Q3 2023 AtriCure Inc Earnings Call

Good afternoon and welcome to.

Archie call it cures third quarter 2023 earnings conference call. At this time all participants are in 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.

The Bill Martin group for a few introductory comments.

Great. Thank you.

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

You have not received a copy please call 5136444484 to have one emailed to you.

Before we begin 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 in the company's SEC filings.

These statements include but are not limited to financial expectations and guidance expectations regarding the potential market opportunity for Atrix Earth franchises and growth initiatives.

Is your product approval clearances reimbursement and clinical trial outcomes.

<unk> results may differ materially from those projected.

Trickier 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.

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

Good afternoon, and thank you for joining us I.

I am delighted to announce another strong quarter for <unk>.

Once again, demonstrating the broad based activity in our business.

Global revenue drivers.

Third quarter, we achieved total revenue of $98 million, representing 18% year over year growth.

Our team continues to promote awareness and adoption of our therapies for the treatment of atrial fibrillation Elliot management and post operative pain management.

As we increase our patient impact in these markets. We're also driving sustainable profitability in the third quarter, we achieved positive adjusted EBITDA of approximately $5 million driven by our growth on the top line strong gross margins and disciplined approach to investing in the future.

In light of our quarterly results and our confidence in the remaining of the year, we now forecast full year 2023 revenues.

$394 million to $396 million, reflecting a year over year increase of 19% to 20%.

In addition, we now anticipate full year 2023, adjusted EBITDA to be approximately $18 million to $20 million.

As we reflect on our progress this year there is still significant untapped opportunity in the large populations that we serve.

We remain confident in our ability to continue to accelerate growth over the rates achieved in the preceding decade, while expanding profitability.

Now turning to a more detailed review of the business starting with our open ablation franchise.

Growth from the encompass clamp remained incredibly strong our encompass clamp leverages the proven technology of our synergy ablation system to provide simpler and faster ablation and open heart procedures.

Physician feedback is exceptional with many underscoring the efficiency and ease of use of the device.

For the second quarter ROE encompass sales exceeded $10 million and along with our legacy platforms drove 20% worldwide growth in our open ablation franchise.

So much opportunity remains to treat afib in combination with cardiac with open cardiac surgery and we are optimistic about the future of this franchise with our proven technology and the abundance of clinical data on our products.

Shifting to appendage management are products, we're both open heart and minimally invasive procedures continue to be critical growth catalyst for <unk>, representing 40% of overall revenue in the quarter.

Worldwide revenue for the franchise grew 18% over the prior year, reflecting robust adoption across geographies.

Our growth was driven primarily by sales of our <unk> Flex V device, which represents the latest innovation in our 20 year history of technology development expertise and lead management.

To complement our commercial progress we are actively pursuing the expansion of our addressable markets with the Leafs clinical trial to elevate patient care in cardiac surgery.

Two thirds of the more than 1 million cardiac surgery patients worldwide do not have preoperative afib diagnosis, yes. It is well understood that these patients have an increased risk of stroke and afib following surgery.

The leaps trial represents a meaningful opportunity to expand the benefits of <unk> technology for these patients.

The primary endpoint of the study is a demonstrated reduction in ischemic stroke and systemic arterial embolism defining a new market and stroke prevention.

Excitement for the trial is compounding and we are continuing to expand site initiation worldwide.

We're also enrolling well ahead of plan.

At the same time, we are developing even less invasive and easier to use technologies to ensure that our <unk> product line remains at the forefront of this rapidly expanding market.

Turning now to hybrid AF therapy, where.

Where we saw 8% growth in this franchise globally year over year, and a slight decline on a sequential basis largely due to seasonality.

Recently, we hosted several standing room only hybrid courses all around the globe and continue to hear from physicians and clinical evidence that supports our belief that combining <unk> and endocardial ablation will unlock enormous benefits for millions of patients suffering from long standing persistent atrial fibrillation.

<unk> holds a unique position in the broader afib market with the only devices FDA approved for the treatment of long standing persistent atrial fibrillation.

We are frequently asked about the potential for for pulse real ablation of our PFA.

Fact, afib therapies.

We believe innovation is of Paramount importance in the medical device field and we are encouraged by the activity and progress of BFA.

The awareness it brings to the treatment of Afib encourage as robust conversations on this topic and the focus on more efficient endocardial ablation as a tailwind for everyone in the market.

For <unk>. These are all positives and a hybrid approach remains complementary much like it has shown with other energy sources used an endocardial procedures.

Therefore, as we work to support this massive market opportunity.

We are partnering with early adopters of our hybrid <unk> therapy to monitor their program development efforts, while strengthening referral channels with the ultimate goal of building efficient and scalable workflows for a broader base of customers.

We are making headway and remain optimistic that our activities are establishing the foundation for a strong and durable growth of hybrid app in the future.

Finally, moving to our pain management franchise, where our prior sphere probe is driving robust growth around the world.

In the third quarter worldwide revenue grew 24% a record number of accounts adopting the therapy.

We continue to see opportunities to drive penetration in thoracic procedures.

We also began a limited rollout of cryo nerve block and Sternotomy.

Our uptake in Sudan, many procedures remains very modest we are learning more about the points of differentiation differentiation in this new application and believe there is potential growth from here.

We're also pleased to announce that our next generation cryo sphere probe, which includes meaningful enhancements to our platform was recently cleared by the FDA.

We expect the track record of exceptional ease of use and outstanding patient outcomes from our first generation <unk> technology to showcase even more prominently in this new device and look forward to launching in the United States in 2024.

Now I would like to shift my comments to an area that is top of mind for many investors and the broader stock market, which is <unk>.

We are excited about the potential patient benefits and yet there is more to learn about the long term clinical and market impacts of this class of therapies.

But we do know is that our core market of atrial fibrillation is a global academic today.

In fact, there are over 37 million patients worldwide and this population is growing rapidly.

Anyone can develop afib. It is a complex disease with many risk factors and triggers.

<unk> is also a progressive disease.

Becoming harder to treat in a more serious health risks as the disease progresses.

Because the likelihood of <unk> increases with age and people are living longer today. Many researchers predict number of Afib cases will rise dramatically in the coming years and we agree.

Another reason, we feel confident in the durability of our end user markets as our focus on the hardest to treat afib patients. These patients typically have multiple risk factors and comorbidities, making it more likely that their afib will progress regardless of other interventions, where advancements and medicines.

We are unique solutions for treatment of concomitant to cardiac surgery procedures as well as standalone therapy for long standing persistent afib.

With millions of patients' untreated both markets remain substantially underpenetrated, and we envision a future where many hundreds of thousands of patients are treated each year.

In addition to our specialization in a fib there are many avenues of growth at <unk>, including our cryo nerve block solution for managing postoperative pain, which was virtually nonexistent less and less than five years ago.

We see a steady increase in underlying procedures in this market with the majority arising from cancer and trauma cases.

Penetration in thoracic and cardiovascular procedure continues and remains low.

Therefore in each of our markets, we have a substantial potential for expansive growth.

We are thoughtful about building a complementary portfolio with diversified drivers, which is evident through our clinical trial investments such as <unk> and <unk>, an emerging therapy research and pain management outside of the thoracic applications.

In closing we maintained strong conviction in our business.

And the sustainability of our end user markets and in our unwavering commitment to profitable growth.

Additionally, we are we see several exciting opportunities ahead for <unk> as our research and development efforts set the foundation for meaningful long term profitable growth for all of our shareholders I will now turn the call over to Andrew <unk>, our CFO for more details regarding our financial performance.

Thank you, Mike our third quarter 2023 worldwide revenue of $98 $3 million increased 18, 1% on a reported basis and 17, 3% on a constant currency basis, when compared to the third quarter of 2020, Q, reflecting continued strong performance of our business globally.

Unknown Attendee: Good afternoon and welcome to AtriCure's third quarter 2023 earnings conference call. At this time, all participants are in 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.

And contribution across our broad portfolio of products.

On a sequential basis, we experienced a two 6% decline in worldwide revenue from the second quarter attributed to normal seasonal variation in underlying procedures during summer months.

Marissa Bych: I would now like to turn the call over to Marissa Bych, the Bill Martin group for a few introductory comments. Great, thank you. By now you should have received the copy of the earnings press release. If you have not received the copy, please call 513-644-4484 to have one email to you.

In the third quarter of 2023 U S revenue was $81 7 million or 17, 1% increase from the third quarter of 2020 to.

Open ablation product sales were $25 $8 million up 19, 8% over 2022 and propelled by steady adoption of the encompass clamp across an expanding customer base.

We continue to be pleased with the uplift in volume driven growth in this market and estimate open concomitant prestige growth was roughly 13% for the quarter.

