All right, good afternoon, or I'm sorry, good morning. Welcome to the Canaccord Genuity Global Growth Conference. After seven presentations in a row, it feels like the afternoon. With us up next, we have AtriCure, and for AtriCure, we have Mike Carrel, President and CEO, and Angela Wirick, CFO. We'll start off with about a 10-minute presentation, and then we're going to move into a fireside chat. With that, I'd like to hand it over to Mike.
Thank you, Bill, and thank you, Canaccord, for having us here today. Much appreciated. Good to see everybody. Many people I know in the room, and it is morning for me, even though it might be evening or afternoon for Bill. I'll just give you a little overview, as I said, about 10 minutes about what AtriCure is, what we're all about. But if you leave here with anything, really think about the fact that we are in large, under-penetrated markets. We are addressing an underserved population. We are number one in each of the spaces that we happen to be globally in these areas, and every one of them are severely under-penetrated. I mean, there's a lot of patients to go after, so these are multi-billion dollar overall markets that we're going after.
Number two is that we already have a strong portfolio of products. We invest a lot in R&D and innovation and coming out with new products. Just over, quite frankly, over the last, between the last 6 months and over the next 12 months, we'll have almost 6 new product introductions, coming to market to really drive kind of access into these markets, and obviously, that leads to a bright future overall. So what I thought I would start was just... I mentioned briefly about the size of the overall markets. If you look at the kind of orange box there, kind of today, we're about a $5 billion market.
Now, what you don't see in this slide is if you look back 10 years ago, our markets, and we were defined, we'd be sitting in front of you, we'd be talking about $1 billion worth of market opportunity in TAM. But over time, we've actually expanded that opportunity quite dramatically. If you look to the bottom left, it's cardiac surgery. That's our core market that we've been in for many years. We've got relationships with every hospital in the United States and almost 80% of them around the globe. So we've got a very strong presence with cardiac surgery in that area, focused on atrial fibrillation, and open ablation and left atrial appendage management. That's a very big market, but an under-penetrated market, which I'll go into in a moment.
Our pain management business, which is actually for ablating the intercostal nerves to reduce pain after thoracic surgery today. That's that box that's within the orange area there, just for thoracic surgery. To give you some context to that, there's about 150,000 thoracic surgeries in the U.S. It's about triple that if you look at it on a global basis. We've been on the market since 2019, and we've grown that business tremendously, and we're still just 20% penetrated in that area as well. And what this does is it allows people to get out of the hospital faster and reduce the amount of drugs that they take when they're undergoing any type of thoracic surgery. Then finally, to the right, what you see is our hybrid therapy, which is a multi-billion-dollar market.
There are 8 million patients in the United States, over 37 million globally, but if you look at just those in the U.S., the 8 million patients, half of them have what I would call complex or advanced AFib. They've been in AFib for over a year. That's what we're going after here. We are complementary. You hear words out there like PFA, pulsed field ablation, from all the catheter-based companies. Those are great technologies. I'm not up here to say anything... In fact, they are complementary to what we do. Our technology works in combination with that for the most advanced patients, because you need a more durable lesion, and you need to approach it from both the inside of the heart and the outside of the heart. And that hybrid group is that 3.5 million patient opportunity just in the U.S. alone.
So a massive opportunity, and to give you some context, last year we did 3,000 cases. So we are just scratching the surface in terms of the market growth and market opportunities. That's why that little line below, the shade of blue is incredibly small. But we're also looking, the way we build our business is we say, "Okay, these markets have a lot of area to grow, but how do we build on top of that over time?" And if you look over to the sides, you can see both pain management and cardiac surgery have expansion opportunities to take the $5 billion, quite frankly, to well over a $10 billion-dollar opportunity. On cardiac, it's about a prophylactic treatment.
