Q2 2023 AtriCure Inc Earnings Call
Okay.
Good afternoon, and welcome to the age of course second quarter 2023 earnings Conference call.
At this time, all participants are in and 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 turn the call over to Marissa right from the Gilmartin group for a few introductory comments.
Go ahead Melissa.
Great. Thank you.
By now you should have received a copy of the earnings press release.
If you have not received a copy please call 5136444484 to have one emailed to you.
Before we begin today, let me remind you that the company's remarks include forward looking statements.
We're looking statements are subject to numerous risks and uncertainties many of which are beyond our control, including risks and uncertainties described from time to time any tricks or at the SEC filings.
Statements include but are not limited to financial expectations and guidance expectations regarding the potential market opportunity greater hero franchises in growth initiatives, including the adoption of hybrid and therapy future product approval clearance is reimbursement and clinical trial outcomes.
<unk> results may differ materially from those projected.
<unk> undertakes no obligation to publicly update any forward looking statements.
Additionally, we refer to non-GAAP financial measures, specifically revenue reported on a constant currency basis, adjusted EBITDA and adjusted loss per share.
A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is available on our website.
And with that I will turn the call over to Mike Carrel, President and CEO .
Okay.
Great. Good afternoon, and thank you for joining us today.
I am very proud to report another outstanding quarter at eight secure as our team continues to expand patient care and awareness for the treatment of Afib left atrial appendage management and post operative pain management.
We achieved quarterly revenue of $101 million, reflecting 19% year over year growth.
Second quarter growth was broad based across all franchises and geographies, reflecting the depth of <unk> product portfolio and the impact our therapies are making.
We are thrilled to surpass $100 million Mark this quarter and remain excited about the trajectory of our business.
We're also driving meaningful leverage in our business as we work towards sustainable profitability.
And we achieved positive adjusted EBITDA of $8 million in the quarter driven by a robust top line performance and improving operating leverage throughout the entire business.
Given our progress to date and the confidence and activities throughout the business. We are not we now expect year the <unk>.
Full year revenue of $392 million to $395 million, reflecting approximately 19% to 20% growth over last year.
We also expect full year adjusted EBITDA to be approximately $12 million largely driven by our strong second quarter.
While we are pleased that our recent results showcased the leverage that we can generate across the business. We continue to see immense opportunity to support growth across the markets and we are excited to ramp investments in the back half of the year and several new and ongoing research and development initiatives as we build our pipeline and continue to expand our mark.
<unk>.
Turning to highlights for the quarter.
I will start with our open for open ablation franchise, where our focus is on driving awareness and expanding adoption of our encompass clamp.
The encompass clamp leverages the proven technology of our synergy ablation system to provide simpler and faster ablation and open heart procedures.
Quarterly sales of the encompass clamp exceeded $10 million in the quarter.
Reflecting rapid adoption since the full market release in April 2022.
In the U S.
Encompass clamp and persistence of our team has deepened penetration of cardiac surgery markets, resulting in 23% worldwide growth of our open ablation franchise in the second quarter.
We are continuing efforts to make the concomitant treatment the standard of care for all patients around the world and see significant opportunity ahead, with our proven technology and leading market position.
Shifting to appendage management, and our <unk> devices, which represent approximately 40% of our global revenue.
In the second quarter of 2023 worldwide revenue grew 17% over the prior year, reflecting healthy activity across all geographies.
The <unk> product line and body is almost 20 years of innovation at <unk> and is a key growth driver of our business.
To that end I'm delighted to announce the strategic acquisition of key foundational patents and intellectual property during the second quarter related to the <unk> grip line.
This acquisition enables <unk> to fully control patents in this critical space, while also eliminating any future royalty obligations.
We have several activities in the appendage management franchise ramping in the second half of 2023.
First we are continuing to iterate on the <unk> product line to enhanced functionality improved the ergonomics and decrease the profile.
In addition, we are studying the prophylactic use of the <unk> devices through the groundbreaking leaps clinical trial.
With two thirds of the well over $1 million annual cardiac surgery patients worldwide, not having any preoperative afib diagnosis.
<unk> has the potential to greatly expand the market for this franchise, while making a positive impact on patient lives.
As we discussed on previous calls the primary endpoint of the study is a demonstrated a reduction in ischemic stroke and systemic arterial embolism.
Laying the groundwork for a new frontier and stroke prevention.
We are experiencing significant interest and leafs among cardio thoracic surgeons from around the world.
As a result momentum has been building at an extraordinary rate.
With 492 patients as of today already enrolled in just the first six months at only two and only three dozen sites.
Simply amazing at the progress that we've made to date.
And we are investing in a major expansion of trial sites in North America, and Europe through the remainder of 2023 and expect a robust enrollment and acceleration.
Reflecting on the progress that we've made in 15 months since the FDA approval of this landmark trial.
I am truly grateful for the cross functional team at <unk>, leading this work.
And the thoughtful collaboration with many key opinion leaders to elevate patient care.
Now turning to our pain management franchise.
Which continues to deliver impressive growth.
In the second quarter worldwide revenue grew 26% with a life to date sales of cryo sphere probe surpassing $100 million.
The rapid pace of adoption for <unk> crowded or blocked therapy, and thoracotomy procedures reflects its exceptional ease of use and outstanding patient outcomes.
Our team is driving awareness for crown nerve block through new and enhanced training programs and we are seeing a continual expansion of sites.
