Q1 2022 AtriCure Inc Earnings Call

Good afternoon, and welcome to <unk> first quarter 2022 earnings conference call. My name is Jeff and I'll be your car you need or for upward for the call today.

At this time, all participants are in listen only mode.

We will be facilitating a question and answer session. So at the end of today's call.

As a reminder, this call is being recorded for replay purposes.

I'd now like to turn the call over to Maria advice from the Gilmartin group.

A few introductory comments.

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

You have not received a copy please call 5137554136 to have one emailed 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 and he took care of that SEC filings.

These statements include but are not limited to financial expectations and guidance expectations.

Our expectations regarding the potential market opportunity for each are curious franchises and growth initiatives, including the adoption of the hybrid AF 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 statement.

Additionally, we refer to non-GAAP financial measures, specifically revenue reported on a constant currency basis.

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, which is available on our website.

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

Good afternoon, and thank you for joining us we hope that you're all well.

I am pleased to share that <unk> delivered an excellent first quarter results as growth across key product lines and geographies demonstrating the strength of our portfolio despite challenging conditions to begin the quarter.

We generated $74 $6 million in revenue, reflecting growth of approximately 26% over the first quarter of 2021.

Highlights for the quarter included the growth of our <unk> probe for pain management and strength in our <unk> product line.

<unk>, the broad appeal and continued adoption by new and existing customers.

Before before providing a more detailed review of our business I would like to comment on the operating environment today.

As discussed on our fourth quarter 2021 call. The omicron variant brought capacity and staffing constraints to our customer base early in the year and we experienced pressure to the cardiac procedures globally in particular elective procedures.

However, as conditions began to improve in late February and early March we saw a strong return and procedure volumes and demand.

This stability has continued into the second quarter and we are gaining momentum.

Based on the current backdrop and considering continued robust physician interest in our therapies, we remain confident in our ability to execute over the remainder of the year.

As a result, we are increasing our 2022 revenue guidance to $318 million to $330 million, reflecting full year growth of approximately 16% to 20%.

Now, let's focus on the initiatives driving our growth starting with hybrid <unk> therapy.

Last week, we celebrated the one year anniversary a PMA approval for the <unk> system for the treatment of patients with long standing persistent afib.

This approval resulted from the groundbreaking converge trial, which demonstrated the superiority of hybrid <unk> therapy, using our epicentral system with an endocardial catheter versus the endocardial catheter ablation alone.

Hybrid <unk> therapy is additive to catheter ablation and the <unk>.

Only FDA approved standalone treatment for patients with long standing persistent afib, giving a trickier, a clear and differentiated position in a vastly underpenetrated market.

Key accomplishments over the last year include completion of multiple hybrid AF therapy training courses, which have been co sponsored by the heart rhythm society or HRS expansion of our customer base, and increasing Asia clip attachment and hybrid AF procedures.

The response to the launch and our training programs has been excellent and we continue to see great potential and add new and grow within existing accounts.

Therefore, as the year progresses, we expect sales of the epicentre system to accelerate.

We also continue to make investments in our sales team enhancing clinical support and adding therapy awareness reps to build comprehensive and effective programs for providers and their patients.

With millions of diagnosed afib patients and roughly 45% of those considered long standing persistent.

We possess a unique opportunity to establish hybrid <unk> therapy as the standard of care in the coming years.

It is as it is the only proven therapy for these patients.

Turning now to our open ablation franchise.

We are excited to have recently announced our full scale commercial launch of the encompass clamp in the United States. Following FDA five 10-K clearance last year.

Encompass provides a simpler and faster approach to a bleeding and open heart procedures, leveraging the proven technology of our synergy ablation system.

While the contribution to 2022 revenue will be moderate feedback on our initial limited launch has been exceptional and we are already seeing growing interest from physicians.

With the addition of encompass we expect to sustain upper single digit revenue growth and our open ablation franchise and deepen our penetration of the cardiac surgery market.

Complementing the opportunities for our open and minimally invasive or hybrid therapies.

As our appendage management franchise.

The <unk> product line has driven consistent growth over the decade.

As continued innovation and increasing awareness to manage the law.

As led to broad adoption globally.

In the first quarter of 2022, our appendage management franchise delivered revenue growth of approximately 30%, reflecting record sales of the age of complexity and probing devices.

There is ample opportunity still ahead as we grow hybrid AF therapy increased penetration in cardiac surgery and pursue clinical trials to extend our addressable markets and more will be made on that point in a moment.

Next I would like to highlight our pain management franchise cryo.

Cryo nerve block therapy continues to be the fastest growing part of our business.

Our unique technology, the cryo sphere probe.

Uses a differentiated freezing method to block nerves from transmitting pain signals after thoracic surgery.

Providing a longstanding form of pain relief for patients.

Pain management has an important was an important driver of our first quarter results with sales of the <unk> probe roughly doubling year over year.