Unknown Attendee: Before we begin, let me remind you that the company is remarked, include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control, including risks and uncertainties described from time to time in the company's SEC filing. These statements include that are not limited to financial expectations and guidance, expectations regarding the potential market opportunity for AtriCure's franchises and growth initiatives, future product approvals, clearances, reimbursement, and clinical trial outcomes. AtriCure's results may differ materially from those projected. AtriCure undertakes no obligation to publicly update any forward-looking statements.

Procedures with the encompass clamp earn a higher per case asps a trend that will continue with increasing adoption.

Pain management sales were $12 $6 million up 19, 8% over the third quarter of 2020 Q. We saw growth from the addition of new accounts as well as deepening penetration within existing accounts.

U S minimally invasive ablation sales were $10 $9 million up eight 1% from 2022.

And finally sales of appendage management products in the U S were $32 $4 million up 17, 2% over the third quarter of 2022.

Unknown Attendee: Additionally, we refer to non-gap financial measures, specifically, revenue reported on a constant currency basis, a justice EBITDA, and adjusted loss per share. A reconciliation of these non-gap financial measures with the most directly comparable gap measures is included in our press release, which is available on our website.

International revenue was $16 $6 million up 23, 2% on a reported basis and 18, 7% on a constant currency basis as compared to the third quarter of 2022.

Mike Carroll: With that, I would like to turn the call over to Mike Carroll, President, and CEO. Good afternoon, and thank you for joining us. I am delighted to announce another strong quarter for AtriCure. Once again, demonstrating the broad-based activity in our business and global revenue drivers. In the third quarter, we achieved total revenue of $98 million representing 18% year-over-year growth. Our team continues to promote awareness and adoption of our therapies for the treatment of atrial fibrillation, LEA management, and post-operative pain management.

European sales contributed $9 $2 million in the quarter, while Asia Pacific and other international markets accounted for $7 $4 million in revenue.

International revenue growth was fueled by expanding adoption of our therapies in our major markets as well as favorable currency exchange rates.

Our gross margin this quarter was 75, 2% an increase of 110 basis points from the third quarter of 2022, we realized benefits from favorable production efficiencies, partially offset by unfavorable geographic and product mix.

Mike Carroll: As we increase our patient impact in these markets, we're also driving sustainable profitability. In the third quarter, we achieved positive adjusted EBITDA of approximately $5 million driven by our growth on the top line, strong growth margins, and disciplined approach to investing in the future. In light of our quarterly results and our confidence in the remaining of the year, we now forecast full-year 2023 revenues of $394 to $396 million, reflecting a year-over-year increase of 19 to 20%.

Now turning to operating expenses for the quarter, which totaled $82 million, an increase of $9 5 million or 13, 1% from the third quarter of 2022.

Similar to the second quarter. This year, a significant driver of the change in operating expenses was the expansion of personnel across our teams to support our growth.

The increase in research and development expenses was 34% year over year, well outpacing the 8% increase in selling general and administrative costs.

Mike Carroll: In addition, we now anticipate full-year 2023 adjusted EBITDA to be approximately 18 to $20 million. As we reflect on our progress this year, there is still significant untapped opportunity in the large populations that we serve. We remain confident in our ability to continue to accelerate growth over the rates achieved in the preceding decade while expanding profitability.

Research and development expenses reflect expanding activity and faster than expected enrollment in our lead clinical trial as well as progress in several new product development projects.

Adjusted EBITDA for the quarter was positive $4 $7 million compared to a negative adjusted EBITDA of $700000 for the third quarter of 2022.

Mike Carroll: Now, turning to a more detailed review of the business, starting with our open ablation franchise. Growth from the encompassed clamp remains incredibly strong. Our encompassed clamp leverages the proven technology of our synergy ablation system to provide simpler and faster ablations in open heart procedures. Physician feedback is exceptional with many underscoring the efficiency and ease of use of the device. For the second quarter in a row, encompassed sales exceeded $10 million, and along with our legacy platforms, drove 20% worldwide growth and our open ablation franchise.

Our basic and diluted net loss per share as well as the adjusted loss per share was <unk> 20 in the third quarter of 2023 as compared to 27 in the third quarter of 2022.

Our balance sheet remains strong and we ended the third quarter with $133 million in cash and investments.

This quarter's modest cash burn reflects capital investment associated with the expansion of our manufacturing operations as well as an increase in inventory.

Now closing with our outlook for 2023, considering our third quarter results and the ongoing momentum across our business. We expect to achieve approximately 394 million to $396 million in annual revenue for 2023, reflecting full year growth of approximately 19% to 20%.

Mike Carroll: So much opportunity remains to treat a fifth in combination with cardiac with open cardiac surgery, and we are optimistic about the future of this franchise with our proven technology and the abundance of clinical data on our products.

Over 2022.

Mike Carroll: Shifting to appendage management, our products for both open heart and minimally invasive procedures continue to be critical growth catalyst for hrcare, representing 40% of overall revenue in the quarter. Worldwide revenue for the franchise grew 18% over the prior year, reflecting robust adoption across geographies. Our growth is driven primarily by sales of our atricup flex V device, which represents the latest innovation in our 20 year history of technology development expertise and L.A, management.

Our guidance implies sequential growth over the third quarter, and we anticipate similar franchise drivers leading fourth quarter performance.

We remain confident in the breadth of our global portfolio delivering continuation of acceleration accelerated growth rate over <unk> long history of mid teens achievement prior to Covid.

We now anticipate full year 2023 gross margin to be slightly above 75% with the potential for varying impacts from increasing costs and geographic mix as well as investments to support revenue growth.

Mike Carroll: To complement our commercial progress, we are actively pursuing the expansion of our addressable markets with the Leafs clinical trial to elevate patient care and cardiac surgery. Two thirds of the more than 1 million cardiac surgery patients worldwide do not have preoperative a fifth diagnosis yet it is well understood that these patients have an increased risk of stroke and a fifth following surgery. The Leafs trial represents a meaningful opportunity to expand the benefits of atricure technology for these patients.

And finally throughout 2023, we have shared our commitment to both achieving an expanding profitability while leaning into investments that we expect to be growth drivers in the future.

To that end, we are maintaining an elevated level of investment in research and development as we focus on progressing our innovation and clinical evidence agenda and get ready for the launch of many new products to drive future growth.

Key areas of spending in the fourth quarter include site expansion and enrollment in our lead clinical trial and product development activities for the next generation of <unk> devices.

Mike Carroll: The primary endpoint of the study is a demonstrated reduction in a scheme of stroke and systemic arterial embolism defining a new market in stroke prevention. Excitement for the trial is compounding and we are continuing to expand site initiation worldwide. We're also enrolling well ahead of plan. At the same time, we're developing even less innovative and easier to use technologies to ensure that our atricup product line remains at the forefront of this rapidly expanding market.

Mike Carroll: Turning now to hybrid AF therapy where we saw 8% growth in this franchise globally year over year in a slight decline on a sequential basis largely due to seasonality.

Mike Carroll: Recently, we have hosted several standing room only hybrid courses all around the globe and continue to hear from positions and see clinical evidence that supports our belief that combining apocardial and endocardial oblation will unlock enormous benefits for millions of patients suffering from long standing persistent atrial for relation. Atricure holds a unique position in the broader AFib market with the only devices FDA approved for the treatment of long standing persistent atrial for relation.

Treatment of Afib.

Pain management, and stroke prevention and established standards of care globally.

Mike Carroll: We are frequently asked about the potential for post-field relation or PFA to impact AFib therapies. We believe innovation is paramount importance in the medical device field and we are encouraged by activity and progress of PFA. The awareness it brings to the treatment of A-Bib encourages robust conversations on this topic, and the focus on more efficient endocardial ablation is a tailwind for everyone in the market. For AtriCure, these are all positives, and our hybrid approach remains complementary, much like it is shown with other energy sources used in endocardial procedures.

We remain committed to delivering profitable growth and are confident in the vast potential of our existing markets and our ability to further expand addressable markets and the future across every one of our franchises. Thank you for being a part of our journey, we couldn't be more excited about the future of a trick here with that we'll turn it over to questions.

Great. Thanks, so much at this time, we will conduct a question and answer session. As a reminder, in order to ask a question you will need to press star one one on your telephone and wait for your name to be announced in order to withdraw. Your question. Please press star one one again.

As also another reminder, if you could limit yourself to one question and one follow up that would be great. You can always jumped back into the queue at a later time.

Mike Carroll: We are partnering with early adopters of our hybrid AF therapy to monitor their program, development efforts, while strengthening referral channels with the ultimate goal of building efficient and scalable workflows for a broader base of customers. We are making headway and remain optimistic that our activities are establishing at the foundation for strong and durable growth of hybrid AF in the future.