Earlier this year, we began a limited rollout of crowd in a blockbuster not any procedures.
While the initial results have been positive. It is still early and we are taking a very measured approach as we do with most of our launches.
The milestone.
A $100 million life to date revenue from Cryo sphere probe is exciting however penetration in our markets is low.
There is still tremendous opportunity for growth in post operative pain management for patients in thoracic and Sternotomy procedures.
Finally, we continue to make progress with adoption of our hybrid therapy.
The second quarter saw strong revenue performance of represents technology with an overall increase in accounts ordering and productivity within accounts as well.
We are focused on providing comprehensive support for the many programs we have in various stages of adoption collaborating with care teams to build scalable patient workflows in depth reviews of clinical protocols between surgery in the EP lab as well as cultivating new referral pathways.
Our activities are establishing the foundation for strong and durable growth of hybrid <unk> therapy in the future.
We continue to hear the patient outcomes are exceptional and the growing body of clinical evidence repeatedly demonstrates that combining <unk> technology with catheter ablation results in over 100% improvement versus catheter ablation alone.
Our dedication to the treatment of long standing persistent afib patients is unrivaled.
With no competing technology or clinical studies addressing the millions of patients suffering from this disease.
In closing.
We are incredibly pleased with our strong first half performance and activities across our diverse portfolio.
I will reiterate my comments from our first quarter call.
We are building a complementary portfolio with diverse diversified drivers.
Being intentional about our spending as we progress.
The sustained profitability.
Our results this year have shown the potential for <unk> to drive meaningful.
Accelerating and profitable growth for years to come and we're excited to elevate patient impact throughout all of our markets.
I will now turn the call over to Andrew <unk>, Our Chief Financial Officer for more details regarding our financial performance.
Thank you Mike second quarter 2023 worldwide revenue of $109 million increased 19, 4% on a reported basis and 19, 3% on a constant currency basis, when compared to the second quarter of 2022 as a result of strong performance across our franchises globally.
On a sequential basis worldwide revenue grew seven 9% over the first quarter 2023.
In the second quarter 2023 U S revenue grew to $84 9 million, a 19, 1% increase from the second quarter of 2020 to.
Open ablation product sales were $27 million compared to $22 1 million up 22, 3% over 2022, driven by adoption of the encompass clamp in both existing and new accounts.
As Mike mentioned this quarter marks the one year anniversary of the full commercial launch of the encompass clamp. We are seeing this technology push open ablation volume growth above our historical results and the uplift from the pricing benefit has gradually declined.
Pain management sales were $12 $6 million compared to $10 $2 million up 23, 3% over the second quarter of 2022.
While we are making progress with our evaluation of pain management for Sternotomy procedures in the U S. There was minimal revenue contribution during the quarter.
Minimally invasive ablation sales were $11 4 million up.
Of 12% from 2022 and solely on the growth in sales of our <unk> system although.
Although we are pleased with the activity seen in hybrid therapy. This quarter. We continue to expect very modest growth in 2023, as we focus on fundamentals for long term accelerated growth in this franchise.
And finally U S sales of appendage management products for $33 9 million up 17, 7% over the second quarter of 2022.
International revenue was $16 million up 27% on a reported basis and 19, 9% on a constant currency basis as compared to the second quarter of 2022, driven by strong procedure volumes and increasing adoption.
European sales accounted for $9 $5 million up 21, 5% over the prior year and Asia Asia Pacific and other international markets accounted for $6 6 million in sales up 19, 7% over the same period in the prior year.
We are seeing excellent growth across franchises in our key markets outside the U S and expect strength from our international business for the remainder of 2023.
Now turning to another key metric for the second quarter of 2023 gross margin was 76, 4% up 130 basis points from the second quarter of 2022.
Strong manufacturing efficiencies in the quarter drove improvements to gross margin, partially offset by pressure from product and geographic mix.
Moving to the details of our operating expenses for the quarter total operating expenses increased $4 million or five 2% from $77 2 million in the second quarter of 2022 to $81 $2 million in the second quarter of 2023.
A significant driver of this change was the purposeful expansion in personnel across our teams to support incremental growth.
Additionally, leaps trial expenses also contribute to the approximately 18% growth in research and development costs over the prior year.
Conversely, we saw very modest increase in SG&A expense in the second quarter as we improved leverage of our commercial team and realize efficiencies and savings, notably within physician training programs.
Right.
Adjusted EBITDA for the quarter was positive $8 million compared to a negative adjusted EBITDA of $3 2 million for the second quarter of 2022.
Our loss per share was <unk> 11 in the second quarter 2023, compared to a loss per share of <unk> 32 in the second quarter 2022.
While the adjusted loss per share each period was 12 32, respectively.
Our balance sheet remains strong and we ended the second quarter with approximately $135 million in cash and investments.
Earlier, Mike noted the strategic acquisition of patents and intellectual property related to our <unk> product line, which drove the increased cash usage for the quarter.
It is important to note when you remove the effects of one time items from the quarter, we generated approximately $3 million in cash.
Overall, we remain confident in our capital position as we continue our current and future business initiatives.
And finally, turning to our outlook for 2023, given ongoing strength from the combination of our many growth catalysts in our second quarter results.
We now expect to achieve 392 million to $395 million in revenue for the year, reflecting growth of approximately 19% to 20% over 2022.
