AtriCure Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 29, 2024

There are 11 speakers on the call.

Operator

Good afternoon, and welcome to AtriCure's Third Quarter 2024 Earnings Conference Call. This call is being recorded for replay purposes. And at this time, all participants are in listen only mode. We will be facilitating a question and answer session following prepared remarks from AtriCure's management. I would now like to turn the call over to Marissa Beich from the Gilmartin Group for a few introductory comments.

Speaker 1

Great. Thank you. By now, you should have received a copy of the earnings press release. If you have not received a copy, please call 513-644-4484 to have one e mailed to you. Before we begin today, let me remind you that the company's remarks include forward looking statements.

Speaker 1

Forward looking statements are subject to numerous risks and uncertainties, many of which are beyond Atris' control, including risks and uncertainties described from time to time in Atris' SEC filings. These statements include, but are not limited to, financial expectations and guidance, expectations regarding the potential market opportunity for AtriCure's franchises and growth initiatives, future product approvals, clearances, competition, reimbursement and clinical trial outcomes. 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 constant currency revenue, adjusted EBITDA and adjusted loss per share.

Speaker 1

A reconciliation of these non GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is available on our website. And with that, I would like to turn the call over to Mike Carroll, President and CEO.

Speaker 2

Great. Good afternoon and thank you for joining us everyone. I'm happy to share that our 3rd quarter results, which reflect another strong quarter for AtriCure. We achieved total revenue of $116,000,000 or approximately 18% growth, showing broad based demand across our portfolio of innovative products for patients with atrial fibrillation and post operative pain. In addition to our top line performance, we continue to make progress to expand profitability producing nearly $8,000,000 of positive adjusted EBITDA for the quarter.

Speaker 2

We also generated over $16,000,000 in positive cash flow this quarter, marking our 2nd consecutive quarter of positive cash flow. As a result of the strength in our Q3 results, we are raising our full year 2024 revenue guidance and now expect a range of $459,000,000 to $462,000,000 reflecting growth of approximately 15% to 16% over full year 2023. We are also reaffirming our plans to deliver a full year adjusted EBITDA of $26,000,000 to $29,000,000 Turning to updates on our business and highlights in the quarter, starting with our pain management franchise, which grew 36% worldwide, marking another quarter of acceleration in sales. Our performance was led by growth in our international markets and bolstered by the U. S.

Speaker 2

Launch of our cryoSPHERE plus probe. We've seen outstanding adoption of this device, which contributed nearly half of our pain management sales in the quarter and are hearing consistent positive feedback from our physician partners on the 25% reduction in freeze time. We are also excited about the recent launch of our cryoSPHERE MAXPRO, which builds upon the success of cryoSPHERE plus Our MAXPROVE features a larger 10 millimeter ball tip designed to optimize procedure efficiency by reducing freeze times even further than the cryoSPHERE plus Additionally, we are seeing a growing body of evidence supporting the economic value of cryo nerve block therapy. At the most recent AATS Thoracic Surgical Oncology Summit in New York City, Doctor. Dan Miller, Chief of Thoracic Surgery at the Medical College of Georgia and Georgia Cancer Center presented robust multicenter data demonstrating a reduction in hospital stay duration by more than one day after cryoablation, representing more than $5,000 of reduced cost, 26% less opioid refill dosage at 90 days for all patients and 28% less opioid refill dosage at 90 days after cryoablation in chronic opioid users and total healthcare cost reduction by $8,000 over 6 months for the crown nerve block patients.

Speaker 2

As we look back on the past 5 years, our progress in establishing this therapy has been remarkable with new innovation leading to reacceleration and growth. Our success in thoracic procedures also gives us confidence and even broader opportunity for our pain management products as we continue to explore additional applications to expand our addressable markets. Shifting now to our franchises centered on the treatment of atrial fibrillation. Our open ablation franchise grew 16% worldwide, driven by nearly 50% growth in the Encompass Clamp in the United States. We are adding accounts and new surgeons with the Encompass Clamp and recently completed our first cases in Europe.

