Q4 2021 AtriCure Inc Earnings Call

February 15, 2022

Good afternoon, and welcome to actually curious fourth 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 today's call. As a reminder, this call is being recorded for replay purposes I would now like.

To hand, the call over to Bruce advice from the Gilmartin group for a few introductory comments.

Thank you by now you should have received a copy of the earnings press release. If you have not received a copy. Please call 513, 755, or one <unk> will have one emailed to you.

Before we begin today, let me remind you that the Companys remarks include forward looking statements forward.

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 nature care SEC filings.

These statements include but are not limited to financial expectations and guidance expectations regarding the potential market opportunity for <unk> with franchises and growth initiatives, including the adoption of the hybrid AF procedure and future product approvals or clearances and reimbursement.

<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 measures with the most directly comparable GAAP measures is included in our press release, which is available on our website.

With that I would like to turn the call over to Mike Carrel, President and Chief Executive Officer, Mike.

Thanks, Marcia and good afternoon, everyone and thank you for joining us we hope that you're all well.

The fourth quarter of 2021 concluded an extraordinary year for range of care.

As described in our preliminary announcement in this afternoon's release, we delivered $73 $2 million in revenue in the quarter.

Reflecting growth of approximately 27% over the fourth quarter of 2020 and 4% sequentially.

Growth was primarily driven by pain management and hybrid <unk> therapy franchise expansion in both existing and new accounts, while underlying strength in our appendage management franchise continued to reflect the broad appeal of our <unk> product line.

Before providing a more detailed review of the business I want to recognize the ongoing challenges related to the continued impact of the COVID-19 pandemic.

At the beginning of the fourth quarter, many of our customers experienced staffing shortages and capacity constraints suppressing cardiac procedure volumes.

The quarter ended much like 2020 with a spike in cases difficult operating conditions across our customer base.

These constraints, the carryover and continuing to impact 2022.

Like many other companies we are still experiencing pressure from the pandemic. This quarter. Although we are pleased to have been have seen an uptick in volumes in recent weeks as conditions slowly begin to improve.

We continue to believe our business is positioned for strong growth over the year ahead, and we are reaffirming our annual guidance of 315 million to $330 million in 2022.

I would like to highlight the initiate the initiatives facilitating our growth starting with our hybrid <unk> therapy for long standing persistent afib patients.

We are pleased with our progress since receiving PMA approval for our pivotal converged clinical trial in April 2021.

As a reminder, this achievement marks the only FDA approval for the Standalone treatment of patients with long standing persistent afib.

We estimate that approximately 45% of the millions of diagnosed patients are long standing persistent presenting acre tier with a unique opportunity to establish the hybrid AF procedure as the standard of care in this vastly underpenetrated market.

As last year unfolded, we saw procedure volumes rebound to near pre Covid levels, and then begin to accelerate in the second half of the year.

We ended the year with record episodes system sales in the fourth quarter.

So much potential remains to add new accounts and grow our physician base within existing accounts within this multi billion dollar market opportunity.

We are increasing training efforts to meet the demand from the physician community and recently added a third mobile lab.

We also continue to expand our commercial team with the addition of sales reps and clinical support as well as therapy awareness reps to build relationships and develop programs focused on the needs of cardiac of the cardiology community at large as we look further upstream.

Within patient referral channels.

Turning now to our open ablation franchise, where we marked the 10th anniversary of our PMA approval for the Isolator synergy ablation system.

This foundational technology of <unk> was the first medical device approved for the treatment of persistent and long standing persistent afib during open heart procedures.

We have spent the past decade, driving physician awareness education and adoption, resulting in consistent growth and expansion of the therapy since 2011.

More recently, we received FDA 500, 10-K clearance for our encompass device, which provides a simpler and faster approach to <unk> open heart procedures.

Due to the limited launch we are now complete we have now completed over 150 procedures in the United States.

The success to date of our limited launch gives us conviction in the encompass clients broad appeal to high volume cardiac surgeons.

We are moving towards full commercial availability in 2022, and I expect this device along with our legacy technology and focused commercial and market development resources to deepen our penetration of the cardiac surgery market over the next decade.

Our opportunities in both open and hybrid ablation is our appendage management franchise.

In 2021, the <unk> product line grew 39% with record sales of <unk> Flex V devices.

We are working on continued innovations to enhance this business in the future. We expect to see steady expansion of the franchise is the mounting wave of clinical evidence grows for our appendage management and the surgical procedures and from the expansion of the hybrid <unk> therapy.

Finally, turning to our pain management franchise cryo nerve block.

We entered the pain management market nearly six years ago with the goal of improving the recovery of patients undergoing cardio thoracic surgery.

Early results were compelling leading to the development in 2019 launch of our prior sphere probe a dedicated device for managing post operative pain and thoracic surgery patients.

Our unique technology uses a differentiator freezing method to blocked in or from transit from transmitting pain signals after thoracic surgery, providing a long lasting form of pain relief for patients.

Crowd in your block has become one of our fastest growing therapies, providing an uplift of our open ablation results.

In 2021, we nearly doubled our cryo nerve block commercial team doubled our U S market penetration and expanded to more than 400 accounts and received CE Mark approval in Europe we.

We will continue to invest in our dedicated commercial and education teams to direct to drive therapy adoption. This year.

Beyond our core driver drivers a number of clinical innovation and regulatory developments position us for ongoing expansion.

