AtriCure, Inc. Q4 2008 Earnings Call Transcript

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 |  About: AtriCure, Inc. (ATRC)
by: SA Transcripts

AtriCure, Inc. (NASDAQ:ATRC)

Q4 2008 Earnings Call

February 19, 2009 10:00 am.

Executives

David Drachman – President, Chief Executive Officer

Julie Piton – Vice President of Finance and Administration, Chief Financial Officer

Analysts

Charley Jones – Barrington Research

Timothy Lee – Piper Jaffray

Jason Mills – Canaccord Adams

[Mimi Pham – JMP Securities]

Joanne Wuensch – BMO Capital Markets

Larry Halmovitch – HMPC

[Ed Antonian – Chartwell]

Matt Dolan – Roth Capital

Operator

Welcome to the AtriCure fourth quarter 2008 conference call. (Operator Instructions) I would now like to turn the call over to Mr. David Drachman, President and Chief Executive Officer of AtriCure.

David Drachman

Good morning and welcome to our fourth quarter and full year 2008 earnings conference call. Joining me on the call today is Julie Piton, Vice President of Finance and Administration and Chief Financial Officer. At this time, I would like to turn the call over to Julie for a few introductory comments.

Julie Piton

Good morning everyone. By now you should have received a copy of the earnings press release. If you have not received a copy, please call Sarah Wickman at 513-755-4136 and she will fax or email you a copy.

Before we being, let me remind that the company's remarks today may include forward-looking statements. These statements may include but are not limited to those that direct activities, events or developments that AtriCure expects, believes or anticipates, will or may occur in the future such as revenue and earnings estimates, other predictions of financial performance, launches of new products and market acceptance of new products.

Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control including but not limited to the rate and degree of market acceptance of AtriCure's products and other risks and uncertainties described from time to time in AtriCure's SEC filings.

AtriCure's results may differ materially from those projected on today's call and AtriCare undertakes no obligation to publicly update any forward-looking statement whether as a result of new information, future events or otherwise.

I would like to remind everyone on the call today that the FDA has not cleared our products for the treatment of atrial fibrillation or AF. The majority of our products have been cleared for the ablation of cardiac tissue. The company and others acting on its behalf may not promote any of its products for the surgical treatment of AF or train doctors to use the products for the surgical treatment of AF.

These restrictions however, do not prevent doctors from choosing to use the products for the treatment of AF or prevent AtriCure from engaging from sales and marketing efforts that focus only on the general attributes of the products for the current cleared uses and not for the treatment of AF.

AtriCure educates and trains doctors in the proper use of its products and related technologies and does not educate or train doctors to use any of its products for the surgical treatment of AF. AtriCure has provided research grants to institutions for the purposes of conducting certain studies that may be referred to on this call. The primary office of the papers referred to on this call, may be consultants to AtriCare.

With that, I would like to turn the call back to Dave.

David Drachman

Welcome to members of the investment community who have joined us today. I will begin with opening remarks, followed by a review of our work force actions and our financial performance. Then, I will provide an overview of the recent clinical science which affirms the power of our strategic plan and validates our business thesis.

Next, I will provide an update of our clinical trial and product development initiatives followed by an update concerning the Department of Justice investigation. Following my remarks, Julie will provide a detailed review of our financial performance. We will then open the call for your questions.

We aim to leave you today with a deeper understanding of the elements of our strategic plans which are designed to preserve our capital structure and achieve sustainable profitability. Our strategic priorities include, continued expansion of our leadership position through new product innovation, achievement of atrial fibrillation approvals and a commitment to providing our investors with a high rate of return.

From this information, we would expect that the investment community will understand why we believe that AtriCure will emerge from our current challenges stronger and better positioned to deliver results for patients, physicians and shareholders.

Turning to our work force actions, importantly, we established the following financial priorities to guide our actions. We prioritized cash, profitable market share and profitable market share gains in that quarter. During the fourth quarter, we implemented a series of work force actions designed to reduce our cost structure in order to achieve profitability.

These actions included a 12% reduction in our overall work force. We currently have approximately 200 full time employees. The impact to the immediate or run rate cost structure was approximately $7 million. The estimated impact on our 2009 cost structure is expected to be approximately $5 million on a year over year comparative basis.

Importantly, given our current cost structure, we anticipate generating positive EBITDA excluding non cash compensation at an annual revenue run rate of $57 million to $60 million.

During the fourth quarter, we recorded a one time charge of $1 million or $0.07 per share for severance related expenses. In spite of these actions, we have retained our employees. With the exception of one production associate, we have not received a single voluntary resignation since the implementation of our work force actions.

The reduction in work force included a realignment plan of our sales and sales support and professional education personnel. We developed and executed this plan with the support, leadership and active participation of sales management and ten of our top sales performers. This plan included position eliminations, flattening of the sales organization, realignment of sales support positions, retention plans, 2009 incentive programs and the development of a comprehensive internal and customer communications strategy.

We began the process with a total of 27 sales territories. Each of these territories remains intact, and our customer relationships were uninterrupted. As part of our realignment, four area sales directors were reassigned to sales territories and awarded long term incentives. This repositioning focuses our top performers on direct selling.

Going forward, we have a focused, highly motivated sales organization that is staffed and aligned for profitable market share and profitable market share gains.

Now, I will briefly summarize our full year 2008 financial results and then review the circumstances which impacted our fourth quarter financial performance.

Full year 2008 consolidate revenues were $55.3 million which represents a 14.4% year over year increase. U.S. revenues from open heart products of $27.1 million are consistent with 2007. U.S. revenues from minimally invasive products were $19.8 million which represents a 37.6% year over year increase. Additional, minimally invasive procedures were performed in 84 U.S. Medical Centers during the fourth quarter. International revenues were $8.3 million which represents a 26.5% year over year increase.

