AtriCure Inc (ATRC) 2008 Q4 法說會逐字稿

Good morning and welcome to the AtriCure's fourth-quarter and full-year 2008 earnings conference call.

My name is Eric 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.

(Operator Instructions)

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

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

Dave Drachman, President and Chief Executive Officer of AtriCure.

Mr.

Drachman, please proceed.

Thank you operator.

Good morning and welcome to our fourth-quarter and full-year 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 introductory comments.

Thank you Dave and good morning everyone.

By now you should've 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 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 FDA has not cleared our products for the treatment of atrial fibrillation, or AF.

The majority of our products 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, however, 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 educates or train doctors to use any of its products for the surgical treatment of AF.

AtriCure has provided research grants to institutions for the purposes of conducting certain studies that may be referred to on 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 welcome to members of the investment community who have joined us today.

I will begin with opening remarks followed by a review of our workforce actions and our financial performance.

Then I will provide an overview of the recent clinical science which affirms the power of our strategic plan, and validates our business thesis.

Next I will provide an update of our clinical trial and (inaudible) development initiatives followed by an update concerning the Department of Justice investigation.

Following my remarks, Julie will provide a detailed review of our financial performance.

We will then open the call for your questions.

We aim to leave you today with a deeper understanding of the elements of our strategic plans which are designed to preserve our capital structure and achieve sustainable profitability.

Our strategic priorities include continued expansion of our leadership position through new product innovation, achievement of atrial fibrillation approvals and a commitment to providing our investors with a high rate of return.

From this information, we would expect that the investment community will understand why we believe that AtriCure will emerge from our current challenges stronger and better positioned to deliver results for patients, physicians and shareholders.

Turning to our workforce actions.

Importantly, we established the following financial priorities to guide our actions.

We prioritize cash, profitable market share, and profitable market share gains in that order.

During the fourth quarter, we implemented a series of workforce actions designed to reduce our cost structure in order to achieve profitability.

These actions included a 12% reduction in our overall workforce.

We currently have approximately 200 full-time employees.

The impact to the immediate or run rate cost structure was approximately $7 million.

The estimated impact on our 2009 cost structure is expected to be approximately $5 million on a year-over-year comparative basis.

Importantly, given our current cost structure, we anticipate generating positive EBITDA excluding non-cash compensation at an annual revenue run rate of 57 to $60 million.

During the fourth quarter, we recorded a onetime charge of $1 million or $0.07 per share for severance related expenses.

In spite of these actions, we have retained our employees.

With the exception of one production associate, we have not received a single voluntary resignation since the implementation of our workforce actions.

The reduction in workforce included a realignment plan of our sales support and professional education personnel.

We developed and executed this plan with the support, leadership and active participation of sales management and 10 of our top sales performers.

This plan included position eliminations, flattening of the sales organization, realignment of sales support positions, retention plans, 2009 incentive programs and a development of a comprehensive internal and customer communication strategy.

We began the process with a total of 27 sales territories.

Each of these territories remains intact and our customer relationships were uninterrupted.

As part of our realignment, four areas sales directors were reassigned to sales territories and awarded long-term incentives.

This repositioning focuses our top performers on direct selling.

Going forward, we have a focused, highly motivated sales organization that is staffed and aligned for profitable market share and profitable market share gains.

Now, I will briefly summarize our full-year 2008 financial results and then review the circumstances which impacted our fourth-quarter financial performance.

Full-year 2008 consolidated revenues were $55.3 million which represents a 14.4% year-over-year increase.

US revenues from open heart products of $27.1 million are consistent with 2007.

US revenues from minimally invasive products were $19.8 million which represents a 37.6% year-over-year increase.

Additionally, minimally invasive procedures were performed in 84 US medical centers during the fourth quarter.

International revenues were $8.3 million which represents a 26.5% year-over-year increase.

As we anticipated and communicated during our previous earnings call, the fourth quarter presented several distinct challenges which we believe impacted sales.

Specifically there are five areas that I would like to address.

One, sales realignment.

As mentioned previously, we developed and executed an extensive sales, sales support and professional education realignment plan which significantly impacted our selling time.

Two, moderation of procedure volumes.

We experienced a moderation of procedure volumes which we believe were related to the macroeconomics.

These trends were more evident in the minimally invasive segment of our business.

Three, a strong third-quarter run rate.

Despite seasonality, our third-quarter 2008 revenues were consistent with Company highs.

During the fourth quarter, hospitals began to focus of reducing inventory levels.

We believe that the combination of a strong third-quarter run rate, of moderation in procedures volumes followed by efforts by our customers to reduce inventory levels impacted fourth quarter revenues.

Open heart trends.

As we anticipated, communicated and planned for; over time there's been an uncontested technology market trend towards using long disposable cryo probes for specific open heart procedures.

As we have discussed on previous calls, we believe this represents a new market opportunity for AtriCure.

We're confident that our long disposable cryo probe which we anticipate will be introduced during the second quarter of 2009 will compete favorably in this market segment.

Five, our fourth-quarter Department of Justice announcement.

We believe this announcement is not impacting our market share with our existing customers, however, it has temporarily lengthened the selling process with hospital administration in several new accounts.

Most importantly, we believe the majority of these selling challenges can be resolved.

Furthermore, managing this announcement during the fourth quarter was a significant distraction which also impacted selling time.

