Stereotaxis Inc (STXS) 2011 Q2 法說會逐字稿

Please stand by for real-time transcript. Ladies and gentlemen, thank you for standing by. Welcome to the Stereotaxis second quarter 2011 conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions) Today's conference is being recorded August 8, 2011.

I would now like to turn the conference over to Greg Gin. Please go ahead.

Thank you, operator. Good afternoon, everyone. Thank you for joining us for the Stereotaxis conference call and webcast to review the financial results for the second quarter 2011 which ended on June 30, 2011.

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 statements that reflect 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 on 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, 2010.

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 of forward-looking statements. In addition, regarding orders and backlogs, there can be no assurance that the Company will recognize revenue relative to purchase orders or any other commitments in any particular period or at all because some of these purchase orders and other commitments are subject to contingencies that are outside of our control. In addition, these orders and commitments may be revised, modified, or cancelled either by expressed returns in the 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 second quarter 2011 conference call. We have a lot of important information to review today so I'd like to spend a few moments going over the agenda. I'll start with prepared remarks with a review of the factors that impact our second quarter performance. Then I'll discuss the Company's transition plan as outlined in the afternoon's press release that is designed to build rapid adoption of our new Epoch robotic platform, capitalize on the Odyssey opportunity and substantially conserve financial resources. We will then review the financial results and provide further details of the financial impacts of the restructuring before opening it up to calls.

Let me get started. Second quarter was a challenging quarter for Stereotaxis and reflects the beginning of a period of significant transition for the Company. Revenue was down 22.7% from the second quarter of 2010. Gross margin in the second quarter was 69.7%, up 250 basis points from a year ago. Global new capital orders were $4.4 million and were comprised of two NIOBE systems, as well as $1.7 million in orders related to Odyssey. Operating expenses increased due to the impact of marketing expenses for two major medical meetings associated with the release of our new Epoch platform. The bright spots of the quarter were the marked momentum and interest in Epoch, which is designed to significantly enhance the efficiency for all robotic EP procedures and whose market adoption will significantly contribute to the growth and profitability in the future.

The second was the 17.9% growth in recurring revenue which reflects the continued growth in the clinical procedures, and the pipeline momentum for the Odyssey system and the standard EP labs. While we're disappointed with our systems revenue and new capital order performance in the second quarter, we believe we clearly understand the drivers for our results and are on a path to turn this around. Our financial performance in the quarter and year-to-date is mainly driven by soft NIOBE revenue and the related impact on the Odyssey business, and the emergence of the larger standard lab Odyssey deals which take longer to close but significantly increase our growth potential.

With our key focus on building top-line growth, we're mindful of conserving resources during the transition period. Therefore we're embarking on an aggressive and immediate action plan to implement and rebalance and reduce the level of spending. This plan will focus on aligning our operating expenses with our revenue growth expectations, minimizing the cash burn while continuing to drive investments in R&D. 2011 has become a transition year for the Company. One in which we need to regenerate robotic market demand in EP, continue to expand on the promise of the Odyssey product and rebalance our spending so we can invest in strengthening our value in the market but lower our burn rate. Accomplishing this will position us for a strong 2012 and beyond.

I'll now turn to discussing the business segments in details, starting with our robotic business and exciting introduction and market reaction to the Epoch platform. There are two factors impacting NIOBE II revenue. First, the market's demand for a more efficient solution for complex ablation procedures has caused mixed and sometimes negative reviews in our install base, the slowing of the sales momentum of the current NIOBE product. Second, the introduction of the Epoch and the positive market reaction is causing a rapid shift away from the current NIOBE II. We clearly underestimated the rate of market shift and forecasted a slower transition and although the shift ultimately is very positive to the Company, in the near term it will cause a disruption to our system orders and revenue expectations.

Let's start with NIOBE II trends. The market feedback from users has been mixed even after we have invested in developing the scientific proof regarding safety and efficacy, revising our training, improving customer site support and expanding our physician peer-to-peer education. It became apparent that the NIOBE product needed fundamental product improvements. After multiple discussions with users, we determined that the primary barrier in driving adoption was the inefficiency of the remote case and the long learning curve. Our new Epoch platform is designed to address these barriers and thus far the market response suggests we have succeeded.