As we anticipated, and communicated during our previous earnings call, the fourth presented several distinct challenges which we believe impacted sales. Specifically, there are five areas that I would like to address.

One, sales realignment; as mentioned previously, we developed and executed an extensive sales, sales support and professional education realignment plan which significantly impacted our selling time.

Two, moderation of procedure volumes; we experienced a moderation of procedure volumes which we believe were related to the macro economics. These trends were more evident in the middle invasive segment of our business.

Three, a strong third quarter run rate; despite seasonality, our third quarter 2008 revenues were consistent with company highs. During the fourth quarter, hospitals began to focus on reducing inventory levels. We believe that the combination of a strong third quarter run rate, a moderation in procedure volumes, followed by efforts by our customers to reduce inventory levels, impacted fourth quarter revenues.

Open heart trends; as we anticipated, communicated and planned for, over time there has been an uncontested technology market trend towards using long disposable [coil probes] for a specific open heart procedures. As we've discussed on previous calls, we believe this represents a new market opportunity for AtriCure.

We are confident that a long disposable coil probe which we anticipate will be introduced during the second quarter of 2009 will compete favorably in this market segment.

Five, our fourth quarter Department of Justice announcement; we believe this announcement is not impacting our market share with our existing customers. However, it has temporarily lengthened the selling process with hospital administration in new accounts. Most importantly, we believe the majority of these selling challenges can be resolved.

Furthermore, managing this announcement during the fourth quarter was a significant distraction which also impacted selling time.

Now, turning to a review of the clinical validation that addresses our $2 billion minimally invasive U.S. opportunity. There is an increasing body of evidence supporting the adoption of our minimally invasive products. This clinical data is being published in the major peer review journals and presented at national and international meetings.

There was a recent publication in the new technology section of the Annals of Cardiac Surgery. This manuscript from Ohio State University is entitled, Toward a Definitive Totally Arthroscopic Procedure. The manuscript highlights the use of our minimally invasive platform to implement the complete lesion set in a truly minimally invasive off pump approach.

This published study describes a true port access procedure that addresses the autonomic and anatomic sources of atrial fibrillation. In this study, all patients presented with persistent or long standing persistent atrial fibrillation and underwent a totally arthroscopic ablation procedure.

The ablation procedure incorporated a complete lesion set and real time verification of all ablation lines using the minimally invasive platform to perform the ablation in intra-operative electro physiologic testing. In the study, patients were evaluated with continuous rhythm surveillance post operatively.

Treatment failure was defined as any single episode of atrial fibrillation lasting 30 seconds or more. The authors reported that at six months, 87.5% of patients were in normal sinus rhythm and off their medications. Results from this truly minimally invasive approach were corroborated by two other well known investigators, The Boston Atrial fibrillation Meeting, and the Society of Thoracic Surgery Meeting in January 2009.

Furthermore, highly encouraging results from a hybrid procedure were presented during the Boston Atrial fibrillation meeting. This procedure incorporated the main aspects of the totally focused Arthroscopic ablation procedure described by Ohio State University. However, the treatment is performed in a hybrid procedure room with the support of an electro physiologist.

Certain ablation lesions and the electro physiologist testing were performed using percutanious[ph] endovascular catheters. The early results from this new and promising hybrid approach were 98% success rates in long standing persistent atrial fibrillation patients. In addition, during the Society of Thoracic Surgery meeting, the initial encouraging experience using a robot to assist the surgeon in performing a totally arthroscopic ablation procedure using our minimally invasive platform was presented.

Importantly, we anticipate a series of influential peer review publications and presentations throughout 2009. We expect these publications and presentations will continue to validate superior outcomes resulting from the physician adoption of our minimally invasive platform.

Now, a review of our investments and FDA approvals. First, a review of our ABLATE Clinical Trial. As a reminder the ABLATE Clinical Trial is designed to treat patients undergoing elective open heart procedures that presented with a documented history of permanent atrial fibrillations. Results will be determined based on rhythm surveillance at the six month follow up.

Importantly, our PMA shell which includes a complete outline of all the modules has been completed and accepted by the FDA, and the first module has been filed. The acceptance of a modular PMA filing supports our commitment to obtain atrial fibrillation approvals as rapidly as possible.

To date, we've enrolled a total of 46 patients. Based on the trial design which incorporates a Besian statistical model, we anticipate enrolling 60 to 70 patients. The first patient was enrolled. The trial has been expanded to 10 sites and we plan to further expand the trial to include additional sites during the second quarter if needed.

We expect completing enrollment during 2009 and submitting the final module of our PMA during the first half of 2010.

Now, a review of our FDA regulated exclude clinical trials in support of our Left Atrial Appendage platform. As a reminder, the pathway for U.S. clearance for our Left Atrial Appendage system is a 510-K. The clinical trial design records implantation of our clip ion 60 patients.

We enrolled the first patient during the fourth quarter of 2008 and to date, we have successfully enrolled 25 patients. Importantly, we plan to submit our 510-K by year end and anticipate U.S. clearance during the first half of 2010.

Now, turning to a review of our key 2009 product releases. We have completed the development of a long disposable trial probe and anticipate this will lead to new selling opportunities and increased market share. We expect 510-K clearance and market release of our new disposable trial probe during the second quarter of 2009.

In addition, continuing our tradition of innovation and market leadership, we plan to release a new generation premium clamping platform that is designed to be used in open cases and to facility totally arthroscopic minimally invasive procedures. Additionally, we plan to release next generation coil ablation system during the fourth quarter of 2009.

