AtriCure Inc (ATRC) 2014 Q3 法說會逐字稿

Ladies and gentlemen, good afternoon and welcome to AtriCure's third-quarter 2014 earnings conference call. My name is Ryan, and I will be the coordinator for the call today. At this time all participants are in listen-only mode, and 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 Lynn Pieper from Westwicke Partners for a few introductory comments.

Thanks, Ryan. 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 with the most directly comparable GAAP measures is included in our press release, which is available on our website.

With that, I would like to turn the call over to Mike Carrel, President and Chief Executive Officer. Mike?

Thank you, Lynn. Good afternoon and thank you for joining us. We are pleased to report strong third-quarter results. And based on the strength of our year-to-date results, we are raising our guidance for 2014 to a revenue range of $105 million to $106 million, reflecting approximately 28% to 29% year-over-year growth.

We continue to see a tremendous amount of untapped potential in our markets, and thus our plans remain focused on growth and successfully expanding the afib market through improved patient outcomes, training, and education. We also plan to continue to execute on our clinical trials. We are pleased to have completed enrollment in the ABLATE postapproval study, or PAS, in the third quarter -- another milestone towards delivering data to prove the benefit of our innovative products to patients.

And we are also excited to announce that we have received FDA approval for our DEEP Protocol. These developments, along with an improved pipeline of products, give us great confidence that we have many years of growth ahead of us. Our future looks bright indeed.

Before we review our quarterly performance, I want to provide an update on our clinical programs. Our ABLATE postapproval study is intended to build additional evidence of the safety, efficacy, and long-term durability of the Maze IV concomitant treatment for afib, using our proprietary surgical devices to treat non-paroxysmal forms of atrial fibrillation.

As of October 3, 2014, the ABLATE PAS enrolled 365 patients at 40 hospitals across the United States. AtriCure expects to release preliminary data from the study in about a year, with a complete report expected to be published in three years. I cannot overemphasize -- this is a major milestone, as we expect the postapproval study will provide additional compelling evidence of the benefits of treating afib at the time of cardiac surgery.

Moving on to our stroke trial, we have enrolled five patients to date. While the enrollment has been slower than expected, we believe there remains excitement long-term for this study, and we're in the process of working with each site on ways to improve this enrollment in the coming quarters.

On the Staged DEEP AF trial, we are happy to let you know that our IDE has been approved. And we can continue to expect to begin the pivotal trial in 2015. This landmark trial will provide electrophysiologists and cardiac surgeons together as a team in an effort to help establish a new standard of care for patients presenting with persistent or long-standing persistent afib, a significant risk factor for stroke. We expect to enroll 220 patients in 25 sites internationally and are in the process of finalizing our principal investigators and will announce them shortly. This is very exciting news for the Company.

Now, turning to the quarter, once again it was all about execution. Our third-quarter revenue reached $26.7 million or an increase of 32% compared to the third quarter of last year. Growth was balanced across all of our product lines both in the US and internationally. In the US overall sales in the quarter were up 27% year-over-year and international sales were up 53%. Our international sales were driven by key contributions from Europe with notable strength in Germany and the UK.

We continue to see increasing clinician interest in managing the left atrial appendage and tremendous untapped potential in our markets. As we look to the future, we have spent considerable time evaluating our long-term markets and are confident we are just beginning to build momentum in treating afib for all appropriate open-heart patients. As such, our commitment to our education strategy will only increase.

Additionally, we continue to make significant progress setting AtriCure up for continued long-term success with our investments in clinical trials in science and research and development, which will pay dividends for many years to come.

As for our training and education initiatives in the US, we are continuing to gain traction. We have conducted 11 advanced training courses in the US this year and continue to expect to complete 15 by the end of the year. As we gain experience and interact with more physicians, additional training opportunities are being presented than we had originally expected.

Based on the success of our Maze IV training to date, almost every major society for surgeons and electrophysiologist and their respective congresses globally are now asking us to help lead education and awareness efforts within their societies. As a result, we will be expanding our pre-meeting training efforts in 2015 to include more than twice as many as this past year.

Additionally, many leading institutions, such as the Cleveland Clinic, are asking us to help them organize in-person advanced training sessions to promote the treatment of afib in a concomitant setting. We have conducted over 10 of these events already in 2014 and expect this to grow significantly in 2015 and beyond.