Speaker 2

This device has accelerated treatment in our core market of cardiac surgery and we look forward to driving sustainable growth with this product worldwide. Next, our appendage management franchise achieved worldwide revenue growth of 18% with outsized contribution from open chest devices. In the United States, we saw a 3rd consecutive quarter of acceleration in sales of open appendage management devices achieving 20% growth in the 3rd quarter. We believe this acceleration is a testament to the pioneering design, quality and performance of our AtriClip devices, which have reached over 600,000 units sold life to date. And on the innovation front, we completed the first cases with our new AtriClip Flex Mini device following the U.

Speaker 2

S. Launch in the Q3. The AtriClip Flex Mini is the smallest profile clip on the market, offering enhanced access and visibility of the appendage. Feedback from early adopters has been overwhelmingly positive, particularly on the enhanced visibility with the device. While still early in the launch, we anticipate AtriClip Flex Mini will drive a strong tailwind for appendage management franchise well into the future.

Speaker 2

Internationally, we received an expanded CE Mark indication for atriClip devices to include patients at high risk for thromboembolism. The expanded indication resulted from a wealth of existing robust clinical data on our atriClip devices through 85 peer reviewed papers representing over 11,000 patients studied and analyzed. We are also adding clinical evidence and awareness of the benefits of LA management to our investment in the LEAP's stroke reduction trial, the anticipated success of which will expand our global addressable market considerably. The LEAP's trial is expected to show a clear benefit when using atriplift devices to manage the appendage in patients who undergo cardiac surgery without preoperative Afib diagnosis, a market of well over 1,000,000 patients globally. To date, we have enrolled nearly 3,700 patients and we are on track to complete enrollment of 6,500 patients in this study by mid-twenty 25.

Speaker 2

Finally, our hybrid AF therapy remains resilient despite the market effects of broadening PFA adoption. In the Q3, we saw continued positive trends with a number of accounts performing our convergent procedure as well as new account activations. However, given increased physician time focusing on PFA, we are experiencing pressure on the pace of MIS adoption or ablation and MIS atriClip growth in the U. S. We know that hybrid therapy plays a vital role in practice and remains the only therapy with differentiated and durable results for longstanding persistent AF patients.

Speaker 2

As we have seen in Europe over time, we expect the broad tailwinds PFA is driving around the awareness and diagnosis of Afib to expand the number of treatable patients for this therapy. To build on that point, we believe that continuous innovation in AFib therapies has grown patient treatment across all markets. Therefore, we are excited to announce that we have entered into an exclusive license and development agreement with an expert in the PFA field to accelerate the introduction of PFA technology to our cardiac surgery devices. Ultimately, we anticipate PFA will be another foundational element of our portfolio of epicardial surgical ablation devices. We expect to announce more details on our PFA development program and clinical progress early next year.

Speaker 2

In closing, we are incredibly pleased with our 3rd quarter's performance and trajectory of our business as we enter the 4th quarter. Our strong growth stems from investments across the pillars of our business of innovation, clinical science and education and is a testament to the strength of our diversified portfolio. Furthermore, recent product introductions and continued efforts to advance standards of care in each of our markets globally have made our entire team excited for the future of AtriCARE. And with that, I'll turn the call over to Andrew Wyrick, our Chief Financial Officer.

Speaker 3

Thank you, Mike. Our Q3 2024 worldwide revenue of $115,900,000 increased 17.9% on a reported basis and 17.8% on a constant currency basis when compared to the Q3 of 2023, demonstrating ongoing strong performance in key markets around the world and the impact of our diverse range of products. On a sequential basis, the 0.3% decline in worldwide revenue from the Q2 to the Q3 of 2024 reflects normal seasonal variation in underlying procedures. 3rd quarter 2024 U. S.

Speaker 3

Revenue was $95,500,000 a 16.8% increase from the Q3 of 2023. Open ablation product sales in the U. S. Were $30,600,000 up 18.4% over 2023 from robust Encompass plant sales across both existing and new accounts. U.

Speaker 3

S. Sales of appendage management products were $37,400,000 up 15.6% over the Q3 of 2023. Within U. S. Appendage management revenue, our open appendage management products driven by our AtriClip FlexV device realized a 3rd sequential quarter of acceleration reaching 20% growth over Q3 of 2023.

