AtriCure Inc (ATRC) 2012 Q1 法說會逐字稿

Good afternoon, and welcome to AtriCure's first-quarter 2012 earnings conference call.

My name is Karen and I'll be your coordinator for the call today.

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

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

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 AtriCure.

Mr.

Drachman, please proceed.

Thank you, Karen.

Good morning and welcome to our first-quarter earnings conference call.

At this time, I would like to turn the call over to Sarah Luken, our Investor Relations Associate and Executive Assistant, 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 me at 513-304-8931, and I will fax or email you a copy.

Before we begin today, let me remind you that the Company's remarks 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 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, governmental approvals, 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.

AtriCure undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

Additionally, we may refer to non-GAAP financial metrics.

A reconciliation of these non-GAAP measures is included in our press release, which is available on our website.

I would like to remind everyone on the call today that the Food and Drug Administration, or FDA, has not approved certain AtriCure products for the treatment of atrial fibrilation, or AF, or for stroke reduction.

The Company and others acting on its behalf may not promote these non-approved products to train doctors for the surgical treatment of AF or stroke reduction, unless the product is so indicated.

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

AtriCure educates and trains doctors in the proper use of its products and related technologies, including for the treatment of AF, in accordance with the products' specified indication.

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

All right, thank you.

Good morning, and welcome to AtriCure's first-quarter 2012 conference call.

On today's call, we will provide a review of business trends, the strategy for capitalizing on our AF approval, first-quarter financial results, and our clinical trial progress.

We will conclude our prepared remarks with our outlook for near-term and long-term growth prospects.

Then we will open the call for your questions.

Before we begin, I would like to address the announcement yesterday that Julie Piton has resigned as the Company's Chief Financial Officer to pursue other opportunities.

During Julie's tenure, AtriCure has developed a strong Accounting and Finance team with broad capabilities, including an Executive Director of Finance who has assumed responsibility for financial reporting and controls, as well as a Corporate Controller.

Based on our internal assessment and input from the diligence conducted by external consultants, we are confident that the Company is well-positioned as we search for a successor.

The Board of Directors and I would like to thank Julie for her contributions, and wish her well.

Turning to business trends.

We believe that our first-quarter results are a strong indicator that our strategic priorities are resulting in new growth opportunities.

We are experiencing a resurgence in US revenue growth.

When combined with continued strength from our international markets, we believe the result is accelerated growth during the second-half of 2012.

Our research indicates a stabilization of procedure volumes in the US, which, together with our premium products, recent AF approval, strong international sales performance, and clinical leadership, provides our best-in-class sales, marketing and professional education organization with a powerful growth platform.

Turning to a review of our strategic plan to capitalize on our AF approval.

We believe that our recent AF approval is a large growth opportunity, and that AtriCure's position to capitalize on this underpenetrated market through education activities designed to increase disease awareness, improve patient outcomes and optimize patient care.

Our research suggests that in the US, 85,000 patients per year undergo coronary bypass and/or valve procedures with a pre-existing history of atrial fibrilation.

Of these 85,000 AF patients, only 25% are currently receiving ablation treatment.

Our growth strategy is designed to first improve patient outcomes, gain market share, and increase penetration above the 25% level.

We believe all these are achievable.

As a result of our AF approval of our Synergy Ablation System, we are rapidly expanding our surgeon training and certification programs.

As the first company with a US surgical AF approval, and the only company with an Ablation System approved for both persistent and longstanding persistent AF, combined with our investments in training, are leading to both increased utilization, and market share gains.

To date, we have trained approximately 210 cardiac surgeons in approximately 120 sites.

Our training and marketing plan includes three distinct phases.

This strategic plan is designed to improve patient outcomes; increase patient penetration in appropriately selected patients; provide a forum for cross-selling, complementary products, such as the AtriClip; and expand our market share.

During Phase 1, we screened sites and prioritized surgical programs for training which have the highest potential for near-term revenue growth.

This could be current users or new users.

During Phase 2, we provide training, demonstrate all our products, and issue a certificate to surgeons that have successfully completed the curriculum and passed the exam.