For quarterly cadence, we anticipate a slight decline in third quarter revenue from normal summer seasonality, followed by a rebound in the fourth quarter.
The momentum across franchises globally is strong and we expect to enter the next year in a position to deliver accelerated growth.
We are maintaining our forecast for 2023 gross margin to be comparable to full year 2022 with strong manufacturing activity, partially offset by increasing investments in the second half of 2023 and the potential for bearing effects from product and geographic mix.
Our production operations and quality teams continue to support strong top line growth, while also making meaningful improvements to scale manufacturing.
And note that amortization expense for the intellectual property acquired in the second quarter is charged to cost of revenue. However, with the elimination of corresponding royalty costs. Previously included in cost of revenue. We do not anticipate the net effect of these changes to have a significant impact on our gross profit.
Yes.
Moving to the bottom line, we are balancing investments in our business with our commitment to sustaining profitability. We are leaning into areas that we anticipate will fuel growth at each of care over the coming years.
For that reason in the second half of 2023, we expect a significant increase in operating expenses largely defined new and ongoing research and development programs.
We are experiencing very strong activity within the leaps clinical trial, and we will see a substantial increase in expense for the remainder of 2023, as we accelerate site initiation and patient enrollment.
Within product development, we are progressing the next generations of the cryo sphere probe and HR clip device and sharing our technology stays on the frontline of innovation.
We are also making a strategic investment in the heel ISP clinical trial, and a dedicated ISP clamp to expand into adjacent market.
Additionally, R&D expenses for the remainder of 2023 include continuing efforts for the approval of our products under EU MBR as well as clinical research across our platforms with growing investments in registries and investigator sponsored research studies.
Finally, our plans anticipate thoughtful development of our commercial teams along with training and awareness programs to boost market development activities.
In summary, with our outlook on gross margin and increasing investments in R&D for the balance of the year. We now expect positive adjusted EBITDA of approximately $12 million for the full year 2023 corresponding to an adjusted loss per share for 2023 of approximately 92 to 94.
We are truly pleased with our performance over the first half of 2023 and the collaboration of our HR care team across so many exciting and impactful initiatives to advance our mission.
As we execute the remainder of this year, we are confident in the prospects of our business in 2023 and beyond.
Now I will turn the call back to Mike for closing comments. Thank you Angie I would like to close by thanking our team for their dedication and thoughtful approach to innovation and therapy expansion.
The determination of HQ employees over the many years has positioned our company to celebrate a number of milestones within our business this quarter, including the achievement of $100 million in quarterly revenue and record profitability.
Our future is bright and we look forward to many more years of durable growth and progress ahead and with that I'll turn it over to questions operator.
Yes.
Thank you.
If you wanted to ask a question. Please press star one on your telephone.
One moment, while we compile the Q&A roster.
The first question that is coming from Robbie Marcus of Jpmorgan. Your line is open.
Oh great.
Congrats on a really nice quarter and thanks for taking the questions.
Maybe to start I'll, just ask both my questions upfront costs, they're sort of related to each other.
Both on guidance first on the topline nice.
A little over $3 million beat you raised guidance by $3 million to $7 million at the high and low end of the range.
Maybe just walk through where youre, where youre seeing the incremental upside.
Yes.
The one we're seeing nice.
Base business with encompass and minimally invasive had $1 million beat are those the two areas you expect to see.
Revised higher guidance for the year on sales and then maybe if you could spend a minute down the P&L.
Especially.
On the EBITDA and the components you touched on it a lot, but it feels like gross margin come back to flat year over year seems like a really conservative starting point.
Given what you've put up in second quarter here and some of the higher margin products or what's contributing outsized benefit. So would just love to hear your thoughts on guidance. Thanks a lot.
Sure. Thanks, Rob I'll take I'll take the revenue and Andrew will take the operating expense leverage side of that on the revenue side I think you hit it right. We obviously were seeing great momentum first and foremost on the open ablation side of our business encompass has been.
A great product as we've been talking about for the past year. The number of sites has continued to accelerate our team has done a really nice job. Once we went to full launch of bringing it out and getting more and more patients treated were seeing that just the sheer volume of people that are treating now is an easier product to use and that ease of use has made a real.
The big difference.
And we track it every single quarter in terms of what's the percent penetration and I think for years, we've been talking about being below 30% and we believe that we've cracked that 30% at this point really primarily due to that encompassed glimpse. So we do think that that's going to continue the growth will continue.
And are strongly maybe not at the same level from a percentage standpoint.
Obviously had some encompassed in the back half of last year, but we do anticipate strength.
In our open business on the encompass I think clips continues at a really nice solid pace for the business as <unk> seen cryo nerve block. We believe we will continue at a very nice solid patient saw was over the corporate average overall this quarter and feel like that's in a good spot for our business and hybrid as we talked about that's the one area that I would say, we had a really nice quarter.
Feel good about it but we're cautious as we're kind of building it out as the year goes for the rest of the year and so we remain kind of cautious as we kind of look at the back half of the year on the hybrid side of our business.
Yeah, and I'd say further down the P&L when you think first and foremost about gross margin. Our operations team has done some really fantastic work to maintain the stability of our manufacturing ensuring the timely delivery of products to customers and we remain committed to this as we execute the rest of 2023 part of that is in the coming months or.
<unk> some pressure to gross margin from capacity improvement projects.
That had been planned for this year and will ultimately benefit our operations long term and in the future and.