The first slide highlights the benefit of the Epoch platform and why market interest thus far has been exceptionally strong. As a reminder, the Epoch platform includes the new magnetic navigation capability, the expansion of the platform to include a mechanical arm called Vdrive and the Odyssey Vision user interface. In several dimensions from speed and continuous movement of catheter positions, the new capability to precisely move a diagnostic device and the ability to improve the reach and contact force, Epoch is a major improvement to our robotic solution. The lab test and early market feedback has confirmed that this new platform will significantly improve the efficiency of our system for complex ablation. Our goal is to be better than the best hands in the world.

Additionally, the new Epoch interface is designed to shorten the learning curve for physicians. The exact impact will vary by physician, but early testing supports efficiency improvements up to 30 minutes shorter for an AF case. We're very pleased with the significant level of interest in recent symposiums and at our exhibit booths with physicians clearly interested in understanding how this platform can meet their needs. We're focussed on converting their strong interest into orders as quickly as possible and are aggressively following up on the high level of physician interest at HRS and EUROPACE to generate new leads for system placements and refocus on improved utilization that -- with accounts that have historically been under performers.

The next slide highlights the market interest. We view site visits as a leading indicator of clinician's and hospital's commitment to make a purchase decision. As this chart demonstrates, in 2010 we averaged approximately 2 site visits per month. We pre-announced the Epoch at an internal training meeting in January and the sales force immediately realized the dramatic improvement that this will bring to the EP lab productivity.

The Epoch platform was introduced to the market in May at the HRS show and immediately we received requests to come to our office to see it first hand. Since the release of the product in May, we have scheduled 36 site visits. These 36 are made up of both installed base and NIOBE customers looking at an Epoch upgrade and perspective new purchases. The Epoch upgrade price can be substantial, therefore, may take longer -- a longer cycle to secure the money.

Now turning to the newest part of the Epoch platform, the Vdrive. As previously stated, we believe the Vdrive will accelerate utilization by expanding the capability of the platform to control diagnostic devices leading to improved efficiency of the entire procedure. The product began shipping in Europe in late first quarter. We have a total of 6 sites that either have installed or are in the process of installing the product. We've completed approximately 200 cases with an average incremental price of $600 per patient.

The next slide provides an overview of the market feedback regarding the Vdrive presented by European users at a recent symposium. As you can see, the market feedback continues to be very positive, leading to physicians envisioning this arm in many innovative applications. Our current plans are to expand this arm to a dual head platform designed to hold multiple devices which is scheduled to be released late this year in Europe. The combination of Lasso sheath, or deflectable sheath, will allow physicians to perform a more efficient and more precise fully remote procedure. The feedback is consistent with our expectations that this product, when fully released, will significantly change the adoption curve for AF.

The Vdrive allows the physician to perform an efficient, fully remote procedure with variable contact force for difficult areas. As a reminder, we will use commercially available devices for Lasso and fixed curve sheaths, but the deflectable sheath is a Stereotaxis proprietary device. This is designed to replace an existing deflectable sheath at a cost point comparable to the manual alternative. We currently have CE Mark for the single head Vdrive in Europe. In the US it will take longer as the Vdrive is currently under 510-K review. We're finalizing the plan with the FDA and our current expectation is the first embodiment of the Lasso version will be available in mid-2012 and the dual drive in late 2012 or 2013.

Now let's talk about how we see the positive momentum and site visits and funnel growth translate into increased platform orders and ultimately into revenue. Our discussions with customers suggest the first wave of change will be upgrades to the install base followed by accelerated decisions from perspective customers looking to market references. While the site visits will increase the sales pipeline and budget activity in the short-term, we do not have enough data points to review the timing of conversion to revenue, therefore, we expect the following from Epoch.

First, we expect key sites and top users will upgrade to Epoch platform and their initial feedback gives us confidence that we will experience an increase in utilization rates based on efficiency improvements in the corresponding increase in revenue per case. Secondly, the stronger utilization among Epoch users will accelerate market interest and new orders leading to the increased Epoch revenue in margin per system. Third, the collateral of positive impact will be an increased market awareness of Odyssey supporting standard lab pipeline improvements. We expect to deliver the first models of Epoch upgrades in Q4 and all models by the first half of 2012.

Turning now to the NIOBE backlog, we've conducted a thorough review to identify orders that are not projected to come to revenue in a reasonable amount of time. We've reduced our backlog by 7 systems to a total of 20 systems that we expect to go to revenue in the next 18 months. Thus, to summarize the Epoch platform, the early reaction among key opinion leaders is extremely positive. Epoch is designed to enable a faster, more efficient and dynamic control for all devices of robotic assisted EP procedures while maintaining the NIOBE's recognized benefits of safety, radiation reduction and clinical outcomes.

