Good morning ladies and gentlemen my name is Dan and I will be your conference operator today. At this time I would like to welcome everyone to the AtriCure, Incorporation’s Third Quarter 2009 Earnings Conference Call. (Operator Instructions). 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 Dan and welcome to our Third Quarter 2009 Earnings 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, governmental approvals 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. Additionally, we will refer to non-GAAP financial metrics during the call today. A reconciliation of these non-GAAP measures is included in our press release which is available on our web site. 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 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. We will begin with opening remarks and then address our progress toward achieving our strategic priorities. Next we will review our performance for each of our three business sectors, 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 questions. Consolidated revenues for the third quarter of 2009 were $13.3 million. On a sequential basis revenues declined 3.6% which is consistent with the impact of seasonality. The reduction in revenues was primarily attributable to a decline in ORLab related sales similar to the previous quarter. During 2009 we have been focused on factors within our control, execution, cost management, resolving the Department of Justice investigation related qui tam complaint and ensuring that we remain focused on opportunities that will enhance patient outcomes, accelerate profitability, and restore sustainable high growth. Although the macro economic environment and the Department of Justice investigation have made this a challenging year, we continue to develop new break through products and procedures that we believe will drive growth and increase shareholder value. Our investments in FDA clinical trials in support of atrial fibrillation approvals are consistent with the large and growing opportunity for effective AS treatments. The markets for effective atrial fibrillation technologies offer tremendous growth opportunities given favorable trends such as rapidly aging populations, significant unmet clinical needs, scientific and technological advances, and geographic development opportunities. According to statistics recently released by the Agency for Healthcare Research and Quality the number of hospitalizations for arrhythmias such as atrial fibrillation rose by 28% between 1997 and 2007. Irregular heartbeats such as atrial fibrillation are currently the 7th most common reason…

Thank you, Dave. I will begin by providing the sector information related to revenues. Revenues from domestic open-heart products were $6.5 million. Minimally invasive domestic revenues were $4.2 million, and international revenues were $2.6 million. Total revenues were $13.3 million as compared to $14.8 million for the third quarter of 2008. Sequentially total revenues decreased 3.6% reflecting seasonality. International revenues were 9.6% on a GAAP basis and 11.1% neutralizing currency fluctuation. As a reminder, revenues from our 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 margin, gross margin for the third quarter of 2009 was 75.3% as compared with 77.1% last year and 77.4% for the second quarter of 2009. The reduction in gross margin was primarily due to an increased mix of international revenues. These increases were partially offset by an expansion of domestic gross margin driven by a reduced mix of sales from capital equipment. Next, I will give you an update on operating expenses and our net loss per share: Operating expenses excluding the $3.8 million settlement reserve were $10.7 million, a $2.6 million or 19% decrease as compared to last years third quarter operating expenses of $13.2 million. The reduction in operating expenses was primarily due to reduced headcount related expenses of $1.7 million driven primarily by our fourth quarter 2008 reduction in force and a reduction in marketing and education related expenses of approximately $400,000.00. The reduction in research and development expenses of approximately $400,000.00 was due primarily to the timing of external costs associated with product development activities partially offset by increased expenses in support of our clinical activities. I do not expect us to retain this…

Thank you, Julie. In terms of our outlook within our markets we have a favorable demographics and significant unmet needs globally. During the year we have aligned costs with revenues, executed our clinical trial initiatives, strengthened our position as market leaders, and introduced new growth platforms. Going forward we aim to increase operating leverage through growth. In closing, let me add that I am privileged and humbled to work with a group of great leaders and associates who are doing their best to improve patient care and drive value for our shareholders each and every day. With that, we will open the call to your questions.

(Operator Instructions) Your first question comes from Tim Lee from Piper Jaffray.

I have a couple of big picture questions. In terms of the overall market trends in the intraoperative cardiac ablation market what type of trends are you seeing? It seems to me like the overall market has slowed here a little bit and I just want to get your perspective.

Sure. We do think that there has been a slight plateau to the market, which is not unusual; however, we also believe that based on the expansion of our minimally invasive platform and new and exciting procedures and technologies that there will be an acceleration of growth both in the open-heart and the minimally invasive markets.

Then in terms of the timing when do you anticipate that growth in the market? Does it occur at a mid 2010 type event, or do you expect a couple more quarters here of overall modest market growth?

