AtriCure Inc (ATRC) 2017 Q1 法說會逐字稿

Good afternoon, and welcome to the AtriCure's First Quarter 2017 Earnings Conference Call.

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

(Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Lynn Lewis from the Gilmartin Group for a few introductory comments.

Thank you, Shannon.

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

If you have not received a copy, please call (513) 755-4131 to have one emailed to you.

Before we begin today, let me remind you that 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.

AtriCure undertakes no obligation to publicly update any forward-looking statement.

Additionally, we refer to non-GAAP financial measures, specifically revenue reported on a constant currency basis and adjusted EBITDA.

A reconciliation of these non-GAAP financial measures with their most directly comparable GAAP measures is included in our press release, which is available on our website.

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

Mike?

Thanks, Lynn.

Good afternoon, everyone, and thank you for joining us today.

We are off to a solid start in 2017.

Revenues were $41.3 million, up 15% over last year, reflecting notable strength and momentum in the AtriClip franchise, solid performance in our Open business and continued transformation in a minimally invasive market.

During the first quarter, we also made progress across all of our strategic priorities.

We are advancing our clinical trial programs, gaining traction with CONVERGE and ATLAS and other key studies and strengthening our team.

As such, we are reiterating our 2017 revenue guidance of approximately 13% to 15% growth year-over-year as well as our expectation for bottom line improvement as the year goes on and EBITDA profitability in 2018.

A key to our growth is bringing on great talent.

And in Q1, we added significant talent to our team with nearly 30 new teammates hired, including Dr. Vini Doraiswamy as our Senior Vice President of Clinical, Regulatory and Scientific Affairs.

Vini brings extensive health care experience and deep knowledge of the Afib space.

He most recently served as Vice President of Global Clinical Operations at St.

Jude Medical.

Prior to this role, he spent a large portion of his career at St.

Jude in the Afib market and served in various leadership capacities in program management, clinical affairs, strategic planning and portfolio management.

Vini is an important addition to the AtriCure team, given our intense focus on clinical science and the importance of our clinical and scientific initiatives over the next several years.

We also welcomed 2 exceptional new board members, Reggie Groves and Kris Johnson, both of whom bring extensive experience in medical devices, executive leadership and financial management.

Reggie is currently the CEO of REVA Medical.

Previously, Reggie served as Medtronics' Vice President and General Manager of Afib Solutions, Cardiac Rhythm and Heart Failure division.

Kris currently serves as the President of Affinity Capital Management, a venture capital firm that invests primarily in seed and early-stage health care companies.

Their experiences and relationships carry great value, and we look forward to their future contribution as board members.

On the sales and marketing front, we continue to build out our team of minimally invasive managers, or MIMs, to complement our existing sales force in both the U.S. and Europe.

Overall, the team is developing nicely, working in concert alongside our regional sales managers, driving consistent messaging and growth.

We anticipate extended benefits over the coming months from our strengthened commercial team.

On the clinical front, CONVERGE continues to be our top priority.

In the first quarter, we added 5 new sites, and as of today, we have enrolled our 61st patient, up from 52 as of the end of the year.

We are working diligently to expand the number of sites and investing significant resources in patient recruitment activities.

We also named Dr. David DeLurgio from Emory as the lead principal investigator and anticipate that, with his leadership, we will continue to build upon our momentum and accelerate enrollment throughout the year.

As a reminder, CONVERGE is the first head-to-head study to evaluate the Convergent procedure versus catheter ablation in patients with persistent Afib.

We expect the trial results to support FDA approval of the EPi-Sense device specifically for the treatment of persistent Afib.

Now let's turn to our quarterly performance, starting with our Open business.

We are encouraged by our results in the first quarter and continue to drive toward stable performance in this vastly underpenetrated market, where we are the only PMA-approved product.

We have several activities underway centered on improving consistent adoption of surgical ablation in a concomitant setting, and we expect steady but measured growth this year.

Through partnerships with the AATS and several other societies, we have planned several training programs, including significant time at the mitral valve conclave last week and a new AATS-led course in November.

Additionally, we've expanded our advanced courses and training sessions, which are already at full capacity for the year.

Finally, we are hearing quite a bit of enthusiasm from our surgeon customers about the recently announced updates to STS and AATS guidelines.

AATS is the second society to endorse similar recommendations.

While adoption will take time, we believe the updated guidelines are already starting to influence care in a positive way.

