Q2 2021 AtriCure Inc Earnings Call
[music].
Sure.
Good afternoon, and welcome to <unk> second quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
We will be facilitating a question and answer session towards the end of the calls today and they are in.
Mind you. This call is being recorded for replay purposes, I would now like to turn the call over to Lynn Lewis from the gold margin growth for a few introductory comments.
Thank you and now you should have received a copy of the earnings press release. If you have not received a copy. Please call 503, 7 and 5.5 or 136 to have on email to you before we begin today, let me remind you that the Companys remarks include forward looking statements forward looking statements are subject to numerous risks and uncertainties many of which are beyond <unk> control.
Including risks and uncertainties described from time to time and <unk> SEC filings. These statements include but are not limited to financial guidance expectations regarding the timing of FDA reviews, and expectations for product approvals expectations regarding the potential market opportunity for converge and the adoption of the converged procedure <unk> results may differ materially.
From those projected <unk> 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 a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release.
<unk>, which is available on our website with that I'd like to turn the call over to Mike Carrel, President and Chief Executive Officer, Mike.
Thanks, Ron and good afternoon, everyone and thank you for joining US we hope that you are doing well.
As you saw on this afternoons press release, we are continuing the strong momentum from the first quarter with over $71 million and total revenue for the second quarter of this year.
This represents 75% growth compared to the second quarter of 2020, and 20% sequential growth over the first quarter of 2021.
Our strong topline performance was driven primarily by the recovery of procedure volumes and major markets with some small portion due to patient backlog.
More encouragingly against a backdrop of stabilizing patient flow, we experienced robust growth and each of our franchises with many new sites and increasing penetration in existing facilities.
The desire among patients and physicians have access to these critical treatment continues to rise to that and we saw accelerating growth throughout the quarter across all platforms and the U S complemented by solid rebounding of activity and Europe and Asia.
As we begin the third quarter energy remains positive across our business and July started strong and while we have seen while you're starting to see some slowdown and procedures and areas where COVID-19 is surging. We continue to expect a strong back half of the year.
Now we will start with an update on the amaze clinical trial as a reminder, we finished enrollment and the trial. Shortly after the August 19th acquisition of Sand and Heart then began the PMA modular submission in late 2020.
And completed final patient follow up this past April.
More recently, we were unblinded to the amaze clinical trial data.
While we are not sharing details of the results today in summary, despite achieving the primary safety goal. The primary efficacy endpoint of the amaze trial was not met.
We're still learning more as we evaluate the trial data and engage in discussions with our medical Advisory Board and the FDA. However, the pathway for PMA submission is uncertain at this time.
Although we hope for a different outcome from the amaze trial. We are encouraged by the safety results and believe there is an underpinning of value from the investment and center heart that we will continue to leverage going forward.
This includes and experienced team with unique technical and clinical knowledge and EP space relationships. We have since built within the EP lab, setting and community and a robust portfolio of IP that complements our core technologies.
As we move forward our conviction for innovation supported by clinical science across all of our businesses remains unchanged. Therefore, we will continue to building a differentiated portfolio of products expanding treatment options for the vast and growing population of afib patients.
Let's now turn let's turn now to the many advancements and our key growth initiatives.
The second quarter was transformative for <unk> with PMA approval of the epicentre per system for treatment of patients with long standing persistent afib.
And this approval resulted from the groundbreaking converge trial, which demonstrated superiority of the hybrid <unk> therapy, using the episodes and device to endocardial catheter ablation alone.
Patients with long standing persistent afib and the most advanced and difficult to treat form of the disease represent nearly half of the more than 33 million patients affected by Afib worldwide.
The <unk> system is the first and only to receive FDA approval for Standalone treatment of these patients providing critical and sustainable differentiation and the market.
Our opportunity is clear and this achievement marks a pivotal moment and our company.
The approval provides us the ability to help educate and train physicians on the benefits of hybrid <unk> therapy with the <unk> system to improve the lives of millions of underserved patients.
And our U S sales team is now executing on our commercial launch.
Engaging both new and existing sites and driving awareness within the EP and cardiology communities.
In late June we hosted our first hybrid F training therapy event, where expert faculty guided peer to peer discussions and address clinical questions leading to a rich dialogue on hybrid day of therapy and emphasizing the patient benefit that results from close collaboration between the specialties.
This inaugural training event was just 1 of many activities throughout the quarter following FDA approval in late April.
Our goal is for the hybrid and therapy utilizing the epicentre device to become the standard of care for the millions of patients with long standing persistent afib.
