AtriCure Inc (ATRC) 2013 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the AtriCure's first-quarter 2013 conference -- earning conference call.

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

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

We shall facilitate a question-and-answer session towards the end of the conference.

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

I would now like to turn the call over to Lynn Pieper, AtriCure's Investor Relations Consultant from Westwicke Partners, for a few introductory comments.

Thank you, Derrick.

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

If you have not received a copy, please call 513-755-4136 to have one emailed to you.

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

Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control, including 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 statements.

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 fibrillation, or AF, or for stroke reduction.

The Company and others acting on its behalf may not promote these nonapproved products to trained 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 product 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 product's specified indication.

With that, I'd like to turn the call over to Mike Carrel, President and Chief Executive Officer at AtriCure.

Mike?

Thank you, Lynn.

We had a good start to the year with strong sales results, a successful financing and continued progress in building our commercial, clinical and education focusing.

This includes adding several new accounts and hiring some critical people in each of these areas.

Based upon these accomplishments and our year-to-date results, we are reiterating our full-year financial guidance of 9% to 11% topline growth.

I will start today's call with a quick overview of our results for the quarter, followed by an update on the business and our strategy for capitalizing on our AF approval, new product developments, and an update on our clinical trial progress.

Then I will turn the call over to our CFO, Andy Wade, who will provide an overview of our financial results.

After that, I will come back on to review our key goals, and then we'll open it up for questions.

We are pleased to announce record revenue of $19.4 million, which is growth of 11% over last year.

There was a good balance across the US and international regions in our various product and solution areas.

Our momentum is strong, and we are starting to see the results of our commercial and training focus.

Strengths for the quarter were Asia, MIS, and especially, AtriClip.

Open in the US and Europe were a little softer than expected, but overall still very strong.

In particular, we are pleased with the growth in the left atrial appendage market, or LAA market.

There is a lot of positive industry activity, including the first-ever international symposium on the left atrial appendage, and the recent acquisition of competing technology, TigerPaw, by industry stalwart getting.

In combination with our strong results, we believe this is proof of concept and proof of our vision.

AtriCure is in the right place with a great product.

Over the next few years, we expect LAA management to grow meaningfully and become more ubiquitous, and eventually be considered a standard of care.

We anticipate the following -- that the LAA market will expand to all strategies, concomitant and endovascular like.

As the LAA market grows, the AtriClip will grow.

Patients will get increasingly better care.

Patients and their families will lead better and more productive lives, and the healthcare system will save by improved care and superior outcomes.

In terms of our commitment to improving our team, a key highlight in the quarter was the addition of Bob White to our Board of Directors.

Bob has a strong leadership experience spanning operations, business development, sales and marketing within the medical device industry.

And I believe he will bring significant value to AtriCure and its Board of Directors and our shareholders.

His experience managing and growing several hundred million dollar divisions within Medtronic, and as the current CEO of TYRX, will be incredibly valuable, as we seek to further penetrate the AF market.

We are thrilled to have him onboard.

Before turning to the business trends, I want to highlight another strong trend we are seeing, which is our continued progress in establishing AtriCure as the education leader in the treatment of atrial fibrillation.

In addition to Dr. Cox's significant impact on the quality of the course, centers are beginning to reach out to AtriCure to partner with us for training and education.

A great example is Vanderbilt and Sentara, who will be featured in EP Lab Digest, a leading EP Magazine, describing the benefits of heart teams, where a surgeon and EP are working together to realize the best potential patient benefit.

Other recent examples of conversions, due to our FDA-required training, include USC, where industry luminary Dr. Vaughn Starnes attended a course led by Dr. Gerdisch, and came back to his practice and began using AtriCure products.

At both Duke and Texas, we have trained the cardiology staff on AtriCure products, and both groups are now carrying our products.

All of this is evidence that we are starting to gain traction.

Turning to business trends.

In the first quarter, US open heart revenue, including AtriClip, was up 12.3% compared to the same period a year ago.

Our investments and strategic priorities continue to build momentum, and result in substantial growth opportunities.

As mentioned earlier, Open was a little more disappointing in Q1, as we have seen a drop off in pen use in some of our Open cases for testing.

That said, we are still bullish on our conversion rates, and the medium-term growth rate and prospects of the Open market, as we continue to train more and more surgeons.

