Stereotaxis, Inc.
Q2 2009 Earnings Call Transcript

Published: 6 Aug 2009

[Operator:]

Welcome to the Stereotaxis Q2 2009 Earnings Call on the 6th of August, 2009. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator instructions). I'll now hand the conference over to Mr. Doug Sherk. Please go ahead, sir.

[Doug Sherk:]

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 second quarter of 2009. 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 refer to Stereotaxis plans, prospects, expectations, strategies, intentions and beliefs. These statements are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. For a detailed discussion of the risks and uncertainties that affect the company's business, and qualify the forward-looking statements made in this call, we refer you to the company's recent public filings filed with the SEC, specifically the Form 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 of 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 all because of some of these purchase orders and other commitments are subject to contingencies that are outside of our control. In addition, these orders and commitments maybe revised, modified or cancelled, 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.

[Mike Kaminski:]

Thank you, Doug and good morning everybody. On the call with me this morning is Jim Stolze, our CFO. Despite the challenges of our current economic Stereotaxis continue to generate strong financial results, as EP labs and hospitals recognized substantial value and benefits, but Niobe and Odyssey systems bring to the institution, physician and patients. Revenue for the quarter was 19% above last year, which highlights the strength of our backlog. Margin continues to be strong, which reflecting our belief that the customer perception of our value have strengthened. Operating costs for the quarter again demonstrated our commitment to investing and growing the business with a mindful eye on expenses. Revenue for the first six months of 2009 grew 34% compared to the prior year, driven by the backlog conversion and strong recurring revenue. Recurring revenue, including disposables, services and accessories reached a record $4.5 million during the second quarter, 62% above the second quarter of 2008. Importantly recurring revenue generated from the sale of disposables increased more than 100% above the second quarter 2008 and approximately 10% above the first quarter of this year, reflecting the continuation of the roll out of the magnetic irrigated catheter in the US. Our gross margin for the first half of 2009 was 66% compared to 63% in 2008. Operating expenses fell by 19% during the first half of the year and operating costs for each of the last three quarters have consistently been below $15 million despite our investment in building our sales and clinical support functions and launching eight new products in 2009. The $60 million annualized run rate compares favorably with total operating expenses of $67 million in 2008. Instrumental in lowering our cost structure have been our efforts to institute best practice processes, thereby increasing organizational efficiencies. The result of the 46% reduction in our operating loss to $13.8 million in the first six months of 2009 compared with $25.4 million in the same period last year. While we believe our income statement demonstrate significant progress for both the quarter and the past six months, I would like to turn to those items, which were not reflected in the financials. Specifically, the clinical acceptance and utilization of our platform in the hospital capital markets and our expectations for new orders. First regarding clinical acceptance, as I previously stated recurring revenue related to disposable devices and royalty increased more than 100% over the second quarter of 2008. The magnetic irrigated catheter has created a new level of energy within our installed base and highlights the value of our magnetic platform in EP. We rolled out the irrigated catheter to 86 of our approximately 120 installed sites worldwide. Overall worldwide utilization for all EP sites, where the irrigated catheter has been introduced is greater than 1.5 cases per week. In Europe, all sites within the European Union have been rolled out and are still progressing towards independent use. There are small numbers of accounts managed by our European organization outside of the EU, which have not been launched, for example Russia, Saudi Arabia and Turkey locations. However, for those sites utilizing the irrigated catheter, the average is over two cases per week. Utilization in the top centers averaged approximately four cases for the first full six-month of the year. While we are confident that utilization trends will continue to increase in Europe. We expected temporary decline in overall usage in the third quarter reflecting the seasonality associated with summer holiday period. With the introduction and the growing adoption of the magnetic irrigated catheter there has been a significant increase in the ablation procedures performed in the left side of the heart in Europe. Specifically atrial fibrillation and ventricular tachycardia are a growing trend. In the second quarter of 2009, these left sided procedures increased 100% over the same period in 2008. Right type sided procedures in comparison have remained relatively stabled increasing just under 10% year-over-year. In North America, we have launched the magnetic irrigated catheter in 51 of the 70 installed EP sites. As a reminder, we have a very carefully thought out introduction plan. We are implementing that provides onsite support and follow-up guidance with individual physicians, as appropriate when they perform complex