At the EUROPACE meeting, physicians discussed their experience with the Vdrive and add on module for Epoch that can be used to robotically and remotely manipulate a growing array of devices, such as a Lasso diagnostic catheter end sheath to enable enhanced procedure efficiency. Thus, we are confident that the recently released Epoch fully -- full solution addresses the market demand for improved procedure efficiency and will lead to renewed momentum in our technology.

Moving now into utilization. The recurring revenue in the quarter, we are very pleased with the continued growth but believe we can do bet than this growth rate. Let me start with a brief update on the current NIOBE proof of value. The next two slides highlight several scientific publications regarding safety and efficacy that our system provides in performing complex left sided ablations. On the first slide, the two diagrams demonstrate the value of our system for safety which is apparent in both adverse events and radiation reduction for both the patient and the caregiver.

The next slide reflects the NIOBE's clinical efficacy for VP and AF. As you can see with these slides are scientific evidence regarding the safety and efficacy is substantial. At the HRS meeting in May a leading physician stated that he now believes that Stereotaxis is a better alternative for his patients than his hands, even though he's an experienced and excellent clinician. The science was strengthened during the second quarter with impressive results from several presentations at the HRS and EUROPACE symposiums.

Utilization continues to reflect different adoption trends and sites installed before 2008 and those installed after the irrigated catheter returned to market. We now have over 60 sites performing on average over 2.5 cases per week. This customer distribution is much broader than can be seen two years ago when a handful of sites contributed to a majority of the cases performed. The interesting trend is that the usage tiers largely by installation time frame. We expect Q3 to have the normal seasonality reflected in European summer month vacation and anticipate a positive inflection on usage once the full Epoch, including Vdrive, is available.

In summary, the NIOBE II adoption is continuing based on strong scientific evidence. The positive utilization trends gives us confidence that the foundation of science, along with our Epoch improvements and efficiency, will position us well to become the standard of care for complex ablations.

Let us now turn to the Odyssey business. We remain bullish about the long term opportunity for the Odyssey business segment for all interventional suites. Odyssey seamlessly integrates multiple data streams into synchronized patient records, condenses the record and can transmit it over low bandwidth networks and maintain patient confidentiality. We are convinced that this will provide the information needed at the time required to change how labs interact and how the supply base provides clinical support. The Odyssey revenue in the first half of 2011 was $4.3 million, and new orders were $4.1 million.

New orders were impacted by the slowing momentum in the NIOBE orders for the first half of the year and the increase in the standard lab deal size causing a longer decision process by hospitals. Additionally in the first half, we began shifting sales resources to focus on Odyssey standard lab. This new focus in building stronger customer interest will take a few quarters to bring new prospects through the sales process. Even in a short period of time, though, we've seen the standard lab Odyssey sales pipeline is gaining momentum. Some leading indicators are, since April 1, we've generated new quotes valued at $14 million. The average proposal for standard labs is $520,000, or twice as large as the Odyssey deals sold in NIOBE I. There are several new deals in the sales pipeline greater than $1 million in size.

In regards to our second quarter Odyssey expansion with Biosense, we're even more optimistic around the opportunity to leverage their strong market presence and establish the Odyssey interventional network. In the second quarter we launched the product over 30 key sales personnel in both Europe and North America, who will become the lead interface with the several hundred sales people Biosense employs. I'm pleased to announce that we received our first Odyssey order in July for two rooms in the US, which is just the beginning of what will become a very positive partnership for our business.

In conclusion, we are investing in the right product improvements, processes, and personnel to set the stage for future growth. However, the financials that we released today clearly illustrate that we're facing short-term challenges. Our mission is to accelerate the Company's top line growth in 2012 and control expenses to drive long-term profitability. It begins with an operating expense reduction and rebalancing to lower our cost structure in order to minimize our cash burn. We'll immediately take action to lower our operating costs by 15% to 20% in order to rebalance spending.

Secondly, we're working diligently to ensure that we execute an introduction of Epoch in second half of 2011 and early 2012. We're focussed on converting the strong interest into orders as quickly as possible, and are aggressively following up on the high level of physician interest at HRS and EUROPACE to generate new leads for system placements and to refocus on improved utilization with accounts that have historically ben under performers. Thirdly, it is important to note that we will not cut product improvements. We are committed to continue to develop our value and to capitalize on the growth opportunity.