Now, turning to a review of the clinical validation that addresses our $2 billion minimally invasive US opportunity.

There is an increasing body of evidence supporting the adoption of our minimally invasive products.

This clinical data is being published in the major peer review journals and presented at national and international meetings.

There was a recent publication in the new technology section of the Annals of Cardiac Surgery.

This manuscript from Ohio State University is entitled 'Toward a Definitive Totally Thoracoscopic Procedure.' The manuscript highlights the use of our minimally invasive platform to implement [a complete lesion set] in a truly minimally invasive (inaudible) approach.

This published study describes a [true port] access procedure that addresses the autonomic anatomic sources of atrial fibrillation.

In this study, all patients presented with persistent or long-standing persistent atrial fibrillation and underwent a totally thoracoscopic cardiac ablation procedure.

The ablation procedure incorporated a complete lesion set and real-time verification of all ablation lines using the minimally invasive platform to perform the ablation in intraoperative electrophysiologic testing.

In the study, patients were evaluated with continuous rhythm surveillance post-operatively.

Treatment failure was defined as any single episode of atrial fibrillation lasting 30 seconds or more.

The authors reported that at six months, 87.5% of patients were in normal sinus rhythm and off anti-arrhythmic medications.

Results from this truly minimally invasive approach were corroborated by two other well-known investigators at the Boston Atrial Fibrillation meeting and the Society of Thoracic Surgery meeting in January 2009.

Furthermore, highly encouraging results from a hybrid procedure were presented during the Boston Atrial Fibrillation meeting.

This procedure incorporated the main aspects of the totally thoracoscopic cardiac ablation procedure described by Ohio State University.

However, the treatment is performed in a hybrid procedure room with the support of an electrophysiologist.

Certain ablation lesions and the electrophysiologic testing were performed using percutaneous endovascular catheters.

The early results from this new and promising hybrid approach were 89% success rates in long-standing persistent atrial fibrillation patients.

In addition, during the Society of Thoracic Surgery meeting, the initial encouraging experience using a robot to assist the surgeon in performing a totally thoracoscopic cardiac ablation procedure using our minimally invasive platform was presented.

Importantly, we anticipate a series of influential peer review publications and presentations throughout 2009.

We expect these publications and presentations will continue to validate superior outcomes resulting from the physician adoption of our minimally invasive platform.

Now, a review of our investments in FDA approvals.

First a review of our ABLATE pivotal trial.

As a reminder, the ablate clinical trial is designed to treat patients undergoing elective open heart procedures that present with a documented history of atrial fibrillation.

Results will be determined based on rhythm surveillance at the six-month follow-up.

Importantly, our PMA shell which includes a complete outline of all the modules has been completed and accepted by the FDA and the first module has been filed.

The acceptance of a modular PMA filing supports our commitment to atrial fibrillation approvals as rapidly as possible.

To date, we have enrolled a total of 46 patients.

Based on the trial design which incorporates a Bayesian statistical model, we anticipate enrolling 60 to 70 patients.

Since the first patient was enrolled, the trial has been expanded to 10 sites and we plan to further expand the trial to include additional sites during the second quarter if needed.

We expect completing enrollment during 2009 and submitting the final module of our PMA during the first half of 2010.

Now, a review of our FDA regulated EXCLUDE clinical trial in support of our left atrial appendage platform.

As a reminder, the pathway for US clearance for a left atrial appendage system is a 510-K.

The clinical trial design requires implementation of our clip in 60 patients.

We enrolled the first patient during the fourth quarter of 2008.

And to date, we have successfully enrolled 25 patients.

Importantly, we plan to submit our 510-K by year-end and anticipate US clearance during the first half of 2010.

Now, turning to a review of our key 2009 product releases.

We have completed the development of our long disposable cryo probe and anticipate this will lead to new selling opportunities and increased market share.

We expect 510-K clearance and market release of our new disposable cryo probe during the second quarter of 2009.

In addition, continuing our tradition of innovation and market leadership, we plan to release a new generation premium clamping platform that is designed to be used in open cases and to facilitate totally thoracoscopic minimally invasive procedures.

Additionally we plan to release a next generation Coolrail ablation system during the fourth quarter of 2009.

In terms of the Department of Justice matter, as you may recall, AtriCure received a letter dated October 24, 2008 from the US Deptartment of Justice Civil Division informing us that they are conducting an investigation examining our marketing practices utilized in connection with our surgical ablation system to treat atrial fibrillation with specific use outside the 510-K clearance.

The letter also stated that the Department of Justice is investigating whether AtriCure care instructed hospitals to bill Medicare for surgical ablation using incorrect billing codes.

However, AtriCure itself does not submit bills to the federal government or participate in the billing activities of its customers.

In addition, we received a follow-up letter from the Department of Justice on November 4, 2008.

This letter was a request for information to which we have responded.

Recently our Counsel has met with the government to discuss the activities, described in the information submitted.

To date, no suit has been disclosed to us or threatened and the government has made no financial demand.

We intend to continue to fully cooperate with the Department of Justice as it continues its inquiry and we will continue to operate our business in the normal course.

We are aware of at least one other company that competed with AtriCure that has received a similar communication from the government.

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.

I will start with a review of our full-year 2008 financial results.

Total revenues were $55.3 million, a 14% increase over 2007.

Revenues from domestic open heart products were relatively consistent with 2007 at $27.1 million.