In terms of the Department of Justice matter, as you may recall AtriCure received a letter dated October 24, 2008 from the U.S. Department of Justice Civil Division informing us that they are conducting an investigation examining our marketing practices utilized in connection with our surgical ablation system to treat atrial fibrillation, the specific use outside the 510-K clearance.

The letter also stated that the Department of Justice is investigation whether AtriCure instructed hospitals to bill Medicare for surgical ablation using incorrect billing codes. However, AtriCure itself does not submit bills to the Federal Government or participate in the billing activities of its customers.

In addition, we received a follow up letter from the Department of Justice on November 4, 2008. This letter was a request for information to which we have responded. Recently, our council has met with the government to discuss the activities described in the information submitted.

To date no suit has been disclosed to us or threatened, and the government has made no financial demand. We intend to fully cooperate with the Department of Justice as it continues its inquiry and we will continue to operate our business in the normal course.

We are aware of at least one other company that competed with AtriCure that has received a similar communication from the government.

At this point in our call, I would like to turn the call over to Julie for a detailed review of our financial performance.

Julie Piton

I'll start with a review of our full year 2008 financial results. Total revenues were $55.3 million, a 14% increase over 2007. Revenues from domestic open heard products were relatively consistent with 2007 at $27.1 million. Revenues from domestic minimally invasive products were $19.8 million, a 38% increase over 2007.

International revenues were $8.3 million, a 27% increase over 2007 including a 4% benefit from exchange rate fluctuation. Exchange rate fluctuation has less than a 1% benefit on consolidated revenue growth.

As a reminder, revenues from our multi-functional pen which is used in both open and minimally invasive procedures are allocated between open and minimally invasive product revenues based on our best estimate of the pen's actual usage.

Now, turning to gross profit and gross margin, gross profit for 2008 was $42 million reflecting a gross margin of 76.1% as compared with gross profit and gross margin of $38.2 million and 79% respectively for 2007. The decline in gross margin was primarily attributable to the increased mix of international revenues and new product introductions, including capital equipment which carry a lower average gross margin than our existing products.

Next, an update on operating expenses and our net loss per share. Operating expenses for 2008 were $53 million, a $2.3 million or 5% increase over 2007. The year over year increase in operating expenses was primarily driven by an increase in selling expenses attributable to an increase in average head count, an increase in variable selling expenses and an increase in share based compensation. These increases were partially offset by a reduction in general and administrative expenses.

Earnings before interest, taxes, depreciation and tangible asset amortization and share based compensation for EBITDA excluding share based compensation improved approximately 33% or $2.8 million to a loss of $5.6 million. Excluding the $1 million charge we took during the fourth quarter of 2008, it improved over 45% or $3.7 million to a loss of $4.7 million.

Note that our calculation of this metric is operating loss plus intangible asset amortization plus depreciation plus share based compensation that is included in operating loss.

The net loss for 2008 was $10.2 million, a 10% improvement over 2007's net loss of $11.3 million. Net loss per share for 2008 was $0.72 as compared with a net loss per share of $0.84 for 2007.

In terms of the balance sheet and cash, we ended the year with net cash calculated as cash and restricted cash plus debt of $11.4 million. Our cash used in operations improved 30% from $8.1 million in 2007 to a use of $5.7 million in 2008. We generated positive free cash flow during the second half of 2008.

Now, for a review of our fourth quarter 2008 financial results; total revenues were $12.1 million, an 8% decrease over the prior year. Revenues from domestic open heart products were $6 million, a 17% decrease over the fourth quarter of 2007. Revenues from domestically minimally invasive products were $4 million or a 3% increase over the fourth quarter of '07.

International revenues grew 2% to $2 million. International revenues for the quarter were negatively impacted by approximately 6% as a result of currency fluctuation. Consolidate fourth quarter revenues were negatively impacted by approximately 1% as a result of currency fluctuation.

Now moving to fourth quarter gross profit and gross margin; gross profit for the fourth quarter 2008 was $9 million reflecting a gross margin of 74.3% as compared with 80.1% for the fourth quarter of 2007. The decrease in gross margin in the fourth quarter of 2008 as compared with 2007 was primarily attributable to an increase in revenues from new products, an increased mix of international business during the quarter and non recurring adjustments.

Next, an update on operating expenses and our net loss per share; operating expenses for the fourth quarter of 2008 were $12.4 million, a 2% increase over the fourth quarter of 2007. Included in operating expenses in the fourth quarter of 2008 was a charge related to our reduction in force of $1 million and a benefit of approximately $700,000 related to compensation accrual adjustments.

The net loss for the fourth quarter of 2008 was $3.2 million as compared to $1.6 million for the fourth quarter of 2007 which was driven primarily by a reduction in revenues. Net loss per share for 2008's fourth quarter was $0.22 per share or $0.15 per share excluding our fourth quarter restructuring as compared with a net loss per share of $0.11 for the fourth quarter of 2007.

With respect to our fourth quarter restructuring, as Dave discussed, we reduced our head count by 12% and took other actions such as an elimination or reduction in temporary employees to reduce our overall cost structure. The impact to the immediate or run rate cost structure was approximately $7 million.

However, the estimated benefit of those activities to 2009 is expected to be approximately %4 million on an annualized year over year basis. Given our current cost structure, we anticipate generating positive EBITDA excluding share based compensation at an annual revenue run rate of $57 million to $60 million.

At this point, I would like to turn the call back to Dave.

