Good day ladies and gentlemen and welcome to the fourth quarter 2010 AtriCure, Incorporated earnings conference call. My name is Towanda and I will be your coordinator for today. At this time all participants are in listen only mode. Later we will be facilitating a question and answer session. If at any time during the call you require operator assistance please press star followed by 0 and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn this presentation over to Mr. David Drachman, President and CEO. Please proceed sir.

Thank you Towanda. Good morning and welcome to our fourth quarter 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 Towanda. Good morning and welcome to our fourth quarter 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 Luken 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 undertake 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. 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 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 or for stroke reduction. The company and others acting on its behalf may not promote any of its products or transactors for the surgical treatment of AF or stoke reduction. These restrictions do not prevent doctors from choosing to use the products for the treatment of AF or stroke reduction 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. AtriCure educates and trains doctors in the proper use of its products and related technologies. With that, I would like to turn the call back to Dave.

Thank you Julie. Fourth quarter 2011 revenue was $16.4 million, which represents AtriCure’s highest quarterly revenue in constant currency revenue growth of 20%. Domestic revenue was $13.1 million, up 21% and international revenue was $3.3 million, up 18% on a constant currency basis. These results reflect our team’s successful execution of our 2010 strategic priorities. In terms of profitability and operating leverage we reported positive quarterly net income for the first time and fourth quarter adjusted EBITDA was a record $1 million. These results reflect our continued focus on cost control and high gross margins while investing in innovation, sales force expansion and obtaining regulatory approvals. Turning to an update on our US sales force realignment and expansion activities and highlights of revenue results by sector, we have completed the realignment and expansion of our sales organization, which resulted in an increase from 30 to 39 sales territories. We currently have 64 sales and sales support professionals in the US representing a 20% increase since the beginning of 2010. Our open heart business grew $2 million or 30% over the fourth quarter of 2009, which reflects growth in both our radio frequency and cryo-ablation products, which grew 11% as well as $1.3 million in sales from the AtriClip system during our first full quarter of sales. Fourth quarter 2010 sales of minimally invasive products were $4.3 million including approximately $300,000 in sales from capital equipment. Adjusting for capital equipment sales, minimally invasive product sales were flat with the fourth quarter of 2009 and increased sequentially. Fourth quarter international revenue of $3.3 million was up 18% on a constant currency basis and accounted for 20% of total revenue. We are encouraged by these results which primarily reflect our investments in the expansion of direct sales in Europe. Now turning to our…

Thank you Dave. I will begin by providing information related to revenue. For the fourth quarter of 2010 total revenue increased 19% or 20% on a constant currency basis to a record $16.4 million. Revenue from domestic sales grew $2.3 million or 21% to $13.1 million. Revenue from domestic open heart products increased $2 million or 30% to $8.7 million driven primarily by 1.3 million in sales from the AtriClip system as well as an increase in sales from both our open heart, radio frequency and cryo-ablation platforms. Minimally invasive domestic revenue for the quarter was $4.3 million and includes approximately $300,000 in capital equipment sales. Adjusting for capital equipment sales, domestic minimally invasive revenue was flat as compared with the fourth quarter of 2009 and reflected double digit sequential growth over the third quarter of 2010. International revenue grew 11% or 18% on a constant currency basis to a record $3.3 million. The increase in international revenue was driven primarily by growth in our direct European markets. As we enter 2011 we will be making a change to our revenue reporting. Beginning with the first quarter of 2011 we will report our US sales in two categories, ablation related products and the AtriClip system. We are making this change as it is becoming increasingly more common for our products to be utilized in either an open heart or minimally invasive ablation procedure. As a result, we believe that our current reporting my not be reflective of product usage. Now turning to gross margin, gross margin for the fourth quarter of 2010 was 75.1% as compared with 75.2% for the fourth quarter of 2009. The change in gross margin as compared to the third quarter of 2010 of 77.2% was primarily due to a change in product mix resulting from…

In terms of outlook, the AtriCure team plays to win. We believe that we have shown the resolve to will and the will to win even though we were temporarily challenged. We will continue to play to win. We believe that AtriCure is well positioned to capitalize on our current momentum and our near term and long term growth opportunities. Sales force expansion, the AtriClip system, new product introductions, atrial fibrillation approvals, minimally invasive and hybrid procedures on the horizon, the continued growth prospects from our international markets and entering the stroke market with our thoracoscopic standalone AtriClip deployment system is a plan that we believe will result in sustainable high growth. We will now open the call for your questions.