We expect talents from these and other societal recommendations to continue into the coming months and years.

Moving to our U.S. clip and MIS businesses.

First quarter results were strong, marked by increasing traction of our new products.

The AtriClip product line remains our fastest-growing franchise, and the PRO2 -- with the PRO2 driving meaningful growth through strong volumes and incrementally higher ASPs.

We are also very excited about our recent press release announcing that we surpassed the 100,000 clips sold milestone.

The AtriClip franchise was first launched at the beginning of this decade, but in the past 2 years alone, we have doubled our clip sales.

The EPi-Sense product line grew both sequentially and year-over-year.

We are pleased with the accelerated momentum underway as we leverage the stability in our Open business to deepen our focus on minimally-invasive solutions.

We are increasingly confident that our MIS strategy will drive progressive collaboration between cardiac surgeons and EPs.

As we progress through 2017, we are focusing on both new accounts and deeper penetration into our existing base of customers, driving increased utilization.

We are just scratching the surface here and expect EPi-Sense to more significantly contribute to revenue as our customers drive more and more volume through collaboration between surgeons and EPs, and we continue to leverage our optimized sales force.

Broadly speaking, both our products and clinical pipeline remain very healthy.

We expect to roll out the AtriClip PRO V, an even more versatile clip for minimally-invasive approaches, later this year.

We believe that PRO V, coupled with further product pipeline developments in 2018, will support strong trends in the AtriClip franchise well into the next year.

Internationally, sales were softer in the first quarter than in previous years across our regions.

Performance in Europe was steady, although impacted by exchange rates on both the pound and euro.

Puts and takes in distributor timing impacted Japan, China and Australia.

We are continuing to ramp up our expanded product offerings in Japan and anticipate improvements to grow in the Japanese market in the coming years.

Q1 was a solid start to the year, and we are encouraged by our momentum and our strengthening team.

I will now turn the call over to Andy Wade, our Chief Financial Officer, then we'll wrap up with some closing comments.

Thank you, Mike.

For the first quarter of 2017, revenue increased 14.8% on a GAAP basis to $41.3 million.

On a constant currency basis, worldwide revenue increased 15.4%.

Revenue from product sales in the U.S. was $33.3 million, an increase of 17.7% from the first quarter of 2016.

The increase in sales to customers in the United States resulted from growth across all of our key product categories.

Revenue from open-chest ablation-related product sales in the U.S. increased by approximately $1.7 million to $15.7 million, representing growth of 12.4%, driven by our education and training efforts and the impact of our cryoFORM product, which launched in the second quarter of 2016.

We are encouraged by the U.S. Open growth, especially given the softness experienced in the preceding quarter.

U.S. sales of products used in minimally invasive procedures increased approximately $1.6 million to $8.3 million, up 23.2%, and influenced significantly by expansion in our EPi-Sense business.

We feel that the experience ramp of our MIM team, along with the support of our regional sales managers and clinical specialists, will continue to drive this business forward as more physicians realize the benefit of the Convergent procedure.

U.S. sales of the AtriClip system during the first quarter of 2017 were $8.7 million as compared to $6.8 million for the first quarter of 2016, an increase of 27.1%.

We remain confident in strong and sustained growth rates for this part of our business.

The launch of the AtriClip PRO2 in Q2 of 2016 has had a meaningful impact on our business, both in pricing as well as access into more procedures.

International revenue grew 4.4% on a GAAP basis and 6.9% on a constant currency basis as compared to the first quarter of 2016 to $8 million.

Growth was modest in The Netherlands, Germany and Belgium, but we saw some weakness in China and Japan this quarter, as Mike mentioned.

Gross margin for the first quarter of 2017 was 72.7% as compared with 72.1% for the first quarter of 2016.

Positive impacts on gross margin included the increased mix of U.S. sales and the impact of EPi-Sense products.

This was partially offset by heavier loaner generator depreciation and increased costs related to operating in a larger and more modern facility.

Operating expenses increased 12% or approximately $4.3 million from $35.3 million for the first quarter of 2016 to $39.7 million for the first quarter of 2017.

Research and development expenses, which include clinical and regulatory activities, were $9.6 million for the first quarter of 2017 or 23% of sales, an increase of $1 million over the first quarter of 2016.

The increase was driven primarily by compliance-related expenses focusing on improvements impacting patient safety through risk mitigation processes as well as product development efforts and increased spending for clinical trials.

