AtriCure Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2024

There are 12 speakers on the call.

Operator

Good afternoon, and welcome to AtriCure's Second 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 Marisa Bleich from the Gilmartin Group for a few introductory comments.

Speaker 1

Great. Thank you, operator. 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 AtriCure's control, including risks and uncertainties described from time to time in AtriCure's SEC filings. These statements include, but are not limited to, financial expectations and guidance, expectations regarding the potential market opportunity for AtriCure's franchises AtriCure's results may differ materially from those projected. AtriCure's results may differ materially from those projected. AtriCure undertakes no obligation to publicly update any forward looking statements. Additionally, we refer to non GAAP financial measures, specifically revenue reported on a constant currency basis, 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 Carrel, President and Chief Executive Officer of AtriCure.

Speaker 2

Great. Good afternoon, everyone, and thank you for joining us. I'm pleased to highlight another strong quarter at AtriCure driven by our unwavering commitment to treatment of patients with atrial fibrillation and post operative pain. We achieved total revenue of $116,000,000 reflecting over 15% growth driven by increasing demand across our portfolio of technologies. Our results were underscored by accelerated growth in several areas of business including U.

Speaker 2

S. Pain Management, U. S. Open Appendage Management and across our international franchises. We also continue our path towards sustained profitability, generating nearly $8,000,000 in positive EBITDA for the quarter.

Speaker 2

Additionally, we reached an exciting milestone with positive cash flow generation of over $8,000,000 this quarter and we plan to generate positive cash flow for the remainder of the year. Now turning to updates on our business and highlights in the quarter. Starting with pain management franchise, which grew 25% in the Q2 of 2024. We drove remarkable acceleration in cryoSPHERE sales with strength in international markets bolstered by the U. S.

Speaker 2

Where we successfully launched the cryoSPHERE plus probe. Physicians and patients are realizing the benefits of this enhanced technology with a 25% reduction in freeze time, which is generating more momentum in cryo nerve block therapy. We're also excited for the cryoSPHERE MAX probe launching later this year. The cryoSPIR Max builds upon the features of the cryoSPIR Plus with a larger bolted, bringing more efficiency to procedures through even greater reduction in ablation and procedure time. In parallel, we're exploring additional applications of crown nerve block therapy to expand our addressable markets and look forward to sharing those updates as we progress.

Speaker 2

Now on to our franchises centered on the treatment of atrial fibrillation. Our open ablation franchise grew 15% worldwide, reflecting strength in our Encompass Clamp in the United States, along with rising treatment rates in key international markets. Our Encompass Clamp utilizes our synergy ablation system for a simpler and faster surgical treatment of atrial fibrillation and we see steady interest in treatment with encompass as we introduce this innovative technology across our customer base. While the encompass clamp is currently only available in United States, we anticipate EU MDR approval and European launch in the back half of twenty twenty four. Next, our appendage management franchise achieved worldwide revenue growth of 15% with open chest devices outpacing our MIS devices.

Speaker 2

In the United States, our open appendage management devices saw an acceleration in revenue growth to nearly 17% for the quarter despite competitive device activity. We continue to believe competition validates this tremendous market opportunity in front of us. More importantly, we are focused on leading the field with innovation and clinical evidence. And to that end, I am excited to share that we have just received FDA clearance of our newest generation AtriClip device, the AtriClip Flex Mini. Our AtriClip platform is widely recognized in the physician community for its ease of use, unparalleled safety and outstanding closure results.

Speaker 2

And this latest innovation introduces a much smaller implant profile while maintaining the performance of our legacy platforms. Put simply, the AtriClip Flex Mini is a great new and differentiated device, which we expect to achieve rapid adoption once fully launched later on this year. In addition, we are enrolling in our groundbreaking market expanding LEAP's stroke reduction trial at a robust pace with over 2,900 patients enrolled as of today. We expect to complete co enrollment of the 6,500 patients in the middle of 2025. This landmark and global clinical trial is expected to show a clear benefit to using atriClip devices to manage the appendage in patients who undergo cardiac surgery without preoperative afib diagnosis, a market of well over 1,000,000 patients annually.

