AtriCure Inc (ATRC) 2008 Q1 法說會逐字稿

Good morning, and welcome to the First Quarter 2008 Earnings Conference Call for AtriCure.

My name is Maria and I will be your coordinator for today.

At this time all participants are in listen-only mode.

We will be facilitating a question and answer session towards the end of today's call.

(OPERATOR INSTRUCTIONS)

As a reminder, this call is being recorded for replay purposes.

And I would now like to turn the call over to Mr.

David Drachman, President and Chief Executive Officer of AtriCure.

Mr.

Drachman, please proceed.

Thank you, Maria.

Good morning and welcome to AtriCure's First Quarter 2008 Earnings Conference Call.

Joining me on the call today is Julie Piton, Vice President of Finance and Administration and Chief Financial Officer.

At this time, I would like to turn the call over to Julie for a few initial comments.

Thank you, Dave, and good morning, everyone.

By now, you should have received a copy of the earnings press release.

If you have not received a copy, please call [Sarah Wickman] at (513) 755-4136 and she will fax or e-mail you a copy.

Before we begin, let me remind you that the company's remarks today may include forward-looking statements.

These statements include, but are not limited to, those that address activities, events or developments that AtriCure expects, believes or anticipates will or may occur in the future, such as revenue and earnings estimates, other predictions of financial performance, launches of new products and market acceptance of new products.

Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control including, but not limited to, the rate and degree of market acceptance of AtriCure's product and other risks and uncertainties described from time to time in AtriCure's SEC filings.

AtriCure's results may differ materially from those project on today's call and AtriCure undertakes no obligation to publicly update any forward-looking statement whether as a result of new information, future events or otherwise.

I would also like to remind everyone on the call today that the Food and Drug Administration, or the FDA, has not cleared our products for the treatment of AF.

They have been cleared for the ablation of cardiac tissue.

The company and others acting on its behalf may not promote any of its products for the surgical treatment of AF or train doctors to use the products for the surgical treatment of AF.

However, these restrictions do not prevent doctors from choosing to use the products for the treatment of AF or prevent AtriCure from engaging in sales and marketing efforts that focus only on the general attributes of the products for the current cleared uses and not for the treatment of AF.

AtriCure educates and trains doctors in the proper use of its products and related technologies and does not educate or train doctors to use any of its products for the surgical treatment of AF.

Additionally, AtriCure's left atrial appendage clip system is not commercially available and is pending 510(k) clearance in the United States.

It is currently being used in clinical evaluations in Europe.

AtriCure has provided research grants to institutions for the purpose of conducting certain studies that may be referred to during this call.

The primary authors of the papers referred to on this call may be consultants to AtriCure.

With that, I would like to turn the call back to Dave.

Thank you, Julie, and thank you everyone for joining our first quarter 2008 conference call.

AtriCure has completed another strong quarter.

Our results continue to confirm the power of our strategic plan and our aptitude for innovation.

I want to commend our management team and employees for their record performance during the first quarter and their unwavering commitment to sustain high growth in achieving profitability.

AtriCure is clearly a company on the move.

As you can see from our press release this morning, our minimally invasive product platform is being rapidly adopted by physicians.

Revenues from minimally invasive products grew 65% year-over-year and minimally invasive procedures were performed in 92 U.S.

medical centers during the quarter.

This represents an 11% increase in medical centers over our previous high.

There is a large and rapidly growing demand for effective atrial fibrillation treatment alternatives.

Based on our leadership position in the developing markets for cardiac ablation products and our expanding technology and product portfolio, along with our high disposable product revenues and gross margins per procedure, we believe strongly that no other atrial fibrillation company is better prepared or positioned than AtriCure to deliver results for patients, physicians and shareholders.

Now, I will briefly summarize our first quarter 2008 financial results.

Later in the call, Julie will provide more detail on our financial performance.

First quarter 2008 consolidated revenues were $13.5 million, which represents a 26% year-over-year increase.

U.S.

revenues from open-heart products were $7 million, which represents a 6% year-over-year increase.

U.S.

revenues from minimally invasive products were a record-seeing $4.9 million, which represents a 65% year-over-year increase, while international revenues were $1.7 million, which represents a solid performance at 30% year-over-year increase.

In terms of operating leverage, historically the first quarter has required high operating expenses, primarily because our two largest trade shows and national sales meeting occur during the first quarter.

However, during the first quarter, we continued to demonstrate strong trends in operating leverage on a year-over-year basis.

Consolidated revenues grew at 26% while operating expenses grew modestly at 6%.

Now, turning to our $2 billion U.S.

minimally invasive market opportunity.

Based on the current limitations of ablation products, to perform expanded cardiac ablation procedures, physicians have primarily reserved catheter ablation and minimally invasive surgical products for patients with paroxysmal or intermittent atrial fibrillation.

Our minimally invasive products continue to be rapidly adopted by physicians for patients with paroxysmal atrial fibrillation.

This is because physicians and patients will often choose a single minimally invasive procedure that is potentially safer and has superior long term outcomes as opposed to a somewhat less invasive catheter approach, which often requires multiple procedures -- each procedure carries additional risk.

Moreover, certain paroxysmal atrial fibrillation patients are simply not good candidates for catheter ablation, such as patients with large left atrium, morbidly obese patients, and patients who have fouled single or multiple attempts at catheter ablation.