SG&A increased approximately $3.3 million for the first -- from the first quarter of 2016 to a total of $30.1 million or 73% of sales.

The increase was primarily due to additions to our domestic and international sales organizations as well as worldwide training and marketing efforts.

Our adjusted EBITDA loss was approximately $3.7 million this quarter compared to a $4.4 million adjusted EBITDA loss for the first quarter of 2016.

Our net loss per share was $0.32 for the first quarter of 2017 compared to $0.31 for the first quarter of 2016.

We ended the quarter with approximately $34.5 million in cash, cash equivalents and investments.

Lastly, we are reiterating our guidance for 2017.

We anticipate top line constant currency growth of approximately 13% to 15% year-over-year or approximately $175 million to $178 million on a GAAP basis.

Implied in this guidance is mid-single-digit growth in our Open business and over 20% growth in both U.S. MIS ablation and AtriClip product sales.

We expect international revenue to grow in the lower to mid-double digits for the year.

From a modeling perspective, we expect revenue growth for Q2 to be at the low end of our anticipated annual growth rate range and for Q3 and Q4 to be towards the high end of the range.

We want to be clear that while we are encouraged by our U.S. Open performance in Q1, we continue to expect fluctuations with an average of mid-single-digit growth for the year.

We anticipate gross margin to be approximately 72% to 73% for the year based on current trends and investments to support growth.

The bottom end represents a slight increase from the 2016 reported gross margin.

Items with a positive effect on gross margin include volume leverage and programs to increase efficiency along with slight mix changes driven by heavier EPi-Sense and overall U.S. growth.

Headwinds on gross margin include heavy capital placement, particularly as we penetrate worldwide minimally invasive markets, along with investments in our quality and manufacturing teams.

We are still targeting long-term gross margins of 75% and believe this is achievable within the next few years due to increased volumes and efficiency.

We expect R&D to be 22% to 23% of sales, a slight improvement compared to 2016.

Significant investments in this area include the CONVERGE trial, other clinical science activity and R&D pipeline development.

We expect SG&A to be roughly 65% to 66% of sales in 2017, which is an improvement compared to the 2016 rate.

The overall increase in SG&A expense is driven by thoughtful investment in our worldwide sales team and training and education expenses.

We expect adjusted EBITDA for 2017 to be a loss of approximately $4 million to $6 million, a marked improvement from the adjusted EBITDA loss reported for 2016.

This adjusted EBITDA range translates into a loss per share of between $0.94 and $1.04.

We anticipate the adjusted EBITDA loss to be heaviest in the beginning of the year, with an expected loss of approximately $1.5 million to $3 million in Q2, which translates to a loss per share in the range of $0.27 and $0.30.

We expect steady improvement throughout the rest of the year.

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

Thank you, Andy.

In closing, we are off to a solid start in 2017, and we expect continued traction and rising momentum as the year progresses.

With our enhanced focus on minimally invasive approaches, we continue to drive towards greater predictability while also expanding our reach and impact on patients worldwide.

The AtriCure team is strengthening, and our pipeline of new products along with clinical trial progress set AtriCure up for solid, long-term performance.

With that said, we will now open up to questions.

(Operator Instructions) Our first question comes from Jason Mills with Canaccord Genuity.

Mike and Andy, can you hear me okay?

Yes, we can hear you great.

Thanks.

Super.

Andy, just quick housekeeping to start.

I missed the Q2, and specifically the commentary about -- in Q2.

I wasn't sure if you said Open or total U.S. being toward the lower end of your annual guidance range.

Could you just calibrate me correctly on that?

Sure, Jason.

We just said that Q2 should be towards the lower end of the worldwide full year range, which we gave is 13% to 15% growth.

Okay.

So that was -- okay, for the whole business, okay.

Correct.

So Q2 in total towards the lower end of the 13% to 15%.

Got it, okay.

Mike, the most obvious thing that jumps out to folks, I'm guessing, this quarter is the bounce-back in your U.S. Open business.

Could you talk a little bit more about how -- if you look at the 2 quarters combined, Q4, which is obviously disappointing, and Q1 which bounced back a little bit quicker than anyone expected, what did you see as you looked at those 2 quarters combined that was much different than maybe what you've seen over the last year or 2?

I mean, as we've talked about, Jason, in terms of about the Open on the last call back early in February, this year is going to be on the Open side.

We feel like it's still going to be in that single-digit number, mid-single digit for the year, and we'll probably have some bouncing between quarters relative to that.