Speaker 2

And finally, we are continuing to drive adoption of our hybrid AF therapy globally. In the Q2, we saw growth in procedure volumes and new accounts, although in certain hospitals in the United States, case volumes were impacted as EP shifted their time to new PFA catheter devices. We understand and appreciate the benefits of these technologies. And our experience with the introduction of the PFA catheters in Europe several years ago tells us this diversion will eventually diminish. To that point, we have seen rapidly expanding interest and growth of our hybrid AF therapies in Europe over the last 2 years, leading to increasing treatment with our EPi Sense technology.

Speaker 2

We expect this to hold true in the U. S. For our U. S. Hybrid therapy franchise, particularly as physician experience shows the limitations of these devices in treating longstanding persistent Afib patients.

Speaker 2

In the meantime, we are bringing awareness to differentiate benefits of hybrid AF. The wealth of data from our CONVERGE, CICE AF and DEEP trials as well as numerous other studies repeatedly demonstrates better outcomes for advanced Afib patients using a hybrid approach and this influence guidelines to the positive worldwide. We believe the focus on more efficient endocardial ablation can serve as a tailwind for everyone in the market. And in the long run, AtriCure will benefit from the growing funnel of patients. Considering the ongoing robust growth in our portfolio, but offset by relative softness in our MIS ablation and MIS appendage management sales, we're revising our full year guidance to $456,000,000 to $461,000,000 reflecting growth of approximately 15% over full year 2023.

Speaker 2

We also continue to manage our spending with the discretion and are reaffirming our guidance and our plans to deliver an adjusted EBITDA of dollars to $29,000,000 In closing, we are pleased with our first half performance, showing the breadth of our growth platforms. We also remain confident in our strategy to invest in growth and market expansion opportunities, leading to durable growth, expanding profitability and cash flow generation. And with that, I will turn it over to our CFO, Angie Wyrick.

Speaker 3

Thanks, Mike. Our 2nd quarter 20 24 worldwide revenue of $116,300,000 increased 15.2% on a reported basis and 15.4% on a constant currency basis when compared to the Q2 of 2023. On a sequential basis, worldwide revenue grew 6 0.8% from the 1st to the Q2 of 2024. 2nd quarter 2024 U. S.

Speaker 3

Revenue was 95 12.5% increase from the Q2 of 2023. Obel and ablation product sales were $30,800,000 up 13.9% over 2023 with the continued strength of the Encompass Clamp adoption. U. S. Sales of appendage management products were $37,900,000 up 11.8% over the Q2 of 2023.

Speaker 3

Notably, despite competitive activity, our appendage management products used in open chest procedures accelerated to 17% growth in the 2nd quarter, propelled by our AtriClip FlexV device. These positive results were partially offset by a slight decline in our minimally invasive appendage management products, reflecting slower growth in minimally invasive ablation sales, which ended the quarter at $11,800,000 up 4% over the Q2 of 2023. As Mike mentioned in his remarks, interest in PFA catheters within certain hospital systems led to pressure in our hybrid therapy results for the quarter. And finally, rounding out our U. S.

Speaker 3

Business is pain management, where sales reached $15,000,000 in the Q2 2024, reflecting 19.2 percent growth over the Q2 of 2023. We delivered exceptional performance across our international franchises driving total international revenue of $20,700,000 up 29.4 percent on a reported basis and 30.4% on a constant currency basis as compared to the Q2 of 2023. European sales accounted for $12,600,000 up 33.6 percent and Asia Pacific and other international markets accounted for $8,100,000 up 23.5%. Consistent with the Q1, our international growth was seen across all franchises and in most major markets. We expect momentum throughout our international business to continue for the remainder of 2024.

Speaker 3

Turning to another key metric for the Q2 of 2024, gross margin was 74.7%, which represents an approximately 170 basis point decrease in comparison to the Q2 of 2023. This decrease was primarily driven by less favorable geographic and product mix. Now moving to details of our operating expenses for the quarter. Total operating expenses increased $12,800,000 or 15.7 percent from $81,200,000 in the Q2 of 2023 to $94,000,000 in the Q2 of 2024. We continue to grow investments in research and development activities, which saw a 17% increase from the Q2 of 2023, driven by strong enrollment in our LEAP's clinical trial and resources focused on both clinical trials and new product development initiatives.