David Drachman

As we have discussed, during the fourth quarter there were several significant factors that impacted sales. In order to provide accurate guidance, we believe that we need to evaluate the effectiveness of our sales realignment, further assess minimally invasion procedure trends and launch our new product platform. We will continue to evaluate our approach to guidance during the year.

In summary, we will remember 2008 as a year of unprecedented economic events and challenges. However, the Net Tech disposable product markets continue to demonstrate stability and growth potential when compared to other segments of health care and the economy. With that backdrop, we are extremely proud of the men and women of AtriCure and their accomplishments in 2008.

Going forward, our capacity to succeed and to face our opportunities and challenges with rapid, well executed solutions is embodied in our culture. Finally, the leadership of AtriCure has a passion and unwavering commitment to execute our strategy and create shareholder value.

At this time, we would like to open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Charley Jones – Barrington Research.

Charley Jones – Barrington Research

Normally I wouldn't as this detailed of a question, but could you discuss how January and February are trending for sales relative to December, November, and Julie if you could comment a little bit on international and how you think that's going to be impacted this year with the dollar and what you're seeing for trends at least over the next quarter?

David Drachman

Overall, we saw a deep decline in procedure trends in October. During the fourth quarter, we saw that trend begin to flatten and during the first half of the first quarter, we believe that the trends are beginning to rise to historical levels, slowly rise to historical levels.

Julie Piton

With respect to international, about half of that business is subject to currency fluctuation, so I would not expect it to have a dramatic impact on our 2009 growth rates, although certainly a couple of percentage points in terms of the overall international growth that we would have originally anticipated.

Charley Jones – Barrington Research

Where do you feel your customers' inventory levels are at now? Do you feel your fourth quarter revenue was at least representative of actual usage or could we see have some inventory built there from new customers maybe?

David Drachman

We believe our inventory is a modest levels, and we believe that overall on a full year basis, that our fourth quarter results from a revenue perspective are not indicative of our full year 2009 potential.

Charley Jones – Barrington Research

I'm a little bit confused on the $7 million reduction, how it gets down to $5 million, so if you could talk about that? Are you saying that we just actually that the 2008 operating expenses and just cut them by $5 million? I'm sure that's not the case but if you could help us out a little.

Julie Piton

Actually that is the case. It really is a result of we were having an expanding cost structure during the beginning part of the year and for a variety of reasons, you don't get to the full benefit in 2009 of the full $7 million. So it is in fact exactly what you said Charley. You take the $5 million in 2009.

Charley Jones – Barrington Research

How minimally invasive customers did you end the quarter with? Is it still around 990?

David Drachman

We perform minimally invasive procedures in 84 accounts during the fourth quarter.

Charley Jones – Barrington Research

Do you think you can add some accounts in '09 or do you just go deeper into these accounts.

David Drachman

I believe that we will add some accounts. It's not our primary focus. If you look at our business model, in the past up until Coilrail in our lab, we were performing pulmonary isolation procedures with autonomic intervention and elliptic appendage exclusion. That's fairly close to a cap ablation.

It's only recently with the Coilrail that we've become to define the procedure and develop design freeze on the procedure that we believe will become a standard of care for patients with more persistent forms of atrial fibrillation and those patients that have had catheter fibrillation.

I'd like to remind everybody that about 30% of the catheter fibrillations that are performed in the U.S. are failed catheter fibrillations. They are re-do procedures and we believe that the minimally invasive procedure that we're developing is going to have a significant impact on failed catheter ablation procedures.

Charley Jones – Barrington Research

Are you seeing any impact from trials out there that are being done or do you expect impact in '09 from any trials that are taking patients that would have maybe come to your through your accounts that are now part of trials?

David Drachman

We can't say that we're seeing any significant impact. I'd like to reiterate that we see patients with three, four, five times, sometimes recently six times failed catheter ablation procedures. What other alternative do these patients have but surgery? So as the Navastore clinical catheter for example got FDA approval, as Antronic's[ph] makes deeper investments into the AF space from a catheter perspective, we believe that that is going to generate a significant number of failed catheter ablations and that our minimally invasive platform is ideally suited to treat those patients along with the other patients that have more persistent forms of atrial fibrillation that are also not good candidates for catheter fibrillation.

So we couldn't be more excited about the opportunity that we have going forward, and we believe that the developments on the catheter side will help facilitate our growth.

Charley Jones – Barrington Research

If we think about your trends for the business over the last couple of years, first quarter is obviously a big spending year, but do you think cash flow positive quarters here or there like in the second quarter for example where you might have some revenue build, but do you see some of those cost cuts. Is that possible?

Julie Piton

I think our cash flow positive is obviously dependent on our revenues, so what I would say is between a $60 million and $70 million run rate in revenues, we would generate sustainable free cash flow.

Charley Jones – Barrington Research

What's your estimate for stock comp in 2009?

Julie Piton

It's roughly $5 million.

Operator

Your next question comes from Timothy Lee – Piper Jaffray.

Timothy Lee – Piper Jaffray

In terms of '09 outlook, I know you're kind of hesitant to give us some numbers right now just given some of the moving parts, but given your revised cost structure and given your financial priority to preserve cash, should we be thinking about it internally you're looking for something that high 50's, because that's where you hit your EBITDA positive, or am I not thinking about it in the right way here?

David Drachman

We're certainly thinking that the 57 to 60 range is where we hit EBITDA positive excluding non cash compensation, but again we want to get further into the year before we give some color on the top line.

Timothy Lee – Piper Jaffray

So you're not going to give me any more help on that one. In terms of the stock, given where its at, has there been any discussion among the senior execs or at the Board level to maybe have some concerted effort to have some insider buying. I say some recent filing where you got some grants, but any thought of just writing a check for some shares because if you are, based on your comments of emerging stronger, this is an opportunity testing for some significant wealth creation. So any thoughts on that front?