And appendage management, we expect submission of our leaps protocol to the FDA. This year and subsequent initiation of the clinical trial to study the prophylactic use of the <unk> device after promising results from the Atlas trial.

More than two thirds of cardiac surgery patients do not have preoperative afib diagnosis, representing a significant expansion of the addressable market for appendage management globally.

While the <unk> trial will take a number of years to complete we expect the awareness for treating the appendage to continue to increase.

Next we are looking to expand into markets that are highly complementary to our core competency of treating complex arrhythmias leveraging the unique position relationships, we have developed and building upon <unk> RF ablation technology.

We expect to begin a new IV trial for the treatment of patients with inappropriate sinus tachycardia or ISP using hybrid ablation procedures.

This disease results in an extremely elevated heart rate and distressing symptoms of heart palpitations contributing to the inability to sleep or exercise.

<unk>.

<unk> has a dramatic impact to a patient's quality of life.

ISG most often occurs in young women and currently there are no approved treatments.

Trial, which we're calling heal ISP along with the development of a dedicated device focuses on the solution for the significant unmet need.

We also continue to expand investigator sponsored research programs with particular emphasis on real world evidence for our therapies the registries.

In addition to our clinical activities, we have ongoing reimbursement efforts for our cryo nerve block and other therapies internationally. We received clearance of our first product in Europe under the new EU medical device regulations, or MTR and we have a strong foundation of expertise to build on and expect to continue to pursue additional product clearances.

Throughout our international markets.

In summary, we remain excited about our potential in 2022 and over the next decade.

Opportunities are diverse and our products offer differentiated and proven solutions in markets with substantial unmet needs, while new challenges arose over the past few years for companies across the industry. We remain very bullish on the future of <unk>.

Before I turn the call over to Angie.

To highlight another important initiative, our inaugural ESG report, which we published last week.

Our commitment to operating responsibly sustainably and improving the wellbeing of the communities around US has long been an important aspect of our culture and one that we take seriously.

Our ESG strategy is tied directly to our core values to heal the lives of patients grow and empower our people and collaborate with our partners.

In this report we address our ESG achievements, so far and lay out additional initiatives we're undertaking.

I encourage you to read the report to learn about our efforts and we'd be happy to discuss our work in this area in more detail.

I'll now turn the call over Andrew why Rick our Chief Financial Officer to discuss more detailed results for the quarter.

Thanks, Mike our fourth quarter 2021 worldwide revenue of $73 $2 million increased 26, 8% on a reported basis and 27, 4% on a constant currency basis, when compared to the fourth quarter of 2020.

U S revenue with $61 $2 million or 29, 1% increase from the fourth quarter of 2020, reflecting healthy activity across product lines.

<unk> by record sales.

<unk>.

We have begun system and <unk> flex V devices.

International revenue totaled $12 million up 16, 3% on a reported basis and up 19, 3% on a constant currency basis as compared to the fourth quarter of 2020.

Activity across Europe , the middle Eastern Africa accounted for $7 $4 million of our international revenue, while Asia and other international markets accounted for $4 $6 million of our international revenue.

On a sequential basis, we experienced growth of approximately three 9% and our worldwide revenue from the third to the fourth quarter.

While the fourth quarter saw growth in key product lines, we typically see a higher sequential increase reflecting the impact on procedure volumes from both hospital staffing constraints and all.

And to a lesser extent pressure from declining FX rates and distributor transitions in the quarter.

Now touching on a few key metrics for the fourth quarter gross margin was 75, 1% up 160 basis points from the fourth quarter of 2020, largely driven by favorable geographic and product mix and continued leverage from scaling our operation.

We had an adjusted EBITDA loss of $2 $1 million compared to positive adjusted EBITDA of $1 $7 million for the fourth quarter of 2020.

This change to our bottom line reflects incremental head count variable compensation and training costs in 2021, along with the return of most operating cost to pre pandemic norm.

Our loss per share was <unk> 30 for the fourth quarter of 2021 compared to a loss per share of <unk> 42 for the fourth quarter of 2020.

The adjusted loss per share each period, with 30 and 18 cents respectively.

Now to recap our 2021 fiscal year worldwide revenue with $274 $3 million, an increase of 32, 8% on a reported basis and 32, 4% on a constant currency basis.

<unk> sales increased 35, 4% to $229 $1 million, while international sales increased 21, 2% to $45 $2 million.

19, 1% increase on a constant currency basis.

The recovery of cardiac surgery procedure volume during 2021.

Due to reductions in COVID-19 restrictions as the primary driver of the increase.

Long with further adoption of key products in each franchise.

Two notable growth drivers in 2021, where our cryo sphere probe and the epic 10 system.

<unk> product sales of cryo sphere totaled $22 $7 million in 2021.

While U S product sales of <unk> reached $26 $3 million each reflected within open ablation and mis ablation revenue respectively.

Gross margin for the full year was 75.0% compared to 72, 3% in 2020.

Gross margin improvement of 270 basis points was driven by a return to normal production activity in 2021 and.

And favorable geographic and product mix.

Partially by inventory management charges in 2021 associated with malaria product.

Now turning to full year operating expenses for comparability I will exclude charges changes in the fair value of the contingent consideration recorded both years as well as an impairment charge from the IP R&D asset associated with the amaze PMA, which was recorded in the third quarter of 2021.

