Q4 2024 AtriCure Inc Earnings Call
Both franchises and growth initiatives.
Marissa Bych, Angela Wirick, Unknown Attendee
Atricure's results may differ materially from those projected. Atricure undertakes no obligation to publicly update any forward-looking statements.
Additionally, we refer to non-GAAP financial measures, specifically constant currency revenue, adjusted EBITDA, and adjusted loss per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is available on our website.
And with that, I would like to turn the call over to Mike Carrel, President and CEO.
Unknown Attendee
Unknown Attendee: Great. Thank you, Marissa. Good afternoon. And to everyone, thank you for joining us today.
Speaker Change: 2024 was another successful year at Atricure, demonstrated by our continued growth, improved profitability, several new product launches, and progress on key clinical trial and evidence initiatives across our franchises.
Speaker Change: For the year, we achieved revenue of $465 million, or 17% growth, with outstanding performance in our pain management, open appendage management, and open ablation franchises.
Speaker Change: We also made significant strides in profitability, expanding our full-year adjusted EBITDA from $19 million in 2023 to $31 million in 2024.
Speaker Change: We exited 2024 with strong momentum throughout our business worldwide and remain excited about HR Care's future. In January, we provide our financial outlook for the year, and I am pleased to reaffirm our 2025 revenue guidance of $517 to $527 million.
Speaker Change: Following a robust 2024 margin performance, we now expect to deliver full year 2025 adjusted EBITDA of $42 to $44 million, an increase of nearly 40% over 2024.
Speaker Change: Additionally, we expect modest cash flow generation for the full year.
Speaker Change: Before I turn into more details on our fourth quarter in 2024, I would like to remind everyone that we are hosting an Analyst and Investor Day at our headquarters in Mason, Ohio, on March 26th. We plan to review our leading product portfolio and innovative pipeline for market expansion while showcasing our facility and team throughout the event.
Speaker Change: We will be joined by several leading physicians, including Dr. Whitlock, who is the Chief of Cardiac Surgery at McMaster University, the author of the seminal Louse 3 trial, and the lead PI on our LEAPS trial.
Speaker Change: and Dr. Soltes, who is a leading surgeon from the Cleveland Clinic and a world-class expert in heart failure. Both are lead investigators on our landmark clinical trials and, as mentioned, key opinion leaders in the field of cardiac surgery.
Speaker Change: We will also have two electrophysiologists, Dr. Makati and Dr. Sood, to share perspectives on their experience with the conversion procedure and current market trends, including PFA.
Speaker Change: Now turning to updates on our business and highlights from the quarter and full year, beginning with our pain management franchise, which grew 32% worldwide in 2024 and 43% in the fourth quarter.
Speaker Change: Pain management performance reflects strong execution by our global commercial team, bolstered by the launches of two new products in the United States, our Cryosphere Plus and Cryosphere Max probes.
Speaker Change: These probes reduce freeze times by 25% to 50% respectively, compared to the original cryosphere probe, resulting in a meaningful overall reduction in cryo nerve block therapy procedure time, which can be a critical factor in adoption.
Speaker Change: The advances in innovation with the CryoSphere Plus and CryoSphere Max have allowed us to engage with new and existing physicians as we drive deeper into accounts.
Speaker Change: In 2024, we added nearly 100 new accounts globally and saw more than 800 customers utilize cryo-nerve block therapy.
Speaker Change: We also increased our efforts to engage with the clinical support staff at hospitals, as they are often the closest to the patient during recovery.
Speaker Change: We received exceptional feedback on this therapy as support staff observed improved post-operative recovery in patients with a multimodal pain management strategy that includes crown-neuroblock, and believe that our devices are a preferred solution for managing post-operative pain.
Speaker Change: Looking forward into 2000, in 2025 we are focused on continuing the launch of our new cryocere probes as well as developing evidence that further supports the economic value demonstrated by our pain management devices.
Speaker Change: We are also exploring additional use cases for cryo-nerve block therapy, such as lower extremity amputations, which will expand our addressable market well beyond thoracotomy and sternotomy procedures.
Speaker Change: We look forward to sharing more insights into this at our Analyst and Investor Day as well.
Moving to our franchises for the treatment of atrial fibrillation.
Speaker Change: Our Open Franchise Group, 16% worldwide in 2024, driven by Encompass Clamp Sales.
Speaker Change: We saw an acceleration in growth to 17% in the fourth quarter, which was also driven by more than 50% growth in Encompass.
Speaker Change: Our team worked methodically to reach both new and existing positions at accounts throughout the United States and capitalized on the launch of the Encompass Short Clamp early in 2024 to increase adoption.
Speaker Change: This product is a smaller form factor configuration and has extended the impact of the Encompass launch in the United States.
Speaker Change: In addition, during the fourth quarter, we launched the Encompass Clamp in Europe. Our Encompass Clamp is now present in over 700 accounts worldwide, representing an increase in accounts of 21% from 2023.
Speaker Change: We will continue our commercial expansion in the United States and Europe in 2025 and look forward to progressing treatment of patients in cardiac surgery.
Speaker Change: Building on our success and 25-year are continuing to invest in prospective clinical science to support expanded treatment.
Speaker Change: To that end, earlier this year we received FDA approval for our next cardiac surgery clinical trial, VOCS-NOAF, studying prophylactic ablation for reduction of post-operative AFib.
It is a widely established fact.
Speaker Change: that cardiac surgery patients experience an elevated risk of developing AFib following their procedure.
