Good morning, my name is Francis and I will be your conference operator today. At this time I would like to welcome everyone to the AtriCure First Quarter 2009 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. David Drachman, President, and Chief Executive Officer of AtriCure. Mr. Drachman, please proceed.

Good morning, thank you Francis and welcome to our First Quarter 2009 Conference Call. Joining me on the call today is Julie Piton, Vice President of Finance and Administration and Chief Financial Officer. At this time, I would like to turn the call over to Julie for a few introductory comments.

Thank you Dave and good morning everyone. By now you should have received a copy of the earnings press release. If you have not received a copy please call Sarah Wickman at 513-755-4136 and she will fax or email you a copy. Before we begin today let me remind you that the Company’s remarks may include forward-looking statements. These statements include, but are not limited to those that address activities, events or developments that AtriCure expects, believes or anticipates will or may occur in the future, such as revenue and earnings estimates, other predictions of financial performance, launches of new products and market acceptance of new products. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure’s control including, but not limited to the rate and degree of market acceptance of AtriCure’s products, and other risks and uncertainties described from time to time in AtriCure’s SEC filings. AtriCure’s results may differ materially from those projected on today’s call and AtriCure undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. I would also like to take the time to remind everyone on the call today that the Food and Drug Administration, or FDA, has not cleared our products for the treatment of atrial fibrillation or AF. A majority of our products have been cleared for the ablation of cardiac tissue. The Company and others acting on its behalf may not promote any of its products for the surgical treatment of AF or train doctors to use the products for the surgical treatment of AF. These restrictions do not prevent doctors from choosing to use the products for the treatment of AF or prevent AtriCure from engaging in sales and marketing efforts that focus only on the general attributes of the products for the current cleared uses and not for the treatment of AF. AtriCure educates and trains doctors in the proper use of its products and related technologies and does not educate or train doctors to use its products for the surgical treatment of AF. AtriCure has provided research grants to institutions for the purpose of conducting certain studies that may be referred to on this call. The primary offers or the papers referred to on this call may also be consultants to AtriCure. With that, I would like to turn the call back to Dave.

Thank you Julie and welcome to members of the investment community who have joined us today. AtriCure is a company on the move. I will begin with opening remarks and a concise overview of the key elements of our strategic plan. Then I will review our first quarter financial highlights which demonstrate our business momentum and strides to our profitability. Next I will provide an update concerning the progress of our clinical trials and product development initiatives, followed by an update concerning the Department of Justice Investigation. At that time, Julie will present a detailed review of our financial performance. We will then open the call for your questions. The global demand for medical devices has never been stronger, as people are living longer. This is rapidly expanding the need for effective cardiac ablation products. The men and women of AtriCure are highly focused on strategic opportunities that provide strong growth potential and we are prioritizing our investments in order to achieve profitability. As market leaders we are confident that AtriCure is uniquely positioned in high growth markets, with the right technologies, capabilities, and people to meet our challenges and capitalize on the large and growing demand for our products. Notably, we are making significant progress toward our key elements of our strategic plan. Our plan priorities include achieving profitability, the expansion of our market share and leadership position through new product development, the 510-K clearance and worldwide launch of our left atrial appendage system and the achievement of FDA atrial fibrillation approvals. Based on the strength of our markets, the power of our strategic plan, and the progress we’ve made toward achieving our strategic priorities, we would expect the investment community will understand that AtriCure is uniquely positioned to deliver results for patients, physicians, and shareholders. Turning to our…

