from arrhythmia and anti-arrhythmic drugs at a 12-month follow-up. Another recent comparison from Professor Hendrick's group in Leipzig, Germany had similar clinical results at a 6-month follow-up, and noted a significant 60% reduction in fluoro time when compared to the non-magnetic AF cases. This scientific evidence along with physician feedback, leads us to conclude that we can become the gold standard for complex ablations. Our ever-growing bibliography is available on our recently-updated corporate Website.

Lastly we are committed to continuous improvement of our product performance. We are excited about the potential of several new product releases on the adoption of our platform for AF. The newly-released Vdrive expands the platform's capability by allowing physicians to remotely manipulate multiple diagnostic devices at the same time as the magnetic ablation catheter. Early tests have demonstrated a significant improvement in the ease and the efficiency of managing all of the devices typically associated with AF patients. We will place our first system in Europe in Q4, and expect a launch in the US in the mid-part of 2011. In addition to the Vdrive we will launch the CARTO 3 RMT and the new Navigant 3.2 software over the next few quarters..

Now turning to the capital part of our business model. In the third quarter new capital orders increased 94% from the level in a comparable period in 2009. New capital orders in North America were $6.3 million,or 52% of total orders in the third quarter. Global orders for Niobe systems totaled $8.1 million while Odyssey systems ordered increased to 140% to a record $4.1 million from a year ago period.

Driving system adoption in the installed base leads to stronger reference sites and training centers. This foundation allows us to generate greater market excitement which can be seen both in our sales pipeline and new Niobe order rates. The strong new order momentum confirmed that we continued to execute on this commercial strategy. Additionally with the increase in Niobe sales we have generated opportunities for Odyssey and subsequently the Odyssey business expanding beyond the Niobe suites into standard labs. We are very encouraged by the increasingly strong recovery in North America, steady progress in Europe, and early signs of a significant growth opportunity for robotic penetration in Asia Pacific.

In North America, the rebounding orders are consistent with our expectations. These expectations were a reflection of the increase in activity in the sales pipeline, and improved discussions with customers we have seen since the beginning of the year. We have strengthened our sales organization, improved our reference sites, and the pipeline continues to grow, all factors leading us to be bullish for the visible future.

In Asia Pacific earlier this year we added several employees including two physicians with a specific focus on clinical support and capital sales. We have just completed the APHRS show last week, in which Stereotaxis was highlighted in a live case, a lunch symposium, and several talks. In Japan which is currently the third largest ablation market behind the US and Europe, we will complete enrollment this year of our trial and submit for approval in the first half of 2011. Between both China and Japan we are positioned to capitalize on these emerging growth opportunities, and are investing on pace with regulatory timing. We believe this is a large market potential in 2011 and beyond.

Now turning to the Odyssey product line, this product offering generated a 140% increase in new orders for the third quarter. Over 80% of the Niobe orders now include an Odyssey system. Importantly, this year we have seen the acceptance of the Odyssey platform for non-Niobe or standard labs. Entering this market opens up a tremendous growth opportunity in the 3,000 EP labs and approximately 10,000 non-EP interventional labs. Our sales pipeline which has grown over 70% from this time last year is a reflection of the market interest. Customer perceives our unique value in both our ability to provide an efficient single control workstation and an ability for the data from the prospective to be organized, stored, and viewed realtime, due to our state-of-the-art video compression. The product is capable as an educational platform, and it was recently displayed in our Odyssey International Network, and in recent meetings where the Odyssey provided the centerpiece of live VT case presentation.

To summarize, the number of new EP labs and treatment of complex ablations are rapidly expanding, and we believe we have continued and will continue to do so for a year to come. The EP complex ablation market reflects an attractive opportunity of over 150,000 patients, and growing at a rate greater than 20%. With close to 3,000 labs worldwide performing these ablations, we have just begun to penetrate this high growth opportunity. We are continuing to enhance the value proposition of our products and our body of scientific evidence. Finally, we have strengthened our executive management team, and have added the necessary leadership and expertise to enhance our selling efforts in the US, Europe, and other key international markets, which will help us drive long term growth. We believe we have a sound strategy to become the standard of care for complex ablations, and we will continue to execute on that strategy.