Speaker 3

SG and A expenses increased 15%, primarily from the measured expansion of our team globally as well as from physician training programs. Adjusted EBITDA for the quarter was $7,800,000 compared to $8,000,000 for the Q2 of 2023. Our loss per share was $0.17 in the Q2 of 2024 compared to a loss per share of $0.11 in the Q2 2023, while the adjusted loss per share each period was $0.17 and $0.12 respectively. We ended the 2nd quarter with $114,000,000 in cash and investments, having generated $8,100,000 in cash flow during the Q2. We continue to expect positive cash generation for the remainder of the year and are on solid footing to fund current and future operating needs of the business with our strong balance sheet.

Speaker 3

Now turning to our outlook for 2024. We are determined to advance adoption of each of our therapies throughout our markets globally. We are experiencing healthy growth across most of our business with a lower contribution from our U. S. MIS ablation and MIS appendage management products.

Speaker 3

We believe the impact to our U. S. Hybrid therapy business will ultimately be temporary. And with these dynamics in mind, we are refining our full year 2024 revenue guidance to be between $456,000,000 to $461,000,000 reflecting growth of approximately 15% at the midpoint over 2023. Consistent with our normal quarterly cadence, we anticipate summer seasonality to result in a low single digit sequential decline in revenue from the second to the third quarter, followed by a rebound in the 4th quarter.

Speaker 3

From a margin perspective, we are carefully managing investments in our business to prioritize opportunities for future growth and market expansion as we realize efficiency and leverage from our operations. We believe this approach solidifies the staying power of our business well into the future. We are maintaining expectation that 2024 gross margin will be comparable to 2023 with potential for varying impacts from cost savings initiatives offset by product and geographic mix. On the bottom line, we remain committed to improving profitability and are maintaining our outlook of positive adjusted EBITDA 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 $0.82 Based on revenue cadence and key areas of spending in the coming quarters, we expect a modest improvement in adjusted EBITDA in the Q3 2024 over the Q3 2023 and a more robust increase in adjusted EBITDA in the Q4 of 2024. In closing, our 2nd quarter results demonstrate solid performance throughout our markets.

Speaker 3

I would like to thank our team for their commitment to our mission. What you do each day matters. And together, we remain confident that we are well positioned to improve the lives of millions of patients worldwide with our therapies, driving growth well into the future. At this point, I'll turn the call back to Mike for closing comments.

Speaker 2

Thank you, Angie and Deborah, and we are excited about the first half of twenty twenty four with continued strong double digit growth across our platforms, advancing key clinical and innovation initiatives geared towards market penetration and expansion, while improving our cash flow generation. Our team is dedicated to delivering the best in class results for patients affected by Afib and pain after surgery. And I remain confident in our products, the abilities of our team and the strength of our R and D initiatives and look forward to an exceptional back half of 2024 and all that it has in store for AtriCure and all of us. With that, I'll turn it over to the operator for questions.

Operator

Thank Our first question comes from Robbie Marcus with JPMorgan. Your line is open.

Speaker 4

Hi. This is actually Lily on for Robbie. Thanks so much for taking the question. Can you just give us your refresh thoughts on sort of the long term impact of PFA on the business? Clearly, the launch is having at least a near term impact.

Speaker 4

So is your thinking still that PFA can be complementary to your technologies? And what gives you the confidence in those case volumes coming back on the MIS side eventually when PFA is having such great traction? Thanks.

Speaker 2

Yes, it's a great and fair question. As we look at PFA, we do still think that it has a really positive impact. As more and more patients enter into the funnel, there are going to be more and more failures. So if you think about the areas that PFA is incredibly successful is that it's made it a lot faster for people to do this procedure. I think there's still a lot of questions about is it going to be more effective and is it going to be safer on that front.

