AtriCure Inc (ATRC) 2008 Q2 法說會逐字稿

Good morning, and welcome to the ArtiCure Second Quarter 2008 Earnings Conference call.

My name is Ahmed and I will be your coordinator for the call today.

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

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

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

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

David Drachman, President and Chief Executive Officer of ArtiCure.

Mr.

Drachman, please proceed.

Thank you, operator.

Good morning, and welcome to our Second Quarter 2008 Earnings Conference Call.

Joining me today on the call 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 introductory 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 Wichman at 513-755-4136 and she will fax or email 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 development that AtriCure expects, believes, or anticipates, will or may occur in the future, such as revenue and earning 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 products, and other risks and uncertainties described from time to time in AtriCure's SEC filings.

AtriCure's results may differ materially from those projected 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 like to remind everyone on the call today that the Food and Drug Administration, or FDA, has not cleared our product 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.

These restrictions do not prevent doctors from choosing to use the product for the treatment of AF, or prevent AtriCure from engaging in sales and marketing activities 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.

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

The primary authors of the papers, or other physicians 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 Second Quarter 2008 Conference Call.

AtriCure is clearly a company on the move, designed for growth, profitability, and value creation.

Our high growth performance, operating leverage, and well-managed capital structure provides clear and convincing affirmation of the power of our strategic plan.

Furthermore, we continue to believe that the increasing acceptance of our minimally-invasive products, our high disposable revenues, and high gross margins per procedure, and attractive reimbursement landscape, along with our strong product pipeline will result with accelerated growth and profitability.

For these reasons, we believe that no other atrial fibrillation company is better prepared or positioned than AtriCure to deliver results for patients, physicians, and shareholders, and we remain confident that AtriCure will become one of the elite cardiac companies of our time.

Now, a summary of our second quarter operating highlights.

One, top line growth exceeded 20% on a modest 2% increase in operating expense, resulting in a 43% improvement in net loss.

Two, we secured a $10 million credit facility, expanding our capital resources while preserving our capital structure.

Three, our minimally invasive products are used to facilitate a simplified, totally thoracoscopic technique, resulting in reported procedure times of 60 minutes, and patients being discharged from the hospital in two days or less.

Four, we submitted our 510(k) in support of our disposable [cryo] system, which remains on schedule for U.S.

release this fall.

Five, in terms of our left atrial appendage system, we received conditional approval from FDA to initiate our [exclude] clinical trial in support of our 510(k) submission.

Importantly, we believe that this progress provides a clear pathway for U.S.

release in the second half of 2009.

Now, I will briefly summarize our 2008 second quarter financial performance.

Later in the call, Julie will provide details on our financial results.

During the quarter, the Company set new highs for each of our primary business sectors.

This resulted in consolidated revenues of $14.9 million, which represents a 20% increase when compared to the same period a year ago.

Furthermore, U.S.

revenues from open heart products were $7.4 million, which represents a 9% increase year-over-year, while revenues from minimally invasive products were $5.1 million, which represents an impressive 29% year-over-year increase.

In addition, revenues from our international markets were $2.3 million, which represents a 49% year-over-year increase.

Additionally, during the second quarter we continued to demonstrate strong operating leverage.

Consolidated revenues grew by 20%, while operating expense increased modestly at 2%, resulting in a 43% reduction in net loss.

Now, a review of our capital considerations.

We will continue to evaluate our business needs, strategic plans, and growth opportunities, along with a macro environment within the capital markets.

However, we believe that our current capital resources will further enable us to execute our strategic plan.

As a result of our operating trends, going-forward projections, cash on hand, and our $10 million credit facility, we believe that AtriCure is well positioned to drive toward profitability and generate free cash flows from the business.

We plan to preserve and leverage our well-managed capital structure in order to maximize enterprise value, as well as shareholder returns.

Turning to our $2 billion U.S.

minimally-invasive market opportunity.

On June 18 at Cardiostim, a world congress in cardiac electrophysiology, Dr.

Van Boven, a leading European cardiothoracic surgeon, presented his experience, highlighting the use of our minimally invasive products to perform 125 totally thoracoscopic ablation procedures.