Thank you, Dave. Total revenues were $13.7 million a 1.1% increase over first quarter 2008 revenues and a sequential increase of 13.3%. Revenues from domestic open heart products were $7.1 million, a 2.5% increase over the first quarter of 2008 and a sequential increase of 18.4%. Revenues from domestic minimally invasive products were $4.9 million a 13.3% decrease over the first quarter of 2008 and a sequential increase of 6.6%. International revenues $2.3 million a 37.9% increase over 2008 first quarter and an 11.6% sequential increase. On an exchange rate neutral basis international growth as compared to the first quarter of 2008 was 48.9% versus the reported 37.9%. Consolidate revenue growth on an exchange rate neutral basis was 2.4% versus the reported 1.1%. As a reminder, revenues from out multifunctional pen, which is used in both open and minimally invasive procedures, are allocated between open and minimally invasive product revenues based on our best estimate of the pens actual usage. Now turning to gross profit and gross margin: Gross profit for the first quarter of 2009 was $10.7 million, reflecting a gross margin of 78.5% as compared with the gross profit and gross margin of $10.3 million and 76.1% respectively. The improvement in gross margin was primarily attributable to reduced mix of ORLab sales, which are considered capital equipment and carry a lower gross margin than our disposable products and a reduction in product costs. These contributors to gross margin improvement were partially offset by an increased mix of international revenues. Next I will give you an update on operating expenses and our net loss per share. During the quarter we recorded a goodwill impairment of $6.8 million. This represents a full impairment of all goodwill we have recorded. The impairment was due to the reduction in our market capitalization,…

Thank you, Julie. In summary AtriCure is a company on the move. Our capacity to succeed and meet our challenges and opportunities with rapid, well-executed solutions is enabled by the men and women of AtriCure who are dedicated to our purpose. Through their commitment and leadership we plan to capitalize on the markets for our products and deliver results for patients, physicians, and shareholders. At this point in the call we would like to open up the call for questions.

(Operator Instructions) Your first question comes from Mimi Pham with JMP Securities.

Regarding the ABLATE pivotal trial, can you remind us where you competitors stand in terms of getting a similar AF label?

Good question, Mimi and thanks for calling in. The only competitor that we’re aware of that has a similar trial is Medtronic and we haven’t heard updates from Medtronic specifically in terms of where they stand with their surgical ablation trial.

Okay and I know you didn’t provide full year guidance, but would you expect to see continued sequential increases in revenues through ’09 especially considering your Cryo probe for launch in June?

We feel very good about our momentum. We are going to execute our plan to fully release our Cryo system and continue to monitor our progress in the marketplace.

Great and my last question, are you already seeing competitors back off on using the DOJ activities as a competitive selling technique as we discussed in your prior call?

Well now that the investigation seems to involve other companies which compete in our industry, certainly the impact of the Department of Justice in terms of our ability to compete has softened.

Okay, great. Thank you so much.

Your next question comes from Tim Lee with Piper Jaffray.

David, in the past you had talked about some of the potential patient deferrals. Are we still seeing some of that, or I would appreciate any commentary on the underlying marketplace.

In general, what we talked about earlier was that during October we thought that there was a significant decline in procedures, especially in discretionary procedures such as our minimally invasive procedure. We believe that through the fourth quarter the procedure volumes increased and at this point we believe that procedure volumes are beginning to normalize as compared to historical trends.

Thanks and then switching gears on the headcount side. I know you guys did a fantastic job in reducing your expenses. Where do things stand at headcount? Do you have the right headcount now? Do you start building from this base, or can we still see further reductions?

We believe that the cost of our business and the revenues are well aligned. We plan to leverage the existing sales and marketing organization, continue to invest in new product development, and execute our clinical plans, and we believe that will drive success in the marketplace and increase value for shareholders.

Given your current cost structure now, what type of revenue level is needed to achieve a break even?

As we said in the past on the previous earnings call, we believe that revenues between $57 and $60 million that the company will achieve positive and consistent positive adjusted EBITDA.

I’m sorry, was that on our previous cost structure, or is that your current cost structure?

It is on our current cost structure.

Thank you and one last question. Next week at HRS should we expect to see some additional data on your products?

We have a series of smaller more targeted meetings relative to our products and increasing penetration in specific accounts. Based on our efforts toward efficiencies, we are not going to sponsor a large symposium, but yet we are going to do a much more aimed approach toward penetration in very specific accounts.

Thank you.

Your next question comes from Charley Jones with Barrington Research Associates.

Dave, if we look at minimally invasive it is down, and I guess I figure we were having a little bit of an economic impact, but did you lose some accounts and/or you are seeing increases in some others, or are you kind of seeing flatter usage across the board? Could you just describe where you think minimally invasive is at right now?

We are very excited about the momentum in minimally invasive. Along with the realignment of our sales organization we are focusing on profitable market share. So, we are aiming our sales organization at accounts where we can increase procedure volumes sooner knowing that other accounts will need more market data for an inflection point. So, in general we are seeing a larger number of procedures in a smaller number of accounts.