We've been pleased to see consistent growth of our customer base reflected in procedure volume and account traction to date.

Even with this incredible growth the ability to impact patients undergoing thoracic surgery remains a significant opportunity for <unk> and we continue to make investments in our commercial and training teams, while expanding clinical evidence for the cryo nerve block therapy.

Finally, I would like to discuss a few key and exciting clinical and regulatory developments that position us for sustained long term growth.

Starting with the Leafs clinical trial I am thrilled to announce that last week, we received FDA approval to move forward with our landmark clinical trial.

Leaps will examine the prophylactic use of <unk> devices in cardiac surgery patients without preoperative afib diagnosis with the primary endpoint of the randomized controlled trial, demonstrating a reduction in ischemic stroke and systemic arterial embolism.

As a reminder, over two thirds of the nearly 1 million cardiac surgery patients worldwide do not have preoperative afib diagnosis with this clinical trial, we are one step closer to a meaningful expansion of the addressable market for our appendage management franchise.

The leap trial will take a number of years to complete with enrollment targeting 6500 subjects and up to 250 sites globally.

Using early interest in the study is an indication we expect awareness of appendage management and all cardiac surgery procedures to be a topic of increasing scientific interest.

We are also cultivating markets that are highly complementary to our core competency of treating complex arrhythmias leveraging the unique position relationships, we have developed and building upon our technology platforms.

Earlier in the year, we detailed plans for a new IV trial for the treatment of patients with inappropriate sinus tachycardia or ISP using hybrid ablation procedures.

<unk> is characterized by an elevated heart rate and distressing symptoms of heart palpitations contributing to the inability to sleep or exercise.

Like Afib ISG has dramatic impact on a patients quality of life and currently there are no approved treatments.

I am pleased to share that we received FDA approval for the <unk> trial and are now beginning site initiation followed by first patient enrollment.

In addition, we are making progress on the development of a dedicated device for this therapy are approached the significant market the significant unmet need for treatment of ISR patients followed the hallmark of <unk> innovative technology combined with robust clinical science and advanced physician education.

In summary, we remain excited about our future much like the last decade, we continue to deliver on our immediate opportunities while make while we make investments and long term growth drivers.

I would like to thank <unk> team for their dedication to our patient first mission and focus on execution as we capitalize on these opportunities and bring and bring life changing technology to market.

I will now turn the call over to <unk>, Chief Financial officer to discuss more detailed results for the quarter.

Thanks, Mike leading the review of our financial performance I would like to call. It adjustments to our revenue reporting framework. This quarter. We are disaggregated cryo sphere sales from our open ablation revenue to provide more insight to the growth of our pain management business.

Quarterly U S pain management sales in 2021 were approximately $3 9 million $5 7 million $6 2 million and $6 9 million respectively.

Additionally, we have combined <unk> revenue was open ablation revenue.

Summary of quarterly franchise revenue is included in the Investor deck plan, along with our earnings release. This afternoon retrospective and prospective analysis presented in subsequent remarks also account for these adjustments.

And now turning to our financial results for the quarter, our first quarter 2022 worldwide revenue of $74 $6 million increased 25, 8% on a reported basis and 26, 7% on a constant currency basis, when compared to the first quarter of 2021.

As Mike noted earlier, we saw solid growth across key product lines and geographies bolstered by outstanding results in pain management and appendage management.

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

Cardiac surgery procedure volumes in particular elective procedures based pressure at the beginning of the quarter, but has since rebounded and stabilize.

In the first quarter 2022 U S revenue was $62 3 million a 23, 8% increase from the first quarter of 2021.

Open ablation product sales, which no longer include paint management were $19 million compared to $17 $4 million up eight 8% over 2021.

Pain management sales were $8 million compared to $3 9 million up 105, 6% over the first quarter of 2021.

U S sales of appendage management products were $26 7 million up 29, 5% over the first quarter of 2021.

And minimally invasive ablation sales were $8 $6 million up two 7% from 2021.

Due to the elective nature of the procedures, our mis business was more directly impacted by OMA crime related disruptions relative to our other franchises early in the quarter. However, we saw low double digit revenue growth from the epicentre product year over year, which offset declines in other mis ablation revenue.

With the addition of new sites and physicians over the past year, we are confident FSS revenue will pick up significantly as the year progresses.

International revenue was $12 $3 million at 37, 2% on a reported basis and 43, 1% on a constant currency basis as compared to the first quarter of 2021.

European sales accounted for $7 $2 million up 25, 5% over the prior year driven by increased volume throughout our major markets and partially offset by unfavorable exchange rates.

Asia and other international markets accounted for $5 $1 million in international sales up 58, 3% over the same period in the prior year.

Much of this increase came from China with smaller <unk> from Japan, Canada and Australia.