Speaker Change: This trial is expected to show the benefits of treating patients without preoperative AFib with our Encompass clamp and Atrial Clip devices, further expanding our addressable market and continuing our leadership in this space.
Speaker Change: We will begin the study later this year by initiating clinical trial sites and enrolling our first patient in 2025.
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: Turning to minimally invasive AFib treatment, our hybrid AF therapy continues to feel the pressure of PFA adoption in the United States.
Speaker Change: For 2024, our global hybrid franchise grew 5% with a robust 22% growth in our international markets tempered by 3% growth in the United States.
Speaker Change: Focusing on the United States, in the fourth quarter we saw accounts continue to prioritize the use of PFA devices to treat patients. We anticipate these trends to remain throughout 2025, resulting in downward pressure on this franchise and our minimally invasive atrial cliff devices.
Speaker Change: However, outside the United States, our minimally invasive ablation growth rates doubled in 2024 from 11% growth in 2023 to 22% growth in 2024.
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: In the year ahead, we anticipate sustained pressure in our hybrid, in our U.S. hybrid business, but we are seeing proof points, such as our experience in Europe, which support a solid long-term growth outlook for a hybrid AF therapy.
Speaker Change: PFA technologies are expanding the funnel of patients that receive catheter ablations and ultimately our convergent procedure remains the only effective option for patients with long-standing persistent atrial fibrillation.
Speaker Change: Now shifting to our Appendage Management Franchise, which delivered full year worldwide revenue growth of 16%, comprised of 21% growth in our open Atroclip devices and 3% in our MIS Appendage Management devices.
Speaker Change: We are incredibly pleased with the sustained momentum of our Open Appendage Management business in the United States, where we achieved 20% growth in the fourth quarter, following an acceleration of growth throughout 2024.
During the fourth quarter, we also widened our launch.
of the Atrioclip Flex Mini in the U.S.
Speaker Change: We have received overwhelmingly positive feedback for the Flex Mini, which increased procedure visibility, with increased procedure visibility the primary differentiator of this device.
Speaker Change: Like our FlexV clip, we expect the FlexMini to be a sustained growth talent for many years to come.
Speaker Change: In 2024, we also made meaningful strides in our geographical reach and indications with our H-group devices. We achieved approval for the sale of the H-group devices in China and look forward to ramping that business in 2025 and beyond.
Speaker Change: We also received an expansion of our indication for atrioclip in CE marked countries for patients at high risk of thromboembolism and stroke.
Speaker Change: We believe these updates reflect the quality and efficacy of our Atroclip devices, which have been demonstrated in more than 85 peer-reviewed papers covering over 11,000 patients.
Speaker Change: The breadth of clinical evidence in support of managing the appendage also led to the improvement in guidelines for clinical practice, making the left atrial appendage exclusion a Class 1A recommendation in every major global society's guidelines.
Unknown Speaker
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: And finally, I want to touch on our clinical efforts to further extend and grow the surgical appendage management market.
Speaker Change: We continue to progress with the LEAPS trial studying prophylactic appendage management in non-A-fib patients undergoing cardiac surgery. This trial has the potential to multiply our appendage management market by showing a stroke reduction benefit for managing the left atrial appendage in millions of patients globally undergoing cardiac surgery.
Speaker Change: Currently, we have over 4,600 patients enrolled and expect to complete full enrollment of 6,500 patients this year.
Speaker Change: Much like our other markets, Atricure is leading in the surgical appendage management market with investments in both clinical science and new product innovation, such as the Flex Mini I talked about earlier, providing growth opportunities for our business well into the future.
Speaker Change: In closing, 2024 was another remarkable year of achievements for Atricare.
Speaker Change: We continued to drive double-digit, top-line growth, increased profitability, launched several innovative products that will drive growth for years to come, and continue to advance the clinical development required to support the efficacy and adoption of our therapies long-term.
Speaker Change: We have also championed efforts to increase reimbursement for therapies using our devices and are building evidence to show the economic value of adoption.
Speaker Change: We have developed a diversified portfolio of products that deliver meaningfully improved outcomes for patients and physicians.
Unknown Attendee: positioning us for continued strength well into the future. And with that I would like to turn the call over to Angie Wirick, our Chief Financial Officer. Angie?
Thanks, Mike.
Unknown Attendee: Our fourth quarter 2024 worldwide revenue of $124.3 million increased 16.6% on a reported basis and 16.7% on a constant currency basis when compared to the fourth quarter of 2023.
Unknown Attendee: U.S. revenue was $101.6 million, a 14.4% increase from the fourth quarter of 2023, reflecting continued strength from pain management, open appendage management, and open ablation products.
Unknown Attendee: International revenue totaled $22.7 million, up 27.7% on a recorded basis, and up 28.1% on a constant currency basis as compared to the fourth quarter of 2023.
Unknown Attendee: We saw strong demand across our major international markets, with significant growth in pain management, minimally invasive ablation, and appendage management franchises.
Unknown Attendee: Sequentially, worldwide sales grew $8.4 million or 7.2% over Q3 2024.
Unknown Attendee: Gross margin for the fourth quarter 2024 was 74.5%, a decrease of 39 basis points from the fourth quarter of 2023, driven primarily by less favorable geographic and product mix.
Unknown Attendee: Fourth quarter 2024, research and development expenses increased $14.2 million, or 68.1%, and SG&A expenses increased $4.5 million, or 6.6%, over the fourth quarter of 2023.