In the US, procedure trends have remained generally stable through the first quarter.

And we continue to experience strong growth trends from our international markets, particularly Japan, which were up 12% versus prior-year on an as-reported and constant currency basis.

We are continuing to capitalize on our investments in support of our AF approval through education activities designed to increase awareness and improve patient outcomes.

To date, we have trained nearly 1000 cardiac surgeons, up from about 800 that we reported last quarter.

We are successfully expanding this program, which, as anticipated, is resulting in increased utilization, competitive share gains, and cross-selling opportunities.

Training levels and the conversion of competitive accounts is providing inroads into new hospitals as well.

We expect to continue our focused efforts on education, marketing, and the development of a strong referral base.

Clip sales in the US posted growth of 36% and reached $2.4 million in revenue in the first quarter.

As I mentioned earlier, we are seeing a growing belief in the management of the LAA as a viable treatment option.

And what we are seeing is, as cardiologists accept LAA management, surgeons become more comfortable.

Additionally, we saw substantial increase in demand of our next generation articulating robot friendly clip applier, the AtriClip PRO, and this momentum is continuing.

As expected, it is capturing a meaningful price increase.

MIS sales were up in the US 6% in the first quarter, which was better than expePresident, CEOcted.

While we are encouraged by the Q1 results, we do not anticipate a resurgence in growth throughout 2013; rather we are optimistic we will experience stabilization in MIS, as our efforts to get our clinical trial underway begin to take hold.

Internationally, we saw particularly strong growth from Asia in the quarter.

In Europe, we continue to invest in adding headcount and business development and international marketing.

We are expanding our international sales coverage where we have direct sales, in particular, in Germany.

Operationally, we completed a financing in January that broadened our shareholder base, and we closed with $36 million in cash on our balance sheet.

With a stronger capital structure, we are able to turn more of our attention to executing our commercial strategy.

Moving to a quick update on our clinical programs.

We continue to invest in clinical science and FDA approvals.

We now have enrolled 125 patients in our ABLATE postapproval study.

Importantly, we have 25 sites enrolling and several others in the final stages of approval.

We anticipate having 40 sites up and running by the end of Q2, and expect to accelerate enrollment in the back half of the year.

This landmark three-year, 350-patient study is intended to build additional evidence on the safety, efficacy, and long-term durability of the AtriCure Maze IV concomitant treatment for AF using AtriCure's proprietary surgical devices, and supports our goal to increase penetration in market share in the concomitant AF market.

Moving to the staged DEEP AF Feasibility Study.

We now have all six enrolling patients in our DEEP AF Feasibility Study, and have enrolled 20 of the 30 patients required.

This study supports our goal of accelerating our growth for sole therapy, and working closely with EPs, as it is a staged hybrid procedure.

While we do not yet have results to report, we are pleased with the progress, and look forward to providing an update as we have more data.

In the meantime, we are putting together a Scientific Advisory Board at the HRS meeting on May 9 to 11 in Denver, made up of cardiac surgeons and EPs to evaluate our protocol and ensure that we are on track.

We continue to evaluate and define what we will pursue regarding the AtriClip franchise and a stroke trial, and will likely have something to announce about our strategy and intentions towards the end of the year.

Importantly, in Europe, we expect to initiate a randomized, multi-center trial comparing multiple catheter ablations to TT plus a catheter ablation.

The primary focus of this study is to use the data to support reimbursement and build relationships with EPs, and, ultimately, improve patient care.

In summary, 2013 is off to a strong start.

We are investing in clinical and education endeavors, while we strengthen our team globally, which we believe will fuel long-term growth.

I will now turn the call over to Andy Wade, our Chief Financial Officer, to provide more detail on the first-quarter results.

Thank you, Mike.

For the first quarter of 2013, revenue increased 11.2% to a record $19.4 million.

Revenue from product sales in the US was $14.6 million, an increase of 11% from the first quarter of 2012.

Revenue from open chest oblation-related product sales in the US increased by approximately $600,000 to $9.1 million, and US sales of products used in minimally invasive procedures increased approximately $200,000 to $3.1 million.

US sales of the AtriClip system during the first quarter of 2013 were $2.4 million, as compared to $1.8 million in the first quarter of 2012.

International revenue grew 11.9% on a GAAP basis, and 11.7% on a constant currency basis, as compared to the first quarter of 2012, to $4.8 million.