In addition to certifying surgeons, the aim of Phase 2 is to collaborate with surgeons to establish practice-wide patient systems and criteria, which screens all patients for AF, and then identifies appropriate candidates for ablation.

This process is designed to optimize patient care, leading to improved patient outcomes, and increase penetration, which ultimately results in increased utilization of our premium, high-margin, disposable products.

During Phase 3, we look for opportunities to build on our momentum created by the certification process by partnering with surgeons and hospital administrators, to raise disease awareness through education campaigns designed for patients and referring physicians.

To facilitate this process, we are developing a strategic marketing unit, comprised of selected field-based market development managers.

As a reminder, we recently realigned our US sales organization into nine regional rhythm management teams.

The aim of our sales realignment is to support our training initiatives and monitor the effectiveness of our training investments.

Our sales alignment will promote effective partnering and marketing strategies with physicians, hospital administrators, and our market development managers, in order to raise awareness concerning the scope of the problem of atrial fibrilation, and facilitate educational campaigns aimed at patients and referring physicians.

Now a review of our first-quarter financial results.

First-quarter consolidated revenue increased 11.8% to a record $17.5 million.

Revenue from product sales in the US was a record $13.2 million, representing 8.8% growth.

Revenue from ablation-related product sales in the US increased approximately $800,000, with an increase in open product sales of approximately $1.2 million, and a decrease in minimally invasive product sales of approximately $400,000.

Notably, US sales of ablation products used in open procedures increased 16.5% sequentially, and US sales of the AtriClip System were a record $1.8 million, growing 24.7% sequentially.

We believe these sequential growth trends are early indicators that procedure volumes are stabilizing, and that we are successfully executing our AF approval strategy, resulting in new growth opportunities.

International revenue grew 21.9% on a GAAP basis and 25.1% on a constant currency basis, as compared to the first quarter of 2011, to $4.3 million.

The increase in international revenue was primarily driven by growth in our direct European markets, as well as increased sales from certain stocking distributor markets.

Importantly, Europe benefits from our ability to train physicians on the use of our products designed for minimally invasive, thoracoscopic ablation procedures.

Despite reimbursement challenges, sales of products using minimally invasive procedures from Europe continue to demonstrate strong growth, and account for approximately 40% of sales from Europe.

Although we currently sell our products in more than 30 countries, we have plans for further geographic expansion, and believe the Pacific Rim, South Korea, Australia, New Zealand, and South Africa represent near-term opportunities.

In addition, we registered our products in Brazil and are exploring other emerging markets.

Geographic expansion remains a high priority.

Now, turning to gross margin.

Gross margin for the first quarter of 2012 was 73% as compared with 76.1% for the first quarter of 2011.

The change in gross margin was primarily the result of increased manufacturing overhead, inefficiency and scrap-related expenses.

In addition, international sales were 24.5% of consolidated sales as compared to 22.5% in the prior year.

The increased mix of sales from our international markets has an unfavorable impact on gross margin.

During 2012, we anticipate that this mix will remain relatively constant.

Under the direction of our COO, we have begun to see operational improvements.

Sequentially, gross margin increased 300 basis points.

Importantly, our average selling prices are generally consistent with prior-year.

We anticipate gross margin during the second quarter of 2012 will remain under pressure, as we anticipate gross margin expansion during the second-half of 2012.

Next, an update on operating expenses.

Operating expenses increased 9.9% or approximately $1.3 million in the first quarter, from $13 million to $14.2 million.

Research and development expenses, which include clinical activities, increased by approximately $450,000 compared to prior year, from $3 million to $3.4 million for the first quarter of 2012.

The increase in R&D expense was primarily due to increased costs in support of our clinical and regulatory activities.

SG&A increased approximately $800,000 in the quarter, driven primarily by an increase in selling, marketing and training expenses.

Our operating loss in the first quarter of 2012 was $1.5 million as compared to a loss of $1.1 million for the first quarter of 2011.

Adjusted EBITDA loss was approximately $330,000.

Our net loss per share was $0.10.