Unknown Attendee: Much of the increase in R&D was the result of a 12 million dollar cash payment for our exclusive licensing and co-developing co-development agreement for PFA technology as well as continued strong enrollment of our LEAPS clinical trial.
Unknown Attendee: Turning to the bottom line, we drove positive adjusted EBITDA of $12.7 million for the fourth quarter of 2024 compared to positive adjusted EBITDA of $4.8 million for the fourth quarter of 2023.
Unknown Attendee: Our loss per share was $0.33 and adjusted loss per share was $0.08 for the fourth quarter of 2024 compared to a loss per share and adjusted loss per share of $0.21 for the fourth quarter of 2023.
Unknown Attendee: Now, to review full year 2024 results. Worldwide revenue was $465.3 million, an increase of 16.5% on a reported and constant currency basis.
Unknown Attendee: U.S. open ablation sales increased to $123.6 million, or 17.4% over 2023, propelled by approximately 50% growth in encompass clamp sales.
Unknown Attendee: Our U.S. pain management franchise grew 25.7% to $61.8 million, driven by accelerated adoption in cryo-nerve block therapies stemming from the release of the Cryosphere Plus and Cryosphere Max probes during the year.
Marissa Bych, Angela Wirick, Unknown Attendee
USMIS revenue was $45.7 million reflecting low single-digit growth.
Speaker Change: And finally, U.S. appendage management sales reached $151.6 million, a 12.7% increase over 2023.
Unknown Attendee: with 18% growth in Open Appendage Management Devices and a 3% decline in our MIS Appendage Management Devices.
Unknown Attendee: Our Atriclip Flex-B device and the fourth quarter launch of Atriclip Flex Mini were drivers of our open appendage management growth in 2024.
Unknown Attendee: International revenue saw accelerated growth across all franchises and major geographic regions with particularly strong growth in pain management, minimally invasive ablation, and both open and minimally invasive appendage management devices.
Unknown Speaker
Unknown Attendee: Gross margin for the year ended at 74.7%, a decrease of 55 basis points from 2023.
Unknown Attendee: The decline was driven by less favorable product and geographic mix, with our international revenue contributing 18% of worldwide revenue in 2024 compared to 16% in 2023.
Unknown Attendee: Moving to operating expenses, full year 2024 operating expenses increased 18.5% to $387.5 million, up from $327.1 million in 2023.
Unknown Attendee: Research and development costs expanded by 22.3 million dollars or 30.1 percent which includes the upfront payment associated with our PFA partnership agreement.
Unknown Attendee: Excluding mischarge, organic growth and research and development expenses was approximately 14% driven by clinical trial costs and product development as we make progress on our pipeline for market expansion.
Unknown Attendee: SG&A expenses, as reported, increased $38.2 million, or 15%. When excluding the net benefit from legal settlements in 2023, SG&A expenses increased approximately 13% in 2024.
Unknown Attendee: We are generating operating leverage throughout our commercial and administrative infrastructure while continuing investments in R&D initiatives for sustained growth.
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: Full year 2024 adjusted EBITDA was $31.1 million compared to $19.4 million in 2023, an improvement of $11.7 million.
Speaker Change: Our loss per share was $0.95 in 2024 compared to a loss per share of $0.66 in 2023. Adjusted loss per share was $0.67 and $0.75, respectively.
Speaker Change: We ended 2024 with $122.7 million in cash and investments for a full year cash burn of approximately $15 million.
Speaker Change: Note that 2024 cash burn included the upfront investment of $12 million associated with our PFA technology arrangement paid in the fourth quarter. Overall, we continue to hold a robust working capital position and a strong balance sheet to support our future.
Marissa Bych, Angela Wirick, Unknown Attendee
And finally, turning to our Outlook for 2025.
Speaker Change: Consistent with our guidance in early January, we expect to achieve between $517 million and $527 million in revenue for the year, reflecting growth of 11% to 13% over full year 2024 results.
Speaker Change: As we look at the headwinds and tailwinds for our U.S. franchises, we expect pain management to lead our 2025 performance, followed by open appendage management and open ablation.
Speaker Change: And as Mike mentioned in his remarks, we expect our minimally invasive ablation and MIS appendage management to continue to experience pressure in 2025, and our guidance range assumes that revenue for both will decline year over year.
Speaker Change: In terms of revenue cadence, we expect typical seasonality to inform 2025, with first quarter revenue likely to be flat to our fourth quarter of 2024.
Speaker Change: From a margin perspective, we expect relatively flat 2025 gross margins compared to 2024 with modest variability driven by the strength of international growth and new product launches in the United States.
Speaker Change: In addition to mixed impact, we expect increasing material costs to be offset by focused cost savings initiatives with our Encompass clamp lines and overall operational scale.
Speaker Change: Turning to operating expenses, our primary focus with capital allocation remains the identification and cultivation of the next set of growth drivers for AtriCure.
Speaker Change: Therefore, we expect R&D as a percentage of revenue to be roughly 20% in 2025, which includes up to $10 million in milestone payments related to our progress on our PFA platform during 2025.
As a reminder, milestone payments are excluded from adjusted EBITDA.
Speaker Change: Spending across SG&A will moderate in proportion to revenue as the year progresses, leading to improvements in profitability.
Speaker Change: With these priorities in mind, we now expect full year 2025 adjusted EBITDA to range from $42 million to $44 million, translating to an adjusted loss per share of approximately $0.57 to $0.64.
Speaker Change: We also anticipate moderate cash generation for the full year 2025, further strengthening our cash balance and overall capital position. As a reminder, we typically see heavy cash burned during our first quarter from annual variable compensation payouts, share vesting, and operational needs.