Now turning to another key metric for the first quarter of 2022 gross margin was 74, 5% down 60 basis points from the first quarter of 2021.

While we are experiencing modest cost pressures the decline in gross margin, primarily reflects geographic and product mix between years U.

U S product sales accounted for 84% in the first quarter 2022 revenue compared to 85% in the first quarter 2021 revenue and.

And the shift in 2022 was largely to distributor markets, specifically Asia with a lower gross margin.

Fortunately as a result of the ongoing diligence of our operations and quality teams, we have been able to navigate the pandemic and unprecedented supply challenges without interruption to our customers.

Now moving to detail on operating expenses for the quarter total operating expenses increased $9 3 million or 15% from $60 4 million in the first quarter of 2021% to $69 7 million in the first quarter of 2022.

The change results, mainly from the addition of head count over the last year expanded physician training programs, including our mobile labs meetings and trade shows shifting from virtual back to in person events and travel returning to normal levels.

These increases were offset slightly by the elimination of a $2 $5 million charge for the change in contingent consideration, which was included in the first quarter of 2021.

Adjusted EBITDA was negative $4 $2 million compared to a negative adjusted EBITDA of $4 $7 million for the first quarter of 2021.

Our loss per share was <unk> 33 in the first quarter 2022 compared to a loss per share of <unk> 38 in the first quarter 2021, while the adjusted loss per share. Each period was 32, 33, and 32 cents respectively.

Our balance sheet is strong and we ended the first quarter with $182 million in cash and investments as.

As a reminder, cash burn in the first quarter is typically higher than the remainder of the year based on cash tax payments due upon stock vesting and annual variable compensation payout.

We expect our quarterly cash burn to reduce significantly for the remainder of the year.

Finally, turning to our outlook for 2022.

Given the strength in our underlying business and the results of the first quarter. We now expect to achieve approximately $318 million to $330 million in revenue for the year, reflecting growth of approximately 16% to 20%.

These growth rates represent an acceleration over our historical growth driven by expansion of the hybrid <unk> therapy in pain management, along with continued strength in appendage management.

With the Covid impacts subsiding, we do expect pre pandemic seasonal trends to reemerge balanced by the building momentum from expansion of our therapies.

So with that lens, we anticipate a moderated sequential increase in revenue in the second quarter of 2022.

We continue to expect 2022 gross margin to be comparable to 2021 with the potential for bearing impacts from increasing costs and mix.

We are maintaining our level of investment in research and development activities, ensuring a robust pipeline and growing clinical evidence across our therapies.

Additionally, our plans anticipate the thoughtful expansion of our commercial teams along with training and awareness programs.

Therefore, we continue to expect adjusted EBITDA to be a loss of approximately 2 million to $4 million for the full year 2022 corresponding to an adjusted loss per share for 2022 of approximately $1 seven to $1 12.

With improvements to the top line throughout 2022, we should realize a corresponding improvement in quarterly adjusted EBITDA.

We are well positioned as a result of the ongoing investments in our catalyst rich future and are making meaningful progress towards profitability and at this point I will turn the call back to Mike for closing comments.

Thank you Angie I would like to end by recognizing the aged care team and the collaboration that has led to so many breakthrough achievements in our history.

The converge approval for long standing persistent patients one year ago was a watershed moment for the company.

Additionally, we continue to be innovative and other areas with the launch of our encompass clamp and therapy development for pain management.

So a huge thank you to the <unk> team for your dedication to our shared vision to establish our therapies as the standard of care for patients around the world together, our work will have lasting impact.

And as our team continues to grow in preparation of the opportunities ahead of US we are committed to maintaining a welcoming and mission driven organization that brings meaning to our employees and drives a brighter future for patients and providers.

Thank you everyone for joining us Tonight.

And with that we'll open it up to questions.

At this time I would like to inform everyone in order to ask a question Red Star then the number one on your telephone keypad.

We're limiting participants to one question and one follow up please.

Please rejoin the queue for additional questions. Thank you, we'll pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Robbie Marcus from Jpmorgan. Your line is open.

Hey, it's slowly on for Robbie Thanks for taking the question.

First could you guys talk about how you're thinking about minimally invasive gross over the rest of the year.

It's been about a year since the converge launch so are there any metrics you can share on when you see doctors start to ramp up their procedure volumes and what do you think that means for when we could see an inflection in adoption here.

Yes, we are definitely starting I mean, we've added a lot of net new customers over the last year as we talked about and we will give out a number later on in the year, we're not ready to give out an exact number of sites right now I think when that number is more meaningful.

<unk> therapy did it have the impact on omicron earlier in this quarter. So that was the one that got impacted the most and.

And kind of the January and February timeframe, we did see an acceleration into the March timeframe, and we anticipate that accelerating as the year goes on we are seeing an increase.

Site. We're also seeing an increase in the number of sites right now we're not ready to give that exact number out yet again, because I think it's going to be.