procedures. Many sites have multiple physicians, who learn and adopt at different rates. We are in targeting complete the rollout in the US in the fourth quarter of this year and expect to see utilization increase over time, as physicians gain experience in use. Utilization in North American sites, where the thermocool catheter has been rolled out is over 2.5 cases per week and the average for all North American sites for the thermocool has been introduced is more than one case per week. As a reminder AF is not approved in the US and it is approved in the European locations. What has fundamentally changed with the utilization pattern is one-year ago we had a handful of accounts performing a majority of the cases and today we have over 50% of our irrigated sites averaging as a group over two cases per week. This speaks well to the value of our platform and provides a foundation for a sustainable success and growth. What is even more impressive is than the utilization numbers, is the clinical success we have experienced in our platform in the market. More than 23,000 magnetic cases have been performed from which we have generated in very impressive clinical results for safety and efficacy in a broad number of applications. This past quarter was exceptional in the terms of adding to the scientific publications of the clinical outcomes obtained with our products both in peer-reviewed literature and from the podium of major meetings. As we mentioned in the last call, the Heart Rhythm Society meeting in May featured several presentations and postures, detailing outstanding results across the broad range of applications. Specifically, they were abstracts from three separate centers in Europe Copenhagen, Hamburg and Milan detailing excellent long-term results obtained, when treating AF with the magnetic irrigated catheter. The most rigorous of each studies was from Dr. Chen in Copenhagen, who placed the two-week monitor on 37 patients, one-year after the magnetic completion procedure was performed and found 65% had no signs whatsoever of AF. This is very favorable if you consider that the recently presented FDA trial for the magnetic irrigated catheter reported a 59% freedom from AF after nine months using a similar protocol. Dr. Chen's average case time for his patients was the 140 minutes with floor time of seven minutes. Again this compares favorably with manual times in the above study, which averaged 211 minutes and floor times of 48 minutes. Last month EUROPACE meeting in Berlin also featured multiple abstracts on the use of our technology in a wide variety of EP applications including [AFCT, FVT] and congenital application. Our particular interest was a presentation from professor (inaudible) group in Lisbon during that electroanatomical maps of the left atrium created with magnetic catheter, where more accurate relative to CT scans, the maps created with conventional catheter and patients undergoing AF ablation. Also of interest with a small series of VT patients from Professor Karl-Heinz Kuck in Hamburg showing that the soft magnetic catheters can reduce PVCs during mapping. Thus creating a better map to guide proper treatment of this very complex arrhythmia. Professor's Kuck’s groups reported a 100% acute success in these patients. The second quarter of this year also saw an addition of several interesting and supportive papers in medical literature not only in EP, but also in related to our vascular applications for interventional cardiology. One paper of particular interest was published by Dr. Mark Patterson from OLVG in Amsterdam in the Journal of EuroIntervention. In the series of 47 consecutive patients with complex distal lesions, who underwent magnetic-assisted percutaneous coronary intervention, Dr. Patterson demonstrated statistically significant reduction in total procedure time, fluoroscopy time, contrast volume and procedure-related cost, when compared to similar number of patients in [amino] controlled group. These reductions were even more pronounced and a more difficult type C lesion type. Lastly and very importantly, we will launch several new products, which should favorably impact utilization. First we are pleased to announce that the 0.1 Tesla or high-field strength feature has been released in Europe, and is expected to be released in the US later this year or early next year. This innovation allows physicians the ability to modify or increase field strength to generate 25% more magnetic moment or force for certain applications requiring manipulation in the catheter and very difficult to reach areas such as the right inferior pulmonary vein or under the mitral valve. Early physician feedback has been very positive in Europe. Secondly, we are scheduled to commercialize a partnered non-localized version of the irrigated catheter in Europe this year, which will be targeted towards the high volume flutter application. Third, the next-generation magnetically compatible localization system should provide a significant improvement in our efficiency and effectiveness of the combined platform. This new product is designed to greatly improve remote mapping time and visualization of all devices used throughout the ablation procedure. In 2009 there is much more to come, reflecting our commitment to continue to invest in those products and programs, which strengthen our position and expand our value. Now turning to the hospital capital markets; we have had numerous discussions with industry analysts, our customer base and other capital companies regarding the state of the economy in the US, hospital spending, and particularly capital spending for products. We reviewed in detail our past orders and our current pipeline in the effort to