The increase in international revenue, as Mike mentioned, was driven primarily by growth in Asia.

Gross margin for the first quarter of 2013 was 72.5% as compared with 73% for the first quarter of 2012, and 70.8% for the fourth quarter of 2012.

Note that the medical device excise tax expense for the first quarter was approximately $120,000 or approximately 60 basis points.

So, after removing the impact of the MDET, gross margin would have been roughly 73% in the first quarter.

As a reminder, the fourth quarter of 2012 included a $225,000 or 125 basis point charge related to the inventory reserve.

Pricing remained relatively steady, and we had a small -- had some small realized decreases in product cost.

For the remainder of 2013, we anticipate modest pressure on pricing in the US.

Operating expenses increased 11.5% or approximately $1.6 million from $14.2 million for the first quarter of 2012 to $15.9 million for the first quarter of 2013.

Research and development expenses, which include clinical activities, were $3.5 million for the first quarter of 2013 or 18% of sales, and an increase of $117,000 over the first quarter of 2012.

As we discussed previously, we expect clinical costs to increase modestly in support of our key clinical initiatives, namely the postapproval study in DEEP AF, along with continued investment in our product pipeline.

SG&A increased approximately $1.5 million from the first quarter of 2012 to a total of $12.4 million or 64% of sales, due primarily to increases in selling, marketing and training costs.

Our operating loss for the quarter was $1.8 million as compared with approximately $1.5 million for the first quarter of 2012.

Our adjusted EBITDA loss was approximately $820,000 compared to $329,000 for the first quarter of 2012.

Without the impact of the device tax, EBITDA for the first quarter of 2013 would have been a loss of $700,000.

Our net loss per share was $0.10 for the first quarter of 2013 compared to $0.10 for the first quarter of 2012, and $0.12 for the fourth quarter of 2012.

Now turning to a few balance sheet items.

We ended the quarter with $36 million in cash, cash equivalents and investments.

Additionally, we had approximately $8 million of borrowing capacity under the revolving portion of our credit facility.

As a reminder, in mid-January, we completed a stock offering of approximately 4 million shares, which generated net proceeds of approximately $27 million.

Lastly, we are reaffirming our guidance for 2013.

We continue to anticipate topline growth of approximately 9% to 11% year-over-year on a GAAP basis, or revenues of $76.5 million to $78 million.

We anticipate gross margin to be in the 70% to 72% range for the year, which implies a modest price decline consistent with what we have been seeing.

We expect R&D expenses to be 17% to 18% of sales, and SG&A to be roughly 64% to 66% of sales in 2013 -- a slight increase in spending levels versus 2012.

We anticipate increased spending related to previously described commercial activities, including clinical science, training and education, as well as international expansion.

We expect adjusted EBITDA for 2013 to be in a loss in the range of $3 million to $5 million.

This includes the impact of the medical device tax, which we anticipate to be in the range of $800,000 to $1 million for 2013, and which will be reflected in cost of goods sold.

Finally, we continue to anticipate an increase in net cash burn for 2013 versus 2012, due to additional investments and operating expenses to fund commercial development and product development activities, and international expansion, along with working capital and CapEx needs, to support our growth strategy.

At this point, I would like to turn the call back to Mike for closing comments.

Thank you, Andy.

We are pleased with our sales performance and other accomplishments in the first quarter, following our key goals for the remainder of 2013.

Achieve revenue guidance and continue to gain market share in the US by driving training and education initiatives, which are driving conversion of competitive accounts at an accelerating pace.

We also plan to make progress investing in our clinical and commercial efforts to further accelerate this growth substantially.

As the only company in the world with the -- an FDA approval to treat the most serious forms of atrial fibrillation, we are committed to advancing the field.

We are transforming AtriCure into a commercially-focused organization with a clear eye towards accelerating revenue growth.

By achieving these goals, we will continue on our path towards becoming a leading innovator in atrial fibrillation in the left atrial appendage management.

We look forward to keeping you posted on our progress.

And we'll now turn the call over to questions.

(Operator Instructions).

Matt Dolan, ROTH Capital.

This is Chris Lewis on line for Matt.

Thanks for taking the questions.

First question is just on AtriClip.

Obviously, a strong quarter there.

Can you talk a bit more about where that growth came from during the quarter?