And theres always bearing potential impact from product and geographic mix, which is kind of the balanced incorporated into our guidance for 'twenty three and a gross margin perspective for the down the P&L. When you think about Opex really pleased with the results. This year I think the quarter highlight what we're capable of doing from a leverage perspective no.
With the progress that we're making on our SG&A spend.
Between the ramping investments I went through a lot of detail on the call in that area as well as the.
The incremental costs for manufacturing capacity improvement projects.
Which have a short term impact to gross margin. Those are the two factors that are really the major drivers behind the incremental costs in the second half of 'twenty three.
We are being very deliberate about our spend.
But beyond that I think we've been prudent with our guidance both top and bottom line. It's an incredible start to the year, but want to make sure that we continue to execute and do the right things over the next six months that will build for a bright future.
Great.
I know I said I had both if I could squeeze one more in just I heard you talk about accelerating growth next year and just wanted to make sure I heard that right and that's accelerating sales growth.
2023 into 2024.
Yes, there was.
And that meant to say that we're accelerating and giving exact guidance for 2024, yet I think it's just you've seen that we've had a nice acceleration overall in this business. Our historical average growth was really sitting in that kind of 14% to 15% you've seen in the last three years, 31%, 21%. This year, 19% to 20% is the guidance for the year. So.
We're really making and anticipate to see really strong growth, but not necessarily giving specific guidance for next year the year beyond that.
Fair enough, thanks, a lot nice quarter.
Thanks.
Thank you for your question one moment, while we prepare for the next question.
And our next question will be coming from Williams.
<unk> of Canaccord Your line is open.
Hey, great. Thanks, good evening and congrats on a good quarter.
Just a couple of questions here, if I may 1st is just.
In the past on the encompass you've given us an idea of how you've rolled it out and kind of what percentage of accounts you've gotten it into kind of where are you with the rollout at this point with encompass and then as we think of <unk>.
That was.
A really solid quarter I mean, it looks like youre starting to get momentum there.
Any other color you'd have on that and then my follow up question is on gross margins.
On EBITDA, if you had a 76% and change gross margin, yes, I didn't do the math, but you're easily.
75, and a half and youre, saying youre going to do $74 five for the year. That's what last year was youre going to be down significantly in the second half help me understand that and then on EBITDA, you're basically guiding to $2 million of EBITDA for the back half of the year.
As you've already posted $10 billion and Youre, saying 12. So just help me understand that a little more thanks for taking my questions.
Start with the first two and kind of come down from there on the encompass.
As I mentioned I think we're starting to see some really good progress in penetration I think we've crested over that 30%. It was historically sitting in that kind of 25% to 30% or below.
For the last several years and we're now into the low 30% in terms of where we believe people are actually trading at the time of surgery. So we've made great progress on that front, it's tough to say like true penetration the way you're describing it because we're in probably about 40 plus percent of the site at this point in time.
That are actually using the product on a consistent basis.
And we anticipate that over the years, we'll get that to 100% we're not there yet obviously, we're at the earlier stages of it but even within the sites that were in we don't leave US site just to be very clear until we know they understand exactly how to use the technology that we spent a lot of extra time make sure training, we're not running off to the next new site that quickly. That's why we see this kind of <unk>.
Happening for many years to come relative to that and then within that site. We tend to start with one surgeon and then move on so we've actually got growth even within those sites.
For many years to come also on the <unk> side Youre right I mean, I think we had an outstanding quarter.
We had a record number of sites that actually purchased from us within the quarter. So we feel like progress is definitely being made.
Coming off of I know last year, where there was lots of questions about was their progress and what was that momentum going to build we definitely are feeling that coming together.
And as I mentioned in my script working on workflow working with the.
Surgeons and EPS in terms of how they are actually getting that patient through making sure that it's sticky and long term focus for these sites, that's really a big focus for us So as I look at the next six months, we don't want to get ahead of ourselves, we don't want to be too aggressive and say, it's going to continue with that momentum right away. The momentum is going to continue in the sense that we know these sites are good sites now.
We want to make sure. These sites continue every month every quarter to really be treating patients and then kind of build off of that foundation. So that we can really kind of come out in 'twenty four 'twenty five in a really strong year is coming out in those years and I think we're headed towards that we just don't want to get too far ahead of ourselves on the guidance for the back half of the year.
Yes, Bill and I'll touch on both gross margin and Opex again, I think the margin guide think of that as directional.
There are onetime costs that we are expecting to incur in the back half of the year as we continue to focus on capacity improvement and expansion there and those are onetime costs that just didnt werent baked into the first part of the year I think other headwinds when you think about the rest of the year would be strength of the encompass clamp continuing.
<unk> performance for the back half of the year as well as continued strength in our international markets. Those two are both.
Headwinds to margin. So I think maybe a cautious guide, but the expectations relative to some of the work that we need to do to set us up to continue to support capacity longer term on the Opex side again I think the the big story here is the expansion within R&D cost and I went through a lot of those on the call.
The biggest kind of individual component of that would be the leaps trial, we're rapidly approaching 500 patients and enrollment and the back half of the year is really focused on a pretty massive expansion of sites. Both in North America, and Europe , setting us up to be in a great position for enrollment in 2024 and beyond.
Okay. Andrew were there any one time gains in the front half of the year that could have skewed the adjusted EBITDA higher.
Yes.
The gains that you saw I think we talked about in the first quarter call a gain on a legal activity. That's an add back so it wouldn't impact to our adjusted EBITDA.