Revenues from domestic minimally invasive products were $19.8 million, a 38% increase over 2007.

International revenues were $8.3 million, a 27% increase over 2007 including a 4% benefit from exchange rate fluctuation.

Exchange rate fluctuation had less than a 1% benefit on consolidated revenue growth.

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 turning to gross profit and gross margin.

Gross profit for 2008 was $42 million, reflecting a gross margin of 76.1% as compared with gross profit and gross margin of $38.2 million and 79%, respectively for 2007.

The decline in gross margin was primarily attributable to an increased mix of international revenues and new product introductions, including capital equipment which carry a lower average gross margin than our existing products.

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

Operating expenses for 2008 were $53 million, a $2.3 million or 5% increase over 2007.

The year-over-year increase in operating expenses was primarily driven by an increase in selling expenses attributable to an increase in average headcount and increase in variable selling expenses and an increase in share based compensation.

These increases were partially offset by a reduction in general and administrative expenses.

Earnings before interest, taxes, depreciation and tangible asset amortization and share based compensation or EBITDA excluding share based compensation improved approximately 33% or $2.8 million to a loss of $5.6 million.

Excluding the $1 million charge we took during the fourth quarter of 2008, it improved over 45% or $3.7 million to a loss of $4.7 million.

Note that our calculation of this metric is operating loss plus intangible asset amortization, plus depreciation, plus share based compensation that is included in operating loss.

The net loss for 2008 was $10.2 million, a 10% improvement over 2007 net loss of $11.3 million.

Net loss per share for 2008 was $0.72 as compared with a net loss per share of $0.84 for 2007.

In terms of the balance sheet in cash, we ended the year with net cash calculated as cash and restricted cash less debt of $11.4 million.

Our cash used in operations improved 30% from $8.1 million in 2007 to a use of $5.7 million in 2008.

We generated positive free cash flow during the second half of 2008.

Now for a review of our fourth-quarter 2008 financial results.

Total revenues were $12.1 million, an 8% decrease over the prior year.

Revenues from domestic open heart products were $6 million, a 17% decrease over the fourth quarter of 2007.

Revenues from domestic minimally invasive products were $4 million or a 3% increase over the fourth quarter of '07.

International revenues grew 2% to $2 million.

International revenues for the quarter were negatively impacted by approximately 6% as a result of currency fluctuations.

Consolidated fourth-quarter revenues were negatively impacted by approximately 1% as a result of currency fluctuation.

Now moving to fourth-quarter gross profit and gross margin.

Gross profit for the fourth quarter of 2008 was $9 million, reflecting a gross margin of 74.3% as compared with 80.1% for the fourth quarter of 2007.

The decrease in gross margin in the fourth quarter of 2008 as compared with 2007 was primarily attributable to an increase in revenues from new products, an increased mix of international business during the quarter and nonrecurring adjustments.

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

Operating expenses for the fourth quarter of 2008 were $12.4 million, a 2% increase over the fourth quarter of 2007.

Included in operating expenses in the fourth quarter of 2008 was a charge related to our reduction in force of $1 million and a benefit of approximately $700,000 related to compensation accrual adjustments.

The net loss for the fourth quarter of 2008 was $3.2 million as compared to $1.6 million for the fourth quarter 2007 which was driven primarily by a reduction in revenues.

Net loss per share for 2008's fourth quarter was $0.22 per share or $0.15 per share excluding our fourth-quarter restructuring as compared with a net loss per share of $0.11 for the fourth quarter of 2007.

With respect to our fourth-quarter restructuring, as Dave discussed, we reduced our headcount by 12% and took other actions such as an elimination or reduction in temporary employees to reduce our overall cost structure.

The impact of the immediate or run rate cost structure was approximately $7 million.

However the estimated benefit of those activities to 2009 is expected to be approximately $5 million on an annualized year-over-year basis.

Given our current cost structure, we anticipate generating positive EBITDA excluding share based compensation at an annual revenue run rate of 57 to $60 million.

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

Thank you Julie.

As we have discussed during the fourth quarter, there were several significant factors that impacted sales.

In order to provide accurate guidance, we believe that we need to evaluate the effectiveness of our sales realignment, further assess minimally invasive procedure trends and launch our new cryo platform.

We will continue to evaluate our approach to guidance during the year.

In summary, we will remember 2008 as a year of unprecedented economic events and challenges.

However the med tech disposable product markets continue to demonstrate stability and growth potential when compared to other segments of health care and the economy.

With that backdrop, we are extremely proud of the men and women of AtriCure and their accomplishments in 2008.

Going forward, our capacity to succeed and to face our opportunities and challenges with rapid, well-executed solutions is embodied in our culture.

Finally, the leadership of AtriCure has a passion and unwavering commitment to execute our strategy and create shareholder value.

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

(Operator Instructions) Charley Jones, Barrington Research.

Dave, could you -- normally I wouldn't ask this detailed of a question, but could you discuss how January and February are trending for sales relative to December and November?

And Julie, if you could comment a little bit on international and how you think that's going to be impacted this year with the dollar and what you're seeing for trends over at least the next quarter?

Thank you Charley.

Overall we saw a deep decline in procedure trends in October.

During the fourth quarter, we saw that trend begin to flatten.

And during the first half of the first quarter, we believe that the trends are beginning to rise to historical levels, slowly rise to historical levels.

With respect to international, Charley, about half of that business is subject to currency fluctuation.