In terms of accelerating the market growth of cardiac ablation products, we believe that a more advanced and tailored selection of technologies and products designed for patients with persistent and permanent atrial fibrillation represents the largest opportunity for ablation products.

AtriCure is on the forefront of this high-growth opportunity and large unmet need.

Based on the scientific and clinical validations of our open-heart products to successfully treat patients with persistent and permanent atrial fibrillation by replicating a maze-like procedure, we have developed and recently released our Coolrail linear ablation device and ORLab mapping system.

When the Coolrail and ORLab mapping system are used in conjunction with our other minimally invasive products, physicians are able to replicate a maze-like ablation through a totally fluoroscopic approach.

With the recent release of our Coolrail ablation device and ORLab mapping system, we anticipate accelerated growth from our minimally invasive products.

We believe physicians will broadly adopt our Coolrail and ORLab mapping system, expanding the use of our minimally invasive platform, for persistent and permanent atrial fibrillation patients as well as patients that have failed single or multiple catheter attempts.

Turning to hybrid procedures.

An important developing trend is combined minimally invasive and catheter ablation procedures.

For example, our minimally invasive platform has been used by surgeons to complete a left atrial maze and then the electrophysiologist performs right atrial catheter ablation.

These hybrid procedures have been performed during the same operating room procedure or during the same hospitalization as well as sequential hospitalizations.

We believe that this early trend in the convergence of technologies and procedures will develop into a large opportunity for the increased adoption of our minimally invasive products as surgeons and electrophysiologists work more closely together in order in order to enhance patient outcomes.

Turning to a review of our product and technology expansion.

The Coolrail linear ablation device was cleared through a 510(k) in the U.S.

with an indication of cardiac tissue ablation in March of 2008.

The Coolrail linear ablation device is a uniquely designed unit-directional, bipolar, radio-frequency device with long linear internally cooled electrodes which enable surgeons to make a reliable full thickness line of ablation on the epicardial surface of a beating heart through a totally fluoroscopic approach.

Our ORLab mapping system is an electrophysiology stimulator and recording system designed specifically for the operating room.

The ORLab system performs intraoperative electrophysiologic testing during advanced cardiac ablation procedures.

As a reminder, when used with our other minimally invasive products, the Coolrail device and ORLab mapping system facilities minimally invasive maze-like procedures.

We believe that these new and advanced products will be adopted by physicians for patients presenting with persistent and permanent atrial fibrillation as well as patients that have failed single or multiple catheter attempts.

During March and April, we performed a limited release and pilot study in the U.S.

of the Coolrail device and our ORLab mapping system as part of our design control process.

The pilot study was successful.

As a result, we recently released these products for full commercial sale with the understanding that the commercial release of these innovative and advanced products and advanced procedures will need to be supported by our comprehensive and rigorous training and educational programs.

In terms of our expansion into cryogenics, during August of 2007 we acquired Frigitronics product line for the ablation of cardiac arrhythmias.

This acquisition includes an install base of approximately 400 cryogenerators.

Moving forward, we are rapidly developing a long, malleable disposable cryoablation probe which we believe will be adopted by physicians for atrial fibrillation during certain open-heart procedures.

With our expansion into cryogenics, we believe that AtriCure is the only surgical cardiac ablation company able to provide physicians and patients with two energy sources.

We believe that our cryoablation probe will lead to market share gains and new growth opportunities in our open-heart business.

We anticipate FDA clearance and the release of our cryoprobe during the fall of 2008 with a labeling indication of ablation for the treatment of cardiac arrhythmias.

Turning to our left atrial appendage clip system.

This system is uniquely designed to safely and effectively exclude the left atrial appendage.

We successfully completed our initial series of 25 implants in Europe.

Based upon our most recent discussions with the FDA, which we believe are related to the current macroregulatory environment, which is trending toward requiring more clinical data for both implantable devices as well as 510(k) submissions, FDA is now indicating that they will require a larger sample size of human implants.

As a result, we have plans to expand our international studies through the second quarter of 2008.

As such, we are no longer planning a 2008 commercial release.

We are currently working with FDA to formalize our clinical plan in support of our 510(k) submission.

We continue to strongly believe that our left atrial appendage product portfolio will become a new AtriCure franchise.

Now, I would like to review our investments in clinical science and FDA approvals.

Our FDA regulated ABLATE pivotal trial, which is designed to treat patients undergoing open-heart procedures that present with permanent atrial fibrillation has been initiated in all 10 sites.

Based on our initial success, we are requesting additional sites from FDA to facilitate enrollment.

Additionally, we recently received FDA approval to initiate a separate ABLATE pivotal trial aimed at patients with persistent atrial fibrillation.

The permanent and persistent clinical trials are very similar in design.

The biggest difference is that the temporal endpoint for the permanent patients is six months versus nine months for patients enrolled in the persistent trial.

Both trials use a Bayesian adaptive statistical trial design and we are anticipating enrolling approximately 60 to 70 patients in each IDE trial.

Our primary strategy for conducting persistent and permanent clinical trials is to make certain that we are thorough in working with FDA to more rapidly expand the labeling of our products and to include a broader range of atrial fibrillation indications.

We continue to believe that the ABLATE clinical trial positions AtriCure to be the first surgical company to receive FDA approval for the ablation of atrial fibrillation during elective open-heart procedures.

During 2007, we received FDA approval for our RESTORE IIB clinical trial.

This is a Phase II feasibility trial investigating our minimally invasive products as a sole therapy treatment for patients with persistent and permanent atrial fibrillation.