On pain management, it's about looking at other extremities outside of just thoracic, and in the hybrid, it's about other different areas where we might be able to get into. So big, low penetration in the market opportunity that sits there. I'm going to give you a little bit of detail just about AFib first, because I think it kind of helps you understand how we're differentiating the market. There's really two patient profiles that we're trying to help out. The first one is over where it says concomitant open procedures. This is a patient that undergoes into cardiac surgery, of which there are 2 million patients globally that undergo cardiac surgery, and one-third of those patients today have atrial fibrillation.
That has been the core of our business for many, many years, is to say, "Okay, how do we take that?" 10 years ago, of that group, 10% were treated. Today, it's over 30%, and we anticipate that that number is going to go to 80%-90%. Why? Because guidelines have changed, reimbursement has changed, and so we're in a great place to help treat that patient. And oh, by the way, we are number one in the world in this area. We've got about 85% market share. This is where we sell our ablation products, and we also sell something called the AtriClip to manage the left atrial appendage. So big opportunity, it's been a great, solid business for us for many, many years, and there are still many, many more patients to treat.
On the other side of the page, you see the, what I was referring to earlier as hybrid. This is a patient that has atrial fibrillation, and AFib is a lot like cancer in that it is a progressive disease. So what happens is when you go in for treatment to your doctor, when you've got AFib, they typically put you on medications. Then what they'll do is they'll do the cardiac ablation with a catheter. When that does not work, that's when we come to play... because it doesn't work when you actually have a more advanced form of atrial fibrillation. And so this market alone is a multi-billion dollar market as well. So in cardiac surgery, I hit on most of this, but just to give you a little bit more background into the area, on this area, right now we've got two different areas.
It's an ablation and an AtriClip. We're number one in the world in both of those different areas. We just announced the launch of a brand-new product called the FLEX Mini we announced in our earnings call. We got clearance from the FDA. We anticipate a full launch in the fourth quarter of this year. This is a new innovation. It's about the seventh generation of the product, and we continue to leapfrog kind of our own technology out in the marketplace relative to that. And we do have competition coming into this area, 'cause people are recognizing that this is a under-penetrated market. And to give you some context to how under-penetrated it is, there are 2 million patients that undergo cardiac surgery every year, and last year we implanted about 125,000 of these.
That means we're about 6% penetrated in a market of 2 million on a global basis. So we have a long way to go as we go after this space. But we also and the way to win in that space is you've got to show stroke reduction. So that's why we're making major investments in a trial called LeAAPS, which is a randomized trial to demonstrate that our products do in fact reduce stroke rates for patients that undergo cardiac surgery when you put our AtriClip on. So we have an established brand. Over 5,000 have been implanted, incredibly safe. It works every single time, and now we're investing in both new technologies and new clinical evidence to basically go from 6% penetration to the 2 million patients that undergo cardiac surgery every year.
I hit on hybrid quite a bit already in terms of kind of the overall size and market opportunities there. What you really have to come out of this is that the data suggests that if you have AFib for more than 12 months, there's really only one solution that works on the market. And you can see we've had about 5 different randomized controlled trials globally that have demonstrated hybrid solution when you combine the catheters, whether it's PFA, cryo, or RF. With our technology, you get a significant improvement in the lifespan for that patient, significant reduction in the atrial fibrillation for that very complicated to treat patient. And the data suggests it, and it's been... We invested in that over the many years.
Then finally, on the pain management side, I mentioned earlier, we kind of launched this in 2019, and in 2019 we demonstrated that when you do an ablation on the, what they call the intercostal nerves, so when you're disrupting the nerve endings around your thoracic space to get access to it, it's really painful. By freezing it, what you do is you block the pain signals temporarily for about a 6-8-week timeframe. I often get asked the question: "Why are you in pain management when you've been in AFib for so long? Like, that's your business." And the reason we got into it is that we are experts in cryo. And then people started to use it to reduce the pain during their surgery, and we realized, why do we do it?