We'll focus new product development in 3 key areas. First, the Odyssey platform improvements which expand our product capabilities and continue to extend our market differentiated position. These investments will be focussed on both short term product improvements and long term strengthening of our technological position. Second, the Vdrive disposable expansion into multiple devices which improves the Epoch's value and captures market innovation. Third, the continuation and improvements in the simplicity of the user interface for the Epoch platform.

Before I turn this over to Dan, to go through the financial results, we announced today that Dan will be leaving our Company as the Chief Financial Officer in mid-August, but will remain as a consultant at the end of the year. A search for Dan's replacement has begun and we're confident that we'll secure a world-class candidate in a timely manner. On behalf of Stereotaxis employees, I want to publicly thank Dan for all of his contributions to our organization and wish him the best as he pursues his new career and direction. With that, Dan?

Thanks, Mike. And good afternoon. As Mike stated, revenue for the year's second quarter was $11.6 million, a decrease of 23% from the $15 million revenue in the prior year. Systems revenue at $5 million was down 47% compared with $9.4 million a year ago. Systems revenue for both the NIOBE and Odyssey businesses was weak versus last year. We recognized revenue on 3 NIOBE systems versus 7 systems a year ago. Odyssey systems revenue was $1.6 million, down 39% from a year ago. All NIOBE systems taking revenue this quarter were placed in North America.

Recurring revenue grew 18% versus the second quarter of last year to set another record of $6.6 million. The growth was driven by an increase in procedures, as well as strong pricing. Sequentially, total revenue increased by $1.4 million, or 13%, from the first quarter of 2011. New capital orders for the second quarter totaled $4.4 million. We booked one NIOBE in Europe and one in the US. New Odyssey capital orders were about $1.7 million with the lion's share of these new orders within NIOBE Labs.

Moving onto backlog, in 2009 we began the process of reporting the new backlog that was active and could be seen as moving into revenue in the foreseeable future. We have generally viewed this as an 18-month forward-looking window. With lots of momentum around the NIOBE II platform, we have challenged each project and backlog and its ability to hit the 18-month window. As a result of this evaluation, we have identified certain projects which have either stalled or for which circumstances have changed to the point that the certainty is now too low to include these projects in this metric. As such, we are removing seven NIOBEs from our active backlog. The value of these NIOBEs projects is $8.4 million and the associated Odyssey elements are $1.6 million.

So, rolling forward from our first quarter metric of $14 million -- I'm sorry -- $44 million in active backlog, we added $4.4 million in new orders, and we've subtracted $5 million in systems revenue, for the period. And we're also subtracting the $10 million in backlog and moving these projects to inactive. This brings active backlog to $33 million at June 30, 2011, and represents 20 NIOBE systems. The 7 systems that have been moved to inactive backlog are regionally disbursed and that 2 were in North America, 2 were in Europe, 2 in Asia-Pacific and 1 was in rest of world region.

Gross margin for the second quarter was $8.1 million versus $10.1 million a year ago. Gross margin percentage is up 2.5 points given a strong mix with record recurring revenue. Operating expenses in the recent second quarter were $17.6 million, an increase of 12% compared to the $15.8 million in the second quarter of last year. In bridging the $1.8 million increase, approximately two-thirds, or $1.3 million, of the increase in operating expenses occurred in sales and marketing. $600,000 of the increases related to increased spending around the Epoch rollout at HRS and EUROPACE and $600,000 relates to higher commercial spending in general. Almost half of this increase in commercial spending is currency-related and the other half is head count and travel related. The $600,000 increase in general and administrative costs represents an increase around spending for training and regulatory efforts. The net result was an increase in our operating loss to $9.5 million compared with $8.8 million in the first quarter of 2011, and $5.7 million in the second quarter of last year.

Other income includes the mark to market gain related to the outstanding warrants we have which must be adjusted quarterly under derivative accounting rules. Interest expense for the quarter is just under $800,000, $500,000 of which is non-cash. As such, we reported a net loss of $9.7 million, or $0.18 per share, versus a net loss of $3.9 million, or $0.08 a share, in the second quarter a year ago. Average shares outstanding for the second quarter were 54.8 million compared to 49.9 million in the same quarter last year, reflecting the issuance of 4.6 million shares as part of our follow-on stock offering completed in November of 2010.

