Jim Byers - IR - MKR Group William Mills - Chairman and CEO Martin Stammer - CFO

Suraj Kalia - Northland Securities

Please stand by, we’re about to begin. Good day everyone and welcome to the Stereotaxis Second Quarter 2014 Financial Results Conference Call. Today’s conference is being recorded. I’d now like to turn the call over to Jim Byers, MKR Group. Please go ahead.

Thank you operator, and good afternoon everyone. Thank you for joining us this afternoon for the Stereotaxis conference call and webcast to review the financial results for its 2014 second quarter ended on June 30, 2014. Before we get started, we’d like to remind you that, during the course of this conference call, the company might make projections or other forward-looking statements regarding future events or the future financial performance of the company. These include 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 that qualify the forward-looking statements made on this call, we refer you to the company’s periodic and other public filings filed with the SEC, including the Form 10-K for the fiscal year ended December 31, 2013, the quarterly Form 10-Q filings and the Form 8-K filed today. Company’s projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The company assumes no obligation to update any projections or forward-looking statements. In addition, regarding orders and 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 some of these purchase orders and other commitments are subject to contingencies that are outside of the company’s control. In addition, these orders and commitments may be revised, modified or cancelled, either by their expressed terms as a result of negotiations or by project changes or delays. Now with that said, I’d like to turn the call over to William Mills, Chairman and CEO of Stereotaxis.

Thank you, Jim. Good afternoon everyone and thank you for joining us for review of our second quarter and first half 2014 performance. With me on the call today is Marty Stammer our CFO. Following our prepared remarks we will open up the call to your questions. In the first half of 2014 we fulfil several key operating objectives toward advancing our clinical platform and achieving targeted commercial results. Notably, we entered into an agreement with two leading medical device distributors in Japan to market, sell and distribute our Niobe ES Magnetic Navigation Platform. We advanced two more of Vdrive compatible disposables further along in the regulatory approval process in the U.S. and we premiered recent product advancements alongside new clinical evidence around our product efficiencies at preeminent global electrophysiology events. For a second consecutive quarter we achieved robust recurring revenues through recommitment of long-term service contracts and enhanced management of utilization. In the first and second quarters recurring revenue was 7 million and 6.9 million respectively, and 11% improvement from the first half of 2013. Through continued fiscal stewardship we also reduced operating expenses for the first six months by 8% and improved operating loss by 16% compared with the same period a year ago. To an extent offsetting these excesses we face challenges in the capital sales that impacted top line growth. System revenue for the first six months of the year decline 55% from the same period in 2013. With our successful efforts to significantly improve our financial position as we moved into this year, we’re focused on delivering commercial results and continue to believe in the strength of our clinically validated platform and ongoing innovations and new market opportunities to help drive system and procedure growth well above those levels experienced in recent quarters. Just this…

Thanks Bill and good afternoon everyone. Revenue in the second quarter was $8 million, down 17% from $9.7 million in the year ago second quarter. System revenue of $1.2 million compares to $3.3 million in the second quarter of 2013. During the second quarter, we recognized revenue of $500,000 on one Niobe ES upgrade of the Niobe one system and $700,000 in Odyssey sales. New capital orders totaled $600,000 and included four Odyssey system orders. At quarter end, our active backlog was $6.5 million. Recurring revenue was $6.9 million in the quarter, an 8% increase from $6.4 million in the 2013 second quarter. These results reflect strong service revenue as well as continued progress with stabilizing utilization trends. Utilization declined 5% from the year ago quarter and 1% sequentially. In the second quarter 2014, gross margin was $6.1 million or 75.3% of revenue, compared to 74.6% in the year ago quarter. Gross margins increased due to a shift in mix from system revenue to recurring revenue, partially offset by lower margins on Odyssey systems sold through the BWI distribution agreement in the Niobe one upgrade to the Niobe ES. Operating expenses in the second quarter were $8.4 million, compared to $9 million in the year ago period, a 7% improvement. Operating loss in the second quarter was $2.3 million, compared to $1.8 million in the second quarter of 2013. Interest expense declined to $800,000 in 2014 second quarter from $2.1 million in the 2013 second quarter. Net loss for the second quarter of 2014 was $1.9 million or $0.10 per share, a 35% improvement compared to a net loss of $3 million or $0.37 per share reported for the second quarter of 2013. Weighted average diluted shares outstanding for the second quarters of 2014 and 2013 totaled $19.6 million and…