I think the acceleration of growth in your timeframe is a reasonable way to look at it, sort of the mid 2010 and moving forward. We anticipate growth in both the open-heart and minimally invasive markets. In fact, the Cardiovascular Roundtable predicts that the open-heart number of procedures will actually double over the next five years. So I think, again, it is not unusual for a plateau in emerging growth markets, but with the expansion of minimally invasive procedures, new technologies, and solid reimbursement we would anticipate that growth will reaccelerate over the next year and going forward.

On the ABLATE trial, one, when do you expect to present those results in a scientific forum, and two, just in terms of the number of patients given a lot of atrial fibrillation studies have a much, much larger number of patients and from a statistical standpoint 55 may be the right number, but from a marketing standpoint trying to convince a physician that hey this is labeled and this is how it is going to work, is that really enough to get some of the referring physicians to say that this is the right therapy for my patient?

Well certainly in terms of the 55 patients we did follow our FDA approved plan and the study called for 50 to 100 patients; so at 55 patients the interim analysis is highly predictive of a successful clinical trial and the statistical plan basically calls for cessation of enrollment when you meet the decision making rules, so, we are following our protocol. In terms of the numbers of the patients we hear you and that is why we are discussing with the FDA some form of a continued access protocol that will allow us to build the clinical body of evidence to present at the panel. In terms of when we will see the results from this clinical trial, they will be presented first at the FDA panel.

In terms of specific trials for labeling, when do we expect to see something similar on the Cryo 1 probe?

We don’t currently have any plans to advance any labeling trials for our Cryo 1 probe. The Cryo 1 probe, I think you know, is approved for the treatment of cardiac arrhythmias.

Thank you.

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

I would like a follow up on the trend side of things. You should be returning to growth here in Q4 and obviously there has been a lot going on in your business this year. Once we see some of those issues subside like ORLab anniversary, no sales, procedure volumes being a little bit slower, reduced marketing spend etc…what do you see your base business growing over the next couple of years?

In terms of our base business, Matt, are we talking about our open business?

The existing business excluding any benefits from sage or clip or label etc…

We anticipate the restoration of growth to our core business in 2010.

Okay so maybe then we can layer in AtriClip, can you give us a little more on your plans for penetrating that market? I think we have characterized it maybe as a few hundred million dollars, how much of that do you think you can get in the first year or two? In terms of the labeling considering some of the patients in EXCLUDE did not have preexisting AF will that be a population you can target?

Certainly the labeling will indicate left atrial appendage exclusion and so there are 80,000 patients that undergo elective open-heart surgical procedures today and the market as, I think you and Tim indicated, is only 35% penetrated and it has somewhat reached a plateau; however again, we do believe that that will accelerate going forward. But, the Clip is really indicated for any patient that has atrial fibrillation, so some of these patients that are not being ablated might be a good indication for our Clip. In addition, as you pointed out, in our EXCLUDE clinical trial 40% of the patients that received the Clip did not have a preexisting history of atrial fibrillation, so we do believe that there are physicians in the marketplace that believe if patients have structural heart disease and markers for developing atrial fibrillation that it’s a clinically relevant thing to do to exclude the left atrial appendage. So, we think there will be a mixed group of physicians. Some physicians will stick to appendage exclusion for ABF only and we do think that there is a growing trend toward being more aggressive in those patients that may just have markers for developing atrial fibrillation.

Okay thanks and on the pace of the roll out how aggressive are you going to be with AtriClip next year?

It will certainly be somewhat contingent on the timing of our 510-K clearance. We will submit the 510-K actually, which includes our EXCLUDE clinical data, this month and the FDA will have 90 days to respond. They have already had the technical dossier to review the device itself, so we will certainly wait to hear back from the FDA 90 days from the November timeframe and we plan to be very aggressive in launching the Clip as soon as we receive 510-K clearance which, as we have stated in the past, we anticipate during the first half of 2010.

Assuming approval and timing comes in line with expectations, how aggressively are you going to roll the product out?

We will roll it out highly aggressively. This is actually one of the products we have that doesn’t require a lot of service. We have been in Europe and seen people place this clip; once they place it they’re trained. So, we can move the market extremely swiftly with this product. Unlike, for example, our Cryo 1 system which requires a significant amount of training, this product once you do one procedure you are trained on the technology; so it offers the ability to move much more rapidly through the marketplace.

Okay and my last question is on Deep AF. Can you give us a little more of a timeline on that study and is there any potential for a partnership on the EP side?