Total operating expenses increased to $59 3 million or 36% from $193 $9 million in 2020 to $253 $2 million in 2021.

The increase results mainly from our investments in 2021 to expand the <unk> team as personnel costs variable compensation and share based compensation expense saw the largest increases over suppressed levels in 2020.

Additionally, with the expansion of training programs. Following the converge PMA approval in April 2021, and easing travel and meeting restrictions, we experienced an increase in associated costs.

Full year 2021, adjusted EBITDA loss was $8 8 million compared to $6 $3 million in 2020.

Our earnings per share was $1 11, and 2021, reflecting the significant adjustment to the contingent consideration liability.

<unk> to a loss per share of $1 14 and 2020.

Adjusted loss per share was $1 16, and $1 one respectively.

We ended 2021 with $223 $4 million of cash and investments.

Other highlights for the year include refinancing, our credit facility, which significantly reduced our borrowing costs, while expanding capacity.

Additionally, with support throughout our supply chain, we were able to bolster our inventory position in anticipation of future growth.

Finally, turning to our outlook for 2022.

Consistent with our announcement in early January we expect to achieve between $315 million and $330 million in revenue for the year.

While confident in our position to drive accelerated growth of our historical results.

Died several macro trends that could meaningfully drive our revenue.

Board or downward for the year.

We remain cautiously optimistic that procedure volumes will continue to normalize and will be boosted by our many growth catalysts.

In the first quarter of the year.

Storage was seen a sequentially flat progression from our fourth quarter. However, we are not immune to the ongoing effect of XOMA Chronar staffing challenges, which are currently impacting procedure volume.

Therefore, we expect first quarter 2022 revenue to be down slightly from fourth quarter 2021 revenue of $73 $2 million.

We expect 2022 gross margin to be comparable to 2021 with the potential for varying impacts from increasing cost mix.

We are also maintaining our level of investment in research and development activities several of which Mike highlighted earlier in the call and we will gain leverage from SG&A expense.

Therefore full year 2022, adjusted EBITDA is expected to be a loss of approximately 2 million to $4 million.

Corresponding with our full year 2022, adjusted loss per share of $1 seven to $1 12.

With the slight decline in quarterly revenues on a sequential basis and discretionary spend in the first quarter.

Our first quarter 2022, adjusted EBITDA is expected to be a loss that slightly exceeds the upper end of our full year guidance range.

Quarterly revenues increased during the year, we see improvement to quarterly adjusted EBITDA.

Finally, as a reminder, we typically experience a heavier cash burn in the first quarter due to variable compensation payments share vesting and other operating needs.

We are thoughtfully managing our business for long term success balancing investments to drive growth and progressing towards profitability.

In 2022, we continue to prioritize investments in numerous strategic initiatives in support of our catalyst rich future.

At this point I will turn the call back to Mike for closing comments.

Thank you Angie while this year brought renewed challenges to the health care community, we remain committed to the fundamental value we provide to patients.

To that end, we are fueling investments for the future and our focus on executing on the many catalysts for growth that we discussed today.

Thank you for joining us we will now open up to questions.

Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.

First question comes from the line of David Saxon from Needham Your question. Please.

Yes, hi, Mike in AG. Thanks, so much for taking my questions.

Maybe first one on <unk>.

The crusher probe if I heard you correctly I think you did $22 seven for the year.

And if thats correct.

Maps or kind of mid single digit penetration in that $350 million market. So just wondering where that goes from here can you reach low teens penetration in 'twenty two just given the sales force expansion and potential procedure volume recovery.

Yes, I mean, your numbers are about right and so.

On all ends in terms of market penetration at this point, we did about nine to 10000 or so total cases at the 400 sites that we've talked about throughout the year and we anticipate that we're going to get deeper and deeper into those accounts I do anticipate that we'll be able to get into the double digits.

As the year kind of progresses, but I would say that what will be kind of in that kind of range.

And we feel really good about the growth prospects for that business. We added the people because there is demand.

We more than doubled the size of our team we continue to add resources check out our website you can see that we've got.

Looking for people all over the country to kind of both cover cases, which is a big deal, but also just to add resources to get it to even more new accounts.

Got it and then maybe one for AMG.

I mean, you said gross margin should be somewhat similar to 'twenty one but.

If I recall correctly your long term target of 75 so.

Seeing that you've achieved that here.

A tough environment.

I guess, where does that go going forward.

As revenue continues to grow and you get more leverage.

If.

Memory serves cryo sphere, and epicentre are both pretty pretty accretive to margin. So.

Yes, I guess, where does that go.

Why not continued improvement from 'twenty one thanks, so much for taking the questions.

Sure David.

Good question, we have historically seen pretty modest improvements to gross margin on an annual basis.

121 was really boosted by geographic mix. When you think about the start of the year for the full year. The U S product revenue was 84% of our total versus kind of the 80% to 82% historically and some of the benefit to product mix beneficial that we thought was the epicentre revenue in particular as well as the V clip products.

When you think about 2022 some of the headwinds that we face are we've talked in previous calls with investments that were making within the expansion of our production capacity as well as our team.

And we're also very cautious about kind of the inflation and supply chain pressures that you are hearing from others, but.

Tailwind that we have or the mix that we're seeing higher U S revenues and then some of the product mix.

Great. Thank you.

Thank you. Our next question comes from the line of Robbie Marcus from Jpmorgan. Your question. Please.