What we did see is, we -- obviously, we saw a lot of treatment.

The STS guidelines are a positive.

I don't know if they had a direct impact on patients treated per se in the first quarter, but I do think that they really give us a solid place as we look forward for not just Q2 but really as we look in the latter part of the year and into 2018.

I mean, these guidelines have people very excited for the long term here and really provide a nice substantial solid base.

It's an underpenetrated market, and people are excited about it.

Any specifics for this quarter, I think it's just a matter of you're going to have choppiness quarter-to-quarter on volume that's happening and procedures that happen in the hospital.

Okay.

And just to take that a step further, you talked about being completely full in your training programs.

You also talked about adding, company-wide, 30 employees.

Talk about the things that most influenced the sales growth trends within a given year.

I would presume training and new teammate hiring are, at least, towards the top of those.

And could you talk about, within the training program, if you're focused primarily within those programs on the aortic and CABG -- concomitant aortic and CABG which are relatively underpenetrated?

Or perhaps any details you could give about that?

And then on the sales rep side, out of those 30, sort of how many of those were quota-carrying reps?

Or could you give us any color about the additions to your sales team?

Sure.

I mean, the things that really are going to drive our growth this year are really along the lines of -- last year, we spent a lot of time getting our team up to speed assembling new technologies.

We rolled out, if you recall, PRO2, we rolled out cryoFORM.

We obviously assimilated the acquisition we did at the end of 2015 with the EPi-Sense product line.

And those are really going to begin to kick in this year.

That's what's going to be the -- bigger growth driver is all those new technologies, people having comfort selling them, positioning them properly.

The training on the concomitant side clearly helps, and those guidelines are obviously kind of giving us a solid base from that standpoint.

But I'd tell you, it's really the products as much as anything else that are really going to drive some of the growth relative to that.

We saw that on the clip side of things.

The PRO2 actually, we sold more PRO2 than we did PRO in this particular quarter, so we had more revenue there, and so that was obviously a big strong point for us.

That product was introduced the middle of last year and is really gaining traction on the minimally invasive side of our business.

And so I think those are really the biggest growth drivers relative to this year is the assimilation, the comfort level on that team and having a MIM team that's really been in place for a longer period of time gives us a lot more comfort as we look at '17 and begin to look to '18.

In terms of the size of the sales force, I mean, the 30 people are kind of across the entire organization.

A lot of that on production, but in terms of the sales force, we've added several MIMs.

We've also added a lot on the clinical specialist side.

The number of reps has really been up just a couple.

And I'd say that a lot of it is in the clinical specialist side to make sure that we're doing case coverage and covering it on that side.

As I mentioned, I think, really, a big part of it isn't -- it's about more dollars per rep than it is about getting net new reps on board that are going to drive revenue this year.

Got it, that's helpful.

And then, Andy, one for you, and I'll get back on queue -- in queue.

Gross margins were about 50 bps above what we expected and sort of at the top end of the range -- guidance range for the year.

What -- I guess, the question is, I don't mean it to be negatively tinted -- well, I guess it's going to come across that way.

What's going to cause you to sort of leak down to the mid- or lower point of that range when you start the year towards the higher end?

It can be simple things, Jason, like mix.

So obviously, the U.S. growth rate was pretty high, so that could impact.

Some of it may be investments in our teams as the year goes on.

So there are a few things that'll keep us within the overall guidance range of the 72% to 73% for the full year.

And our next question comes from Danielle Antalffy with Leerink Partners.

Mike, I apologize if I missed this in the prepared remarks, but I know you guys added, I think you said you added 30 new employees in the quarter.

And I'm just wondering where we stand now on sort of rectifying the issues that impacted sales last year from a sales force perspective, some of the sales force distraction from nContact.

Do you feel you're at steady state now from a sales force perspective?

We're definitely at steady state from a sales force.

We're adding new people, and we're getting them more assimilated every day.

But I think we're at a basic steady state per se, but we're going to be adding more MIMs as the year goes on.

We're not fully staffed in that area, and we'll be adding more clinical specialists for sure as well.

And then just to follow up as you think about the long-term growth potential of the company.

And you had what seems to be, hopefully, an anomaly last year from a top line growth perspective, a strong start to this year with a return to growth.

And I guess I'm just wondering, in the past, you guys have talked about sort of a mid-teens, maybe higher, long-term growth trajectory here.

Where do you guys stand with that?