Because it works, and it works almost every single time, and we had unique access because we already had systems in place across the country. It's grown tremendously to now we've got. We did $15 million in business just in the most recent quarter. Grew 19% in the second quarter of this year. Very, very good robust growth in this area. Just to give you some context, I know we're going to get some questions here in a moment. If you look at our outlook for the year and you look at our history, we have been a very consistent. If you get anything from AtriCure, it's we are very consistent at growing in the mid-teens. You can see even over the last several years coming out of COVID, we had 33%, 20%, 21%.
This year, we're around 15% overall growth for the business. So very on, obviously larger numbers, super solid growth, and we've crossed the profitability. So last year, we did $20 million of adjusted EBITDA. This year will be between $26 million and $29 million, and in the most recent quarter, we generated $8 million in cash. So committed to both growth on the top line and on the bottom line. Financial profile is incredibly strong. We've got a balance sheet that can support us as we go forward. And then, with that, I'll just, I think I can close on that slide and turn it over to Bill to ask us some questions.
Excellent. Let's have a seat in the board's chairs up here. Mike, Angie, thanks for joining us today. Appreciate it, and thank you for the audience as well. I want to start out, and it's the question I get asked actually the most, and given the stock is down, is 15% growth. There's some fear that you could go under that kind of target of 15% growth. What do you think about that? What are the risks that, you know, we end up the year below, above? 'Cause I think that's, as the stock has pulled back, that's probably the question I get the most.
Yeah, I mean, I look at it and say we've been a consistent kind of mid-teens grower to 20%+ grower for many, many years. We've hit the numbers that we've always talked about. Even though we brought guidance down just slightly this quarter, we actually hit our numbers last quarter. We haven't missed. And so we feel really good about the guidance that we've given for the rest of this year, and we feel good about the profile of what's coming, to come as well for our business overall. If you look at kind of the pipeline of activity we've got across every aspect of our business, so we rolled out cryoSPHERE+ , which is helping grow that cryo business, and we were at 19.2% growth in the most recent quarter. You've got FLEX Mini in the area where you've got competitive pressures.
People are thinking, "Wait, that's going to go to nothing." Yet we actually accelerated our growth rate. Even without the new product introduction, in the second quarter, we grew 17% in our open clip franchise, and we've got the new product introduction, and we've got the LeAAPS data and trial ongoing as well. So we feel really good about the pipeline of both R&D and clinical evidence that's out there, to maintain really strong growth rates for not just this year, but actually into the future as well.
Okay, and let's shift to the guidance. You already mentioned it. You had a good, solid quarter. You reduced the 2024 guidance to reflect the weakness in the MIS, EPi-Sense business and the impact that that also has on the clipping side. Talk about your expectations for the year to the business and especially in light of the challenging launch you've had with EPi-Sense. And ultimately, what do you think PFA is doing in terms of distraction, and how long will this keep distracting us?
I mean, look, if you take a step back for a second, I think the first thing is that are there patients that actually benefit from the work that we do, whether you're using cryo, RF, or PFA? The answer to that is 100%. These patients have a failure rate when they have catheter ablations of about 30%. Especially in the complicated patients, it's actually less than 50%. Well, what do you do when you've thrown everything at it? And what you do is you basically refer them to a surgeon. And so because the surgeon can actually with...
And we've proven it, as I mentioned in my discussion up there, is that we've proven it through many randomized trials, that when you do that, you actually get well north of 70% success rates, durable success rates for many, many years when you add this onto those failed catheter ablations. That's the problem we're trying to solve. We're not trying to compete against them, but when they don't work, which they don't every time, then you've got another solution to kind of come after them on that front. What PFA has done is it's created a lot of excitement because they can do it faster. They can treat more patients, which is great. And they're going to try that because it supposedly is also. They can do the back wall, they can make it safer.
That's all good, but the data will suggest that eventually those patients are going to basically fall down the funnel and have their non-response. Therefore, we're going to basically be there to catch those patients. What's done in the short term is that physicians are saying, "I need to incorporate this into my hospital." So it takes time and distraction. They've got to buy the systems. They've got to work with administration. So they're not thinking about the referral patterns to their surgeon. They're thinking about: How do I get this in and compete against the guy across the street who's getting PFA and is marketing the fact they've got this new technology in their market? That is a transient issue, though, 'cause they're all going to have it within the next year or so.