Speaker 3

U. S. Minimally invasive ablation sales were $11,100,000 up 2.1% from 2023. As Mike mentioned in his remarks, although we are activating new accounts and seeing positive trends with respect to the accounts ordering, we continue to experience pressure on the pace of hybrid AF therapy uptake. And finally, pain management product sales were $16,300,000 up 29.6% over the Q3 of 2023, reflecting accelerated growth driven by the recent launch of our cryoSPHERE plus probe.

Speaker 3

International markets once again delivered excellent results with revenue of $20,500,000 up 23.3 percent on a reported basis and 22.4 percent on a constant currency basis as compared to the Q3 of 2023. European sales contributed $12,200,000 in the quarter, representing 33% growth, while sales in Asia Pacific and other international markets grew 12 percent to $8,200,000 Similar to the first half of twenty twenty four, our international business grew across key product lines and in nearly all major markets. Looking forward, we expect continued strength in our international business as we focus on growing adoption of our therapies as well as new product introductions. Our gross margin this quarter was 74.9%, a decrease of 27 basis points from the Q3 of 2023, driven primarily by less favorable geographic and product mix. Operating expenses for the quarter totaled $94,200,000 an increase of $12,200,000 or 14.9 percent from the Q3 of 2023.

Speaker 3

Research and development expenses rose 3% from the Q3 of 2023 with patient enrollment in our LEAPSS clinical trial driving the increase. The expansion of R and D expense was offset by timing of product development costs as we've completed development and clearance efforts for 3 major product releases in the U. S. Thus far in 2024: the cryoSPHERE plus probe, AtriClip Plex Mini and most recently our cryoSPHERE MAX probe. SG and A expenses increased 18.9 percent primarily from personnel and travel costs due to the measured expansion of our teams globally as well as one time consulting costs associated with our planned facilities expansion.

Speaker 3

Adjusted EBITDA for the quarter was $7,900,000 compared to $4,700,000 for the Q3 of 2023, an increase of 68%. Our basic and diluted net loss per share as well as the adjusted loss per share was $0.17 in the Q3 of 2024 as compared to $0.20 in the Q3 of 2023. Our overall capital position remains strong as we ended the Q3 with $130,300,000 in cash and investments, representing positive cash generation of $16,300,000 for the quarter. As Mike mentioned earlier, we have advanced our plans to bring PFA technology to market in our devices by entering into an exclusive licensing and co development agreement with an expert in this field. As part of this arrangement, we will incur a cash charge for the acquired IPR and D of $12,000,000 in the 4th quarter, which is excluded from our adjusted EBITDA and adjusted EPS guidance.

Speaker 3

Absent this payment, we expect positive cash generation in the 4th quarter and a modest burnover off of full year 2024. Now closing with our outlook for the remainder of the year, Considering our Q3 results and trajectory across our business, we now expect to achieve approximately $459,000,000 to $462,000,000 in full year 2024 revenue, reflecting approximately 15% to 16% growth compared to 2023. We remain confident in our extensive portfolio delivering sustainable growth within the large underpenetrated markets we serve globally. From a margin perspective, we are reaffirming our full year 2024 gross margin to be roughly consistent with 2023 with the potential for varying impacts from geographic and product mix. Turning to the bottom line, we reiterate our commitment to increasing profitability while also continuing to invest in driving growth and innovation.

Speaker 3

To that end, we are maintaining our positive adjusted EBITDA outlook of approximately $26,000,000 to $29,000,000 for the full year 2024, corresponding to adjusted loss per share of approximately $0.74 to $0.80 We are very proud of our progress across many key strategic, operational and financial metrics so far this year. Our team's continued dedication to hCure's mission supported by investments in innovation, clinical science, education and awareness has led to tens of thousands of patients treated. The same dedication has created multiple avenues of growth for our company and will continue to propel us into the future. Now, I'll turn the call back to Mike.