Julie, can you talk a little bit more about how you expect working capital to shift and where your cash balance goes? Are we going to see a nice boost in second quarter, or do you think you still have a little bit of inventory to build in the second quarter and then we will see it come back in the third and fourth quarter?

That is a good question Charlie. I think we really look at our working capitals needs on an annualized basis and historically our working capital needs have been about 20% of every growth dollar we needed tied up in working capital. We closed up this quarter with payables down roughly $1.5 million versus last year at the same point, so we do expect moderation and recovery back to normalized working capital levels during the year. Although we are not getting specific to the second quarter, there are indicators such as that accounts payable balance scenario I just provided you with. That would indicate nice recovery and could occur in the second quarter also.

Okay great, thanks Julie. Then Dave what is the pace of enrollment for the clip? It seems like you are enrolling that pretty quickly now.

Well since our last earnings call in mid February, we’ve enrolled 40 patients in six sites. We have 65 patients enrolled today. We have a maximum approval from the FDA to enroll 70. We believe that we will complete enrollment in the trial within the next week to two. So, we are seeing rapid enrollment and we think that’s a strong indicator of how the market demand will look like when we fully release the product.

When do you plan to submit your data to the Europeans for CE mark?

We plan to be in the CE mark approval process within the next several weeks and we plan to release the product in Europe during the fourth quarter of this year.

Have you frozen any designs on a different delivery approach for the clip? Can you give us an update of where you’re at with next generation clips and with minimally invasive delivery systems?

Certainly the research and development activities have been heavily weighted over the last year on clip derivatives. We see the current clip being a very competitive product in driving new growth in new markets for AtriCure, but we’re not stopping there. We have new clip designs that we think will be less invasive and be more broadly adopted, in fact we’ve completed six-month clinical pre-clinical studies on those new designs and we’re just very enthusiastic about the overall deployment of derivative technologies that we think will continue to become less invasive over time.

Was there any impact from Cryo in the quarter, or was it pretty minimal?

We did our first Cryo case on March 27, so I think it’s safe to say that there was zero impact in terms of Cryo1 during the first quarter.

That’s it for me, thanks a lot.

Your next question comes from Matt Dolan with Roth Capital Partners.

This is Matt Palmer in for Matt Dolan, thanks for taking the question. What are the implications of the favorable panel vote for Atritech’s Watchman device for your LAA clip and the clinical communities view of the left atrial appendage exclusion?

Matt that is a really excellent question. In fact in the year 2000 a pioneering cardiac surgeon by the name of Dudley Johnson opted a paper called The Left Atrial Appendage the Most Lethal Human Attachment. Unfortunately, since then there has only been association of the left atrial appendage in terms of cardioembolic stroke related to atrial fibrillation. There has never been direct evidence. We believe that the Watchman device and I think the panel agrees the Watchman device is the first system that really correlates the impact of excluding the left atrial appendage on reducing AF related strokes. So, we think that the Watchman device and its positive view, from a clinical data perspective, is going to have a very significant demand in terms of increasing the demand for products that exclude the left atrial appendage safely.

Okay great and secondly, with the approval of the cryo-ablation system what are the implications for your competitive position?

They are very strong. We believe that the cryo market is one that we have not been able to capitalize on. It has been a relatively important market over the last several years. We are very encouraged by the initial results by our Cryo1 device. The device is malleable, it is rigid, it has superior thermal dynamics, we have a defrost mechanism. We think all of these features will help this device become a very competitive system soon, and also we have a very targeted and aimed sales force which focuses strictly on cardiac ablation products.

Okay and lastly on procedure volume, now with more hindsight since the beginning of the more significant downturn late last year, how have your procedure volumes changed over the past several months and what are the implications for growth and referral patterns in this new environment going forward?

That is an excellent question. As we talked about on previous earnings calls, we believe strongly that there was a moderation in procedure volumes, again, that we experienced beginning in October that began to neutralize and began to normalize over the last several months. To date we see procedure volumes in some of our better accounts returning to historical highs. On a going forward basis I think we will need to continue to monitor the macroeconomics relative to these types of discretionary procedures, but we certainly feel like there is renewed momentum within our minimally invasive business.