And with that please stand by for our first question.

First question comes from robbing Marquez at J P. Morgan Your line is open.

Mike Carroll: Finally, moving to our pain management franchise where our cryosphere probe is driving robust growth around the world. In the third quarter worldwide revenue grew 24%, a record number of accounts adopting the therapy. We continue to see opportunities to drive penetration in thoracic procedures. We also began a limited roll-out of crowd-nurblock in sternotomy. All uptake in sternotomy procedures remains very modest. We are learning more about the points of differentiation in this new application and believe there is potential growth from here.

Oh, great. Thanks for taking the question congrats on a good quarter.

Two for me maybe to start.

I've had really good momentum through the year guidance, 19, or 20% profitabilities coming in nicely any preliminary thoughts as we head into 2024.

And the accomplice clamp starts to annualize the launch here just just any early thoughts on some high level trends. Thanks.

Yeah, I mean, thanks for the question Robbie and Yeah, we feel great about the quarter. So foreign moment, we built and we feel like we can continue really strong momentum into 2024 across pretty much every one of our franchises on the on the encompass clamped what's it on that first because you kind of mentioned that that has been a great product launch we've definitely seen volumes and.

Mike Carroll: We are also pleased to announce that our next generation cryosphere probe, which includes meaningful enhancements to our platform, was recently cleared by the FDA. We expect the track record of exceptional ease of use and outstanding patient outcomes from our first generation cryosphere technology to showcase even more prominently in this new device and look forward to launching in the United States in 2024.

Increase in that area I think we're already pretty much on that lapping and that you're talking about on the price side of things as we enter into next year, it's pretty much a volume game and we just see more and more penetration into those markets and they're big markets for us to go. After so we think it's going to be a really strong and good solid year in 2024 without getting into too many specifics on it. We also believe the same.

Mike Carroll: Now I would like to shift my comments to an area that is top of mind for many investors in the broader stock market, which is GLP once. We are excited about the potential patient benefits, and yet there is more to learn about the long-term clinical and market impacts of this class of therapies. What we do know is that our core market of atrial fibrillation is a global epidemic today. In fact, there are over 37 million patients worldwide, and this population is growing rapidly.

<unk> and the other is our business on the hybrid side, we're really starting to see traction in terms of number accounts quarter over quarter. When you look sequentially, obviously seasonality effected it to some degree with a strong Q3 last year, but we feel like we're really getting some stickiness in those accounts building on that and see we believe will build on that in Q4 and heading into next year.

Mike Carroll: Anyone can develop A-Fib. It is a complex disease with many risk factors and figures. A-Fib is also a progressive disease, becoming harder to treat and a more serious health risk as the disease progresses. Because the likelihood of A-Fib increases with age and people are living longer today, many researchers predict the number of A-Fib cases will rise dramatically in the coming years, and we agree. Another reason we feel confident in the durability of our end user markets is our focus on the hardest to treat A-Fib patients.

As well and the same thing on the car.

Owner block as well so across the board I think we feel like we are going to be in a good place is Angie mentioned in her comments. Our commitment is that we're going to grow at a faster pace than what we did kind of prior to COVID-19. When we're going in that 14 or 15%. We believe that we are going to grow at a faster pace than that in 2024 were not ready to give a specific number of what that looks.

Like our guidance, but we do believe that will grow at a faster pace in 2024 on an overall basis.

Great very helpful. Second for me I want to spend a minute on profitability cause it's the second quarter, it's it's beaten pretty nicely clearly on a positive trend.

Mike Carroll: These patients typically have multiple risk factors and comorbidities, making it more likely that their A-Fib will progress regardless of other interventions or advancements in medicines. We have unique solutions for treatment of component to cardiac surgery procedures, as well as standalone therapies for long-standing persistent A-Fib, with millions of patients untreated, both markets were made substantially underpenetrated and we envision a future where many hundreds of thousands of patients are treated each year. In addition to our specialization in A-Pib, there are many avenues of growth at AtriCure, including our cryonur block solution for managing post-operative pain, which was virtually non-existent less than five years ago.

At first it was can you generate positive adjusted EBITDA then Wang.

Now I guess, we're moving to how much so.

As we think about improving gross margin SG&A leverage still elevated R&D spend is that the right way to think about it.

As we move forward in any one time items in the quarter of that that would impact it moving forward. Thanks.

I think we'd like to hear each one of those questions Robbie and I think you've got the calculus correct. I think we continue to expect you know good strength and gross margin this year coming in a little over 75% and believe that we can continue kind of the operating at that level, if not enhancing over the future we do prioritize R&D invest.

Mike Carroll: We see a steady increase in underlying procedures in this market, with the majority arising from cancer and trauma cases. Penetration in thoracic and cardiothoracic procedure continues and remains low. Therefore, in each of our markets, we have a substantial potential for expansive growth. We are thoughtful about building a complementary portfolio with diversified drivers, which is evident through our clinical trial investments, such as leaps and heel IST, and emerging therapy research and pain management outside of thoracic applications.

<unk> and would expect kind of an elevated level of spend and then the leverage that you're seeing in the business in the SG&A category, specifically would expect for that to continue.

The next year and the years beyond that so I think you've got the calculus correct.

Thanks, a lot.

Please and buy for our next question.

Mike Carroll: In closing, we maintain strong conviction in our business, in the sustainability of our revenues and markets, and in our unwavering commitment to profitable growth. Additionally, we see several exciting opportunities ahead for AtriCure as our research and development efforts set the foundation for meaningful long-term profitable growth for all of our shareholders.

The next next question comes from Bill <unk> with Canaccord Genuity. Your line is open.

Hey, exactly of Bill. Thank you for taking the question looking at you know the full year in Q4 are there any specific products or geographies that will be a larger or smaller.

Unusual any kind of seasonality that you might not be expecting in that regard.

Angela Wirick: And now to the call over Angie Weirich, our CFO, for more details regarding our financial performance. Thank you, Mike. Our third quarter 2023 worldwide revenue of $98.3 million increased 18.1% on a reported basis and 17.3% on a constant currency basis when compared to the third quarter of 2022, reflecting continued strong performance of our business globally in contribution across our broad portfolio of products.

NASDAQ as I said in the prepared comments to kind of expect the same areas of the business that have been leading the growth this year to be the contributors to Canada the growth rate in the fourth quarter and that's nothing to call out or nothing unusual I'd say that we would expect in the fourth quarter from that regard.

Got it thank you for clarifying and my.

My second question is can you I guess provide more color contextualize the epicentre.

Angela Wirick: On a sequential basis, we experienced a 2.6% decline in worldwide revenue from the second quarter, attributed to normal seasonal variation in underlying procedures during summer months. In the third quarter of 2023, US revenue was $81.7 million, a 17.1% increase from the third quarter of 2022. Open ablation product sales were $25.8 million, up 19.8% over 2022, and propelled by steady adoption of the encompassed clamp across an expanding customer base. We continue to be pleased with the uplift and volume driven growth in this market and estimate open concomitant procedure growth was roughly 13% for the quarter.

Decision workflow improvement how that might impact.

P&L anything like that thank you.

You are going to work for that we're seeing with apprehensive, it's not really <unk> work flow, but the workflow of at the hospital how to treat these patients that have longstanding persistent and kind of getting them from the EP passing them over to the surgeon and then back to the EP and we've worked.

Really with every one of the facilities that were doing business with today to really kind of make sure. Those canned offs are really strong that the clinical work that's being done is consistent across every site across the country. So that they're getting consistent and good results as they move that forward and that they understand how to best kind of maneuver the logistics with it obviously, each hospital's a little bit of Ah Ah differ.

<unk> to it that being said that what that enables us is obviously more efficiencies, which should drive long term more revenue growth for us. It also provides efficiencies in the E. P lab because when they do do this procedure, we've definitely seen a dramatic decrease in that time they need to spend on these patients in the trial we saw.

Angela Wirick: Procedures with the encompassed clamp are at a higher per case ASP, a trend that will continue with increasing adoption. Pay management sales were $12.6 million, up 19.8% over the third quarter of 2022. We saw growth from the addition of new accounts as well as deepening penetration within existing accounts. US minimally invasive ablation sales were $10.9 million, up 8.1% from 2022. And finally, sales of appendage management products in the US were $32.4 million, up 17.2% over the third quarter of 2022. International revenue was $16.6 million of 23.2% on a reported basis and 18.7% on a constant currency basis as compared to the third quarter of 2022.

Close to an hour savings in reality, we are seeing much more than that armies really difficult to treat patients, which gives them time to treat more patients.

And so you're seeing with a lot of these companies.

They're having an increase workflow and you.