better understand and identify those factors, which could be leading indicators for a change in the order patterns. I will review our findings in a moment, but first I would like to go over the results for the most recent quarter. Majority of our revenues for throughout the first six-month of the year was driven from our backlog, which helps insulate the company from the short-term down cycle and provides the security to maintain pricing and to protect our value proposition in the market. The portion of our current backlog, which we expect to be recognized to revenue within the next 18-month is approximately $42 million, which breaks down to slightly less than 50% for 2009 and slightly more than 50% for 2010. We generated $5 million in purchase orders during the quarter with an average selling price for the new Niobe orders year-to-date in 2009 remaining above 1.1 million. After the current orders form the US and we are pleased to announce that we received a first government order from the Veterans Administration in the second quarter, which bodes well for future contracts. 50% of our incoming orders for the year were outside of the US and continue to be very favorable. Capital revenue in Europe and rest of the world were up 75% year-over-year and all leading indicators and activity support of continuation of the success. In Europe, where we have over 40 installation the launch of the irrigated catheter has facilitated the establishment of strong reference sites to allowing potential customers the opportunity to see the value that they can expect to receive. In the Asia-pacific region, we have now have systems in Australia, Singapore, China, Taiwan and Japan and continue to build market awareness and presence. Although, we have cut our operational expenses as a company, we have continued to shift our investments to the infrastructure necessary to increase revenue and adoption. In China, we have opened our Chinese representative office and hired our first employee to expand our clinical presence and support our growing number of installations. In Japan, we are in process of human clinical trial to gain regulatory approval for the Niobe system. As many of you know, the Japanese market is one of the largest EP markets but difficult to penetrate since it requires a full clinical study as part of the regulatory approval process. We are approximately halfway through enrollment and anticipate submitting final paperwork in 2010 and receiving an approval in 2011. We remain committed to expanding our global footprint, which allows us to negate geographic market conditions as reflected this past year in the US. Now turning to the US; we have completed in-depth review of our sales funnel and those metrics we believe to be leading indicators. We have concluded that there are several positive indications that the market is turning around. New Niobe quotes to North America and initial site drawings bottomed in the January-February timeframe. Since then, both of these leading customer metrics have rebounded with initial customer proposals almost doubling from the first quarter to the second quarter. The interest in financing alternatives such as operating leases is beginning to gain momentum, all reflecting growing customer interest. We are optimistic that these leading indicators will generate an improvement in new orders, but we feel it’s premature to prognosticate the exact timing. The Odyssey product line has not been immune from the macro challenges in the market, but has an independent growth path, which we believe can provide a third revenue line to our Niobe and recurring revenue base. With 50% of our income in Niobe orders including an Odyssey system and the introduction of a non-Niobe product, we expect orders to accelerate in the upcoming quarters. As we look ahead in the 2009, we remain very optimistic about the outlook for achieving our key objectives. What is reassuring is that, due to our strong backlog, even if we would not receive another order this year for shipment in 2009, we are comfortable that we can grow revenue in 2009, which would be driven from our backlog conversion and recurring revenue growth. These financial trends are testament to the progress we have made in our key objectives, worldwide commercialization of the magnetic irrigated catheter to build utilization and build reference sites for system sales. Odyssey sales growth and the continued reduction in operating expenses with the goal of driving the company to profitability. Now, before I turn the call over to Jim, I would like to touch on one of other important announcement we made today. Jim has decided to retire at the end of this year, for the second time in his career and although I know he will be staying for several more months, I did want to express our appreciation to him for all the hard work and the many hours he has put in, to make this company successful. He will be leaving big shoes to fill. However, we feel we are fortunate to have found an excellent replacement for Jim. We have named Dan Johnston our new CFO. Dan, who has already based in St. Louis will be starting in September and will officially become CFO on November 15. We are excited about the background Dan brings to Stereotaxis. He has over 15 years of experiences as a senior financial management position in rapidly growing companies including three firms that were generating over a $1 billion in revenue. He is a hands-on operational manager with strong financial and organizational skills and we believe he will be very helpful in taking the company to the next level of performance. With that thank you, Jim and let me turn over the call to you to discuss the second quarter financial results in more detail.