They're gonna all have some systems, and so we're gonna benefit 'cause that means more patients are gonna get treated, and then we're gonna kind of be at the bottom of the funnel when they do have those failures. But in the meantime, there is a distraction, and then we saw that distraction in the second quarter. We anticipate it's gonna happen the remaining part of this year. But this isn't something that's a distraction for the next several years. We think that, you know, in into next year, we should start to see some relief on that.
Then help us understand. I think you had this at the same time as you had a competitor come into the clip business. So you have, on one side, you have the Convergent procedure, but I think you had a good slide up there that said, "Hey, when you do the hybrid, they're also putting a clip on.
And so if they're not doing as many procedures or that's slowing, then your clip business would naturally slow, at least that component of it.
Correct.
But we, as investors, see clip business, not subsegments. So help us understand, like, you, you have this overarching business versus what's going on in the competitive side, versus what's going on on the EPi-Sense plus clip side, and how do you see this kind of, you know, as we should look forward on that?
Yeah. I think, too, the appendage management line consists of both open chest AtriClips, so it's an open cardiac surgery application in conjunction with an ablation or often on its own, versus the minimally invasive AtriClip devices are put on in conjunction with a Convergent procedure, largely. We have about 85%-90% attachment to our Convergent procedures. In the U.S., the split of the appendage management revenue was about 77% for our open AtriClip devices versus 23%. If you look back at 2023, that was closer to a 75/25% split. You've seen really nice growth in our open appendage management product line, which is where we've got the competitor in the space. So we were excited in the second quarter to see an acceleration in growth, like Mike talked about.
We grew around 15.5% in the first quarter in the U.S., and just under 17% in the second quarter in the U.S.
Despite competition-
Correct.
Not impacting the open business, what we're actually seeing is just because the PFA has come in, and the physicians are focusing elsewhere rather than building the EPi-Sense programs. Maybe that's not growing as fast right now-
Yes.
But you think that's a short-term distraction?
Correct.
Correct.
How long is this? You saw this internationally. Is this 2 quarters, 3 quarters, 4 quarters before?
I was thinking in terms of quarters and not years, as Mike said. So beyond 2024, which was the thought that went into kind of the guide adjustment for the year.
Excellent. And then, my next question: I don't want to lose sight about how PFA can be complementary to the hybrid Convergent procedures, since you're agnostic about the endocardial catheter piece of the procedure, which you've outlined above, before. More volume leads to more failed catheter ablations. Where does this ultimately lead us? Like, I think we're all focused on the present, and if we're actually getting higher throughput, you know, the doctors adopt PFA because they can do it faster, safer, but they're not improving outcomes.
So to me, that just means we're gonna have more patients down the line.
Is that, you know?
That's a great way to think about it. I mean, if you look at... I mean, even put numbers behind it, there are 400,000 catheter ablations for AFib in 2023. That number is supposed to be 480 this year, growing at 15%-20%. That's gonna be more entering the top of the funnel to come to the bottom of the funnel when they actually have some of those failures. Today, we treat just over 3,000 patients with Hybrid. We're less than 1% of the total population on that front. So it's. We're a small, little niche area in that, and we want to make it standard of care that for the complicated, we're not gonna take over the 400,000 or the 480.
I mean, the catheters work incredibly well for the early-stage patients, and they should continue to do that. For the later-stage patient, even if they try it first with that, they're gonna get their failures, and we're gonna have tens of thousands of patients that we think can get treated and should be treated every year with ours, and that's when it becomes a standard of care. We need to get to that critical mass, and that's our goal. Now, obviously, if there's a distraction, 'cause you've got to get two specialties to work together with EPs, that's the distraction that we'll work through, but eventually, this is gonna be tens of thousands of patients every year that are getting treated.