In fact, on Monday of this week we launched a series of physician education sessions to run for the next several weeks. What is most striking is the range of courses, labs, proctoring and dinner events occurring almost every day of each week across all of our procedures and products -- all around the world, from a surgeon case observation of a concomitant transverse sinus clip placement in Fort Myers to a Maze IV course co-led led by the committee chairs of the AATS education committee at Emory main campus. This is just a small example of the efforts underway and in process and is a testament to the field team's ability to engage physicians and our physician consultants' interest in working with us.

Turning to our business trends, in the third quarter U.S. open revenue was up 17% compared to the same period a year ago. We continue to build momentum on the gains of our investments in education and training, which we are confident are resulting in sustainable growth. As stated earlier, we continue to see a large runway ahead of us. The market for surgical ablation concomitant to open procedures is vastly underpenetrated.

AtriClip continued to be a strong contributor to our US growth rate in the quarter, with an increase of over 58% over last year. AtriClip Pro increased 74%, while Open Clips were up 53%. We have sold over 38,000 clips to date, which is more than any other available product on the market for LAA combined. This level of discussion and activity around managing the left atrial appendage continues to increase, and we expect to have sold over 50,000 by mid-2015.

The growth in our clip revenue isn't just being driven by our marketing initiatives. It's also being driven by the broader market realizing that managing the left atrial appendage is the right way to treat these patients. With the MIS Clip, what is starting to happen is that when a physician performs the right lateral thoracotomy, they realize it's an opportunity to manage the appendage. The physicians can see the LAA using this approach and, increasingly, they are dealing with it.

Our Clip is an effective and is a more affordable option than anything else that can be used at this time. We are encouraged that the market is moving toward managing the left atrial appendage.

At this time I want to take a minute to address Watchman as it relates to this, because I know a lot of you might be curious as to our thoughts. First, I would like to complement Boston Scientific on being the trailblazers in running a stroke trial. As those of you who have been following this space know, at a recent panel meeting they received a six-to-five majority recommendation from the panel for the all-important risk-benefit of an approval. There was a lot of discussion at the panel around treating patients who are contraindicated for oral anticoagulants.

We believe the interest and discussion generated by recent developments worldwide leads to the following implications for AtriCure. First, it reaffirms the importance of LAA management therapy.

Second, it confirms our stroke trial strategy regarding these target patients. We think that it's very clear what the FDA wants -- a trial in which you are treating a patient population for oral contraindicated patients. We are working with this exact trial design in our feasibility study and will likely pursue it with our pivotal trial as well.

Third, it creates interest and drives market growth for the AtriClip franchise. And we are serving complementary markets and patients.

MIS sales in the US were up 13% for the third quarter, driven by the contribution from Estech products. The underlying US MIS market, after four years of declines in our business, stabilized and grew at a modest pace in 2013. We have seen the same year-to-date in 2014 and continue to expect modest to little organic growth through the rest of this year, with reported improvements driven largely by the Estech fusion product line. Our future growth in this area will be driven primarily by the previously discussed clinical trials we are pursuing and are very excited about.

Internationally, revenues were $6.6 million for the quarter, an increase of 53%. Sales were up across Europe, with Germany continuing to be a strong growth engine. We are pleased with our new agents in the UK and are gaining traction in France. Sales in Asia were also strong.

Operationally, our gross margin was 70.5% for the quarter and our net loss was approximately $500,000 or $0.02 per share, both in line with our expectations. This included expenses related to transitioning the Estech business into AtriCure, which we expect to be insignificant going forward. The integration of Estech has gone according to plan and is substantially complete.

The remaining increase in operating expenses was primarily driven -- was driven primarily by an increase in selling, marketing, product development, and training expenses. While overall operating expenses were higher in the third quarter of 2014 compared to 2013, they are in line with our expectations and investments in our operating structure and future growth plans.

In summary, the excitement in our business is at a high. And with the success of our clinical, technical, and commercial teams, we continue to see great growth prospects in both the short and long-term.

I will now turn the call over to Andy Wade, our Chief Financial Officer.

