Good day, ladies and gentlemen and welcome to the AtriCure Inc. 2015 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session and instructions will be given at that time. [Operator Instruction] As a reminder, today’s program is being recorded. I would now like to introduce your host of today’s program Lynn Pieper, Investor Relations. Please go ahead.

Thank you. By now, you should have received a copy of the earnings press release. If you have not received a copy, please call 513-755-4136 to have one e-mailed to you. Before we begin today, let me remind you that the Company’s remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control, including 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. AtriCure undertakes no obligation to publicly update any forward-looking statement. Additionally, we may refer to non-GAAP financial metrics. A reconciliation of these non-GAAP measures with the most directly comparable GAAP measures is included in our press release, which is available on our website. With that, I’d like to turn the call over to Mike Carrel, President and Chief Executive Officer. Mike?

Thank you, Lynn. Good afternoon and thank you for joining us. We are pleased to report solid third quarter results which reflect continued execution on our commercial, clinical, and education strategic initiatives. We also recently closed the acquisition of nContact further expanding and strengthening our presence in the Afib market. As I communicated a few weeks ago, we raised our revenue guidance for 2015 to a range of $129.5 million, $130.5 million. We’re very excited about the combination which we expect to drive organic growth at or above 18% level, an increase from our previous growth objective in the mid-teens. As a combined entity we have a stronger platform to advance our goal of being the leader in the treatment of cardiac arrhythmias. I’m more confident than ever that our end markets are strong and growing, and the acquisition of nContact will prove to be very beneficial to patients, physicians and all of our stakeholders. We have many new products indications, a strong pipeline of additional products and clinical trials that will be a catalyst for driving continued growth for many years to come. Looking at the third quarter, our revenue was in line with our preannouncement at $31.4 million, an increase of 18% as reported and 21% on a constant currency basis, when compared to third quarter of last year. We demonstrated strong growth across all product lines in the U.S. where sales grew 23% year-over-year. U.S. open-heart sales were up 16%, MIS was up 27%, and AtriClip system sales were up 38% in the quarter. Open clip was up 36% and AtriClip Pro grew 44%. Internationally, revenue increased 2% as reported and 13% constant currency, again negatively impacted by the weak euro. We continue to see strong growth from our direct sales channels driven by key contributions from…

Thank you, Mike. For the third quarter of 2015, revenue increased 18% on a GAAP basis to $31.4 million. On a constant currency basis worldwide revenue increased 21%. Revenue from product sales in the U.S. was $24.7 million, an increase of 23% from the third quarter of 2014. Revenue from open chest ablation-related product sales in the U.S. increased by approximately $1.8 million to $13 million, representing growth of 16% driven by our education and training efforts as we build the still underpenetrated market for concomitant surgical ablation. U.S. sales and product used in minimally invasive procedures increased approximately $1.1 million to $5 million, up 27% and driven by all MIS products. As with the earlier quarters, the fusion product line continued to grow faster than expected. Continued development of clinical data and support of MIS ablation for the treatment of Afib through trials such as our DEEP and CONVERGE IDE studies are critical to growing this market over the long-term. U.S. sales of the AtriClip system, during the third quarter of 2015, were $5.9 million, as compared to $4.3 million for the third quarter of 2014, an increase of 38%. We continue to be encouraged by the strong performance of this part of our business with very strong growth in both the open and MIS AtriClip products. International revenue grew to $6.7 million, 2% on a GAAP basis, and 13% on a constant currency basis as compared to the third quarter of 2014. Strengths included the direct markets in the EU and certain distributor markets. Gross margin for the third quarter of 2015 was 71.5% as compared with 70.8% for the third quarter of 2014. The primary drivers of improvement were the increased mix of U.S. sales, and the elimination of the Estech’s transition related expenses recorded in 2014.…

Great, thank you, Andy. We are pleased with our sales performance and other accomplishments in the third quarter. As the only company in the world with an FDA approval to treat the most serious forms of atrial fibrillation, we continue to be committed to advancing the field. And we’ll now turn the call over to questions.

[Operator Instructions] Our first question comes from the line of Danielle Antalffy from Leerink Partners, your question please.