In this impressive series, the procedure times reported were consistently 60 minutes, and patients were discharged from the hospital in two days or less.

We are rapidly working with our leading cardiothoracic surgeons to expand the use of this totally thoracoscopic technique, and add our Coolrail and ORLab systems to this procedure.

We believe that this simplified, less-invasive procedure, combined with our Coolrail and ORLab systems, will significantly strengthen the increasing acceptance of our minimally-invasive platform.

Importantly, our minimally-invasive products are facilitating totally thoracoscopic, off-pump, maze-like procedures, which are routinely performed with short procedure times and reduced hospital stays.

We believe that this procedure will be broadly adopted and result in superior safety and efficacy rates in a large and growing subset of patients.

Furthermore, we believe that these advancements represent the largest growth opportunity for products being adopted by physicians for the ablation of atrial fibrillation.

Now, a review of our product and technology expansion.

Our Coolrail linear ablation pen and ORLab mapping system were initially released in the U.S.

during March of 2008.

As a reminder, when used with our other minimally-invasive products, the Coolrail and ORLab systems facilitate minimally-invasive, maze-like procedures which we believe will be widely adopted by physicians for patients presenting with persistent forms of atrial fibrillation as well as patients failing catheter ablation procedures.

The initial performance and market acceptance of our Coolrail and ORLab systems is highly encouraging.

We are successfully implementing both systems in 40 minimally-invasive accounts, and we are confident that these systems will continue to fuel growth of our minimally-invasive platform.

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

This purchase included an install base of approximately 400 cryo-generators, as well as reusable probes.

We have completed the development of our long, malleable disposable ablation probe which is compatible with our existing install base.

We anticipate that our superior disposable cryo probe will compete favorably and lead to significant market share gains and new growth opportunities, particularly within our open heart business.

We anticipate FDA clearance and initial release of our disposable cryo probe during the fall of this year.

Expanding our product pipeline.

AtriCure will continue our tradition of innovation and market leadership.

We have plans to release five new products in the U.S.

market by year end 2009.

These new product innovations include our disposable cryo ablation system, a uniquely designed disposable mapping probe, a next-generation Coolrail system with advanced features, and a newly designed Isolator Synergy Ablation platform designed for both minimally-invasive and open heart procedures.

Additionally, we are planning to release our Left Atrial Appendage System during 2009.

We believe that our rapid, and continuous innovation, individual-depth educational systems, and world-class sales organizations will enhance our leadership position and result in accelerated growth and profitability.

Now, a review of our investment in clinical science and FDA approvals.

In terms of our Left Atrial Appendage System, we have received official FDA responses.

FDA has recommended that we perform a 60-patient, U.S.

clinical trial in support of our 510(k) submission.

The clinical trial design requires that 30 patients be followed for six months, and 30 patients be followed for three months.

Importantly, we have conditional approval to proceed in six medical centers and expect to initiate enrollment during September of 2008.

Based on our clinical trial inclusion criteria and design, we anticipate rapid enrollment.

As a result, we are projecting FDA clearance and commercial release in the second half of 2009.

Turning to our ABLATE pivotal trial, as a reminder, the ABLATE clinical trial is designed to treat patients undergoing elective open heart surgical procedures that have a documented history of permanent atrial fibrillation.

The trial has been initiated in 10 sites and enrolled approximately 15 patients to date.

We are in the process of expanding the trial to 20 sites, and anticipate enrolling approximately 60 to 70 patients.

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

Furthermore, we recently received FDA approval to initiate a separate ABLATE pivotal trial in the patients with persistent atrial fibrillation.

We are in the process of initiating sites for this trial.

Additionally, we received FDA approval for amended RESTORE-SR-IIb clinical trial, a Phase II feasibility trial investigating our minimally-invasive products as a sole therapy treatment for patients with persistent atrial fibrillation and we anticipate initiating enrollment during the fourth quarter of 2008.

At this point, 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 record second quarter financial results.

Total revenues were $14.9 million, a 20.3% increase over second quarter of 2007 revenues.

Each business line set a new record for revenues.

Revenues from domestic open heart products were a record $7.4 million, representing growth of 8.9% over second quarter 2007.