Moving to our open franchise, we are pleased to announce.
That we've got a 5.10-K clearance.
For the encompass clamp.
This device is and innovative addition to our open ablation platform where.
While we are a market leader and cardiac surgery procedures for the treatment of Afib.
The encompass clamp provides a simpler and faster approach to a bleeding heart and open procedures and we expect the device will have broad appeal to high volume cardiac surgeons and deepening our penetration and the cardiac surgery market over the next decade.
We have begun a limited launch at a small number of centers and expect to move to full commercial launch later this year.
It was nearly a decade ago that Atrichous Isolator synergy system was approved by the FDA for the concomitant surgical treatment of persistent and long standing persistent afib.
With the recent approval of epicentre system for hybrid and therapy <unk> has the only 2 devices and the world with FDA approval for the treatment of long standing persistent afib and providing a clear advantage for our open and minimally invasive ablation platforms.
So let me pause here to reiterate a message from our first quarter.
The collective opportunity and addressable market for our ablation platforms as well into the billions of dollars representing hundreds of thousands of patients annually.
And while the ablation opportunity alone is meaningful it is further boosted by the steady rise and left atrial appendage management procedures.
Worldwide.
Our left atrial appendage management franchise delivered 23% sequential growth over the first quarter.
We continue to be excited by increasing awareness of the need for left atrial appendage management and the growing body of clinical evidence, including a recent independent MAA occlusion study that was published and the New England Journal of Medicine and presented as a late breaker and May at the American College of Cardiology.
Annual meeting.
This was the first randomized control study to demonstrate that surgical lead management for afib patients undergoing cardiac surgery with surgical approaches or the <unk> significantly reduces ischemic stroke and systemic embolism.
Over 4700 patients were part of the study at 105 different centers and 27 countries.
Surgical left atrial appendage management occlusion was found to reduce ischemic stroke by 33% overall and by 42%. After the first 30 perioperative days importantly.
Importantly, there were no significant safety issues identified in the study.
Additionally, we welcome positive reimbursement news for surgical left atrial appendage management with the proposal by the CMS for the new current procedural terminology or CPT codes. We believe this change reflects a groundswell of support from key societies and physicians, creating.
Another tailwind for the <unk> franchise, when the proposed rates take effect in 2022.
And finally touching on the cryo sphere probe, our dedicated device for managing postoperative pain and thoracic patients.
Our unique technology uses a differentiated freezing method to block nerves from transmitting pain signals after cardiac and thoracic surgery.
Providing a long lasting form of pain relief for patients.
<unk> block, which is included in our open franchise revenue is 1 of our fastest growing therapies and now represents approximately 7% of worldwide revenue year to date.
Nearly 400 facilities and the U S are changing their standard of care to incorporate this unique approach to pain management.
We are pleased with the traction, we're seeing and existing accounts and the ongoing expansion to new customers.
Yes.
This is great progress, but we believe the market for prime and our block therapy still remained widely underpenetrated.
In closing we are truly excited by our broadening portfolio and bright future ahead, while we continue on our pathway towards recovery, we remain confident and the underlying strength of our business. The resiliency of our team and our many catalysts to accelerate growth and 2022 and beyond.
I will now turn the call over and Andrew <unk>, Our Chief Financial Officer to this growth to discuss more detailed results of the quarter.
Thanks, Mike our second quarter, 2021, and worldwide revenue of $71.4 million increased 75% on a reported basis and 74% on a constant currency basis, when compared to the second quarter of 2020 as a reminder, we experienced the most severe impact from COVID-19.
<unk> during the second quarter of 2020, when our revenues declined 31% from the second quarter of 2019.
And on a sequential basis this quarter, we experienced growth of 20% and our worldwide revenue from the first quarter. The sequential increase was seen and all of our major markets as procedure volume stabilize.
And the second quarter 2021 U S revenue was $60.1 million, a 78% increase from the second quarter of 2020, reflecting robust activity across product lines and promising growth trends.
U S sales of appendage management products were $25.2 million up 93% over the second quarter of 2020 U S sales of open ablation products, which include our cryo nerve block business were $24.8 million up 60% over 2020.
And minimally invasive ablation sales and the U S were $9.7 million up 104% from 2020 as elective procedures resumed year over year and we saw some early momentum from the <unk> launch.
International revenue was $11.3 million up 58% on a reported basis and up 50% on a constant currency basis as compared to the second quarter of 2020.
Similar to our U S results, we experienced rebounding activity and our major international markets and across our franchises.