Not asking you to provide long-term guidance, but just trying to think about if you take all the pieces of the business from the clip to Open and then eventually to -- for minimally invasive, how the long-term growth profile might shake out here.

I -- a couple of comments on that.

I'm not sure that our growth rate was that bad last year.

It's just we didn't hit the expectation that we set because we were still at about, I think, 20% or so for the year.

But in terms of kind of answering -- kind of looking forward, we're pretty darn excited about where the business is going.

We've got a lot in the pipeline, like you talked about.

We've got the clinical trials.

And as you kind of look as the years go on, we do think we can see some healthy growth rates without giving specifics.

For this year, we're very comfortable in the 13% to 15%.

We think that's a solid number to be with, and we're going to continue to kind of march towards that in '17.

Obviously, we're excited about CONVERGE, we're excited about that trial, the results coming out with that, all the minimally invasive work that we're doing on the clip side.

And those are things that could be accelerators in the longer term, for sure, to our overall growth rate.

Our next question comes from Rick Wise with Stifel.

Mike and Andy.

Mike, maybe just turning back to CONVERGE.

You've made it again abundantly clear that one of the company's -- your top clinical priority remains centered on completing CONVERGE enrollment.

And if my math is correctly at 61 patients, you're now, and tell me if I'm wrong, at 40% of the patients enrolled of the 153 you need.

A couple of questions around that.

Is this where you thought you would be on May 4?

You talked about expanding the number of sites.

Remind us, where have you been?

Where are you?

Where do you expect to be by the end of this year?

And again, just your latest best guess as to when you think you might get full enrollment.

Yes.

An excellent question relative to CONVERGE on kind of what -- it is our top priority, as you mentioned.

We did add quite significantly this quarter after having, obviously, a very small enrollment.

I look at CONVERGE versus some of the way things happened when we did, for those of you that you were around, during the post-approval study for our ABLATE trial.

In that trial, when we kind of started to get back up and running again, we hadn't enrolled in about 9 or 10 months.

The trial came onboard.

We had 11 or 12 sites that were enrolling.

And in a very quick period of time, as we built up our clinical team.

Once we get that done after about a year, we saw enrollment accelerate in 2014, where we were able to complete it way ahead of plan.

But it took us a while to kind of build that infrastructure.

It went from 12 sites to 40 sites that were enrolling, and we basically quadrupled the enrollment over about an 18-month period.

I see that's what's happened with CONVERGE.

If you asked me at the time of the acquisition, we're behind where we thought we would be at this point because a lot of the sites that we inherited were not doing any enrollment, and so we've kind of had to restart the trial from the standpoint and get brand-new sites up and running.

That's the bad news.

The good news is that we've got 5 new sites that just started getting up enrolling, we've got several more coming online right now.

Those sites are beginning to enroll patients.

April was our best month in the trial history in terms of number of patients enrolled.

So we're really beginning to accelerate that.

I anticipate Q2 being solid, and then Q3 really accelerating from an enrollment pace standpoint.

So we're kind of where we thought we'd be if you asked me on January 1 of this year, but not necessarily when we bought the company back in October 2015 from that perspective.

In terms of our kind of enrollment by the end of the year, it is still a stretch goal for us.

That was kind of the goal when we first brought nContact.

We thought we could get everything enrolled by the end of this year.

I'd say that's definitely -- is a stretch goal at this point.

It's likely kind of middle of next year, but we're doing everything we can.

We're incented internally to get it done by the end of this year, and so that's what we're marching towards.

And we're going to go as far as we can to get to the 153 patients by the end of this year.

You're correct, it's 40% that we've enrolled to date, and it's 61 patients.

Okay.

And turning to your comments on international weakness this quarter, which, as you correctly said, it's clearly softer than usual.

And it seems like a bunch of small things unrelated, maybe temporary in nature, but maybe help us understand -- because if I'm understanding correctly, you've slightly lowered your guidance.

I had you, if I wrote it down correctly in February, saying international would grow mid-teens, now you're saying low to mid-double digits, which, I assume, is a little less.

Help us understand why all that gets back on track in the second quarter.

Or does it take to a second half?

Or -- I'm just not sure I understand.

Yes, I mean, the thing that happened in Q1, which was -- we actually expected it, was in Japan.

It's our largest distributor, our second largest country that we sell to.

We've just gotten cryo and the clip approved.

We'll be actually sending our first shipment for clip this quarter.