And it should be noted that the first quarter is historically associated with incremental expense due to trade shows, as well as our national sales meeting.

In terms of investments in growth in 2012 full-year expense projections, we expect to increase our R&D spending in 2012 versus 2011.

We anticipate a net incremental R&D expense of approximately $2.3 million to $2.8 million.

This increase reflects our investments in clinical trials, and new and sustaining product development activities.

In terms of SG&A, we anticipate an increase of $2.7 million to $3.2 million compared to prior-year.

This includes sales force expansion to capitalize on our current momentum, as well as our investments in surgeon training and marketing activities associated with our AF approval.

Turning to a few balance sheet items.

We ended the quarter with $15.9 million in cash, cash equivalents and investments.

Additionally, we had approximately $8.5 million of borrowing capacity under the revolving portion of our credit facility.

Now, turning to an update on our investments in clinical science and FDA approvals.

Our FDA clinical programs are progressing on schedule.

Our ABLATE post-approval study is designed to monitor the safety and efficacy of the Synergy Ablation System to perform the made-for procedure during the commercial use in well-trained sites.

The post-approval study will enroll 350 patients at a maximum of 50 sites, and is designed with safety and efficacy endpoints.

FDA has requested additional information and has agreed to work interactively toward approval of this study.

We're in the process of responding to FDA and anticipate final approval mid-year.

Importantly, FDA has agreed that all patients enrolled in our ongoing ABLATE AF registry will be transferred to the ABLATE post-approval database and counted as post-approval study patients.

Therefore, we will be initiating enrollment in the post-approval study with approximately 75 patients from ABLATE AF, leaving approximately 275 patients to enroll.

Moving to staged DEEP AF safety trial.

FDA granted conditional approval for the IDE in late March, with some minor requests for additional information.

Responses have been submitted and we plan to have full IDE approval mid-year.

Importantly, FDA agreed to review an interim analysis of 30 patients with 30-day follow-up to assess safety.

Assuming the Agency is satisfied with the safety results, we anticipate moving forward with the pivotal trial during 2013.

Turning to our stroke trial.

On December 21, 2011, we received full FDA approval to conduct a feasibility study for the AtriClip left atrial appendage exclusion system to assess stroke prophylaxis when delivered during a sole-therapy procedure, utilizing a thoracoscopic approach.

The long-term aim of this clinical initiative is to demonstrate that the AtriClip system reduces the risk of stroke and systemic embolism in patients with non-valvular atrial fibrilation, who are contraindicated for long-term anticoagulation therapy.

This safety and feasibility trial will enroll up to 30 patients at six sites.

In terms of outlook, we entered 2012 with a strong balance sheet, improving growth trends in the first quarter, and well-positioned to accelerate US growth trends during the second-half of the year.

Additionally, we are poised for growth from our international markets, gross margin expansion, and to further advance our clinical trial initiatives and market leadership position.

For full-year 2012, we are providing guidance of revenue growth in the range of 12% to 15% over 2011 revenue.

As I mentioned previously, we believe we saw a stabilization of US procedure volumes this quarter.

Our diligence suggests that procedure volumes were down roughly 10% in the fourth quarter of 2011, and have improved to a decline in the low-single digits for the first quarter of this year, which represents a meaningful uptick, but still a modest decline in overall volume.

Based on where we are today, we believe that this trend will continue through the remainder of 2012, without a meaningful improvement or deceleration from here.

That said, a significant deviation in procedure volumes in either direction would clearly impact our forecast.

We anticipate gross margins to be in the range of 73% to 75% of sales for full-year 2012.

In conclusion, we are looking forward to a strong 2012, and are confident in our people and the power of our strategic plan.

We will now open the call up for your questions.

(Operator Instructions).

Rick Wise, Leerink Swann.

Good morning, Dave.

Can you just expand on your comments on physician training?

You've trained 210 docs to date at 120 sites.

Can you talk about the kind of numbers we might expect as you proceed through the year, and what maybe your hopes and dreams are?

Well, our aim is, Rick -- so the question is, what do we anticipate going forward in terms of the numbers of training events and training physicians?