David Drachman

We have had some discussion around the table at the Board about some insider buying. We're evaluating that as we speak and we should have more to report. But I think at this point in time, we're just evaluating that concept.

Timothy Lee – Piper Jaffray

You talked about the draw down of field inventory potentially impacting fourth quarter results. What is your best guestimate what that number was in terms of the impact on the quarter and how much inventory is still out in the field and is most of your product sold on inventory or is there some consignment mix as well?

David Drachman

Very little consignment. We came off the third quarter with a very rapid run rate so hospitals were performing a significant number of procedures and buying equipment. We come into October and what we saw as a company was a fairly steep decline in procedure volumes particularly on the minimal invasive side where its more identifiable, and then again through the fourth quarter it seemed like to procedure volumes kind of leveled off and we fell like procedure volumes are beginning to return slowly to historical levels.

I think that there's a modest amount of inventory on the shelves. In terms of trying to characterize in a very specific way the impact of inventory to fourth quarter, I wouldn't be able to give you a highly accurate characterization of that.

Operator

Your next question comes from Jason Mills – Canaccord Adams.

Jason Mills – Canaccord Adams

The question I have is specific to, I understand you're not at this point in a position to give real tight guidance in terms of revenue. You have exited 2008 obviously with a run rate in the fourth quarter of about $48 million which you say is really not indicative of where you kind of see the business right now or prospects for the business and I assume you mean that its probably somewhere between that number and kind of where you were in the second and third quarter.

So say the run rate is really somewhere around $50 million to $52 million, and you see consistent free cash flow guidance in the $60 million to $70 million range, and you're seeing positive EBITDA in the high 50's, so I wanted to get an understanding of which it is and making sure I have real clarity on that.

If I look at a run rate of around $50 million and where you are to break even or to be cash flow positive around $60 million, the mid point of that is around $55 million, let's use that number. At that sort of mid 50's level, what do you see cash burn during the year and if not, at what level do you see sort of break even sort of cash burn during the year?

Julie Piton

Maybe you just answered the question. If you start with our statement of EBITDA positive excluding share based comp somewhere between $57 million and $60 million in revenue. The only real adjustments you would have to that to get to free cash flow would be our investments in CapEx which historically have run let's just say roughly around $2 million, and then any working capital needs we would have, again dependant on revenue growth. But let's say they trend between $1 million and $2 million also.

Jason Mills – Canaccord Adams

So in the mid 50's range if we as analysts decide to use that for 2009, and understand you're not going to bless or not bless that number, at that mid 50's level, $53 million to $55 million, what sort of cash burn do we see during the year? Is it as simple as just doing the math and backing that from the $58 million range where you'd need to be in revenue to generate an EBITDA positive number?

Julie Piton

I think you can come back into the answer using the information I just gave you.

Jason Mills – Canaccord Adams

So with that as a backdrop, where I wanted to go was do you feel comfortable then with your net cash position of $11 million plus I think you have a line of around $10 million. Assuming we're correct in that mid 50's range of revenue and you burn $5 million cash, do you feel comfortable at that level of available capital of around $15 million or do you need to perhaps pad that a little bit and what avenues do you see to do that if in fact you decide to go through route.

Julie Piton

I think the answer would be that we continue to evaluate our capital structure and our access to cash as well as cash on hand, and we'll continue to evaluate that as we move forward and we're not really planning to approach the capital markets at this time secure any cash.

Jason Mills – Canaccord Adams

So in that mid teens range, you feel like you can do what you want to do in product development, expanding the business and taking advantage of opportunities without running thin on that side? Am I hearing that right?

David Drachman

We haven't cut any significant product development plans. In fact, we've reduced our engineering staff. All the major programs and plans we have in product innovation remain intact. In fact we prioritize innovation as a smaller emerging public company and we recognize the fact that we need to be out ahead in terms of innovation. We have been in the past and we plan to be in the future.

Jason Mills – Canaccord Adams

Your second priority that you mentioned is profitable market share, and the third one was profitable market share gain, in that order. Could you help us a little bit with that terminology? Profitable market share, does that mean it's possible that you have unprofitable market share out there that you'd be more than willing to give up and that would improve the profitability of the company? In other words, perhaps there is some revenue out there at some accounts that just isn't profitable that could come off the P&L? Help us a little bit with that. I found it interesting the words you used, profitable market share serve as a priority before profitable market share gain. I just want to make sure I'm not misunderstanding.

David Drachman

First of all for example, part of our plan is to focus on the approximately 90 minimally invasive accounts that we have, where we want to implement our arthroscopic and full complete lesion set, and ready to market more for further broad adoption and broad acceptance of our minimally invasive platform.

So profitable market share might be to focus more for example on those 90 centers versus trying to put together educational programs and run out the new centers that might be able to perform cases over time, but those cases over time might not be profitable to us in 2009. That might be one example.

Jason Mills – Canaccord Adams

So there's not necessarily any existing accounts that you are referring to within that statement of profitable market share that you would, it would be advantageous to give up?

David Drachman

The existing customer base we want to protect, but we also don't want to put too many people in areas where the growth opportunity is too far away. That would be another way to look at it. We have an underdeveloped market. We want to make sure that we don't have too many resources in those underdeveloped markets, but we want to keep them covered.

Operator

Your next question comes from [Mimi Pham – JMP Securities]

[Mimi Pham – JMP Securities]

Regarding your comments on the DoJ hurting selling into some new accounts, are you hearing this feedback from a majority of the new accounts that you're looking at getting into and do they say to you along the lines of, we don't really want to get involved until the issue is resolved, or just until you get further along in the process of the DoJ?