Okay, thanks for taking the questions.

Your next question comes from Jason Mills with Canaccord Adams.

This is Jamar Ismail in for Jason. I would like to drill down on gross margin. Thinking about the effective ORLab, you are seeing equipment sales down as a result of the macroeconomic environment. How do you see those going forward and what effect is that going to have on gross margin going forward; also, the ramp up in Cryo?

With respect to ORLab that actually provides a positive impact to our gross margin. We have a targeted number of MIF centers, and as I think we mentioned on the last call, the ORLab system was adopted into a majority of those centers so were projecting lighter ORLab sales during 2009 as a result of heavier adoption during 2008 combined with the capital market spending situation you referenced. So, all of that is going to be contributory to gross margin, as it carries a lower gross margin than our disposable equipment sales. With respect to Cryo we are going to retain our gross margin guidance for the year between 74% and 77% because when we do roll out new products the initial product cost tends to be higher and comes down over time. So, I think you should expect us to stay in that range of 74% to 77% for the balance of the year with some fluctuations quarter-to-quarter also driven by the percentage of our international sales mix into any quarter.

Okay. Also following up on the competitive position of you versus the other guys in the surgical a fib space, thinking about your reduced sales force now, are you going to target new accounts with Cryo or are you just going to be trying to convert you existing users to Cryo?

We are certainly not going to go out and cannibalize our own business. We are going to target new business with our Cryo platform.

Some of the accounts now, don’t they use two separate modalities in terms of some of the procedures?

They do and where they use a disposable cryo probe we will go after that business in a very pointed way, but we are not going to cannibalize our radio frequency products with our own cryo technology. We believe that radio frequency and bipolar radiofrequency technology is still the standard for creating cardiac ablation lesions, however there is a market for disposable cryo products and we are going to go after that market with our Cryo1 system.

Okay, thanks a lot.

Your next question comes from Joanne Wuensch with BMO Capital Markets.

Hi, it’s Matt for Joanne. Could you give me the number of centers for USMI in the quarter?

The number is 78.

Okay and how do you see that trending through the rest of the year?

We think that given the Cryo launch in mid June of this year that our sales organization will be largely focused on launching Cryo successfully, at the same time we’re seeing nice trends in those 78 centers. So, I think for the next quarter or two we will be focused on fully releasing the Cryo and continuing the momentum from a procedure and adoption perspective in those 78 centers. I think, as we get closer to 2010 we will see a broadening of our number of MIS centers.

Okay, so that is when you’ll shift gears you are saying. My second question, I was wondering about the AFP trends both for the open heart and minimally invasive procedures both in the quarter and how you see them playing out given that you’re going to have some product introductions?

I think the AFPs for our existing products have been relatively consistent now for several quarters and we haven’t seen much up tick in that or much pressure in it, so those have been really consistent. Our cryo probe will have an AFP somewhere between $2,000 and $2,500 which is slightly less than our other disposable devises, so looking at it on a broad based basis you would expect consolidated AFPs to come down slightly as we introduce that product.

Okay great. My last question is you talked a little bit about some U.S. MI trends, but can you also talk about the international business which saw pretty good growth this quarter and how you see that as a percentage of revenue through 2009 and 2010?

That is a good question Matt. We are very excited about the international markets largely because the biggest international market, Europe, is an under penetrated market for AtriCure. Our pie share in the U.S. is significantly higher than our pie share in Europe. We have a new leader in Europe and maturing distribution channels. We are launching more and more products. We will release the Cryo and the clip this year in Europe, so we are very enthusiastic about the growth opportunities. Number one, because it is an under penetrated market for the Company and number two, because we have more leadership and maturing distribution channels.

Okay, thanks a lot.

Your next question is a follow up from Tim Lee from Piper Jaffray.

I wanted to touch on the D.O.J. issue. What is next? I mean are there any more deliverables planned, are there any more meetings planned? When can we see some forward progress on this and when can we potentially see resolution to this?