Oh, great. Thanks for taking my question.

So maybe two to.

To start.

How should we think about the minimally invasive growth this year.

Great opportunity.

What I'll call them headwinds to us are while the open business is a phenomenal business is super important to us probably likely below those types of growth rates overall, we've historically kind of been in the open ablation in kind of the mid to high single digits. That's really an area that we feel pretty comfortable with even with the new product line and the new reimbursement thats coming down as we look at 2002.

Two.

As we look and then on the as you look kind of for those things are a tailwind for us the clip franchise, we anticipate to grow kind of above those numbers you anticipate that the cryo nerve block is going to be one of the fastest growing areas and then hybrid as well I'm not going to kind of.

Say, which one is going to grow faster, but those are the three that are really kind of very growth kind of in excess of the growth rates that we've got overall for the business.

And really kind of drive obviously the growth rates to kind of be in that 15% to 20% on the minimally invasive it's really broken up into two areas. One is converge and the epicentre product and that one is definitely growing north of those areas.

The minimally invasive part of our business, that's what we used to call deep or our TT business that part of our business is really flat to down slightly. So if you look at mis overall, it may not grow quite as fast, but the converge aspect of it we anticipate growing in the same kind of rates and ranges that you are seeing with crown roadblocks and clip, but I mean, all of them are going to be really fast.

Growing and there is little competition going on there.

Great.

And then it's interesting to hear about some of these new trials Youre running ISG, how do we think about the addressable market size for that and how do you think about just whether it's organic new products or inorganic products to add to your reps bag. How are you thinking about.

Expansion of different products procedures over the future.

It's a great question I mean, when we look at our business and thanks for asking that because it's actually I think one of the most exciting parts of our story and you don't need to do an acquisition to continue to accelerate our growth rate because of the things we've kind of got in place today.

If you look at all of our franchise converge where at the beginning stages of it I've talked on this call before about how you can compare it to.

In terms of when <unk> was around 10 to 12 years ago. When it was just getting started it was in a very small and then it was kind of creating a new standard of care in that market. We think the same thing is going to happen within the converged space. Obviously, we don't get as much per procedure and I'm not suggesting that will be as large of a market overall, but it's a very big market and more people have long standing persistent afib and they do have aortic stenosis.

So I think that Thats, a very large market where at the really early stages of really establishing that market and creating standards of care. The same thing exists within Cardinal block I mentioned it earlier when David asked the question around just kind of the overall sizing of that market. It is a $350 million plus market just in the U S. Let alone Europe that we just got our clearance and approval on and were in the <unk>.

Digits today, and penetration and the product works and it works really well and so I think that we've got a lot of growth opportunities organically within that area continuing to invest in various different clinical data to kind of prove that benefit over time.

ISG is unique one it's a whole new market. So we're also doing things and that's an organic development, it's actually using our existing product today and we've got a new product that we'll be putting out into the market either sometime late next year or early.

The year thereafter, and doing a lot of work to kind of really fine tuned. When you think of Iot you are talking about hundreds of thousands if not millions of patients. Some of the data out there says that it's upwards to almost 4 million patients in the United States have ISP, but quite frankly, we don't need a number or that large it's almost too big to kind of consider that right now we're starting it.

<unk> zero cases that are getting done.

And we know that that market is very large in a lot of people have this and if you talk to an EP they'll tell you. These are the most difficult to treat patients because they really have no solution for them. So we view this as a very large market opportunity multi 100 millions of dollars. Many many patients that we can help and that we can treat.

And it's really rewarding seeing some of the results that we're seeing at some of the sites that are doing it in particular over in Brussels, where it was kind of invented the procedure by an EP and a surgeon over there and so those are just some of the markets and I haven't even touched upon the trials and the things that we talked about relative to leaps and actually going after and expanding the market for left atrial appendage.

<unk> when you think about left atrial appendage market.

And you begin to think about how large that is patients that undergo cardiac surgery.

Many of them if not most of them at some point in our lifetime are going to get atrial fibrillation and if we can demonstrate and prove that they benefit from running a clip on at the time. They are undergoing cardiac surgery. It is better for the patient at that point. There is no additional cost and additional procedure will have to undergo five or 10 years. Later, if we can prove that out that we can actually reduce their stroke rates or.

Overall thats beneficial for society, it's beneficial to those patients and it's a really big market opportunity. So.

That's the way we're looking at how do we expand on our existing platforms that we've kind of developed over the last couple of years, leveraging both a combination of new technologies and the clinical data.

Those are the things that we're going to continue to invest and I think we've got decades of growth in front of us.

Great. Thanks, Mike.

Thank you. Our next question comes from the line of Matthew O'brien from Piper Sandler Your question. Please.

Great. Thanks for taking my questions, Mike just to follow up a little bit on Robbie's question on <unk>.

I mean, the U S. Mif's number did bump up nicely in Q4, and I know youre going to say both to this question, but where.

Did some of that that bump any growth come from was it was it on the new center side and folks that are starting to really adopt <unk>.

Convergent or was it some centers, maybe you added a year or two ago looking at the data really refining our protocols that know how to attract those patients.

What should the two of those really drove most of that growth that we saw in Q4.

Surprisingly, it's mostly the latter it's mostly more existing sites that we're not getting a lot of revenue from existing sites just yet because those new sites are all up and running and they are kind of onesie Twosies are just getting started we don't sell bulk packages upfront and try to kind of drive much revenue.