And any other -- any additional color you can provide there?

And going forward, is this a sustainable revenue run rate for AtriClip that we can expect for the future?

The first one, many of you, when we've talked on the phone before, you've asked a question about our batting average relative to AtriClip on the Open procedures.

And what we are really, seeing most of this growth is coming from significant growth on that batting average going up considerably, in terms of the number of accounts that are doing the Open Maze procedures that are now also including the clip as part of it.

A lot of that has to do with market awareness, with a lot going on with the Watchman device, and others that are out there -- the LARIAT and now TigerPaw coming into the market -- that actually creates more awareness.

In our mind, that's a good thing.

The surgeons get more comfortable with it; as they get more comfortable, they're putting it on more when they're actually doing their cases.

And that's really where we're seeing most of that growth.

Okay, and then in terms of revenue run rate going forward for that, is this a sustainable level?

The guidance that we've basically given around revenue is that we do continue to see -- even though Open was down just slightly this quarter from what our expectations were, it was up.

And we anticipate that Open will continue to grow at a nice pace, and that the clip will be -- those are the two areas that will continue to grow at a nice pace.

And that our MIS -- while we did have growth this quarter, we're just cautious about whether or not that's going to stabilize and be at a modest growth versus a considerable growth rate.

So on the clip side, we feel really good about that being a growth engine for us.

Okay, great.

And then turning to the gross margins here, you came in above the high end of the guidance for the year.

I know you talked a little bit about some pricing pressures, but can you just walk us through the gross margin?

And how should we expect that to trend throughout this year, given the gross margin for this quarter was above the high end of the range you laid out for the full year?

Sure.

Chris, this is a Andy.

You know, as Mike mentioned, in some of the other areas, we're cautiously optimistic here.

Obviously, the device tax was the big driver in terms of the change year-over-year.

Pricing continues to hold -- continued to hold fairly well for us in the first quarter.

So, we're still going to stay with the 70% to 72%, just -- and take a look at that kind of as the year goes on.

But as far as where we are, I mean, this is a pretty good quarter.

We're happy with that.

And we're starting to see the fruits of our investments in the operations area.

And the other thing to add to that is we obviously want to make sure that we're balancing any mix change that could occur through the year.

International was a little bit lower than expected on some of the growth this quarter.

And so that also contributed a little bit to it, because we get lower gross margins out of Europe.

And so if Europe begins to pick up, it will help our topline, but it also may put some pressure on that as well.

So just -- we're trying to play the balancing act with that for you.

Thom Gunderson, Piper Jaffray.

Just two questions on revenues, Mike.

One is, on the US side, predominantly, you noted that you went from trained institutions of 800 to trained institutions of something over 1000.

As we apply that to revenues, are you seeing more of the growth coming from existing trained accounts from six, nine months ago?

In other words, same-store growth?

Or are you seeing new accounts or newly-trained accounts providing more of that growth?

So just -- I just want to make sure I clarify, if it came across wrong on the numbers.

It's 1000 surgeons that have been trained, and it's about 525 specific sites, just to kind of give the -- just to kind of clarify that.

But to answer your question, specifically, in terms of the growth that we are seeing, we are actually seeing, within their cases -- and one of the reasons the revenue is a little bit softer was, people are replacing the pin with our cryo, which we get more for the cryo, so that's growing at a really nice pace for us.

And so we're actually seeing more going on within a case versus necessarily many more cases going on.

But we do see most of that revenue coming from existing accounts at this point in time.

This was the first quarter where I believe we actually started to see some growth coming out of some of those conversions where it was beginning to become meaningful.

Duke is a good example.

Where we didn't do a lot of business with Duke before, and they used to use the St.

Jude product quite extensively, and they're now converting over to us.

And we're getting some significant growth from that account in particular.

But I'd say, on a global basis, it's still more coming from existing accounts, and them using more products within their accounts.

Got it, thanks.

And then the second question is, can you give us a little bit more color on international growth coming predominantly from Asia?

It is kind of a large market.

And maybe you could tell us, are these new accounts, new distributors?

You mentioned something about Japan.

Just a little bit more granularity.

Yes, we've got a great distributor in Japan with CMI.

We've been working with them for many years.

And they are just really up and running and taking market share, quite frankly, from Medtronic.

And so we've just got really good presence.