Let's turn to key metrics for the second quarter, beginning with gross margin. Our gross margin was 75, 8% up more than 800 basis points from the second quarter of 2020.
And the second quarter of 2021 gross margin benefited from both increased revenue as well as strong production volume as compared to the fixed cost burden to 2020 due to a temporary reduction and production activity.
Additionally, we continue to see beneficial geographic and product mix. This year with our U S business accounting for 84% of our worldwide sales and the second quarter of 2021 compared to a range of 80% to 82% historically.
Specific products contributing to a more favorable gross margin include heavier.
And <unk> Flex V and pro V device sales.
We are pleased with the improvement to our gross margin in 2021 and continue to look for durability and our results regardless of mix as.
As we begin the second half of 2021, we are making incremental investments to expand production capacity and support of our long term growth and remain.
And focused on key partnerships throughout the supply chain.
Now moving to operating expenses for the quarter for comparability I will exclude recurring effects of noncash adjustments to the contingent consideration liability from my comments.
Total operating expenses increased $24.2 million or <unk>, 57% from $42.4 million and the second quarter of 2020 to $66.6 million from the second quarter of 2021.
While operating expenses rose significantly and this increase is in light of topline revenue growth of 75% over the same period.
Change results, mainly from personnel costs, driven by increasing head count and variable compensation programs.
Travel spend returning to normal and expanding training activities as we launch our hybrid <unk> therapy and continue awareness across our platform with a combination of mobile cadaver labs and training courses.
We had and adjusted EBITDA loss of $2.7 million compared to an adjusted EBITDA loss of $6.1 million for the second quarter of 2020.
Our loss per share was <unk> 36, and the second quarter of 2021 compared to <unk> <unk> per share and the second quarter of 2020.
While the adjusted loss per share each period with <unk> and.
And 38, respectively.
Our balance sheet position remains solid and we ended the second quarter with approximately $230 million and cash and investments.
So finally, turning to our outlook for 2021 with stronger than expected second quarter results. We are raising our revenue guidance for the full year and now expect to achieve approximately 270 million to $275 million and revenue.
We anticipate returning to historic growth patterns, which would see a seasonal impact on procedure volumes during the third quarter and therefore, we expect third quarter 2021 revenue to be down slightly from our strong second quarter results.
Followed by an acceleration and the fourth quarter.
As Mike detailed earlier and the call tailwind for growth across our franchises are clear. However, we remain cautious of the potential impact from a resurgence of the pandemic and its continued burden on the healthcare system globally.
Touching briefly on the potential financial impact of the amaze trial outcome.
While it's too early to determine the full effect on our financial results because our review of the trial data is ongoing and the path forward is uncertain and we anticipate that during the second half of 2021, we may recognize material non cash adjustments to the related intangible asset and the contingent consideration liability which rep.
Presenting on success based milestone payments.
Potential adjustments will be excluded from both adjusted EBITDA and adjusted loss per share metrics.
We continue to expect adjusted EBITDA to be a loss of approximately $10 million for the full year 2021, as we invest and strategic growth drivers across the business and expand the aged care team and continue our focus on education innovation and clinical science.
With the rise and share based compensation expense for the year, we now expect and an adjusted loss per share for 2021 to be approximately $1.20.
At this point I will turn the call back to Mike for closing comments.
Thank you Angie, we want to and by recognizing our health care workers and our scientific community.
Thank you for your unwavering commitment to patients and free resolved to help us all recover from the COVID-19 pandemic stay well everyone and thank you again for joining us today with that we will open it up to questions.
And you ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key and as a reminder, we would like you to limit your questions to 1 and 1 follow up at a time for any additional questions. Please press star 1 again to return to the queue.
And our first question is from Rick Wise of Stifel. Please ask your question.
Good afternoon, Mike and LNG both.
Thanks for the great quarter.
And maybe.
I guess, I'm, just going to and I hate to start off with.
And.
There's so much good news this quarter, but let me just go ahead and ask the question.
And I encourage and you talked about some of the financial potential.
On.
Adjustments ahead.
Maybe you could frame.
Yes.
Big that might be but.
Just not asking you what next steps will be Mike, but what could they be what are the possibilities. As you look ahead and think about this and how would you have on to think about it.
Yes, I mean, I think the best way to think about it is that the technology had great safety.
Profile, but did not meet the efficacy endpoints from a.
The primary efficacy endpoint and so it's really uncertain and quite frankly in terms of what the path forward is.
With the technology from that standpoint from a PMA et cetera. So from our standpoint, obviously, we got to talk to the FDA. We're also going to talk to our medical Advisory Board, but I think as investors and this is something that everybody. We should just consider we did not meet the primary efficacy endpoint I think thats, what should be and everybody's head.