Rather than initiating this trial during 2007, we waited for 510(k) clearance of our Coolrail device and ORLab mapping system and recently submitted an FDA supplement to the original trial design, which now includes our Coolrail system.

We anticipate FDA approval for our supplement this quarter and we expect to initiate enrollment in our RESTORE IIB feasibility study during the second half of 2008.

At this point in our call, I would like to turn the call over to Julie for a detailed review of our financial performance.

Thank you, Dave.

Now for a review of our first quarter 2008 financial results.

Total revenues were a record $13.5 million, representing a 25.9% increase over first quarter 2007 revenues.

Revenues from domestic open-heart products were $7 million, representing growth of 6.1% over the first quarter of 2007.

We believe that revenue growth for open-heart products was impacted by the execution of the pilot study in support of our Coolrail device and ORLab product introductions and a strong open-heart comparative quarter for the first quarter of 2007, where we launched our open-heart synergy platform.

Revenues from domestic minimally invasive products were a record $4.9 million, a 65.3% increase over the first quarter of 2007 and a 23.2% increase over the previous quarter record of $4 million.

The growth in revenues from minimally invasive products was driven by increased sales into existing accounts, the addition of new centers and sales of Coolrail devices and ORLab systems into our pilot centers.

International revenues were $1.7 million, a 35.6% increase over 2007's first quarter.

As a reminder, revenues from our multi-functional pen, which is used in both open and minimally invasive procedures, are allocated between open and minimally invasive product revenues based on our best estimate of the pen's actual usage.

Now let's turn to gross profit and gross margin.

Gross profit for the first quarter of 2008 was $10.3 million, reflecting a gross margin of 76.1% as compared with gross profit and gross margin of $8.5 million and 79.4%, respectively, for the first quarter of 2007.

The decline in gross margin was primarily attributable to the introduction of new products.

Now an update on operating expenses and our net loss per share.

Operating expenses for the first quarter of 2008 were $14.2 million, a 5.8% increase over the first quarter of 2007.

The year-over-year increase in operating expenses was primarily driven by an increase in selling expenses, attributable mostly to an increase in head count and an increase in variable selling expenses.

As Dave mentioned earlier on the call, our first quarter selling and marketing expenses are generally higher during the first quarter of the year primarily due to our two largest industry events and our annual sales meeting occurring during the quarter.

Additionally, as a reminder, late during the second quarter of 2007, the activities of certain clinical education specialists, which had been reported as a component of product development, were refocused to professional education and selling activities, which are reported as a component of SG&A.

This redeployment of resources was the primary driver of the decrease in research and development expenses on a year-over-year basis.

As a side, the decrease in other income was primarily due to the prior year including $300,000 of non-recurring grant income.

The net loss for the first quarter of 2008 was $3.6 million, a 16.2% improvement over 2007's first quarter net loss of $4.3 million.

Net loss per share for the first quarter of 2008 was $0.25 on 14.1 million average shares outstanding, as compared with a net loss per share of $0.35 on 12.3 million average shares outstanding for the first quarter of 2007.

As a reminder, the increase in average shares outstanding is primarily attributable to the issuance of 1.8 million shares of our common stock being issued in a private placement transaction on May 30th, 2007.

In terms of the balance sheet in cash, we ended the quarter with cash, cash equivalents and investments of $14.9 million.

Our first quarter typically is a heavy cash burn period due to year end accruals, increased operating expenses and a historical build of inventory in support of growth and new product launches.

Cash used in the quarter was primarily due to an increased use of cash in support of working capital needs driven by new product introductions and the timing of the first quarter revenue stream, which is generally lighter in January due to industry events.

Additionally, as a reminder, as you look at cash used in operations on a comparative basis, during the prior year we made a concerted effort to improve the aging of our receivables.

This resulted in the collection of aged receivables during the first quarter, which softened the impact of a heavy cash burn during the first quarter of 2007.

Our DSO continues to improve and is now under 50 days.

Now, turning to 2008 guidance.

We're confirming our 2008 guidance.

We expect annual revenues to be in the range of $58 million to $60 million, and net loss per share to be in the range of $0.55 to $0.70.

At this point, I'd like to turn the call back to Dave.

Thank you, Julie.

In summary, our results continue to confirm the power of our strategic plan and our aptitude for innovation.

We maintain a definitive leadership position in the large and growing market for atrial fibrillation ablation products and we are rapidly expanding our technology and product platforms.

We believe that a wider selection of ablation products, combined with a convergence of treatment alternatives designed for patients with persistent and permanent atrial fibrillation, represents the largest opportunity for cardiac ablation products and AtriCure is on the forefront of this large growing unmet need.

The leadership of AtriCure is looking into the future with a clear understanding of the opportunities and challenges with a passion and unwavering commitment toward expanding atrial fibrillation treatment alternatives and improving patient outcomes.

At this point, we would like to open the call for questions.

(OPERATOR INSTRUCTIONS).

Your first question comes from the line of Tom Gunderson with Piper Jaffray.

Please proceed.

Hi, good morning.

Good morning, Tom.

Good morning, Tom.

Just a quick clarification, Dave, in the -- I think you said MIS was up 65% year-over-year and that in the prepared remarks you said that you expected growth in MIS to accelerate.

Should I assume that we're going to -- 65% will be a base and you go higher from there?

That's an excellent question, Tom.

I think that we're in the range of where we should consider MIS growth on a going forward basis.