Thanks Marty. Or priorities for the balance of the year continue to be executing on our new market strategies while increasing clinical validation and advancement of our industry-leading technology in order to try commercial results. We have seen significant interest in the Niobe ES platform to our commercial efforts to date in Japan which we believe could result in initial sales this year with meaningful revenue recognition in 2015 and beyond. After successfully transforming our balance sheet in 2013, we are intent on disciplined cash management and ensuring with financial flexibility necessary to leverage the growth opportunities ahead. With that we will open the call to your questions. Operator?

(Operator Instructions). And we will go to Suraj Kalia with Northland Securities.

So Bill, me being new on this call, forgive me if these metrics are not reviewed in the call usually, can you give us an idea of how many procedures were done in the quarter with the Niobe?

You’re right Suraj, they are not typically reviewed on this call. Marty can pull up a number for you, I believe here. But it’s not the one that we have used as an ongoing metric against which we compare period to period. Let see us see if we can pull that up for you.

And Bill, if I heard you correctly, for Japan, the Niobe ES; the number I heard on the call was 75,000 EP ablations. I’m not sure I heard the split between VT and AF ablations. Can you characterize the split between the two in the Japanese opportunity? And where you think the low hanging fruit will be?

So the split between AF and VT procedures, I believe it’s fair to say that the split prevails in Japan as it does elsewhere in the world, Suraj. I think of them roughly as a 5 to 1 or 6 to 1 sort of a split. If the pie were entirely AF and VT, it would be roughly 15% VT, say, and the remaining 85% or so would be AF. VT is clearly a smaller niche -- it’s a niche in that it is smaller, AF is the dominant indication in the market. There are, I know in Japan some differences between how the population experiences the sequelae of these conditions. One thing that comes to mind immediately is that I believe in Japan, there is a greater risk exposure in the AF condition to stroke that it owes its in (physiology) [ph] to AF as an example of the difference between the population experiences in Japan versus elsewhere in the world, but VT is, think of it as roughly 15% or so the size of AF. Think of it also though as a condition with even greater medical gravity attached to it. And of course for us it’s an indication of significant interest because I think it’s fair for us to claim that we do exceptionally well, that Niobe is exceptionally well suited to mapping and treating that particular condition, ventricular tachycardia. So it’s an area of great interest and focus for us. We believe that we have the leading solution there, but it is a subcategory that is roughly 15%, or it may be six or fifth the size of the AF indication.

So large, to follow-up on your first question, that was 2,372 procedures estimated in the second quarter.

:

Yes, absolutely. There are a couple of factors that are driving that. So the recurring revenue was partially based on service and is partially based on utilization. We have seen an uptick in our service contracts as well as a few one off billings for a couple of hundred thousand here and there in 2014. On the utilization side, and I think that’s really what you’re asking about, we saw that in 2013 hospitals seem to be eating through quite a bit of their inventory. In other words we weren’t seeing a disposable unit purchased for every procedure that was performed. Now, in 2014 we have seen that ratio go back to a historical normal level which is closer to 1 disposable unit for every procedure that’s performed which has increased our disposable revenue year-over-year.

(Operator Instructions) We have no further questions.

Thank you operator. And I would like to say thanks to each of you for your continued interest and support and we look forward to speaking again next quarter, if not before. Good day.

This does conclude today’s conference. Thank you all for joining us.