For the six months of 2011, revenue decreased 15% to $21.8 million from $25.6 million a year ago. Gross margin decreased 14% to $15.3 million, or 70.1% of total revenue, compared to $17.8 million or 69.4% of total revenue through the first half of 2010. Operating expenses are up $3.9 million year-to-date given -- driven by higher sales, marketing and training costs. The operating loss increased to $18.3 million from $11.9 million last year. The net loss for the first six months of 2011 was $19.2 million, compared with $12.3 million in 2010. On a per share basis the loss per share was $0.35 per share in the recent six months, versus $0.25 loss per share in the same six months of 2010.

Turning to overall liquidity, we had a cash burn of $5.9 million for the quarter, which is an improvement from the $11 million that we used in Q1 of 2011. Year-to-date 2011 we have used $16.9 million of cash versus $14.2 million during the same period a year ago. Our net liquidity and debt position is essentially the same as a year ago. This year at June 30, we had cash of $23.3 million while last year we had $22 million at the same time. We had total debt outstanding of $30.5 million, or $30.5 million at June 30, 2011, versus $26.7 million a year ago. As such, net debt is up about $2.5 million at $7.2 million versus $4.7 million a year ago.

Before I close, I'd like to add some color to my decision to leave Stereotaxis. The decision is based upon personal and professional goals that take me in a different direction. More importantly, my decision was timed to allow the Company to build momentum into the future. I do not want to disrupt, in the future, Stereotaxis's ramp and momentum with such a move during this important time. Obviously, I wish the team all the best and I have agreed to help stay through a transition period until we find new financial leadership. With that, I'll turn it back to Mike.

Thank you, Dan. Regarding financial guidance, we announced on our press release that we've withdrawn previous financial guidance for 2011 and are temporarily suspending providing financial guidance until we have more predictability to the ramp in our magnetic platform business. We believe this is a prudent course of action given the corporate development that we discussed today and the uncertain time frame that impacted -- that Epoch will impact our business. With that, operator, I'd like to open it up to questions.

(Operator Instructions) Our first question comes from the line of Tao Levy with Collins Stewart. Please go ahead.

So, first of all, Epoch you mentioned, I know you are not expecting that until the fourth quarter. I thought installations were going to start in the third quarter. Any reason for the delay?

The full rollout won't hit until the fourth quarter. I think we were anticipating we would get some hardware out in the third quarter. But the software will come out in the fourth quarter, so we won't see the full clinical benefit until then. I think it is actually December, so, it is sitting right in the last month.

So, there is nothing terms of being able to install, that has necessarily been delayed?

No, I think it is just the timing of getting all of the software validated and out into the market. It will push us right to the December time frame.

Tao, this is not a change. This is how we've always characterized it. We have may not have been clear, but there was always the physical element that we thought could move in the third quarter but the programming elements would not be available until the fourth quarter.

Part of it, Tao, too, the Vdrive I went through the different schedule for that. That will come out in Europe at the end of this year, and the Lasso and the dual head. The US will be staggered based on the approval through the 510-K process.

And the cost to upgrade from an NIOBE II to Epoch from 1 of your higher-volume customers?

Yes, the list price is 290. The Vdrive list price in Europe, which has only released, is $200,000.

That's upgrade from a NIOBE II to the Epoch, the software and all of that stuff, is 290?

That's the first element. That is just the platform upgrade and the Vdrive is in addition to that.

Got you. Just the last question, in the -- I guess with the Biosense Webster relationship, you indicated that you took in a couple of orders here in July. Who -- who's focussed on selling that primarily now? Is it -- obviously they're doing their part, but do you also have reps selling the Odyssey or supervising, making sure that they're selling that? Are your reps transitioning to a different part of the selling effort?

Yes, so -- for lack of better words, we've trained the trainer. We've taken their lead, key sales people, trained them, and they're going to be responsible to help provide the interface to the rest of the sales force. We have a group of what I would call regional managers.

They work with those lead trainers and then our people use the opportunity to sell into interventional labs and IR labs, so we expand the sale beyond EP. Again, our relationship with Biosense is their right to sell it within EP and we obviously maintain the rights outside of EP.

Have you sold any outside of EP yet?

We have sold a few. Most of the standard lab deals, obviously, include EP, IC and in some cases IR. They are going across multiple -- And that's what is causing -- exciting in 1 aspect, but it is causing them to have more decision-makers involved, bigger deals, and it takes a longer period of time to close that. So, we will see -- we anticipate seeing some of those come to fruition in the last half of the year. It will be a big momentum gain.