Speaker 2

Thank you, Angie. As we enter the second half of twenty twenty four, we saw strong growth on the top and bottom line, continued innovation with the AtriFlip Flex Mini and cryostirmax launches and expansion of the geographic reach of our products with our AtriClip now approved in China, our Encompass launch in the EU and our AtriClip stroke label expansion in Europe as well. Our strong revenue growth in the Q3 is a testament to resilience and diversification of the portfolio of therapies we have built. With the strength of our team worldwide, the quality of our products and the clinical data behind our therapies, there is little doubt in my mind that AtriCure is well positioned to drive compelling growth and expand profitability for years to come. And with that, we'll turn it over to the operator.

Operator

And our first question comes from Robbie Marcus with JPMorgan. Your line is open.

Speaker 4

Hi, this is Lily on for Robbie. Thanks for taking the question. Just wanted to get your thoughts on the trends that you're seeing from PFA. Is this the new normal to expect with pressure to both MIS ablation and the MIS CLIP business? Or do you think momentum in those areas can improve as CFA becomes more commonplace in the market?

Speaker 4

And what sort of assumptions regarding those dynamics are you baking into guidance?

Speaker 5

Yes. As we looked at

Speaker 2

the rest of this year, I'd say that's more than new normal for the rest of this year. But as you look out over into the future, because there's going to be a lot there's a lot of new products coming into market, etcetera, right now, causing the distraction to site as they get up and running using those new products, etcetera. But what we're also seeing is an incredible amount of new patients coming into the funnel. So that the top of the funnel patients is very large. And with our experience in Europe, what we can see is that they eventually have non responders, a great deal of non responders.

Speaker 2

And so we do anticipate is that that funnel is going to lead to a lot more patients needing to be treated. Once they don't respond to PFA or that second or third ablation, they're going to kind of fall down that funnel. Now we do believe that in 2025, we'll start to see some of those. We've seen some of it already a little bit from patients that were involved in some of the original PFA trials here in the U. S.

Speaker 2

We do anticipate that that'll probably begin to start up in 2025, not ready to kind of give any kind of month or quarter that you're going to start to see any kind of spike necessarily. But we do anticipate that with that huge volume in the top of the funnel, you're going to see a lot more patients come out that need another ablation epicardial to really help them out for those long term and difficult to treat patients.

Speaker 3

And Lily, relative to the guidance, I would say, as you know, Q4 last year was a very strong quarter for our U. S. Hybrid and also our MIS AtriClip business. So that was one of the considerations as we thought through kind of the rest of the year guide.

Speaker 4

Got it. That's helpful. And then as a follow-up, I was hoping you could give a bit more color on the PFA partnership. Is there anything you can share on who this partner is that you're working with? And what sort of timeline should we expect for a launch here?

Speaker 4

Thanks so much.

Speaker 2

Yes, I appreciate that question and of course anticipated. We're really excited about what we've done there. The reason we were able to announce now is obviously we signed the agreement, and we'll be obviously writing the check that Angie talked about. But in addition to that, we've made a tremendous amount of progress over the course of the last 9 months on development and we feel like we're in a really good development place for that as well. So there's a lot of confidence on our side that this is going to be a real technology for us that's going to be embedded into our cardiac surgery devices.

Speaker 2

Not ready to give timelines on 1st in human or when we might go into a clinical trial with it, or who the partner is yet, but in due time that will definitely come out.

Speaker 4

Great. Thanks so much.

Operator

Thank you. Our next question comes from William Plavonic with Canaccord Genuity. Your line is open.

Speaker 6

Hey, great. Thanks. Good evening. Thanks for taking my questions. Just first on Encompass Clamp, I just wanted to clarify, did you say that the U.

Speaker 6

S. Business, the clamp grew 50%, five-zero percent year over year? Is that correct?

Speaker 3

Yes. It was about 50% growth of the Encompass Clamp in the Q3.

Speaker 6

Okay. And then as we think about Encompass OUS, you just got that CE mark. Given the growth OUS in the Q3, I would assume that you really didn't see a benefit from that. If anything, you might have seen some destocking or what have you. How should we think about that impact as you go into the Q4 and forward now that you have that CE mark, given what we've seen in the U.

Speaker 2

S. From that product? Yes. First, I'll start and I mean the European team is really excited about the Encompass Clamp. I was over at the major cardiac surgery society meeting over there called EX just in the early part of October.