It's somewhat early to tell.

We executed our pilot study and we're very enthusiastic about the initial results of Coolrail as well as the ORLab mapping system.

The caveat is that the first phase to what we believe is the tipping point with these new products is for us to establish a core centers -- a core number of centers that have the ability to train on both the technology and the expanded ablation procedure.

So we're going to systematically approach the markets, as we have in the past.

We're going to focus on a core number of centers for educational purposes and then we plan to continue to expand beyond that.

So we do believe that there'll be an acceleration -- the rapid acceleration that we saw in the first quarter is somewhat indicative of how we would envision the full year, but maybe not on one-for-one.

And then -- thanks.

And then, on another question.

Somewhat disappointing, I would think, on the FDA's reaction -- this is on the LAA clip.

This is a 510(k).

It's got a predicate device.

It's a tool, not an implant.

You've got some internationally clinical human data already and yet they want to drag that out longer.

Did they give you any sense of how -- what kind of "in" we're looking at, and is international going to be sufficient?

Well, as you pointed out, we continue to believe that this is the 510(k) and we continue to have every reason to believe at this stage that our international data will support the clinical requirement.

We are in the process of formalizing these discussions with the FDA and I do believe that some of these issues were impacted by the more current macro environment that we talked about earlier, which relates to implantable devices and general pressure on FDA relatives to 510(k)s and the concept of predicate A, predicate B, predicate C, predicate D -- at what point do these predicates require more human data?

So I think we're caught up, to some degree, in some of those dynamics.

We would expect to have color within the next, probably four to eight weeks.

But in the meantime, we're staying busy with our international expansion and we're hopeful that this 510(k) will be very reasonable in terms of sample size and duration of follow-up.

And we really have no reason to believe that this is going to be an exponential increase in the number of implants or an extended period of follow up.

Okay, thanks.

And then, Julie, just looking into Q2, is it a fair assumption that since Q1 has heavy marketing expenses that Q2 will be down sequentially and, given the increased enrollment that you need for the 510(k) on LLA that R&D might be up a little sequentially?

Yes, I think those are all reasonable assumptions, Tom.

And, Dave, you talked in the last call about the growing need and the growing opportunity for publications.

Are there any near-term publications, peer-reviewed journals that we should be looking for in the upcoming weeks?

Actually I just reviewed one that was submitted last night.

There is lots of activity in terms or submissions and papers being written to keep cardiology in searchable journals, so if you remember, in the last several three or four months, there were three publications and, quite honestly, I think the accelerated growth that you saw in the first quarter was largely due to the HRS consensus statements, to three publications, very strong live case of strong A-fib, strong FTS, and about 10% of that new growth came from stocking orders relative to our pilot study for Coolrail and ORLab.

But, going back to your original question, yes, there is a significant number of publications that are being written and being submitted now.

One of the issues that has extended some of these publications is that cardiology journals specifically require 12 month data for submission.

In the past, they would have accepted six-month follow up.

So some of the publications are going to searchable journals but we're holding off to make sure that we get an adequate number of these publications in the electrophysiology and cardiology journals.

So there's a lot of activity and we're very hopeful for this year.

Okay, thanks, I'll get back in line.

Your next question comes from the line of Vivian Cervantes with Rodman and Renshaw.

Please proceed.

Hi, good morning.

Thank you for taking the question.

Hi, Vivian.

Hi.

I'd like to start off with possibly some color on U.S.

MIS product sales.

You had mentioned that it's broken down between same store sales growth, as well as new centers, and reach into the pilot studies.

Could we break that out a little bit, to the extent that you can?

I think we've never given individual product revenue and broken it out that way, but I think the way to look at it is that, first of all, the new products, if we excluded new products, this still would have been a record quarter in terms of MIS revenues.

If we exclude new products, this still would have been a record in terms of number of centers performing minimally invasive procedures.

And the reality is that we didn't release the Coolrail in the pilot or the ORLab mapping system until the mid-March time frame.

There were some stocking orders, and I think the way I would look at it is that those stocking orders into the pilot, which we successfully completed, accounted for about 10% of MIS sales.

Great, that's very helpful.

Are we still looking to target about 150 centers?

We're actually -- actually I think the number is probably lighter than that.

Right now, our number one focus is that we firmly believe that this Coolrail/ORLab mapping system and then the clip are really the catalysts to a tipping point and our focus right now needs to be on making sure that we train a competent number of clinical centers that can perform the educational processes for us in terms of both the technologies as well as the clinical applications.

That's Phase number one.

We're much more focused on launching -- continuing to launch the Coolrails in a very systematic way and then broadening the Coolrails out into the existing centers versus going wide this way.

So we think a good portion of the growth, which is a very positive sign if we can execute our plan, that a high portion of the growth will come from the 100 or so centers that are currently performing minimally invasive cases.

Thank you.

That's helpful.

Just wanted to touch on industry conversations about a competitor that's providing microwave AF ablation pulling out of the market.

Can you talk a little bit about how much of an opportunity this is for you in coming quarters?

It certainly has helped us.

Quite honestly, microwave, I think, was on a downward trend.

There was some data presented almost a year and a half ago that strongly suggested that the results were poor and if it were not able to achieve transmurality, so microwave, over all, has been on a downward trend.

There has been some pick up in the few centers, which has helped, but more or less, we were on top of the microwave technology when it was pulled out of the market.

That's helpful, thanks.