David Drachman

It's a little early for me to give you complete information on that. We do at the hospital administration level, there have been a number of accounts where maybe these hospitals have themselves had DoJ actions themselves. And in those situations, we found that at the administrative level where the physicians are pushing to get our products in the hospital, we find that we need a lot of conversation, a lot of discussion, a lot of reassurance, and we also live in a very competitive environment.

Those selling situations have taken longer. We believe that based on the momentum of our products in the minimally invasive procedures overall as well as our open platform, that momentum will eventually break through hospital administration.

[Mimi Pham – JMP Securities]

That sounds like the hospital administration is hearing about the issue potentially more from your competitors versus on their own?

David Drachman

We certainly have a very competitive environment.

[Mimi Pham – JMP Securities]

Just to clarify your comments regarding January and February, you are seeing an improvement on the minimally invasive side in terms of trends relative to October even through the economy has gotten worse in January?

David Drachman

We do feel like there has been an improvement. Again, it felt like in October a very steep decline. As we got further into the fourth quarter, we felt like there was some flattening out and as we get into the first quarter, we feel like there's some identifiable, favorable trends that are slowly potentially returning to historical trends. That's the way we characterize it.

[Mimi Pham – JMP Securities]

Was that trend you saw in October across the majority of your 90 centers or sort of your top volume centers?

David Drachman

I think that's pretty consistent across the majority of our centers.

[Mimi Pham – JMP Securities]

In terms of the Atrial Symposium were there any specific follow ups from the hand full of surgeons in the room or were those mainly some of your current customers?

David Drachman

There were some follow ups. We have some new customers that attended the symposium, so we have a significant opportunity that came from the symposium and also, the hybrid procedure that was presented there are several major centers that are interested in looking more deeply at the hybrid procedure as a result of the symposium.

Operator

Your next question comes from Joanne Wuensch – BMO Capital Markets.

Joanne Wuensch – BMO Capital Markets

Can you discuss a little bit about gross margins how we should think about it going forward?

Julie Piton

I think in terms of prospective gross margins, I would expect that they would range between 74% and 77% considering new product introductions in 2009 as well as the carry over effect of some products we introduced during 2008.

Joanne Wuensch – BMO Capital Markets

My other question relates to DoJ. Can you talk a little bit from the sales force perspective how they are tackling the situation with customers?

David Drachman

We're just basically going to our customers and reassuring them that we have confidence in our health care compliance systems and what's really easy about that is our customers know us. They see the entire industry. They see the full picture.

It's not terribly challenging particularly at the physician level to discuss the DoJ matter, again because our customers know the AtriCure people and know that we're committed to compliance, innovation and the customer development process. So I think our customer interactions as a result of the DoJ have been relatively straightforward.

That's why we don't believe that the DoJ matter has impacted our existing customer base, particularly from a physician perspective. It's just several new hospitals that we talked about earlier, particularly at the administrative level and particularly where the hospitals have had their own DoJ matters that we've seen a little tortuosity[ph].

Operator

Your next question comes from Larry Halmovitch – HMPC.

Larry Halmovitch – HMPC

I wanted to talk a little bit about the Blake trial. You gave us a little information. I was surprised at how relatively few patients you think you're going to need to file a PMA and I wanted to explore with you what the primary end point was and why it is you think with so few patients you can achieve a statistical significance to show that in fact the trial will be successful.

David Drachman

First of all as you know, it's a Besian statistical model. The minimum number of patients that we would need would be 50 patients based on the statistical model. That would be the minimum number.

As we look at the results from our previous and historical publications and work that we've done on common procedures, they're very encouraging. The results have been very high, so we believe that overall that we can reduce the sample size based on the fact that the centers that are performing these procedures are experienced centers. They've used our equipment and the published results as you know, have been as high as mid 90's on common AF procedures.

So it's really based on the Besian statistical model. Additionally you may remember that we had a restore clinical trial that was also a co common trial that was randomized. The control element was a drug. So the control element was a drug, we treated 39 patients, and treating those 39 patients under the FDA clinical trial, those patients were basically held to almost the exact same end points.

In Besian trials and Besian statistical models, you can use reports of prior investigation to support and bolster up your case. So we believe that the 60 to 70 range is a reasonable estimate given the trends.

Larry Halmovitch – HMPC

And the primary end point for the trial to succeed would be what?

David Drachman

It would be a 24 halter. Patients can not have AF greater than five minutes. So no one single episode can be greater than five minutes and collectively on a 24 hours halter, the atrial fibrillation cannot be greater than an hour.

Julie Piton

At six months.

Larry Halmovitch – HMPC

So there's a six month follow up. So when you finish then you have to follow all these patients for six month and then do a 24 hour halter?

David Drachman

Correct.

Larry Halmovitch – HMPC

That's interesting that it's only 24 hours as opposed to, because you know the guidelines are now calling for much longer monitoring to really prove that patients are indeed in sinus rhythm. That's actually a fairly low bar for you then isn't it?

David Drachman

A fairly low bar. We think we can achieve that. We certainly feel very optimistic about it. If you look at the Thermal Core catheter, they actually got approval without any monitoring. Their major in point was asymptomatic of everything through.

Larry Halmovitch – HMPC

I didn't realize that. That's interesting. That's surprising given that most of the societies are now talking about doing a pretty lengthy monitoring period, and a lot of the trials that I've seen and some of the symposiums I've been attending with you in the past have talked about significant number of days on 24 hour monitoring and a three minute atrial fib episode saying that the trial didn't succeed. So that's a surprisingly low bar.