Speaker Change: We anticipate a net cash burn in the first quarter of 2025, followed by positive cash generation for the remainder of the year and full year 2025.
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: In closing, I'd like to reiterate Mike's earlier comments, 2024 was an outstanding year for Atricure, with our talented team of more than 1300 people driving increased patient treatment across our markets worldwide.
Speaker Change: We begin 2025 excited for the continued impact of our product launches.
Speaker Change: New and Ongoing Research Initiatives, and Showing Operational Efficiency that Results in Growing Profitability. And with that, I'll turn the call back to Mike. Thank you, Angie. Our performance this past year would not have been possible without the Atricure team.
Speaker Change: I would like to close by thanking them for their persistence, humility, and patient-first mindset that they demonstrated throughout 2024.
Speaker Change: I have the utmost confidence that our team will continue driving progress in each of our markets in 2025 and beyond.
Speaker Change: Additionally, we look forward to hosting our investors and analysts at our company headquarters in March. There is no substitute for experiencing our facility, products, and team in person, and I hope to see many of you at this event on March 26th. And with that, we'll turn it over to questions. Operator?
Speaker Change: Thank you. Ladies and gentlemen, to ask a question, please press star 1-1 on your telephone, then wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 11 again. We ask that you limit yourself to one question and one follow-up. Then return to the queue for additional questions.
Please stand by while we compile the Q&A roster.
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Our first question comes from the line of Lily Lozada.
With J.P. Morgan, your line is open.
Lily Lozada: Great. Thanks so much for taking the question. Maybe I'll start with the open business.
Speaker Change: Encompass has put up really impressive growth considering we're pretty well into the launch at this point. So where would you say we stand in the conversion from your legacy products to Encompass and how long can this sort of growth in the open business continue?
Yeah, I mean, I think we're pretty much...
Speaker Change: through all of the conversion from the legacy products into Encompass. Pretty much everybody that is now, the growth coming from Encompass.
Speaker Change: is from net new users or using them on additional cases. The target, as many of you know, has been to go after the coronary bypass market where patients.
Speaker Change: or physicians had not treated before. Patients had AFib going into cardiac surgery. They felt like it was too difficult to utilize some of the technology that was out there to get behind the veins, et cetera. Encompass was built for that physician population. And so pretty much all of the growth coming out of Encompass is coming from, again, net new users or an expansion of use within that base, but not cannibalizing or any kind of conversion at this point.
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Unknown Attendee: Got it. And then maybe on the MIS side of things, you had talked about PFA dynamics sort of stabilizing in Europe after it had been on the market for a while. So how would you characterize those dynamics now? Is PFA a non-issue there at this point? And are you assuming that the U.S. follows a similar trajectory at some point?
Unknown Attendee: I think you said it well, yes we are pretty much through most the PFA piece there. You're now starting to see
Unknown Attendee: Physicians there and programs wanting to get involved that we're holding on and not doing anything, now adding that new areas.
Unknown Attendee: to their treatment algorithm with using our technology in the convergent approach. So we're definitely seeing that in Europe. That's why you saw the growth. You saw the expansion, the growth to over 20% this year in the convergent area. And a lot of that was met new sites and expansion within existing sites, pretty much all around that convergent platform. And we do anticipate that that dynamic is gonna happen in the United States.
Unknown Attendee: We think 2025 is going to feel the pressure of that.
Unknown Attendee: But remember that Europe is around two and a half years, three years ahead of the United States in this area.
Unknown Attendee: So we started to see that benefit last year. We anticipate hopefully maybe the end of this year, early part of 2026, that we could start to see some of it. But as I mentioned, we are starting to see some proof points. There are sites today.
Marissa Bych, Angela Wirick, Unknown Attendee
Great. Thanks so much.
Thank you. Please stand by for our next question.
Speaker Change: Our next question comes from the line of William Flobanik with CanaCore. Your line is open.
William Flobanik: Thank you. Great. Thanks. Good evening and thanks for taking my questions.
First is just a product related.
William Flobanik: In terms of Encompass OUS and the CryoPlus and Max in the U.S.,
Speaker Change: Unknown Speaker Where exactly are you in the rollout in terms of kind of account penetration and what have you? And then secondly, on EBITDA, you increased your EBITDA guidance by a couple million on the low end. Just what changed?
Thanks.
Speaker Change: I'll address the first, I'll let Angie address the second. For Encompass OUS, we're just starting. I mean, it's going to be a little slower launch than the U.S., mostly just because structurally it's different there relative to reimbursement and make it
approved in all the countries throughout Europe.
Speaker Change: But it's actually getting it and making sure that we're positioning it properly, doing all the necessary training. So we anticipate that that growth will really start to kick in the back half of the year, but not much in the beginning part. So we're at the super early stages. We do have sites up and running and utilizing technology.
Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: Yeah, Bill, and on the question related to the adjusted EBITDA guidance, I'd say with the way that which we closed out 2024, kind of the strength on the bottom line better than we had anticipated, we are seeing some nice efficiencies throughout the business.
Speaker Change: It felt like when we looked at the range for 2025, given kind of where the final numbers came in for 2024, felt very confident that we could raise the floor on that range to the $42 to $44 million for 2025.
Marissa Bych, Angela Wirick, Unknown Attendee
Thank you.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open.
Transcription by ESO. Translation by —
Speaker Change: Afternoon, thanks so much for taking the questions. Angie, can I follow up a little bit on Bill's question on EBITDA? You did a nice job expanding here in 24.