Thank you, Mike. For the third quarter of 2014, revenue increased 32.4% to $26.7 million. Revenue from product sales in the US was $20.1 million, an increase of 26.7% from the third quarter of 2013. Revenue from open chest ablation-related product sales in the US increased by approximately $1.6 million to $11.3 million, and US sales of products used in minimally invasive procedures increased approximately $400,000 to $3.9 million. MIS growth was influenced heavily by the sales of products acquired in our December 2013 acquisition of Estech.

US sales of the AtriClip system during the third quarter of 2014 were $4.3 million as compared to $2.7 million for the third quarter of 2013, an increase of 58.1%. International revenue grew 53.4% on a GAAP basis and 53.9% on a constant currency basis as compared to the third quarter of 2013 to $6.6 million. Valve sales totaled approximately $700,000 worldwide -- $575,000 in the US and $125,000 in international markets.

Gross margin for the third quarter of 2014 was 70.8% as compared with 72.9% for the third quarter of 2013. As in previous quarters, the sales of the products acquired in the Estech transaction put some pressure on the overall gross margin.

The international sales mix was higher in 2014, which also has a negative impact on gross margin. Additionally, the placement and servicing of the capital needed to run our ablation disposables, including the Estech equipment, continues to be strong but does put some pressure on gross margin as we build the business to support these placements.

Operating expenses increased 13.8% or approximately $2.4 million from $17.3 million for the third quarter of 2013 to $19.7 million for the third quarter of 2014. Research and development expenses, which include clinical and regulatory activities, were $5 million for the third quarter of 2014 or 19% of sales, an increase of $1.8 million over the third quarter of 2013. The increase was driven by both clinical trial and product development efforts.

SG&A increased approximately $600,000 from the third quarter of 2013 to a total of $14.7 million or 55% of sales. The increase was due primarily to increases in selling, marketing, and training costs. Our operating loss for the quarter was $803,000 as compared with approximately $2.6 million for the third quarter of 2013. This operating loss for the quarter as well as our SG&A expense include a $5.4 million offset to expense due to an adjustment to the earnout liability recorded in conjunction with the Estech transaction.

As we stated on the last call, any payments that are made in association with the Estech earnout are not included in our operating expense guidance; however, from an accounting standpoint we must periodically review the liability on our balance sheet and have thus made this adjustment. The earnout liability has been reduced to zero. For modeling purposes, excluding the earnout, our SG&A expenses would have been approximately $20 million in the third quarter and reflect our continued investments to support our growth strategy.

Our adjusted EBITDA loss, which does not include the positive earnout liability adjustment, was approximately $3.2 million compared to a $1.4 million adjusted EBITDA loss for the third quarter of 2013. Note that our EBITDA loss in Q3 includes approximately $300,000 of costs related to transitioning the Estech business into AtriCure. Our net loss per share was $0.02 for the third quarter of 2014 compared to $0.13 for the third quarter of 2013. The EPS loss for the quarter would have been $0.22 without the benefit of the earnout adjustment.

We ended the quarter with $71.2 million in cash, cash equivalents, and investments. Lastly, we are positively adjusting our guidance for 2014. We anticipate top-line growth of approximately 28% to 29% year over year or a range of $105 million to $106 million on a GAAP basis, including the contribution of the products acquired in the Estech acquisition.

This is up from our previous guidance of 26% to 28% or $103 million to $105 million. We anticipate gross margin to be approximately 70% for the year, based on current trends and investments to support growth.

This represents a decrease from the 2013 reported gross margin, due primarily to a slightly lower relative gross margin on acquired products, a stronger international sales mix, along with Estech transaction-related costs. We are still targeting long-term gross margins of 75% and believe this is achievable within the next five years due to increased volumes and efficiency.

We expect R&D to be 18% to 19% of sales. And we expect SG&A to be roughly 66% to 68% of sales in 2014, including the previously described earnout adjustment. These figures include approximately $4 million in transaction costs related to the Estech acquisition and the $8 million earnout adjustment recorded this year. For modeling purposes, neither of these items should be considered going forward.

Outside of transaction-related expenses, we anticipate continued increases in spending related to clinical science, R&D, selling, training and education, and international expansion. We expect EBITDA for 2014 to be a loss of approximately $12 million, including transaction-related costs, which we estimate at $4 million.