So I would not expect it to have a dramatic impact on our 2009 growth rates, although certainly a couple of percentage points in terms of the overall international growth that we would have originally anticipated.

Thank you.

Dave, where do you feel your customers inventory levels are at now?

I guess do you feel your fourth quarter revenue was at least representative of actual usage or could we still have some inventory being built there from new customers maybe?

We believe our inventory's at modest levels and we believe that overall on a full-year basis that our fourth quarter results from a revenue perspective are not indicative of our full-year 2009 potential.

That's exactly what I was looking for.

Thank you.

Julie, I'm a little bit confused on the $7 million reduction, how it gets down to $5 million.

So, I guess if you could talk about that.

So do we just -- are you saying we just actually take the 2008 operating expenses and we can just cut them by $5 million or -- I'm sure that's not the case, but if you could help us out a little.

Actually that is the case.

It's really a result of we were having an expanding cost structure kind of during the beginning part of the year and for a variety of reasons, you don't get to the full benefit during 2009 of the full $7 million.

So in fact it is exactly what you said, Charley, to take the $5 million in 2009.

Okay great.

And then, Dave, how many minimally invasive customers did you end the quarter with?

Still around 90?

We've performed minimally invasive procedures in 84 accounts during the fourth quarter.

Okay and you think you can add some accounts in '09 or do you just go deeper into these accounts?

I believe that we will add some accounts.

It's not our primary focus.

If you look at our business model, in the past up until Coolrail (inaudible) we were performing pulmonary vein isolation procedures with autonomic (inaudible) and a left atrial appendage exclusion.

That's fairly close to a catheter ablation.

It's only recently with the Coolrails that we've come to define the procedure and develop a design freeze on the procedure that we believe will become a standard of care for patients with more persistent forms of atrial fibrillation and those patients that have failed catheter ablation.

I would like to remind everybody that about 30% of the catheter ablations that are performed in the US are failed catheter ablations.

They're redo procedures and we we believe that the minimally invasive procedure that we're developing is going to have a significant impact on failed catheter ablation procedures.

Definitely.

Are you seeing any impact from trials out there that are being done or do you expect impact in '09 from any trials that are taking patients that would have maybe come to you come through your accounts that are now part of trials?

We cannot say that we are seeing any significant impact.

I would like to reiterate that we see patients with three, four, five times sometimes recently a six-time failed catheter ablation procedure.

What other alternative do these patients have but surgery?

So as the Navistar ThermoCool catheter for example got FDA approval, as Medtronic makes deeper investments into the AF space, from a catheter perspective we believe that is going to generate a significant number of failed catheter ablations and that our minimally invasive platform is ideally suited to treat those patients along with the other patients that have more persistent forms of atrial fibrillation that are also not good candidates for catheterization ablation.

So we couldn't be more excited about the opportunity that we have going forward and we believe that the developments on the catheter side will help facilitate our growth.

Julie if we think about your trends in the business the last couple of years, (inaudible) is obviously a big spending year.

But do you think cash flow positive quarters here, there like in the second quarter for example where you might have some revenue build but see some of those cost cuts, is that possible?

I think our cash flow positive is obviously dependent on our revenue.

So what I would say it's between a 60 and $70 million run rate in revenues.

We would generate sustainable free cash flow.

What is your estimate for stock comp in 2009 Julie?

It's going to be roughly $5 million.

I'm going to jump back in queue.

I have got a couple more questions.

I will wait though.

Tim Lee, Piper Jaffray.

Thanks for taking the question here.

In terms of '09 outlook, I know you guys are kind of hesitant to give some numbers right now, just given the moving parts.

But given your revised cost structure and given kind of your financial priority to preserve cash, should we be thinking about it that internally you're looking for something in that high fifties and that's where you kind of hit your EBITDA positive or am I not thinking about that the right way here?

We're certainly thinking the 57 to 60 range is where we hit EBITDA positive excluding non-cash compensation.

But again, we want to get further into the year before we get some color on the top line.

So you're not going to give me anymore help on that one.

Then just in terms of the stock, given where it's at, has there been any discussion among the senior executives or at the board level to maybe have some concerted effort to have some insider buying?

I know I saw some recent filings where you guys were -- you got some grants.

But you know, any thought of just writing a check for some shares?

Because if you are going to -- based on your comments of emerging stronger, this is an opportunity potentially for some significant wealth creation.

Any thoughts on that front?

We have had some discussion around the table at the board about some insider buying.

We're evaluating that as we speak and we should have more to report.

But I think at this point in time, we're just evaluating that concept.

And then just lastly here, you talked about the drawdown of field inventory potentially impacting fourth quarter results.

Just kind of your best guesstimate what that number was in terms of the impact in the quarter and how much inventory is still out in the field and just -- is most of your product sold on inventory or is there some consignment mix as well (multiple speakers)

Good question Tim.

Very little consignment.

We came off the third quarter with a very rapid run rate.

So hospitals were performing a significant number of procedures and buying equipment.

We come into October and what we saw as a Company was a fairly steep decline in procedure volumes, particularly on the minimally invasive side where it's more identifiable.

And then again, through the fourth quarter, it seemed like the procedure volumes began to level off and now we feel like procedure volumes are beginning to return slowly to historical levels.

So I think that there is a modest amount of inventory on the shelves.