Speaker 2

But we are definitely seeing it being faster. So they're filling that funnel and you're seeing a lot of growth in the catheter based companies in particular for treating a lot of other patients. What that means is that if you're failing at the same rate, you're going to have more patients that need to be treated once they fail. And we believe the hybrid therapy is a great complement to that to once you've failed that, and you've tried that, you pretty much tried that last kind of shot to go after that patient, help them out with the catheter. Hybrid really helps out quite dramatically there.

Speaker 2

We started to see that over in Europe. So what tells us that we think this is going to happen is that when you look at the data that's come out of Europe from the various different registries and also with our own experience at sites is we're starting to see that sites that got a little distracted by PFA, they got excited about it. They're still using PFA quite a bit. They're actually seeing some failures come 6, 9, 12 months later. And then they're saying, wait, we've really got to get back on track on our hybrid therapy and start to use that.

Speaker 2

And so we think that we're starting to see that in Europe. We're starting to see really robust growth in this area in Europe and we see that continuing right now. We anticipate the same happening in the U. S. I can't give a definitive date when that's all going to turn because right now a lot of the sites are distracted by making that changeover from whatever device they were using before to using this device.

Speaker 2

That takes a lot of time and energy away from the staff on that side. But they're still doing procedures and once they have the failures, they're still coming back to hybrid. And we think that long term the funnel is going to be so large that it's actually going to increase the overall number of patients that get treated quite a bit. On top of that, I guess I would add one more thing, which is that we're also still seeing new sites come on board. So we're seeing a lot of sites that they are implementing PFA, but they're also saying, wait, we also want to implement hybrid, they're coming to our courses.

Speaker 2

In June, we had a record number of people come to our hybrid course. We had almost 100 people from across the country come into the course. And these were mix of 50% surgeons, 50% EPs coming as teams to talk about the future of hybrid therapy and what was happening on that front. So we got a lot of good data from that as well and a lot of survey data when we talk to them about kind of what's happening in the field and the changeovers that they're going through.

Speaker 4

Got it. Okay. And then just as a follow-up on the open side of the appendage management business. It's been a few quarters now with competition on the market. So can you talk a bit about how those dynamics have evolved this quarter?

Speaker 4

How sticky has that trialing that you called out been? And how should we be thinking about that business growing the rest of the year? Thanks so much.

Speaker 2

Yes. I think you saw the numbers that the market is growing. We talked about the fact that when competition enters into a market, it's great flattery to us that we've actually got a really big and robust large market that's in front of us and that over time we thought the market would overall grow. And what you saw this quarter was an acceleration to 17% growth on the open side of our business. Medtronic is obviously getting some business themselves as well.

Speaker 2

They've got people that are actually using their product for sure. But by having 2 of us in the market, you're really creating more demand, more interest, really sound pricing that is out there on that front. So from our standpoint, having that entrant, I think is already starting to have a positive impact on the overall market dynamics. And I think that's only going to increase over time here. That being said, on top of that, we also just came out with and literally just got the FDA clearance, just before this call for our new Flex menu device that is the smallest profile, best product in the market.

Speaker 2

It is an exceptional product. I can't be more excited about a product we've had in a long, long time. When we roll out Encompass, we changed the way people thought about the market on that front. I think the same thing is going to happen with this Flex Mini device just because of the sheer size and profile of the device is so much smaller. It's really a great platform for us to build on.

Speaker 2

We're really excited to launch that in the back half of this year.

Operator

Thank you. Our next question comes from Bill Plavani with Canaccord. Your line is now open.

Speaker 5

Hi, Mike and Angie. It's John on for Bill tonight. Thanks for taking our question and congrats on the quarter. Maybe just circle back here to AtriClip too. On Flexbeam Mini, can you describe maybe the pricing strategy that you guys will take upon launch here?

Speaker 5

Do you think you'll raise price reflecting the benefits of the device?

Speaker 3

Yes, John. So I think you know with each new innovation that we bring to market, one of our goals is to improve overall ASP, and I'd say that's still our strategy with the Flex Mini.