[Jim Stolze:]

Thank you, Mike. Revenue for the second quarter totaled $12.6 million, 19% above the prior year. Systems revenue accounted for $8.2 million of the total and included revenue recognized on 8 Niobe systems and two Odyssey systems. Of the eight Niobe systems four were placed in the US and four were placed outside the US. As Mike mentioned, we received purchase orders in the second quarter for $5 million. These new orders include approximately $0.5 million of orders for Odyssey systems. We currently expect that approximately $42 million of our backlog is likely to be converted to revenue within the next 18 months. We continue to review our overall backlog to determine the risk delivery scheduled outside this 18-month horizon. To that end, we have removed three systems from this longer lead time backlog, as result of lack of activity at these sites, including in one case, the rejection by the state of an application for a Certificate of Need and in another case the change of ownership of the hospital As a result, our total backlog as of June 30th, approximates 59 million including the $17 million longer term backlog orders, which are more susceptible to the risk of change, deferral or cancellation. Gross margins for the second quarter was $8 million, or 63% of revenue, while improve from $6.5 million, or 61% of revenue in the second quarter of 2008. The recent second quarter gross margin reflects an approximate $400,000 in one-time service charges related to one of our very early systems. Excluding this non-recurring charge, gross margin would have been 66% of total revenue. Average selling prices recognized for the Niobe systems were slightly below the first quarter, due to a few larger revenue deferrals, pending completion of installation, as well as the mix of distributor versus direct shipments. Odyssey pricing improved somewhat in the quarter. Systems revenue margin was 61% for the second quarter, a significant improvement from the 51% realized in the second quarter of 2008. The margin from disposable services and accessories were 68% for the second quarter but was impacted by 10 percentage points, as a result of the service costs related to the system, I discussed above. Recurring revenue margins were also impacted by costs incurred this quarter to upgrade many systems to our newly released Navigant software package. Operating expenses continue to decline to $14.6 million in the recent second quarter, compared with $14.8 million in the first quarter and $18.7 million in the second quarter of 2008. Included in the recent second quarter results was $535,000 impairment charge related to the write-down on certain equipment, which is no longer deemed usable. The decline from the prior year second quarter was driven by a 37% decrease in G&A expense, a 24% decline in R&D expense, and an 11% reduction in sales and marketing. As Mike mentioned, this is our third quarter of sub $15 million in operating expenses and we therefore expect that our run rate for a normalized quarter has settled in to the $15 million range. We reported a net loss of $7.4 million, or $0.18 per share for the recent second quarter, much improved from the $12.8 million net loss, or $0.35 per share in the second quarter a year ago. Average shares outstanding for the recent second quarter were 41.7 million, compared with 36.5 million in the same quarter last year, reflecting the 4.4 million shares issued as part of the simultaneous offerings that we completed at the end of December, 2008. Cash investments total $12.8 million at June 30th, decline of $6 million from the end of March. We used $5.6 million in cash from operations during the quarter, compared to an EBITDA for that period of negative $4.7 million, with working capital use were approximately $700,000 accounting for the difference. In conjunction with our focus on operating expenses, we have also put in place processes to improve our working capital performance, as we strive for cash flow break even. Good examples of these efforts are our current quarter accomplishments of 84 days of sales outstanding and inventory turn of 2.5 times, both measures that we are highly focused on and which we intent to improve upon. As we anticipated in our last conference call, the cash used this quarter was significantly below the first quarter cash burn, which was unusually high due to the timing of system-related payments received in the fourth and first quarters. Total bank and other debt was $28 million at June 30th with $13.2 million drawn against the $25 million working capital line with Silicon Valley Bank. Included in the debt is approximately $14.5 million owed to Biosense Webster related to the $18 million facility that was finalized in July of last year. Repayment of this facility will be from royalties otherwise payable from Biosense to Stereotaxis with no minimum cash outlay requirements until May 2010. At end of the second quarter our cash roughly was $13 million and approximately $12 million remaining under our working capital line with the bank. We continue to be believe, that our cash outlay to the remainder of 2009 will closely match the related quarters EBITDA. Therefore, we believe that our cash consumption for the full-year 2009 will be less than the $30 million we used during 2008. Given the continued uncertainty in the economy and the trajectory with the planned growth in our business, we believe it is prudent to ensure that we have additional flexibility to assess the capital markets on an as needed basis. Thus we filed a $75 million universal shelf registration statement this morning, to put in place the requisite documentation in the event that the market and company circumstances would make approaching the equity or debt markets an attractive alternative. It is important to note, that approaching the equity or debt markets is not a foregone conclusion for our company. We are actively investigating all strategies to meet our future needs. With that, I would like to turn the call back to Mike to provide an update on our outlook for 2009.