Revenues from domestic minimally-invasive products were a record $5.1 million, a 28.8% increase over 2007.

International revenues were a record $2.3 million, a 48.9% increase over 2007.

Year-to-date revenues are up 22.9%.

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

Now, turning to gross profit and gross margin.

Gross profit for the second quarter of 2008 was $11.4 million reflecting a gross margin of 76.5% as compared with gross profits and gross margin of $9.8 million and 79.4%, respectively, for the second quarter of 2007.

First quarter 2008 gross margin was 76.1%.

The year-over-year decrease in gross margin was primarily attributable to the introduction of new products, and an increased mix of international revenues.

Next, an update in operating expenses and our net loss per share.

Operating expenses for the second quarter of 2008 increased 1.7% on a more than 20% increase in revenues, to $13.2 million.

The year-over-year increase in operating expenses was driven primarily by an increase in selling expenses, partially offset by a reduction in other general administrative expenses.

As a reminder, 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 activity, which are reported in SG&A.

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

The net loss for the second quarter of 2008 was $1.6 million, representing a 42.9% improvement over 2007 second quarter net loss of $2.8 million.

Net loss per share for the second quarter of 2008 was $0.11, a 50% improvement as compared with a net loss per share of $0.22 for the second quarter of 2007.

As a reminder, our average shares outstanding for the second quarter increased 9.6%, primarily as a result of the sale of 1.8 million shares of our common stock on May 30th of 2007.

In terms of the balance sheet and cash, we ended the quarter with cash, cash equivalents, and investments of $11.9 million.

The increase in cash used for working capital was primarily attributable to the timing of the revenue stream within the quarter, an increased mix of international business, and the timing of payments made to vendors.

During the prior year we made a concerted effort to improve the quality of our receivables and dramatically improve the aging.

In early July, we entered into a $10 million revolving credit facility.

The facility is a two-year facility, which extends our cash availability and our runway to profitability in a cost efficient manner.

Now, turning to 2008 guidance.

We are reaffirming 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.

Importantly, as a reminder, our third quarter has historically been a sequentially down quarter due to the elective nature of the procedure in which our products are utilized.

We would anticipate similar trending during the third quarter of 2008.

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

In summary, AtriCure is clearly a company on the move.

Our capacity to succeed and meet our growing opportunities with rapid, well-executed solutions, is enabled by the men and women of AtriCure who are dedicated to our purpose.

Through their commitment and leadership we are uniquely positioned to capitalize on the large and growing demand for atrial fibrillation products, and deliver results for patients, physicians, and shareholders.

At this point, Julie and I would like to open the call up for questions.

(OPERATOR INSTRUCTIONS)

And your first question comes from the line of Vivian Cervantes from Rodman and Renshaw.

You may proceed.

Hi, good morning.

Thank you for taking the question.

Good morning, Vivian.

Good morning, Vivian.

I would like to start off and talk a little bit about MIS product sales.

You guys posted some nice growth this quarter.

Can you talk a little bit about some metrics there, things or sales growth, or maybe penetration of new products -- any color that would be helpful?

Well, I think what is encouraging is that the Coolrails and ORLab systems were both purchased by 40 pre-existing, U.S.

minimally-invasive accounts.

I think the other thing that is high encouraging is that we have developed this totally thoracoscopic procedure and we are seeing reduced procedure times, as well as reduced hospital stays.

We believe that the combination and the vision of a totally thoracoscopic procedure that can provide high safety and efficacy rates for patients with more persistent and permanent forms of atrial fibrillation, with short procedure times and short hospital stays, is the largest growth opportunity in the MIS, or catheter ablation markets.

Okay.

So with those 40 new centers that we are in right now, and you said that you were implementing, how long is that implementation process?

And, when do we begin to see, you know, the procedures starting to gain traction and deepening penetration?

Well, first of all minimally-invasive business is up year-to-date by 45% so I think we are already beginning to see significant growth from the new products.

In terms of a going-forward basis, the implementation process is fairly straightforward.

Our clinical people are able to introduce the Coolrail and ORLab mapping system, and further educate physicians on the expanded lesion set, so we are encouraged that we will continue to see strong growth trends from the minimally-invasive business.