Speaker 5

Okay, great. And I don't know if

Speaker 6

you guys talked about in

Speaker 5

the call, I didn't hear it, but you guys recently did a press release about clearance in China too for H. But so how are you thinking about that market in terms of opportunity size and what commercial approach you think you'll take there? Thanks for taking our questions.

Speaker 2

I appreciate that. And yes, we did get clearance for the AtriClip device in China. We've been working on that for quite some time and feel really good about the fact that we're going to be able to access an enormous market that does over 200,000 cardiac surgery a year. So we already have a great market share on the ablation side of our business there today. So we're kind of building on that foundation.

Speaker 2

But the only products we've had in China have been on the ablation side. And so this AtriClip obviously adds tremendously to bringing that great product into the market. We don't anticipate much impact on revenue this year, but we would anticipate that as we look at 2025, 2016 and going forward that having that product on the market, it's something that they've been asking for, they've wanted in the market and this is obviously a great product. So we anticipate that it will have some impact on us in the outgoing years.

Operator

Thank you. And our next question comes from Rick Wise with Stifel. Your line is now open.

Speaker 7

Hi, Mike. Hi, Angie. This is John on for Rick today. I just wanted to go back to guidance. You brought it down by a few million talking about pressures on the converged side of the business and on the AtriClip side of the business.

Speaker 7

I just wanted to better understand what you're seeing today in both of those businesses. Have these pressures bottomed out in your view? Or are they still getting worse? Just where do we stand now?

Speaker 3

John, I'd say at this point, we think that the pressure kind of started, I'd say, late in Q1, very late in Q1. And really, we just didn't exit the Q2 in the way which we would have expected. I think we were hearing an increasingly loud drumbeat from our field team that PSA, the number of accounts that were getting access to PSA technology and the 2nd quarter became pretty pronounced and would persist through the rest of this year at a minimum. So that's really the driver in our view. I think for recovery from a guidance perspective, I think our philosophy has always been to be very prudent when we think about our guidance.

Speaker 3

We want to put numbers out there. We feel very comfortable that we can meet and as well as a pathway to see upside for investors as well. And so as we're looking at this, we anticipate it's beyond 2024 when this kind of recovers, so to speak. And the impact is dual full. I just want to make sure it's both our MIS ablation business, but then the MIS AtriClips that are used in those hybrid procedures, which is a component of our overall appendage management revenue.

Speaker 7

Thanks. That's clear. And then I think, also sort of sticking to guidance. In the prior guidance, I'm just curious how much of a Flex Mini impact was or positive launch impact was incorporated? And how much, if any, FlexMini sort of impact and price increases incorporated now?

Speaker 3

Going into 2024, we felt pretty confident that we would have clearance from the FDA for this product middle of the year. And I'd say the timing looks no different from how it's evolved and ultimately our clearance. We still expect for this product to be launched in the second half of the year, which was baked into our guidance going into the year.

Speaker 2

And if you look at the overall guidance and our open appendage management has got robust growth built within. It's the MIS one that you're not and obviously Flex Mini is a part of that.

Operator

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

Speaker 8

Hey, Mike and Angie. This is Sam on for Marie tonight. Thanks for taking the questions. Maybe I can shift over to the open ablation side of things. I guess I'm just wondering how you're thinking about maybe the mid to long term outlook on the business.

Speaker 8

Can this still be, call it, a mid double digit grower? And then on the quarter, how much more room is there to run-in terms of penetration for the Encompass Clamp?

Speaker 3

Good question, Sam. I'd say we felt good. It was a solid quarter for our open ablation franchise and we really continue to be bullish and believe that the Encompass clamp will help sustain growth in this area of our business. We're seeing really good activity across accounts that are using Encompass and our team is really focused at this point, going deeper into accounts that have adopted the technology. So making sure that it's more than one surgeon who is using the Encompass clamp as well as broadening adoption to a broader set of accounts.

Speaker 3

Relative to penetration, continue to estimate that the U. S. Market is only between, we call it 30% to 40% penetrated at this point in time. So continue to focus on the fact that this is a vastly under penetrated market. We've got superior technology that's made this procedure incredibly easy for a surgeon to do and the focus will be to continue to grow adoption.