Okay. Great.

Thank you. Our next question comes from the line of Steven Lichtman with Oppenheimer. Please go ahead.

Following up on the last question. In terms of this past quarter with Odyssey being light, was it the transition that caused it, because, you also mentioned the slower NIOBE placements, but that has been occurring for the last couple quarters and Odyssey has been strong. What over the last couple of months has caused the Odyssey slowdown?

I think the -- 2 things. I do think the NIOBE slowdown has caused some pull on the Odyssey business. But, I think the bigger issue is these bigger deals haven't transpired and I think we'll see those in the last half of the year. So, you're going to start seeing the deal size go up, I believe, and you'll sales outside of just outside EP suites.

Obviously, Biosense wasn't in the original plan and that will be an upside for our business as well, and we think that will kick in, in the last half of the year, as well. We'll begin to see some momentum -- really see most of the momentum with the Biosense relationship in 2012, but we should see some this year.

And what's the difference in terms of deal size? Why would it be a bigger deal through the Biosense versus with a NIOBE? What is the delta there?

I don't know that we know the answer between Biosense and us. I think I anticipate the same size -- the deal size that is bigger is the standard lab deals that are in our pipeline as standard lab deals. Because they're going outside of EP. They include EP and IC in most cases.

Got it. In terms of the -- my follow-up, second question, in terms of the cost savings, you obviously said not R&D, so where exactly will you be targeting the cost saves and over what period of time should we be assuming that in our models?

So, we're going to go through -- we've kicked off the process. We're going to go through that in the next 30 days, and it will have to be all facets. We're going to, obviously, protect those growth drivers and value creators. But, it will require every department as we go through that. Now, I fully anticipate having this completed by the beginning of fourth quarter. So, that we're running at a reduced rate in Q4.

Okay. Great. Thanks.

Thanks, Steven.

Thank you. Our next question comes from the line of Spencer Nam with Madison Williams. Please go ahead.

Thanks for taking my questions. Question I have on this Epoch rollout, is that the relationship between Epoch and the Vdrive, and whether there could be sort of a tendency for the customers to wait for the Vdrive to be approved before they jump on board with Epoch upgrade. What -- how should I think about that? How critical is the Vdrive to the success of Epoch and the full potential realization of Epoch here?

Well, I think there is 2 parts to Epoch. Three parts. One is the basic system improvements make it much more responsive. It moves faster. It is a more efficient movement of the catheter, the software is simpler. So, the basic interface and the responsiveness of the system is better.

The Vdrive definitely provides a lot of capability, and what it does is if you think about today's environment, a physician doing AF is different than a physician doing VT. If they're doing VT, performing a VT case, they're sitting remotely -- largely don't use other devices. They position a sheath, use 1 catheter to map and ablate.

Conversely, if they are doing AF, they may have a Lasso catheter, they may have an ICE catheter, they may have other devices that they're manipulating at the time they are doing the AF procedure. So, in that case, the physician has to get up when he is at that point, glove, go back in the room, reposition the Lasso, come back, sit down and do the remote case. I think the whole work flow is much more simplified with Vdrive.

Now, the interesting part is that -- and that's the Lasso and the ability to move the diagnostic devices. The sheath, actually, I think will provide an efficiency of how they move the catheter, and an ability to have more variability contact force, which in certain cases adds a lot of capabilities to the system.

So, I think that component, obviously, will bring some substantial value, as well. So, obviously, Europe will see the benefit of that. There will be a market improvement with just the Epoch system improvement upgrade in the US, but the full capabilities won't be seen in the US until mid to late 2012.

Spencer, I would add to that, that I think you will be able to see the order rates in the US pick up based upon the strength and performance in Europe. So, while the regulatory environment may lag, you would still have the opportunity to see at least the NIOBE pick up, maybe not the whole Epoch suite but I think people would gain some confidence over the next 12 months in North America, as well.

Spencer, 1 other thing, too, that's 1 of the -- that's 1 of the reasons that the site visits to St. Louis are so telling, is that people are taking time to come here because they can experience the whole system in use. Obviously, if it is not released the only place to see it is in St Louis. From Europe we've had a lot from the US, who have enough interest to take time out to come see us to look at the full release and the value of the full release. It has been very positive.

I think you can measure that, the excitement on the floor of HRS. I didn't go to EUROPACE, but I visited with probably 15 physicians in the last month and a half myself and we've really struck a cord with efficiency. This is really what they have been looking for.