In that first six months of the new sites coming on board were really making sure they're trained really well that theyre getting their case volumes in there et cetera. So I mean, most of the growth is actually coming from existing centers and theyre getting kind of programs up and running a little deeper getting better referral patterns getting more of their EPS to referring to there that being said we have added a lot of net new sites.

And.

And so as we add new sites those should contribute towards our growth in 2022 for sure in 'twenty, three and 'twenty four and so.

There's a lag obviously, if you're getting any site to having really good contribution to the revenue line. So hopefully a year from now when we're talking I'll be telling you that a lot of it's coming from the new sites that we added over the previous 12 to 18 months.

Got it and then.

On the clip side of things again, a very good performance here in 'twenty, one it actually it looks like it accelerated.

<unk> 21 versus <unk> 19 versus what you had seen before that just talk a little bit about what youre seeing as far as the growth in the clip business.

But the sales reps are adding and then I guess woven within there on the <unk> data is that starting to influence.

Utilization of the Clipper attracted new doctors at this point. Thank you yeah, I would say that the I mean, the last date is another piece of information that is confirmatory of the benefit of managing the appendage and over time that has had a dramatic impact on that which is why the growth rates have been there on top of that we've continued to innovate over the year.

As you look at the particular quarter, there's just a lot of room for growth within the clip franchise I mean, they're just a lot of patients that are there more and more data continues to come out whether it's allow us or others about the benefits of doing it and we're getting that we're getting some of that benefit out in the field.

As that continues to grow in addition to that we've got very good attachment on our.

With converge.

Always talked about that kind of being in the 60% to 70% range were really more at the high end of that at this point, maybe getting even into the low 70 in the fourth quarter in terms of attachment of clip with the convergent procedure, so more and more we're seeing.

Then actually combine those procedures.

Perfect. Thank you.

Yes.

Thank you. Our next question comes from the line of Bill <unk> from Canaccord. Your question. Please.

Great. Thanks, good evening.

So just in terms of just.

We can see the numbers and I mean, there was really strong results across the board.

And the new product categories, but you'll make in the new shared with us that you're really seeing the benefit in your existing accounts on converge.

Is the convergent procedure, how what can we look at to kind of gauge when those new accounts will be productive or what what metrics or.

Are you looking at.

Just so we can kind of as we can kind of watch as this develops.

It's a really fair question and we know everybody wants to have us kind of just roll out every single metric net new centers, everybody trained et cetera.

We don't want to do that right upfront because we don't want to kind of have swings quarter to quarter that may not be indicative of kind of where we're going because a particular area of the country might be very deepen maybe it's really more important for them to go deeper in existing accounts and adding an account and so when you do that in the macro bring it up it may not.

B the right metric to kind of look at that being said, we will likely give kind of an annual number every year. We'll update you on the number of sites that we basically get we'll probably do that sometime later this year to give you guys kind of hit here is the first year here. We basically came to you can see the number of sites that are buying from us. We're looking at internally kind of in addition to that things like repeat buyers.

How much are they getting per site, we're looking at software things like at sites like what's actually happening or they establishing days, where they're actually talking about these patients. So do they have monthly meetings to discuss the patients they're going to treat in the next months going forward have they established those types of programs or EPS and surgeons are collaborating in that way those are really good telltale signs of.

It really good sticky program, that's going to be around for a long time, if they're establishing those types of protocols and benefits to it.

So we're really looking at those to kind of get a sense for what does our future kind of looked like on that front.

Okay. Thanks, and then under the guidance for first quarter.

Basically you have us down sequentially is that more of a U S phenomenon.

<unk> global and are there any specific product categories that are more impacted than others that we should think about it.

And I'll, let Andy answer that one.

Sure Bill So I think the sequential decline I would say think about it globally.

We're seeing some improvement in Europe and in U S. I think.

<unk> impact is being felt kind of around the world from the staffing challenges that we're seeing impacting our customers.

It's interesting I would say a little bit more resistance in the cryo nerve block franchise in terms of.

Being able to kind of manage through I think some of that's the immediate results.

<unk> can see when they treat a patient and we're also pleased with the progress that we've seen on the mis side slightly lower patient stay than in our open cardiac surgery business.

Okay, and then if I could just clarification on the EBIT.

<unk> guidance, the adjusted EBITDA guidance for Q1.

Are you, saying that it would be.

<unk> 1 million or it's closer to like a $4 million loss in Q1.

Yes.

We said was that we would expect the Q1 and you've seen this historically out of our results for Q1 EBITDA loss may exceed the full guidance range that may be above the $4 million.

Overall locked for the year and that's just.

The phenomenon of the kind of the first quarter of the year being the lowest revenue and then discretionary spend and other events that happened in the first quarter contributing to a higher bar.

<unk> compare to your revenue.

Great. Thanks, Thanks for taking my questions.

Thank you. Our next question comes from line of Tim That's healthy from SBB Leerink. Your question. Please.

Hey, good afternoon, everyone. Thanks, so much for taking the question and congrats on all the success with that.

With the new product launches Mike. Thanks, so much for the color on episodes that 26.3.

$3 million number that's a great number and I guess I just curious what that number was prior to this year I don't know if you guys can give us that are sort of some sense of what kind of growth that was.

Off of prior years acknowledging converge had been done before you got the PMA approval.