You see it with the catheter companies how much more business, we're getting a lot of these patients and we're going to help contribute to that by reducing some of the time by taking out the back wall and doing a lot of that work.

Maybe just to add I think by contrast top lines Act. When you think about the investments that are in the P&L today, they're pretty modest in comparison I'd say to the number of account and the focus that we've got in the field really is improving workflows, an existing account and would expect for that investment to stay in the P&L as we start to think in the future years about opening.

Angela Wirick: European sales contributed $9.2 million in the quarter while Asia Pacific and other international markets accounted for $7.4 million in revenue. International revenue growth was fueled by expanding adoption of our therapies in our major markets. As well as favorable currency exchange rates.

New centers and continuing to expand the customer base.

Great. Thank you so much.

Angela Wirick: Our gross margin this quarter was 75.2% an increase of 110 basis points from the third quarter of 2022. We realized benefits from favorable production efficiencies partially offset by unfavorable geographic and product mix.

One moment for the next question.

The next question comes from Matt O'brien with Piper Sandler Your line is open.

Angela Wirick: Now turning to operating expenses for the quarter which totaled $82 million an increase of $9.5 million or 13.1% from the third quarter of 2022. Similar to the second quarter this year, a significant driver of the change in operating expenses was the expansion of personnel across our teams to support our growth. The increase in research and development expenses was 34% year over year while outpacing the 8% increase in selling general administrative costs. Research and development expenses reflect expanding activity and faster than expected enrollment in our lease clinical trial as well as progress in several new product development projects.

Hi, This is Samantha.

Thank you for taking our questions.

Uhm first off I was wondering if we.

We could get a few more details on your.

New credit to your product in maybe how you can expect that to continue the momentum at the pain.

I tried to <unk>.

Yes, the new cross our product is a much more efficient use of the energy source. So it should allow for the kind of the ball at the end of the tip of it to really.

Freeze much more quickly than actually have very focused energy to get to the end because it's got a sheep that's protecting it.

Kind of early on so that some of that freezing does not escape through the shaft that is an incredibly important innovation and expansion for us and we think that it's going to become the new standard of care as we roll that out we think what that will do is we'll just allow for a much better.

Angela Wirick: Adjusted EBITDA for the quarter was positive $4.7 million compared to a negative adjusted EBITDA of $700,000 for the third quarter of 2022. Our basic and eluded net loss per share as well as the adjusted loss per share was 20 cents in the third quarter of 2023 as compared to 27 cents in the third quarter of 2022. Our balance sheet remains strong and we end of a third quarter with $133 million in cash investments. This quarter's modest cash burn reflects capital investment associated with the expansion of our manufacturing operations as well as an increase in inventory.

Application of crime, and possibly might be able to reduce some of the time. They actually have to spend we do have to study some of that to see if we can kind of see some sort of harm reduction necessary per nerve as they basically go after on that side. In addition to that it's actually got a better protective.

<unk>, which allows them to be much more flexible in their approach and the ease of use for the surgeon that's going to be doing it is a lot better from that standpoint. So again, we think that they're gonna move towards this pretty quickly over the course of the first six to 12 months of next year.

Angela Wirick: Now, closing with our outlook for 2023, considering our third quarter results and the ongoing momentum across our business, we expect to achieve approximately $394 million to $396 million in annual revenue for 2023, reflecting full year growth of approximately 19 to 20% over 2022. Our guidance implies sequential growth over the third quarter and we anticipate similar franchise drivers leading fourth quarter performance. We remain confident in the breadth of our global portfolio delivering continuation of accelerated growth rates over hrcures long history of mid teens achievement prior to COVID. We now anticipate full year 2023 gross margin to be slightly above 75% with the potential for varying impacts from increasing costs and geographic mix as well as investments to support revenue growth.

Okay. Thanks to Max and then last name question. It's just on the trial and maybe when do you think we could.

Be any outcomes from that and any impact to the business in terms of revenue and maybe we're not gonna come in.

And so as we briefly mentioned, we're having great results on the enrollment were enrolling a lot faster than we ever expected at this point in time. So we definitely think that we might be able to get enrollment in faster than expected.

That we feel really really confident and feel really good about the team is doing a great job on that front. It's.

It's still a long trial, though even with that we still have five years of follow up once we complete the enrollment on it so the impact on revenues really the back half of the decade versus really in any kind of short term three year timeframe from that standpoint that being said the excitement and the market around this trial is palpable, we see it with sites where it over 50 sites to enrolling at this point, we should have our first.

Angela Wirick: And finally, throughout 2023, we have shared our commitment to both achieving and expanding profitability while leaning into investments that we expect to be growth drivers in the future. To that end, we are maintaining an elevated level of investment in research and development as we focus on progressing our innovation and clinical evidence agenda and get ready for the launch of many new products to drive future growth. Additionally, our plans include thoughtful growth in our global commercial teams and targeted market development initiatives across franchises.

Patient enrolled in Europe by the end of the year and we feel like next year is just gonna be we're gonna rock'n'roll really on the overall basis of enrolling in this trial.

Thank you.

One moment for next question.

Okay.

Mmm.

The next question comes from Rick Weiss at Stifle wreck your line is life.

Hi, My K Angie.

There was hoping.

This is not a bid for 24 guidance, we're more I hope you could talk about 2400 from two.

<unk>.

Aspects.

Mm.

Angela Wirick: Therefore, we expect full year 2023 adjusted EBITDA to be approximately $18 million to $20 million, corresponding to an adjusted loss per share for the full year 2023 of approximately $0.74 to $0.76.

You've had obviously 22 23, you're showing terrific growth broad based growth.

Launching new products at a high level.

And you've touched on a little bit, but maybe help us think through.

Angela Wirick: We are extremely proud of the progress we have made in advancing our mission while gaining meaningful leverage in our business. As we close out this year, we thank the entire HRK team for a truly exceptional collaboration and dedication. Your efforts have powered our success in 2023 and a continued belief and a strong outlook for our business in 2024 and beyond.

The incremental drivers is it.

Is it just.

You know.

Is the biggest driver that might might get ya towards that 20 per cent and 24.

The opening up new accounts.

Alright.

You're not talking about obviously, all the new products you might launch it is it that and to what degree could price play a role that might get you above that historic.

Mike Carroll: Now, I will turn the call back to Mike. Thank you Angie. We are making a profound impact on the lives of patients as we work to transform treatment of AFib, pain management, and stroke prevention and establish standards of care globally.

Pre pandemic, 15% that you that you reference.

Yeah. Thanks for the question wreck and as we look at next year across each of friendship I think you've hit upon a couple of them and then maybe I'll may put a finer point on it if you look at our open franchise, we continuously penetration and the volume base that we're getting off of that base and Congress has really been it's such an easy product to use it reduces the time significantly of the oblations that are.

Unknown Attendee: We remain committed to delivering profitable growth and our confident and the vast potential of our existing markets and our ability to further expand addressable markets in the future across every one of our franchises. Thank you for being a part of our journey. We couldn't be more excited about the future of AFib with that. We'll turn it over to questions. Great. Thanks so much.

Being done and people are really kind of leveraging that technology and the oblations are incredible incredible how well it does deviation on that front. So we feel like we're making great progress on that and that can be a good driver of our growth above what we have historically seen on the open side of our franchise. So that first and foremost I'd say is.

Unknown Attendee: At this time, we will conduct the question and answer session. As a reminder, in order to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. In order to withdraw your question, please press star 11 again. As also another reminder, if you could limit yourself to one question and one follow-up, that would be great. You can always jump back into the queue at a later time. And with that, please stand by for our first question.

Kind of really driving a lot of our growth today, and we anticipate that continuing some strong growth into next year as you look at our <unk> franchised.

We're seeing more and more attachment uhm.

That is well, we think that that's going to be strong both on the open side, but also we continue to see attachment and hybrid side, and then leaving us to the hybrid side. We've made all these improvements relative to workflow at the hospitals and having stickiness no site and we anticipate the growth rate in our hybrid business next year to make a step up from.

Robert Marcus: First question comes from Robbie Marcus at JAP Morgan. Your line is open. Oh, great.

From our standpoint, so that's now how big of a step we're not ready to kind of put a put something down on that yet, but we do feel like we're going to make some progress next year and then continue that progress for years on out as well. So those are some of the key drivers on that front on the crown herblock, whereas really underpenetrated I mean, it's still.

Mike Carroll: Thanks for taking the question and congrats on a good quarter. Two from me, maybe to start, I think I have a really good momentum through the year. Guidance 19 to 20 percent. Proper abilities coming in. Nicely any preliminary thoughts as we head into 2024 and the encompass clamp starts to annualize the launch here. Just any early thoughts on some high level trends. Thanks. Yeah, I mean, thanks for the question, Robbie. And yeah, we feel great about the quarter so far and momentum we built.