Speaker 8

Really helpful, Angie. And then maybe if I can come back to CONVERGE for just a second. I guess the accounts that are still using it maybe aren't as distracted from some of the PFA launches. Are they using PFA in the endovascular side of the procedure? Just wondering if the complementary nature even at some accounts is starting to work its way through?

Speaker 2

Yes. We definitely are starting to see some accounts. We see that over in Europe where you see it already. That's kind of where our experience has been so new in the U. S.

Speaker 2

You're not seeing a ton of it. We've got several sites that are beginning to use both PSA and CONVERGE into their procedures. What we're really seeing more on what I anticipate is that if they do PFA and then when that PFA fails, we'll come back in and do kind of the 2nd stage as the CONVERGE procedure at that point in time. And that's what we anticipate is going to be what's going to lead us into 2025 and beyond relative to that complementary aspect of it. Just because if you look at the data that's come out, you're seeing that the failure rates are basically the same as they were with RF and cryo.

Speaker 2

And so you still have those patients. What do you do after that? And then the after that is the hybrid procedure, which includes CONVERGE and that's where it becomes complementary at that point.

Operator

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

Speaker 9

Hey, good afternoon guys. Thanks so much for taking the question. Mike, just a follow-up on AtriClip and what you're seeing from a competitive perspective there. I mean, can you talk a little bit about what you're seeing from a site perspective? Have you seen sites drop the competitive products and trial?

Speaker 9

Are we through the trialing period? Are you still seeing trialing? And then just one quick follow-up after that.

Speaker 2

Yes. We're just seeing great strength with the AtriClip product. And AtriClip product works all the time. We haven't lost any accounts as a result of it. Like we're not seeing anybody flip over and not continue to use AtriClip on a majority of their cases.

Speaker 2

So overall, we feel like we're having some great success. We do have some sites, as you mentioned, that may have done some trialing and have basically come back to AtriClip kind of full time, for lack of a better word relative to that. So we've definitely seen some of that, for sure. But I mean, overall, as you can just see with our growth rate, we're still seeing really robust growth on a very large number. I mean, it's one of our biggest franchises.

Speaker 2

So we feel like we're in a really good spot from that standpoint.

Speaker 9

Okay, got it. And then just to clarify just one point on CONVERGE and what you think you guys are seeing there with the PFA. Is it more PFA is just distracting the EP side of things? Or do you think it's more PFA is going to impact sort of the end patient market here?

Speaker 2

Yes, I think what you're going to see there's 2 that you hit on 2 different dynamics and you're right. So the first thing is the distraction. That's really what we're seeing mostly today, which is that you've got sites that are now having to go purchase the equipment, install it, train their teams, get their whole workflow, their new workflow with the PFA system in house and they're making that switch quickly. But as a result of making that switch, they become incredibly distracted from which patients are treating and they tend to treat the earlier to treat patients and really focus on the efficiency of their sites. How many cases can they be doing in a day, etcetera.

Speaker 2

And you see that at a lot of sites throughout the country. I'd say that's the primary thing that we see. But we also anticipate seeing a little bit more is that you're going to people are going to try and say, you know what, I'm going to go try and this we expected, which is that I'm going to do that PFA just one last time. Let me go, I have tried an RF, they failed the catheter ablation. I'm going to go do PFA and then that's going to lead towards, basically treating hybrid longer term.

Speaker 2

I anticipate that's going to continue to happen, but we do see some of that. But what I'm also seeing is that if you just look at the sheer numbers, if you look at how many catheters are being sold today. So I think most people on this call know it's like what 400 1,000 or so catheter ablations in the U. S. Just for Afib last year.

Speaker 2

Anticipated this year, the growth is 15%, so 480,000 or so this year. That's 80,000 more patients that are now getting treated and the failure rates are equivalent. So you then have that many more patients that what do you do next. And that's where you're going to start to see more patients that are going to be in need of something beyond just a catheter regardless of what that energy source might look like. And that's why I look at 2025 and 2026 and I anticipate and we're starting to see it over in Europe, those values are going to turn into hybrid cases.