Okay, thank you.

I am going to talk a little bit about SG&A.

You guys did very well there.

Are we starting to look at a new run rate here with the 10.5/10.6 that was posted in the quarter?

And then -- sorry, and then against that, I know you guys had maintained your EPS loss outlook for the year.

Are we looking at maybe some conservatism there, or are there other expenses that we are looking at towards the back half of the year?

Yes, I think in terms of SG&A, Vivian, as Dave mentioned, we will have the ramp-up in the clip trials, and some new products that we will be bringing to market.

Additionally, we will have a modest charge related to the repayment of our old credit facility, so I think you should expect some uptick in the overall operating expense level.

And then the four quarter you would expect an increase in variable selling expenses.

I think the one thing that I would just be cautious about is that we plan to enroll -- rapidly enroll the exclude clip trial.

So the aim is for us to enroll the 60 patients by year end.

So that is just one thing you may want to consider in your modeling.

Okay, terrific.

Thank you.

I will get back into queue.

Your next question comes from the line of Tim Lee from Piper Jaffray.

You may proceed.

Hi, good morning, and thanks for taking the question.

I just wanted to follow up on the Coolrail.

I mean, you said 40 accounts now.

How should we think about that ramping up into Q3 and Q4, and where can we see that by year end?

Well we have an install base of approximately 90 accounts, and we would anticipate that by year end that a very high percentage of those 90 accounts would be utilizing Coolrails, at least for certain subsets of patients, and acquiring the ORLab Mapping System.

So, we are encouraged that this totally thoracoscopic, minimally-invasive procedure, that is maze-like, that requires the Coolrails and ORLab Mapping System, that creates a platform for treating patients with more persistent forms of atrial fibrillation will become the standard of care, and we intend to have strong implementation across our minimally-invasive centers.

And, just for those 90 installed base to adopt this -- this instrument, is there a training program associated with it, and is it a long process?

Or, how quick is it for these centers to adopt this technology?

Well, it is not really so much training in terms of special and unique, outside hospital training -- for the most part, the majority of our centers can work with our procedure development specialists and adopt these Coolrails and ORLab Mapping Systems during a two or three case process.

So, it is not an overly complicated process, but yet it does take some implementation and planning.

And, I wanted to follow up on the exclude clinical trial.

What is the end point that we are looking at?

Are we looking at some sort of efficacy, or any other details that you could provide?

That would be helpful, thank you.

It is simply an acute end point where we confirm through TEE that we have excluded the left atrial appendage.

There is a three-month CT that basically does the same thing, and the patients that are required to go out to six months -- it is simply a phone call.

Okay, and then one last one, if I may.

On the international sales, up strongly 49%, and could you just give us a sense of what was the FX contribution, and what was unit growth, and/or versus mixed priced/mixed growth?

Sure.

In terms of FX contribution, it was about 10% in the quarter, and it has been about 10% year-to-date.

Thank you very much.

I will get back in line.

Thank you.

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

You may proceed.

Good morning, nice quarter.

Thank you, Charley.

I was wondering if you could tell us how many customers you had active in the quarter?

Dave, you said about 90?

Yes, we finished the quarter with 87 unique hospitals for MIS.

Okay, and then a little bit more on the international side.

Are we 50/50 growth between minimally-invasive and open chest, or is it more minimally-invasive?

The growth primarily still in the international scene is coming from the open business.

It is probably more on the order of 85/15.

We are just beginning to have the training programs and the procedure development specialists in the international markets to stimulate MIS growth.

So, the bulk of the growth is still coming from the open business.

And when do you think that the minimally-invasive will really start to catch hold, Dave?

The minimally-invasive --

In international?

The minimally-invasive is beginning to catch hold.

We have a live procedure planned for EX, which is the largest cardiothoracic meeting in the world, and will be a live procedure there in September.

And we have just finished a symposium where we had 60 physicians, that were really targeted physicians, fly into Amsterdam to review a live case and to meet with some of our U.S.

key opinion leaders, like Jimmy Edgerton, Vig Kasirajan from MCV, and Sonny Jackman.

So, we are beginning to put more of a press on the minimally-invasive business within the European and international markets.