Hi, good afternoon guys. Thanks so much for taking the question. Mike, I know you touched on this a few weeks ago when you announced the nContact acquisition. But I think one of the initial concerns was potential cannibalization of the existing minimally invasive business. I wonder if you could remind us and/or elaborate on comments you’ve made on that call. On how is actually complementary other than the obvious [ph] which is you’re removing a competitor from the market. How are the addressable markets actually different here if it all?

Well it’s the same basic patient population, Danielle. So that part is actually the same. The other thing is as same as you’ve got an EP and a surgeon working together in the heart team concept that you’ve seen in [indiscernible] and other areas. So those areas are actually very similar. The part that’s different and what differentiates this and why this is really important is it, this allows us to go after that multi-billion dollar opportunities, the minimally invasive space, where a Sole therapy treatment for the persistent and the long-standing persistent patients. The reason for that is think about the two you’ve got on one end of the DEEP procedure and the on the other one you’ve got the CONVERGE procedure. And they really have different EP preferences and different surgical skills to accomplish both of those. And so, we think with the combination of both approaches, we’ll be able to basically get the majority of EPs and surgeons to be comfortable with the overall procedure. Just having the DEEP procedure by itself that was really geared towards a surgeon, who has skills on the video assistant side is comfortable with the VATS procedure has a commitment to basically making sure they get the appendage every single time they’re doing the procedure and has a more robust ablation profile on that one. The other one is for somebody who may not be as comfortable on the surgical side going after the VATS procedure or it might be an EP, who wants a little bit less pain for their patient. And so they get much better results than you would get with the catheter-based procedure and that surgeon may not be able to do or want to go out and do the training necessary to do the full DEEP procedure. And so we believe this really kind of allows us to go after that huge surgeon population and EP population that are true in the Afib [ph] patients and many the people that were not available to the DEEP procedure are going to be available to the CONVERGE procedure.

Okay that’s really helpful, thanks for that. And then just one quick follow-up. Obviously a lot of the growth you’re seeing today is being driven by your training programs and I understand you are in the latter thesis for the most part of those screening programs. Wondering if you have centers today that are sort of fully operational from both – I am sorry from the mitral, cabbage and aortic valve procedures. Can you give us a sense of what percentage of their patients they are doing open ablation, of their aortic surgical and or cabbage patients, just trying to understand what the ultimate market opportunity could be here, once all of your centers are doing all three procedures?

Well, I mean the best places I will give you two examples, because these two are the ones that do a lot of our in-person training. So we send people to Asheville, North Carolina with Dr. Grove, and there’s a group that goes to Cleveland clinic of St Vincent’s, Indianapolis, those are centers that basically are at, I would say, 95% of the patients are coming with Afib regardless of its an AVR cabbage or mitral valve are actually getting treated. Now we don’t believe that you are going to have every state in the country get to 95% penetration in their area. So but you can see that the potential is obviously there, when you’ve got less than 25% getting treated today, across all those different platforms. But if you look at the best places and we send people for the training who are actually watching the surgeons, they are watching a combination of cases. You know what, one point that you made where you said we’re kind of at the end of training. Training never ends. It’s actually a continuo process, we’re continuing to learn new ways to train, like I mentioned earlier, we rolled out this masters global training in Boston, we’re are going to be doing another masters global training in New York. We’ve already got almost 40 people signed up for that. So we might have to break it up into two different trainings at weekend. So and these are masters levels of course [ph], these are people who have already been to one or two other courses and they are kind of going into their next level of detail in-depth, during the training programs. And so we’re pretty excited about continuing down the progress that we are making and training. I don’t anticipate that we will slow down in that area, because we think that it’s an incredibly important piece of our business and people want more and more training. The more training they get, the more they want.

Alright, thanks so much, guys.

Thank you. Our next question comes from the line, of Mike Matson from Needham & Company, your question, please.

Hi, thanks for taking my questions. I guess I just wanted to start with MIFs business, the growth there has been pretty strong. I know that you’ve kind of tried set the [ph] expectation a little lower, but I was just wondering, if you could comment on why you think the growth has been so strong there even in the U.S. despite the lack of an approval on the DEEP data yet.