We anticipate a big bounce back.

Their year-end was as of March 31, and so from our standpoint, it's nothing to do with the volume happening within that country per se.

It's just kind of the cadence of the quarters that they've got and their managing of really getting inventory lower on their end.

When you look at kind of this quarter, we feel very good about demand in Japan.

We think they're going to have a big bounce-back from that standpoint, and we'll have some cryo orders and some clip orders this quarter and begin to kind of get back onto a nice solid tracking for next 3 quarters for the year.

So we feel comfortable on that front.

That's really where "it was a little bit softer." Yes, we anticipated Japan a little bit.

China was a little bit softer than we expected, and I'd say that it was mildly softer.

And when you look at the percentages, these aren't big dollars relative to the overall business, but they have an impact on the overall percentage per se.

So it was just a little bit softer on that standpoint.

We're doing a lot.

We've met with our China distributor this week and feel like we're going have a solid year.

Maybe not quite as good as we thought on that front, but again, I think that, overall, we still feel like we'll be up 13% to 15% as a company.

Got you.

And one last question for me on guidance.

Mike, you said repeatedly in your prepared comments here, driving toward stability, you're looking for and expecting steady but measured growth this year.

But I don't quite understand the second quarter sort of careful comments.

You slightly exceeded my expectation.

It seems like a really great U.S. first quarter.

But help us understand.

I look at nothing (inaudible) soft you have I think an easier comp in the second quarter year-over-year, if I'm looking at it correctly.

You've got the new product launches continuing to go well, the sales force more fully integrated, functioning, presumably successful.

The -- I'm assuming that the volume is going through the new facility will -- I don't know.

I'm not sure I understand why it should be anything different than first quarter, if not -- or if not, better.

Sure.

I mean, my general comment on that is, again, long term, I feel like we're in a great spot.

We're building the right foundation for that long-term growth.

But I'm cautious on a quarterly basis.

I think -- and we're asking investors to be cautious as well in terms of kind of anticipating getting ahead of ourselves on that front.

It's a big jump in terms of the revenue numbers from Q1 to Q2, and the comp is actually, we're -- Q2 last year wasn't -- it's not necessarily an easier comp than Q1 was per se.

And so I'd suggest that it's just a big jump from Q1 to Q2, and we want to make sure that we're ahead of the curve on this one.

We think that we should be -- people should be modeling towards the low end of the range.

Our next question comes from Suraj Kalia with Northland Securities.

So Mike, can you hear me all right?

Yes.

Okay.

So Mike -- forgive me, I've just been popping in between 3 calls.

In CONVERGE, I know we've talked about the number of patients enrolled and the cadence and speed of enrollment.

Mike, I want to ask something different in CONVERGE.

And again, forgive me if you already mentioned this.

In CONVERGE, am I right in saying that the posterior wall is going to be isolated in all patients during the epicardial approach?

Correct.

And on the endocardial part of the equation, is that a protocol specifically, whether you go to the tricuspid line or you go to the -- would everyone follow the same protocol, Mike?

The protocol is they finish off the pulmonary veins, because you're not completing that part of the kind of back wall ablation.

What you're doing is you're basically ablating the back wall, covering that, and then the EP is coming in and finishing up the pulmonary veins.

Okay.

I guess, what I was just trying to understand is, when the final results come out, we could compare -- the approach would all be the same.

And what I'm hearing is the approach, the epicardial versus endocardial, they would -- you could compare apples-to-apples.

And did I get that right?

Correct.

Okay.

Mike, in terms of the Japanese market, did you -- can you give some additional color how you think about it, launch, so on and so forth?

Well, I mean, we're -- we feel really good about a lot of the activity that's happened in the Japanese market overall.

We've just gotten cryo approved at the end of last year.

Clip has been approved and we'll be shipping our first shipment of clip into the market.

We're doing some training over there at the latter part of the end of this month.

And so we believe that's going to be a big boost for the long term there as we look into '18 and '19.

And so we're feeling really good about the distributor that we have over there.

And as we look at it, it's just getting more and more of our products in line there.

There's no minimally invasive work really being done over in Japan today, so that will be the next leg of this tool is to bring in our minimally invasive products into that market.

So we're kind of bringing a lot of the products we've had from other markets there, and eventually, we'll bring our minimally invasive tools as well.

Fair enough.

And final 2 questions, I'll hop back in queue.

Did you all talk about the nContact contribution in the quarter?