Operator

Thank you. And our next question comes from Mike Matson with Needham and Company. Your line is open.

Speaker 10

Hi, Mike. Hi, Andrew. This is Joseph on for Mike. Maybe the first question, just I guess just kind of wondering on the sustainability of the international sales. Obviously, that's been a strong growth driver for you guys.

Speaker 10

I think you said you expect continued momentum throughout the year. So maybe a little additional color there would be helpful. But a little bit more specifically, like China, I guess, if you could comment on maybe the environment there, how is China revenue going? Obviously, you'd be launching the AtriClip, but we've heard some companies see some weakness in China. So if you could comment on that, that would be helpful.

Speaker 3

Yes. To start with the international business very broadly, I think that there's many reasons to be optimistic about sustained kind of accelerated growth levels. First off, in each market that we operate significantly underpenetrated, so big, big opportunity in front of us. We're seeing particular excess in each of our franchise in Europe as that team is really focused on driving good accelerated adoption across each of our therapies. And Mike mentioned in his comments, the Encompass plant, we expect to be on market in Europe later this year.

Speaker 3

So continuing to invest to bring technology to our European markets along with kind of the technology that's there. That's one area of focus. And I'd say beyond just Europe, we continue to look at each market and say where is new and innovative technology belong in markets that the clip in China is one example of that. So relative to our China business, we work with a group of distributors in China and I'd say our business is very solid. We're not seeing the same level of disruption and think that the AtriClip will be a nice complement to our ablation technology in that market.

Speaker 10

Okay. Yes, great. That's very helpful. And then maybe just a quick We're curious maybe how Serenotomy is going in the pain management franchise?

Speaker 2

Yes. For Sironomy, I think the feedback we've given on this call before is really that the biggest pushback we got was time. And I talked on this call about cryoSPHERE Plus reducing time 25% and then Crysvr Max reducing 50%. So that you're basically taking a freeze time from 2 minutes down to 1 minute for each one of those freezes. And that's a big deal for that.

Speaker 2

And so I do anticipate that once we do a full launch on Crosshair Max that it might have some impact on the spironotomy. We're not baking it into our numbers though. We're assuming there's not going to be much of an uptake on that as we look kind of to the guidance in the back half of this year. As we look at next year and we get that MAX rolled out, we might incorporate it obviously in our guidance if we start to see some upside relative to that. So I look at Sironomie as being a huge upside for us.

Speaker 2

And we've built really 2 different devices that we think are going to make a difference in that market.

Operator

Thank you. And our next question comes from Daniel Stauter with Citizens JMP. Your line is open.

Speaker 11

Yes, great. Thanks. So just for my first question, pain management, strong quarter and it sounds like cryoSPHERE plus had some really good strong early days feedback. But can you give us any color on this dynamic in terms of growth? Is this new physician usage with the new features?

Speaker 11

Or is it higher utilization with the time benefits? Just any more commentary would be great. Thanks.

Speaker 3

Hi, Danny. It's a combination of both. So we saw really strong account growth in the quarter. We've seen that the past two quarters to start the year, but we're also seeing that within existing accounts that they continue to expand their adoption across the broader set of patients. So it's a combination of both.

Speaker 3

I think the introduction of the cryoSPHERE plus probe new technology, the existing device was launched in 2019. I think it's been reinvigorating for this market and certainly for our field team as they go back to customers who maybe had hesitation with time. We've got a reduction in time with the cryoSPHERE plus and we're also excited later this year with the cryoSPHERE MAX.

Speaker 11

Great. And then just one follow-up on appendage management. You've been asked a bit about it, but U. S. Sales tempered down by MIS piece.

Speaker 11

Is any of that from LARIAT like we had seen in the prior quarter? Or is it just the impact you had mentioned in AtriClip MIS with the EPs time being taken up by the PFA?

Speaker 3

Yes. It's the latter. It was that this is not a dynamic that we saw in the Q1 with kind of the drop off in Larry. It's really the softness in the MIS AtriClip side given kind of a slower MIS ablation quarter.