Now I would like to turn the call over to Dan for a more detailed look at our third quarter financials. Dan?

Thanks, Mike. Good afternoon. Revenue for the third quarter of 2010 was $13.9 million, in line with the preliminary results reported on October 13, 2010, compared to the $13.3 million in the third quarter of 2009. Systems revenue was approximately $8.2 million in the third quarter. We recognized revenue on $5.5 million in Niobe systems, and $2.6 million in Odyssey and Cinema systems.

Current deferred revenue on the balance sheet was $7.2 million at September 30, 2010,flat compared to deferred revenue at year end. Recurring revenue grew 24% or $1.1 million to set another record of $5.7 million. This sequential growth from the second quarter of 2010 related to procedure revenue.

New capital orders in the third quarter of 2010 totaled $12.2 million including $8.1 million for seven Niobe systems. The seven new systems and backlog break down geographically as three to the US, one into Europe, two into Asia Pacific, and one into the rest of the world. New orders for the third quarter of 2010 for Odyssey and Cinema included $4.1 million, one-third of which went into non-Niobe labs.

Backlog at the end of September increased to $43 million, up from $39 million at June 30. We have now posted three sequential quarters of increased backlog. For the third quarter of 2010, gross margins continued to be strong, and increased 11% to $10 million from the third quarter of 2009. As a percentage of revenues, the third quarter of 2009 gross margin percent of 72.2% increased from 67.8% reported in the third quarter a year ago. The increase was driven by strong margins in all product groups, driven by both strong pricing and good cost control.

Operating expenses for the recent third quarter were $13.6 million compared to $13.2 million in the third quarter of last year. The increase of $400,000 is the net of rebalancing our spending priorities towards more market-facing activities. As you can see in the face of P&L the third quarter 2010 investment in sales and marketing is up significantly from last year. In addition, General and Administration costs are lower on administrative savings and currency gains, partially offset by an increase in clinical training of $500,000.

The net result was continued improvement in the reduction of our operating loss to $3.6 million in the third quarter of 2010 compared to an operating loss of $4.2 million in the third quarter of last year. Other income and expense includes the mark to market loss related to the outstanding warrants we have, which must be adjusted quarterly under derivative accounting rules. We reported a net loss for the third quarter of 2010 of $5.1 million, or $0.10 per share versus a loss of $5.8 million, or $0.14 per share in the third quarter a year ago.

Average shares outstanding for the third quarter were 50.1 million compared to 42 million in the same quarter last year, reflecting the issuance of 7.5 million shares as part of our follow-on stock offering completed in October of 2009. For the first nine months of 2010, revenue increased 7% to $39.5 million from the first nine months of 2009. Gross margins grew almost twice as fast, up 13% to $27.8 million, or 70.4% of revenue compared to $24.7 million,or 66.5% in the first nine months of 2009.

Year-to-date orders to backlog are up 47% to $29.6 million through September 30. Operating expenses for the first nine months of 2010 were up about $660,000 from the first nine months of 2009, again driven by investment in sales and marketing as well as training.

Operating loss for the first nine months of 2010 declined 14% to $15.5 million, compared with $18 million for the first nine months of 2009. The net loss for the first nine months of 2010 was $17.4 million compared to $20.8 million for the corresponding period in 2009. On a per share basis, the loss per share was $0.35 in the recent nine months versus $0.50 for the same nine months of 2009. On a year-to-date basis we continue to make strong progress in reducing our cash burn, which includes cash used in operations, capital expenditures, and the repayment of the Biosense advance, we have historically included the repayment of the Biosense advance as part of our cash burn, as operationally the advance is reduced by the earning of royalties.