[Mike Kaminski:]

Thank you, Jim. Before we take your questions, I would like to make just a few final comments regarding our outlook on 2009. As I mentioned earlier, we expect revenue this year to grow above 2008 driven by Niobe backlog conversion, Odyssey revenue growth, and a 50% increase in recurring revenue. We expect gross margins in 2009 to be above 65%. We expect operating expenses to be below the 2008 level of $67.2 million. With sales and marketing expense at or above $28 million, R&D expenses below $17.4 and G&A below $21.1. With that I would like to open up to any questions.

[Operator:]

(Operator Instructions) The first question comes from Charley Jones from Barrington Research. Please go ahead. Charley Jones your line is open. Okay. We’ll go with the questions. Spencer Nam from Summer Street Research. Please go ahead.

[Spencer Nam:]

Just a couple of questions. Number one, this backlog we were looking at some where in the $63 million backlog last quarter. So, it was apples-to-apples is the 59 million apples-to-apples comparison versus last quarter. How to get above that?

[Mike Kaminski:]

Yes, it is.

[Spencer Nam:]

Okay, I see. Then related to this, the orders that are coming in say between now and the end of the year those are most likely to recognize sometime in 2010, is that fair to estimate that way?

[Mike Kaminski:]

We have one to four customers that have requested shipment this year of Niobe and of course Odyssey will be different. Because they ordered a cash cycle on Odyssey is much more compact than Niobe, but I’d expect your general statement that Niobe orders between now and the first quarter of 2010 will largely be shipping in 2010.

[Spencer Nam:]

Got it and then on the pricing side. The based on numbers that I have, it looks like that maybe the average selling price of Niobe was little below the historical ASP? Now you mentioned in the call that the pricing was steady and I couldn't quite get the numbers right. How did the pricing work out?

[Mike Kaminski:]

On the call, I was talking about the income orders. For the pricing on the incoming orders is continued to be steady. There are two or three issues that impact what I call apparent pricing, Spencer.

[Spencer Nam:]

Okay.

[Mike Kaminski:]

One is depends on the individual contract. Some contracts will have 5% withheld pending installation, some will have 10% or 15%. So, it's a mix of how much and we don't recognize until installation is completed. So, in one case I might hold back 15% of the ASP, when I shipped and recognized revenue and the other case, then I'd hold back 5%. So, you can see it 10% swing in ASP depending on which type of contract you have in that given quarter. In addition, as I mentioned we have several distributor orders this quarter and we do pass through some concession to distributors. Although all those systems were actually shipped directly to the hospitals and I think every distributor order shipped this quarter is actually in the process of installation at the relevant hospital.