Speaker 2

Our booth was packed. We had a simulation lab and we had over 2 50 people and physicians visit our booth, go through simulation lab, leveraging that. We actually launched the product officially while we were there. And it was and then we also had a standing room only audience to kind of talk about what that product meant for the market as well. So the team there is really excited.

Speaker 2

They've been well trained and positioned on it in the market. We won't see much of an impact in the Q4 per se, but we do see that we'll obviously have an impact on next year for sure as we enter the market. It won't go as fast as the U. S. Just because individual countries have different reimbursement plays, etcetera, but they're ready to kind of get through that and we do anticipate some impact in 2025.

Speaker 3

Yes. Bill just would add it relative to the international numbers in open ablation more impacted by kind of our markets outside of Europe. Our European growth in open ablation was very strong. This is more kind of the distributor ordering in the Q3 that impacted open growth.

Speaker 6

Okay. And then just on this PFA partnership, I know you'll give us more details in the future, but I'm kind of curious, I think you've had plans of kind of getting to that cash flow consistently positive. Now you're talking about an investment in this PFA for the cardiac devices. Does that change the kind of near term and immediate term outlook is maybe you're increasing the R and D spend? Or is this just shifting priorities within an R and D?

Speaker 6

And thanks for taking my questions.

Speaker 3

I'd say this was part of our overall R and D plan and has been for a while. No change in terms of outlook relative to kind of overall all spend or cash burn. Obviously, we'll take a charge here in the Q4 for the upfront cost. But even with that charge expected to be an overall modest burn for full year 2024. So no change relative to the trajectory there and it's something that we've been working towards, like Mike said, for a while now and part of our longer term plans.

Speaker 2

And I think that consistent with what Angie has and we've stated before that when we look at we're not giving guidance for 2025, but we've always talked about the fact that we're going to continue to improve our bottom line from year to year. And so with that, it's not changed at all and our thoughts on that haven't changed in any way.

Speaker 6

Great. Thanks for taking my questions.

Operator

Thank you. Our next question comes from Matthew O'Brien with Piper Sandler. Your line is open.

Speaker 7

Hey, this is Phil on for Matt. Thanks for taking our questions. I guess just another a third great quarter of the U. S. Open business.

Speaker 7

Is it safe to say that a bigger competitor coming into this market is perhaps aiding in general market growth? Any thoughts on what that underlying market grew in relation to your 20% domestic growth here in the quarter?

Speaker 2

Yes. I mean, as we talked about earlier, it's a great question, Phil. When we looked at the market and competition coming in, we always said competition is a good thing because it does create awareness exactly as you've described. And I think we're definitely seeing that greater awareness get created in the market by having somebody else that's out there talking about the benefits of treating the appendage. And so I'd say the answer the simple answer is absolutely.

Speaker 2

I can't give a specific underlying growth, but I know that the competition is getting some share. Obviously, they're getting some sales that are out there, but we still feel like our product is our original product, the FlexV is an exceptional product and was the best product on the market before the FlexMini and the FlexMini that we talked about on this call has been receiving great reviews. It is a much smaller profile product on the market. I've been out on the road talking to a lot of customers getting feedback and just looking at them as they kind of use it for the first time and it's been just incredible feedback. So that product is going to make a big difference not just for the end of this year but also for many years to come.

Speaker 7

Thanks. That's helpful. And just on the my second question is, we've been hearing some recent chatter on the HEAL IFT study. You haven't talked about it in a little bit of time, any renewed interest there? Any updates would be helpful.

Speaker 7

Thank you.

Speaker 2

Yes. I mean HEAL IST is an important study relative to a patient population for those that don't recall, it's for patients that have inappropriate sinus tachycardia. It's important not necessarily for our long term growth, but for the hybrid aspect of our business. We do believe it's really where a surgeon is working with an electrophysiologist to solve this very difficult patient that quite frankly has zero solution out there in the market right now. We've had solid enrollment to date, but we've got to train all these sites as we get them up and running.

Speaker 2

So there hasn't been a lot to update per se until we get to some sort of enrollment that we can actually look at the data, which we anticipate sometime in 2025. We can kind of give more reporting on at that point in time.