And from that standpoint, anything that we get out of it is really the things we're getting out of it today and the leverage were getting number 1 is that we got a great IP portfolio number 2 the team. We brought over is just spectacular they understand the EP space. We've learned a lot about cardiology, we learned a lot about the catheter based technologies, we learnt a lot about manufacturing and that areas. We've got a lot.
Great learnings that have come from that and in terms of building relationships with the EPS and the advisory Board. We have and also that helped us have with our converge and kind of confluences of kind of bringing 2 specialties together I believe that we will it will be viewed positively from that standpoint, obviously, we are disappointed with the results like I mentioned on the call. We are hopeful that they would be.
Much better, but we structured the deal and the way that it was a success based outcome on the back end of it and unfortunately, the primary endpoints did not hit where they were where they were supposed to hit.
Got you.
And just.
And then separate follow up.
And I was really intrigued Mike with your comments about you opened many new sites you are penetrating deeper and existing I think you said the existing accounts and facilities.
Okay.
When I think about.
The incredible portfolio of technologies, you have recently launched et cetera.
Maybe help us.
Understand.
You did everything together and Thats due.
Arriving this greater penetration and this new account opportunity can you quantify that at all and the new.
The way.
The key drivers.
And keeping people over the edge, maybe talk to that if you would.
Sure.
Much every 1 of our franchises had.
And really different but great growth trajectories to them. So if you kind of break down the different areas that we have let's start with kind of converge, which is the most top of mind. That's the 1 where we have the most upside in terms of number of net new accounts and penetration and the accounts. It's obviously a much larger market opportunity for us and the team was.
Ready to go better than I expected, even though you kind of know youre ready. They are ready they are talking to customers. We have a great HRS last week. There is a tremendous amount of buzz out there and our longstanding persistent label has really differentiated us and a way even better than I had expected and really opening up conversations with.
Pretty much any site and even the greatest skeptic that's out there. So it's been a wonderful opening of new sites and the backlog of those sites kind of coming on line. There are things that we're focused on right now as to how do we make sure. We've got the right resources, and adding those resources and bringing them on and making sure they're really well trained and so they do the procedure right again, we're not really.
Good spot from that standpoint on the clip side of things. We continue to see great growth you saw 23% kind of sequential growth and that part of our business and that's and both open and mis.
Both teams are just doing a wonderful job of really bringing that technology to pretty much every facility in the United States and even more so globally as well and so we're starting to see some opening up there.
If people just recognizing that managing the appendage is really important and that the clip is just an outstanding technology that works incredibly well and is very safe and has been implanted and over 300000 patients and.
And in totality. So it's really impressive to kind of see how that just continues to build upon itself and then on the open side of the business, you're starting to see a little bit of a rebound where in most sites and the U S. But what youre starting to see is more people talk about treating more people getting their cardiologist telling them you must treat the data is just continuing to kind of build up over and over again and.
And that's allowing us to get to more surgeons within those sites, who are now, saying I really do need to treat and they're actually thinking about that so I'd say that those are some of the things that I.
And I can share with you and then on cryo nerve block, which Theres just a lot to talk about this positive like you said on the crown nerve block side you heard that we're at we're in almost 400 sites now and think about this this was and nothing that we didn't have anything really about 3 years ago and now we're and almost 400 and sites around the country. We've got over 30 people out on the field today either.
Salespeople are supporting those cases, and so we're really expanding that group and we will continue to invest to make sure we've got coverage.
And our next question is from Robbie Marcus of Jpmorgan. Please ask your question.
Hi, guys. This is Allen on for Robbie just wanted to say for sales and congratulations on a great quarter.
Both of my questions on the way here, but to start off your guidance raise for the year it looks really healthy.
Coming off of a very strong quarter. So I guess, what really gets you to the top of that range and how much of that is benefit from the convert approval and then second diving deeper into convert and what has been the physician feedback that you've been hearing so far thanks, so much.
Sure I'll start with the second question, because I think physician feedback has been.
And incredibly positive.
And most of the conversations now the new sites arent seeing results, yet because theyre just getting trained and so it's not like we're selling a lot of net new product, what we're doing and we're getting them up and running doing their first couple of cases training them and <unk> them et cetera. So.
That part is actually gone reasonably well, but the real position to get back to them on the data that's been presented its been presented over and over again.