In terms of the timing of the study we have an investigators call tonight. We anticipate filing the IDE either this month or next month; the FDA has 30 days to turn that around. We believe that we have a handful of investigators that we are talking to and some of which have been selected. Once again, we believe that we will start the clinical trial pending FDA approval of our IDE during the first half of 2010. We are very encouraged about this solution, by the way. The concept of combining a surgical approach, or an epicardial approach with a catheter or endocardial approach, we believe provides the best possible treatment alternative for these patients with long standing persistent atrial fibrillation, which are currently often not being treated today. Once again, we are very excited about the concept of entering into the study and the potential contribution that this procedure may be able to make, especially to those chronic forms of atrial fibrillation.

Your next question comes from Jason Mills from Canaccord Adams.

I would like to follow up on some earlier questions. Dave, in the fourth quarter you don’t have the type of seasonality you typically see in Q3. While you won’t have the roll out of some of the new products, it seems like, at least sequentially, growth may be a bit better. What should we look for in Q4 in terms of both open-heart and minimally invasive as well as your stronger push internationally to provide in terms of sequential growth here from the third quarter?

Well, Jason, we haven’t provided guidance. We certainly anticipate sequential growth going into the fourth quarter and as you point out we don’t have the impact of seasonality. In addition, we are not really up against significant ORLab related sales, so things begin to normalize in the fourth quarter and certainly being to normalize during 2010.

Julie, on gross margins, there were also things that impacted gross margins sequentially in this quarter, including a higher mix of international sales. You did mention domestic gross margins were higher. If you are expecting a little bit better mix of US versus OUS sales in the fourth quarter can we return to the levels that you saw in the beginning, or the first half of the year, or should we expect something between that and what you put up here in the third quarter. How should we think about gross margins as you move forward?

We do expect gross margins to fall between 74% and 77% and they tend to fluctuate quarter-to-quarter for a variety of reasons. I would expect them in the fourth quarter to actually end up more, if you wanted to narrow that range a little bit, I would anticipate them to be more in line with the fourth quarter for the upcoming quarter here.

So the fourth quarter of last year?

No, no, this third quarter, I’m sorry.

So a bit better on a year-over-year basis, but not similar to what you saw in the first half then.

That is correct.

Okay that is helpful and then back to the AtriClip Dave, as you roll that out in 2010 you mentioned that it is being used initially in preference testing in both open-heart and minimally invasive. How should we think about its contribution to growth in each of those segments as you roll it our post the 510-K clearance?

That is a good question Jason, certainly many more open-heart procedures. So, in terms of its contribution we would envision that it would be much more widely used and adopted initially in the open-heart area just based on the pure number of procedures, both patients that are getting ablation and those patients that are not receiving ablation, they still might be good candidates for a left atrial appendage exclusion.

Okay great and as it relates to AtriClip are you seeing any pick up in awareness, at least initially in Europe, as you have launched your product obviously on a limited basis in addition to Atritech’s catheter based product and their push in Europe as well, are you seeing both products in the market raising the specter of awareness in that market? Going forward how do you think that contributes to the number of physicians that do seek to get trained and use the product on a more sort of normal basis?

We certainly do see Atritech in the market and we certainly believe that the fine job that Atritech has done has certainly raised the awareness, not just of the left atrial appendage, but as you know their studies linked the left atrial appendage to AS related stroke and was really the first data to do that. We believe that the Atritech system providing an endovascular solution and AtriCure providing an epicardial solution are very complimentary technologies and certainly we think that the data that Atritech has provided the clinical community bolsters our position as a company.

Great and just a bit more on the details on the Deep AF trial if you can, Dave, just in terms of the number of patients that you are expecting to enroll, what the endpoints are going to be, follow up, etc…Is there anything in terms of details that you can give us at this point?

Well sure. This is Phase 1 so this will be a feasibility study. We would hope the FDA would approve five centers and 30 patients and while we are executing our feasibility trial we will be working with investigators to plan a pivotal trial, which we anticipate to be a randomized trial, in the order of magnitude of somewhere in the range of 200 to 300 patients.

That is helpful, thanks.

Your next question comes from Larry Haimovitch from HMTC.

Dave, on the US open you mentioned that sales were down year-over-year. Do you have any sense that the market is down a little bit, or is it market share issues? What is your sense about that number?