Speaker 7

Helpful. Thank you.

Operator

Thank you. And our next question comes from Marie Thibault with BTIG. Your line is open.

Speaker 8

Hi. Thanks for taking the questions this evening and congrats on a nice quarter. I wanted to see if I could kind of understand a rundown of product catalysts, other market catalysts that we might see throughout 2025. Definitely not looking for guidance, but just trying to understand tailwinds, headwinds, things that might be anniversarying as you think about the products launching here now and products that you've enjoyed throughout 2024, just how to think about those catalysts in 2025?

Speaker 3

Great question, Marie. I'd say if we start at the top with our open franchise, the expansion of the Encompass Clamp in Europe, you'll see obviously a full year's worth of activity over there. That being said, we still think that this is a catalyst for the U. S. Business as we continue to reach additional accounts.

Speaker 3

We've made great progress on that front, a little under 700 accounts at this point in time, so still room for us to continue to grow in the U. S. When we think about our pain management franchise, you'll have a full year of the cryoSPHERE MAX as well as the cryoSPHERE Plus probe, both offering reduced freeze times, which we think are accelerating our growth. We've obviously seen that this past quarter in the U. S.

Speaker 3

And we'll continue our efforts to expand pain management throughout our international markets. We've seen some nice activity in Europe in particular on that front. Within our hybrid franchise, I'd say this is one where we're likely to see pressure, no catalyst per se at this point in time. And I'd say within appendage management, the big thing will be our FlexMiniClip full year of activity within the U. S.

Speaker 3

As well as the expansion of AtriClip into China and the enhanced labeling within Europe. So I think that probably the biggest headwind for growth for us, I think, which is a law of large numbers, we continue to make great progress here and the growth that we're expecting off of a pretty nice runway over the past couple of years.

Speaker 8

Really helpful rundown, Angie. Appreciate that. My follow-up on the PSA partnership.

Speaker 4

At the risk of sounding

Speaker 8

a little naive, is this for the MIS product? Is it also for the open product? Is the vision eventually that PSA replaces RF ablation within your franchises? And what sort of change? I know you've known and followed the PSA space very, very closely for a few years.

Speaker 8

What sort of precipitated this decision? Thanks so much.

Speaker 2

Yes. We've been looking at PSA for over 5 years in terms of getting it into our cardiac surgery products. There really isn't a change. It's just we finally got realization that now we've actually got product, we've actually done testing on it. We've done we're at the point that we could actually feel comfortable coming out and giving you some guidance that we're very close to being able to give some very specific milestones and deadlines here to the market.

Speaker 2

And so we want to kind of preliminarily kind of say that, but we've been working on it for a long time and there really isn't any changes Angie talked about earlier. In terms of our focus and our strategy, it's really all of our epicardial ablation products. We do anticipate bringing it to market through those. We'll give more details at a later date, but the plan is to bring that in. It's not planning on replacing our RF and cryo.

Speaker 2

RF and cryo are incredibly durable. They're incredibly safe and they work incredibly well in the market today. They're great products. However, we're an AFib ablation company and we feel that we need to have all ablation technologies to be able to offer to people and then give physicians that choice as to which they may or may not like better based on whatever their preferences are and what types of tools they might want to use. And so yes, it will be embedded into some of our existing technology in terms of the disposables that we have today.

Speaker 2

But our overall vision is to be able to provide a full solution so that we can give our customers, our physicians a choice as to how they want to treat their patients best.

Speaker 3

Yes. Maybe to put a finer point on that Marie, we would expect, as Mike said in his prepared comments, first step would be an open cardiac clamp then followed by some more work in the minimally invasive space.

Speaker 8

Got you. Thank you so much.

Operator

Thank you. Our next question comes from Mike Matson with Needham. Your line is open.

Speaker 2

Hi,

Speaker 9

Congrats on the strong quarter. Maybe a question for pain management. I think you both had talked about cryoSPHERE MAX really being more of a product to break into the sternotomy market as opposed to Plus or the original cryoSPHERE. So what I guess what are your expectations for the sternotomy market in 2025 now that the MAX has been launched?