Tim, as you know it is not something we can really predict in terms of the process as well as something that we would internally control. However, there have been a series of communications. We have face-to-face meetings planned with the Department of Justice; we have had face-to-face meetings in the past. We are going to continue to work at their pace in terms of delivering the information requests as expeditiously as we can and follow up with them as quickly as possible. To date, again, we feel good about the overall level of communication that we’ve had with the Department of Justice and we think that things are moving along as planned.

In terms of the outlook for the balance of this year, I know you pulled the ’09 sales outlook, but given that the patient level demand appears to have stabilized, given that this D.O.J. impact seems to have stabilized as well to some extent, when do you think you will be in a position to give us some sense of what your internal sales goals for ’09 may be?

We will continue to evaluate that quarter-over-quarter, Tim.

Okay, thank you very much.

Your next question comes from Kevin Kotler.

Did anyone mention the new inpatient codes? Were there any changes that were noteworthy for you?

There is nothing noteworthy. We did a fairly bottoms up analysis by trying to understand those new codes yesterday. It appears that there is no significant change in terms of reimbursement as a result of that that would impact AtriCure and our business.

Julie, as far as the SG&A did you say that there were some big conferences in the first quarter that won’t repeat in the second, third, fourth?

Generally, historically our conferences have hit in the first quarter and our first quarter has been seasonally heavy. We did comment on it during this call, but I do not expect as dramatic of an impact of seasonality in our operating expense line. We have two major shows in the first quarter. We actually have two shows here again in the second quarter. Then I think the historical pattern of the modest drop off in the third and fourth quarters should continue, but probably not as big of a drop or high seasonality as we historically have had in the first quarter.

Could you just tell us what the dollar amount was in the first quarter in terms of shows?

We actually do not disclose individual marketing category dollar spend.

Okay, but I am saying like just looking historically, and I know that you have already cut a lot of costs, but I was just trying to get the magnitude of could we see the low point be more like an $8.8 to $9 million fourth quarter versus just staying more flattish?

I think more flattish is more likely. I wouldn’t expect the $8 million. What I was trying to really articulate was that we don’t expect as much of a drop off here prospectively as what we have had historically.

Okay. Dave, the ABLATE trial, did you say you have a six month endpoint?

Yes we do.

I was just curious, is 6 months the right endpoint and I know there are not as many people doing as rigorous studies as you are, but as opposed to a 9 or 12 month endpoint, or will there be continued follow up on those patients to get that longer? So, is six month endpoint like to you the gold standard at which you need to show, or it is the shortest one the FDA would give you for approval, but you’re going to really try to get to the 12 month or whatever the further endpoint would be. Can you just go over that?

Even though this is not dependent on the approval, but we will follow the patients for five years.

Okay, but just generally speaking if you said I was launching a trial and doing a six month endpoint would you feel that was the gold standard at which the market would accept it, or is that better than what anyone else has done or?

I think what the concomitant data it is a little bit of a different situation, number one, because the threshold is lower for performing the procedure: the patients are already in the operating room. The second thing is that we’ve been performing concomitant procedures as a company since 2002. So, there are patient out there now for five years or more that have had concomitant procedures; so I think there is much more of a track record in terms of patient follow up with a concomitant approach than with, for example, a minimally invasive approach which has been done in smaller numbers, and the follow up is not as long, in general, in the marketplace.

Okay and finally, on the surgeons side. I know you are trying to take a more focused approach on your centers, but Dave your background is EP, but it seems to me that these cardiac surgeons are gasping for new products, especially with the advent of minimally invasive valve procedures. How do you set yourself and the ability to attract surgeons? Even surgeons that don’t have the core EP capability, is that something that you could see yourself co-marketing or trying to expand distribution and just kind of overall do you think you need to emphasize that more as you try to grow the market?

I think we certainly have grown the market over the past years. I think from a going forward basis surgical ablation is still a new and emerging area for cardiac surgeons, as you point out. In new and emerging markets the name of the game is focus, focus, and more focus. So, we have a highly skilled field team, and a sales and marketing organization that is highly focused on educating and training physicians not just on the attributes of our products, but also how our products should be used in terms of cardiac ablation. At this point in the process I think the best way for us to approach the market is in a very aimed, targeted way, and develop this emerging area through training and education and product innovation.