I will say that because the Company was late to the international markets, as we were IPO'd in August of 2005, many of our resources were deployed in the U.S.

Our market share on the open side of the business is lower than it is in the U.S., and there is still significant opportunity for open growth in the international markets, and there is some [reimbursing] complexity from country to country for MIS.

So, we still foresee in the next 12 to 24 months, the bulk of our growth coming from open, and taking share gains from other companies.

At the same time, we are beginning to stimulate some new account activity and some growth from the MIS markets as well.

All right, thank you.

That is helpful.

I was wondering if we could continue to talk about the efficacy rates.

We've seen, from guys like Jimmy, with the Coolrails experience, and I know you guys had just talked about some very early, anecdotal information, you know, in the last quarter.

But, can you talk to us a little bit more about, you know, what you are seeing as far as efficacy rates in the permanent, persistent patients with Coolrails, and when you could see six, or nine, or twelve-month data on a meaningful number of patients over the next year?

I think it will be really more toward the end of the year.

Remember, we launched, as you know, Charley, we launched the Coolrail and ORLab System in March, but there was some early data reported from Jimmy Edgerton's group where they used the Coolrails on persistent atrial fibrillation patients, and again this was very early, initial, three month and less follow-up -- but the early data would suggest very high efficacy rates.

In fact, there were 10 patients with persistent atrial fibrillation, and all 10 patients with Holter monitoring, and continuous monitoring systems, were in sinus rhythm.

So, we are very encouraged by the early, almost anecdotal results from the Coolrail systems, and will have further data as the year unfolds.

I do think that it is really important to look back at our open heart experience.

One of the reasons why we were bullish on moving to a more expanded left atrial maze procedure, and developing Coolrails and ORLabs Systems, is that we have seen that the left atrial maze, and persistent forms of atrial fibrillation, in those patients who have structural heart disease and undergo mitral valve surgery, that that lesion set has very high efficacy rates.

So, we are encouraged that transferring this procedure, and these ablation lesion sets to a less-invasive approach, will also result in very high efficacy rates.

That is very helpful.

So, in other words, you expect these high efficacy rates you have already seen to continue, and what you have seen so far is -- nothing has changed there?

We have met our expectations in terms of product performance, and in some regards have exceeded our expectations in terms of initial efficacy.

And, when physicians like Sonny Jackman get up at meetings like HRS, who has been involved in with developing this lesion set, and when they comment that they believe that this minimally-invasive lesion set should become the current standard of care for patients with persistent forms of atrial fibrillation, I think that is significant progress.

That is great, thank you.

Two more quick questions.

Are you going to halt the spending on the EU clip clinicals now that you have started the U.S.

Or, are you going to continue a little bit and, then real quick, the final question is when do you expect to really launch the cryo probe to your full installed base?

And, if we look at these 400 customers that already have the cryo system, and what percentage of your installed base also has the cryo system?

Ad then is there an opportunity to expand your installed base, and how long do you think it takes to really train the cryo probe?

Sorry for all of that.

Thanks a lot, Dave.

Thanks, Julie.

Thank you, Charley.So, the first question is, do we intend to slow the clinical trials in Europe on the clip, and we are not going to slow down the clinical trials in Europe.

We believe that collecting long-term data for the clip is a positive thing to do.

The other thing that we are doing, is we are developing next generation clip technologies, independent of the fact that we have got to go through a 60-patient U.S.

clinical trial.

We have the ability to implant our next generation clip technologies in Europe, which are very much aimed at lower cost product, as well as some simplified implant procedures.

So, we are going to continue to implant in Europe throughout 2008 and 2009, and foster that growth in terms of long term experience as well as stimulate new product development activities.

In terms of the 400 cryo units, we would anticipate that about 300 of those units are currently using our reusable probes.

So, we feel very encouraged that 300 of the 400 install accounts are using our reusable probes.

We think that our cryo product platform is superior, that it is the gold standard, and we intend to aggressively attack those 300 install bases and implement our new cryo probe when it becomes available during the fourth quarter of this year.

I cannot resist, Dave, you are talking a little bit about this next generation clip.

Is the design on that frozen?