Speaker Change: The bump in 25 is still about the same or a little bit better than what you did in 24, but you still have that international headwind as far as profitability goes. So where does the extra leverage come from across the P&L, because I'm just having a hard time getting the model all the way up to the midpoint of that range, and then I do have a follow-up.
Speaker Change: Yeah, the international headwind will feel mostly on our gross margin. I think investors as well as you Matt know, gross margin profile looks a little different for our international business. That being said, from the global perspective, you do have the benefit of new multiple new product launches.
in the U.S. with some very focused efforts.
Speaker Change: on some of our products that we've been manufacturing. I called out the Encompass clamp in the scripted comments.
Speaker Change: expecting those to be a buffer against the growing international business, which we would expect to outpace US growth. I'd say further down the P&L you're seeing
Speaker Change: both R&D and SG&A growing at a rate that's slightly below top line, R&D slightly less and then a couple points down for SG&A. And that's because of the efficiency that we're driving and seeing throughout our business in almost every area of the business.
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: Got it. Thanks for that. And then, Mike, on the revenue guide for the year, I know it's early. You guys are typically conservative. The midpoint of the range is kind of in that 12.5% growth, you know, around 12.5% growth.
Speaker Change: You know, I know it's a little bit tougher comp than 24, but it's still kind of below the two-year stacks below that 15% level that
Speaker Change: You've kind of talked about historically. Is that how we should think about HRQ going forward? Maybe low teens growth in the future until some of these other opportunities really start to kick in? Or do you think it's still more of that 15% number? Thanks.
Speaker Change: It's a great question. I think right now for this year we're comfortable right now talking about that the growth rate that you just talked about. I think why don't you come on to the Analyst Day, we'll give you some more feedback on kind of what that longer-term growth rate looks like, but we're pretty confident that we've got a strong growth rate in the solid double-digit area for a long time to come.
Marissa Bych, Angela Wirick, Unknown Attendee
Got it. Thank you.
Thank you.
Please stand by for our next question.
Operator: Our next question comes from the line of Maria Thibault with BTIG. Your line is open.
Maria Thibault: Hi, good evening. Thank you for taking the questions. A nice quarter. For Flex Mini, I know it's only three months in, but you talked about multi-year sustained strength. So as we think about the guide you've given for 2025, is there a way to parse out, you know, what portion of the installed base you think will convert in 2025? It sounds like you think that will be sort of a multi-year conversion process.
Maria Thibault: I think that is absolutely the right way to think about this while the launch is off to a great start. We are expecting this to take a while to get to kind of all of the accounts, so to speak. Looking back on our FlexV product launch, you know, six or so years ago, that was a multi-year effort before, you know, it represented, you know, the majority of clip sales and in each one of our accounts and expecting the same for FlexMini.
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: Okay, fair enough. Thank you, Angie. And then maybe kind of a high level question here on the revenue outlook, kind of echoing
Speaker Change: Matt on sort of the conservatism we typically see from you to start the year. Is there a way to kind of quantify, you've got a lot of new products coming, I know they typically come with pricing uplifts. Is there a way to quantify kind of the impact of volume versus pricing uplifts as being assumed in that growth number? Unknown Speaker
Speaker Change: Yeah, the growth number would assume the majority of the growth is volume based. So you do have the upside, depending on kind of the mix between the Flex Mini or Cryosphere Max, where those come in. So that is an area where we do believe that there is upside from delivering in the range that we've guided to.
Okay, very helpful. Thanks for taking the questions.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Rick Wise with Stiefel. Your line is open.
Unknown Attendee
Good afternoon to you both.
Speaker Change: Maybe we could dive a little bit more into gross margin. I don't think, did I miss it? I don't think you gave any specific 2025 gross margin guidance. But just looking at the fourth quarter,
Speaker Change: And, Angie, you highlighted the mix, the OUS mix and product mix, etc. But it was 200 basis points less than we looked for, clearly.
Unknown Attendee
Speaker Change: point of view that we're thinking about it thoughtfully, rebasing it maybe. How should we think about GM for the year ahead?
Speaker Change: Thanks, Rick, for the question. I think rebasing around a 75% gross margin, we didn't give a specific target within the scripted comments, said relatively flat, I think the international mix.
Speaker Change: is one of the drivers behind some of the weakness that we saw in margin throughout 2024, a growing component of our overall revenue mix and at the highest percentage.
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: That's great. And I was hoping you could give us a little more, a question for you both.
Unknown Attendee
Speaker Change: What R&D, if you take out that, and there was one other item I think you mentioned, Angie, what sort of base R&D, and maybe
Speaker Change: you can update it, I'm sure you want to update it as well, but update it on project status, you know, where are we?
Speaker Change: Thank you for your time, and anytime we could expect something more concrete from this initiative. Thanks so much to you both.
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: All right, Rick. I'm going to try and answer your question. We're breaking up a little bit on our end here. So the R&D charge that we took in the fourth quarter was an upfront payment for the co-licensing and development arrangement for our PFA platform. We're working with a partner for that area of product development in the fourth quarter. That was a $12 million charge and payment.
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: In 2025, we expect to complete a couple of key milestones in this development arrangement, which result in about $10 million total charges throughout the year. So that is factored into our forecast when we say we expect R&D as a percentage of revenue to be about 20% for the full year. And would expect to give more details at our Analyst and Investor Day late in March.
Thank you very much.
Thank you.
Please stand by for our next question.