Thank you. Ladies and gentlemen, if you wish to ask a question please press the star followed by 1 on your touchtone phone. If your question has been answered or you wish to withdraw your question simply press star followed by 2. For the Q&A session we ask that callers limit their questions to one with one follow up to allow for broader participation. You may rejoin the queue to ask additional questions. Please press star, 1 to begin. Your first question comes from the line of Tim Lee with Piper Jaffray. Please proceed

Hi. Good morning and thanks for taking the question. I guess just first start on the ablate data. I know you submitted the final module in December. So when can we expect to see that? When will that be presented in a public forum?

Well, the ablate data was recently submitted. So it was recently updated with longer term data. Initially we had a series of investigators which has now expanded with our ablate AF registry. We’re currently putting in place a publication and presentation committee that will begin to plan for publications and presentations. I would anticipate they would begin to see a series of presentations and publications during the second half of this year.

Got it. Thank you. Very helpful. And then just from a financial perspective - solid numbers here this quarter. First from a cash flow position, should we expect the company to be cash flow positive on a quarterly basis here on a going forward basis? And on the adjusted net income side can we expect to see sustained or regular profitability on that front as well?

Yes. So with respect to cash obviously it’s dependent on our - the biggest driver is going to be revenue during 2011. So as you think about cash on a quarterly basis we would continue to anticipate similar trends as we have in the past. So for example a heavier use of cash for operations during the first quarter and then fluctuations into the back end of the year, pretty consistent dependent on working capital needs and fluctuations there. And in terms of profitability again we’re not giving guidance with respect to profitability and we do anticipate an uptick in SG&A as we commented.

Thank you. Those were my two and I’ll get back in line.

Thank you.

Your next question comes from the line of Jason Mills with Canaccord Genuity. Please proceed.

Good morning Dave and Julie. Congrats on the good quarter. So I have Dave, a growth outlook question and then a clinical question. On the growth outlook question you have several things both launching right now and then products in the pipeline that you’re excited about. We saw the slope change with respect to your growth profile in 2010 and that with not a full year of AtriClip and several products that were launched at the end of the year. So my question is on the top line can we expect with what’s going on in your pipeline for growth to accelerate modestly again in 2011 as it did in ’10 over 2009?

I do believe that we have momentum in our business. The AtriClip system has only been out for one full quarter and we have a series of new products to launch. So we certainly have growth catalysts in the pipeline to help support accelerated growth. I think it’s a little early to tell and to comment on growth trends throughout 2011 at this point.

Okay. So I guess just as a follow up more specific to what’s going on in the US market with the AtriClip device, it seems like you’re not only getting good traction with that device specifically but it may be pulling through some revenue or expectation that it will pull through revenue from the open heart and minimally invasive ablation businsesses. Is that a fair assumption to make? And specific to the AtriClip I believe you’re on a rim right now over 5 million. Would you expect that run rate to continue and sequentially improve as you penetrate more of those 250 existing accounts and then as you mentioned, target competitive accounts? And I have one clinical follow up.

Well, to answer your first question, our strategy is very specifically to use the AtriClip system to get into new competitive accounts during the course of 2011 and then to use our series of new open heart products to create cross selling opportunities and share gains. So we anticipate that that strategy will be successful. In terms of the AtriClip trends I think this is a growth catalyst product and we believe that the AtriClip trends will continue to accelerate during the course of the year.

That’s helpful. And then with respect to the stroke prevention labeling for AtriClip in the trial that you’re planning, presumably that although a stroke prevention labeling for AtriClip would require long-term follow up, presumably you could enroll patients currently on more if for instance the clip is placed on the outside of the heart unlike some of the percutaneous devices. So could you comment on that and other AtriClip attributes which could result in a different protocol for Watchman as we think about the pivotal trial and labeling down the line?