[Spencer Nam:]

Great and this is probably a question that I think somewhat of a standard question at this point, but your competitor did not do as well on their quarterly numbers, placement numbers. I was wondering if there has been any impact from that, that you guys are seeing the customers, new customer interest from that effect?

[Jim Stolze:]

From the competitive situation, we are continuing to grow, Spencer, in customer interest. I mean our sales pipeline can be just be pretty robust. I don’t think their challenges equate to our success, let me put it that way. We look very, very strongly and what we can do to improve our sales success. So, we have seen a nice pick up. As we mentioned in several calls, our biggest short-term efforts are to get reference sites up and running, to get utilization up and then build from that sales funnel through those reference sites.

[Spencer Nam:]

I see.

[Jim Stolze:]

We've made some progress. I think significant progress in the last six months.

[Spencer Nam:]

I see. Final question, the Odyssey placements in the little white, would any thoughts on kind of how the quarter played out with Odyssey?

[Jim Stolze:]

The Odyssey, I think you will see a stronger pick up in the last half and as a result of getting into non-Niobe labs in a bigger fashion in the last six months of the year. As you know we launched that in the first half, we are beginning to see a lot of interest. I’d expect in the next several months you’ll start to see some of those translate into orders and then we will be able to, to move it from an order to revenue pretty quickly, because it’s not connected to a big construction cycle. So, we’ll see that pick up. I think it was a little bit of a low, mainly because all the Odyssey’s that came in Q2 were tied the Niobe’s and we’ll start to see a disconnect in the last half of this year.

[Operator:]

The next question comes from Keay Nakae from Collins Stewart. Please go ahead.

[Keay Nakae:]

Mike, in terms of your guidance, we think about your system sales in the back half of the year relative to your 18-month pipeline you talked about less than 15% coming in back half of this year I guess. Are we looking at sequentially flat number there you did $15 million in the first half is that we should expect in the back half or could it be a little better amount?

[Mike Kaminski:]

Let me restate and make sure that. I said there was $42 million in the next 18-month in backlog. Less than 50% would go to revenue this year slightly less. So, it’s slightly less than $20 million and slightly the balance in to revenue next year. We expect to pick up a couple of orders that would go to revenue between now and end of the year. So, that will be complemented with few more orders and then largely we think the orders between now and even almost into Q2 of 2010 will help build the backlog and the revenue necessary for 2010. So, all the new orders coming in largely Q3, 4 or 1 and part of Q2 will help the 2010 to strong revenue base. So, we feel pretty comfortable. So, if you look at that and then add to that recurring revenue.

[Keay Nakae:]

Well, I understand that. I'm just looking for a little more detail on the systems since your guidance is for ‘09 revenue to be better than '08 through six months you already 6 million above that, your recurring revenue in the back half going to clearly be much stronger than '08. So, just are we looking at flat system sales or possibly down or do you expect to see second half improvement?

[Mike Kaminski:]

You're talking about systems to revenue, not sales?

[Keay Nakae:]

That's correct.

[Mike Kaminski:]

If you just take that backlog at 20 million as I mentioned, plus recurring that would be the baseline I would look at.

[Keay Nakae:]

Okay. Lets we bond to the recurring revenue, we're seeing that nice sequential improvement, what percent of that now is disposable?

[Jim Stolze:]

If you look at disposables and royalty, is in the half range of that total number.

[Keay Nakae:]

Okay, very good and then Mike, you talk about some of your product launches, but are there more new products coming in 2010?

[Mike Kaminski:]

Yes.

[Keay Nakae:]

Beyond the US launch of the enhanced Tesla, what else is coming in 2010?