I think what you’ve seen is that there is a huge patient population. We talked about this millions of patients that are not getting treated appropriately and are looking for different solutions. And EPs are beginning to want to treat those patients and looking for ways to treat them. So I think that’s really what’s driving it more than anything else. It’s really kind of organically being driven out of the field by the EPs and surgeons who wanting to partner up and wanting to create better patient care. And we’ve always been a little bit soft in terms of staying, hey we don’t want to set the wrong expectation because if one surgeon leaves one side on another it has – then we’ve got bigger revenue concentration scenario that’s why we get a little bit concerned on that. But we do feel that we’ve got a great base of business there, where people have been doing a really nice job and obviously that’s driving a good portion of our growth right now.

Okay, thanks. And then just on the cryoFORM ablation probe, it’s launched outside the U.S., I guess it’s not launched in the U.S. yet but how big of – can you give us some more detail on this and how big of an impact do you think this could have on your sales is that something that could be materials. And then I guess just same question on the new AtriClip products that you are planning to launch next year.

Yes, all that goes into when we talk about being really comfortable and confident in the long-term growth rate of 18% organically, that’s what gets us comfortable. I believe great companies continue to come out and innovate, add extensions to existing products to expand the market, to grow the number of surgeons that can use the products, get them more comfortable with it. And cryoFORM and both the clip products coming out next year and then we’ll have products coming out in 2017 are really what enable us to feel that confident in those types of growth rates. We feel like it enables us to get more surgeons comfortable using our products, specifically on the cryoFORM, it’s the go after more of the minimally invasive side on that front. So a lot like lateral four economies [ph] where they are doing a minimal invasive surgical procedure and they just want to do more flexible probes. We get a lot of feedback that they would like to have something more flexible to utilize it. I think that that should have some reasonably meaningful impacts on our sales in 2016 for sure. And then on the clip products we anticipate rolling out both those next year and have modest impact on next year but a little significant impact at the end of the year and into 2017 for sure. So what you can see is these cadence of coming out new products, training our team on it, making it simpler and easier for surgeons and making things less and less invasive.

Okay, thanks. And then just quick housekeeping question for Andy, what share account roughly should we be using for the fourth quarter after the deal closed.

Sure. That the total was about $20.5 million before the deal. And we issued approximately 3.7 million shares for the nContact transaction.

Thank you. Our next question comes from the line of Jason Mills from Canaccord Genuity.

Hi, Mike and Andy. Thanks for taking the question. Can you hear me okay?

Yes, we can hear you, great.

Great. I want to go back to your previous question, Mike and you were talking about the advantages of having both the CONVERGE and the DEEP clinical trials. If you could, I know you don’t have a crystal ball to see how these data play out, but what we do know from single-center studies in Europe is that the DEEP methodology or algorithm is delivered fantastic clinical outcomes. CONVERGE has delivered much better clinical outcomes in catheter ablation but that’s not really same that much. And on a relative basis DEEP has been better. To your point there aren’t as many doing surgeons that are comfortable doing DEEP than CONVERGE and you elude today the advantages of having both. But if we fast forward and then these trials we see a clear demarcation of clinical outcomes. How will you position these products through down the line relative to each other, if DEEP is delivering say, 10 percentage points better freedom from Afib [ph] than CONVERGE? Your really going to let the market [indiscernible] on this.

I think your question is very valid and to put some specific numbers to it, the CONVERGE trial single center data, there’s been a lot of data that’s actually been accumulated or many manual scripts and abstracts that have been written on it. They are getting about 85% success on anti-arrhythmics, who have previously used anti-arrhythmics but had failed and they are getting about a 65% success rate or so off the anti-arrhythmics. And so it’s in about that range and that’s for primarily for persistent patient, persistent, longstanding persistent patients. And then the DEEP is like you said about 10 points or 15 points higher and then also you’re getting the advantage of managing the appendage. That being said, I think that you’re going to wind up seeing where the sites are going to make the decision, you’re going to have different EPs or you’re going to prefer the simplicity of coming into the abdomen the less pain, they’re doing it at one setting. And so I’ve been visiting with many of those people and the lot of EPs have a lot of comfort with that, they’re more comfortable referring to that particular patient population and they get results that are significantly better than what you are seeing with the catheter-based results. And that’s why there’s going to be a huge, in our mind market for that procedure and we’ll let the sites decide what’s most important. I mean EPs are making that decision every day, today they’re going to have to make the decision when I’m going to send somebody over for the CONVERGE procedure versus just the catheter procedure. And so I’d to say that, we’ll let the market decide, we think both are excellent procedures they get – they both get very good results and we stand behind the results of both of them. So we’re not going to make a preference to it or just going to basically show them the different technologies that we have and allow the surgeons and EPs to make a decision on their own.