Okay. Let's go back to the clip business real quick. We did talk about trialing. You saw it Q1, you saw it Q4. Has it peaked? I mean, I think on the coverage call, you said you had, like, 950 accounts.
... Yes.
Do you think that all the accounts have seen it at this point, or if they're going to adopt it? You know, what does Splitters look like? Are they adopting it, putting it on the shelf just so they have two solutions? And if so, you know, have you been kicked out of any accounts?
We have not been kicked out of any accounts. I'd say the trialing is continuing. Within our open AtriClip business, we are in almost every cardiac surgery center in the U.S. That's the 950 number, and we're seeing a range. We've seen surgeons try the product, the competitive product, and say, "You know, I will use this and an AtriClip device. We will use both." I'd say more in the second quarter, we heard of trialing ending in accounts where they've come to the conclusion that AtriClip is superior, Penditure will not be in the account, and trial period is over. But the competitor is in the market for a reason. It's a really big market. It's a compelling reason to be in, and our expectation-
... and outlook is we're prepared to continue to compete, and we think that new technology with the FLEX Mini is a great way to put us out ahead in the lead again.
You took my next question. How do we think about FLEX Mini? You know, what does that do from a volume ASP standpoint as you commercialize that product?
From a volume standpoint, we think it helps continue to grow the market. Visually, the clip is significantly smaller. To the naked eye, it looks significantly smaller. I think in some use cases where surgeons are concerned about anatomy close to the appendage and thinking, "Okay, if I put a device there, what's the impact?" We're hopeful that that encourages the physician to use the device. I think also given this falls on the platform of an incredibly successful AtriClip product line, multiple iterations where our surgeons have excellent experience, I think it's gonna continue to drive volume growth. With all new technology, you know that we look for an uplift in pricing. This will be no different. I'm just not gonna tell you what it is.
And to be clear, and if you look at our product line today, the products we have on the market today are already the best products on the market.
Yeah.
They're the smallest, most effective, and most proven technology with the best safety rates that are out there, with our existing technology, and then this is just another step forward on top of what is already a platform that is superior to what is on what the competitors have.
Okay. Let's shift to the pain business.
I think we saw a re-acceleration in growth. We did see the cryoSPHERE+ product launch. Is there a correlation there? Is this just getting doctors more excited, or is there something other going on? And how should we think about as you bring out cryoSPHERE MAX product into the end of the year?
We do think that there's a correlation to bringing out new products and getting excitement, and, I mean, there's a demonstrated reduction in time they can take by doing cryoSPHERE+, and cryoSPHERE MAX reduces the time even more. So any of those surgeons that were hesitant for time reasons, we've actually tremendously reduced that time, and we think MAX reduces it in half. So we do think that you'll get kind of a another boost when we get MAX out the door as well. We're still severely underpenetrated, even in thoracotomy. We've only been in the market for five years now. So we think that there's a lot of room for growth just in thoracotomies, let alone looking at other extremities and other areas we might longer term look at.
Sphere has already opened up and penetrated more of the TAM?
You mean the Sphere Plus?
Yeah, Sphere Plus, yeah.
Yeah.
Yes.
We saw great activity within existing accounts in the quarter, as well as a significant number of new accounts, and I think that says, look, even accounts who had already adapted the existing technology were growing their business.
And then just last question is, MAX , my understanding, another price bump when you come out-
Correct
... with the MAX product?
Yes.
Quantify it.
$200.
A couple hundred.
The limiter here, I mean, remember, the pain management products don't have separate reimbursement.
So you're asking a practitioner or a surgeon to add time to a procedure, and then also cost within the procedure code. Given a 50% reduction in freeze time, we said, "Look, this is a clear differentiation," wanted to ask for a price uplift there. The cryoSPHERE+ comes with a benefit to our COGS, so a better margin product, even though we're keeping the pricing the same.
And then, switching to the open ablation business, just any update on the Encompass CE mark? And then, how should we think about that contributing?