This is up from the previous guidance of a $9 million to $10 million EBITDA loss, driven by compensation on strong US sales performance; some incremental Estech expenses to ensure a smooth integration; and strong capital equipment placement, which impacts gross margin. We continue to expect that Estech transaction to be dilutive to earnings in 2014 and accretive in 2015 and beyond.

We plan to provide our full guidance for 2015, when we issue our fourth-quarter and 2014 year-end results early next year. Directionally, for 2015 we expect to drive roughly 15% sales growth over 2014 and expect to see an EBITDA loss in line with our current run rate, excluding Estech transition costs.

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

Thank you, Andy. AtriCure is well positioned with the right products, pipeline, and people to further cement us as the leader in the development of technologies to treat challenging afib conditions. Our core growth strategy is unchanged and, in fact, accelerating.

We will work to expand the market and capture share by increasing awareness through education and training and driving innovation through clinical and commercial support. We look forward to updating you on our progress during future calls.

And we will now open it up to questions. Thank you.

(Operator Instructions) Rick Wise with Stifel.

Good afternoon and, really, another fantastic quarter here. Mike, maybe just to start off, talk a little more about the training and the courses. Clearly, that you are on track for the $15 million this year, and it sounds like -- I heard you correctly -- that it could double next year. It just makes me want to pay even more careful attention to think about the related impact on sales.

Maybe just talk a little bit, if you would, about once doctors are trained or new centers are trained, how long it takes to see an impact on sales; and what kind of rough correlation we should make between a course and volume or growth, or how to think about that.

Yes. I'd say we are kind of in the second phase of the training. So if you recall -- I will take you back just a moment -- we trained over 1,500 surgeons on a basic core Maze training course that we were running. We transported that overseas and have actually started to do that overseas; we have trained about 400 or so over in Europe as well.

And you are seeing some of those results. And we have done that analysis on those courses, which is typically a four-hour or three-hour, excuse me, didactic course where they are just learning the basics of afib. If you recall, Dr. Cox helped us revamp that entire course so that it actually was very, very practical. When you look at revenue pre and post, we see about a 30% increase in our revenue after going through the training course.

However, what you are seeing is -- obviously, we don't -- we only wanted a certain population to train on that front. So in order to continue to grow, to get more expansion off of that group, we have actually added on these advanced training courses in some of the items that I talked about.

So Phase 2 was -- and we are still doing some of those other Maze courses. We just don't do as many. We did about 50 or so this year of just those basic courses.

The advanced courses typically have anywhere between -- we've had as low as 15 people and as high as 50 people at courses when we were in Las Vegas. And those courses are about -- they are actually a day and a half, or not quite, but about a day long.

But they are an evening course, where they go through didactic; they go through a dinner discussion; and then the next morning, an electrophysiologist talks to them, and they go through practical application, and dialogue, and discussion. So much more advanced about the usage in various different surgeries. And those are the ones where we have done 15 of those this year.

We have not been able to track what the revenue is coming in and out of that. We will have to wait to see what the results is. But what we do know is that the excitement around it is actually driving more usage -- not just from the surgeons, but also when they go back and talk to their fellow surgeons, because they are bringing others back in for courses that may not have been doing it before.

The next phase is -- what you started to hear was that education is sprouting and getting deeper. And we are getting much more integrated into the societies, and into the high-end academic institutions, and other places that are doing in-person training courses like we have done at the Cleveland Clinic, where they come in for a dinner; they talk to the surgeons about the cases the next day; and then they go and they watch the case the next day, and they talk about treatment options, what to do pre-and post surgery. And so we are getting a lot of feedback and starting to see momentum with that.

We are beginning to look at Fellowship courses as well. And so it's becoming much more deep and rich in terms of the training programs. To put pure metric to it is difficult now, because we are kind of through that phase of just trying to do the bulk training, and we are getting much more intimate and really starting to build dedicated surgeons.

The reason I brought up Cleveland clinic is because I look at them as the -- they are the barometer of kind of where you could be for sites for the concomitant treatment of afib. They treat every patient that comes in there. And as a result, when you see them as one of our top customers just driven by the concomitant treatment of that -- and we see that if we can get everybody up to that, we've got tremendous, tremendous growth long-term as we begin to train people. It's one of the reasons we bring people to Cleveland Clinic.