And then lastly, you had talked about sort of training or looking into new surgical approaches to help drive minimally invasive use and that includes the trigone tissue ablation.

Any updates on that and how that's progressing within the clinical community?

Yes, that's progressing very well.

That left fibrous trigone is part of our expanded ablation treatment.

We've performed well over probably close to 100 cases where we put a roof line, a line to the left fibrous trigone, which is basically a mitral valve annulus line.

So we've completed about 100 full left-sided maze procedures, which is our aim for these persistent and permanent patients.

We're continuing to learn, but there's also another level of procedure and product development.

So our philosophy has always been let's perform the most expanded ablation treatment for the persistent and permanent patients through our current minimally invasive approach.

And then let's take the minimally invasive piece up to another level; make it even less invasive.

So we have a series of products planned for 2009 that we believe will make this procedure less invasive but will maintain the ablation treatment and I think that is going to be very difficult to compete with, both in terms of our surgical colleagues as well as our catheter colleagues.

So these are new products that we have not yet talked about for '09.

These are new products that are in the concept phase that we feel very strongly about.

It will accelerate the minimally invasive.

So Phase I is the expanded ablation treatment itself and demonstrating that the treatment works, and Phase II is continuing to develop derivatives of our platform to make the procedure more [cathatal] like in terms of the level of invasiveness.

Terrific, thank you very much.

Thank you.

Your next question comes from the line of Joanne Wuensch with BMO Capital Markets.

Please proceed.

Thank you and good morning.

Good morning.

Could you give us an idea of some of the qualitative feedback you've had on the Coolrail and the ORLab in the early launch stage?

I think the qualitative feedback has been that the Coolrail makes very robust lesions.

The lesions that we saw in the animal labs were full thickness lesions that were very easy to visualize.

They were about 5 mm wide.

I think the physicians have been very impressed with the Coolrails in terms of the ability for it to make lesions, both the roof line that we talk about as well as this line to the mitral valve annulus for left fibrous trigone as well as additional lesions on the right atrium that certain physicians are beginning to make to even more mimic the more classic maze procedure.

At the same time, the ORLab has also been extremely well received.

Actually we're surprised because in the operating room, mapping systems are really not necessarily a standard.

So the ORLab mapping system has been very well received.

It's a multi-functional recorder-stimulator.

It performs, if you remember our conversations about the GP ablation, it makes that simple.

It makes the confirmation of block simpler.

The one area that we have to develop further is the confirmation of block in terms of the EP testing for these connecting lines.

We're doing testing but there are ways that we can simplify that testing in the OR and we have concept technologies in the works today that we believe will certainly make that confirmation a simpler process.

So if I were to summarize the Coolrail, ablations are very robust.

Physicians are very happy.

The ORLab mapping system is being very, very well received.

I think the area of improvement for us is developing electrodes that can be positioned in the right places on the heart to make it simpler for physicians to confirm these lines of block using our ORLab mapping system.

Okay.

Question for Julie.

Gross margins, I understand, were lower because of inventory build and maybe even possibly some effects -- I'm not sure about that.

But as we look throughout the rest of the year, what kind of guidance can you give us?

Right.

Historically, our margins have been impacted basically by three items.

One, is new product introductions.

Second, is the mix of international.

And third, is now going to be our mix of disposable versus capital-type sales.

So I think you'll continue to see them fluctuate quarter-to-quarter but still stay in a range of kind of 76 to 79-ish on a quarter-to-quarter basis and full year probably somewhere in the middle.

Okay.

My final question is with HRS coming up, what can we look for there from you?

Thank you.

We have a symposium that's -- have to send out the date -- enlighten me on the exact date, but it's an early morning symposium with [Hugh Cawkins], [Sonny Jackman], Mark Ward from the Medical College of Virginia and Jimmy (inaudible).

So we have a very high quality symposium with pioneering electrophysiologists and surgeons to talk about our minimally invasive approach.

The times for HRS are complicated.

It is a 6:30 a.m.

program.

We will get that information out to all of you and we're looking forward to that.

We also have a fairly similar symposium a few days prior at AATS, which is one of the largest surgical meetings.

Thanks.

It's the Wednesday of that week is the timing of the meeting, so Wednesday the 14th would be the date.

Wednesday, the 14th at 6:30 a.m.

And again, we'll get you a location and more information but it's a very high quality faculty and we're certainly very honored and excited to execute that symposium.

Your next question comes from the line of Charley Jones with Barrington Research.

Please proceed.

Good morning.

Congratulations on a good quarter.

Thanks.

Thank you, Charley.

David, how many customers had a chance to try Coolrails and how many months do you think it will take to train your install base?

We've had about 20 centers that have tried Coolrails.

To train our install base, I would say in terms of the 92 centers that we're talking about, it's probably going to take an addition six to nine months to adequately train them all.

The 20 centers that we trained initially, as you can imagine, were higher volume, and in some regards, more experienced surgeons, and again those cases have gone extremely well.

Coolrails was very well received, again, with the ORLab mapping system.

So we're continuing to work with those centers.

I think the ablation procedure itself and the clinical applications requires some training.

The line-tip left fibrous trigone is generally a new anatomical area for some surgeons and requires some training and education but it's very achievable.

The surgeons pick up on it very quickly and we're continuing to refine the mapping techniques to make sure that we can validate the fact that we have conduction block in the operating room and that's probably one of the more challenging aspects of our training and educational and development programs.

But, again, to answer your question, I think it's a six to nine month process before we have the existing centers all on board, fully trained, with the Coolrail system.