And so they're really just getting much more comfortable selling the product.

And so you're starting to see the fruits of some of that labor in the Japanese market.

In China, we saw some nice growth, and continued -- there's just such a huge market there that it's education, education, education in the Chinese market, and getting more surgeons comfortable there as well.

And as more get comfortable with it, more are actually practicing it, and so we are seeing growth there.

And so that's why we are seeing it on the Asia side.

Great.

Thank you.

(Operator Instructions).

Danielle Antalffy, Leerink Swann.

This is actually Robert Marcus in for Danielle.

Thanks for taking the question.

So, Mike, since you started, can you talk about how you feel you have been -- the Company has been executing on the goals you initially set?

Are there some where you're doing better or worse?

And maybe just give us a little color?

I mean, overall, I think the Company has actually responded very well, and is hitting on all cylinders relative to the goals.

As I think I've talked on this call, I don't think you want to grow too fast too soon.

We kind of want to do it in a nice and measured pace.

I feel like we are hitting those numbers.

We are making investments.

We have been able to recruit and attract some incredible people from many of the major medical device companies that you are aware of.

We've got -- from education to bring on Dr. Cox, to bringing on people from St.

Jude and other manufacturers.

Just had a lot of success in hiring some significant talent across all aspects of our business.

People want to come work.

We're getting a lot of calls and incoming calls in, and multiple people for positions that we're posting.

So, I'd say that's really been one of the key critical components, is building some of that out.

And that's really coming together real nicely.

And I'd say that's going to play some big dividends for us.

On the clinical side, we've really seen some nice progress as well.

Now that we've got some focus on the postapproval study, we're actually getting people through the pipeline.

I think before I joined, we had kind of lost our way a little bit, in terms of getting enrollment on that.

So you're starting to see some significant enrollment come in, and getting those sites up and running.

And the same to be said with the DEEP trial, we've got a lot of activity in terms of excitement around that going to a pivotal trial, and getting the results from the feasibility to make sure that we can move forward with that.

So I would say that we're hitting on all cylinders on most of those fronts right now, and at the right pace, so that we can sustain it for the long-term.

Great, thanks.

And maybe just one follow-up.

I know you mentioned it briefly in the prepared remarks, but are you seeing any kind of impact on the business from the soft hospital volumes we have heard from some of the larger manufacturers?

Is that impacting you at all?

We have seen a little bit, but I wouldn't say that it has been substantial, because we're also seeing -- I mean, we're a little bit smaller, so -- and because of our -- we're nimble and we're still taking some share.

We don't see it as much, but you do see a little bit of softness.

Okay, great.

Thanks a lot.

Larry Haimovitch, HMTC.

Mike, I know that you've had some interest in developing a better initiative to address the turf issues and the fact that EPs are the ones that control the patients, and to try to get some sales and marketing effort to bridge that gap.

Could you talk about that a little bit?

My understanding is you may be hiring some people to do that?

We have.

We've hired -- we've actually built out a team that's really kind of trying to build and bridge those relationships quite extensively.

So we've got three or four people that we have already hired and brought on.

I have been spending a lot of my time visiting many of the leading sites that are already doing that, and creating these heart teams together.

As an example, I mentioned Vanderbilt earlier, where you have a combination of the surgeon working with the EP in consultation and also with the cardiologist, specifically around how they're pulling things together and talking to the patient and treating them.

And that's actually worked out really well.

And so we're seeing that actually progress as a business.

And we're hiring some key people from some companies that you would be -- St.

Jude, Medtronic, et cetera.

How big do you anticipate that effort to become?

Big in terms of --?

People -- number of sales reps or number of territories or things like that?

Well, you know, what we talked about when we raised the money is that we're going to continue to assess it.

We're bringing on a couple of people.

As I mentioned, we've got three to four right now.

We'll probably stay at that level for a while, as we kind of build out the program, and make sure we better understand the market, and get that up and running.

But we haven't set a specific target on the number that we're going to have by the end of the year.

And at this time, I'm showing no further questions in queue.

I would like to turn the call back over to Mr. Mike Carrel for any closing remarks.

Well, thank you, everyone, for joining the call today.

And have a wonderful evening.

Look forward to catching up next quarter.

Ladies and gentlemen, that concludes today's conference.

We thank you for your participation.

You may now disconnect.

Have a great day.