Our aim is in the first 18 months post-approval -- and the approval, as you know, was December 15 of 2011 -- is to train 1,000 surgeons that are current users, and to target approximately 100 sites that are highly competitive sites for expansion of market share.

So, we have a very clear plan in terms of training.

What we are doing to basically maximize the effectiveness of our training program is we're trying to focus on small numbers of physicians, going to one site at a time; training one group of surgeons at a time, and having intimate dialogue about the curriculum, but also about the process going forward, which is, what patients does that group think should be treated to present with preoperative atrial fibrilation, so that we can develop a standardization of which patients should be treated.

The second thing that's very important is to help physicians follow their patients.

One limitation in cardiac surgery, whether it's CABG or valve or atrial fibrilation treatment, is, generally speaking, cardiac surgeons do not follow their patients.

So we've developed a registry as well as our post-approval study, and we want to help the cardiac surgeons standardize their procedures through advanced training, as well as through a ability to track their patients long-term.

And then they can begin to understand the favorable impact they're making on patients, as well as publish data, as well as modify their techniques, if necessary.

I hope that addressed your question.

Yes.

I'll follow-up later.

I guess my follow-up question now would be on AtriClip, up, I think you said 24% sequentially.

Again, can you talk about the uptake there?

Is this -- to what extent is this being driven by the procedure rebound or is the training driving this?

And remind us where you are with the next gen version.

Thanks, Dave.

Thank you, Rick.

So, all of the above.

The first thing that I'd like to comment on is that out AF approval created a buzz at STS.

There's still a buzz in the cardiac surgery community about the AF approval.

There are very few products that actually go to panel, as you know, that are surgical -- cardiac surgical products that go through panel and give surgeons an approval to treat a disease state.

So, there's definitely a buzz about AF and about AtriCure within the cardiac surgical community.

So, the procedure volume increase, we think, has impacted our Clip sales.

We also think that the training education has impacted it.

But overall, we think that this buzz around treating atrial fibrilation has also been a positive momentum gainer for the AtriClip system.

And we would expect that that would continue through the remainder of the year.

Thanks very much.

Matt Dolan, ROTH Capital.

The first question is just on that buzz you just mentioned, and we're trying to dissect out how much of the nice performance you had in Q1 do you think came from the label and the announcement?

And I think you did say that you expect your growth rate to accelerate through the year.

So what kind of growth rate could we see upon exit of 2012?

Well, accelerate, we said during the second half of the year.

Our most difficult comp is in the second quarter, so -- and we're really working on the process of implementing training.

And we believe that the benefits of the training and education process will be stronger in the second-half of the year.

In terms of growth rates exiting the year, I'll reserve comment on that.

I think the concept of the 12% to 15% guidance on a full-year basis is our current thought process.

Okay, great.

And then on the Clip -- it sounds like you're getting a nice halo effect there.

Are you seeing new accounts about the product?

Or is it a utilization dynamic that's helping you?

It's more utilization.

If you look at our top 250 -- if you remember, we talked about the top 250 accounts being a target.

This past quarter, 67% of the top 250 accounts actually purchased the Clip, and more than 50% of the Clip's sales came from our top 250 accounts, which are also, in many respects, the accounts that we're aiming for in terms of training early on in the process.

Thank you.

Thom Gunderson, Piper Jaffray.

So, again, a little bit on the growth.

I think you answered it a little bit on the last questioner.

It seems like -- you've got the label, you had a successful STS.

You had -- training is going well.

And you had a good first quarter, and we're supposed to wait till second-half for acceleration.

It feels like we're there, and the reason you're holding back a little bit is because of tough comps on Q2.

But is it from an internal -- from a 2012 standpoint, do you feel like you've got the wind behind you and a little bit of momentum as you head into Q2?

Or is there something about Q2 that slows you down relative to Q1?

No, I think the Q1 results had a lot to do with the activity and the buzz around the AF approval and the implementations of training.

I think as we get into Q2, we're actually in the very next stage, in terms of implementing training.

So we find our training programs and we have this Phase 3 process that we're also adding, which I think is important.