At HRS and other different conferences at different scientific sessions over the last several months and the more people digest the data the more they get excited about it and they start really talking about and it really drives a really good discussion around how <unk> and endocardial combined has tremendous benefits for the patient and.
And for the long term effects on afib for them. So.
And that conversation and it just it continues to spawn throughout the country and it's been really and exciting time to be part of those discussions.
And our teams are really well trained and have those conversations as well and so all the prep that was happening and advance enabled them to really kind of have deep and rich discussions to kind of get those sites up and running.
In terms of our guidance and as we kind of think about the back half of the year nothing has really changed per se in terms of the revenue coming from converge and we're starting to get net new sites, but as we've talked about before it's really important to get them trained get them doing the procedure right understanding what the workflow within their hospital and then building upon that and so as we kind of look to the back half.
For the year Theres, obviously is some converge, but it's really de Minimis overall all of our franchises are just performing incredibly well and we've talked about this before or we've got multiple catalytic drivers to this business. Yes converge is a great foundational piece for us, but we've got so many other different things coming down on the pipeline and that are already there.
Whether it's you're starting to see the benefits of the innovation. We did on clip 2 or 3 years ago and people are really shifting over to our <unk> product and technology and as they use that more and more and they see the benefits of that as an example, so.
And what's going to help us get to the top end of that range.
And just continued outperformance relative to what we're doing right now I don't want to get too far ahead of ourselves because we did increase guidance quite a bit obviously, it's more than just the $10 million beat we increased it by almost $8 million to $10 million on top of that and so you're like you said, that's a it's a healthy guidance from that standpoint, and we feel good about it.
Okay.
And our next question is from Matthew O'brien.
And with Piper Sandler Please ask your question.
Afternoon, and thanks for taking the questions.
So Mike.
Touching on a few things here that are quite compelling.
But what im curious about and if I look at your numbers for domestic clip and domestic.
Yes.
They are 2 of the better quarters, you've had and when you adjust for Covid.
For the last couple of years and that is before the real impact of the converge approval and that's really before the allowance.
Data earlier this year as well so what Im wondering is I think youre just seeing the impact of the data from last year on the Mis business and then still from some newer products on the clip side.
Or are we going and get another wave here into 'twenty, 2 and 'twenty 3 from.
On the converge approval and then from the alliance data.
For those businesses is that the momentum youre talking about specifically.
Got it and I think it start with a converged, yes, and I think when you look at 'twenty 2 'twenty 3 'twenty 4 and we're just at the beginning of this I'd like to everybody always likes to use kind of baseball analogies and they say what inning are you and quite frankly, we're really kind of and the pregame worn on for at this point and time from my standpoint, we're just beginning to kind of get this we're really underpenetrated.
And there are a tremendous number of patients that are out there that we can treat and we've got to make sure that we do it right and and we warm up properly to kind of go back to that analogy.
So that we're ready for game time, and even though we got the approval we got to get these sites up and running and a good place. So yes, I do think Thats. The case I would like to also look at.
When you look at <unk> I'll use this as an example, a lot to our team which is it's taken tavern and get to the point that they are today, where it's $65.75000 procedures and patients that benefit from the technology every year and the U S. While 10 years ago that was zero and it didn't happen overnight and it happened over a decade and it kind of builds upon itself to kind of build that kind of.
And momentum they got the first centers done right. They get good results and good performance and they kept building on top of that conversion I think is going to be the same there is and there are more long standing persistent patients and they are patients with aortic stenosis, so and we're pretty excited about that being a growth driver for many many years to come and really building that foundation and that standard of care of practice.
Into the future on top of that you mentioned kind of the.
Data that continues to come out.
There's a lot of clip data that is out there and the more and more data that gets published obviously the last data that I referred to here is incredibly positive towards treating the appendage and the benefits of it worldwide. It was a large study.
And I would say that I am sure. It is having a benefit and an impact but I think it's really the.
You actually said well its the series of data that's come out over the course of the last 4 to 5 years that are built on each other that people just now believe managing the appendage is the right thing to do.
Got it and then as a follow up.
And lots of really good updates here, but I think people are going to focus on amaze as well and obviously that's disappointing I'm sure you're disappointed.
How do you balance.
The impact of that versus all of these other drivers that you have in terms of.
Investors think about secure and a massive potential headwind 2 or 3 years from now because.
And thats going to really help you with the EP.
Patient population or is there a clinician community.
Just help us kind of frame up the impact of this being.
On a negative outcome on the efficacy side. Thanks.
Yes, I think as I mentioned and my comments. We're hopeful this is going to have great results, but we.