Something more meaningful later on in the year, when we kind of think about how to kind of give that out to everybody, but we're already starting to see some of that momentum build as an example, if you actually look at our some of the sites and you look at like the top five cardiac centers in the United States. We're already in three of the top five centers in United States today.

That's really new over the last 18, or so months and those have been accelerated and building momentum as well and so we're really starting to see a lot of really nice momentum across the board with the training and the education that we're doing and we'll get into some more specifics again later on in the year to be more helpful to you.

Okay. That's really helpful. And then maybe just one on <unk>.

The P&L you guys are.

Quarter line breakeven now so could you give us your high level thoughts on how you are balancing between investing.

Investing in the business with all the pipeline products you have versus.

Driving profitability.

Is the back half of the year, a reasonable timeframe to expect you guys to beat.

<unk> will be profitable.

Sure It's a fair.

Fair question I think we'll we will naturally reach positive EBITDA for the full year and the coming years and this year as we discussed in the prepared remarks, we expect our adjusted EBITDA loss to be in the range of $2 million to $4 million, which is an improvement over our historical levels and over what you saw in 2021, but at this stage, we are really focusing on the <unk>.

<unk> within each of our franchise and intend to improve to prioritize kind of the investments in programs that we've detailed on this in other calls to help us sustain and continue to grow beyond our historical rates.

As you would expect with expansion as the top line, we're going to see some leverage in our operating expenses and would reach EBITDA positive for the full year pretty naturally as you think as the rest of the year given the guide of $2 million to $4 million of a loss in our results. This quarter you should expect positive EBITDA.

For the balance of the year.

Great. Thank you.

Your next question comes from the line of Danielle <unk> Dolby from SBB Leerink. Your line is open.

Good afternoon, everyone. Thanks, so much for taking the question congrats on a good quarter.

Mike and Andy if I could.

Follow up on the <unk> business I get that it's elective and so sensitive to OMA crime, but I guess, it's still so early in the launch can you talk a little bit about some of that dynamic.

I was thinking maybe this is a procedure where it takes a little bit longer from scheduling to actually doing it is that one of the dynamics that maybe make it a little bit even more elective and difficult.

Recovery take longer to recover just trying to get a sense of what's going on there because it's still early in the lines.

I think you actually said that really well Danielle in terms of.

One of the items that we talked about the interest in this therapy is great.

The hospitals, we're actually getting surgeons everybody's really interesting that the big lift we've always talked about is actually getting that collaboration and logistics to come together, we are making great progress. We've got great programs in place in which we are enabling that to happen, but like you said when you do have an omicron hit and you are kind of in the middle of setting some of those up that does get kind of delayed.

It does have some impact overall on us, which is what you kind of saw a little bit in the beginning part of this year when omicron hit kind of in the December timeframe and kind of wrapping into this year. So I think you actually articulated very well in terms of what that impact looks like but to be true as this year progresses. We saw a really strong March and we anticipate we're going to see acceleration in this.

As the year progresses, because many of the sites that we got up and running last year should be in that phase of beginning to really show promise and show consistency on patient flow.

Okay got it and then I'm curious again I know, it's early but just what kind of patients are you seeing be treated.

With that at the fence is it more in the long standing persistent never been treated before patient population any color on the types of patients that you're seeing and whether youre seeing at the centers that have adopted are they seeing a pickup in referrals from the outside.

Cardiologists, thanks, so much.

Really really insightful and great question, Danielle because that actually is I just came back from HRS and I was at Western Afib earlier and this is the conversation which is what is the patient population that best fits relative.

Relative to this therapy and we are definitely seeing long standing persistent patients, that's where there's really as extreme differentiation between the results because there really are no results than any other technology. There. So it's a very easy conversation for them to have with the patients that this is the only approval that is out there they talk to their patients about that theyre getting into those types of conversations.

That being said I will say that it's sometimes de novo, sometimes I would say more than not it's a failed catheter ablation from before so many of these patients maybe they failed one or two times before our therapy had been approved now they're bringing the back and saying Hey, there is a therapy out there for you. We know the other piece didn't work and they're kind of bringing them back to kind of help treat them from there.

Standpoint, I'd say that tends to be the direction that a lot of these sites are going what.

What we do see as sites Progresso is they start that way and then they quickly see what great results. We're getting in these really really difficult to treat patients and then they start to start to move to de Novo. So the sites have been doing this for a longer time tend to do more de novo. The earlier sites tend to do more failed catheter ablation is because they're kind of testing it out and thats kind of in the pattern.

We've seen overall.

And the other piece, that's kind of important is that more and more there's a conversation about adding the left atrial appendage and the management of the appendage with the clip and we're at about a 75% attachment today and thats up from really kind of 60% to 70% most of last year. So we're definitely starting to see that ramp up as well.

Thank you so much.