In terms of trying to characterize in a very specific way the impact of inventory to fourth quarter, I wouldn't be able to give you a highly accurate characterization of that.

Jason Mills, Canaccord Adams.

So the question I have is specific to -- I understand you're not at this point in a position you want to give real tight guidance in terms of revenue.

You have exited 2008 obviously with a run rate in the fourth quarter of about $48 million which you say, Dave, is really not indicative of where you kind of see the business right now or prospects for the business and I assume you mean that it's probably somewhere between that number and kind of where you were in the second and third quarter.

So say the run rate is really somewhere around 50, $52 million and your -- Julie, you mentioned that you see consistent free cash flow guidance in the 60 to $70 million range and, Dave, you're seeing positive EBITDA in the high 50's.

So I wanted to get an understanding of sort of which it is and making sure I have real clarity on that.

If I look at sort of the run rate of around $50 million and where you are to be breakeven or cash flow positive around $60 million, the midpoint of that is around $55 million.

Let's use that number.

At that sort of mid 50s level, what -- do you see cash burn during the year Julie?

And if not, sort of at what level do you see sort of breakeven sort of cash burn during the year I guess is the question?

So maybe the easiest way to answer the question is if you start with our statement of EBITDA positive excluding share based comp somewhere between 57 and $60 million in revenue, the only real adjustments you would have to that to get to free cash flow would be our investments in CapEx which historically have run, let's just say around roughly $2 million and then any working capital needs that we would have which again are dependent on revenue growth.

But let's say they trend between $1 million and $2 million also.

So in the sort of mid 50s range, if we as analysts decide to sort of use that for 2009, and understanding you're not going to [bless] or not [bless] that number, at that mid 50s level, 53 to $55 million, what sort of cash burn do we see during the year?

Is it as simple as just doing the math and subtracting that sort of from the 58, $59 million range where you would need to be in revenue to generate an EBITDA positive number?

Right, I think you can back into the answer using the information I just gave you, Jason.

Okay, so with that as a backdrop and where I wanted to go is do you feel comfortable than with your net cash position of $11 million plus I think you have a line of around $10 million?

Assuming we are correct in that mid 50s range in revenue and you burn $5 million in cash, do you feel comfortable at that level of available capital of around $15 million or do you need to perhaps pad that a little bit and what avenues do you see to do that if in fact you decide to go that route?

I think the answer would be that we continually evaluate our capital structure and our access to cash as well as our cash on hand and we will continue to evaluate that as we move forward and we're not really planning to approach the capital markets at this time to secure any cash.

So sort of in that midteens range, you feel like you can do what you want to do in product development and expanding the business and taking advantage of opportunities without sort of running thin on that side?

Am I hearing that right?

We haven't cut any significant product development plans.

In fact, we haven't reduced our engineering staff.

All the major programs and plans that we have for product innovation remain intact.

In fact, we prioritized innovation.

As a smaller emerging public Company, we recognize the fact that we need to be out ahead in terms of innovation.

We have been in the past and we plan to be in the future.

That's very helpful.

Last question is I think your second priority, Dave, that you mentioned is profitable market share.

Then the third one was profitable market share gain, in that order.

Could you help us a little bit with that terminology?

Profitable market share, does that mean that it's possible you have unprofitable market share out there that you would be more than willing to give up and that would improve the profitability of the Company?

In other words, perhaps there is some revenue out there at some accounts that just isn't profitable, therefore could come off the P&L?

Help us a little bit with that statement.

I found it interesting the words you used -- profitable market share sort of as a priority before profitable market share gain.

I just want to make sure I'm not misunderstanding, as Roger Clemens would say.

That's a very good question, Jason.

First of all, for example, part of our plan is to focus on the approximately 90 minimally invasive accounts that we have where we want to implement our totally thoracoscopic and full complete lesion set and ready to market more for further adoption, broad adoption and broad acceptance of our minimally invasive platform.

So profitable market share might be to focus more for example on those 90 centers versus trying to put together educational programs and run out to new centers that might be able to perform cases over time, but those cases over time might not be profitable to us in 2009.

That might be one example.

So there's not necessarily any existing accounts that you are referring to within that statement of profitable market share that you would sort of -- would be advantageous to give up?

That would be the wrong way to look at.

The existing customer base we want to protect, but we also don't want to put too many people in areas where the growth opportunity is too far away.

That would be another way to look at it.

If we have an underdeveloped market, we want to make sure that we don't have too many resources in those underdeveloped markets but we want to keep them covered.

Mimi Pham, JMP Securities.

Just regarding your comments on the DOJ [hurting] selling into some new accounts, are you hearing this feedback from a majority of the new accounts you're looking at getting into?

And do they say to you along the lines of we don't really want to get involved until the issue is resolved or just until you get further along the process with the DOJ?

It's a little early for me to give you complete information on that.

We do -- at the hospital administration level, there have been a number of accounts where maybe these hospitals themselves have had DOJ actions themselves.

And in those situations, we found it at the administrative level where the physicians are pushing to get our products in the hospital, we find that we need a lot of conversation and a lot of discussion, a lot of reinsurance and we also live in a very competitive environment.

So those selling situations have taken longer.

We believe that based on the momentum of our products in the minimally invasive procedures overall, as well as our open platform, that momentum will eventually break through hospital administration.

It sounds like the hospital administration is hearing about the issue also potentially more from your competitors versus on their own?

Well we're certainly in a very competitive environment.