And, do you expect to be implanting those devices in, say, the first quarter of 2009?

That is about the appropriate timing for implantation.

The design, we believe, is frozen.

We are completing our 90-day animal studies.

We feel very confident that the design is frozen on the clip.

We are still developing less invasive deployment tools.

So, the clip itself is frozen.

The deployment tool, in terms of totally thoracoscopic, standalone procedures, and potentially subxiphoid procedures, is still a work in progress.

Thanks, Julie.

Thanks, Dave.

Thank you.

Thank you, Charley.

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

You may proceed.

Hi, guys, good morning.

Good morning.

Good morning.

Two quick follow-ups.

First, as your revenue base builds here in the U.S.

and the international business continues to do better than we had expected, do you have any plans to add your sales presence in either geography?

Our fundamental strategy is to leverage our world-class sales organization and leverage our professional education systems in terms of internal competencies.

We do not have any plans to significantly expand our sales organization.

We believe strongly that the best sales organization can multitask.

So, we are emphasizing internal educational competencies, as well as external training, and we believe that the number of 60 -- in that 60 range, with a few adds here and there, is where we will enter 2009, and likely maintain that same discipline throughout 2009.

Okay, great.

And then, Julie, I do not know if you mentioned this yet, but on the LAA trial exclude, do you have any range of expanse that you could pull out for that trial specifically?

Yes, we really have not given any color specific to trials.

As Dave mentioned, we do plan to enroll all 60 patients here by the end of the year.

Matt, one of the torturous processes is that we are moving very rapidly with site contracts so we have IRBs that had been submitted, and we are negotiating site contracts, so the actual cost is still a work in progress.

Okay, fair enough.

And then on the open side, Dave, could you maybe just give us some commentary there?

What do you estimating market growth overall is for the concomitant ablation procedure this year?

Is it slower than historical levels, or are you seeing anything new on the competitive front?

Well, in terms of the growth rates, we still believe that on a full year basis, that the open market should grow somewhere in the order of 10% to maybe as high as 15%.

Our 7.5% year-to-date growth could be, in part, cycling, and it could be largely due to the fact that our sales organization has been very focused on implementing Coolrails and ORLab Systems.

So, when we look at the ongoing opportunity in the open heart market, we look at our footprint in terms of the portfolio of products we have in totality.

We look at the cryo project coming out later this year.

We look at a clip that can be added onto an open product, and we look at the total penetration into the open market in the U.S.

as about 30%.

We believe that market can be approximately 60% penetrated, and with the favorable reimbursement trends, we still believe strongly that there is good growth opportunity on a going-forward basis in the open heart markets.

Okay, great.

And then finally, a broader question, I guess, Dave, as you look at some of these MIS totally thoracoscopic approaches that we have seen, some in Europe, and some here in the U.S., and getting them done, both less invasively but also in a pretty short period of time.

In your dreams, or kind of the ideal scenario, how do you expect this from a timing standpoint to become a realistic approach that is, you know, scalable across the broader surgeon population?

Well, first of all, I think it is a little bit early to make that call.

I can tell you that we went out to Amsterdam, Jimmy Edgerton, who is well known, Dr.

Kasirajan from Medical College of Virginia, and Sonny Jackman, myself, and a few other surgeons went out there to watch and experience this totally thoracoscopic procedure that is being done in 60 minutes, with hospital discharges of two days or less.

Dr.

Edgerton came back and recently performed his first totally thoracoscopic procedure using this technique.

The comments that we got back from the surgeon group that was visiting were more or less that this is a significant improvement in terms of simplifying the totally thoracoscopic approach, and it may be easier than the video-assisted approach.

However, it is still early on in the process.

We are very optimistic, but Matt, end of the day we believe very strongly that a totally thoracoscopic procedure with pulmonary vein isolation, denervation of the left atrial appendage, connecting lesions that mimic a left atrial maze, and exclusion of the left atrial appendage, in a procedure that is, let us say, two hours or less, with hospital discharges of two days or less, will become a standard of care of a large and growing opportunity in terms of patients with persistent forms of atrial fibrillation, as well as those patients who have failed catheter ablation.

We view this as a major advancement in AF treatment.