I think I get all of that. I guess what I'm still trying to figure out, though, is whether we -- what is the possibility that we get to fourth quarter call that is in January, February of next year, and you guys still feel like the customers are not really moving towards upgrade, and that the upgrade cycle will really heat up only until after Vdrive is approved?

So, I want to understand -- I understand the value proposition of Epoch and then the subsequent Vdrive upgrade, but is it really -- are you going to be able to make a real case for your customers only after Vdrive is approved? Which means that the whole next 12 months would be somewhat sluggish and that the real potential of Epoch will not be really felt in the Americas in North America until next -- second half of next year.

I'm trying to understand how I should think about Epoch itself without Vdrive. How much you guys think that will get the customers excited. Not just excitement, but how confident you guys are that you will turn those excitements into orders versus post-Vdrive? I totally understand that Vdrive is going to really make this an exceptional platform, but until then are we going to see something that's going to be material here?

Yes, so let me answer that in a couple of different ways. 1 is definitely interest is there, we're seeing proposals go up, the timing of the decision, it's early and we -- it's too early to prognosticate how soon that inflection will happen. But I do, obviously, believe that bringing people here will answer many of the questions that they have on is the value there?

It would be a better reassurance if they saw it in clinical use, but as Dan pointed out, I think you'll first see that in Europe. I think you'll see that as they emerge into 2000 -- late this year, they'll have European physicians discussing the value they have. The benefit of Odyssey as we can begin to discuss that in a network that is pretty low cost.

And my second question is, well, I guess that was the first part of the question. The second question part of the question is the -- your burn rate right now, and with this -- the -- with cut in spending and where the current cash reserve is, how much -- how far can you guys go with the current cash reserve?

We -- we're looking at the cash right now, Spencer, and that's why I made a statement here. First step is let us get our burn in line with where we think our top line is going to come out. We're going to do that very quickly.

And then we'll look at the cash and look at the options for a non-dilutive cash raise. And we're going through those. Dan and I are initiating those right now, and there is several that we're pursuing. And it's a little early to talk about those, but as those transpire here, we'll keep everybody abreast of what that amount is.

Great. Thanks much.

Thank you, Spencer.

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

I just wanted to follow up on the line Spencer was asking about. Just in terms of -- it seems like Vdrive has a couple of different iterations. Can you -- if we're talking about really sort of addressing the bigger market with AF with Vdrive, is the Lasso catheter the first version of the Vdrive coming out going to be enough to gain so me of that?

Your confidence in building that market or is the dual drive version of it the more important one for driving AF? What are the thoughts around that?

The Lasso will jump start it. Dual drive will come out in the fourth quarter in Europe. So, it is almost simultaneous. Dual drive won't be available until later in the year in US which will be closer to when we -- or later in 2012, sorry, when we anticipate the approval of the deflectable sheath which would really be the product they would use in the dual drive. So, I think at times while with just the ability to have the disposables available in the US.

Obviously, it would be beneficial to have them both but they'll get -- today what they do is mainly in the US, you use Lasso as reposition and in Europe there are some sites that have Lasso, but more often they use the sheath. I think the single can be advantageous in either market, the dual, obviously, gives them the option to have more variability to that.

In terms of software behind the Vdrive. Is the software upgrades that you're putting in place for Epoch to be launched fourth quarter, will that include the automation for Vdrive, or will there be additional software needed for that?

No, that includes it. And that includes some other future enhancements for both platforms. It gives you the modularity to put a Vdrive on that Epoch system and the software is already embedded.

Quick question about Odyssey. So, it sounded like the reps on the J&J side have been trained and you're getting the start up in traction there. Any feedback from the J&J reps in terms of what they're getting from clients, what their feelings are around Odyssey.

Where in their pitch process is Odyssey coming about? Is that early in their discussions, or is it considered an add-on to a CARTO system, or just where are they positioning it? Thanks.

I think it's early in the sales process with Biosense. I can tell you there is a lot of excitement between our sales force and theirs. Obviously, for 30 people to show up in St Louis to be trained, there is obviously a commitment and an excitement behind it.

I think we're working with them kind of site by site and it's a little bit right now, every site is a little different. But the first order was I think there was 1 CARTO -- I believe there was 1 new CARTO and 1 room without that. There was a standard lab and a CARTO lab.