I think that the what youre seeing relative to the front half nice savings within the areas of professional education in our training programs good leverage within the sales team, we expect that to continue in the back half of the year and just we'll see an uptick in R&D costs are pretty sizable in the second half of the year.
Okay, Great again, congrats on the quarter. Thanks.
Thanks.
Thank you one moment, while we prepare for the next question.
And our next question will be coming from Matthew.
O'brien of.
Piper Sandler your line is open.
Good afternoon. Thanks for taking the question, Mike, maybe just talk a little bit of pain management.
Still doing real well, but maybe a little bit lighter than maybe I would think Ken.
10% penetrated thoracotomy Sternotomy has got a big opportunity, but I know you've got some more work to do there and then.
Section.
Some other other growth drivers for that business. So what what do you need to see their kit to keep growth.
Hello, going along at 25% to 30% over the next several quarters and years.
Yes, without giving a specific number I mean, we grew at 23% this quarter and I think youre right Matt.
Everybody has a little bit higher than that overall, but we're kind of we got a lot of that kind of early stage got a lot of sites up and running but now we're actually getting we're growing within those sites, we're getting more sites on top of it but we still think that you kind of like any new market that youre developing you kind of get that initial push you have this amazing growth, we're still experiencing I don't know 20.
3% growth for our business, we still think is remarkable it's a law.
One of larger numbers to some degree that you've got a lot more than just revenue to kind of build off of at this point in time, obviously as sternotomy or below the knee as you're kind of I think referring to those are more future oriented and market expansion. So they allow us opportunities to have continued very strong growth next year, and 25 and 26 as well so.
I think the growth is going to be there for a really long period of time without pinpointing, a specific percentage and again I'm really happy with where it was like you said it was a really good quarter, but I do think the law of large numbers kind of gets to you when you get to some of these when you get to this area.
Got it makes sense that you had a tough comp too so.
The other question I had was the number on leaf and I know this is a longer term thing, but it was eye popping at almost 500, having done your first patient I think in Q1.
You said up to 6500 patients I mean, you've got 536 sites in six months I mean youre trending to.
To get I would say enrollment done I would I don't know maybe sometime in the mid 25 early 'twenty five so.
I think the follow up five years, but can we start to get interim looks of that data in 'twenty, six 'twenty seven or even to the point where.
Youre doing really well versus the control arm distinct stops early and all of a sudden <unk> got this indication.
<unk> said 29, most recently.
When you think you could hear something there, but can we get something here in 2627, potentially if everything really kind of went well for you.
Yes.
Love the enthusiasm because we're incredibly enthusiastic about the progress that we've made way ahead of expectations. At this point. The team has done an amazing job and I really want to give kudos to our team. When this trial got up and running and growing our team was ready to go and to get sites up and running and to get them through that pipeline, which is how we got up to almost 40 sites by the <unk>.
End of the quarter and feel like and that number is growing and growing very fast as we kind of get through this so first and foremost is getting the sites up and running secondly, I mentioned at our Kols in the sites that we've got they're passionate about this and we have a lineup of people. They believe that putting the H flip on in these patients is going to actually help healthcare and going to.
These patients out and going to reduce stroke and so they're very excited to get this data and to run. This trial. So they've come in it enthusiastically David and set that tone at their sites enthusiastically. So it's exceeded our expectations as you said, it's a little bit eye-popping.
But once they get up and running they're all super committed to it. So we do anticipate probably a faster enrollment to your point.
I don't want to get I don't want to think that far to figure out what am I going to get my earlier looks and indications it would be great. I do think we'll obviously enroll a lot faster than we initially anticipated.
Without giving too many specific data on it but I do believe that.
It's too early to kind of predict what the actual data that we'll get some sort of indication I say why don't we just keep going we'll give you updates on kind of how enrollment continues on that front.
We'll have some early looks based on event rates, but thats, obviously not for many years ahead.
So again, we're as excited as you are just too early to kind of make any of those really long term predictions predictions.
Understood. Thank you.
Thank you for your question one moment, while we prepare for the next question.
And our next question will be coming from Marie <unk>.
Hello This is Murray.
Hey, Mary primary operator, Oh, sorry.
Sorry, just went blank I Didnt hear my name said thanks.
Mike Hi, Angie congrats very nice quarter.
Wanted to ask just a few follow ups to some questions that have been asked already maybe I'll jump on the back of the question, Matt just ask on the <unk> trial.
Curious about awareness and what that could mean for the commercial business as people become more aware of acre clip and potential benefits.
Are you thinking about that potential impact of revenue in the out years.
We're really not based on that we're really focused on this trial from a clinical standpoint, we believe we are thinking about it very long term.
And so we're focused on this more than anything else just to get the good clinical data out there and then long term have this massive market opportunity, but nothing we're not planning or building anything in the short term relative to to that awareness per se into our models as we think about it we're really building. It on that this is more the next stage of growth for the business.
When you look out later on in the decade into the next decade from that standpoint. So we're very focused on we want to get this trial right. We wanted to be clinically relevant that's why we're running such a big trial. Obviously, we're excited about how fast the pace has been on the enrollment and we're excited about the data that we're actually getting from the trial and we're already getting data I mean I'll give you a great example is we're getting data on what are the post op.
Fib rates for patients that have nature flip as an example, so we get little pieces of data like that that come out all the time that we can use that clinical evidence and data is really helpful. For other trials that we do and other things that we focus on.