Less than 15% penetration overall in Crowner block, we believe that.

All these patients that are going in can benefit from having crowner block for their analgesia in their pain management, while they're there.

And so we do anticipate that we'll continue strong growth in that area as well as you referred to new products.

2000, 2004 isn't going to benefit from new products as much.

Mike Carroll: And we feel like we can continue really strong momentum into 2024 across pretty much every one of our franchises. On the encompass clamp, let's hit on that first because you kind of mentioned that. That has been a great product launch. We've definitely seen volumes increase in that area. I think we're already pretty much on that laughing end that you're talking about on the price side of things as we enter into next year.

But the excitement four and that's going to build to help us with 2025% of 2026. So when you look at new products you can see in our clip franchise, we've got a new product coming out at the end of next year, which reflects many product that.

That is going to be one that we think is another one that is even it's a more flexible tool. It's smaller we think it's another leapfrog innovation, even from our flex view that we've got out there today and we think there's gonna be a lot of excitement in the market for that on the open basis, and then there's gonna be a fast follow on that on our pro and which.

Mike Carroll: It's pretty much a volume game and we just see more and more penetration into those markets and their big markets for us to go after. So we think it's going to be a really strong and good solid year in 2024 without getting into too many specifics on it. We also believe the same in the other areas are business on the hybrid side. We're really certain to see traction in terms of number accounts quarter to quarter.

The kind of the minimally invasive device and from that standpoint, we also anticipate that impact us kind of in the back half of the decade for sure. So those those are kind of two product lines that are coming out here. In addition to that on our hybrid side, we've got heal ISG, which is the trial, but we actually have a new clamped, it's gonna come out simultaneous to that at the end of next year.

Mike Carroll: When you look sequentially, obviously seasonality affected it to some degree with a strong key three last year. But we feel like we're really getting some stickiness in those accounts building on that and see. We believe we'll build on that in Q4 and heading into next year as well on the same thing. On the crowner block as well. So across the board, I think we feel like we're going to be in a good place.

That will then hopefully be driving growth in the 26 27 timeframe. So not much next year, but you see our product pipelines really building for future growth as well. In addition to all the clinical trials that we've talked about hopefully that gives you some context.

Mike Carroll: As Angie mentioned in her comments, our commitment is that we're going to grow at a faster pace than what we did kind of prior to COVID when we were going in that 14 to 15%. We believe that we're going to go at a faster pace than that in 2024. We're not ready to give a specific number for what that looks like or guidance, but we do believe that we'll grow at a faster pace in 2024 on overall base.

Yeah, that's great contacts and green color I appreciate it and sort of Ah.

Unknown Attendee: Great, very helpful.

Appendant question, if you will.

Mike or Angie or both.

Just thinking about the operating leverage I mean.

It sounds like the opportunity to their room.

Mike Carroll: Second, for me, I want to spend a minute on profitability, because it's the second quarter, it's beaten pretty nicely. Clearly on a positive trend, you know, at first it was, can you generate positive adjustity, but not then when, now I guess we're moving forward. Is that the right way to think about it as we move forward in any one time items in the quarter that would impact it moving forward? Thanks. I think we like to hear each one of those questions, Robbie, and I think you've got the calculus correct.

You're demonstrating it.

But when I think about 22, 23, so far and what it seems like the set up for the year.

Top line growing 20 percentage SG&A.

Growing eight or 10, if I take those inputs.

And continued into 24, I don't know and the roughest of rough terms EBITDA doubles to like $40 million.

Midpoint of some range.

But how do I think about your need to invest back to sustain the growth to drive the growth too.

To create the penetration that you're talking about rule out all these excellent new products maybe.

Mike Carroll: I think we continue to expect, you know, good strength and gross margins this year coming in a little over 75% and believe that we can continue kind of operating at that level. If not enhancing over the future, we do prioritize R&D investments and would expect kind of an elevated level of spend. And then the leverage that you're seeing in the business, in the SG&A category specifically, would expect for that to continue to next year and the years beyond that. So I think you've got the calculus correct. Thanks a lot.

Maybe just talk about your your.

An investment.

And the operating leverage.

That you hope to get.

Yeah, specifically focused on the operating expenses I would say think about continue to sustain pretty high investment in research and development. This is.

Continuing the the work that we've started so far on different product development projects, but then also starting in tended to the next generation of work that you will see the benefit from from a growth perspective, as Mike mentioned towards the end of the decade and that's both in product development as well as the different clinical trials and studies that we rotten sell part of the calculus should be.

Unknown Attendee: Please stand by for our next question.

R&D as a percentage of revenue staying in that kind of high teens or 20% range. That's what we've been operating at throughout this year and would expect for that to continue and then on the <unk> on the SG&A side I think we've made some meaningful improvements relative to team efficiency training those two areas in particular kind of stick.

William Plovanic: The next question comes from Bill Provanic with Can Accord Genuity. Your line is open. Hey, Jack, we have Bill.

Unknown Attendee: Thank you for taking the question. Looking at, you know, the full year in Q4, are there any specific products or geographies that will be larger, smaller, larger than usual? Any kind of feasibility that you might not be expecting in that regard? No, Zach, as I said in the prepared comments, we kind of expect the same areas of the business that have been leading the growth for this year to be the contributors to kind of the growth rate in the fourth quarter. So nothing to call out or nothing unusual, I'd say that we would expect in the fourth quarter from that regard.

Unknown Attendee: God, thank you for clarifying.

Count and I think that those continue intent to next year, but as we're thinking about penetrating vastly underpenetrated market I think part of the level of investment that will be looking at on the SG&A side is continuing to enhance and expand our teams to be able to support the growth cell.

Ready to give comments on what that means from the bottom line perspective, but from a priority standpoint, R&D thinking about the next generation of technology trials and science that'll fuel that growth in the future and then supporting they continued market opportunity that we've got I'd say those are the two areas that stick out.

Mike Carroll: And my second question is, can you, I guess, provide more color or contextualize the epicence position workflow improvement, how that might impact the P&L, anything like that. Thank you. The workflow that we're seeing with the epicence, it's not really the epicence workflow, but the workflow of at the hospital, how to treat these patients that have long standing persistent and kind of getting them from the E.P. Passing them over to the surgeon and then back to the E.P, and we've worked really with every one of the facilities that we're doing business with today to really kind of make sure those handoffs are really strong, that the clinical work that's being done is consistent across every site across the country, so that they're getting consistent and good results as they move that forward, and that they understand how the best kind of maneuver the logistics with it.

Thanks Angie.

Mmm, one moment <unk>.

The next question comes from Danielle and Toffee from UBS. Your line is open.

Hey, good afternoon. Thanks, so much for taking the question happy to be back covering the H or care.

Story here so.

Mike.

I have two questions here first of all in the context laugh you know that's been a very strong growth driver and while I. Thank God here and.

I appreciate the comment you made on the pricing side of things, but from a volume perspective, I mean this it seems to be a product that's opening up the cabbage market opportunity in a in a real meaningful way. So I'm. Just curious if you can comment on where we are with cabbage penetration assess you can tell and how much runway in that regard.

Mike Carroll: Obviously, each hospital is a little bit of a different piece to it. That being said, that what that enables us is obviously more efficiencies, which should drive long term, more revenue growth for us. It also provides efficiencies in the E.P, lab, because when they do do this procedure, we've definitely seen a dramatic decrease in the time they need to spend on these patients. In the trial, we saw close to an hour savings.

With an carpet and then just one quick follow that.

Yeah. That's a great question you are absolutely correct. It is first of all it's great to have you back as well Danielle. So I appreciate the initiation of the report and we're glad to have you back and gradually on these calls yes.

Mike Carroll: In reality, we're seeing much more than that on these really difficult to treat patients, which gives them time to treat more patients. And so you're seeing with a lot of these companies that... They're having an increased workflow and you see with the catheter companies how much more business they're getting for a lot of these patients and we're going to help contribute to that by reducing some of the time by taking out the back wall and doing a lot of that work.

Yes cabbage is the.

The area, where most people are utilizing this technology just because of its ease of use.

For that population and so, but we're still really underpenetrated, that's where there's so much growth opportunity prior to launching encompass it was between five and 8% of patients that we're undergoing cabbages, we're actually getting treated appropriately from our perspective that number has definitely grown Unfortunately I can't give you some.

Mike Carroll: And maybe just to add, I think like addressed top line Zach, when you think about the investments that are in the PNL today, they're pretty modest in comparison. I'd say to the number of accounts and the focus that we've got in the field really is improving workflows and existing accounts and would expect for that investment to stay in the PNL. In the PNL as we start to think in the future years about opening up new centers and continuing to expand the customer base.