And then just to clarify your comments regarding January and February.

So you are seeing an improvement on the minimally invasive side in terms of trends relative to October, even though you could argue that the economy has sort of gotten worse in in January and February so far?

We do feel like there has been an improvement.

Again, it felt like in October a very steep decline.

As we got into -- further into the fourth quarter, we felt like there was some flattening out.

And as we get into the first quarter, we feel like there is some identifiable favorable trends that are slowly potentially returning to historical trends.

That's the way we would characterize it.

Was that a trend you saw in October across the majority of your 90 centers or sort of your top volume centers?

I think that's pretty consistent across the majority of our centers.

And then just last question.

In terms of the [atrial fibrillation symposium], were there any specific follow-ups from the handful of electrophysiologists and surgeons in the room or were those mainly some of your current customers?

There were some follow-ups.

We have had some new customers that attended the symposium, so that we had a significant opportunity or two that came from the symposium.

And also the hybrid procedure that was presented, there are several major centers that are interested in looking more deeply at the hybrid procedure as a result of the symposium.

Joanne Wuensch, BMO Capital Markets.

This is (inaudible) thank you for taking my questions.

Can you discuss a little bit about gross margins, how we should think about it going forward?

I think in terms of prospective gross margins, I would expect that they would range between 74 and 77%, considering new product introductions during 2009 as well as the carryover effect of some products we introduced during 2008.

That's helpful.

Thank you (multiple speakers) second question relates to DOJ.

Can you talk a little bit from the salesforce perspective how they're attacking the situation with customers?

We're just basically going through our customers and reassuring them that we have confidence in our health care compliant systems.

What's really easy about that is our customers know us.

They see the entire industry.

They see the full picture.

It's not terribly challenging particularly at the physician level to discuss the DOJ matter, again because our customers know the AtriCure people, know that we are committed to compliance, innovation and the customer development process.

So I think our customer interactions relative to the DOJ have been relatively straightforward.

That's why we don't believe that the DOJ matter has impacted our existing customer base, particularly from a physician perspective.

It is just these -- several new hospitals that we talked about earlier, particularly at the administrative level and particularly where the hospitals have had their own DOJ matters that we have seen (inaudible).

Larry Haimovitch, HMTC.

Dave, I wanted to talk a little bit about the ABLATE trial.

You give us a little information.

I was surprised at how relatively few patients you think you're going to need to file a PMA and I wanted to explore with you what the primary endpoint was and why it is you think there's so few patients you can achieve a statistical significance to show that in fact the trial would be successful.

Well first of all, Larry, as you know it is a Bayesian statistical model.

The minimum number of patients that we would need would be 50 patients based on the statistical model.

So that would be the minimum number.

As we look at the results from our previous and historical publications and work that we've done on open concomitant procedures, they're very encouraging.

The results have been very high.

So we believe that overall, that we can reduce the sample size based on the fact that the centers that are performing these procedures are experienced centers.

They've used our equipment.

And the published results as you know have been as high as the mid 90s on concomitant AF procedures.

So it's really based on the Bayesian statistical model.

Additionally you may remember that we had a RESTORE clinical trial that was also a concomitant trial that was randomized.

The control arm was a drug.

The control arm was a drug, we treated 39 patients and in treating those 39 patients under the FDA clinical trial, those patients were basically held to almost the exact same endpoints.

And in Bayesian trials and Bayesian statistical models, you can use reports or prior investigation to support and bolster up your case.

So we believe that the 60 to 70 range is a reasonable estimate given the trends.

And the primary endpoint, Dave, for the trial to succeed would be what?

It would be a 24-hour halter, patients cannot have AF greater than five minutes.

So no one single episode can be greater than five minutes and collectively on a 24-hour halter, the atrial fibrillation cannot be greater than one hour.

At six months.

So there's a six-month follow-up.

So when you finish enrolling then, you'll have to follow all these patients for six months and then do a 24-hour halter?

Correct.

Well that's interesting it's only 24 hours as opposed to -- because as you know, the guidelines are now calling for much longer monitoring to really prove that patients are indeed in sinus rhythm.

That's actually a fairly low bar for you then, isn't it?

Fairly low bar.

We think we can achieve that.

We certainly feel very optimistic about it.

So -- and if you look at the ThermoCool Navistar catheter, they actually got approved without any monitoring.

Their major endpoint was asymptomatic (inaudible)

I didn't realize that.

That is interesting too.

That's surprising given that most of the societies are now talking about adding or doing a pretty lengthy monitoring period and a lot of the trials that I've seen, some of the symposiums I have been attending with you in the past have talked about -- Jimmy (inaudible) of course talking about significant number of days on 24-hour monitoring and three-minute atrial fibrillation episode, saying that the trial didn't succeed.

That's a surprisingly low bar.

We feel very good about it.

We feel very good that the results will hold up and we're just driving enrollment.

We're very focused on driving enrollment, getting to the right number of patients and continuing to look at the outcome so that we can continue to plan with FDA in terms of our PMA -- our final PMA module which will be the clinical dossier.

So is it reasonable to suspect that you'll have the enrollment done by sometime this first half?

We are currently thinking -- again, it depends upon the number of patients that are required to enroll.

What we will do is at 50 patients, we will do an interim analysis and evaluate our results, meet with our statisticians or regulatory consultants and look at the other reports of prior investigation and then develop our strategy going forward, whether or not [met] sample size is the right sample size or whether or not we will need additional patients.