Okay, great understood and then.
On the open ablation business I'm curious to hear a little bit about the underlying procedure volume trends in cardiac surgery and sort of the sustainability of those trends what you've seen in the first half and how you're thinking about second half certainly heard about the strength from from the <unk>, but just curious about sort of the underlying cardiac surgery market.
I think what youre seeing in the underlying cardiac surgery, and if you listen to other companies' calls as well that sell valves that are in that space Youre definitely seeing.
You're back at a more normalized pace and actually seeing a little bit of growth in the overall underlying area there.
I think in all aspects of it both in the mitral Avr's and cabbages I think thats indicative of what we've talked about for many years, which is that you have an aging population that is living longer.
And therefore, they're very likely to have more complicated cardiac disease and therefore, they are in need of cardiac surgery for one of those areas. Both in the U S and globally. So we do see it kind of more normalizing and growing slightly.
And anticipate that thats going to happen, it's not going to grow dramatically from year to year, but I think youre going to continue to see kind of small movements in growth in the overall market often asset.
Okay very good and last quick one I may be imagining it I know, it's small numbers, but it looks like international pain management seems to be gaining traction any color on what's going on over there with that launch.
Yes, we built we started to build out that team you are correct. We definitely saw some movement. It's still small number really small numbers as you described.
But the team is.
Several people now on the team obviously pales in comparison to what we have in the U S. But we're making progress in certain areas of Europe , and Australia, and we are definitely getting really good feedback on that front. So we are making some progress on that it's still really early I mean theres just in particular in Europe . There is a reimbursement aspect that we've got to work through is going to take more years, we don't want to get ahead of ourselves on the growth side there.
But the feedback has been the same feedback is in the U S is that once they start using the product. It really works then they've got to figure out how do they get it into their system and each country is a little bit different from that standpoint, but you are correct to see that there has been some nice movement, there and we're adding head count as a result.
Alright, Thank you and congrats again.
Thanks.
Thank you one moment for our next question.
And our next question will be coming from Rick Wise.
Of Stifel. Your line is open.
Hi, there, Mike Hi, Angie.
Maybe you could dig a little bit more into the <unk>.
Mrs.
Ablation business.
Of course, everything turned in better numbers than we would look for it but.
I was impressed by the performance there.
How is converged doing how deep doing what's what's happening there.
And what's the set up there for the second half.
Yes, I think it's a really fair and good question Rick.
What we see and that is that's all being driven by the hybrid the conversion side of it the epicentre side of our business is deep has been relatively flat as we talked about in last call over in Europe . We had the six results that came out that showed dramatic improvement in the deep style approach, where they did a randomized trial.
And that was actually recently published in lancet and so we feel I mean, obviously that data is incredibly impactful, it's really having more of an impact I'd say in Europe on that front, but in general it's been relatively flat overall for our business as all of the growth is really coming from the <unk> side of our business and adding new convergent sites and growing that area of it is.
Really been right now what's happened is that we've gotten really intimate with our customers understanding the workflow at the hospitals. We spent a lot of time understanding how do they get the patients and how do they make sure. They have good handoffs between cardiac surgery Electrophysiologist, how do they have good follow up between the two and good communication and logistics in that workflow there.
We're spending a lot of our time and using both of our sales teams. Both our hybrid sales team in our cardiac surgery sales team to really leverage the relationships that we have being incredibly intentional about how we're doing it that progress like we're seeing it's been great on top of that our education team has done a really wonderful job of doing best practices meetings with top people from around.
The country in fact, im going to one and.
After this call in the next couple of days, where we're bringing together people to really talk about the experiences they've had on everything that I just talked about how are they making workflow work how are they making this work in a hospital.
And because people believe and the data I mean, the data is incredibly compelling thats, not where we have and it's about really making sure that it's sticky and long term. There. So what do I think I think as we look long term. This is going to be a really big franchise for us it's going to grow incredibly well as I look at the back half of the year I'm just cautious about it I want to make sure that we're not doing.
Anything wrong are moving too fast we want to make sure that we set ourselves up right. So that we've got decades worth of growth as opposed to just looking over the next six months.
So we're really making sure that each and every one of these sites has durable long term plans in place that they're looking at this as not just a kind of a flash in the pan I'm going to kind of startup and not come back to it we want to make sure. It's sticky and that's really the focus of our business, which is why the back half of the year, we've kind of set the tone that we want to be still moderate in the back half of the year and then hopefully beginning part of next year, we can be.
Again to talk about accelerating off of that.
Got you that's very clear.
Thank you.
Yes.
Turning to.
So from two aspects.
Your solid cash position it seems like cash and cash burn is pretty stable I think you are at $127 million this quarter.
And I'm curious from two angles, one I was hoping you'd talk a little bit more about the acquisition of the key foundational patents, obviously, that's a use of cash.
Why it's so important.
Gosh, I didn't know I needed to worry about not having them. So why is it good to have.
Al.
And second.
Talk about.
Cashews are you more open maybe than you have been.
As cash stable.
Stabilizes maybe growth.
To tuck in products or how you're thinking about it.
At another really good question on the first on the patent side of things I think.
As many of you know we've had a long standing relationship with the Cleveland Clinic, who we initially developed the technology with its been a great partnership.
One that we obviously worked at many many years ago well before I was a part of the company to really going to develop and work very closely together.