Your next question comes from the line of Bill Khubani from Canaccord. Your line is open.

Hi, This is John on for Bill Tonight, Thanks for taking our questions.

I wanted just to ask a little bit on converged what is the size the dedicated sales force and clinical support to date and are any more plans to add resources beyond the additional mobile App mobile labs that you guys already added and how do you think about upstream education of cardiologists for it.

Yes, I want to make sure I'm answering.

I'll hit on a couple of different numbers for you, but it might be helpful. So on the overall kind of clinical support and sales team out in the field and the management team that supports them is really at about 58 or so so just approaching that 60 overall number that is up dramatically over the last year I think we've added 23 net new people over the last six months or so so we've got we've had.

A really dramatic investment.

That team to get greater coverage in and train them up on the clinical side and so we're actually making really good improvements on that front relative to the clinical side of things and the education piece, We've got three mobile labs around the country right now we did add a new one in the first quarter in February .

And those labs are getting busy in doing a lot of work and training a lot of people and that's actually one of the key pieces to kind of bring the training to the sites and has been.

Very important way for us to kind of get out and get the word out and get the training out from that standpoint in terms of the number of people in clinical education I don't have that number off top of my head and as you might be able to give it yes, I think it's close to 45 at this point, John and it's an area that when you think about investments that we're making we're increasing the team size throughout the year.

And the 45, John is some of that is minimally invasive some of that.

Our hybrid and some of that's also just in general cardiac surgery, but a lot of them are trained in both so they kind of cross trained and their ability to train and kind of all areas of it as well, but that number 45 is up quite dramatically as well over the course of last year Big investment as Andrew said.

Great that's really how I answer all your questions.

Most of all and then just turning to the.

Cryo nerve block business, we saw a little bit.

S revenue with the new breakout can you talk about the rollout in Europe . Some details on which countries you are targeting.

Russell commercial resources, using and what Youre seeing from reimbursement.

Yes, so we actually hit our 50 of case.

About a month ago or so so it's like it's up and running it's being used is being talked about it reminds me of probably about two to three years ago and cryo nerve block started to kind of gain some traction in the U S and start to get word of mouth out there because they started because the product works and it works incredibly well at reducing that pain after surgery.

We're targeting the core markets that you would think in Western Europe , Italy, Germany, UK tend to be the three areas that are probably having the most uptake relative to that unfortunate of reimbursement side. There is not really good reimbursement, yet, we're really establishing the therapy and hoping that the clinical evidence that we're getting out there and these results will then help.

Lead to some reimbursement far into the future, but at this point theyre doing it because it works and it works incredibly well.

Great. Thanks, Mike.

Your next question comes from the line of Rick Wise from Stifel. Your line is open.

Hi, Mike Hi, Angie this is actually John on for Rick today.

The first question.

Excellent quarter with future clip sales and you mentioned a little earlier, Nicole I think you were getting a concurrent clipping right at around 75% is there any way to shake out how much growth converge is helping drive from the eighth Cliff. If you can quantify that for me and just maybe point to a couple of other key drivers of what's moving adoption forward here.

All in on the adoption first and then I'll, let Andrew maybe talk more specifics.

Kind of break out from that standpoint, but I mean, one the product works incredibly well, it's continuing to.

Get a lot of momentum in conversation around managing the appendage. The right thing to do to allows three trial came out middle of last year, showing the benefits of doing it can comment and cardiac surgery with patients that have atrial fibrillation.

So we're the benefactor of really good science and data that's come out that obviously bleeds over into other areas. The other pieces that when you look at the just clear result of how well the product works at closure and when you see all of the new percutaneous devices, which are wonderful devices and do a great job, but when they have an opportunity to put a clip on.

I realize that they can pretty much get 100% closure complete closure on that appendage, and so more and more EPS as theyre doing converge are saying they really want this to be a part of the full procedure and that's really become kind of driving a lot of that and a lot of that attachments not being driven by the surgeons, it's really being driven by <unk> demand.

They believe that the clip really does a wonderful job of closing off the appendage effectively.

That's what's really kind of driving it I would say the combination of data science, that's been out there with.

Knowing what's there from the success rates and the clip those are the two things primarily that are driving it and I'll, let Angie maybe answer the second part of the question sure. John When you think about the growth rate of about 30% in each of Clipper appendage management.

The minimally invasive appendage management products grew less than that just given kind of the softness that we saw in the mis ablation revenue to more of the growth was really driven by the open concomitant the appendage management products grew above the 30%.

Thanks, That's helpful. And then just one more for me kind of on a converge is ramping up and existing centers I'm curious from what you've seen and approved for a year now how long, it's taking for physicians to get up to get up to more of the high end of the adoption curve and how you think that might increase or improve over.

Time, when best practices get established.

We're still really in the early stages of that I wouldn't say that we're at any kind of optimal state at almost any site in the country at this point.