I do think that the market is down somewhat. I think that is choppy. I think if you talk to certain sites they will tell you that their volume is relatively steady, but I do think in general the market for cardiac surgery is slightly down; so there may be some impact from that. I also think to some degree we reached a little bit of a plateau phase. We are in that 30%, 35%, maybe 40% penetration level in the market and we need some exciting new technologies and maybe some stronger education and some push from new procedures like minimally invasive and hybrid approaches to really re-excite some of the physicians that aren’t being as aggressive with the open-heart procedures.

The 30% to 35% number you are referring to is the number of atrial fib treatments within open-heart, is that what that number is?

Correct, correct.

Then minimally invasive, I think it was last quarter you talked about the fact that there had been a little bit of pricing pressure, you had brought your prices down. I didn’t hear you say anything on this call about that. Could you talk about pricing in minimally invasive?

Yes, the pricing, I’m sorry if there was a misunderstanding on the previous call, but the actual product pricing has remained relatively constant. What we have seen is, for example, many physicians like to use two clamps: we have a clamp for the right atrium, or I should say the right end from the right pulmonary veins and the left pulmonary veins, they have different curves; so some physicians like to use two clamps to perform a procedure and that is the way we initially trained the procedure. Now certain key trainers and proctors have gone to using a single clamp technique; those clamps are premium products. So, we have seen a fairly high number of centers revert to a single clamp technique which has not impacted our ASP per product, but has impacted our revenue per procedure.

I remember that now from the last call, yes.

And that is something that we actually envisioned and this Synergy Access platform is designed to be a single clamp product and provide some other features like articulation and facilitates totally thorcoscopic procedures; so the Synergy Access, we think, is a compliment to that current trend. Plus, we also believe that there are certain ceilings on what we can expect in terms of revenue per procedure on minimally invasive procedures. So, as we launch new products like the Clip and other new technologies into the minimally invasive arena we want to be sensitive to the fact that there is a likely ceiling in terms of the revenue per procedure that can be derived and we also want to maintain our strong gross margins and not discount individual prices. We think the Synergy Access really fits into that strategy and that’s why we plan to launch that in the US, if the regulatory approvals coincide with the AtriClip system.

Yes. No, I think you said minimally invasive was up 7% year-over-year. Do you think the market is growing that fast, or are you continuing to gain share in that sector?

Just to be clear Larry, minimally invasive was up 7% quarter-over-quarter sequentially.

Oh sequentially, okay and year-over-year was down?

Year-over-year was down fairly significantly, but again it was down related primarily to ORLab sales. But, the number of procedures year-over-year were up and the number of procedures sequentially were up.

Okay, so what we are seeing is that the market in terms of procedures is strong. There is pressure on ASPs because people are economizing and using fewer clamps.

Yes, I think that is a correct characterization.

And your revenues are down year-over-year because last year had the ORLab as more of a 1x sale rather than ongoing disposable use?

Right and I think you remember that our strategy was to place the ORLab in the 80+ MIS accounts and we did the bulk of that in the first three quarters of last year, we sold the ORLab and that ORLab basically derived about $30,000.00 worth of revenue per platform. That was approximately the average ASP for ORLabs, so you can envision 80+ accounts $230,000.00 per procedure that a significant aspect of our minimally invasive growth last year came from the sale of the ORLab.

So then if you take 80 ORLabs times $30,000 it’s $2.4 million; if you say that was evenly spread that would be about $800,000 in Q3 last year which you didn’t have this year.

I think you are in the ballpark there.

Okay, great. So that big effect is past now and in Q4 we won’t have that tough of a comparison?

We will have a marginal comparison in Q4. We won’t be completely normalized; in the first quarter of 2010 things really turn to a normalized year-over-year comparison.

Okay Dave, thanks very much.

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

First in terms of Cryo 1 what was the ballpark revenue contribution in the quarter?

We would rather not share the average selling price per procedure based on just the competitive landscape and the competitive nature of our business, but since we launched our Cryo 1 system in June we have sold Cryo 1 into 60 US accounts.

Okay and then secondly, I think it was late last year you stopped providing kind of your financial targets just given some of the overhangs that you have, but now with the DOJ here behind you will you start providing some of your financial targets that you will be looking to hit here maybe in 2010 and going forward?

Julie and I are in deep discussion about end guidance and what the best practices for AtriCure should be on a going forward basis, so we are not prepared to answer that question on this call, but we will certainly be addressing it during the next earnings call and going forward.

Great, thank you.

I would now like to turn the call back over to Mr. Drachman for closing remarks.

We thank you very much for the call and we look forward to our upcoming earnings call in the near future. Thank you very much. Good-bye.

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation. (Operator Instructions). Have a good day.