[Mike Kaminski:]

We should see hopefully the roll out of the non-localized irrigated catheter in the US, which would be a nice addition in the US. We should see the partnered new mapping system in the US. We also work on some product improvements that help us in EP to expand our footprint beyond just control on the magnetic catheter. So, we're continued to look at how we provide a platform to take care of complex arrhythmias and expand footprint in that. So, we'll have several new, nice additions to the EP platform and I again although we've downplayed it. We are continuing to on a small scale invest in our vascular growth. So, we are looking at launching a couple of products in vascular as well next year.

[Keay Nakae:]

Okay and then just one last question on the OpEx, you continue to do a very good job there and just wondering specifically to the G&A number. Is that level that we saw in Q2, is that going to be remains fairly steady or how do we think about that specific line?

[Jim Stolze:]

Yes, I think that the whole trajectory is kind of settled in now okay to reasonably consistant pattern. That will allow us to hold at those levels. I think it was $4 million in Q1, $33 million in Q2. So, it will fluctuate somewhere between those two. We include in that number is a bit misleading, when I call it G&A. Not misleading, but we choose to put our regulatory clinical and some of our training activities in there. So, the fluctuations in G&A will include fluctuations in our, as Mike mentioned we are doing some regulatory work in Japan. So, all the calls for that Japanese effort are in G&A. They are not in R&D. So, the fluctuations in G&A are going to be driven largely by regulatory and training inactivities.

[Operator:]

Thank you. The next question comes from [Imran Zafar] from Deutsche Bank. Please go ahead.

[Imran Zafar:]

I wanted to begin Jim by congratulating you and wishing you the best.

[Jim Stolze:]

Thank you, sir. I appreciate. It’s been fun working with everybody on the call.

[Imran Zafar:]

So, on the new orders in the quarter they were sequentially down. Can you just give me a little more specific explaining, why those cases just purely just the CapEx headwind?

[Jim Stolze:]

I think largely its US CapEx headwind. We’re pretty pleased with our efforts outside of the US and most of the discussions are focused on US and when I met some leading indicators those were all US, our leading indicators. Obviously outside of the US, we continue to see nice activity. So, I think it is culminated in Q2, sales forces pretty bullish on the balance of the year. I’m a little more conservative in my view and we’ll see how the leading indicators translate the X orders in single timeframe.

[Imran Zafar:]

Okay and then, and you go after the non-Niobe EP US with Odyssey, you do plan to do that alone or is there potentials for partnership there?

[Mike Kaminski:]

Definitely potential partnership, we’re going to initially do it alone, because we don’t want to get in to position of giving away too much of the value, as we look back. So, we’re going to go at it alone for the near-term, but we’re definitely considering partnerships.

[Imran Zafar:]

Okay and then, is there a way to quantify a backlog specifically for Odyssey?

[Mike Kaminski:]

I think it’s about 10% of the capital backlog roughly.

[Imran Zafar:]

Okay and then the conversion?

[Mike Kaminski:]

So, if it's tied to a Niobe then obviously it converts at the same time.

[Imran Zafar:]

Right

[Mike Kaminski:]

If it's not tied, we’ve gone from order to cash in 90 days on an Odyssey. So, it's very quick.

[Imran Zafar:]

I’m sorry if I missed this, but can you just give us an update on the cardio drive two, how much…

[Mike Kaminski:]

I think that we call it quick cash. I believe it's rolled out to 80% of our installed base. We should be fully rolled out at the end of Q3.

[Imran Zafar:]

Okay and then as far as reference sites, how many do you have up in running and then, where do you plan to be expand.

[Mike Kaminski:]

In Europe, I think we qualified three to four and then one for interventional and three to four for EP. In the US, we're still developing. We feel good about two or three and then in Asia it's still emerging. It's pretty premature in Asia. By the end of the year we should have one in Asia, that we feel comfortable as a reference sites. Now what's nice about that Imran is, we're in St Louis through the Odyssey network. We're also connecting them via the network. So, that any customer that visits St Louis can also see any site that that's hooked up on the network, that's a reference site. So, it doesn’t have to physically go to that site, they can come here and be online with any site.