So it's really kind of tough to say that we're there yet with anybody I would say that we're seeing lots of really good momentum and movement.

And we're starting to see them begin to talk more and more to that referring cardiology basically John also ask the other John asked that question earlier about <unk>.

Conversations happening with cardiology in the referring physicians.

Kind of demanding this is one of the therapies that they consider as EPS I'd say, we're starting to see that momentum build but again, we're not really at that patient I know, it's been a year, but think about through that year, we've gone through delta staffing issues and omicron all in the middle of while we're trying to make a major launch and get sites up and running so they've had a lot of their minds at those sites and so getting back to.

In some ways, what Danielle said before we've actually had a lot of net new sites and growth within this area. Despite the fact that we've had a tremendous headwind against us relative to kind of COVID-19 and the impact on staffing.

And I think that Youll start to see at the back half of this year a lot of those sites that we've been working are going to start to build up momentum and then next year will be a really gangbuster year.

Your next question comes from the line of Marie Thibault from <unk>. Your line is open.

Hi, Good afternoon, Mike and Andrew This is Sam on for Murray, Thanks for taking the questions.

Maybe on the encompass clamp here can you help me frame, maybe what's the opportunity.

How many or what percentage of surgeons, maybe wanted to do these concomitant ablation, but decided upon.

For the claim came out and maybe as a follow up how much training is required to.

For them to start to feel comfortable with the redesign clamp yes.

Yes, it's a good question, so I'm going to focus more on patients and our physicians.

When do you think about the number of patients only about 25% of patients today that undergo cardiac surgery that have afib are actually getting treated which means 75% maybe some studies say it's 70%.

A really large number of patients that are not getting treated undergoing cardiac surgery. Yet it is a level one guideline by all the societies and we believe that by making it easier for those surgeons that are not used to getting behind the heart to treat that large bolus of patients and we think this can make a dramatic impact on that and that's about in the U S. You've got about 800.

5% to 90000, or so patients that fit within that category of have afib going into cardiac surgery.

20% to 25000 are getting treated which tells you that delta is what the opportunity is and again the guidelines say you should treat these patients and so we believe the encompass clamp. It makes it a lot easier for them to really do a great ablation on this and on those patients and make a difference in their lives and that's really kind of the target market quite frankly.

And so we're making good progress on that in terms of training element of it.

It doesn't take that long, but it does have it does have a little bit of a learning curve, meaning it's usually one or two cases to kind of get really comfortable we tend to do a lab in advance of it.

We do both sometimes cadaver labs, but then we've also got our models that we basically bring out and they're able to kind of test those out all of our reps have them, where they can kind of use the product in advance of that we've also got really good tutorial and videos and then were in those initial cases with them and it takes about one or two times to kind of get really comfortable and then after that they're often running.

Really helpful. Mike. Thanks, Thanks for that and maybe just a big picture question on staffing.

Obviously things are starting to get better in <unk>.

Margin throughout April .

I guess at a high level are things starting to normalize a bit are we at a level, where maybe staffing is not getting any worse, it's not getting any better but more just staying level at this point.

Yeah, I mean, I wish I could say that staffing was.

Not a concern but it still remains a concern for most hospitals you guys read the same reports that I do where hospital Ceos and systems are talking about the fact that the staffing issue is going to be with us for many many years I agree with your sentiment that it's not necessarily getting worse, but it's not it's also not getting better and they've learned to optimize and figure out the logistics of the hospital and how to.

Take care of those they've got there, but there's less noise out in the system right now relative to it but it's still there there's still an underlying staffing concern that happens to be out. There again like you said I don't think it's getting worse, but it hasnt gotten dramatically better either.

Great. Thanks, Mike.

Okay.

Your next question comes from the line of David Saxon from Needham Your line is open.

Hi, Mike and Andy Good afternoon, and thanks for taking the questions maybe.

Maybe starting with a two parter on guidance I mean, it looks like you've really only raised the lower end by a liberal Westside you beat in the quarter your commentary sounds pretty positive, especially with <unk>.

<unk> is expected to accelerate and the overall environment improving so I just wanted to ask if you're seeing anything in the market that is cause for concern or the guidance is more reflected the tough.

Tougher comps in the balance of the year and some conservatism.

And then the second part of your question Angie I think in your script, you mentioned youre expecting a moderate sequential increase in the second quarter. So.

Is mid single digits, the right way to think about that comment.

Yeah, I'll start and Andrew can kind of add onto any kind of comments that I might have relative to the guidance.

As we looked at the year like you said, we did bring it up by pretty much around what we what we beat in the first quarter, we still feel really good about kind of the remainder of the year. So I think what we're trying to tell you is keep the remainder of the year kind of as you had it.

Overall, I think thats, the kind of basic message on that.

You're right, we do think that things are going to accelerate but the comp in Q2 is the toughest comp for the year, you've heard that from other companies.