Speaker 2

Yes. And the ceramic market is something that we anticipate could be a potential market for us, but we're not going to commit to any kind of revenue or guidance on it quite yet. We do think that being able to reduce the time in half that it's going to be definitely be something that is being much more approachable for a surgeon to kind of add it to their procedure at that time. That was one of the primary reasons we did it, but it also affects pretty much every other usage of the technology today. We're already seeing it in many thoracotomies and regular thoracotomies and people are adopting it very, very quickly.

Speaker 2

We're not focused in saying we're definitely going after sternotomy quite yet. We kind of want to let it kind of grow organically. Once we get that and we get some more feedback and our people willing to spend any time doing that for the benefit they get, more to kind of talk about relative to Sironomy.

Speaker 9

Okay, great, great. And then maybe one on cash flow, you had a couple of quarters positive cash flow. Angie, I think you said excluding the cash charge next quarter would have positive cash flow. So I'm just kind of wondering how you guys are thinking about that moving forward into 2025. Do you think AtriCure is consistently cash flow positive moving forward?

Speaker 3

I think on a full year basis, 2025 likely to be cash flow positive. The Q1 tends to be very heavy burned, just structurally with some of the payments that are made in the Q1 around variable compensation, etcetera, tends to be a heavy cash burn. You've seen that for a number of years now, but on the balance. And I would just end by saying really happy with the progress that we're making in this area and expect to continue to be able to enhance our cash flow going forward.

Speaker 9

Okay, very helpful. Congrats on the quarter.

Operator

Thank you. And our next question comes from Danielle Antalffy with UBS. Your line is open.

Speaker 10

Hey, good afternoon guys. Thanks so much for taking the question. Congrats on a really strong quarter here. Just two quick product questions. 1 on the AtriClip business.

Speaker 10

You talked a little bit about the competitive dynamics here. I'm just curious, Mike, if we look at the trend throughout the year, it feels like Q1 was maybe the nadir for AtriClip U. S. Growth. And I'm wondering if you would agree with that or we pass the sort of trialing dynamic here.

Speaker 10

And maybe you could comment on how you're seeing centers adopt both the clip and the competitive product? Or have you lost any centers? Any sort of commentary you can give there would be helpful.

Speaker 2

Yes. I mean the competition is out there. And as I think I had referred to in one of the questions earlier, Danielle, what we do see is that obviously market growth is growing as a result of having competition in the space. That's definitely what we're seeing and why you saw an acceleration overall in ours. Plus, we're also bringing up new innovative products.

Speaker 2

So you come out with the Flex Mini and I anticipate that's going to also help drive the growth relative to that. We do see them in some accounts. In those accounts, we haven't lost those accounts completely. They definitely use both of the technologies. I've had the opportunity to kind of meet with many of those accounts, had very nice conversations with them.

Speaker 2

And they just kind of make that choice on their own relative to some of whether it's anatomy or something that they're basically making some personal physician choice on it. But I feel really confident in the quality of our product, the quality of what we bring to the market relative to this, both in terms of the innovations with the Flex Mini and with the Flex V original product, they are just outstanding products. And the fact that we've invested in clinical evidence, which you can see what happened in Europe with the 85 peer reviewed papers and over 11,000 patients, that is a lot of evidence demonstrating how good the closure rates are and actually even the impact on stroke rates are. And so that it got us that label over in Europe. And that's a long way for anybody else to kind of catch up to that.

Speaker 2

And we're running this trial here. I think that we're really making the right types of investments for the long term for this franchise. And the investments aren't just for existing Afib patients, LEAPs is all about tripling the size of that market and getting to over a 1000000 more patients that undergo cardiac surgery globally. So we're pretty excited about kind of where we are. Again, we do see the competition, but I think it's really good for us and for the market overall.

Speaker 10

Okay, that's helpful. And then just a quick question on another great quarter for Encompass. I mean, this plant just has really seemed to open up the CABG market, especially for you guys. Just curious about what you can say as far as where we are from a penetration perspective at this point with CABG now that you've got what's it been like 2 years, I guess, rolling out encompass here in the U. S?