And do you want take that one.

Sure. So Danielle we haven't given the prior year number I think when you look at 2020 versus 2021, a lot of that is a rebound across.

MS business, I think better to look back at 2018 in 2019 level, Okay, and if you think about it back in that timeframe, we were averaging close to $9 million a quarter U S Mis ablation.

And that was split around 60 40 between converge and then our legacy <unk> business. So I think I would kind of frame of reference would tell you healthy growth numbers, not quite 100%, but healthy growth numbers. When you think but just keep in mind 2020, we were down pretty dramatically due to the effects of COVID-19 on the NYSE.

Ablation line.

Got it yes, that's good.

Okay, and then on on converged.

Just curious how youre seeing the adopted.

Appreciate the existing centers.

But how readily are you seeing EPS embrace converge I sort of think of converge.

Little bit misunderstood because.

<unk> should.

Should be very excited about that.

Because it brings more volume to their practice I mean is that sort of what you're seeing out there in practice in the real world where are the friction points Bill does it does it just come down to logistics.

Just curious about how youre seeing it embraced by EPS and then also where there are friction points, but those are thanks so much.

Yes, you've actually said it really well Danielle.

It has been embraced by it because we've got a lot of net new centers.

The question is more of the revenue coming from that but we do have a lot of net new centers that are up and running that we anticipate contributing significantly in 2022 based on kind of what they've been doing in kind of the rollout that we're seeing with them. So there's a lot of excitement within the EP community. We've had a lot of engagement both in community hospitals at major academic facility.

<unk> very high volume centers and Theyre looking at exactly what Youre talking about which is they've got this is going to help them with their overall volumes is treating a patient population that if not normally had the opportunity to treat very well of course, you have got some naysayers, but it's very few and far between that we see pushing back quite frankly, the biggest battle like you just described.

That'll maybe the wrong word, but really is the how do we get the logistics to work out and how do you make sure that there is the right handoffs.

What is the program going to look like and how are these patients going to be managed that's the biggest piece to get everything coordinated for what the protocols. They want to do with their site and then how do they want to collaborate at an individual site and once you kind of get that up and running and going you then start to see the case volumes increased dramatically at that point.

Awesome. Thank you.

Thank you. Our next question comes from the line of Marie Thibault from <unk>. Your question. Please.

Hi, Thank you for taking the questions I wanted to circle back to the heel ISP studying here a little bit more about the timelines size of that I see that there is a registry under clinical trials.

I don't know if thats the same trial and what we can expect to hear for timeline standpoint on that product.

Yes, so we're in the process of working with the FDA now we anticipate that sometime this year that we will be able to move forward with a full IDE trial, it's likely to be we don't have anything solidified, but several hundred or so patients overall.

But we're still working with the FDA on some of those final numbers and kind of where we sit with that.

And we anticipate it being kind of the.

Think about a trial that size likely between kind of 25% to 40 or so sites it'll be a very international trial. The procedure was actually developed.

By a group of physicians in Brussels.

Dr <unk> and Dr Amir who.

Really kind of partner with us over the last four years. They established it and then we've kind of work with them and kind.

Kind of defining that trial and theyre going to be obviously big contributors to kind of putting it altogether for us from that front. So this year you anticipate us getting an approval with the FDA to move forward with the trial and then and then sort of enrollment very quickly thereafter.

Okay very helpful. Another catalysts to look forward too want to ask my follow up here kind of a two part very very two quick parts.

On the new products like cryo are the new contributors.

You've just received CE Mark on Cryo Youre also planning full launch of encompass clamp.

How meaningful is the CE Mark for you in the cryo.

And then when it comes to encompass clamp and some of these newer products. What is the margin contribution like on those products or are we seeing a pricing premium on some of these new products.

I'll ask the personal pass over to Andrew to answer the margin question, but when you cryo for Europe is super exciting long term impact on 2022 not.

Not much at all.

They're very much looking forward to it I've been over in Europe , and talk to the team and they are really excited to bring it to market.

But we definitely have to look at each individual market separately based on different reimbursement angles to it et cetera, and thats going to be the area that it will take a little longer to kind of get up and running and kind of becomes kind of more standard of care over there, whereas in the U S. We're able to have that impact a little bit quicker.

Why again 2022, you don't see much I think youll start to see some impact in 2023 and for sure by 2024, I think it'll be up and running in a big way in Europe .

Alright, yes.

Murray your question on margin encompass great new device, but I'd say, what you've seen in the past the price here, which is new product coming out of development. It takes a while to lean out the manufacturing you really get the scale.

It's a headwind to our margin and then any product that we've got in Europe . Unfortunately at this point in time. It just has a lower margin than what we see in the U S. So that's the impact from those two.

Okay makes sense. Thank you for that.

Thank you. Our next question comes from the line of Suraj Kalia from Oppenheimer. Your question. Please.

Good afternoon, everyone.

Can you hear me all right Mike.

Yes, Thanks, Suraj, perfect, Hey, hope, everyone is safe and healthy.

Two questions.

I know the converged thing has been sliced and diced 10 different ways.

Memory serves me right.

Hybrid was being down approximately 1500 cases across 200 centers.

<unk> trial data release.

My memory I hope I remember you're supposed to be right.

So when we start looking at 15% to 20% plus growth in converge.

Is that sort of the baseline we should start thinking about it.