Our general sense at the moment is that the 60 to 70 patients with the support of the reports of prior investigation should support our final clinical dossier.

So you could be filing a PMA potentially around sometime late in 2009?

Correct.

Ed Antoian, Chartwell.

Two questions.

Could you just maybe give me a little more detail explaining the decline in gross profit margin year-over-year in the quarter, so the 300 basis points?

Kind of where did that come from specifically, Julie?

Sure, so there's a couple of factors.

One would be that we had an increased mix of international business and we approached the international business through distributors which, although at the operating line you might end up with a same or better answer than you do in the states, at the gross margin line you take a haircut because of the distribution model.

And then another component would be we introduced these new products during the year, specifically OR lab which is capital equipment and carries a lower margin than our other products and then also Coolrail.

And that product -- initially when we manufacture products, our costs come down over the first let's say 12 to 18 months.

So we're still in that cycle with that product offering.

And then we had a couple of -- as our older clamping technology you know is phased out, we had to take some adjustments related to some capital equipment related to that product offering.

So international, is it like 1000 basis points lower gross profit margin than -- or maybe even a little more than that?

I'm sorry?

International, is it like 1500 gross profit margin points lower than direct sales?

We really haven't given any color on that, but I think you can think about it in terms of a manufacturers profit versus a distributors profit.

Dave, maybe just a little specifics about the long disposable probe and maybe kind of retrospect, you could be specific on what kind of business you lost, you use that as an explanation as to why open sales -- one of the reasons why open sales were down.

Maybe give me a little competitive backdrop and why that caused a decline in revenue?

Certainly, as we have talked about on our previous calls that there has been an uncontested technology trend toward using cryo, long disposable cryo probes for mini right lateral thoracotomy mitral valve procedures.

We believe that this trend has also been driven to a large degree by percutaneous valves on the horizon.

So more surgeons are looking to do minimally invasive mitral valve operations.

Those operations are done through a small right lateral thoracotomy incision.

With our current technology, especially the clamping technology, it's difficult to get to the left side of the heart through a small right lateral thoracotomy.

So people have adopted a long disposable cryo probe.

We have seen this trend as a slow developing trend over the past several years.

That's why we acquired the Frigitronics platform.

We have now developed a very competitive long disposable cryo probe that we think has several distinct advantages and we believe that that will help as we turn to growth trends in the open heart market.

So we're very excited to launch that product and we anticipate launching it in the second quarter of 2009.

You literally can -- if you kind of look back and try see if you will market share loss, but that didn't affect the open business though.

Is that right Dave?

These minimally invasive cases -- let's declare that minimally invasive open heart mitral valve.

Okay, I'm sorry.

I understand.

Minimally invasive open heart mitral valve.

We haven't lost any share in the -- we believe that our minimally invasive share is very dominant and we've likely lost a few share points relative to these cryo trends which we anticipated, planned for and have a solution to actually regain share in that segment of the open market.

But also we believe that leveraging our overall platform, that we can develop some significant momentum in the open heart area in 2009.

Charley Jones, Barrington Research.

Thanks Dave.

Could you tell us again when the new clamps are expected, Dave?

New clamps are third quarter.

We designed a new clamp that has several features, distinct features.

We are excited about the new clamp because it is a premium product for the open and it will facilitate totally thoracoscopic procedures.

So it is a single platform that we can sell.

We believe that this in the open market followed -- cryo, the cryo platform followed by a new more sophisticated premium clamping technology will really bolster our open momentum and then this clamp technology did a lot for us in terms of being able to train more surgeons in our accounts to do totally thoracoscopic procedures as well.

Were you able to get the mapping settings you needed in Coolrails and this next generation device or is that beyond this next generation?

No, the next generation device has some mapping capabilities as you point out along with the ablation.

So we believe that is going to be a very sophisticated system that will enable surgeons to ablate and also have a pair of mapping electrodes.

So you have 25 patients in the ABLATE trial.

Was that as of basically today or December 31?

We have 25 patients in the EXCLUDE trial.

We have 45 patients in the ABLATE trial.

Was that as of December 31 or today?

Today.

Then so what have your monthly trends been like over the last couple of months?

Seven, 10 patients, five?

In terms of which trial, Charley?

I'm sorry.

The ABLATE trial.

The ABLATE trial, right now we're currently running at about three to four patients per month.

So it was six-months a follow-up for half and three-month follow-up for the other half?

Is that right?

That's EXCLUDE.

Which trial are we talking about (multiple speakers)

That's EXCLUDE.

So all of these -- all patients need to be enrolled for six months -- I mean need to have six-month follow-up (multiple speakers)

To clarify, the ABLATE trial is a six-month follow-up.

The EXCLUDE trial, it's 60 patients.

30 patients follow up for three months and 30 patients follow up for six months.

So -- and what are the trends there on a monthly basis for the EXCLUDE trial?

We just started enrolling the trial in the fourth quarter.

So it's just recent that we have all six centers up and enrolling.

It's a little early to say, but it's probably somewhere in the area of (multiple speakers)

Maybe a few more, huh?

Five or so?

About five to eight clips per month.

So you have got half your patients already gone and they need six-month follow-ups or you're going to have half of them down, say, by the mid part of March, so six months from there we're in September.