Do you expect open surgical revenues to grow faster on the year-over-year basis for each of the next three quarters, or do you think the minimally invasive growth that you've had and the focus is going to impact you throughout the rest of the year as well?

We'd certainly like to think that the open business has the opportunity to grow more rapidly.

We've just started off with the concept that the open business is 25% to 30% penetrated.

Based on the clinical results and recent favorable changes in reimbursement, we believe that the open markets will grow to be greater than 60% penetrated over the next several years.

AtriCure is the market leader.

We do have the broadest portfolio products.

To summarize, we believe that AtriCure will grow with the markets in 2008 but in 2009, based on the release of our cryo-platform, that we will begin to take share back.

And we think that the markets in the open-heart area will grow in excess of 10%.

That's helpful.

Thank you.

Can you give us an idea of how ASP has turned it in the quarter, both in the open and in the minimally invasive and is 9,000 about the neighborhood we should be thinking for at least the next couple of quarters in minimally invasive?

Right.

Domestic ASPs have remained relatively consistent with previous quarters and specifically with the last quarter, Charley.

Seemed like I -- the number of cases per accounts went up at least one case for each of your accounts in the quarter.

Is that about what you guys saw?

We haven't actually given -- as you know, guidance on procedures, but it was our strongest procedure month like to date -- quarter like to date, I'm sorry.

Okay, thank you.

Julie, what was your stock comp expense?

Stock comp was roughly $600,000.

And then your depreciation is running about $500,000 a quarter.

Is that right?

Or is that a year?

Actually, depreciation -- yes, right around $500,000 or $600,000 a quarter, that's correct.

So if I look at the next, say, six quarters, Julie, I see that you're going to have maybe GAAP losses somewhere, street expectations, $5 million or $6 million over the next six quarters.

You've still got it sounds like at least $1 million in non-cash expenses and then you've got to figure all your working capital needs.

Are you comfortable with your cash position?

Obviously it's tight but do you think you can get the profitability with any existing credit lines or without needing to go back to the market for cash?

Right.

At this point, Charley, we remain focused on utilizing the cash that we have and also we are looking at other strategic items.

We're always evaluating our capital structure such as putting a credit facility in place primarily to float our working capital needs.

So we are still focused on that and kind of marching down that path as we move forward and as the year unfolds.

But it sounds like you're focusing on trying to get a line of credit in place?

That's your first order of business here?

Right.

We are actually working on putting a commercial facility in place that would be basically an asset-backed facility that would be tied into receivables and inventory.

Great, that's helpful.

Last question here.

Dave or Julie, can you discuss your international growth and give us an idea of whether or not minimally invasive for the open platform was stronger in the quarter and if you could give us any breakout there, it would be helpful.

Thanks.

Sure.

Well, international growth at $1.7 million, as you know, was 36% of year over year.

We thought the international business is trending strong.

In terms of the minimally invasive component, the MIS -- it's interesting.

We had some of our highest volume MIS centers -- for example, in the European markets.

We also had some of our most talented physicians and surgeons that have taken this procedure and in some ways, to different levels.

So we do a lot of procedure development work in a few centers in Europe and we do have some very high volume centers.

We think it's just a matter of time and focus and building out some more direct capacity, particularly in the European markets, before MIS begins to play a larger role.

Thanks again.

Have a great day.

Thank you, Charley.

Thank you, Charley.

Your next question comes from the line of Matt Dolan with Roth Capital.

Please proceed.

Good morning, Dave.

Good morning, Julie.

Good morning.

Good morning, Matt.

A question on domestic MIS.

Dave, can you give us a feel for utilization among these centers.

Are you seeing some of the more tenured surgeons picking up a lot of the acceleration and growth that we saw here in Q1 or is it kind of the newer individuals coming on board here and really driving that piece?

Help us understand that dynamic a little bit.

What's encouraging is that the groundwork and the strategic work that we've done, it's through centers that we've been calling on for quite a long time, I think, that have -- where we've seen the biggest impact in terms of numbers of procedures.

I think this has a lot to do with the fact that many of these centers do a few cases and the referring doctors want to see what the outcomes are.

They do a few more and the outcomes have been exceptionally good, both in terms of safety as well as efficacy in these higher volume centers.

So what's happened is I think a lot of our growth is coming from the centers that we've been in the longest, which, again, we think is a very positive sign in terms of building the market.

Okay, very good.

And, again, on the Coolrails and the mapping system side and considering further expansion with the cryoprobe, how are you looking at pricing on the minimally invasive side?

What's your strategy there, maybe on a per procedure basis?

And as more products come out, how does that impact the gross margin outlook here long term?

Well, first of all, there's two fundamental strategies that we sort of look at in sales and marketing.

One is what we refer to as a distribution strategy where the strategy is to get all of our new products on the shelf and to use our clinical organization and our clinical sales staff to educate physicians on the value of those products so that we pull more and more products with high gross margins off the shelf per procedure.

That's our displacement strategy.

Distribution -- we would refer to more as a bundling concept.

We're much less in favor of any bundling-like concept; however, with the Coolrail specifically and the concept that we're in the, let's say, $9,000 range on going into the Coolrail launch, we are sensitive that certain centers may require some discounting over the next six to 12 months.

Our solution to that is that we are developing this less invasive procedure which actually involves a single clamp.