We structured the deal to be a success based deal on purpose, because we didnt, obviously know it know what the end game was going to be on the on the results that we are hopeful like everybody else and we really wanted there to be great results. There from that standpoint that being said, we've built the business to be incredibly robust with a lot of catalyst and we are going to lean into our future and <unk>.
Continue to be innovative across every 1 of our platforms and sometimes we're going to take shots and theyre not going to come to complete fruition for us and we can take a lot of shots on goal what really smart about those wouldn't be smart about how we take those shots and be efficient with it which I think we've been in and the things that we've done.
If you look at many of the shops, we've done whether it's crowd nerve block or converge.
Or the new encompass clamp that just got clearance and these are things that I think are going to drive meaningful growth force into the next decade, and sometimes the things we think aren't going to come to complete fruition and we've got to recognize it learn from it and kind of continue to move forward and continue to innovate and find ways to help patients.
We really weren't counting on any revenue from this and the call. It the mid term loan and the next 2 to 3 years until we got the approval on it. So it doesn't have any meaningful effect on that as you look beyond that I think we're going to continue to think creatively about other innovative things we are going to bring to the table.
To make sure that we can continue to hit high growth that we expect and that you've come to expect from us.
Our next question is from Mike Matson of Needham and Company Inc.
Quick question.
Yes, thanks for taking my questions I.
I guess I wanted to ask 1 about accounts so.
And obviously it sounds like it makes the procedures easier to do but is this also going to be something where youre going to be able to get price premium over the other.
Other types of insulation products, you're selling.
It's a really good question and the answer is over the clamp, yes. So if someone is using a single plant and a procedure, it's going to be more than that how's.
However, depending upon on what an individual search and if they start using a clamp plus cryo plus a pen to test and other products on top of that it's probably relatively equivalent.
So the good news is youre not going to see I mean, you might see some small upside and some cases overtime like those that might use it if it's somebody who is replacing what they were doing before or it's mostly and really the focus is going to be on net new.
Physicians that are going to be using it and so those net new physicians are the ones that we're really focused on.
Long term and those are the ones that are going to drive really more penetration so while it might affect a little bit on the existing patient on the existing positions, it's really going to have a much bigger effect on penetration. So long term. It's just can help us get from 25% to 50% penetration if not more and the cardiac surgery market.
Okay got it and then I just wanted to ask about H clip attachment rates the epicentre convergent procedures.
And what are you I know it's early days.
Per but what are you seeing there.
In terms of the use of H and with that procedure.
Yes, we are continuously and at the same numbers that we've seen really from the last 18 months or so which is kind of and the 60, 70% range on attachment and any given week or month or quarter.
That's really been fairly consistent the new sites that are coming on board. They have an interest and nature glib, but we're really first and foremost focused on where we want them to do a really good job on using <unk> and getting that down first getting the workflow with that first and then they can add the clip after they get really good at that and so we're not seeing.
<unk> attachment to the net new sites at first eventually that is likely probably going to happen because people want to use the clip with it but we're being very diligent and disciplined about making sure. They don't do it especially on the first 5 years to 10 cases, because we really want to make sure.
They're getting the conversion part down they understand the maps they understand how to work collaboratively with EEP.
Okay, great. Thank you.
Our next question is from Bill <unk> with Danny.
Canaccord. Please ask your question.
Okay, great. Thanks, So I'm going to ask 1 on.
Guidance and the other on the cryo business and I'll start with the cryo business.
And it was 7% of revenues this quarter, 6% last quarter.
And yes. It is such a massive quarter. The math tells me into that business almost doubled sequentially and that.
And a pretty big bump from kind of the run rate. It was going at I just wanted to get your thoughts on that first.
So.
It's a good question Bill and and my comments and the script may have been a little misleading at 7% for the year to date, so actually it's I think around 10%, 11% for the year or I'm, sorry for the second quarter. So it's even a bigger jump from Q1 to Q2 then.
And then you were talking about.
Okay. That's helpful. And then as we is for ANZ on guidance as we think about that.
Q3.
Summer seasonality.
I think I think consensus now is about 65 million and that's about 10% down from where you were in Q2.
And as I think of the $8 million to $10 million incrementally should we think about sprinkling some of that into Q3 and then the balance in Q4 is that kind of all Q4 I mean.
We've heard from other companies.
Heightened vacations as we go into August and I, just wanted to get your thoughts on that.
Sure we are definitely cautious with some of what we are hearing about vacations and more than anything with just a really strong second quarter. We do expect some of the seasonality to resume and I'll reiterate what I said and my comments, which is we expect a step down from what we did and the second quarter less and the $71 million and then and inquiry.