I got it. So, you are not concerned about just going to those centers that aren’t doing EP ablation, saying hey you are doing these valves. You know, how do we get them engaged into a concomitant surgical approach? I mean, I guess ATS Medical has kind of that valve, you know, ablation I guess, at maybe an easier access point. Do you think focus right now is more important than trying to broaden that out?

We do. Certainly Medtronic and Edwards have large shares as do St. Jude and CarboMedics have large shares in the market space for valve procedures. We think that the majority of valve procedures that are being performed, they are still not being performed when patients have atrial fibrillation with a cardiac ablation product. These companies like Medtronic and Edwards and St. Jude that are out there marketing valves, there is still a large opportunity for AtriCure to penetrate that open market, which we believe is about 30% penetrated in the U.S.

How many accounts are you in, in open heart centers? I guess there are like, what, 800 of those in the country?

Yes, we have sold product over the last 12 months into more than 700 U.S. accounts.

So you are in most of the accounts that you need to be in?

Correct.

Okay, thanks.

Your next question is a follow up from Charley Jones with Barrington Research.

On that point, remind us how many active Cryo accounts you have from Futurtronics and tell us what your plans are for a new system and whether or not you really need a new system to get adoption going in those accounts that already have a Futurtronics system.

To date there have been about 400 Futurtronics systems placed in the U.S. that we are aware of. Our plan is to upgrade those systems so that they are compatible with our reusable probe. That is plan number one. That plan in the initial pilot has gone extremely well. The advantage of that is beyond the concept that Futurtronics uses the gold standard for cryo therapy based on a 30-year history of safety and efficacy is that physicians can use both a long disposable probe and a reusable probe. We think that that model bodes very well for us in the marketplace. So, if you look at our reusable products, our disposable cryo products, and then our radio frequency systems for open and minimally invasive procedures, combined with things like the pen, our mapping system, and then the clip we believe that we have a very broad platform for physicians to choose from in terms of extending our adoption within existing accounts that we currently sell.

Thanks Dave. Do you have any feel for what your safety rates will look like compared to Watchman? I know this is kind of a competitor and a friend, but I was hoping you could kind of give us an idea of where you think you are going to fit in here?

We view Watchman as much more of a friend than a competitor, somewhat complimentary but different markets. As you know, the composite endpoint for the Watchman device, the number of adverse events was presented at 8.7%. We believe that our clinical trial will show a significantly less number of adverse events compared to that 8.8%.

There is not going to be a drastic difference between the types of events in your opinion, or is that where it gets a little touchier?

They are just very different devices. As you know the Watchman requires a large introducer sheath across the septum. It requires a device that patients are implanted with, but also requires Coumadin for a minimum of 45 days and then Plavix for six months thereafter and a lifetime of Aspirin. So, they are very different devices. With the clipping system since the device is not being implanted into the circulating blood pool there is no need to specifically prescribe Coumadin or any other antiplatelet or anticoagulation drug in combination with the clip. We think that patients will really like the clip system because they won’t be committed to any drug therapy, especially a lifetime of Aspirin or 45 days or more of Coumadin.

Can you give us an update on where the new RF clamp is and when you expect that to be approved?

We expect to release it in the U.S. during the fourth quarter of 2009. It is an articulating clamp. We think the clamp platform will drive new opportunities in the open, because of its additional features, so it will be a premium clamp for the open markets, but importantly it also helps facilitate physicians that are not yet doing thorcoscopic procedures to become more thorcoscopic surgeons and it makes the totally thorcoscopic procedure more achievable for more surgeons.

Okay great. Julie, could you give us an idea on how much the clinical studies are adding to your R&? It seems like it has picked up a little bit. Do you expect it to stay at these levels for the rest of the year and pretty much here on out, or could we see some drop later in the year as clinical studies wind down?

We don’t segregate out clinical studies done, but I think if you look at the R&D line in aggregate we would expect that to have a little bit of choppiness, but on a run rate basis. I think what you are looking at is a fairly good run rate.

All right great. Thanks again.

At this time there are no other questions in the queue. I would like to turn the call over to Mr. Dave Drachman for closing remarks.

Thank you very much for joining us today. We look forward to the next earnings call and continued progress. Thank you.

Thank you all for your participation in today’s conference call. This concludes the presentation. (Operator Instructions) Have a great day.