So I know that was a long answer. But it hopefully contextualized it a little bit.

Yes, that's very helpful. Turning to gross margin, Andy, your comments are very clear. And I think they are very similar to what you have said in the past. And Mike, I think, recently said publicly something like the pathway to 75% is clear.

And I'm sort of thinking about, whatever, 50 to 100 basis points of improvement a year. But when we look ahead, again, not looking for a specific 2015 guidance, but -- so what happens in the next 12 months that gets you up something like -- you know, you clear the steps for it? Are you going to be closing the facility? Is that's what going to get the -- make the Estech margins less of a drag? Is it just further volume? Just help us understand what's ahead so we can have confidence in that improvement.

Sure. A couple things, Rick -- one you mentioned is Estech. So there were certainly people within the organization that were here to help us transition the business that fall out over the period. So that clearly was a drag for this year.

Other things would include -- you know, we've done a lot of capital work this year on upgrades and things with our ICE BOX product that will slow down through next year. So those are couple of examples of things that I see in the next 12 months to help this thing start to get on the rise to the 75% that we've talked about. Beyond that period, the new facility will help with many things as we start to look at bringing Estech products in-house.

And just one last quick one for you, Mike -- I'm always fascinated when I talk to you about M&A or the possibility of you thinking about bringing in other technology or product lines. Is that still a priority? Or is that a priority, or you've just got so much clear runway here you are probably not going to be distracted that way?

Right now we are very focused on executing what we've got at hand. We've got a lot of clear runway, as you mentioned, Rick. And so the team is laser focused on making sure we execute with the big markets that we've got in front of us. That doesn't mean that we're not going to be opportunistic if we see something that makes sense and can be additive to us.

So we are always considering it, and attending shows, and doing our competitive diligence on that front. So we are not -- but we're really focused mostly on executing this business, because there's so much in front of us just with what we've got in the product line we have in front of us today.

Thanks.

Thom Gunderson with Piper Jaffray.

So maybe to tag onto Rick's last question, on your last acquisition, Estech -- we are going to anniversary that in another couple of months. And I'm wondering, Mike, separate from the contract and the earnout and what two sides negotiated at the time, how do you view how it's going from a revenue contribution standpoint?

Is it meeting your expectations -- a little higher, a little lower? And based on the tentative soft guidance for next year of 15% growth, should I assume that Estech's products would be part of that 15% growth?

The first piece, in terms of what it's meaning, it's right on expectations. We are very happy with the way that it's come together. We feel really good about it on several fronts. The Fusion technology is beginning to really gain some traction in the hands of our team. We will start to see some growth coming off of that in the coming year.

In terms of the Open side of the business, their clamp business, we have basically moved that share into our business. There's very little clamp business that we sell anymore from that. And so for us overall, it has actually gone very well and pretty much as expected.

I'm not sure I completely understand the question about the softness relative to the guidance. We feel pretty good that our organic growth rate coming into next year will be 15%, including whatever we have from this year. So it will be -- there is their number, our number, and that will be one number coming into next year. And we feel good that that's a good, solid number coming into next year.

Got it. No; I didn't mean soft as far as negative. I met soft as far as it's not your definitive guidance yet.

Got it, okay. That's fair, that's fair.

And then on international, 52%, 53% is a pretty good growth rate. And I'm assuming that you are harvesting a lot of the investment that you did in training and expansion of education last year. On the US side in the past, you've given us kind of a -- here's what they did before training; here's when they got trained; and here's what they did three, six, and nine months after their training in the US. Do you have that in OUS, or at least some color on that?

We have not been able to track that data yet OUS, partly because we go through distributors in a lot of the different countries. And so it's more difficult to track it on a facility-by-facility basis, like, if that doctor actually ordered it.

We are beginning to start to look at it on a micro basis in Germany and the Benelux region, because those are really our biggest direct markets. I don't have the data right now, just because we are actually starting to analyze it. We are just starting to get enough information. So on the next call we could give a little bit, but it would be really only focused on those direct countries.