And also, staged DEEP AF, the status on that, have you removed the temporary pause or any color there?

Yes, sure.

We don't break out on the MIS side between the 2, so we did not give color on that.

Relative to the DEEP trial that we've got, we've had very positive conversations with the FDA.

We anticipate that we'll get through the FDA comments about sometime by the back half of this year, and then we'll begin to go through the process of adding sites at that point in time.

But right now, the focus is really on CONVERGE.

Again, I had really positive conversations on DEEP, but focus is on enrollment on CONVERGE, and that's really where the team is spending most of their energy.

Our next question comes from John Gillings with JMP Securities.

Can you hear me okay?

Yes.

Okay, good.

So I know that we've hit a little bit on the U.S. reacceleration already, but I just wanted to dig into that a little bit more because it is obviously sort of a key element of the quarter.

So looking at last quarter, some of the things you guys cited were surgeons moving at maybe a little bit higher rate than normal, sales managers being pulled away from the OR.

Some of them were things that I didn't think would necessarily be resolved quickly.

So as you look at kind of what happened this quarter, did some of that come back -- were those issues resolved?

Or was it more the STS guidelines, cryoFORM gaining traction?

Maybe just kind of walk through the different pieces of the puzzle.

It's all of the above in terms of the impact on it.

Everything you just described actually does have an impact on the Open number and where it is, which is also why we say that it's a little bit -- it'll be inconsistent on a quarterly basis.

If you look at last year's overall growth, it did have kind of a little bounce throughout the year.

It wasn't just at the end of the year relative to the surgeons that normally move in the fourth quarter.

Some of that was the impact of the surgeons moving earlier in the year and coming back online.

There has been a little bit less movement.

Some of the surgeons are kind of back in place.

That's definitely had a positive impact for sure.

But as I mentioned earlier, the biggest thing is really our team has been in place, is on much more solid ground as we look at this year, and they've had these technologies for a longer period of time.

They're not -- they've not only been on for 6 months now; most of them have been on for 12 to 18 months.

That knowledge and experience plays big dividends for us out in the field in these Open accounts.

But again, I don't think we want to get ahead ourselves on the Open side of our business in the short term.

I just think you're going to see choppiness as the year kind of goes on.

We're anticipating single-digit numbers there, with a double digit over 20% on the MIS and the clip numbers overall.

Okay, make sense, and I appreciate the color.

Just quickly on the MIMs.

I think you mentioned you had hired some during the quarter.

Can you tell us where you stand now?

And is 14 still the goal for the year or has that moved around at all since last quarter?

14 is the goal for the year.

We still have several to kind of bring onboard as we kind of go through the year.

So we still have more to bring onboard.

14 is the goal, but we might expand that and go for more.

We're not going to hold back if we feel like we're getting the right talent.

The question is getting -- it takes time to find the right person that can be very impactful in the cath lab and really understand EP language and be able to communicate between EPs and surgeons.

Okay, make sense.

And then last one for me.

You mentioned the 5 new sites for CONVERGE.

Just help us understand how long does it take for one of those new sites to sort of get up and get running at a good clip?

To get a good clip is a question we're asking ourselves now because we're trying to get them all up and running.

I'd say that to really get that first patient takes about a month or so as they kind of get through it, and then we anticipate that they'll begin to contribute in a more meaningful way between kind of 2 and 6 months.

So we'll start to see.

So that's why I'm talking about third and fourth quarter being good months -- or good quarters for us overall.

Q2, I think, will be a nice uptick from Q1 relative to enrollment, but it won't be as impactful as Q3 and Q4 when those sites are really up and running in a big way.

Our next question comes from Matt Miksic with UBS.

So I just had maybe a couple of additional follow-ups on some of the questions that have already been asked.

One was on this thing you've mentioned a couple of times, Mike, is sort of this taking on a conservative-ish view regarding the second quarter and talking about the sort of variability maybe in the near term in the Open business in the U.S And I'm just wondering if you could provide any color on what drives that kind -- if there is an ebbs-and-flows kind of effect that you're seeing month-to-month or quarter-to-quarter, what kinds of things are driving that.

And then I have just one follow-up.

Yes.

The #1 thing that drives the business on that front are -- is procedure volume -- cardiac procedural volumes.

Remember, we're the secondary procedure, so the primary procedure somebody's going in for is they're going in for mitral valve, an aortic valve or a CABG procedure.