So over the longer term, we have this single clamp approach to minimally invasive versus two clamps today, as you know, that we currently use, and that single clamp will give us the added ability to continue to add new products and maintain the sorts of disposable margins which are in the low 80s that we've seen in the past.

So we're very encouraged by that.

In terms of whether or not we need to do any discounting to account for the Coolrails, it's really too early to say.

To date, we haven't.

We anticipate the Coolrail independently will sell for over $2,000 per product and the ORLab mapping system -- we've been selling that product as well for about $30,000 per unit.

Okay, very good.

And then, finally on the open side.

You mentioned kind of your growth expectations there.

On ATS' call last night, they mentioned surgical AF growing in the high teens and being $120 million market today.

As we look at your business modeling revenue, open versus MIS, and MIS now expected to be maybe 60% plus, is 10% to 15% a fair expectation for domestic open?

Or how do you see that playing, and what specifically do you see your market share being today?

Thanks.

Well, first of all, I sort of saw those comments and it wasn't clear to me that those comments and the types of growth that they talked about were open versus minimally invasive --

Right.

-- or U.S.

versus domestic.

I think -- the way that I read it, and I just may have read some very limited information.

I'm certainly not an expert on their disclosures, but we believe that the overall markets, if you include open and MIS, is going to grow significantly more than the teens range.

So we're much more confident that there's a much higher growth opportunity largely driven off minimally invasive.

For us, largely driven also off the international markets, and the open at 25% to 30% penetrated in the U.S.

still has good growth potential on a going-forward basis.

Okay, very helpful.

Thanks, guys.

Take care.

Thank you, Matt.

Thank you.

Your next question comes from the line of [Stephen Ogilvie] with (inaudible).

Please proceed.

Hi, this is [Diego Verta] filling in for [Steve Ogilvie].

I have two questions.

We saw national publicity on Boston A-fib symposium in January.

Has this publicity created any attraction in referrals or revenue?

And my second one is also on referral patterns -- are they becoming more self-sustaining or are the sales reps still have to be involved in them?

Thank you.

First of all, thank you for your question.

It think the Boston A-fib was a catalystic event for us and there's no question that the growth that you see -- the 65% growth that you see was a culmination of the HRS consensus statements getting out there, the three publications that came toward the end of the year, the Boston A-fib meeting, and the very positive STS.

So those, I think, were the key drivers.

In terms of do we need to stay on the ground, in touch, driving the referral process versus is it self-sustaining, I think it's a combination of both.

I think that we certainly have centers that it's self-sustaining and we're much less involved in the referral development process and some of those centers are high volume.

And then we have centers where we're continuing to talk to the referring doctors, continuing to what we call "touch-points" -- touch them as many times over the course of a quarter as we can, bring them new information, and in many of our centers it is an ongoing process.

And that gives us access to these physicians also to sell them new products but more importantly, to sell the new expanded ablation treatment to try to expand the number of referrals that some of these cardiologists and electrophysiologists are prepared to refer to surgery.

Thank you.

(OPERATOR INSTRUCTIONS).

Your next question comes from the line of Larry Haimovitch with HMTC.

Please proceed.

Hey, good morning, Dave.

Good morning, Larry.

Congratulations on a very nice quarter.

Thank you.

Lost of good questions have been asked.

I've got a whole long list of them, so I'm going to come right down to -- on the minimally invasive side, my understanding is the vast majority of the procedures today are the bilateral thoracotomy variety.

But I'm very interested in hearing that in some centers in Europe, in particular, and maybe a couple here in the U.S., we're beginning to see the procedure done truly thoracoscopically.

I wonder if you could talk about that a little bit.

Sure.

I just came back from a long trip in Europe.

Met with some centers in the Netherlands.

They have taken the procedure, along with a few centers in the U.S.

and I don't want to underestimate that we have some very talented surgeons here in the U.S.

as well.

But these procedures are, as you say, totally fluoroscopic, done within about an hour and 15 minutes and actually, this is early in the game but I will preview this.

There was one center that actually did a single-sided totally fluoroscopic approach with our technology and that's an area that we're driving towards in terms of procedure development to create the same ablation treatment that we currently have through a single-sided totally fluoroscopic approach using our current minimally invasive platform but upgrading our (inaudible) technology.

Dave, do you think -- you've shown, with the bilateral thoracotomy - clearly it shows very, very good levels of efficacy.

There are those that would argue that a single-sided minimally invasive might not prove to be as efficacious -- certainly would be less invasive, more elegant and kind of where I know you'd like to go.

But can we get the degrees of efficacy that we'd like to see in the procedure, because obviously that's where the key -- making it less invasive, making it faster is nice, but if the patients don't get the results, obviously it's not going to fly in the market place long term.

So are you convinced at this point that that procedure can be as efficacious as what we're doing in the U.S.

-- primarily the bilateral?

I have no doubt.

I've seen the Coolrails and the extended lesions that have been done through a totally bilateral fluoroscopic approach and so we know that we can do that today -- it's a small number of centers.

But I want to step back, Larry.

You're right, it's treatment first, efficacy and safety first, and then it's minimally invasive second.

Yes.

But there are a small number of centers that are doing and using the Coolrails now to do a completely totally thoracoscopic approach that mimics the same lesion set that we do through let's say the wolf-like procedure.

So we're very optimistic that we can teach more surgeons to do that.

But even more optimistic that we can do a single sided approach using our bipolar ablation clamp technology as the core of the procedure and further make it more minimally invasive.

Now that's a 2009 event.