Okay, great.

And, actually, one more if I might.

On the balance sheet, about $12 million in cash plus your credit facility, can you give us an update on any plans there, or any needs for capital over the next, say four to six quarters?

Yes, Matt, this is Julie.

In terms of our balance sheet, we feel good about out current resources available, given our current projections.

You know, with that said, we always to evaluate the capital markets, but we do feel confident with our cash access and providing a nice ramp to profitability.

Okay, great.

Nice quarter, guys.

Thanks, Matt.

(OPERATOR INSTRUCTIONS)

Your next question comes from the line of Steve Ogilvie from ThinkPanmure.

You may proceed.

Hi, guys.

Pretty much everything has been covered.

I wonder if you could just, maybe, give a little more color on referral rates.

I think what a lot of people are trying to get at is how close we are to an inflection point, and maybe you could expound on how you are seeing just, kind of, the perpetual motion begin in terms of referrals?

Well certainly, you know, Steve, with the minimally-invasive business up 45% year-to-date, we see very strong headwinds in our minimally-invasive business.

We are implementing new products which add to the subsets of patients that would be indicated for minimally-invasive procedures.

We are reducing the surgery and, in general, we are talking to more and more electrophysiologists, cardiologists, hospital administrators who are enthusiastic about developing a more comprehensive AF program which includes both catheter ablation as well as surgery.

So, we feel like overall, in terms of referral generation, that the hospitals, the electrophysiologists, the cardiologists are beginning to accept that surgery should be a standard treatment alternative for more and more patients that have atrial fibrillation.

Good, that is helpful.

And then, the second thing I wanted to ask.

I know J&J is going after a specific atrial fibrillation approval.

You know, you guys are pursuing clinical trials in that same vein.

Could you maybe speak to how important that is to doctors?

Or, is that more something that is important to the Company in order to allow you to market and train people with more facility?

Or, are doctors really hoping to see a labeling?

Will that have an impact on the market?

I think that this ablation market has been ongoing since the early 1990s, and the companies are fairly well conditioned to selling products off label.

I do not want to minimize the importance of an AF labeling, and working with the FDA to do that.

But in terms of stimulating adoption for AF ablation, I think the companies -- the physicians have been reasonably aggressive in terms of promoting their products, as well as reaching out to patients and cardiologists over the last 10 or 15 years.

So, we do not really see a significant lift just based on labeling.

I think the real issue is will the technologies and procedures have a more significant impact on the disease state.

Well said.

Thank you.

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

You may proceed.

Hi, Julie.

Hi, Dave.

Good morning.

Hey, Larry.

A lot of the questions I had very carefully drawn here have all been asked by all the very smart people in front of me.

But, Dave, the question I wanted to ask you.

You have talked over the last several quarters of -- you have described as a tipping point with the minimally-invasive market.

How do you feel about that right now?

Do you feel that the progress made so far this year is indicating that you are getting closer to that point where it just kind of really explodes?

I do, Larry.

I think that when we look at -- really the 2005 first series of minimally-invasive procedures, and we are just about two years following that.

And the progress that we have made, both in terms of the clinical data, as well as the procedure, and the simplification of the procedure, as well as the amount of ablation treatment, and the recognition from the EP, cardiology, and administrative communities and hospitals that surgery has a longstanding position for the treatment of atrial fibrillation -- we feel very strong that the Company is on track, that our plan is being well executed, and that there will be a tipping point of accelerated growth that will lead to profitability.

Thanks.

Dave, do you think that the procedure that is currently being done in Europe, that you have described today, is easily adopted by U.S.

doctors?

Is there much of a learning curve, or does it require a high skill set that only a small number of doctors will be able to learn quickly and easily?

Well, in the past the totally thoracoscopic procedures that I have seen -- my interpretation was those procedures would be limited to a relatively small number, maybe in the area of 10% to possibly 20% of our install base for MIS.

The procedure that we have seen in Europe, and recently reproduced here in the U.S.

-- it is a simplified, totally thoracoscopic procedure.

It has to do with very specific totally thoracoscopic techniques which would be difficult to describe over the telephone.

I do believe that this procedure has the ability to be more broadly adopted than what we have worked on in the past.