Operator

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

Speaker 6

Mike, Angie, can you hear me all right?

Speaker 3

We can. We can.

Speaker 6

Apologies for the background noise. So Mike, many questions have been asked. And let me ask the first one on PFA and the next one on AtriClip, and I'll throw both of them your way together. So PFA, Mike, look, it's not new, right? It's been around.

Speaker 6

We've been talking about it for years now. What is different from your expectation in terms of managing the PSA onslaught? What are you seeing differently right now that you're like, you know what, we didn't factor this into our calculation?

Speaker 2

Yes. So on the PFA front, it's a great question, Suraj. It's really the distraction that the sites having. I'd say what's different was we expected like you said and we were aware of it, we knew it was coming, we saw what we saw over in Europe, we anticipated the impact of going towards that second ablation. That was all built into our numbers and our thought process relative to it.

Speaker 2

I'd say the actual workflow at the site was maybe a little bit more pronounced in terms of how fast they moved into the site and then took that time away from them to be able to think about the workflow they were doing, on hybrid because they were so focused on getting their systems up and running, getting through their vast committees, figuring out what their contracting was going to go look like, how are they going to go do the referral patterns and switch out if they were going from whether they are are they going to do what were they going to do for their patient flow with RF versus cryo versus PSA. All that thought process, I think maybe took over more mindshare. That's why we say that it's temporary, that it took over a little bit more mind share as they were kind of getting those programs up and running from that standpoint. Not as much affecting the actual patients per se in terms of the patients, the longstanding persistent patients. We think that, there's still the data is still out there.

Speaker 2

They still feel really good. The data from over in Europe is not compelling to treat these patients. And I'd say that so for right now, it's mostly that distraction that was a little bit more than we had expected in this quarter.

Speaker 6

And Mike, maybe I'm paraphrasing here. One of the comments you made in your prepared remarks was or in your comments to one of the questions was something to that effect that over time, the long term growth increases because BFA failures, more patients are going to come into the funnel. Again, I think so I'm paraphrasing. Mike, remind us so Mike, remind us and maybe I'm mistaken here, is Converge only energy modality specific or I. E, RF?

Speaker 6

Or is it irrespective of energy modality? For some reason, I thought it was only RF. And also Angie, if you could share give us some color on same store, new store sales for AtriClip in the quarter? Thank you for taking my questions.

Speaker 2

I'm not sure that I completely understand the question around the modality. So the EPi Sense device is an RF device. So that is today utilizes RF technology on that front. In terms of what can be used on the other side, the catheter based, the EPi Sense can be used with anything. I mean, it can be used with PFA, RF or cryo.

Speaker 2

So whatever they decide to use on the catheter based side of the technology that doesn't have any impact on what you're going to use whether or not you can or you not use the EPi Sense device. I'm not sure if that's exactly what you're asking, but Suraj?

Speaker 3

Yes. Maybe as we try to get Suraj back, I'll answer the second question. Suraj, going into the year and for many years, we are yes, we can.

Speaker 6

Sorry, apologies. I was just Mike, that's exactly what I was asking if it's the catheter energy agnostic for CONVERGE. And I think so that's what you indicated. So Yes. That's what you're asking.

Speaker 2

I didn't have to give as long an answer. The answer that's pretty simple. Yes, catheter agnostic. Okay.

Speaker 6

Okay. And do you think store or new store?

Speaker 3

Yes. So we entering the year and for a number of years now, we've been pretty much 100% penetrated in kind of the number of cardiac surgery centers in the U. S. With our open NatureClip devices. So the growth that you're seeing is really within existing accounts.

Operator

Thank you. This concludes the question and answer session. I would now like to turn it back to Mike Carroll, President and CEO for closing remarks.

Speaker 2

Good. Again, everyone, thank you for joining and your interest in AtriCure. And as I said, great first half of the year, looking forward to the second half of the year and really excited about the Flex Mini device that we just announced today. You'll see more on that in the coming future. Talk to you soon.

Operator

This concludes today's conference call. Thank you for participating.

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Earnings Conference Call
AtriCure Q2 2024
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