Currently what we want to do is launch the Coolrails, expand the ablation treatment, demonstrate that this treatment works in a more difficult, challenging subset of patients such as persistent and permanent (inaudible) catheter ablation, validate that and in the parallel with validating that, we're working very diligently on derivative technologies that would give us totally thoracoscopic for more physicians as well as a single sided totally thoracoscopic approach with the same technical endpoints.

Dave, would you say that looking out a couple of years that the future would then be the single sided thoracoscopic that would say in 2010, the market would be very receptive to that and that would be your primary focus where you get high levels of efficacy but you are getting the truly minimally invasive procedures that even the biggest fans of AtriCure would say is what they'd really -- like Jimmy (inaudible) says -- you know he's talked about this so often -- hey, we'd love to see something less invasive.

Is that what we should look forward to in the next couple of years?

Absolutely.

Great.

Undoubtedly absolutely.

And then one final question.

I think Matt Dolan talked about this a little bit, or maybe it was Charley, but the concept that with Coolrails now being -- I think it's ASPs $2,500 at full list, if I'm not mistaken, correct?

We're selling it anywhere from $2,200 to $2,500.

Yes, so that on top of the $9,000 -- that will put you into the $11,000 range and then you start talking about hopefully the left atrial appendage at some point in the next few quarters, hopefully in the U.S.

Start getting up into the teens, possibly.

And that suggests to me that you're going to start bumping up against some financial push back from perhaps some of your customers.

It's a nice problem, because obviously you've got nice new products coming.

But how do you view that?

Is that going to be an issue for you in the market place?

It is an issue if we don't address it.

I think the plan to address that is the single clamp.

We have a single clamp that the concept is close to being frozen.

We know we can make it more a matter of resource allocation internally.

We know we can develop it.

But if you have a single clamp, you have a Coolrail, and the Coolrail maybe has pin capability but it's a premium product.

You have a dissection tool, a transfer guide, a clip -- this sort of product portfolio, we think, can maintain the same sort of range that we're in now in terms of revenue per procedure, and with the continued efficiencies in operations, also retain the disposable gross margins that we have which are in the low 80s.

Okay.

I'll see you at the ATS seminar Monday night and I'll see you at HRS.

Okay, Larry.

Thank you very much for your support.

Great, you're very welcome.

Just to clarify, the HRS breakfast is Thursday, not Wednesday, so my apologies -- I had a bad date.

Yes, HRS breakfast is Thursday, not Wednesday.

Your next question is a follow up from the line of Charley Jones with Barrington Research.

Please proceed.

Yes, a couple of quick questions here.

Are there any joint marketing opportunities for you, Dave, to expand the adoption of a left sided epicardial approach and a right sided percutaneous approach and have these centers that have started to adapt this joint approach, would you say that that's been increasing their adoption or utilization of this joint approach or kind of flat over the last quarter?

Can you give us a little color there?

Very interesting question.

There are strategic discussions.

Now whether or not they're true opportunities yet I think is really early to tell.

But the way that I like to look at it, Charley, if I'm a catheter ablation company and last year, Millenium says that there were 32,000 catheter ablations performed and 30% of those were re-dos, and I know that catheter ablation has been performed since the early 90s, it's really not a high growth area yet.

It may be in terms of percentages but in terms of actual procedures, not necessarily so.

So if you're a catheter ablation company, you get paid the same amount of money for a right atrial ablation as you would for a total AF ablation.

So why not partner with surgery?

Why not look at it as a convergence of technologies and procedures.

We recently did a procedure in the same operating room setting where the surgical approach was done on the left side, which is where the catheters have the most difficulty.

We rolled in a C-arm and there was right atrial ablation done -- typical right atrial isthmus ablation done for right atrial flutter, which is all good clinical strategy in terms of treating atrial fibrillation for patients with more persistent and permanent.

And the catheter company actually derived their average revenue for procedure.

AtriCure derived our revenue for procedure -- the reimbursement is very strong from a physician and from a hospital perspective, and the patient got the best possible procedure.

So we clearly seen an opportunity to enhance patient outcomes as well as an opportunity to partner with some industry colleagues to look at hybrid procedures.

I think that is a potentially large part of the future when you look at enhancing outcomes and convergence of technologies and procedures.

Hey, just a quick follow up on that.

Are these two or three centers that are doing these joint procedures -- are they all using kind of a similar percutaneous catheter for the treatment of AF or are they -- is it a mix?

They're all using a similar catheter.

The question is when do they do the procedure?

For example, the center that I just talked about did everything in one operating room procedure.

We had a center that recently did several cases where it was within the same hospitalization so the patient went to have the left atrial maze-like procedure done with our minimally invasive platform on day one and post-op day two, they went to the EP lab and got right atrial flutter ablation.

Then there is another center that does something similar where they do the left-sided procedure during one hospitalization and then bring the patient back in 30 days and do the right atrial ablations.

So I think the hybrid approach certainly has a tremendous amount of potential and partnering with the right strategic partners, both in terms of technology and sales and marketing alliance, could be an important initiative for the company.

Thanks again.

Thank you.

At this time there are no further questions in queue.

I will now turn the call back over to Mr.

David Drachman.

Thank you everyone for joining our call.

We certainly appreciate your support which allows us to build a great enduring company.

Thank you very much.

Thank you for your participation in today's conference, ladies and gentlemen.

(OPERATOR INSTRUCTIONS).

Have a great day.