And as a result, since we're the secondary procedure, they've got to -- first, you've got to have those procedure volumes on all of those, and they've also got to have the incidence of Afib within that -- because that's the biggest driver to it than anything else is going to be that volume of what happened.

That's why it's -- on a month-to-month basis, it may be a different percentage.

On an overall basis for the year, we're obviously able to kind of predict or have a pretty good feel for it based on numbers and history and looking at new sites coming online or new surgeons that are beginning to do more work on it.

But on a month-to-month or quarter-to-quarter basis, it's a little more difficult to kind of know exactly the incidence relative to the numbers of surgeries.

No, that's understandable.

And then on the -- and I guess, I would ask, does that -- do you see the same fluctuation at all on the clip side?

Just is there the same sort of reliability on the open procedures up and down seasonally on whatever it is?

On the Open Clip, you see a little bit of that variability for sure.

I mean, the Open Clip does grow a little bit faster because sometimes, people do use the Open Clip on other patients, and so they'll do it in just mitral patients, though -- so that we do see that happening.

So it does grow at a faster pace, but you can see some semblance of that variability.

That being said, on the minimally invasive side, you see that there's increased volume with our PRO and our PRO2 basis, those are products that are being accepted very well and really driving the growth quite substantially.

That -- those products will drive us over 20%, not the Open Clip.

Okay.

No, that's helpful.

So then the other sort of follow-up, maybe 2 here on this -- on the CONVERGE procedure.

Just trying to understand your aspiration goal.

You're driving towards enrollment by the end of the year.

If you could maybe step back and remind us what that means in terms of data and potential filing and reaching the market.

And then I have just one other follow-up on that part of the business, if I could.

Sure.

So I mean, if you look at the data -- if we're able to hit that, like you mentioned, I think it's the aspirational or stretch goal at the end of the year.

Again, we think it's probably more likely middle of next year, and we're working hard to get it done by the end of the year.

But just think in terms of, after that date, you've got about 15 months before the complete follow-up's going to be completed on those patients.

So they're going to actually track those patients.

And then once those patients are tracked from that last patient in, then you're going to have to go pull the data together and then go to the FDA and possibly go to panel.

And then it's, obviously, not necessarily in our control in terms of how the time frame works from there.

It can take 3 to 6 months to put the data together, and then beyond the 3 to 6 months, it's obviously dependent upon the information the FDA or the panel might require at that point.

So but that kind of gives you a general sense of what the time frame might look like in kind of a best case scenario and maybe a more extended case scenario.

So maybe if, I'm reading that right, sort of best case scenario would be kind of towards the end of '19 for commercial, is that right?

Or data earlier that year and then potential approval later in the year?

That's correct.

That'd be your best case scenario based on all that.

But that's obviously why we want -- the faster we can get the enrollment done, the faster we can obviously pull it in, which is why we're focused in putting all of our energy and resources behind that on that.

Yes.

No, that's helpful.

I understand that you've got some loops to get through before we get to that point.

But the last, if I -- and I'm not sure if this comment around capital placement could have a potential effect on margins.

If you could help remind us how -- what role that plays in your business, and if there's -- see any sort of seasonality or we should expect any kind of acceleration or slowdown in that part of your business.

Matt, it's Andy.

The depreciation impact we're talking about has to do with the generators that we're placing across sort of all parts of the Open and MIS ablation side.

So it's just -- it's what the device is -- the disposal device is plugged into.

So as we grow, and specifically as we roll out the EPi-Sense product to more centers, we're placing generators around that.

And we're obviously balancing that constantly in terms of the placements to drive the business, and then there is a margin impact as we depreciate that over the year.

So nothing crazy, but it is -- from a quarter-to-quarter perspective, you could have a small increase as placements get a little bit heavier.

So as -- you getting the capital on the field maybe into a center that's not using that much of the nContact consumables, then it's going to weigh a little heavier, and then that'll ease periodically.

That's kind of the phenomenon you're describing?

Yes.

I mean it is, but it's blended among the entire customer base.

So I mean, we're talking about pretty -- relatively small impacts, but it does -- when we're talking about small basis points -- small bps on the margin, those are things that matter.

I'm showing no further questions at this time.

I'd like to turn the call back over to Mike Carrel for closing remarks.

Okay.

Well, everyone, thank you so much for joining us tonight.

Look forward to obviously spending more time with you at various different conferences.

Again, thanks for attending.

Have a great day.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation.

Have a wonderful day.