So, again Phase 1, we get the certification process; Phase 2 is we look for ways to increase utilization, increase penetration.

And then Phase 3, we bring in our market development managers to help with these educational campaigns aimed at patients and referring physicians.

All that we think is underway and more refined going into Q2, and we would anticipate that we would see more of the impact of that in the second-half of the year.

Okay.

And then as far as procedures stabilizing, Edwards has launched and did well with their SAPIEN, but we're expecting a halo effect on surgical AVRs where we see an increase simply because of more patients coming in, and not all of them being qualified for percutaneous valves.

Are you doing anything to target or partner with new SAPIEN accounts?

And do you buy into the idea that valve procedures might go up, and that might be beneficial to you guys?

We really aren't doing anything to sort of partner with SAPIEN accounts, although these are all high-profile accounts by and large, so the customers -- there is some overlap.

I'm not sure that the increased number of patients that we're talking about from a SAPIEN perspective and the crossover to some of those patients into a surgical -- standard surgical AVR is going to make a significant difference in our business.

I think our growth is generally going to come from a very well-designed sales organization, in terms of the structure, and implementing and executing an educational plan that starts out with increasing core competencies of physicians, increases their confidence in performing procedures with multiple core morbidities, followed by advanced training, followed by marketing campaigns aimed at physicians as well as patients.

The one thing that I think people may underestimate is that cardiologists -- the biggest nuisance for cardiologists -- I would take a bet that if you were to take a survey and talk to clinical cardiologists who were the referring physicians for these patients, that we see the biggest nuisance is taking care of atrial fibrilation.

They get a lot of phone calls in the middle of the night.

They have patients admitted to the emergency room.

They typically don't like to deal with atrial fibrilation, and it tends to be the number one nuisance when we surveyed them.

So if we can have surgeons talk to their referring cardiologists and really educate them on what surgical ablation is -- because there really hasn't been that forum to do that -- we think that that's going to basically give the surgeons an advantage to gain more referrals, and also give the referring physicians a reason to ask for their atrial fibrilation to be corrected.

Those are the sorts of strategies that we think really will benefit us going forward.

And then just a quick one.

I know I'm going over my limit, but quick question, quick answer.

What kind of timeframe are you looking for, for a CFO?

Would you expect to have one by the next call?

That's a difficult question.

I think we have a very strong internal team.

Julie developed a very strong internal team, and we're very confident in the internal team.

We feel like her advisers and consultants are as well.

And we have probably a dozen resumes from consultants and advisors that we're beginning to plan interviews now.

And we want to make sure that we -- in the highest quality professional onboard.

So, whether it takes a quarter or two quarters, the business is in very good hands and we want to make sure that we take our time.

We also have retained the services of Lynn Pieper and Westwicke.

So we have IR services that can help us supplement the external activities of a CFO, while we make sure that we bring on the best possible candidate.

Thanks, Dave.

Jason Mills, Canaccord Genuity.

Thanks, Dave.

Congrats on good quarter.

To say that your AFibrillation FDA approval is a competitive advantage I think is an understatement.

But I want to know how that's, in the early days, being manifested in your business?

I'm wondering if you can give us some quantitative metrics, in terms of how many centers ordered your surgical ablation, especially on the open side, surgical ablation products during the quarter, relative to, say, either the third or fourth quarter of last year prior to the FDA approval?

We had about 350 accounts order product in the first quarter, which is approximately a 20% increase over the fourth quarter.

And how many of those were new accounts that had never ordered from you before?

Roughly.

Roughly, I would say that of the 350, about 10% are new accounts.

But also -- that could be Clip technology; that could be -- that may not necessarily be directly associated to the approval.

However, we are targeting our current users first, thinking that the current users often have the product on the shelf, and they just need more training and education to facilitate sales and penetration.

So, we're trying to screen -- we actually have one of our top executives that takes every account that we're targeting for training, and screens them and evaluates them.

So that we prioritize our educational resources in areas where we can -- where we believe we can facilitate sales the quickest.

And, as you point out, sometimes it's a competitive account; but very often that's accounts where we already have one or two users, but there's an underpenetration from the other surgeons in the group.