<unk> numbers, but it's definitely growing we think that pretty much almost all the growth we're seeing in volume is coming from cabbage patients.

And maybe some avr's, but mostly coming from the cabbage patients. So that should give some perspective, but I don't know like raw numbers that I can get from the Sds database et cetera, or something along those lines that are kind of verified, but needless to say again it is coming from the population of referring to.

Unknown Attendee: Great, thank you so much.

Unknown Attendee: One moment for the next question.

Okay. That's helpful. And then topic as you are in the App World, Obviously, PFA and just wondering how you think PSA changes the potential adoption trajectory.

Michael Matson: The next question comes from Matt O'Brien with Piper Sandler, your line is open. Hi, this is Samantha on from that. Thank you for taking our question.

Whether.

Positive or negative and for the.

Mike Carroll: I guess first off, I was wondering if we could get a few more details on your new criteria for your product and maybe how you can expect that to continue the momentum that the pain management business is seeing. So the new crosshair product is a much more efficient use of the energy source, so it should allow for the kind of the ball at the end of the tip of it to really freeze much more quickly and actually have very focused energy to get to the end because it's got a sheep that's protecting it kind of early on so that some of that freezing does not escape through the shaft.

Fsn's encouraged procedure and potentially getting more throughput actually on the <unk> side of things do you think that could actually drive and uplifting in <unk>.

<unk>. Thanks, so much.

So I think you're the end of what your comments I do think long term that does provide an uplift.

Because we can reduce time on our end and then obviously to improve efficiency for what they're doing relative to what they're using with that catheter or whether they're using it for PFA or they're using cryo or they're using our app. It doesn't really matter on our front relative to that.

I do think though that some of the noise. That's out there definitely creates distraction in the short term where you've got conversations that are out there that being said that's not what's holding us up at this point in time in any way shape or form and it was it was all about the workflow. We feel like we are going to see a step up and growth as we look at next year, and we don't see PFA, having any kind of negative impact on us from that standpoint.

Mike Carroll: That is an incredibly important innovation and expansion for us and we think that it's going to become the new standard of care as we roll that out. We think what that'll do is will just allow for much better application of cryo and possibly might be able to reduce some of the time they actually have to spend. We do have to study some of that to see if we can kind of see some sort of time reduction necessary per nerve that they basically go after on that side.

And a lot of ways, where it does it allows us to have conversations we've talked about it at every one of our courses is brought up the PFA information as disgusted as discussed in relation to what we do and.

Mike Carroll: In addition to that, it's actually got a better protective feet sheath on it, which allows them to be much more flexible in their approach and the ease of use for the surgeon that's going to be doing it is a lot better from that standpoint. So again, we think that they're going to move towards this pretty quickly over the course of the first six to 12 months in next year.

And to a person that we speak with that we have with those horses, they're confident that there are so many patients that are out there that on the longstanding persistent side and there is no indication on that or no trials undergoing on the PFA side that they believe that there really is a complimentary component to doing the <unk> and the endo together and we feel like we're going to get a really good spot for that long term.

Unknown Attendee: Perfect. Thanks so much.

Mike Carroll: And then our second question is just on the delete trial and maybe when do you think we could see any outcomes from that and any impact to the business in terms of revenue and maybe when that could come in. I mean, so as we briefly mentioned, we're having great results on the enrollment were enrolling a lot faster than we ever expected at this point in time. So we definitely think that we might be able to get enrollment in faster than expected.

Like you mentioned.

Please stand by for the next question.

Mike Carroll: That we feel really, really confident and feel really good about the team just doing a great job on that front. It's still a long trial, though, even with that, we still have five years of follow up, once we complete the enrollment on it. So the impact on revenue is really the back half of the decade versus really in any kind of short term three year timeframe from that standpoint. That being said, the excitement in the market around this trial is palpable.

The next question comes from Daniel Stauder with JMP Securities Daniel Your line is open.

Daniel We can hear you and your line is open.

Mike Carroll: We see it with sites where it over 50 sites that are enrolling at this point. We should have our first patient enrolled in Europe by the end of the year. And we feel like next year is just going to be we're going to rock and roll really on the overall basis of an enrolling in this trial. Thank you.

Seem to be having some difficulties with Daniel's line. So we can move to the next question. Please standby.

Rick Weiss: One moment for our next question. The next question comes from Rick Weiss at Staple. Rick, your line of life.

The next question comes from Mike Mattson at Needham and company, Mike Your line is open.

Yeah. Thanks, So I wanted to ask about you know just the pain management business you know it's it's.

Mike Carroll: Thank you. Hi, Mike Angie. I was hoping, again, this is not a bit for 24 guidance or more. I hope you could talk about 24 from two aspects. You've had, obviously, 22, 23, you're showing terrific growth, broad-based growth, launching new products. At a high level, and you've touched on it a little bit, but maybe help us think through the incremental drivers. Is it just, you know, the biggest driver that might get you toward that 20% and 24, the opening of new accounts, is that you're not talking about, obviously, all the new products you might launch, is it that?

Obviously, king really strong growth.

But it has slowed down quite a bit over the last few quarters.

And you know you didn't mentioned earlier in the Q&A that you take the penetration still below 15, 80%. So I guess it is there some kind of issue here coming from the early adopters into the more mainstream.

Surgeons or something like that.

There's no there's no concern on our front like anything I think you actually hit on it well you tend to get those early adopters and then you've got a as they as they say cross the chasm with that kind of next bull This where you're getting after in this in this case a lot of the cancer patients. So we're making a lot of progress on that front, but a lot of the big cancer centers are.

Not on board yet they require a little bit more from a clinical evidence standpoint or trials that they want to undergo to kind of demonstrate some of the benefits that they're getting from it. So they they are more dabbler at this point in time, so some of the major cancer institutes like that just.

Mike Carroll: And to what degree could price play a role that might get you above that historic pre-pandemic 15% that you reference? Yeah, thanks for the question, Rick. And as we look at next year across each of the franchise, I think you hit upon a couple of them and maybe I may put a finer point on it. If you look at our open franchise, we continue to see penetration and the volume base that we're getting off of that base and compass has really been.

Just take a little bit longer to penetrate and get ourselves into as an example, but overall, we still feel that we're not losing customers. We have a tremendous number of people ordering from us we're well over 600 customers of the border from US. This year, we both see expansion in both of that and then getting into some of these really big centers over the course of the next 12 to 18 months.

Okay got it and then the new Cryo probe that you mentioned.

Mike Carroll: It's such an easy product to use. It reduces the time significantly of the ablations that are being done. And people are really kind of leveraging that technology and the ablations are incredible. I mean, they're incredible how well it does the ablation on that front. So we feel like we're making great progress on that and that could be a good driver of our growth above what we have historically seen on the open side of our franchise.

It sounds like there is some significant enhancements. There is this something that you can get a price premium for me has done a good job with that with things like the occult is clamp.

Subsequent clip products that you've launched and then you're just the timing all those can be fully wise I mean, I think he said he got a five K, but where does it go or you're going to have to do some kind of.

Limited release ticket the initial feedback on it before you go to lunch.

Mike Carroll: So that first and foremost, I'd say is kind of really driving a lot of our growth today and we anticipate that continuing some strong growth into next year. As you look at our HR put franchise, we're seeing more and more attachment on that as well. We think that that's going to be strong both on the open side, but also we continue to see attachment on the hybrid side. And then leaving us to the hybrid side, we've made all these improvements relative to workflow at the hospitals and having thickness and those sites.

Yes. So we received that five 10-K clearance recently and would expect to do some work around a limited release.

Early in 2024, and then move pretty quickly after that into a full lunch relative to pricing as the pro but I think the strategy. At this point is to keep kind of consistent with the device on the market and I say that though there's a benefit to us on the back end, which is the cost of the device.

Mike Carroll: And we anticipate the growth rate in our hybrid business next year to make a step up from that standpoint. So that's now how big of a step we're not ready to kind of put a put something down on that yet. But we do feel like we're going to make some progress next year and then continue that progress for years on out as well. So those are some of the key drivers on that front on the crown nerve block was really under penetrated.

Some of the <unk>.

Engineering and the work done in as part of product development was able to lean out some of the costs, but the initial thought is maybe this is go to market with kind of the equivalent pricing in in in part because we acknowledged that this is an area that there's not separate reimbursement for that has to be covered by the procedure and that's that's kind of the preliminary strategy.

Mike Carroll: I mean, it's still less than 15% penetration overall in crown nerve block. We believe that all these patients are going in can benefit from having crown nerve block for their analgesia and their pain management while they're there. And so we do anticipate that we'll continue strong growth in that area as well. At you referred to new products, 2024 isn't going to benefit from new products as much. But the excitement for it and that's going to build to help us with 2025 and 2026.