<unk>.
And the fourth quarter, a 10% drop from the second and third quarter. Historically for <unk> is not normal for us. It's typically a couple of percentage points without giving specific numbers of how you should think about the second half guidance increase but that's what I would expect a step down on the third quarter, and then an increase and fourth.
Great and then if I could sneak 1 more and just on layer yet I know you've been had some kind of ongoing residual revenues from net product line would you would you expect that to go away and discontinued sales of that product with the U S data or would you believe you can continue to sell it.
I don't expect to.
To discontinue sales of that product.
As I said the safety profile was excellent we continue to sell and Europe will continue sales and the U S. You've got many physicians that use it and really liked the product and get great benefit from it and feel like they are helping our patients out and many different ways and so we'll continue to sell it obviously, it's a very small portion of our revenue.
But we will continue to sell and support it at least for the foreseeable future I don't we don't have any plans at this point and time to change that.
Thanks for taking my questions.
Our next question is from Marie Thibault on Epi.
Please ask your question.
Yeah. Thank you for taking the questions and congrats on a good quarter.
And I wanted to dig a little bit more on your comments and the prepared script about some regions that are getting hit a little harder by.
Some of the variants of Covid, so we'd like to hear a little more detail on that I know that you do have.
Volume that comes from places like Texas and Florida.
Yes, I would say that it's what you would expect you're starting you're starting to see and you've probably heard this from many other companies is that kind of the northern part of Florida, starting with Jacksonville, and now moving into kind of southern Georgia, Alabama, and the state of Mississippi. They are basically pushing off as much as possible elective procedures now theyre typically giving kind of a 2 week.
And kind of moratorium on them as they kind of digest the COVID-19 patients that have come in and kind of think through what the ICU beds. This is all about ICU beds at the end of that and that's why they shut them down and they don't have enough room in the hospital for those elective procedures right now, it's mostly and everything we're seeing is in that region of the country, where they tend to be the most hotspots for us we're home.
And that it can it gets contained there like everybody else I think but of course and none of us know for sure what that spread is going to look like so I'll just put my plug and to make sure everybody gets vaccinated.
That's very helpful. Mike Thank you and I.
I guess my follow up here on converge realize are quite early and the launch but we'd like to hear your plans on how you plan to.
And go after the referral network and make sure that cardiologists and doctors up the chain or aware of converge and also make sure that pace.
Patients are hearing about the option. Thank you.
And it's a really insightful and good question.
As we look at longer term I'd say, our first goal is to get those sites that the EP and a surgeon and get them working together and get them and doing the procedure really really well and get enough site that we've got critical mass across the country on that front and we're starting to work with them on helping them understand what the cardiologists think about these patients and why theyre not referring.
Them to day, I'd say, we're piloting and learning on that front, that's probably going to be the case for the next 6 to 12 months. Then we will build upon that once we have many more centers and we've learned from what does that referral community and looking like and how many patients have they been holding back from the little that we've done so far in that area. What we're starting to see is that there are a lot of <unk>.
<unk> that are still being held by internist and cardiologists, because they were not getting good results when they were referring and on the long standing persistent side and so our plans would really be learned now make sure. We got centers that can do this procedure really well and then as we look to maybe the back half of next year into the year. After that we'll start to look at more aggressively getting after and educate.
<unk> kind of the cardiology community and a more aggressive way at that point.
Okay. Thanks for the detail.
Our next question is from Suraj Kalia of Oppenheimer and company. Please ask your question.
Hey, Mike and team congrats on the quarter.
Can you hear me all right.
Great. Thanks, Raj and perfect. So Michael I have to ask the obvious question and forgive me for belaboring. This so on the meat.
Yes.
On.
And just confounding impact of including atrial flutter stroke or systemic embolism, I guess I'm trying to at least see.
Yeah.
What's the residual effect of litigation with Larry and.
The curve is eventually overlapped over time, just since you all have seen the data.
And we.
Sure.
The primary efficacy endpoint.
And went off the rails.
Yes, so a couple of things again I'll try to reiterate maybe I'll first define the trials everybody. Just has good the trial with <unk> and 1 arm and Pgi plus the literate and the other arm and the endpoint of it was a reduction and Afib and that 1 was going to have a greater reduction of afib and that patient population and so it was meant.
B. It was designed to be a superiority trials would have to hit and net benefit. It was a very high bar for that to hit much like converged where their superiority trials at a really high bar on differential.
And when the trial at the end and superiority.