No update to give today, but I, you know, we do anticipate that sometime this year we will actually get that CE mark, so that should drive revenue. The team's ready, prepared, they've been trained on it. They know what, They're ready for the moment that we get that to be able to kind of sell it.
We've got inventory in place to be able to distribute very quickly from that standpoint. So we're in a really good position on that front. That's obviously a nice price uplift over in Europe as well once we get that.
I think, you know, the Encompass in the U.S. has been surprisingly a lot of longevity to that product-
Yes
... in terms of growth and just expansion of usage and adding more docs and more procedures.
We think the same thing will happen in Europe and eventually in Asia, but obviously starting out with Europe.
We have about a minute left. What significant products, just internationally? You know, you've talked about this. It's like we're gonna take our U.S. stuff OUS.
What do you have in the U.S. that's not OUS, that can be big outside of the Encompass?
The-
Or, what markets are you not in that you'll get into with one of the big U.S. products?
Yeah. Today, the most comparable market to the U.S. is Europe. It has the majority of our product set-
... ex Encompass, and then the Sphere Plus and the MAX eventually will make their way to Europe as well. Beyond that, every other country is working off a very limited subset of our technology.
So we're being very mindful where the opportunities exist, where there's good reimbursement it'll support, where we've got direct field teams, and looking at bringing technology to market that would make sense.
... So I think as we think of international, that can be a 15%-20%-
Multi-years of growth.
Multi-years.
Yeah.
Just by taking your current existing successful products into some of those markets-
You've seen it in China. We just got the AtriClip approved in China. We do not have cryo approved in China. That'll be kind of the next leg there, both for cryoanalgesia and eventually for cardiac surgery as well. That's an example of a very large market. They do 200,000 cases there every single year that we anticipate could be another one of the markets-
Yes
- that we kind of approach like that.
Just last question is the financials. You're cash flow positive this quarter. You're guiding to be for the rest of the year. Very nice to see.
Yes.
Congratulations. It's a good spot to be in med tech. How should we think about sustained cash flow positivity? What revenue level is needed for that cash flow plus every quarter?
We are close. We are very close. If you take a step back, 2023, take out a one-time burn, we had about a $10 million burn for 2023. I think you've heard we're very committed to improving and enhancing our profitability. Modest burn is the expectation for full year 2024. I would say we're very close in the coming years to be cash flow positive, and we've got a strong balance sheet to be able to bridge to that.
So 15%-ish—my words, not yours—grower, cash flow positive, 2x EV to sales in med tech, number one in a bunch of your markets. What the heck are investors missing?
I go for it.
I think they're missing exactly what you just described, is that I think they're worried about they worry that competition is going to be an existential threat, and I view competition as enabling and, quite frankly, giving us confidence that our markets are really big. There's only one reason they're getting into it, because it's not for the size of the market it is today; it's the size of the market of where it's going. And so investors are very worried about that, and I view that as complimentary, meaning that they're complimenting us and saying, "Hey, that's this is a huge market," and these aren't small companies they're going after it. They're not doing it to be a, in a $50 million market. They're doing it to be in a billion-dollar market. And so, I think investors... And I understand it.
They're worried that a big company comes into your space and that they're gonna do some sort of pricing or bundling or all those types of things, but I think what they forget is that we have over 500,000, in that particular case, in our AtriClip. We've got an incredibly strong record on both safety and efficacy of the products we have in our market. We've built clinical evidence over many, many years and made many investments thanks to investors giving us that money, that we've put that to work in R&D if you just look at what we've done. We've also got an incredibly strong field force of over 350 people total in the United States, when you include all of our different areas. So we've got coverage in the United States.
We're not a small company in terms of just trying to get into a hospital. We've got really good coverage. We're on contract at all these places, and I think that, you know, we've got strength too, from that standpoint, and we've got great products and great clinical evidence to prove it out. So hopefully, investors will continue to see that great growth and at some point recognize the fact that this is something that's gonna happen for a long time.
Excellent. Yeah, I think historically we've seen the second player validates the market, the third one validates, the fourth one gets kind of-