Got it.

That's very helpful.

I don't imagine that you care what they're ordering, these new accounts, given that you have the only FDA approval for an AFib product.

And the only -- well, at least the most widely sought-after Clip, surgical Clip product, whichever one they start with is probably of no consequence to you initially, correct?

I would say that that's true.

We'd come in and we'd try to basically show them the full system, so -- which includes the ORlab Mapping System, all of our clamping technology, the Clip.

I wouldn't say that we have a preference of which product they buy first; but in general, I think if we can get them on the ablation product first, we're likely to get a higher revenue and gross profit dollar per procedure than getting the Clip in.

Got it.

Just a few more and I'll get back in queue.

OUS -- talk about direct markets where you can go, in a relatively short period of time that you're not in right now, and the sustainability of that international growth.

I guess if I gave you two choices and one of them wasn't to maintain your current growth, you're either going to go down 5% growth or up 5% growth.

I'm wondering if that's a good way to ask you to give us a sense for where you see the opportunity?

And then last question I'll sneak in is just on the stroke trial, when you expect to begin enrolling patients?

Thanks, guys.

Good quarter.

Thank you, Jason.

Great questions.

One of the things actually very interesting to us is there's 165,000 open hearts in Germany, which is one of our direct markets where we've just added some people.

If you look at the US, there's 300,000 open hearts.

So Germany is the size of Montana.

It has 85 million people, yet they do 165,000 open-heart procedures.

The US, obviously, with 300 million people and a much larger geography, does 300,000 open-heart procedures.

So -- and Germany tends to be an elderly population overall, so the percentage of AF is high.

So we think Germany is really a very fruitful market.

It's very aligned with cryo technology.

So the new ICE BOX, which we've had some ups and downs in terms of that platform, but we're getting that organized and together.

But the ACM and the cryo technologies and our other products in Germany, we think, are a great opportunity for us.

And in the Benelux, we have some very high profile minimally invasive sites, and that continues to be a very target-rich area as well.

I think our strategy right now is also to take some of our FDA trials and go to Europe.

So, for example, in the staged DEEP AF trial, there's two very high-volume, minimally invasive/hybrid accounts in the Benelux that we're going to include in our staged DEEP AF feasibility trial to gain exposure in that region and gain exposure in Europe.

In Germany, we'll include probably 6 to 8 post-approval study centers, as well to gain more momentum.

Because, as you know, the European sites like to be involved in FDA-regulated clinical trials.

So, in terms of the markets and their potential, we think that Germany is very -- a very strong target-rich environment; Benelux as well.

Those are probably our two most forward-moving markets.

And then the UK, I believe, will be number three.

So -- but we still have significant opportunity to expand.

We're expanding into Poland.

We're doing much better in Turkey.

We are doing actually better in Italy, even though the economics are not favorable.

So, there's still a lot of growth in Europe.

And we've got a great team that's very, very focused and is doing an outstanding job.

So, thank you.

And the question on commencement of the stroke patients?

The stroke patients, we anticipate the -- what we're waiting for is the next-generation platform, which is specifically designed for the thoracoscopic approach.

And we have a show card that we -- is compatible as well to make the procedure truly thoracoscopic.

So that device should be ready for human use around the end of July, which means that we would submit an amendment to our IDE around August 1.

And the only thing that's changing is the deployment tool.

So we'd anticipate full approval in the August timeframe.

And then once we get full approval, we'll have an accelerated path to IRB approvals, because we're in the process now of submitting to the IRBs.

But to answer your question, I think if we succeed, enrollment begins in the fourth quarter or likely the early portion of the fourth quarter for the stroke trial.

Thank you.

Charley Jones, Barrington Research.

Thanks for taking my questions.

Great quarter.

So I guess my first question is around the number of devices that you're seeing being used in the procedure.

And I'm wondering if you're noticing that the less trained surgeons, or maybe less education-based surgeons, are using a fewer number of devices per procedure?

And when you see them come out of your training program, if we see that number increase fairly substantially?

And what kind of revenue per procedure do you think you can achieve over a longer period of time in the US on the open side?