For the first nine months of 2010, our cash burn was $16 million compared to 20.9 million in the first nine months of 2009. Of the $16 million in cash burn on a year-to-date basis, $3.8 million is related to the repayment of the Biosense advance. During the third quarter our cash burn was $1/7 million, which included $1.6 in Biosense's advance reduction. As such cash burn in the more classic sense would have been less than $100,000, driven by the lowest operating loss in our history, and strong cash management.

Turning to the balance sheet, cash totaled $21.8 million at September 30, 2010, and total debt was $26.5 million. Last year at this time, we had cash of $12 million, and total debt of $30.8 million. As such, our net liquidity position is about $14 million better than a year ago. Or said another way, we have used about half of the net equity raised of $27.8 million from a year ago.

Finally, we updated our 2010 outlook today. We expect the following. New capital order growth in dollars in the range of 45% to 50%, total revenue growth in the high single-digit percentage range, gross margins to approach 70%, and operating expenses between $59 million and $61 million. With that, I will turn it back to Mike.

Operator, we are ready for questions.

Thank you, sir. (Operator Instructions). Our first question comes from the line of Steven Lichtman with Oppenheimer & Company. Please go ahead.

Thank you, hi, guys.

Hi, Steve.

Just a few questions. So in terms of the delays, I guess a couple of them were out of Asia. What steps do you think, Mike, you guys need to take to decrease the sales cycle in Asia, and maybe improve the visibility there?

Yes, well there are two part to that, Steve. One is I think definitely we can get better looking at our order to cash cycle. But I think specifically when we are forecasting backlog to revenue, the Asian orders tend to be associated with more significant construction. So they don't fit into the normal order,and forecast it out, where Asia tends to be new buildings, new facilities. So I think it is going to be a little longer out. Now interestingly enough, all of those that we looked at late this year are going to come to revenue. They will just be scattered throughout 2011. So I think it is going to have a little longer cycle because of the construction. But we will factor that in as we look at 2011.

Okay. And then with Pierre on board now, what are the next steps you think we'll see in terms of expansion in Europe? What are the key steps we should be looking for from you guys?

Yes. In fairness to Pierre since this is his first day, I will answer that.

Yes.

First thing is obviously Pierre to get his arms around our business model. Where we are, look at the sales pipeline, and begin to look at the processes and the opportunities that we have in front of us. I think that will take probably a quarter to get through to really assess the state of the business. And Europe is going well. I think it can go better. And I think Pierre will add that energy and punch to really get us up a different curve in Europe. I am not disappointed at all. I just think there is more opportunity there.

And we see a large opening up in the eastern block. I think we continue to do very well in Germany and Scandinavia. I think we can do better in some of the other countries like France and England. So I think Pierre's background allows us an opportunity to really look at similar business models, and drive a robust process. And we saw the same thing with Paige in the US. As she began to look at it, we really began to see an accelerant of our Company.

Okay, great. And then lastly, Dan, can you talk a little bit about the working capital changes you are putting in place to lead to that improved burn rate I guess in addition to the expense management?

Yes, Steve, about half of, actually the cash we generated off the balance sheet from working capital and other balance sheet items offset the operating loss. And that is essentially why we were at breakeven from that metric. We spent about $60,000 on CapEx, and that is what put us into a negative position. But it is pretty classic stuff with regard to monitoring inventory levels.

It was actually a little more difficult of an inventory number for us in the quarter because of some of the orders being pushed out. We had built some systems. So we didn't do as well in inventory, as we did in cash collections and just managing our payables. So the lion's share of it came from good collections. And we made up for the disappointment in inventory with better management of our payables.

Okay, great. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Sameer Harish with Needham & Company. Please go ahead.

Hello, Sameer.

Hi. Good afternoon. I thought I would ask a couple questions in regards to guidance. Given the delays that you have seen with the partner, can you talk a little bit about expectations for fourth quarter? Do you expect systems to kind of be flattish, up or down for third quarter? How shall we think about that?