Unknown Attendee
Speaker Change: Our next question comes from the line of Mike Mattson with Needleman Company, your line is open.
Speaker Change: Yeah, thanks. So just want to ask one on the PFA agreement that you announced last quarter.
Speaker Change: I don't know if you're in a position to tell us more there, but, you know, what I would like to know, and I think other people would like to know, is...
Speaker Change: You know, what's the regulatory path there? Would it be 510k data, PMA?
Speaker Change: and to what degree would you need to run trials and are you planning on putting the PFA capability into both the open and MIS products?
Unknown Attendee
Speaker Change: Yeah, I think it's a great question, Mike. We're going to go into some more details.
Speaker Change: at the analyst day for sure, but to answer kind of the high-level questions around, I mean, we do anticipate that we will need to run a PMA for this. It'll go into both of our open clamps and into our other products as well, in particular the Encompass clamp, and then also into our EpiSense device.
Speaker Change: Those will be some of the first products that we do wind up rolling out. We'll roll out a kind of more granular timeline around first in human and some of the other clinical evidence and kind of when we would kick off.
Those trials and what we would anticipate that.
Speaker Change: have clearance on those and get through the PMA process at the analyst day. So we'll kind of have a better broad kind of milestone based piece on that front for you at the analyst day. But yes, we do anticipate that you're going to have to go through a PMA process for this.
Marissa Bych, Angela Wirick, Unknown Attendee
Okay, got it.
Speaker Change: And then just wanted to ask for some more detail on this box NOAAF trial, you know, in terms of the design, the timing, maybe we'll hear more about that at the investor day as well. I imagine we will. But, and then, you know, I thought it was interesting that you mentioned that it's going to include the use of ablation, but also atrioclyte. So,
Speaker Change: Seems like another way you could, you know, expand the use of Atroclip as well in addition to Leaps.
Speaker Change: Yes, it's a great question. I'll give some high-level view and we will go into more details at the meeting. It's actually a very similar patient population that is going to be enrolled in LEAPS, so it effectively kind of takes it to almost every cardiac surgery patient.
Speaker Change: The focus is on those patients that don't have pre-op AFib.
Speaker Change: and we're going to be looking at several different endpoints. The first endpoint is going to be looking at post-operative atrial fibrillation and basically having a significant reduction. And there's lots of clinical evidence that has come out in the last three years to show that not only the reduction of that, but also the clinical benefit to the patient.
Speaker Change: and also the economic benefit to the system because typically patients can get home more quickly when they're able to have that post-op AFib managed. And again, we think that the combination of the ablation and the CLIP are actually gonna lead to very good results within this trial. We'll also look at those patients longer term.
Speaker Change: so that we can actually reduce or bend the curve, as they like to say.
Speaker Change: in terms of the amount of AFib in those patients longer term because
Speaker Change: that post-op AFib many believe is a precursor to longer-term AFib.
Speaker Change: and that we can hopefully kind of stunt the progression of that AFib in that particular patient population as well. And we're going to be looking at that also. And so, it's a really novel, exciting area. It.
Speaker Change: really expands our market presence quite substantially, both in terms of the number of patients and then obviously the amount that's gonna be within each procedure. So we're pretty excited about the trial. And like you said, we will go into much more detail at the meeting. Dr. Soltis and Dr. Whitlock are both PIs on that trial and we'll be able to have both.
Present on it and then answer questions as well.
Okay, got it. Thanks.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Danny Staudter with Citizens JEP. Your line is open.
Speaker Change: Yeah, great. So, just first on the softness expected for minimally invasive in 2025. You know, you talked about a rebound potentially in early 26.
Speaker Change: But, you know, could you just give us an idea of what's baked into guidance for 2025? You know, how cautious is your outlook in terms of MIS? You know, the sales range contemplate, you know, bear case?
Speaker Change: For MIS there's any color there on you know what that includes would be great.
Speaker Change: Yeah, Dana, consistent with the scripted comments at both points of the guide range, we are assuming
that are U.S. hybrid ablation and MIS.
Angela Wirick, Unknown Attendee
Speaker Change: for the full year 2025. I think as we think through the year first half of 2025 is when we're going to see the most pressure and would expect just given the time and PFA devices on the market when we enter into the second half of the year you start to see somewhat of an improvement but the full year guide
Speaker Change: assumes for that those two product categories that it is a decline year over year.
Marissa Bych, Angela Wirick, Unknown Attendee
Unknown Speaker
Speaker Change: Great, thanks for this one follow-up on pain management. Just in terms of the new indications...
Speaker Change: specifically you know post amputation pain what could the timing be there potentially and you know what's the pathway do you need anything on the clinical side or is it really just more surgeon education and training anything that would be great
Speaker Change: Thank you. We already have the labeling for pain management. So we're actually very comfortable kind of in peripheral kind of pain and nerve pain. That's something that we actually have in our
Speaker Change: labeling today and feel very good about that, but we are developing a new device in this particular area. We're going to go into more detail at the Analyst Day, but effectively we'll have a new device.
Speaker Change: to go after that market. We have certain positions that are already doing the procedure. We've been looking at this for about three years now.
It's probably been about 250 patients.
Speaker Change: where they've seen excellent results on it. And again, we're gonna get into much more detail on kind of...
Speaker Change: What we've seen, what the results of some of that data looks like.
Speaker Change: and why we're excited about it in terms of the overall size of the market. But it's another very large, multi-hundred million dollar market to be in and to expand upon the existing pain management franchise that we have. And we are the only player in that area and have very unique capabilities there. So we feel like it's an area that we can grow for many years to come and a whole brand new area for us to go after.