So if you could from the real word these days.

At this stage.

How is it shaping up.

Yes, your numbers are pretty close prior to the I mean, obviously COVID-19 kind of had a weird impact on of course volumes for a period of time, given how elective procedure was but in general I would say that in any given quarter. We were doing about 80 to 90 sites were basically buying from us maybe up to 100 in a given quarter, we're doing procedures and but.

Over the course of the year. It was about 200 sites as you kind of mentioned and then that 15% to 1800 range or so on the converged side.

And that range, we've talked about historically.

In previous years.

So I think that's around the right numbers, but again totally kind of had some kind of.

Funky kind of impact on it remind me what was your second question Suraj.

The.

No.

And his answer to a question in terms of the components of growth.

If I heard it correctly conversion was going to be.

Plus over 15 or 20% growth. So I was just triangulating is that the baseline and then should we start thinking plus 15% to 20% over this baseline.

The growth rates.

What I was suggesting is that when you look at the overall growth rate without giving a.

The specific number by category when you look at the <unk> those that are going to be kind of at the high end to growing higher than that kind of high end of that range, that's going to be the converge the clip and the cryo nerve block and then the headwinds are those that are growing quite nicely.

It's tough to call them headwinds, because theyre still doing really well as our open ablation business is going to be below those ranges and then the minimally invasive business thats not converge is basically flat to down slightly so when you combine the flat to down slightly with the converge you, obviously get a blended rate.

Kind of a mixed from that standpoint does that help yes fair enough Mike one last question on ISP.

It's an interesting and we can certainly take it offline Mike.

I understand that.

<unk> is not very clear.

You can have tachycardia from other scientists nodal sites.

Current evidence of RF ablation.

It's inconsistent efficacy.

Adverse events.

Yes.

<unk> identified a gap in current therapy.

New device could fulfill.

Could you share some additional color on what youre thinking because it registry trial.

No matter, how many 100 patients right.

It would be interesting comparing it to whats known in the market today any color would be great. Thank you for taking my yes.

And Suraj Youre absolutely correct. This is a therapy that unfortunately has not worked primarily because of the way that you have to enter into that area and the inability of the.

Kind of endocardial catheter to kind of get all access to its actually the perfect hybrid solution to the endocardial catheter does play a role.

As they are doing it and we can go offline and get into more details on the specific lesion set and what theyre doing but the Russell group really came up with a novel way to leverage and use our clamp to get around the crystal terminology and basically around the FCC and IDC.

And to make some of those connecting lesions and they've been doing it for a while now and they have seen dramatically. Good results without any kind of long term negative effects. As you described and so then we've kind of tested that they've actually written a paper thats been published again, we can get you the details on that and Thats the basis for a lot of the work that we.

Been doing and studying it and getting ready for the clinical trial in the U S. But again, we will be happy to talk in more detail on it is an exciting area.

And there is still a lot to learn as you know as you mentioned.

Thank you.

And this does conclude the question and answer session of today's program I'd like to hand, the program back to Mike Carrel for any further remarks.

Great well everyone. Thank you so much for joining Tonight hopefully it was informative and you are as excited about the future as we are here at <unk>. Please.

Please be healthy and have a wonderful evening.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

[music].

It's a bike from the Gilmartin group for a few introductory comments.

Thank you by now you should have received a copy of the earnings press release.

If you have not received a copy please call 513, 75, five or one three thanks Pablo email to you.

Before we begin today, let me remind you that the company's 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 nature cared that SEC filing.

These statements include but are not limited to financial expectations and guidance expectations regarding the potential market opportunity for interest earth franchises and growth initiatives, including the adoption of the hybrid procedure and future product approvals clearances and reimbursement.

<unk> results may differ materially from those projected <unk> undertakes no obligation to publicly update any forward looking statements.

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 measures with the most directly comparable GAAP measures is included in our press release, which is available on our website.

With that I would like to turn the call over to Mike Carrel, President and Chief Executive Officer, Mike.

Thanks, Marcia and good afternoon, everyone and thank you for joining us we hope that you're all well.

The fourth quarter of 2021 concluded an extraordinary year for age or cure.

As described in our preliminary announcement in this afternoon's release, we delivered $73 $2 million in revenue in the quarter.

If I can growth of approximately 27% over the fourth quarter of 2020 and four.

And 4% sequentially.

Growth was primarily driven by pain management.

<unk> therapy franchise expansion in both existing and new accounts, while underlying strength in our appendage management franchise continued to reflect the broad appeal of our <unk> product line.

Before providing a more detailed review of the business I want to recognize the ongoing challenges related to the continued impact of the COVID-19 pandemic.

At the beginning of the fourth quarter, many of our customers experienced staffing shortages and capacity constraints suppressing cardiac procedure volumes.

The quarter ended much like 2020 with a spike in cases difficult operating conditions across our customer base.

These constraints have carryover and continued to impact 2022.

Many other companies we are still experiencing pressure from the pandemic. This quarter. Although we are pleased to have been have seen an uptick in volumes in recent weeks as conditions slowly begin to improve.

We continue to believe our business is positioned for strong growth over the year ahead, and we are reaffirming our annual guidance of 315 million to $330 million in 2022.

I would like to highlight the initiate the initiatives facilitating our growth starting with a hybrid <unk> therapy for long standing persistent afib patients we.