Excellent question. First I want to just clarify that we’ll be meeting with FDA we believe around midyear to review our preclinical and clinical trial design recommendations. Based on the outcome of that meeting we’ll make a decision whether or not to move forward in the US with the stroke trial or not. In terms of the medical management, so if you look at the endovascular device, right now the hypothesis is that these devices are not inferior to (kumenin) which we believe is sort of a moving target with the new anticoagulation treatments being approved and now entered into the new guidelines. So our strategy will likely be slightly different. We’ll be looking at a standalone thoracoscopic placement for those patients where their bleeding scores and there are new bleeding scores such as the HAS-BLED score. And you can use those scores in combination with CHAD scores to create a patient population where the risk benefit ratio of anticoagulation treatment is on the tipping point. Those patients are patients that we would view as being candidates for a thoracoscopic standalone clip and we actually think over the long term that’s the larger opportunity. In the endovascular segment we believe that patients may choose to use some of the new anticoagulation treatments first before an endovascular device. And then those endovascular devices require anticoagulation treatment for at least 45 days, platelets for at least six months and a lifetime of aspirin. So we’re targeting a different patient population, a population of patients where the risk benefit ratio of anticoagulation treatment begins to reach that tipping point. And we’re offering them a different alternative, that’s our clinical strategy. I hope that was clear.

It was. It makes a lot of sense. Thanks Dave. I’ll get back in queue.

Thank you.

Your next question comes from the line of Matt Dolan with Roth Capital Partners. Please proceed.

Hi. Good morning Dave and Julie.

Hi.

Good morning Matt.

Just wanted to follow up on AtriClip in a two-part question I guess. First, Dave in terms of the run rate and the trajectory can you help us anecdotally speaking? I’m assuming you’ve obviously gone after your best accounts right out of the gate. How difficult is it getting into the new accounts tht you’re targeting? How should we think about that process relative to the 30% sequential uptick we just saw in Q4?

Well, again a little early to tell - we just began commercializing the product in July of 2010. So this is our first full quarter and as you said, we targeted our top 100 AtriCure accounts. However, the momentum in the remainder of the top 250 and in certain competitive situations is very good. So we’re very optimistic that the trajectory that we’re currently on with the AtriClip system is sustainable and that the AtriClip system will become a major growth catalyst for the company both in the open heart as well potentially as standalone alternative to anticoagulation or endovascular devices.

Okay. And then on that note in terms of the standalone opportunity, I know this was discussed at STS and that evening event but if your reimbursement and regulatory efforts are successful, what’s your current assessment of that standalone opportunity clinically speaking, meaning are surgeons onboard at this stage? Or is it going to be a bit of a missionary type of program to help create awareness and create this market?

Well, I’ll give you an example Matt. In our deep AF clinical trial we wrote the clinical trial for the stapler because our current AtriClip systems are designed for open heart use. All of our deep AF investigators are fundamentally demanding the use of the AtriClip system in the deep AF trial and have begun using the AtriClip system in the deep AF trial and making it work through a minimally invasive incision. So the surgical community is very enthusiastic about this alternative. We have also had meetings with key people in stroke neurology and cardiology and they believe that there is a significant need for a device that is place epicardially that doesn’t require medical management that again addresses these patients that reach this tipping point where anticoagulation treatment, the risk benefit ratio no longer makes sense and they need another alternative. So we believe that the surgical community as well as stroke neurologists and cardiologists are going to be very much behind a standalone thoracoscopic AtriClip implant.

Okay. And then lastly again appreciate you not providing guidance but clearly a number of variables at work. Maybe you can help us just understand the cadence through the year going in terms of revenue and growth. Have you started to see any competitive conversions? When do these new products kick in and so forth? So what we’re getting at is there kind of a sequential downtick in Q1 and these things start to layer in throughout the year? Is that a fair way to look at it?

I think it’s early to tell about Q1 and we’re not giving guidance as you have pointed out. But we are planning to launch Synergy Access, which is an important new open heart product. Many of our competitive accounts have decided to use the Medtronic clamp because it has a flexible neck. We believe articulation competes favorably with a flexible neck. In terms of cryo, the ICEbox technology puts the controls in the surgeon’s hands. Even though it’s a generator, we think that hardware is going to be favorably received by our customers. And then the ACE cryo probe in the second half of the year we think is a very important new product, a very elegant solution for minimally invasive open heart procedures and will be very well received. So we believe that between the AtriClip system combined with a series of new open heart products that during the second half of the year that we will be getting into more competitive accounts with the AtriClip system and pulling through our new ablation products. And that should lead to sustainable growth.