Thank you, that’s helpful. My follow-up question is on concomitant, in our research what came up there was – has been somewhat surprising over the last year or so is that on the CRYO side, notwithstanding that even though, you have the only label, you’re losing what seem to be a fair amount of business to Medtronic, when it comes to those concomitant procedures, in which CRYO is used, where surgeons prefer it or like to use it concomitant to RF. It is hard for us to tell just doing sort of random primary research, just how much in revenue you may be losing. But it seems to be meaningful, so now that you have CryoForm, could you quantify for us at all, what sort of incremental revenue opportunity is now your best, given a better technology in CryoForm?

Yes, I don’t know, that I would say, we are losing Medtronic got – they’ve had a very strong business for many years. It is difficult to get exactly and they are a large company and this is a product line within their surgical division and so it is tough to know exactly, what their sales are per se. And so from our standpoint, I don’t know we are losing business, but it is more difficult to kind of take over some of those sites that we are comfortable with using their technology from before. We do think the CryoForm does open up the market, does allow us to continue to gain share, we’ve gained share. We believe over the course of last three years on the concomitant side of our business overall. And we do think CryoForm enables us to kind of gain some additional share for those surgeons that are looking for a more flexible product in the minimally invasive side.

Thank you.

But to give quantification of that, I mean it basically baked into our number where that’s one of the reasons we feel comfortable and confident with the overall 18% growth number for next year. I’d set out the best way to kind of think about it, is that it just allows us to have the level of confidence to be able to bring up our growth rate for next year and then also for subsequent years, after that.

Thank you, our next question comes from the line of Rick Wise from Stifel, your question please.

Hey, Mike and hi Andy. Let me go back to your goal of the two new products per year. 2016 you talked about its innovative clips can you just dive a little deeper or are you going to do a little bit Mike. Do they facilitate all procedures, do they expand the patient population, it is something that might have a better margin or a better ASP, just to get a little more color on what these might do in first half, second half just any color?

Yes, sure. The products will come out probably one that comes out kind of the end of the first half and one that comes out at end of the second half of next year. And when we think about the two kind of clip related products. In a lot of ways its somewhere to the nContact acquisition which is the – you just got some surgeons that maybe aren’t comfortable using the pro today because of the design of it because of the [indiscernible] on it and maybe they are not just comfortable with it given how they have been trained or where they’ve come from et cetera. So these are to make it much easier to open up that population have more, and more surgeons to be able to use the product in a more minimally invasive environment. And so the idea here is to make things at a more minimally invasive and easier for surgeons to use and just about any studying. And so from our standpoint that’s really been the focus of it. We do anticipate these are much more highly technical products. There will be some increase in the price because of that what we have been determined yet but we are obviously scanning the market kind a get a good feel for that. But we do anticipate that it should open up more doors and more surgeons to use our product.

Got you. And just the second question from the when obviously you had excellent quarter in the U.S. up 23%, I mean, outstanding by any measure. But it was a ted slower, many quarters that preceded us. The question [indiscernible] is what we should – we did that slightly slower growth, I mean, this seasonally slow quarter, I know. Any additional perspective and here is not fair to answer the question Bob [ph] been getting and maybe a little more color. And I know that there are quarterly ebbs and flows this, is that the way we review it or anything else to reflect on.

No, in fact actually I think its little bit different. I think this – we had a fantastic quarter in the U.S. we are up 23% and which is obviously in my mind off of an incredibly difficult comp over the last couple of years. so if you look back to 2013 we grew 25%, last year we grew 31% and this is year we grew 23%, I mean, those are some significant numbers when we were giving long-term guidance of 15%. So from my standpoint I think that were doing incredibly well the market has been able to sustain some very, strong growth from that standpoint, if you look at it relative to first and the second quarter, I think we kind of built into our guidance as we kind looked out to the back half of the year. While we had great growth in those quarters. We didn’t anticipate to be at those kinds of levels in the 28% to 30% on an ongoing basis. And we don’t want to have that level of commitment out there, I think 23% is outstanding and we feel very, very comfortable with that. Our comfort level is really 25% growth combined for next year and then an 18% organic growth over all. And those are numbers that I think are very strong and people should feel really good about, because they are consistent numbers, we’ve been consistent every single quarter. And so we feel great about what happened in the U.S. in this quarter. I mean the international one was a little bit slower than we’d like. We did and so from that standpoint we did hit on Eastern Europe and some of the economic turmoil is going on over there. So I’d say that the opposite is happening there where we think that can grow faster. And we do anticipate that will be the case as we kind of look forward into 2016. But there’s definitely been some turmoil from a lot of things going on obviously over in Russia and some of the other countries over there that were decent portion size of our business. But in the U.S. we feel great about the numbers, feel good about kind of where we stand and we think they reflect kind of what we’ve been hopefully setting is expectations for the street and we never want to over set those expectations.