And so given that when the front with the primary safety endpoint, we did incredibly well with all good and.
And so that was actually something that we're very pleased with it showed that the team at at Lariat and Central Heart team that when we bought the company had done an incredible job of training and physicians to make sure that this was a very safe procedure and done well it can be done safely and then on the primary efficacy we didn't quite meet the superiority endpoint.
And so it's and it's across the board there's no 1 signal on that is just we did not meet the primary endpoint, there's not a lot more data that we can share at this time relative to that but it did not hit the same again high bars and it needed to hit in order to kind of get statistical significance a benefit there.
Mike.
And the appendage business overall right you guys have been on it on a on a really good clip.
Sequentially year over year, However, you want to look at it and.
And 1 other things.
And you and I've talked about this consistently picked up and the field was.
And the incremental burden reduction.
Uh huh.
<unk> has seeped into into the field, which is driving a number of it could slip pull throughs.
Given.
Do you expect.
And your collateral issues with amaze seeping into the into the <unk> business moving.
Moving forward do you think.
Given just kind of walk us through how at least for the next few quarters.
You're thinking about any collateral impact and or mitigating that impact.
It's a really fair question, but the <unk> and Larry and we're actually very different devices. The bulk put on epic heartedly, but they're actually very different in terms of both the closure mechanism.
And the <unk> has put on during cardiac surgery. So it's obviously a much larger device the closure rates are near 100%.
At complete closure on it and so it's a different device and literally it from that standpoint again, the Lear is a wonderful device.
It just didn't get to the same net benefit on the Afib production.
That doesn't I'm, not suggesting that it didnt have good closure or anything like that it just didn't get to the same.
And if it on the Afib production from that standpoint, but I will say that the <unk> is an excellent device has proven to actually we've actually tested it.
And we're seeing great benefit with that device and so I don't see any collateral damage and anyway.
Got it.
And and.
Forgive me. If this was mentioned just hopping in between calls.
The incremental contribution of converge in the quarter. Thank you for taking my questions.
Thanks, Raj and I know everyone's interested and specifics on converge and that franchise revenue. We're not we're not giving that information at this time I think just as a reminder of our mis business and the combination of both the converged business and the deep procedure and we've talked about the day procedure and that particular business line and the path.
And while it has some small growth its not the same expectations as we would see out of converged on majority of the growth and the quarter would come from converged, but not giving specifics on the revenue dollars for the quarter.
Our next question is from Daniele and Telsey of ads.
Please ask your question.
Hi, good afternoon, everyone. Thanks for taking the question congrats on a really strong quarter.
Mike I know you alluded to that and.
On your prepared remarks, but as it relates to converge I'm curious what you are seeing obviously that lunch is.
Gaining momentum I know youre, not breaking that number out feels like maybe a little bit more than we thought but.
And just curious about what youre seeing at the centers that are adopting converse are you seeing any uplift and your open ablation and lip products and sort of how it based.
Based on what Youre seeing is there any change in your view of how that could play out going forward.
Yeah from a.
Cliff standpoint, yes, and we continue to see people wanting to manage the appendage, we're anticipating getting it from that standpoint and from the open business I would I couldnt correlate kind of what's happening on converge to our benefit that we're seeing on the open side of our business.
And I'd say, maybe that's something longer term, maybe you get people that are more interest in treating afib I think it's a really good question and possibility, but I wouldn't say, it's too early to tell whether or not that's going to happen since we've really kind of only been approved since late April.
Okay. That's fair and then I guess my next question is.
Again on me is disappointing, but Luckily you have so many shots on goal and you're in and new product cycle now, but you know on these.
And was another product targeting the EP physician population I mean do you think this is going to impact the footprint you have at the EP or no. You think you have enough of their mind share with converge. Thanks, so much.
I think that obviously, we wanted to have products that we would put into the hands of the EPS will continue to I think and we still have the product and as I mentioned, it's an excellent product on many different fronts that being said the <unk>.
Converge itself with the differentiation and the collaborations going on there we've got great growth drivers on that area for many years to come and we're building great relationships with EPS and that area.
So I feel really good about the work that we're doing and converge and then kind of ancillary products that may be built around it that the EPS might be able to kind of leverage or using that collaboration.
Thank you.
And there are no further questions at this time I will turn the call over back to Mike Carrel, President and Chief Executive Officer for his closing remarks.
Great well again, everyone. Thank you please stay safe and stay well appreciate your interest and <unk> and look forward to a wonderful future together have a wonderful evening bye now.
And this concludes today's conference call. Thank you for participating you may now disconnect.
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