Systems will be up in fourth quarter. Our guidance, if you go to just looking at Dan's numbers, single digits would show a growth over last year and a growth over the third quarter.

Okay.

On the order rate, Sameer, I would expect it to kind of continue. We reported year-to-date numbers up about 47%. So we think that is in the ball park of what we will achieve in the fourth quarter as well.

Okay. Great. And in terms of Company profitability, obviously you guys have excelled in terms of monitoring the cash level and improving the operations. Does this change your thoughts on when you can achieve profitability? Or at what revenue run rate? Maybe just update us on what you are thinking there?

Sameer, I think it is about the same. I think there has certainly been a shifting or rebalancing of the investment in OpEx towards more market-facing activities. But I still think we tend to think about breakeven as a quarter in the $21 million range, which is the number I think we have talked about for a little while. Actually more powerful is the uptick in margins that we have seen. To get to break through the high-60s into the 70s-range. I am not saying we will continue that indefinitely but that is also very, very encouraging. If anything that will short that road a little bit. But right now I think we still think about it in terms of an $84 million top line year, or $21 million a quarter.

Okay. And to follow-up on Steve's question, how much do you think is left in terms of working capital benefits that you could see?

No, I don't think a lot. I think we have taken it pretty quickly. You can actually go back a year and see that we have started picking up. We had very good cash burn numbers in the later half of 2009. And we have continued that path. And we have taken the philosophy that we are going to finance our inventory with payables, and to the extent that we can negotiate better terms on collection we will do better on the receivable side. But I don't think you are going to see the big step that you saw late last year,and we have been able to accomplish. The numbers are getting pretty much where they should be. And it gets harder and harder to improve it quarter after quarter.

Okay, great.

But I think we will hold it there. We are not going to give up any ground.

Right. Right. Got it. In terms of your last question, in terms of Japan, obviously that is a big market. And I think you, perhaps you can correct me if I am wrong, I think you said you are expecting to start generating some revenues there in 2011, can you talk about timelines in terms of how that falls? I think you require some reimbursement in Japan. Do you expect to be able to piggyback off of Biosense's reimbursement that is already there, or is that something that may take a little bit of time to develop in addition to just product approval?

Yes. I think both will have to come, Sameer. We will finish enrollment this year. We will submit it to the 90-day follow-up so we will have a submission in the first half. The most aggressive would be an approval late 2011, and then obviously you can go into 2012 pretty easily, based on the normal shown and approval process. And I think you can begin commercial activities which obviously in a long lead time item like capital you want to start doing. And then we should see financial ramping probably in 2012-2013 time frame. As far as revenue that comes through our income statement.

Now I think China has a much shorter period obviously. We have already sold several systems into China. We think that can be a significant opportunity in 2011. We are starting to invest heavier in that whole infrastructure. But specifically in the near-term it is more in China than it is Japan. And I think if you look at some of the conversations with other capital people, particularly the imaging partners, they are looking at a great opportunity because of the expansion in China. So I think that can be near-term, Japan will complement that probably 12 to 18 months later.

Great. Thank you.

Thank you. Our next question comes from the line of Jose Haresco with JMP Securities. Please go ahead.

Hi, guys. Good afternoon.

Hey, Jose.

On the gross margin side, as you mentioned you guys have been holding pretty steadily now for a couple of quarters on a year-over-year basis. Could you just walk us through again the things that you put in place that have kind of led to this? I mean is this just purely volume on the recurring revenue side, are there new manufacturing gains here, just so we can have a little more long term view on how stable this could be?

Yes. I think there are some manufacturing gains on the Niobe side. I think there is more to be gained frankly on the Odyssey side. I am not sure we are there yet as that production and the order numbers pick up, I think there are bigger opportunities there. So I think that is the larger upside.