Okay. Thanks for the time guys.

Thank you Matt.

Your next question comes from the line of Charley Jones with Barrington Research. Please proceed.

Hi. Good morning. Thanks for taking my questions. I guess to focus on the clip I was hoping you could talk a little bit more about the opportunity for reimbursement in Europe, what the timing looks like there, what countries you believe you can get reimbursement for first and any more detail around reimbursement in Europe for the clip.

Well, the UK decision through Nice will be made by the end of this year. So we’ll have more information on reimbursement by the end of this year. We are developing selling strategies, which bundle the clip with our ablation products to allow European accounts to utilize the clip. And once again, at the end of this year 2011 we’ll have selected sites to conduct a CE Mark trial for the approval of a standalone thoracoscopic stroke indication. And we’re very excited about that. We think that that has a large opportunity and many of our European accounts even though they may not have reimbursement, they do reallocate resources to new, growing and promising technologies and procedures.

And then kind of on that same line I was wondering if you could talk a little bit about the size of that patient population that is maybe at a higher risk of stroke due to being at that tipping point you were referring to for when they’re on anticoagulation.

Well, it’s hard for us to actually model the market at this stage. We just have taken a broad brush in terms of the market size. But Charley, if you think about it, the majority of patients that have atrial fibrillation are over 70 years of age. They have a series of comorbidities and many of them are at high risk of bleeding. So we believe that the larger opportunity for left atrial appendage exclusion may be in these patients that are 70 years of age or older and have a series of comorbidities and are at high risk for bleeding. So I don’t want to necessarily give you a firm market size potential. But we believe the market is very big. And in terms of average selling prices if you look at the Watchman device and the AGA, they’re selling the products currently in the $6000 range. So we believe that these technologies that we’re developing will have high SAPs and that there will be a large and growing market for them as we begin to enter these new markets.

Great. I’ll jump back in queue. Thanks.

Thanks Charley.

Ladies and gentlemen, as a reminder to ask a question please press star, 1. And again please limit your questions to one with one follow up. Your next question comes from the line of Jose Haresco with JMP Securities. Please proceed.

Hi guys. Good morning and congratulations on the good quarter.

Thank you.

I just wanted to follow up here on a number of things. On the clip you’re targeting your top 100 accounts. Can you give us a sense of how much of your quarterly volume those accounts are responsible for, number one? And number two, how long do you think it took to get people comfortable with the clip? And I guess if you want to, where do you think those accounts are now with regards to penetrating the total volume of those accounts?

So we launched the clip in July of 2010. We now have 100 accounts that are purchasing and reordering the clip. In terms of the time a surgeon takes to get comfortable with the clip, it’s really one, maybe two implants. The technology is very intuitive in the open heart setting especially. Our timeframe in terms of getting the clip stocked has more to do with the hospital environment evaluation committees and the whole purchasing process in hospitals today. So we now have 100 accounts that are purchasing and reordering/stocking the clip starting from July 2010. We think that is a very significant amount of progress especially considering that we’re dealing with a very challenging purchasing environment. What that means is that the surgeons that tried the clip needed to go to bat to get the clip stocked on their shelves. So we needed a lot of surgeon support to get these 100 accounts to stock the AtriClip system, a very good sign that going forward the clip is going to be a very significant growth catalyst for the company.

On those 100 accounts I guess, what do you think the catalyst is going to be for you guys to move beyond those top 100, number one? And then you touched on kind of the new technology evaluation committees. Are you sensing any sort of - do you see change coming in the next quarter or two or is this still pretty tough out there?

Well, it’s interesting. It’s certainly a price sensitive environment. But if you look at our prices across all of our product lines, our average selling prices have held up. And that’s due to the superiority of our technologies. In terms of the AtriClip system one of the major aspects of our growth strategy for AtriClip open heart and otherwise is the consolidation of sales territories. The fact that we went from 30 to 39 sales territories gives our people more selling time to go through the whole physician trial but most importantly the time consuming process of working with purchasing to get the products stocked on the shelves so that they can be used on a reoccurring basis. So we feel very good that we have now 39 territories, 64 sales people in total, which again is a 20% increase from where we started in the beginning of 2010. So the strength of the AtriClip system, the expansion of our sales organization, the number of new open heart ablation products we believe is a very strong growth strategy in the near term.