Thanks.

That's a great question.

We have -- our Vice President of US sales is an absolute expert at educating surgeons on how to basically maximize our product portfolio in a given open-heart procedure, and selling the benefits of clamp, cryo, pen, ORlab, Clip.

And we have centers that use all those products in an open-heart procedure.

Now, in terms of the average blended ASP, we said $3,000.

With the educational programs, I do think that there's an opportunity to increase that.

It should also be noted that our disposable products have, generally speaking, with the exception of the Clip, have about an 80% gross margin.

And the Clip is not far from that.

So we have this campaign going on right now, when we do the education, we show and demonstrate all of our products.

And we have -- our US sales organization is led by one of the best technicians in terms of teaching people how to do a maze, and how to take advantage of the total technology platform.

And I think that sort of leadership is gaining momentum within the sales organization.

And there's clearly a momentum toward physicians using more products per procedure to optimize the technology, to make the procedure simpler and faster.

So I'd rather not answer the blended ASP question because I think it's a little early.

I'd rather stick with the $3,000.

But I can tell you that we are making progress, and there are more products being used per procedure, based on the training and the demonstration of all of our products, as well as based on the sales leadership and their understanding of how to make use of all the technologies.

I guess I'd like a few questions around the Clip.

Curious how your ASPs are trending.

And just in general, a few questions around the Clip.

How are some of your more experienced, more -- maybe guys that maybe we see more eye to eye with, using?

Are they not using it in all the patients?

Or are there a lot of guys who are using it in pretty much all the patients?

And finally on the Clip -- can you talk a little bit about what percentage of docs are using the Clip coming into your training?

And whether or not there's any experience of what percentage of them are using it coming out?

Well, Charlie, could you repeat the first portion of your question?

I'm sorry.

Well, I guess I'm curious on some of the guys that do really believe in stroke reduction and left atrial appendage exclusion.

And I'm just wondering, within this group of thought leaders, are they still not using the Clip in certain cases, other than some huge, fat, frayed LAA?

And that was the first portion of it.

We still have a tremendous amount of opportunity with the Clip.

There is -- I was in Barcelona, and there was a world leading group of experts.

The faculty for the meeting, which was sponsored by AtriCure, Michelle Hunsicker, Jim Cox, Manuel Costella, it was just a world leading group of faculty there.

And there was a general consensus amongst the group that every patient undergoing cardiac surgery should have the appendage taken.

I know Jim Cox was very, very vocal about this and I think other people in the room as well, that are key opinion leaders, when the chest is open, not to take the appendage, knowing that -- whether the patients have a history of atrial fibrillation or not, it's just --

A crime.

-- not a thoughtful approach.

Especially knowing that the most common diagnosis for atrial fibrillation is an accidental finding.

So many of these patients may have AF; it just hasn't been diagnosed yet.

And they're certainly predisposed to developing atrial fibrilation.

And there's data to suggest that the only time surgeons actually see clots in the atrium is during -- in patients that have a history of atrial fibrilation, so --

Because they're not looking.

So, I guess a couple questions.

On the referring cardiologist, I guess if I'm a referring cardiologist, I don't want to be referring people to a procedure that's not approved.

But now that it's approved, it would seem like this group of people's aptitude to refer, increases significantly?

Well, I think the cardiologists -- we have to get the message more widely spread to the cardiologists that there is an improved technique.

And also, what the surgical ablation really is and what the results are.

So, we have to do that work.

And that's part of this market development work that we talked about with the cardiac surgeons communicating to their referring doctors.

But I think you're right -- once the referring physicians understand what surgical ablation is -- because many of them think about the classic cut and sew maze, and don't realize, with these new ablation technologies, we can get comparable results with a 15 to 20 minute add-on procedure, with very little risk to the patient.

So I think the referring physician community is going to take a little bit longer to get to them, because there are many more referring physicians than cardiologists.

And we think the best way to basically invest our dollars is surgeon training, and then having surgeons communicate the procedure and the outcomes to the patients.