I think we have been very disciplined on pricing. We have got fewer abnormal show systems. Last year we probably had a better pricing in a few systems than Odyssey because we were establishing the product line. So I think as that has matured I think the pricing has been quite stable. Frankly where the dollar is, the European backlog becomes more valuable. The Asian backlog becomes more valuable. So I think there is some benefit or a little bit of a tailwind there, if the dollar stays where it is. And we don't source too much of our material outside of the US, so really that is a pretty good arbitrage for us.

On the recurring side, we have taken some pricing opportunities late in 2009, and that benefited throughout the early part of 2010, but I think that has largely been anniversaried now, so I don't think there is much tailwind there, although I think we will be selective,and with the advent of Vdrive, and the new product lines, we will be looking to see how that impacts overall margins. But we have also done a very, very good job of keeping our COGS down with services on the part of the business on licensing. That has been very, very favorable. And again I think that is more attributed to the fact that Company has just matured more, and we don't have the bumps in the road that used to come around from a service and software perspective.

So Jose, just to add a little bit of color to that, incoming Niobe order pricing is consistent with what is going to revenue. So we feel good that the conversion will remain consistent. I think the other thing to note that I said in my commentary is we had exceptionally strong margins with recurring only being 41% of the total. We had great margins in Q1, but recurring was a little bigger part of the total.

That was a mix issue there.

That was a mix. This was a strong quarter. This was a very strong quarter.

And as you think about the recurring revenue component, was it still about a 50/50 split between tools and services this quarter?

Yes, that is fair. We don't get into it on a quarter to quarter basis, but I think that is still a good rule of thumb. And I think that will continue for a while. Although down the road, a couple years down the road we will have to look at that a little bit more, because the Odyssey platform doesn't have recurring revenue in the sense of procedural revenue. It only has license and software. So that mix can change with Odyssey. So we will have to keep an eye on that from a modeling perspective. But right now it is pretty much the 50/50 split.

And it will change with Vdrive. So Vdrive will be an incremental disposable product that will come into our line next year. So you will begin to see that change.

It has a capital element and a disposable element.

Okay. And the margins on that are similar to the corporate level margins? Or should we consider that over the long haul an incremental benefit?

Yes, we haven't finalized pricing yet. We are still going through a couple of really different models of how to price that. So we will roll that out in the first quarter. But we would anticipate it being very, if we price it the same way we do today, it would be very close to where we are.

Okay. Turning to Europe for a second, again recognizing this is just Pierre's first week on the job, when you think about expansion and resources in Europe, can you give us a sense of is this, are we looking at more head count being added to Europe, and in terms of tackling new territories, or do you see more resource deployment really being focused on driving utilization in areas that you are already very strong? And just getting more docs on board and utilizing the machines you have got on the ground?

In fairness to Pierre I will at least let him get 24 hours under his belt before he answers any questions. I think what Pierre will do first, if it is similar to how Paige entered, look at our processes, look at where we are, and understand how we can drive a more disciplined, more processed-oriented company. That is kind of the life cycle where we are. Drive up the curve, high growth, processed discipline, look at expansion. I think there are opportunities. We have opportunities to have better coverage, particularly if you start looking at the eastern block, and how we use distributors. I think the whole distribution channel development doesn't have to be direct. I mean, we can use indirect channels as well.

We will add clinical support undoubtedly. But we will add it as a function of kind of the installed base growth. So it will be a derivative of how we are driving revenue up. And I think we have some ability to drive efficiencies in that. We are going to continue to push both our ability to get the independent, and our ability to be networked. Both can drive an efficient model that is different than today. And we will continue to push that. And I think Pierre's experience and kind of his business model, capital that drives clinical adoption is invaluable. It really is invaluable for us to leverage that. And we have seen it in the US and what it can do, and we will expect the same thing in Europe.

Okay. I guess the last question is turning to the US, we have seen a couple of quarters now build out here on the Centers of Excellence model, and the data that is coming out just continues to drive the interest,and then what you guys are doing. How should we think about the next 12 months of activities domestically both in terms of what is happening within the Centers of Excellence model, and then just how that might either, will it require more resources or not require more resources? Or are you making changes to the kind of physician marketing that you guys are doing, in terms of driving the interest?