David Drachman

We feel very good about it. We feel very good that the results will hold up and we're just driving enrollment. We're very focused on driving enrollment, getting to the right number of patients and continuing to look at the outcome so that we can continue to plan with FDA in terms of our final PMA module which will be the clinical dossier.

Larry Halmovitch – HMPC

So it's reasonable to expect that you'll have the enrollment done by sometime this first half.

David Drachman

We're currently thinking, again it depends on the number of patients that are required to enroll. What we'll do is at 50 patients, we'll do an interim analysis and evaluate our results, meet with our statisticians, work with our consultants and look at the other reports of prior investigation and then develop our strategy going forward whether or not that sample size is the right sample size or whether or not we'll need additional patients.

Our general sense at the moment is that the 60 to 70 patients with the support of the reports of the prior investigation should support our final clinical dossier.

Larry Halmovitch – HMPC

So you could be filing a PMA potentially sometime late in '09.

David Drachman

Correct.

Operator

Your next question comes from [Ed Antonian – Chartwell]

[Ed Antonian – Chartwell]

Could you give me a little more detail explaining the decline in gross profit margin year over year in the quarter or the 300 basis point? Where did that come from specifically?

Julie Piton

There's a couple of factors. One would be that we had an increase mix of international business and we approach the international business through distributors which although the operating line you might end up with a same or better answer than you do in the States at the gross margin line. You take a haircut because of the distribution model.

Another component would be we introduced these new products during the year, specifically ORLab which is capital equipment and carries a lower margin than our other products and then also Coolrail, and that product initially when we manufacture products the costs come down over the first 12 to 18 months, and so we're still in that cycle with that product offering.

And we had a couple of, as our older technology is phased out, we had to take some adjustments related to some capital equipment related to that product offering.

[Ed Antonian – Chartwell]

So international, is it like 1,500 basis point lower gross profit margin than direct sales?

Julie Piton

We really haven't given any color on that, but I think you can think about it in terms of a manufacture's profit versus a distributor's profit.

[Ed Antonian – Chartwell]

Maybe a little specifics about the long disposable probe, and maybe kind of retrospect if you could be specific on what kind of business you lost to use that as an explanation as to why open sales, one of the reason why open sales were down, maybe a little competitive backdrop and why that caused a decline in revenue.

David Drachman

As we've talked about on previous calls, there's been an uncontested technology trend toward using Cryo long disposable cryo probes for many right lateral economy micro valve procedures. We believe that this trend has also been driven to a large degree by percutaneous[ph] valves on the horizon so more surgeons are looking to do minimally invasive micro valve operations.

Those operations are done through a small right lateral for economy incision. With our current technology, especially the clamping technology, it's difficult to get to the left side of lathe heart through a right lateral economy so people adopted the long disposable Cryo probe. We've seen this trend as a slow developing trend over the past several years. That's why we acquired the Digitracks platform.

We've now developed a very competitive long disposable Cryo probe that we think has several distinct advantages and we believe that that will help us return to growth trends in the open heart market, so we're very excited to launch that product and we anticipate launching it in the second quarter of 2009.

[Ed Antonian – Chartwell]

You literally can, if you kind of look back and see if you will market share loss, but that didn't affect the open business, is that right?

David Drachman

These minimally invasive cases, let's be clear that minimally invasive open heart mitral value. We haven't lost any share in the, we believe that our minimally invasive share is very dominant and we believe that we've likely lost a few share points relative to these trial trends which we anticipated, planned for and have a solution to actually regain share in that segment of the open market, but also we believe that leveraging our overall platform, that we can develop some significant momentum in the open heart area in 2009.

Operator

Your next question comes from Charley Jones – Barrington Research.

Charley Jones – Barrington Research

Could you tell us again when the new plants are expected?

David Drachman

The new plants are third quarter. We designed a new plant. It has several distinct features. We're excited about the new plant because it's a premium product for the open and it will facilitate totally arthroscopic procedures so it's a single platform that we sell. We believe that this in the open market followed the Cryo platform followed by a new more sophisticated premium clamping technology will really bolster our open momentum, and then this clamp technology does a lot for us in terms of being able to train more surgeons in our account to do arthroscopic procedures as well.

Charley Jones – Barrington Research

Were you able to get the mapping set engine that you needed in Coolrails in this next generation device or is that beyond this next generation?

David Drachman

The next generation device has some mapping capabilities as you pointed out along with the ablation so we believe that's going to be a very sophisticated system that will enable surgeons to ABLATE and also have a pair of mapping electrodes.

Charley Jones – Barrington Research

So you have 25 patients in the ABLATE trial. Is that basically today or December 31?

David Drachman

We have 25 patients in the exclude trial. We have 45 patients in the ABLATE trial.

Charley Jones – Barrington Research

Was that as of December 31 or today?

David Drachman

Today.

Charley Jones – Barrington Research

What have your monthly trends been like over the last couple of months? Seven, ten patients, five?

David Drachman

In terms of which trial?

Charley Jones – Barrington Research

The ABLATE trial.

David Drachman

The ABLATE trial right now, we're probably running at about three or four patients a month.

Charley Jones – Barrington Research

So it was six month follow up for half and three month follow up for the other half, is that right? All patients need to be enrolled for six months and need to have six month follow up.

David Drachman

Just to clarify, the ABLATE trial is a six month follow up. The exclude trial is 60 patients, 30 patients follow up in three months and 30 patients follow up for six months.

Charley Jones – Barrington Research

And what are the trends there on a monthly basis for the exclude trial?