In terms of the labeling, the interesting question about the labeling -- if you have a patient that presents with atrial fibrilation and requires corrective surgical procedures, and now you have a labeled product, are you responsible to basically talk to that patient about the alternative of treating the AF?

Before there was a labeled product, a lot of physicians didn't feel a responsibility, and didn't actually inform their patients that there is a treatment for their atrial fibrilation as well as their mitral valve.

We think now there's some responsibility that the cardiac surgeon has, if there is a history of AF, to offer that patient a treatment solution.

Finally, and then this is it, could you kind of discuss with us what you're hearing from neurologists and from the physician community, what level of stroke reduction would likely be necessary for a successful minimally invasive Clip?

Thanks.

Sure.

Well, first of all, I think the whole issue with the Clip is that we're going after patients that are contraindicated for anticoagulation treatment.

So, unlike the endovascular devices, which traditionally, for example, the Watchman, as you know, is a noninferiority concept, versus anticoagulant treatment.

Our whole concept is to take patients who have already had either a bleed or have had previous TIA or stroke, and those would be the patients that we would include in our trial.

So patients that are contraindicated to anticoagulation treatment are the target population.

And so what we would expect is that we would hopefully get results that are comparable to anti-coagulation treatment, which tends to be less than 1% stroke risk.

So you're talking like an 80% stroke reduction?

We're talking about putting a Clip on patients that are contraindicated to anti-coagulation treatment, with the understanding that it's been demonstrated that closing the appendage, the protective AF trial is comparable to Coumadin treatment.

But I mean we've seen stroke rates in the mid-single digits, right?

So, and if you're talking about less than 1%, wouldn't that be just a massive difference?

We would hope to see a large improvement, but it also obviously depends upon the presentation of the patient.

You could have a basically healthy 60-year-old that has a contraindication to anticoagulation treatment, or you could have a 85-year-old with several comorbidities that is contraindicated in their stroke risk at 85-years-old with multiple comorbidities might be higher than the younger, healthier patients.

So, I think less about the reduction of stroke and more about the indication and the inclusion criteria of patients, in terms of age and demographics that are in the trial, in terms of how we would power the trial and what types of reductions that we would be looking for.

Thanks for all the answers.

Appreciate it.

Larry Haimovitch, HMTC.

Hey, Dave, congratulations on a really terrific quarter.

(multiple speakers) Dave, a lot of questions have been sort of going around and around on this particular issue.

When you got the AF approval, of course, we were all very, very excited, (technical difficulty) --

Hello?

Larry's line is still open.

Let me see if I can find him.

Bear with me.

-- success in the quarter, or have you yet to see any real benefit from the fact that your (technical difficulty) --

Operator --?

Larry, your line keeps muting.

Could you repeat your question for us?

I'm sorry, can you hear me now?

We can hear you now.

Oh, I'm sorry, Dave.

My question was regarding the label.

You had a very, very good first quarter.

I've been trying to understand just how significant the label has been or will be to your ability to grow the business faster than competition?

So the question is, can you give us your own evaluation at this point now that you've had a label for several months -- three, four, five months, whatever it is; I can't remember exactly.

But how important has that been so far in winning new business, taking market share, and growing the business faster than competition?

It's been, as Jason Mills said, absolutely critical.

We are not seeing any atrophy of current users.

We're seeing new users that want to work with AtriCure.

We've had competitive conversions, significant competitive conversions, from basically all our major competitors.

People would prefer to use an on-label product, and once they get familiar with AtriCure, I think they're also impressed by the fact that we have the widest range of technologies and also the quality of our products.

So, the approval is really a very, very powerful selling tool.

And I think it's not only going to allow us to take share, I think that's the smaller piece of the pie.

The bigger piece of the pie is the fact that 65,000 patients that undergo corrective surgical procedures with AF are not getting any ablation treatment.

Yes, okay.

Great.

Thanks, Dave.

Thank you, Larry.

Thank you for your question.

There's no further questions.

That does conclude your Q&A session.

I'd like to turn the call back to David.

Thank you very much for your support and interest in AtriCure.

We look forward to our second-quarter earnings call.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a good day.