Yes. There is a slight change in Q3 which is interesting. We are still going to leverage the centers of excellence because they have the experience and the knowledge that everybody wants to hear from, and go see. But what we did in Q3 which was interesting is we put on a symposium from a Center of Excellence, and then had networked a couple different centers into it, and then broadcast that. And I think we have an opportunity with Odyssey. That is where the complementary nature of Odyssey and Niobe can really be leveraged.

So that we actually had webcast into independent sites those Center of Excellence cases and education forums. And so what, the people that came in person, obviously saw the whole eight hours. We subset the session so that for 30-minute segments we would broadcast it out, and then we organized the local teams, organized it so that physicians would be online to watch that session. And that seemed to work very well. We are going to really push our ability to do a low-cost one education, and secondly do low-cost market-building excitement for those who haven't bought. They may not want that education. They don't want to sit through eight hours of education on how to use Niobe. They want to see a 30-minute clip on why should I be interested enough to buy. We are doing both. And I think we have got a lot of opportunity to continue to grow that.

Sure. Okay. Last quarter you pulled off something pretty unique where you had two procedures going simultaneously on one operator. Is that something worth exploring in the future? Pretty eventful in terms of shortening off capabilities, is that something that should generate a lot of interest, should we expect more of that? Actually get a live case?

I think what you are referring to is the opening, Professor Pappone's opening in Italy. There was I can say in this high-growth market there is a real opportunity to proctor cases. And I think the need is out there. And if you look at any market, the need is out there to take very experienced people and have them teach others how to do the procedure the way they are capable of doing it. And I think that that is one of the benefits of the Niobe platform. And that is one of the things that Professor Pappone highlighted is that doesn't replace a local physician being there, but having an experienced physician online teaching them the ins and outs of what they have learned by doing 5,000 cases can't be replaced.

So there really is an unique proctoring to our capability. Now he actually has even a vision beyond that. But I think that in the near-term education and proctoring online, either through webinars or realtime, like you just described, is something that can be a reality of how healthcare can disseminate.

And one last question, a housekeeping issue, how many procedures do you think we did in the quarter?

We only update our procedures at the year end. But from Q3 last year, we are up 31% in EP and 44% on left side.

Okay. Got it.

Okay.

Thank you very much.

Thanks.

Thank you. (Operator Instructions). Our next question comes from the line of Ben Forrest with Madison Williams. Please go ahead.

Thanks a lot for taking the questions.

Hey, Ben.

Hi, how are you?

Good.

On Odyssey I am wondering if you could talk more about the demand that is coming from non-Niobe centers?Wondering if you can give as you idea of how many centers are out there that have the traditional labs that are currently considering the Odyssey system?

Ben, I don't have that level of detail. I don't know if Dan does, the pipeline I mentioned there is a 70%, over 70% growth in the sales pipeline interest. I know a large percent of that is standard labs. Now what is interesting about the standard lab is the profile of those is usually a multi-lab discussion. Where the Niobe is a one to one. You are buying a Niobe, you want an Odyssey, once you begin to go into these other discussions, generally if you look at the profile of that discussion and that opportunity it is multi-lab. So it is a bigger deal usually, bigger revenue deal, that has more products encompassed in it. And so the average deal size, we will see but the expectations are that will begin to grow.

Ben, we typically think about the ET space like around 2,500 to3,000 EP.

And then we are largely focused, Ben, on EP today. But we are getting some visibility in the interventional labs. Obviously it is about 10,000. We start looking at other interventional labs there are about 10,000 of those. If you think about our near-term focus it is leverage Niobe, and expand it into other EP opportunities.

Okay. Great. And then I was wondering if you could give us any update on how things are going with the imaging partner, any feedback from them yet, and how confident are you guys that everything will be resolved in the first quarter of 2011?

Yes, second quarter. We are very confident, yes. There is no open issue that I am aware of. I think everything is on pace to begin shipping again in Q2. So it is still about mid-part of Q2 that we anticipate.