And then you will already have the three-month follow-up on these other 30, I would imagine, by then as well, correct?

Right, we have 25 implanted today.

So the key is to get to 30 quickly.

We still have some days left here in February.

So I think the way that you should look at it is that we would submit our 510-K toward the end of the year this year, knowing that the 510-K is a 90-day process, knowing that we also have some very long-term European data to bolster up our US data.

I think you should think about the approval process as the first half of the year 2010.

So that is my last question is could you just talk to us a little bit about an update on the European appendage trial and just tell us how -- if you have had any discussion over the last month or so with that investigator and what the data looks like?

The data, again, here is very promising.

We have patients out beyond a year.

The clip has held up extremely well.

The site in [Zurich] is very, very enthusiastic and we believed it will release the clip in Europe during the third quarter of this year.

Matt Dolan, Roth Capital.

Sorry, I've been bouncing around a couple of calls.

So if I'm repetitive, let me know.

First on the procedure volumes, Dave, that you're seeing at the end user level, can you maybe distill it down a little more to what you saw?

I know you saw things flatten out in terms of revenue, but as we look at maybe inventory reductions versus actual end procedure volume versus maybe a slowdown in referral patterns, what did you see on a monthly basis maybe entering 2009 as well?

And secondly, anything on the competitive front that might be out there or maybe just give us an update on where your share is relative to historical levels.

Sure, I think to answer your first question, I think this may be a little bit redundant.

But again, going into October as we communicated on the previous call, we did see a steep decline in procedure volumes that we could identify.

We began to see procedure volumes particularly on the minimally invasive side begin to flatten during the fourth quarter.

And in the first half of the first quarter 2009, we see procedure volumes beginning to slowly rise.

We believe they're slowly returning to historical levels.

So I hope I answered that question.

That's great, yes.

And then competitively?

Competitively, we're certainly encouraged about the Medtronic acquisition of CryoCath and Ablation Frontiers and then Navistar ThermoCool approval.

Again, we believe that one of the major indications for a minimally invasive approach to atrial fibrillation will be (inaudible) catheter ablation.

So are very excited.

We see these new technologies as not necessarily increasing efficacy, but making it easier for more people to adopt catheter ablation for [peroxisomal] atrial fibrillation.

We think that plays into our market thesis of segmenting the market between peroxisomal patients where the minimally invasive approach will be more the standard of care for patients with more permanent forms of atrial fibrillation and failed catheter ablation.

So we're excited to see those trends from a competitive perspective.

And do you have any estimates of your share relative to a year ago?

Our share I think is still very dominant.

On the minimally invasive I don't see any differences on share in the minimally invasive side.

On the open side, I think our share is somewhere between 40 and 45%.

And so we may have lost a few share points, maybe as many as 5 share points during the last six months or so in the open heart.

But again, we plan to regain that share with the release of our cryo system which we believe has distinct advantages over the existing cryo technology and will leverage a focused sales organization as well as a broader ablation platform to regain share.

On the DOJ investigation and the new centers that you're targeting for MIS, what extra steps are you now having to take with them and maybe how many hospitals are involved in that kind of extended sales cycle?

There was about five hospitals involved in that extended sales cycle during the fourth quarter.

Extra steps, it's always about going back to your physicians and having your physicians and help you build your case with your administration.

So that's really the extra step is trying to get full physician support, getting our physicians very [pointed] with the administration in terms of why this strategic ablation alternative is important to the hospital.

So that is the main process, as well as just getting to know administration and getting more them more comfortable with our Company and getting them to recognize that this is an investigation.

The Company hasn't been charged with any unlawful act at this point in time and it is an inquiry.

So no concerns of safety or efficacy, just asking for more detail essentially?

Just asking for more detail.

That's correct, Matt.

And then on the OR lab, you know a lot of talk out there about not only procedure volumes but capital purchasing.

How important is OR lab to getting a center involved and what have you seen there on the capital equipment side?

The OR lab is certainly an important technology in terms of our whole thesis of verification of technical endpoints as they do with endocardial ablation.

So we believe in developing the arrhythmia surgeon that we need to ablate and that we need to verify all lines of ablation and the OR lab is specifically designed to do that.

A couple of things.

One is that there were ways that we could use systems in the hospital before the OR lab was developed and designed to accomplish that.

They're not ideal.

They're cumbersome but there are ways that we can work around not having an OR lab.

In terms of OR lab [sales], they are more challenging on a going-forward basis.

We have several different ways to sell the OR lab, including outright sales and bundling purchases.

But certainly we see more headwinds in terms of OR lab sales.

We began to see that in the fourth quarter and we believe that we will run into some additional resistance on a going-forward basis.

But our main aim in terms of minimally invasive is the 90 or so centers that are currently performing minimally invasive procedures and the vast majority of those hospitals have already acquired a OR lab system.

Finally, on your -- I think you mentioned you don't expect to require capital in the near-term.

So is it safe to say that a realistic scenario in '09 would be achieving the sales run rate that gets you to EBITDA positive?

Is that the internal goal?

We -- again we are -- in terms of guidance, we are going to defer at this point in time Matt.

Thought we would try.

We have no more questions in queue at this time.

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

Thank you very much.

Appreciate everybody joining us on the call today.

We look forward to the first quarter earnings call.

Thank you.

Have a good day.

Thank you for your participation in today's conference.

This concludes our presentation.

You may now disconnect.

Have a good day