[Operator:]

The next question comes from Sameer Harish from Needham & Company. Please go ahead.

[Sameer Harish:]

Jim, I just wanted to extent my congratulations as well.

[Jim Stolze:]

Thank you.

[Sameer Harish:]

It's real quick. I'm not sure you covered this already, but did you give a total procedure number for second quarter?

[Mike Kaminski:]

No.

[Jim Stolze:]

No, we did not. Talked about the averages per sites, but not total.

[Sameer Harish:]

Can you give a number or total procedures to-date?

[Mike Kaminski:]

We want to stay away from total numbers thus far. We're getting the more transparency just talking about utilization rates and then obviously you see the financial numbers.

[Sameer Harish:]

I think you mentioned in the press release, 50 sites have been converted to irrigated in the US or trained on irrigated. Are those fully proctored sites, are they still going through the proctoring process?

[Mike Kaminski:]

Yes, still going through. They are somewhere between early phase to, we are working on them towards to that independent phase.

[Sameer Harish:]

Okay. How many are fully up and running independently on irrigated?

[Mike Kaminski:]

I don’t know the exact account. I think in Europe its maybe 20% to 30% and the US it's less than that maybe 10% to 15%.

[Operator:]

The next question comes from (inaudible) from Soleil Securities. Please go ahead.

[Unidentified Analyst:]

Thank you to Jim and best of luck and I would call it semi-retirement.

[Jim Stolze:]

Thank you, Ma'am.

[Unidentified Analyst:]

First can you clarify your comments on CapEx spending, Mike, In the US our potential US Niobe customers telling you that once they visit the reference sites they could (inaudible) the Niobe order or is it more of a longer term not even option near-term, is more of a mid to late 2010 at the best case.

[Mike Kaminski:]

We are hearing more optimism towards spending freeing up late '09, 2010 in the market. Now that's a general market macro environment. You know people typically if you look at doing site drawings. You don’t do a site drawing unless somebody is interested in and you showing up and actually talking to the construction guys and getting into detail. It’s just not worth it. It's not something that you see as part of a customer that’s not interested in buying in a reasonably short period of time and those have gone up considerably since January and February. So, we think that the leading indicators are starting to turn in the right direction.

[Unidentified Analyst:]

Then in terms of utilization in the US for the irrigated some of your sites, I think it ones a week average, but the ones that are less than once a week, it just a matter of time or is there something with the irrigated catheter that, they said you, you need to change this or change that before use if more.

[Mike Kaminski:]

I haven't heard any performance problems of the irrigated. I think it’s a matter of getting the right physicians trained and in the lab. So, there is a fairly complex formula of getting, if there are a large number of physicians in a large number of labs getting everybody through the right labs and trained.

[Unidentified Analyst:]

I guess have you heard of any of your sites upon your last [payments paid until] sites are irrigated they are going to use it?

[Mike Kaminski:]

No, I have not.

[Unidentified Analyst:]

Just clarification non-navigation irrigated that you will be launching is that made by J&J?

[Mike Kaminski:]

Yes.

[Unidentified Analyst:]

Then last question. I thought you just gave us the 23,000 total cases performed to-date?

[Mike Kaminski:]

Yes.

[Unidentified Analyst:]

Can you give us the number entering 2009 to just we just have a general annual run rates (inaudible)?

[Mike Kaminski:]

We want to stay away from those numbers right now. We may get into total numbers by year end.

[Jim Stolze:]

Yes.

[Mike Kaminski:]

We look at that metrics.

[Operator:]

(Operator Instructions). Okay. Thank you, sir. We have no questions at this time. Please continue.

[Mike Kaminski:]

Well, thank you everybody for the call and we look forward to talking to you again in the next quarter. As a company we remain committed to driving success and we continuing to drive, what we believe are the most important things that resolved on both securing next year to be a nice growth year as well as continuing the success, we have had this year with irrigated rollout and continuation of financial improvements. So, thank you again and look forward to talking to you soon.

[Operator:]

Ladies and gentlemen, this conference will be available for replay after 11