Great. Thank you very much.
Thank you.
Please stand by for our next question.
Speaker Change: My next question comes from the line of Danielle Interfay with UBS. Your line is open.
Danielle Interfay: Hey, good afternoon, guys. Thanks so much for taking the question. Mike, I'm just trying to get a better sense of the runway, the growth runway you guys have in your open ablation business. And Encompass has been super successful in enabling you guys to unlock the...
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: I'm actually glad you re-asked the question because I think Lily earlier asked it as well and I forgot to answer it so it's a it's a very
Speaker Change: and maybe just a quick history lesson, if you look back about 15 years.
Speaker Change: penetration in this market was around 10% and then we got our label in 2011.
Speaker Change: Unknown Speaker We're able to obviously change guidelines. You've also seen a dramatic change in reimbursement over the last three years.
Speaker Change: You've seen the introduction of Encompass to make it easier to use. So a lot of things go into that. Guideline changes, better reimbursement.
Speaker Change: and an easier-to-use product that significantly reduces procedural time. When you pull all that together, what you've seen is, as of today, we're sitting at about probably in the U.S.
Speaker Change: about 35% of patients with pre-op AFib get treated today, which is still, given the guidelines and given the recent change in reimbursement, still incredibly low. So there's a huge runway just within AFib patients.
Speaker Change: First and foremost still for the next five plus years pretty meaningfully that we can get in the US Those numbers are significantly lower. Oh us
Speaker Change: Those numbers are closer to 20% when you look at an OUS basis, and we just got our Encompass clamp approved there, so we think that
Speaker Change: There's a lot of room for runway in the international market as well.
Speaker Change: And then when you add on top of that, again, we'll talk about analyst, I'm not trying to punt everything to that, but it's just when you look at that post-op AFib area.
Speaker Change: That is a market that's about three times the size of the pre-op AFib market.
Speaker Change: And so when you look at that, there's a huge runway relative to that part of the market as well. So we think we've got, you know, decades worth of growth when you look at it overall. And we're going to be excited to talk in more detail and in person with everybody when you come to Mason, Ohio on March 26th.
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: Okay, great. That's helpful. And then on the convertor side of things, I was curious if you could give a little bit, you touched on it a bit on this call, but you're seeing success for the MIS.
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: Is there anything that Europe is doing that's different that could be potentially translatable here in the US thinking about like the logistics between the cardiac surgeon and the EP? I don't know if there's something that can be copied about, you know,
Transcription by CastingWords
as to what's happening in Europe.
Speaker Change: We actually have more sites in the U.S. trained and up and running and have logistics that actually work out really well. And I think until PFA, you started to see growth rates in that 30 plus percent marker for us for about two to three quarters in a row before kind of the PFA onslaught hit the U.S.
Speaker Change: What is applicable, though, is that what they're seeing in Europe is...
Speaker Change: Sites that were super excited about PFA which is a great technology and you know, I'm not knocking in any way But they are seeing non responders
Speaker Change: A lot of them. I mean, you're talking about in paroxysmal and in early persistent kind of less than one year, you see people not responding 35% of the time.
Speaker Change: Well, eventually, if they don't respond to one or two catheter ablations, they effectively come through that funnel that you talk about. So more are hitting the top of the funnel.
Speaker Change: They have to ask themselves, what are they going to do with that patient? And that's really why they've started to develop it and started to develop new programs in Europe. It's specifically because they have nothing else for that patient at that point in time. So they've been doing it for two or three years, and it's kind of the timeline to kind of get through the funnel.
Unknown Attendee: It has adopted as you mentioned super quickly in the United States, which means the top of the funnels
Unknown Attendee: very high. Yes, people are doing this and they're trying to do it in the persistent patient and maybe even some in the long standing persistent. It's kind of their first line therapy. But if they're going to have that kind of non responder rate at the same level that you're seeing over in Europe,
or even close to that.
Unknown Attendee: then the market is going to be enormous for patients that don't respond.
to the PFA catheters.
Unknown Attendee: and so even if they go to one to two, three, that's why it's gonna just take some time to kind of get through 2025. The patients that were treated in 2024 might go back for a catheter or two more, and then you're gonna start to see them come back. And I think that that's the dynamic that we do think is gonna, that mirrors Europe. You're gonna start to see later this year and into 2026 and beyond.
Thank you.
Unknown Attendee: Thank you. Please stand by for our next question. Our next question comes from the line of Siraj Khalil with Oppenheimer. Your line is open.
Hey Mike, Angie, can you hear me all right?
We can.
Speaker Change: Perfect. So, Mike, one of the things that you have consistently talked about for the past few calls
is Deeper Account Penetration.
Speaker Change: Maybe if you could quantify it for us as how, how should we think about the deeper account penetration, maybe customer concentration in the US, same store, new store sales, just kind of put some guideposts around it so that we can, we can better understand.
Your commentary about deeper accounts.
Speaker Change: Yes, Raj, I think if you look to some of the scripted comments, if you think about Encompass in our open ablation franchise, we talked about, you know, about a 20% account growth that was worldwide. The majority of that growth was from US.
Speaker Change: yet encompass as a product grew more than 50%. So we do think that we're seeing increased penetration within our accounts. This isn't just new, kind of new users adding to the base.
Speaker Change: and similar when you think about the accounts added in cryo nerve block and our pain management franchise, that was kind of double digit account growth again, majority of those being in the US.