That being said, the European growth is really simple. It's coming off of, yes, training. And education is -- we believe it's driving an aspect of that growth, for sure. But two is that -- if you recall, when I first started, the infrastructure in Europe really wasn't in play. And we didn't have much there.

And so under our leadership of Pat Kennedy, who is running it for us today, we have really expanded the team and added some great, great talent. And so from that standpoint we've now got a good infrastructure in place there, and that's helping drive some of the commercial gains that we are seeing there.

And then third is that Estech was strong over in Europe. And so they gave us some gains in countries like Italy and Russia, where they really complemented us quite a bit. And we are selling into different parts of the countries. And so that has really helped us out quite a bit as well.

So it's a combination of all three of those that have driven it. It's not just the education; I don't think we are seeing the fruits of all that labor quite yet in Europe yet. So I think we will start to see some of that in 2015 and 2016.

Got it, thanks. That's it for me.

Danielle Antalffy with Leerink Partners.

Thanks so much for taking the question and congrats on another fabulous quarter. I just wondered -- you know, another strong quarter of US ablation growth. And Mike, I was hoping you could just walk us through the different subsegments within that -- where you are seeing the most growth today, number one; and where you see the most runway? And so by that I mean, obviously, mitral is a big piece of your business. Aortic and CABG are two other opportunities. I'm just trying to get a sense of how penetrated we are within that to better frame the runway ahead.

It's an excellent question, and it's one -- we've actually spent a lot of time over the course of the last three months actually looking at the market opportunity through 2020 to see -- are we fully penetrated in each one of those areas? How far are we penetrated? How many procedures are being done today?

If you look at the FTS database, and you guys can all get it online, what you will see first and foremost is that overall the growth and procedures has gone from -- in 2011 at the end there was just over 17,000 procedures being done, combination of concomitant and MIS procedures. Since we have done our training and relabeling, that number in the US in 2013, just two years later, was over 24,000 procedures. That's after many years of basically stagnant growth, sitting in the 16,000, 17,000 procedure range.

And so you can see the impact that that training and education is having on that. And if you just look at the first quarter of this year, it's actually on a pace to do close to 27,000 this year. So we feel like the flywheel is starting to spin on all different fronts of that. And then, when we dug down deep into -- well, on the mitrals, the aortics, and the CABGs, like you had described -- we have made great progress on the mitrals, but we are not nearly penetrated to the degree that some people would expect.

Some people have quoted out numbers of 60%-plus penetration in the mitral space. We think it's a significantly below that, and there's still a lot of opportunity there. For example, we were recently invited to be a part of a mitral valve conclave and actually participate in some of the education sessions there, because they know that they are undertreating just in the mitral space. So there's lots of opportunity just within that particular category.

On the aortic and the CABG side, we have revamped and done additional training on that. Surgeons are asking us for training so they can treat during that procedure. And we are starting to see, actually, some nice segment growth off of those areas as well. But quite frankly, there's going to be an even bigger opportunity. Because people are asking, now that I'm comfortable on the mitral side, I want to begin to expand my capabilities to go after the aortic and the CABG cases.

And that's one of the reasons they are going to Cleveland Clinic and some of these other areas, is they want to see these types of cases, and they are willing to take it on and are getting much, much more comfortable treating this disease. So we see advancements in all those areas. And we think the market opportunity continues to be right, both in the US and internationally. Hopefully, that helps a little bit, Danielle.

With the leverage side of things, Mike, if you could talk about how you think about the business longer-term; when you can start -- at what sort of level of revenue can you start to generate some more meaningful positive operating leverage and a pathway to profitability?

I hear a little bit of noise there. I'll try to speak over the noise there.

The question, I know, was about the pathway to profitability. And we get that question a lot. Our focus is to remain very close to profitability. We kind of gave high-level guidance that -- we talked about keeping on the EBITDA run rate sans the Estech numbers coming into next year as that soft guidance, as Tom had mentioned.

And we think that that's really a prudent way to continue the investments, to be very close so that we could turn the corner very quickly to be profitable several years out. So without giving specific dates or quarters, we're close enough to profitability to be able to turn it with the kind of growth rate that we have got, while also evaluating every year whether not we've got the right level of investments to continue to grow the path that we are on.

Jason Mills with Canaccord Genuity.