Okay, great. Thank you.

Mike Carroll: So when you look at new products, you can see in our clip franchise, we've got a new product coming out at the end of next year, which reflects many products. That is going to be one that we think is another one that is even. It's a more flexible tool. It's smaller. We think it's another leapfrog innovation, even from our flex v that we've got out there today and we think there's going to be a lot of excitement in the market for that.

The next question comes from Murray Taboo at P. T I T. Marie your line is open.

Mike Carroll: On the open basis and then there's going to be a fast follow on that on our pro and which is the kind of the minimally invasive device and from that standpoint, we also anticipate that impact us kind of in the back half of the decade for sure. So those those are kind of two part of lines that are coming out here. In addition to that on our hybrid side, we've got heal IST, which is the trial, but we actually have a new clamp that's going to come out simultaneously is to that at the end of next year.

Good afternoon, My <unk> the semi were on February and thanks for taking the questions here.

Maybe I can start on the eastern Ottoman market been a couple of months now since you've been in that early rollout I guess any early feedback hearing from customers any differences between a thoracotomy market and should we still think about 2024 as really when this market might start to kick in.

Mike Carroll: That will then hopefully be driving growth in the 2627. So not much next year, but you see our product pipeline is really building for future growth as well. In addition to all the clinical trials that we've talked about, hopefully that gives you some context there Rick. Yeah, that's great context and great color. Appreciate it. And sort of a pendant question, if you will, and Mike or Angie or both is just thinking about the operating leverage.

Yeah. So great question feedback, we're getting is the product works incredibly well, they're saying they are definitely seeing some benefits from it what we do realize and we knew this kind of going in it does take time. So the biggest question is how can reduce we reduce that time, we're hopeful that maybe with a roll out of the newer product that we just talked about with a more efficient energy source I'm kind of hitting.

That could possibly reduce some of the time. In addition to that we've got to work on some procedural items so that they can.

Mike Carroll: I mean, I mean, it sounds like the opportunities are there. I mean, you're demonstrating it, but when I think about 22, 23 so far and what seems like the set up of the year, top line growing 20% this SNA growing 8010. If I take those inputs and continue it into 24, I don't know in the roughest of rough terms, EBITDA doubles to like 40 million as a midpoint of some range. But how do I think about your need to invest back to sustain the growth, to drive the growth, to create the penetration that you're talking about and roll out all these excellent new products.

While they're doing other tasks during the procedure. So the benefits are there it's easy to use but we do have to figure out ways to reduce some of the time. So that they are comfortable doing it during their cardiac surgery cases, we knew that going in to some degree that should have some.

And next year, but not a tremendous amount of uplift on that but we still think we've got a lot of growth and a lot of opportunity because there's so many darn cases that are out there, but the initial feedback has been very positive overall.

Well understood. Thanks, Mike and then maybe I can use my follow up here.

An epicentre converge you know another strong corner you on a tough comp.

It sounds like the commentary is getting better in terms of what we're seeing for maybe some of the best sites out there so any.

<unk> in terms of how rapidly applicable this that workflow is at some of those accounts and.

Mike Carroll: Maybe just talk about your investment and the operating leverage that you hope to get. Yeah, specifically focus on the operating expenses. I would say think about continued sustained pretty high investment in research and development. This is, you know, continuing the work that we've started so far on different product development projects, but then also starting in kind of to the next generation of work that you'll see the benefit from from a growth perspective as Mike mentioned towards the end of the decade.

As we think about next year could we see this category, maybe get closer to that corporate average.

Thank you actually said incredibly well, we definitely anticipate that the work we've done we're getting a lot more consistency across every one of our sites. It's very replicable and we've got a team of people that are actually around the country, helping out on all those fronts, and that's where it where a lot of our efforts event. So we feel really good about that side of it and we do anticipate that as I mentioned.

Mike Carroll: And that's both in product development as well as the different clinical trials and studies that we run. So part of the calculus should be, you know, R&D is a percentage of revenues staying in that kind of high teens or 20% range. That's what we've kind of been operating at throughout this year and would expect for that to continue. And then on the S DNA side, I think we've made some meaningful improvements relative to team efficiency training those two areas in particular kind of stick out.

We should see an uplift in the growth rate over this year in the next year not sure if we'll get to the corporate average quite yet, but we'll definitely see an uplift over where we are today and will give more specifics.

Early on in the year when you for guidance.

Great sounds good thanks, Mike.

Please stand by for the next question.

The next question comes from Psoriasis Calia at Oppenheimer and co Sarai's. Your line is open.

Mike Carroll: And I think that those continuing to next year. But as we're thinking about penetrating, you know, vastly under penetrated markets, I think part of the level of investment that we'll be looking at on the S DNA side is continuing to enhance and expand our teams to be able to support the growth. So I'm not ready to give comments on what that means from a bottom line perspective, but from a priority standpoint R&D thinking about kind of the next generation of technology trials and science. That'll fuel our growth in the future. And then supporting the continued market opportunity that we've got. I'd say those are the two areas that stick out, out. Thanks, Angie.

Hey, Mike Angie can you hear me all right.

Yes, we can measure.

Perfect Likewise, congrats on an order.

So like a lot of questions have been answered and maybe let me pose this to Angie Angie.

The contribution.

Price in the quarter.

Pretty modest pricing contribution psoriasis related the differential in U S open Appalachian between Canada volume base for us that we saw that was about 13%.

In the 19.2% growth at the category reported overall, so pretty modest contribution most of the growth that you're seeing in the corner came from volume.

Got it and Mike.

Following up on my second question from your comments earlier.

Danielle Antalffy: One moment for the person. The next question comes from Danielle Antalffy from UBS. Your line is open. Hey, good afternoon guys. Thanks so much for taking the question. Happy to be back, covering the atriCure story here. I have two questions here. First of all, on the account this point, that's been a very strong growth driver while I've been gone here. I appreciate the comments you made on the pricing side of things, but from a volume perspective, this seems to be a product that's opening up the cabbage market opportunity in a real meaningful way.

When you say epicardial would be complementary to PFA.

Similar to like R. F I'm paraphrasing here.

What are the implicit assumptions being made and epicardial being complimentary <unk>. Thank you for taking my questions.

Yeah sure.

The reason the debit card is going to be complimentary is because the catheters today are primarily endocardial catheters that are being used primarily to.

Go after the pulmonary veins.

Much like what you see what the crier balloon or possibly with some RF and that's really what we need to complete the kind of full lesion that we do relative to converge. So that's why it's very complimentary. If you look at a lot of converge site. Many of them are cryo users and many so many of them are really going after just the pulmonary veins and maybe some sort of.

Mike Carroll: So I'm just curious if you can comment on where we are with cabbage, penetration as best you can tell, and how much runway in that regard you have within confidence, and then just one quick follow-up. Yeah, it's a great question. And you're absolutely correct that it is, first of all, it's great to have you back as well, Danielle. So appreciate the initiation report and we're glad to have you back and glad to have you on these calls.

Little White area kind of around that that's really where you're incredibly complimentary to the work that we do on the backlog cardio that that don't have as much success with uhm, because there's like a dish association between the <unk> and the <unk> portion of that and the harp. So from that standpoint, that's kind of why we think that it's complimentary, but there's a lot to be learned I'm into your point suraj.

Mike Carroll: Yes, cabbage is the area where most people are utilizing this technology just because of its ease of use for that population, but we're still really under penetrated. That's where there's so much growth opportunity. Prior to launching in Compass, it was between five and eight percent of patients that were undergoing cabbages were actually getting treated appropriately from our perspective. That number has definitely grown. Unfortunately, I can't give you some specified numbers, but it's definitely grown.

I think that as it rolls out as we've seen it rollout in Europe as we see it roll out in the U S. I think we're going to learn a lot more about what that impact might look like and where there may be some benefits as well.

Mike Carroll: We think that pretty much almost all the growth we're seeing in volume is coming from cabbage patients, and maybe some AVRs, but mostly coming from the cabbage patients. So that should give some perspective, but I don't have like raw numbers that I can get from the SDS database, et cetera, or something along those lines that are kind of verified, but needless to say, again, it is coming from the population you're referring to.

This concludes the question and answer session I would now like to turn it back to my <unk>, President and C E O.

We really truly appreciate your interest in a secure and you're joining us today. Some great questions from the analysts that hopefully kind of clarified and gave even more information about our exciting future. We're just really excited about both the sport order and coming into next year and what's ahead. So thank you again for your interest and we.