As we continue to innovate and as you've seen we've continued to innovate on the on the clip Angie and I will talk about how we are have more iterations and more more technology thats going to be coming out in the coming years, we really felt like many of the patents at the time were owned by the Cleveland clinic and another entity.
And we felt like it was really kind of impactful to be able to kind of really own that so that we can kind of own how do you kind of think through those patents over the longevity of them over the coming decades and that really is important because so we really wanted that level of control.
Obviously, we felt like we had and we're paying a royalty payment. So what we decided to do was to basically pay kind of an upfront payment for that.
And obviously get rid of the royalty payments. It also impacts the P&L so that improves the EBITDA, while it doesn't affect the margins it will improve the EBITDA because the royalty payments will no longer be in there starting at the end of last quarter. So there's a bunch of benefits one is really under owning that technology and being able to kind of.
Move that forward to is.
We believe that when you look at the P&L, it's a cleaner P&L from that standpoint about kind of where the where we are today and kind of looking forward and it allows us to kind of innovate as we as we move into the next decade or so those are the primary things and I'll turn it over to Andrew to really talk more about other cash issues recur in the corner you saw about a $27 million burn $30 million is kind of one time.
Burn or usage of cash, which means we generated $3 million from just the activities of the quarter, we feel really goods ended the quarter $135 million in cash and investments.
<unk> feel really good about our capital position and the ability to to fund the business and operations now that being said Theres a limitation to that which is we are able to fund our operations anything I think that strategic would be outside of kind of that window and something that we would evaluate.
With a lot of.
<unk> and.
And thoughts.
Thank you so much.
Thank you one moment for the next question.
And our next question will be coming from Mike Matson.
Of Needham Your line is open.
Yeah. Thanks, So just a couple a couple more on campus. So.
Can you maybe talk about.
Whether or not youre selling it Oh you asked.
And kind of.
The degree of penetration of U S versus in the U S and then.
Is this are you seeing encompass I know, it's mainly for cabbages, but if this thing getting used in the valve procedures as Paul.
So I'll start with the U S. We are not selling it or use at this time, we are definitely working on that I would say that our European colleagues would love to have it in market.
And as they see kind of the success that they started to see it in the U S market, we are working on getting that.
Approved and clear in Europe first and then we'll obviously work on other countries around the globe after that I would say, probably Australia would be the next logical place.
From that standpoint, but it is not being sold.
Outside of the United States at this point in terms of it being used outside of cabbage.
It's being used in all procedures I mean, it's really meant for <unk>.
People that are uncomfortable only be getting behind the veins or opening up the harp and really want to just do kind of a really fulsome ablation and that's really what it provides it also has a lot quicker.
But some people are using it in their valve procedures as well so while it was originally targeted for that cabbage surgeon, we definitely see it in some valuable surgery as well still predominantly cabins, but we do see it and valvular surgery as well, partially because the ablation lines are so incredibly.
<unk> transmittal and are like it's amazing and how well this product works and Thats, partly why people are using it in switching to it.
Okay got it and then just to fund the pain management side I know, it's early for Sternotomy, but can you maybe just comment on what the feedback you're getting I mean visits I know, it's all anecdotal, but does it sound like Youre seeing similar types of pain reduction as we've seen with thoracotomy here.
It's a little bit as we've talked about that the sternotomy as an interesting market because I'd say some people some surgeons do it in there.
<unk> Crazy about it Theyre, saying, Oh, my goodness I've got to have is I've got to use. It every one of our patients I am seeing them recover more quickly get out of their chair move.
Move around and so we see some people react to that way.
Others are saying I'm not seeing much of a difference and so whereas on thoracotomy everybody that touched it actually saw that difference. So it's a little bit more hit or Miss I would say, it's definitely a majority seat tremendous benefit then the question becomes is it worth the time and other ways for us to optimize the time spend because it does take.
Well over 30 minutes to do the full ablation on it and so as a result.
We're working on ways that can you do it simultaneously with other parts of cardiac surgery. So that they can reduce that time, that's the biggest complaint that we get and they're asking themselves is it worth that time. So some of that is what we're working on that's why we always want to set expectations low at first because we wanted to learn some of these tricks figure out how can we reduce that time, how can we help them out and see some of the <unk>.
<unk> as well, but I would say, it's not as much of a benefit as you see from thoracotomy, but we knew that going in but we are seeing it in more than 50% of the.
Locations that we're in right now.
Okay, great. Thank you.
Thank you one moment.
The next question.
And our next question is going to come from Suraj Kalia.
Of Oppenheimer. Your line is open.
Hey, Mike can you hear me all right.
Okay perfect.
Perfect.
So Mike a bunch of questions I'll throw a couple of years away in one specifically for LNG.
So Mike on open surgery appreciate your comments.
Obviously, the last two quarters have seen nice step up.
Mike.
Can you walk us through encompasses utilized.
Packed on utilization rates and.
And you just in your prepared remarks in your remarks, a few minutes ago. You mentioned about transmitter lesions. This is something different and <unk> been ascertained within encompass and love to get your perspective on that.
It's also the latter parts of before we ever did the encompass launch we did a tremendous amount of work.
And to look at trans morality and to look at kind of how this product work and what we saw was it actually created even thicker lesions than we'd seen in any one of our we already are clamps already are incredibly transparent and work incredibly well this was actually making them even thicker and actually just that just the way the clamp works and the size of it and the way that it encompasses.