Speaker 10

Thanks so much.

Speaker 2

Yes. It's a great question. And I do think that we're making impact on adoption for sure of people treating, but we still have a long way to go. I mean, we're still I'd say that we used to quote call that 25% to 30%. We're probably closer to 30% to 35% of the patients today that are actually getting treated overall for cardiac surgery that have AFib, which tells you there's still 65% of the patients that should be treated.

Speaker 2

All of the guidelines globally, I mean, let me repeat that. Every guideline globally from every society, HRS, ACC, EX, which is the surgical one over in Europe, ERAS over in Europe as well, which covers all cardiology and also STS, which covers cardiac surgeon in the U. S. Every one of them have a Class 1A level guidelines for and that you should be treating this patient population, both within ablation and with managing the appendage. And so from our standpoint, we think that there's still a long way to go just within that patient population, and a lot of growth ahead of us with that.

Speaker 2

And I think the Encompass Clamp hopefully is going to unlock it to make it a lot easier for patients to get treated.

Speaker 10

Thanks, all.

Operator

Thank you. Our next question comes from Suraj Kalia with Oppenheimer and Co. Your line is open.

Speaker 5

Mike, can you hear me all right?

Speaker 2

I can Suraj. Nice to hear your voice.

Speaker 5

Perfect. Hey, congrats on a nice quarter. So Mike, one question for you, one for Angie, and I'll pose the first one to you, Mike. On the surgical PFA products, so Mike, there was a point in time specifically picking off on hybrid or convergent. The whole argument was like, look, hybrid prevents the esophageal fistulas.

Speaker 5

You can do back wall ablation. So this is additive to existing catheter ablation, right? That was the whole argument. When surgical products have PFA, I guess help us understand what is the clinical need from a surgical product for a new energy modality. It isn't very obvious to me in terms of how you all are thinking through this.

Speaker 5

Also, what is going to be the regulatory pathway? Would you all have to do new clinical trials for this new energy mortality?

Speaker 2

It's a really great question, Suraj. And I think there's a lot of questions to be answered about what the additional clinical benefits going to be for PSA. As I mentioned, we have great cryo and great RF. We do believe that with obviously all of the excitement around this energy source that it was imperative and important for us to basically bring it into our products as well, so we could offer it as a solution. I think whether or not it is more efficacious than the cryo or the RF is to be determined at this point in time.

Speaker 2

When it comes to the CLAMP technologies, it really quite frankly is something that we have to learn through the trials that we have to run relative to going into that area. Relative to the MIS space and putting it on to like an EPi Sense like type device, that's where speed is going to probably matter a little bit because you'll be able to kind of take out some of the time relative to that. On the open cardiac side, you can take out some speed, but it's not that's not where the time is based on the time on the open cardiac with the clamps is mostly in getting access to it, not necessarily in the time for using RF per se. That's different on the MIS side. And so there will be a different use case for it from that standpoint.

Speaker 2

So that's some of the thought process behind it. I think we have to have it. I think it's an important energy to study and to learn about. I believe that the FDA has made it very clear that the PFA technology epicardially will likely have to go down a PMA type pathway. And so we're anticipating that's why I say we'll give timelines and guidelines in the future about what that might look like, once we're kind of at that point.

Speaker 5

Fair enough. Mike, appreciate the transparency. Angie, one question for you. What was ASP contribution for the new line of cryoSPHERE probes? I guess, just for pain management, what was the net ASP impact in the quarter?

Speaker 5

You for taking my questions.

Speaker 3

Suraj, good question. Almost nothing. The majority of the revenue was the cryoSPHERE plus cryoSPHERE MAX not a big contributor in the Q3. CryoSPHERE plus is at the same ASP as our legacy cryoSPHERE devices. So when you see 29.6% growth in the quarter, that is all volume growth.

Speaker 2

Thank you.

Operator

I'm showing no further questions at this time. I would now like to turn it back to Mike Carrel for closing remarks.

Speaker 2

Great. Again, everyone, thank you for joining us today and we look forward to talking to you after the Q4 call. Have a great evening. Bye now.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
AtriCure Q3 2024
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