Mike Carroll: Okay, that's helpful. And then Prophet Puzur in the app world, obviously, PFA, just wondering how you think PFA changes the potential adoption, trajectory, whether positive or negative for the effisence of converged procedure, and potentially getting more throughput actually on the EP side of things. Do you think that could actually drive an uplift in converge? Thanks so much. Yeah, so I think you're the end of what you have your comments. I do think long-term it does provide an uplift because we can reduce time on our end and then obviously improve efficiency for what they're doing relative to what they're using with that catheter, whether they're using it or PFA, or they're using cryo, or they're using RF.

Look forward to talking to you over the coming quarter by now.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Mmm.

[music].

Mike Carroll: It doesn't really matter on our front relatives to that. I do think though that some of the noise that's out there definitely creates distraction in the short-term where you've got conversations that are out there. That being said, that's not what's holding us up at this point in time in any way shape or form. It was all about the workflow. We feel like we are going to see a step up in growth as we look at next year, and we don't see PFA having any kind of negative impact on us from that standpoint.

Mike Carroll: In a lot of ways, what it does, it allows us to have conversations. We talked about it at every one of our courses. It's brought up, the PFA information. It's discussed. It's discussed in relation to what we do, and to a person that we speak with that we have at those courses, they're confident that there are so many patients that are out there that are on the long-standing persistence side, and there is no indication on that or no trials under going on the PFA side that they believe that there really is a complimentary component to doing the epi and the endo together.

Unknown Attendee: We feel like we're going to be in a really good spot for that long-term argument. Please stand by for the next question.

Daniel Stauder: The next question comes from Daniel Stauder with JMP and he securities, Daniel, your line is open. Daniel, we can hear you and your line is open.

Unknown Attendee: We seem to be having some difficulties with Daniel's line so we can move to the next question. Please stand by.

Mike Matson: The next question comes from Mike Matson at Needham and Company. Mike, your line is open. I wanted to ask about just the pain management business. It's obviously seen really strong growth but it has slowed down quite a bit over the last few quarters and you didn't mention earlier in the Q&A that you think the penetration is still below 15%. So I guess there's some kind of issue here going from the early adopters into the more mainstream surgeons or something like that.

Mike Matson: There's no concern on our front. I mean, like anything, I think you actually hit on it well. You tend to get those early adopters and then you've got to, as they say, cross the chasm with that kind of next bolus where you're getting after in this case, a lot of the cancer patients. So we're making a lot of progress in that front but a lot of the big cancer centers are not on board yet.

Mike Matson: They require a little bit more from a clinical evidence standpoint or trials that they want to undergo to kind of demonstrate some of the benefits that they're getting from it. So they they're more dabblers at this point time. So some of the major cancer institutes like that have just take a little bit longer to kind of penetrate and get ourselves into as an example. But overall, we still feel that we're not losing customers. We have a tremendous number of people ordering from us. Well, well over 600 customers at a border from us this year.

Mike Carroll: We both see expansion in both of that and then getting into some of these really big centers over the course of the next 12, 18 months. Okay, got it. And then the new cryo probe that you mentioned. You know, it sounds like there's some significant enhancements there. Is this something that you can get a price premium for? I mean, you've done a good job with that with things like being compass clamp and the subsequent clip products that you've launched.

Mike Carroll: And then you're just the timing when will the thing be fully launched? I mean, I think he said you got a 5 to 10 K, but ready to go or you're going to have to do some kind of limited release to get the initial feedback on before you go to full launch. Yes, so we received the 5 10 K clearance recently and would expect to do some work around a limited release early in 2024 and then move pretty quickly after that into a full launch relative to pricing of the probe.

Mike Carroll: I think the strategy at this point is to keep kind of consistent with the device that's on the market. And I say that though there's a benefit to us on the back end, which is the cost of the device. I think some of the engineering and the work done in as part of product development was able to lean out some of the cost, but the initial thought is maybe this is go to market with kind of the equivalent pricing in in part because we acknowledge that this is an area that there's not separate reimbursement for. They have to be covered by the procedure and those that's kind of the preliminary strategy. G. Okay, great, thank you.

Marie Thibault: The next question comes from Marie Thibault at BTIG. Marie, your line is open. Good afternoon, Mike Nandry, Sam Eiber on from Marie, thanks for taking the questions here. Maybe I can start on the astronomy market, been a couple of months now since you've been in that early rollout. I guess any early feedback hearing from customers, any differences between the thoracotomy market, and should we still think about 2024 as really when this market might start to kick in? Thanks.

Mike Carroll: Yeah, so I'm great question. The feedback we're getting is the product works incredibly well, they're definitely seeing some benefits from it. What we do realize, and we knew this kind of going in, it does take time. So the biggest question is how can reduce, we reduce that time? We're hopeful that maybe with the rollout of the newer product that we just talked about with a more efficient energy source. I'm kind of hitting it that could possibly reduce some of the time.

Mike Carroll: In addition to that, we've got to work on some procedural items so that they can do it while they're doing other tasks during the procedure. So the benefits are there. It's easy to use, but we do have to figure out ways to reduce some of the time so that they're comfortable doing it during their cardiac surgery cases. We knew that going in to some degree, that should have some impact on next year, but not a tremendous amount of uplift on that side.

Mike Carroll: But we still think we've got a lot of growth and a lot of opportunities because there's so many darn cases that are out there. But the initial feedback has been very positive overall. Okay, well, and thanks Mike.

Marie Thibault: And then maybe I can use my follow up here on epicence and converge. You know, another strong quarter here on a tough comp. You know, it sounds like the commentary is getting better in terms of what we're seeing from maybe some of the best sites out there. So any indication in terms of how replicable this, you know, that workflow is at some of those accounts. And you know, as we think about next year, could we see this category maybe get closer to that corporate average?

Marie Thibault: I think you actually said it incredibly well. We definitely anticipate that the work we've done, we're getting a lot more consistency across every one of our sites. It's very replicable. And we've got a team of people that are actually around the country kind of helping out on all those fronts. And that's where a lot of our efforts have been. So we feel really good about that side of it. And we do anticipate that, as I mentioned, we should see an uplift in the growth rate over this year in the next year.

Marie Thibault: Not sure if we'll get to the corporate average quite yet, but we'll definitely see an uplift over where we are today. And we'll give more specifics early on in the year when we give full guidance. Great. Sounds good. Thanks Mike. Please stand by for the next question.

Suraj Kalia: The next question comes from Suraj Kalia at Oppenheimer & Co. Suraj, your line is open. Mike Angie, can you hear me all right? Yes, we can, nice to hear you.

Angela Wirick: Perfect, likewise, congrats on the quarter. Hey, so Mike, a lot of questions have been answered and maybe let me pose this to Angie. Angie, what was the contribution from price in the quarter? Pretty modest pricing contributions to Raj, it's really the differential in U.S. Open Ablation between kind of the volume-based growth that we saw that was about 13% and the 19.2% growth that the category reported overall. So pretty modest contribution, most of the growth that you're seeing in the quarter came from volume.

Mike Carroll: Got it. And Mike, following up on my second question from your comments earlier, Mike, when you see Epic Cardio would be complementary to PFA, similar to, you know, like RF, I'm just paraphrasing your, what are the implicit assumptions being made in Epic Cardio being complementary to PFA?

Mike Carroll: Thank you for taking my questions. And sure, the reason Epic Cardio is going to be complementary is because the catheters today are primarily endocardial catheters that are being used primarily to go after the pulmonary veins. And much like what you see with the cryo balloon, or possibly with some RF, and that's really what we need to complete the kind of full lesion that we do relative to converge. So that's why it's very complementary.

Mike Carroll: If you look at a lot of converged sites, many of them are cryo users. And many, so many of them are really going after just the pulmonary veins and maybe some sort of little wide area kind of around that. That's really where you're incredibly complementary to the work that we do on the back wall. Epic Cardio that they don't have as much success with because there's like a disassociation between the epi and the endo portion of that in the heart.

Mike Carroll: So from that standpoint, that's kind of why we think that it's complementary, but there's a lot to be learned. I mean, to your point, Sirage, I think that as it rolls out, as we've seen it roll out in Europe, as we see it roll out in the US, I think we're going to learn a lot more about what that impact might look like and where there may be some benefits as well.

Mike Carroll: This concludes the question and answer session. I would now like to turn it back to Mike Carroll, President and CEO. Well, everyone, we really truly appreciate your interest in insecure and you joining us today. Some great questions from the analyst that hopefully kind of clarifying gave even more information about our exciting future. We're just really excited about both this fourth quarter and coming into next year and what's ahead. So thank you again for your interest.

Unknown Attendee: And we look forward to talking to you over the coming quarter by now. Thank you for your participation in today's conference.

Unknown Attendee: This does conclude the program. You may now disconnect.

Unknown Attendee: Thank you.