Now, more broadly adopted might mean 30% to possibly 40% of the install base.

The video-assisted procedure is also a very good procedure, and we asked physicians to complete a totally thoracoscopic or, I should say, a video-assisted left atrial maze -- which means pulmonary vein isolation, roof lines, mitral valve lines, denervation, left atrial appendage exclusion -- that is a comprehensive ablation treatment.

We have physicians that are using a video-assisted technique and completing these procedures routinely in less than two hours.

So, I think we have two very good options, very excited about this new totally thoracoscopic approach because we do think it is simplified and it can be more broadly adopted, but either way, the efficacy rate and the procedures, and the need to have a treatment that has higher efficacy rates for the more persistent and permanent forms of atrial fibrillation, and also excludes the left atrial appendage -- we believe that there is a large, and growing need for those procedures, and that AtriCure and our platform is being more widely accepted day by day.

Thanks, and I have one more.

That's just to clarify on the left atrial appendage.

You talked about the trial in the U.S., completing by year end, the enrollment, I think you said.

Do you have any idea what kind of follow-up is required by the FDA?

And, can you give us any kind of guidance on what you think the possible timing in the U.S.

is for next year, understanding of course, we are dealing with the FDA?

Well, we have a full court press in terms of getting these centers up and running.

30 patients will need to be followed for six months, and then 30 patients will need to be followed for three months.

So our goal is to initiate enrollment in September, and the inclusion criteria is very broad.

I would rather not get into the specifics.

Yes.

But it is a very broad inclusion criteria.

We think that we could enroll the first 30 patients that need to be followed for six months very rapidly, but also enroll the total 60 very quickly.

So, if we can complete enrollment by year end 2008, we have a better than average chance to get the product in U.S.

commercialization in the second half of 2009.

Great.

Thanks, Dave.

Thank you, sir.

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

You may proceed.

Yes, a quick follow-up, Dave, on your comments about totally thoracoscopic procedures.

Would you characterize the primary benefits of the new approach that is being done in the Netherlands and Amsterdam?

Would you say it is more for physician speed and their comfort in doing it?

Or, does it have equal benefits for the patient, either with regards to safety, or less invasive, or quicker procedure time, I mean, quicker recovery times and less pain?

Thanks.

Thanks, Charley.

I do think that there are quicker recovery times.

To be perfectly clear with you, it is not totally obvious to our physicians or to us why some of these totally thoracoscopic procedures, even though the incisions are smaller, why they generally result in quicker recovery times.

But, I think what is also very promising is the exposure to the key anatomical structures, particularly the posterior wall within the transverse sinus and oblique sinus, there is greater exposure from these techniques.

It is not only faster, with shorter recovery times, but it may be easier for a large number of physicians in large part because of the exposure to certain key anatomical regions, like the transverse sinus and the oblique sinus, and the left fibrous trigone, which are critical to completing left atrial maze, that we believe that we get better exposure to these areas as well.

So, there is a combination of reasons why we think that this totally thoracoscopic technique should become the standard of care in terms of how we approach the procedure, knowing that it is likely to be adopted by 30% to 40% of our install base, and that the remaining physicians will likely use a video-assisted approach.

And, finally, the clip in Europe -- how many patients have you now implanted?

And, can you give any anecdotal information about the closure rates and safety of the device?

Thanks.

Yes, the clip has worked extremely well.

We have implanted approximately 60 patients without any clinical sequel.

The acute [closure] from a TEE perspective has been -- has met all of our expectations.

The CTs, we have good long-term CT beyond three months.

Some patients are out now to six months.

So we are very confident in this clip design, that it meets the expectation and the requirements of left atrial appendage exclusion, and we are looking forward to initiating our U.S.

clinical trial with this current clip design.

Thanks again.

Great leverage, Julie.

Thank you, Charley.

You have no questions at this time.

I would now like to turn the call over to David Drachman for closing remarks.

Well, thank you very much for your interest in AtriCure.

We look forward to our next quarter earnings call.

We appreciate your support and thanks again for joining the call.

Thank you for your participation in today's conference.

This concludes our presentation.

You may now disconnect.

Have a good day.