David Drachman

We just started enrolling the trial in the fourth quarter so it's just recent that we have all six centers and enrolling. It's a little early to say, but it's probably somewhere in the area of five to eight per month.

Charley Jones – Barrington Research

So you've got half your patients already done and they need a six month follow up so where you're going to have half of them done by the mid part of March, so six months from there, we're in September, and then you'll already have the three month follow up on the other 30 by then I would imagine as well, correct?

David Drachman

We have 25 implanted today, so the key is to get to 30 quickly. We still have some days left here in February so I think the way that you should look at is we would submit our 510-K toward the end of the year this year, knowing that the 510-K is a 90 days process, knowing that we also have some very long term European data to bolster up our U.S. data. I think you should think about the approval process as the first half of the year 2010.

Charley Jones – Barrington Research

Could you talk to us a little bit about an update on the European appendage trial and tell us if you've had any discussions over the last month or so with that investigator and what the data was like.

David Drachman

The date here again is very promising. We have cases out to the end of the year. It has held up extremely well. Zurich is very, very enthusiastic and we believe that we'll release the clip in Europe during the third quarter of this year.

Operator

Your next question comes from Matt Dolan – Roth Capital.

Matt Dolan – Roth Capital

On the procedure volumes data that you're seeing at the end user level, can you distill it down a little more to what you saw? I know you saw things flatten out in terms of revenue, but as we look at maybe inventory reductions versus actual end procedure volume versus maybe a slow down in referral patterns, what did you see on a month basis maybe entering 2009 as well? And secondly, anything on the competitive front that might be out there or maybe just us an update on where your share is relative to historical levels.

David Drachman

I think to answer your first question, I think this may be a little bit redundant, but going into October as we communicated on the previous call, we did see a steep decline in procedure volumes that we could identify. We began to see procedure volumes particularly on the minimal invasive side begin to flatten during the fourth quarter and in the first half of the first quarter of 2009 we see procedure volumes begin to slowly rise. We believe that they're slowing returning to historical levels.

Competitively, we're certainly encouraged about the Medtronic acquisition of Cryo Cap and Ablation Frontiers and then Navistar chemical approval. Again, we believe that one of the major indications for a minimally invasive approach to atrial fibrillation will be catheter fibrillation so we're very excited.

We see these new technologies as not necessarily increasing efficacy but making it easier for more people to adopt catheter ablation. We think that addition to our market thesis of segmenting the market between parasitical[ph] patients where the minimally invasive approach will be more the standard of care for patients with more permanent forms of atrial fibrillation and failed catheter fibrillation. So we're excited to see those trends from a competitive perspective.

Matt Dolan – Roth Capital

Do you have any estimates of your share relative to a year ago?

David Drachman

Our share I think is still very dominant on the minimally invasive. I don't see any differences in the minimally invasive side. On the open side, I think our share is somewhere between 40% and 45% and so we may have lost a few share points, maybe as many as five share points during the last six months or so in the open heart. But again, we plan to regain that share with the release of our Cryo system which we believe has distinct advantages over the existing Cryo technology and a more leveraged focused sales organization as well as a broader ablation platform to regain share.

Matt Dolan – Roth Capital

On the DoJ investigation and the new centers that you're targeting for MIS, what extra steps are you now having to take with them and maybe how many hospitals are involved in that kind of extended sales cycle?

David Drachman

There was about five hospitals involved in that extended sales cycle during the fourth quarter. Extra steps, it's always about going back to your physicians and having you physicians help you build your case with your administration. So that's really the extra step, is trying to get full physician support, getting our positions very pointed with administration in terms of why this strategic ablation alternative is important to the hospital.

So that's the main process, as well as just getting to know administration and getting them more comfortable with our company and getting them to recognize that this is an investigation. The company hasn't been charged with any unlawful act at this point in time, and it's an inquiry.

Matt Dolan – Roth Capital

So no concerns of the safety efficacy, just asking for more detail essentially.

David Drachman

Just asking for more detail. That's correct.

Matt Dolan – Roth Capital

On the ORLab, a lot of talk out there about not only procedure volumes but capital purchasing. How important is ORLab to getting a center involved and what have you seen on the capital equipment side?

David Drachman

The ORLab is certainly an important technology in terms of our whole thesis of verification of technical in points as they do with endocardio ablation, so we believe in developing the arrhythmia surgeon that we need to ABLATE and we need to verify all lines of ablation and the ORLab is particularly designed to do that.

A couple of things, one is that there were ways in which we could use systems in the hospital before the ORLab was developed and designed to accomplish that. They're not ideal. They're cumbersome, but they're a way we can work around not having an ORLab. In terms of ORLab sells, they are more challenging on a going forward basis.

We have several different ways to sell the ORLab including outright sells and bundling purchases, but certainly we see more headwinds in terms of ORLab sells. We began to see that in the fourth quarter and we believe that we'll run into some additional resistance on a going forward basis.

But, our main aim in terms of minimally invasive is the 90 or centers that are currently performing minimally invasive procedures and the vast majority of those are hospitals that have already acquired an ORLab system.

Matt Dolan – Roth Capital

I think you mentioned you don't expect to require capital in the near term so is it safe to say that a realistic scenario in '09 would be achieving the sales run rate that gets you to EBITDA positive? Is that the internal goal?

David Drachman

Again, in terms of guidance, we're going to defer at this point in time.

Operator

There are no further questions at this time. I'd like to turn the call over to Dave Drachman for closing remarks.

David Drachman

Thank you very much. I appreciate everybody participating on the call today. We look forward to the first quarter earnings call. Thank you. Good day.

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