I think it will emerge that, obviously, they have a very strong presence in any CARTO lab. They can leverage that presence to expand it beyond that. That is the real benefit is they can drive us into having a seat for Odyssey Visions in many more labs than we can do individually, and then we can connect the back bones together through Odyssey Cinema and create a network.

Great. And forgive me if you mentioned this. I just wanted to ask a question on the Phillips side. Are there still some systems that remain deferred due to the Phillips delay, or are those resolved at this point?

It is resolved. We installed our Phillips system that we talked about in I believe in May. It was in that time frame that we discussed. It was in second quarter.

Okay. Thank you.

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

More on the NIOBE to Epoch transition. Should we expect the 20 units in backlog to eventually all move to Epoch? Is that essentially what you're going to try to do over the next few quarters or so?

That's the intention.

Okay. And I guess if you just qualitatively are those -- has everybody who is using in the backlog seen and promote the Epoch or is it 50%, 75% of them?

I don't know that I have that number.

Say it again.

Of the 20 in backlog, how many have seen the Epoch? I don't know the answer to that, Jose. I know that the sales process is going back toward them and saying before you get this installed, let us talk about the new platform that is coming out.

Okay. Should the -- I guess as you guys have removed 7 of that backlog from the current -- from the current number, is that -- if you could just give more color as some of the reasons for that. Is this an economic driven decision?

Was this because of all the headlines, you have obviously been exposed to in the last few months? Was it you really didn't want to wait that long for the Epoch? What are your customers saying that what impacted decision that 7 of these units were not going to turn into revenue in 18 months?

I think there is a multitude of reasons in there. There is a couple that -- the systems have just delayed the buildings outside of that 18-month window. I think some of them lost physicians. Couple of them I think the CEO has left, so kind of the capital.

That really does, the sales team -- resell the opportunity and at that point in time, I think there is too much uncertainty for us to call it active.

So, we moved it to inactive. If it comes back in, we won't count it as a new order.

That is a good point, Mike. We have status of inactive. When they do pop back and forth from time to time, we don't count it as a new order.

All right. Thanks, guys.

Thank you, Jose.

Thank you. Our next question comes from the line of Tao Levy with Collins Stewart.

Hi, guys, just a couple more follow-ups. You blamed Epoch a little bit for some of the order delays. But how about the overall capital equipment environment? Have you seen any changes of late, or the EP department, the hospitals, still engaged in looking to construct different rooms, refurbish, et cetera?

I'd have to say that our experience in Q2 is pretty positive because of what we're seeing in site visits. People are fairly coming on and coming in here to make purchase decisions. I don't know that I stay close to the total capital market, but I think in EP, it's still very positive trend, CEO's still look at is a major piece of cardiology growth. They're still spending money. Obviously, site visits have picked up for us. We see a micro economic trend that is very positive.

Within the EP it is not like a couple of years ago where they weren't -- your sales guys pretty much weren't going into the hospitals because they weren't ordering or buying anything?

No, our sales guys -- in fact, if you would ask them today, their funnel is strengthening quite a bit from the beginning of the year to today. The amount of real active discussions around purchase decisions is getting better.

Okay. And if a hospital is going to place an order for the Epoch or upgrade it, how does that get recognized? Is that something that goes into the order right now and then when you get it installed it becomes revenue? Or you're not taking orders for Epoch?

No, it will go in -- it will go into order. Just go into backlog and then when we installed it.

If it is an upgrade, we won't count it as a new system, we will just count it as an incremental piece to the overall profile but we'll recognize revenue when it shifts. We'll certainly put it in the backlog as the order comes in.

Yes, it will go in. That's a good point, Dan. It won't go in as a systems sale. It will go in almost as an accessory. It works as more dollars and we'll call those out.

It will go into that backlog number?

Yes, it will.

So, were there any in the backlog number for the quarter?

We had 1 Epoch upgrade that came in, in Q2.

Okay. Great. Thanks.

Thank you. At this time I'd like to turn the conference back to management for closing remarks.

Well, thank you, everybody, obviously it is an important time for our Company. We believe we're on the right path. We've generated a lot of market momentum with Epoch. Odyssey we think is almost an untapped potential, but we have a lot of hard work to do here in the next few months and for the balance of the year to reposition the Company. And we're passionately committed to get that done. We look forward to the next call and to talking to you in the future. Thank you.

Ladies and gentlemen, this concludes the Stereotaxis second quarter 2011 conference call. Thank you for your participation. You may now disconnect.