Last year there.

Seem to be a little bit more backlog than what you saw from this year, but again, we still do see nice sequential growth from Q1 to Q2. This year for sure and I think your numbers are in and <unk>.

Around the range of where we need to be maybe.

David I would just add I think that just given this is the first quarter, even though we saw a strong first quarter results. It's still early in the year and we don't want to get ahead of ourselves we're confident in the outlook for the year and the accelerated growth now relative to your question over the moderate kind of increase first to second quarter sequentially. I think consensus is just under 8%.

<unk>.

Historical results would tell you you should expect something slightly better than that I think historically, we've seen 9% to 10% sequential growth. So there is some upside to that number be.

Be pleased with the seven or 8% increase.

Sequentially and as we indicated in the prepared remarks, we expect as the year continues as we continue to drive therapy adoption and expansion not just of hybrid <unk> therapy, but youll also CNS and pain management and in our appendage management franchise that will continue to gain traction and increase as the year continues.

Okay, Yes, that's all Super helpful. And then maybe just on cryo sphere.

Been waiting for you to break it out so it's nice to see see that this quarter, maybe can you give us a sense of.

Where are you seeing the most growth as it increased volumes in current accounts or is it the adoption by new accounts.

It's a combination of both I'd say, what's been really remarkable and what we've been pleased to see is the consistency with which our team is adding new accounts and that they continue to do procedures that are also still driving deeper adoption within accounts. So every quarter. You know, we're looking at new accounts and the contribution they make to revenue and it's been nice to see often.

Number of accounts in the in the percentage of revenue that they are driving being pretty steady.

Over a number of quarters. This isn't just an experience over the last quarter or two but we've seen that really since the launch in early 2019.

Great. Thanks for taking my questions and congrats on the quarter.

Thank you.

Next question comes from the line of Matthew O'brien from Piper Sandler Your line is open.

Good afternoon, thanks for taking the questions.

I'm, sorry to beat a dead horse here, but you guys had great performance across the board. The one area, that's going to get attention as the domestic business.

And it's understandable that it could be a little soft given coordinating schedules et cetera are there. Other metrics you can provide I don't I don't know if the low double digit number you mentioned earlier was the exit rate in March but is that the exit rate you guys saw Adam Miss in March is it getting better in April are you, adding a ton of new.

New accounts does it is it up 20% or is there any any kind of metric you could provide there and should we think about mis growing faster than the overall business. This year or is that more of a 2023 event.

Yes.

Come on.

<unk> made a comment that might've been a little bit misleading before.

Logistics has an impact overall, but really it wasn't just that it's just it's the most elective procedure, we have and if <unk> seen drop throughout.

Covid when the spikes have come up the first procedure that has kind of been taken off has been were pushed out and where cases get pushed out four weeks five weeks eight weeks has been within the converge or the epicentre area, that's really what or MS. That's what that's what we've seen and that's what you saw at the beginning of this year it wasn't the law.

<unk> is that we just didn't have all the sites up and running perfectly where they could kind of avoid some aspects of that is what has a small contributing factor to it but it's really more about the elective nature of it when you start to see that because we've gotten a lot of net new sites up and running and we do feel like once they're kind of up and running and going later on this year and in.

Next year that we should see some substantial growth on that we're not ready to give specifics I think Andy you did mentioned in her comments that we do believe that this is going to be growing at higher than corporate rate overtime.

We do think that we'll have a nice strong and solid second quarter, but that will build into the back half of the year be even stronger in the second half of the year and into next year and that the low double digit growth that we saw from etsy cents in the first quarter, which for the full quarter.

And take that imbalance of the TT procedure, which is the other component of our mis revenue was actually down pretty significantly bolster our very elective procedures and saw pressure in the first quarter, resulting in the overall blend of just under 3% growth in the U S for Mis ablation.

Got it very helpful. And then the follow up and I don't know if this is for you Mike or for you Angie but.

Congrats on the updates for <unk> and then for ISP House.

Biggest spend on those studies are we looking at on an annual basis.

Yes, Andrew this is for you I don't know if you want to comment on it but it's something that gets a lot of attention is the spend on those plus all the other investment is going to be so meaningful in 'twenty three that you cant turn EBITDA positive next year.

And maybe I'll just comment I think nothing significant has changed in the recent months with both of the trial approvals coming through that really impacts our 2022 spending outlook at the beginning of a trial, it's a little barn moderate spend.

Then you would see once you've got sites have enrolled and youre enrolling patients and treating subjects. So while we were optimistic for the developments tentpole during the year as they have it doesn't really impact the spending outlook that we had for the year I think the best way without giving specifics on a target profitability date or exact dollar.

Amount of spend on either initiatives.

I'd reiterate we do expect pretty naturally in the coming years to hit profitability. Despite the investments that we're making in these areas no really leaning into our growth opportunities.