Congrats on another great quarter and the raise. Mike, I want to go back to Danielle's first question -- a very good elaboration on some of your opportunities within the concomitant space. I'm wondering if you could take us a little bit deeper into the training specifically for CABG and aortic. We are told by some people that that ablation methodology is a little bit more difficult but, once trained, perhaps not as difficult as some may say.

Just maybe give us an overall assessment of where you are with respect to the training programs for CABG and aortic specifically. And given that the penetration levels there are lower than mitral -- albeit it sounds like mitral is a little lower than what some of us may have expected -- it still seems to be even more underpenetrated in those latter two areas. And talk about what the growth opportunities are there, sort of concomitant, no pun intended, to your training initiatives.

Sure. We are really just in the beginning phase of beginning to expand out the aortic and the CABG training. But you are correct that what happens is people graduate. You think about it like going to graduate school, where you were in high school and you learned some skill sets; so you learned your basics. And you begin to do pulmonary vein isolation.

And then you go to college, and you begin to do a full Maze procedure on the mitral, because you are on pump and you are beginning to deal with it. And then you begin to go to graduate school, and you begin to look at the aortic and the CABG, and you begin to grow from that. And that's a good way to progressively go there. You can't go to graduate school without going through those steps to get there. And we do see that.

And that's why I was saying people get comfortable doing the mitrals. Now, if they are not a mitral surgeon, obviously they take a little bit of a different path. So we try to individualize it from that standpoint.

The case observations are big move towards that. Two is that we are actually working very closely with many of our clinical advisors to put together very simple, step-by-step approaches for those surgeons, so that we can expand that training and go deeper, so that some of those advanced trainings will become very focused on just the aortic and the CABG procedures. I anticipate we will roll out some of those more detailed ones mid- to late next year, and so that we can begin to go after and penetrate that market in many years to come.

Hopefully, that helps give some context. So we are kind of in the early stages of developing it, talking about it, and showing cases, and seeing more advanced training coming out on that specific area the latter part of next year.

That helps. If I'm looking at the growth rates in some of the things you are saying about 2015 as well, and juxtaposed to what you put up this quarter -- Open ablation, and MIS, and Clip, looking at those growth rates -- is it fair to say that the growth rates organically, 15%, is where the concomitant -- or where you are expecting the concomitant part of your business in the US to grow on a go-forward basis, when you have, perhaps, AtriClip all-in growing faster and MIS presumed to grow a little bit slower?

That's a reasonable assumption, yes.

Okay, that's helpful. And then lastly for me, on operating expenses, Andy, just from a housekeeping perspective -- this quarter's level, excluding the offset: should we grow that in the fourth quarter and then sort of as a run rate in 2015?

I think, Jason, we have just kind of given you the broad guidance that we will continue to make investments in the sales and marketing and training organization. So, given the teaser we gave you on EBITDA, I think hopefully that directionally helps you think about SG&A.

Okay. Thanks, guys.

Jose Haresco with JMP Securities.

Congratulations on the quarter. There has been a lot of focus, obviously, on the training sessions. But could you give us some more color on what you are seeing in the surgeons and physicians who have gone through training -- call it at the beginning of this year or in the first half? What do their behavior patterns look like? How do you achieve greater penetration in their procedure base? And where are they using the devices, and where would you like them to go in terms of different types of surgeries?

What we are seeing is that they are increasing. We continue to see -- we just did the new analysis that basically showed it continues to be about a 30% increase from when they went into the training to -- whether we look at six months, nine months, or 12 months before and you look at the same distance afterwards, it's about a 30% growth rate overall from a revenue standpoint. So that's the kind of -- that's the pattern that we continue to see as we analyze that from the US standpoint.

What we see when they go back into practice is they begin to just get more and more comfortable. They at first begin to start to use more products, in particular. They do more procedures, and then they use more products, because they start to really bring Cryo into it and they a using the Clip more. And so you combine that into procedure; we are starting to get more per procedure. And we're actually getting them to grow the number of procedures that they are doing.

Are you seeing any sort of halo effect where, when those folks come back to their practice -- and you might have touched on this earlier -- when they come back to their practice, start using it? How should we think about the time between the time that they go back to their practice, start using the device, and the time you might get the second call from someone else that they work with saying, hey, Dr. so-and-so has been doing this for the last few months, and can you get me going on some of these procedures?