The heart really creates a really nice lesion that people have been very comfortable with on top of that what we always start with with all of our sites that we go after we require them to do testing, we want to make sure that they're not getting any activity between the lines. So they kind of get to kind of do that.
They do that testing and every one of their cases, our team is in there with them for all their beginning cases.
And so we're ensuring that they're getting a really good lesions and really good block when theyre doing that so thats, obviously, a critical piece of the protocol when they are actually using the encompass clamp. There are there have been actually several sites that have done <unk> mapping afterwards, and we anticipate things to be published over the next maybe six months to a year.
Or will you will start to see people that have actually looked at it and actually seen how well it's worked when they've gone back in and done EP mapping.
45 days 60 days 90 days later, there are some independent sites that have done their own work on that that we're aware of and we're hopeful that those will get published at some point in time and hopefully that encourages others to do similar types of studies because we are very confident in what encompass can entail from that standpoint, I know you asked the second part of the question so remind.
If you could just from utilization.
Utilization.
Nation and your exist, yes, we definitely see surgeons that.
Otherwise, we're not doing an ablation.
<unk> to do ablation is now that's why I said that we're starting to see that number.
Come up quite a bit so.
So we definitely see in particular, it's in cabot's, but youll see it in Endovascular side as well just it's an easier technology to use it is incredibly fast to get a very good and fulsome ablation and <unk> and so they can reduce some of their time. So we're definitely seeing the utilization increase in volumes tick up for sure.
Got it Michael leaps.
The enthusiasm is palpable.
I'm curious Mike.
What's the clinical significance of time to first ischemic stroke or systemic embolism.
And more specifically are these patients or baseline skinned for.
Do they have MRI scans going in already.
They do not have MRI scans in advance they're not looking for I mean, we're not doing.
Pre scan on that front, what they are being looked at they are looking at all of our charging during testing whether or not they have afib. So whether they're looking at do they have afib and.
In advance if they don't have Afib, that's obviously, how they qualify for the leaps trial and then Theyre getting randomized.
After that point.
In terms of.
The strokes I mean, youre looking at stroke rates, sorry about first the stroke or like are you do you have a stroke and it's randomized so half the patients will get a clip half of <unk> applications will not and they are that we're going to look at event rates within that within those patient populations.
And that's obviously going to be I mean, so as you saw and allows the study. It allows three trial. What you saw there was you saw 33% reduction in strokes.
Up to basically they hit their endpoint at three eight years, we anticipate hours to be five years as I've mentioned to get to that point, where it's statistically significant to basically benefit the patients to say, what's the clinical benefit a reduction in stroke I mean, its that simple. It's are you reducing stroke rates for these patients over the long term of the way think about it for a moment most of these pay.
<unk> when you undergo a cabbage and cardiac surgery youre not you don't want to just live two years. Most of these patients today are now living 15 20 years.
So if you can take out the appendage right then and there. The goal here is to show, we can reduce that stroke rate quite significantly significantly enough that these patients will benefit from having their appendage gone because we'd likely many of those patients are going to go into afib or under what they call cardiomyopathy is theyre going to go into heart failure or some other issue that may cost.
Strokes as well.
Got it Mike finally on hybrid.
We still have the 80%, 90% or roughly staged or is there any underlying shifts in terms of same days. Thank you for taking my questions.
Yes, Theres no no underlying shift on the same day, I'd say, 80%, 90% a little aggressive I would say, it's probably closer to 70%, 80% would be on that most of the new sites do windup staging for logistical reasons.
So just because in order to kind of coordinate the care between everybody that's actually something that a lot of the sites have elected to do that in order to take care of the patients they feel like its actually better patient care from that standpoint. So many of the new sites as you kind of were talking about actually two stages.
Thank you there are no more questions in the queue. At this time. This concludes the Q&A session I would like to turn the call back over to Mike Carrel for closing remarks. Please go ahead.
Great. Thank you everybody for your interest and for joining Tonight and for all the great questions. As you can tell we're excited about the first half of the year, even more excited about the second half of the year and the years to come. So again I. Appreciate your interest in <unk> and look forward to talking to you also have a great one.
This concludes today's conference. Thank you all for joining everyone may disconnect now and enjoy the rest of the economy.
Okay.
Yeah.
Okay.
[music].
Okay.
Okay.
Okay.
Yes.
Okay.
[music].
Okay.
Uh huh.
Okay.
Okay.
[music].
Okay.
Sure.
Yes.
[music].
Okay.
Jim.
[music].
Okay.
[music].
Okay.
[music].
Sure.
Yes.
[music].
Okay.
[music].
Okay.
Okay.
Yes.
[music].
Okay.
Okay.
Okay.
[music].
Okay.
Uh huh.
Okay.
Yeah.
Okay.
Yes.
Okay.
[music].
Okay.
Yes.
Jim.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Yes.
Yes.
Yes.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Yes.
Yes.
Okay.
Yes.
Okay.
Okay.
Okay.
Yes.
[music].
Okay.
Okay.
Dan.
[music].
Yes.
[music].
Okay.
[music].
Okay.
[music].
Okay.
Sure.
Sure.
Sure.
Okay.
Okay.
Okay.
Okay.
[music].
Yes.
Yes.
Okay.
[music].
Okay.
[music].
Okay.
Yes.
Sure.
Okay.
Sure.
<unk>.
Okay.
Yeah.