We are pleased with our progress since receiving PMA approval from our pivotal converged clinical trial in April 2021.

As a reminder, this achievement marks the only FDA approval for the Standalone treatment of patients with long standing persistent afib.

We estimate that approximately 45% of the millions of diagnosed afib patients or long standing persistent presenting acre tier with a unique opportunity to establish the hybrid procedure as the standard of care in this vastly underpenetrated market.

As last year unfolded, we saw procedure volumes rebound to near pre Covid levels, and then begin to accelerate in the second half of the year we.

We ended the year with record episodes system sales in the fourth quarter.

So much potential remains to add new accounts and grow our physician base within existing accounts within this multi billion dollar market opportunity.

We are increasing training efforts to meet the demand from the physician community and recently added a third mobile lab.

We also continue to expand our commercial team through the addition of sales reps and clinical support as well as therapy awareness reps to build relationships and develop programs focused on the needs of cardiac the cardiology community at large as we look further upstream within patient referral channels.

Turning now to our open ablation franchise, where we marked the 10th anniversary of our PMA approval for the Isolator synergy ablation system.

This foundational technology of <unk> was the first medical device approved for the treatment of persistent and long standing persistent afib during open heart procedures.

We have spent the past decade, driving physician awareness education and adoption, resulting in consistent growth and expansion of the therapy since 2011.

More recently, we received FDA five 10-K clearance for our encompass device, which provides a simpler and faster approach to <unk> open heart procedures.

Due to the limited launch we are now complete we have now completed over 150 procedures in the United States.

The success to date of our limited launch gives us conviction in the encompass clients broad appeal to high volume cardiac surgeons.

We are moving towards full commercial availability in 2022 and expect this device along with our legacy technology and focused commercial and market development resources to deepen our penetration of the cardiac surgery market over the next decade.

Complementing our opportunities in both open and hybrid ablation is our appendage management franchise.

In 2021, the <unk> product line grew 39% with record sales of <unk> Flex V devices.

Finally, turning to our pain management franchise cryo nerve block.

We entered the pain management market nearly six years ago with the goal of improving the recovery of patients undergoing cardio thoracic surgery.

The early results were compelling leading to the development in 2019 launch of our prior year probe a dedicated device for managing post operative pain and thoracic surgery patients.

Our unique technology uses a differentiated freezing method to block the nerves from transit from transmitting pain signals after thoracic surgery, providing a long lasting form of pain relief of patients.

Crowd roadblock has become one of our fastest growing therapies, providing an uplift of our open ablation results.

In 2021, we nearly doubled our cryo nerve block commercial team doubled our U S market penetration and expanded to more than 400 accounts and received CE Mark approval in Europe .

We will continue to invest in our dedicated commercial and education teams to direct to drive therapy adoption. This year.

Yeah.

Beyond our core driver drivers a number of clinical innovation and regulatory developments position us for ongoing expansion.

More than two thirds of cardiac surgery patients do not have preoperative afib diagnosis, representing a significant expansion of the addressable market for appendage management globally.

While the Leafs trial will take a number of years to complete we expect awareness for treating the appendage to continue to increase.

Next.

We are looking to expand into markets that are highly complementary to our core competency of trading complex arrhythmias, leveraging the unique position relationships, we have developed and building upon <unk> RF ablation technology.

We expect to begin a new IV trial for the treatment of patients with inappropriate sinus tachycardia or <unk> using hybrid ablation procedures.

This disease results in an extremely elevated heart rate and distressing symptoms of heart palpitations contributing to the inability to sleep or exercise.

Like you said <unk> has a dramatic impact to our patients' quality of life.

IHT most often occurs in young women and currently there are no approved treatments.

The trial, which we're calling <unk> along with the development of a dedicated device focuses on the solution for the significant unmet need.

We also continue to expand investigator sponsored research programs with particular emphasis on real world evidence for our therapies the registries and.

In addition to our clinical activities, we have ongoing reimbursement efforts for our cryo nerve block and other therapies.

Internationally, we received clearance of our first product in Europe under the new EU medical device regulations, or MTR and we have a strong foundation of expertise to build on and expect to continue to pursue additional product clearances throughout our international markets.

In summary, we remain excited about our potential in 2022 and over the next decade.

Before I turn the call over to Angie.

To highlight another important initiatives are novel ESG report, which we published last week.

Our commitment to operating responsibly, sustainably and improving the well being of the communities around US has long been an important aspect of our culture and one that we take seriously.

Our ESG strategy is tied directly to our core values to heal the lives of patients grow and empower our people and collaborate with our partners.

In this report we address our ESG achievements, so far and lay out additional initiatives we are undertaking.

I encourage you to read the report to learn about our efforts and we'd be happy to discuss our work in this area in more detail.

I'll now turn the call over Andrew Weirich, our Chief financial Officer to discuss more detailed results for the quarter.

Thanks, Mike our fourth quarter 2021 worldwide revenue of $73 $2 million increased 26, 8% on a reported basis and 27, 4% on a constant currency basis, when compared to the fourth quarter of 2020.

U S revenue with $61 $2 million or 29, 1% increase from the fourth quarter of 2020, reflecting healthy activity across product lines enhanced by record sales of cryo sphere.

Defense system, and <unk> Flex V devices.

International revenue totaled $12 million up 16, 3% on a reported basis and up 19, 3% on a constant currency basis as compared to the fourth quarter of 2020 active.