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: Yes, expanding customer use space and physician use space, but really making sure when they install each of these therapies that they are going incredibly deep and increasing adoption even with existing users and making sure that it's less about patient selection and that every patient who's applicable ultimately gets treated.
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Speaker Change: Got it, appreciate it. Mike, I just want to follow up on Danielle's question and your comments about
Repeat touch-ups in Europe, I believe that's 35% number.
Speaker Change: to PFA catheters was was indicated like more fundamentally and just out of curiosity let's say you treat with RF let's say you treat with PF right you have a certain responder rate you have a repeat touch up
Unknown Speaker
Speaker Change: Your comments about, you know, this will be a new TAM opening up, new funnel for A2Cure.
Speaker Change: Help us understand what is going to change in these patients. The substrate is already
Speaker Change: quite a bit modified. Are you talking about Atricure's PFA products? Are you talking about RF products? And if so, what is going to be so different that is going to be able to tackle these patients who have come back for a repeat ablation? Thank you for taking my questions.
Speaker Change: Yeah, I mean, I think you set up perfectly exactly what convergence about what we're referring to is that standalone AFib patient.
that has not responded to an endocardial catheter.
Ablating the back wall or the veins.
and really where we come into here is that.
Speaker Change: Coming in epicardially is really where that benefit is, and we've demonstrated that through many randomized clinical trials with RF, and we're seeing it with patients with PFA as well out in the field today.
Speaker Change: big benefit of kind of sandwiching that atrium, both epicardially and endocardially, is really what you're after. When you're going endocardial alone, you're not getting to the...
Speaker Change: Substrate, as you kind of talked about, relative to the epicardium. It just doesn't happen. It doesn't happen on a regular basis. That's why you see a lot of these non-responders because they just can't get to it. There could be fat pads there or other tissue depth.
Unknown Attendee
Speaker Change: showing of it on a map that shows you endocardially you've actually captured it, but you do have, you wind up getting reconnections coming back on the epicardium. That's where atria comes in, that's where convergent or our deep procedure plays big. And the results from both the deep procedure
and from our convergent show.
Speaker Change: super long durability, not just at one year, but at three years and at five years, where we've demonstrated that it's incredibly durable when you come from both sides. So that's what I'm referring to, is that when these patients have failed on the endocardiopatheter several times in a row, the epicardium becomes a critical area to go after to demonstrate that reduction in AFib and the durability of it long-term. So hopefully that kind of gives you a more detailed answer on that.
Thank you.
Thank you.
Thank you.
Please stand by for our next question.
Speaker Change: We have a follow-up question from the line of Matthew O'Brien, Piper Sandler, your line is open.
Matthew O'brien: Thanks again for taking the follow-up, Sarah. I'm missing the analyst data, so I'm going to keep trying to front-run it here.
Matthew O'brien: Mike, you mentioned the LEAPS trial is going to be done by the end of this year, as far as enrollment goes. I think...
Speaker Change: That's a five-year follow-up, if I remember correctly. Are we going to get any interim looks? And then I think you're expecting to add almost 2,000 patients to that trial. Is there any kind of revenue headwind next year as that enrollment finishes up?
Speaker Change: Yeah, there's no revenue. I'll answer that last one first, which is that if you think about that trial, there's about 2,000 patients or 1,900 left to go. Half those patients won't get an HR club, half of them will, and so it's a de minimis amount of overall revenue. Quite frankly, it's, and then when you look at the fact that
Speaker Change: Some of those sites are actually already treating some of those patients prophylactically. You kind of have lost that revenue in the arm that doesn't get the atroclips. So there's really no impact on revenue whatsoever. We don't anticipate that to be the case.
Speaker Change: whether this year or even into next year, etc. As it relates to the timing of it, we do anticipate kind of being fully enrolled sometime kind of in the latter part of the year, probably in the third quarter sometime. That being said, like you said, there's a five year follow up from that last patient. It is what they call an event driven trial.
Speaker Change: We could get to those numbers earlier, for sure, and that is something that is something we'll obviously update everybody on relative to that. We will have an ability to look.
Speaker Change: In the trial when we get to half the events and then when we get to a 75% number
Speaker Change: But I just want to make sure, and I've talked about in this call before, we don't anticipate based on the powering of the trial that that's going to show enough of a differentiation at that early of a stage. We do believe you're going to have to go all the way out to the final follow up on that front.
Marissa Bych, Angela Wirick, Unknown Attendee
Unknown Attendee: Got it. And then one more quick one. Sorry. Did you mention an expansion as far as CLIP goes into other ablation cases? I think maybe you said VT ablation or something like that. I just wanted to make sure I understood if I was, I just want to make sure I'm understanding that right. And isn't, isn't, aren't there a ton of VT ablation cases done domestically every year?
Unknown Speaker
Speaker Change: I didn't mention anything about a clip going on to a VT ablation case, no. That must have been...
Unknown Attendee: I'm just sharing that I we don't I mean the clip
Unknown Attendee
Speaker Change: Abolations when it's done on a soul therapy basis with in conjunction with like a convergent or deep procedure. That's that's when the atrial cleavage, but not during VT. I didn't mention that.
Okay, thank you.
Thank you.
Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Mike for closing remarks.
Mike: Great. We appreciate everybody joining. I look forward to seeing you on March 26th. Hopefully you can tell that we are excited about 2025 and what's to come. And again, look forward to seeing everybody in person in Mason, Ohio on March 26th. Have a great evening everyone. Bye now.
Mike: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee
Marissa Bych, Angela Wirick, Unknown Attendee