David, on that point, on those six additional hires, are they now all fully trained and number one, do you see or do you guys start to think about the next 12-24 months, do you see that number expanding more?

They have all passed their initial competency tests. We have different levels of competency so they will be going through additional competency tests. But I don’t think anybody is ever fully trained. We continue to reinforce training and education and we believe that our sales force is very well equipped with information technology and support from the company to accomplish their mission.

Okay. Julie, you talked about G&A kind of stepping up here in the quarter or next year. So in terms of modeling, is it pretty spread out or is there going to be any lumpiness that we should be aware of?

Yes. I would expect continued trending with historical. So typically in the first quarter we have an uptick in operating expenses. We have some major industry events, we also have our national sales meeting and then we’ll just beyond that I think you’ll have a more kind of flattening of expenses, consistent increases.

Okay. Thank you very much.

Your next question is a follow up from the line of Charley Jones with Barrington Research. Please proceed.

Just two quick follow ups - I was wondering if you could discuss the minimally invasive trends and the accounts that are in your feasibility trial. Are you starting to see those accounts increase more than your other accounts and can we expect that to continue as that trial - as the number of accounts in your next trial stands?

We are. We have got now three of the six enrolling. By the end of the quarter all six will be enrolling. And we’re certainly seeing an uptick in momentum in our deep AF FDA sanctioned clinical sites. So we’re encouraged by that. As we move into a pivotal trial in 2012 we believe that moving from six to approximately 30-35 centers will create a buzz in the market and it will create more awareness about the opportunity for hybrid programs. And that centers outside the trial independently of AtriCure will decide to adopt hybrid programs as a standard alternative for patients with persistent forms of atrial fibrillation and the growing number of patients that have held single and multiple catheter attempts.

A quick follow up on that - can you discuss - can you give us a couple of the ranges you’re seeing out there from single center studies out of Europe for a deep AF type of procedure? I think there are a couple of doctors out there with six months or a year data. I was wondering if you could (kind of share) the range that you’re seeing as far as success rates.

Well, there is a publication coming out that we’re aware of with 18 months’ worth of follow up that has very rigorous monitoring off antiarrhythmic drugs. All these patients had longstanding persistent forms of atrial fibrillation and failed at least one catheter procedure. And the 18 month results with very rigorous monitoring was 85% off antiarrhythmic drug.

That is helpful. And the last question is kind of a tough one but I’m hoping you can answer it. Do you believe the AtriClip system can demonstrate a lower stroke rate than St. Jude or Boston’s recently acquired products will be able to show?

What I believe is that we have a better acute closure. The appendage when you look at it from the inside Charley, looks like a football. It’s an elliptical structure. We have a parallel closure system so the clip opens and it closes in a parallel fashion. Imagine parallel closure on an elliptical structure. We believe that we get the best end to end anastomosis on the endocardial surface of the heart. And that occurs acutely versus the endovascular devices, which occur over time. Additionally, we have data from 55 animals to suggest that there is an endothelial layer that grows over that anastomosis within 7-14 days. Also, we have data that suggests that the neighborhood around the appendage becomes electrically isolated. EPs are very high on the concept of electrically isolating the left atrial appendage because it’s become known that more and more triggers come from the left atrial appendage especially in patients with persistent forms of atrial fibrillation. So we believe the clip provides for a better acute closure. We believe the clip renders the neighborhood around the appendage electrically isolated, which is an antiarrhythmic benefit and we believe that the clip has a significant advantage that the device implant itself does not require any medical management. So we believe that there are a series of reasons to be very optimistic that the clip with a thoracoscopic deployment system will compete very favorably in the standalone market for LAA exclusion.

I’ll take that as a yes. Thanks a lot. I appreciate it.

Ladies and gentlemen, that concludes the question and answer session. I would now like to turn the conference over to Mr. David Drachman for closing remarks.

Thank you for your time and attention. We look forward to our next earnings call. Thank you.