Okay. Great. Thanks a lot.

Okay. Thank you.

Thank you. Our next question comes from the line of [Dennis O'Hara] with Wells Fargo Advisors. Please go ahead.

Hi, Dennis.

Hi, Mike. How are you? Mike, I had a quick question. I wonder if you could give us an update on the developmental alliance and supply agreement, which you sort of last updated us on back on July 30?And subsequent to that, give us as much color as you can on what is going on with those discussions?And then subsequent, how do you guys think about Odyssey right now? Odyssey had some it looks like pretty exceptional growth year-over-year, quarter-to-quarter. How do you take advantage of what seems to be a ramping business, and make sure that you are able to maintain the first mover advantage you have? Do you look for a partner? Do you bring somebody else in? Do you do a lot more hiring? What are you thinking about around Odyssey as a standalone business? Thanks.

Sure, Dennis. Was your first question Biosense?

Yes. Just an update on the developmental alliance that you guys have?

Yes. So obviously we are in discussion with Biosense, as with any discussion, we are in the midst of talking about all the different components of what is beneficial for both companies. We extended I think the last release we talked about extending it through the end of this year. We would anticipate getting through this by then. We had some calls even earlier today. So I will need to, I refrain a little bit about talking about each of these because the open issues I don't want to talk about until they are closed, right? But I am very bullish on our relationship with Biosense. I think it has been very favorable for the Company. I think that their leveraging, their capability to give us ablations catheters has been instrumental in our success. So I am very bullish.

Obviously some of the discussions as we announced have evolved around a potential to expand it to Odyssey which is your second question. And we are still working through some of that discussion. So I think to discuss fully the Odyssey opportunity, right now Dennis, the question is how aggressively do we invest, recognizing the opportunity in front of us, but also recognizing that we have got to get this Company to breakeven. And so we are weighing both of those, knowing that the getting to breakeven is fundamentally important.

So we are pushing ourselves to continue to refine our spending and G&A. And Dan talked a little bit about that. and then internally fund as much as possible, and look at partnering opportunities. All those are on the table. Clearly we have first mover, but we also have some unique technological advantages. I wouldn't lose sight of the fact that we do have a patent on the efficient kind of single keyboard mouse interface. We have some relationship with proprietary compression technology. There are some technological advances that we have put together that will keep us in a first mover position for a period of time. We will continue to invest in the R&D platform to expand beyond that. That is what we are looking at right now is how to surgically do that.

Have you as a follow-up, have you actually considered actively partnering this up? I mean, have you actually had a discussion with potential partners? And do you have a road map of what you think that looks like? And then just doubling back for a second, do you think that we are going to wind up having to extend that developmental alliance agreement again, or is that something that you think you can, do you think you have enough common ground right now with Biosense that you can actually get something done before year end?

I hope the answer to that one is we don't need to extend it again. But until you get to the ink on the paper you don't know the final answer. But my belief is we can work through it, and get it done. Now on the partnering, we have looked at the various market needs. We have a pretty well-defined product road map and strategy. And I think that to execute that will require us developing product, us expanding channel opportunities, and us looking at partners. And we are open to all of those things as we begin to expand the Odyssey footprint. And clearly, covering 12,000 labs, Stereotaxis is not going to do that. So we will look at opportunities to expand our presence to do that. So those points are very valid.

Okay. Thanks.

Alright. Thanks.

Thank you. Ladies and gentlemen, this concludes our question and answer session for today's conference. I would like to turn the call back to Mr. Kaminski for any closing remarks at this time.

Well thank you everybody for attending our conference. And we look forward to talking to you in the beginning of next year. Have a good holiday season. Thank you.

Thank you. Ladies and gentlemen, this concludes the Stereotaxis third quarter 2010 financial results conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030, or 1-800-406-7325, and enter the access code of 4377272 followed by the pound sign. We thank you for your participation. You may now disconnect.