And expect to see some leverage out of the P&L within R&D and what you've seen historically as kind of an upper teens as a percentage of revenue investment in R&D activities, which include these clinical trials and I think with the onset of both leaps and heal ISP, starting youll see that sustained over the coming years.

Yeah.

Perfect. Thank you.

Your next question comes from the line of Suraj Kalia from Oppenheimer. Your line is open.

Hey, Mike because you hear me all right.

We can suraj.

Perfect.

So Mike.

Conversion has been beat up to that.

Let me start off with.

Question.

I think you get your perspective.

Sure.

And the reason I break that up as specifically on all the ongoing Psa trials.

Our field checks keep picking up.

There's quite a bit of excitement I wonder if you see any.

Yes.

So the last perspective, I'd love to get your perspective.

Yes, it's actually.

It's the opposite of the way I think your article in the question, which is that we actually help lab times because converged does not take up lab times. In fact, the study showed that they actually get almost an hour a saving of lab time when they do go in with it with the catheter to get the results they get that or better. So we're actually in.

Inefficiency helper for many of the sites on EP lab side, so whether it's <unk> on the trials that youre, starting to see up and running or just the general nature and number of cases that are out there and theres a lot of catheter cases that are going on out there, but we actually save them time so.

Convert it's actually one of the big selling points for getting something up and running because this allows them to spend a lot less time on these really complicated patients and so they can just to touch up work and get a better result, so it's a win win across the board that's actually one of the really neat things about this and why it's so collaborative is that they went on multiple fronts there.

Win with a better patient outcome that they do better they win possibly by adding a clip and managing the appendage. They win by having less time to spend in the lab with them as well so everybody kind of gets a good win on that in the patient wins most importantly.

Okay.

Mike in your prepared remarks, you mentioned about converge.

Yes.

Great. Thank you ultimately, becoming the standard of care.

Okay.

How do you envision hybrid es as standard of care is going to be on a staged basis over the same day basis.

I don't know that I don't have an opinion necessarily whether it is going to be staged orphan they both work incredibly well in.

Individual sites have different logistical items to them they've got different opinions on whether it's better to wait for the edema to kind of come down from the initial procedure or not that really comes down to the individual site and the thoughts on it the standard of care that I'm talking about has doesn't have to do with how they're kind of operating it from that standpoint.

You got long standing persistent patients that represent 45% of all patients out there and there is this is the only therapy that has an approval and it's complementary to the existing catheters and even the catheters are undergoing trials right. Now every one of those trials are complementary to the work that we're doing today. So from my standpoint, that's what I'm, saying for.

Long standing persistent patients is an undertreated population, a complete unmet need and this is an opportunity for both helping those patients out long term.

<unk> new patients into the system that had been forgotten about and they've given up on to help them out and we feel like we've got a solution here that has been proven with the clinical data and evidence to help that patient population out.

And we believe that we can make it a standard of care over the next five plus years.

Got it.

And Mike if I could then I'll hop back in queue.

So I was discussing all U S.

I think the approach if at all.

Knowing that it's early days in the U S move together.

How you are all U S discussions might be going in central and eastern match right.

Ever since.

Converge give or take in the quarter does it get rough math is between 500 600 cases in the quarter. Thank you for taking the questions.

Yes, it was more cases in that but the international side of it was we're starting to see some traction in many different countries in particular in Italy and Germany.

We're starting to see a lot more awareness and demand in that part of the world. We don't have approvals in much of Asia. We just got approval in Australia, and so we're starting to see some sites get up and running there. So that's kind of at its infancy, we are applying for in Japan too.

<unk> get a shown in approval that we expect over the next two to three years. So it's a little ways out we've submitted the clinical data from the clinical trial of converge. We're in conversations now with their equivalent of the FDA to kind of work through that and.

And so we're making good progress from that standpoint, as well in the Japanese market, we believe could be a very strong and good market for us as well and so that kind of gives you a sense for on the international side of things in terms of the progress that we're making.

In those areas.

Thank you.

There are no more questions at this time, turning the call back over to Mr. Mike Carrel for closing remarks.

Great well again, everybody. We really appreciate you joining the call today hopefully you can tell by the tone that we're pretty excited about our future. We really have an opportunity. We've got a great platform for growth here along multiple franchises. Our open ablation franchise, which has been long standing a big part in foundational piece of our business we've got new.

<unk> new reimbursement in there that we think is going to drive growth combine that with the work that's being done on the hybrid side of our business. The label, we got last year and the progress we've made in adding new sites, we think that our future's incredibly bright and if you want to add on top of that the pain management franchise that we have that as you saw as the fastest growing piece of our business and really impacting a lot of pay.

<unk> around the World. We're excited about our business. We're excited about it domestically. We're also excited about our globally. We thank you for your interest and look forward to future calls have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Yes.

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