I'd say we see a small halo effect on that. I wouldn't say that's a huge, broad halo effect. I think, instead of seeing it in their practice, would you wind up seeing is people, just in general, around their communities, and as they go to trade shows and other areas, when they start to talk to people, they realize that more and more is getting done.

And our team, quite frankly, has continued to grow, are in their cases. Our team does a great job of following up with them to make sure that they are trying to pull their partners and others into it. I don't know that it's just them talking to them; I think it's kind of accommodation.

Okay. And lastly, on the competitive front, we know your competitor hasn't really been putting a ton of resources there. Are there any particular changes in how you think about competition for the next 12 to 24 months?

No. I think you hit it right. And we continue to see the competition that we've always seen out there: Medtronic on the open and concomitant space, and then Contact on the MIS side.

Okay. Thank you very much.

Jason Mills.

Mike, just a question about what's going on in general and in afibrillation, specifically from a reimbursement standpoint. It seems like CMS is getting a little bit more strict with respect to how many catheter ablations can be done if you are continuing to see failures.

And I'm wondering, in light of the fact that a year from now we will have, hopefully, some really strong data out of the PAS study showing the efficacy of surgical ablation; and we know that surgical ablation is down on a lot of these failed catheter ablation patients; I'm wondering what, if anything, that means to your business from a medium- to long-term perspective.

Well, there's a lot in that question, so I'll try to answer it in several different segments. As for reimbursement on the catheter side, I'm not aware of any major changes that are going on. But I think long-term, when you look at trends, I think CMS is going to continue to look, and they are going to pay for what works.

We know that our products work. We know we get good efficacy off of it. And so we think that will, long-term, benefit us. But I'm not aware of anything in the short term in terms of any kind of major shift in that.

But I think as they continue to look at it, we will, long-term, benefit from that, both in terms of the PAS study that you mentioned, which I do think is going to be a very big study when we get the results coming out and hopefully announce them in the early 2016 time frame -- because when we do that, we believe that that hopefully will have a positive impact on some of those items.

But in addition to that, that's one of the reasons we are doing the hybrid procedure. We know that you get very, very good results with that. And so we are looking forward to getting going on that trial, getting these sites up and running, because we believe the efficacy will be very strong. And it's a very good procedure.

And hopefully that will influence -- again, it will be a long-term influence. That's not one of the short-term items. But again, CMS, I think, is going to pay for what works.

Got you. Just two follow-ups. It's my understanding -- could be wrong; correct me if I'm wrong -- that no longer is CMS going to pay for more than two catheter ablations. And we know that some patients go for more than that.

And so that's really the thrust of my question. And secondly, on the DEEP trial, what are your expectations for enrollment -- IRB approvals enrollment and the timeline for that trial over the next 18 to 24 months?

Sure. I'm not aware of what you are saying in terms of the two ablations. I know there's always talk about them doing that. I've heard that in the UK, I've heard that in the US before. But I've actually not seen anything concrete to prove that point or heard it. And so I haven't heard a credible source, quite frankly, come out and actually make that kind of statement. So from my standpoint we are focused, without -- assuming that that doesn't change.

That being said, when you talk about DEEP in terms of the timeline, what we are looking at is we've got 25 sites that we are approved to go up to. We've got many sites identified already. We've got about 10 sites that we feel very comfortable they can drive the right kind of volume and the right kind of safety and efficacy with the procedure. These are people will that are doing 20-plus procedures a year now. So they've got very, very good experience with it. They understand it.

And we are just starting to go through the IRB process now. That process could take anywhere from 3 to 9 months, depending on the institution. The nine months are just when they -- it depends on their Institutional Review Board and how long it takes to get through that.

So our anticipation -- we will begin to enroll patients sometime in the early part of 2015. And then it will take us about two years to enroll, if we assume starting enrollment sometime in the second quarter of next year.

Helpful. Thanks, Mike.

And we have no other questions. So Mike, I'll turn it back to you for any closing comments.

Great. Thank you, everyone, for participating on the call, and the great questions, and your interest in AtriCure. Have a wonderful evening.