Thank you. Our next question comes from the line of Tom Gunderson from Piper Jaffray. Your question please?

Hi, Mike for the last comment on East Europe and the distributor market growth that you showed in Q3, are you finding that you have to – I’m assuming those are sold to them in dollars. Are you finding that you have to offer them any special deals, is there any increasing pressure from your distributors to share the pain a little bit?

Not necessarily, I mean there’s – and we’re not comfortable with that from margin standpoint. So that’s just not something that we’re real comfortable doing. We don’t feel like – we’re not getting too much pressure on that now. We did in the Latin America a little bit early it was a very, very small dollar number.

Got it, thanks. And then is it – maybe some preliminary thoughts from you on marketing to the consumer several times just that large under-penetrated market and its part of the mantra of Afib here. What kinds of programs might you consider and when as far as I don’t want to say they’re all direct to consumer but to may be funnel a more patients into some of these centers that are doing 95% of their patients with your products.

Well, when it comes to treating the concomitant piece of the business where obviously we have got the FDA label we’ll do that, we partner with the centers to talk about what Afib program might look like, I mean, it’s a very local based type of program that they are doing. We don’t have any specific programs in place right now. I think it’s a valid question that I don’t know that we’ve got a specific plan in place today for. When it comes to sole therapy we – until we get a label we can’t even have a conversations relative to that or discussions. So we’re not really involved that in way shape or form on the minimally invasive side or the cell therapy treatment in the U.S. for sure. But on the concomitant side, we’ve talked about it, but I’d say that it’s a good question and one maybe we need ask ourselves a little more deeply and decent planning on but we don’t have anything right now in place.

Got it thanks. That’s it from me. Thank you.

Thank you. Our next question comes from the line of Matt Miksic from UBS. Your question, please.

Hey, thanks for taking our questions. So one, if you could quantify, I think, and you say something about the high utilization center [indiscernible] some training. Is what you’re seeing 95% penetration of these CABG, and aortic and mitral concomitant procedures. If I heard that correctly, could you elaborate on that a little bit and I had one follow-up.

Sure, I’m giving estimates, I don’t have each one of the specific information there, but there are definitely some treatment if you talk to the physicians and surgeons there, you talk Dr. Gillinov, Dr Grove [ph] or Dr. Gerdisch, these guys are treating every patient that they can, that has Afib that comes into their OR, they believe that they recover more quickly and they are taking – they are basically taking all comers on and they do the full Cox-Maze procedure, when they are doing it as well. So these are – and that’s obviously one of the reasons that we send people down their gate, they get excellent results, they track their patients long-term and they care deeply about treating these patients and having partnerships with their EP’s over time as well. So I’d say that they’re some of the best centers that are out there in the world for doing this. And obviously the goal is to have every center around the country to be at that level. But those are pretty lofty numbers to be at. But that’s why we do the training, that’s why we do the masters courses. Those guys are three of the trainers that do some of the masters level courses, for us as well. And so we kind of leverage them from that standpoint.

Sure.

Is that, the detail you are looking for? I am not sure if that helps.

Yes, no and maybe just I’m trying to characterize those centers, I mean, do you feel like those are as you said they’re sort of high watermark and these are referral centers and our folks getting cared there, actually go in there, because of the expertise these guys have in Maze, and so on. Is that a fair way to characterize those centers?

No, it is actually different, so obviously Cleveland Clinic is a world-class center that does more hearts than pretty much anybody else in the United States. And people are getting referred there for a variety of different reasons in a lot of ways, because we have got a great name, and we have great surgeon, and great training programs that are there. And they are really at the cutting edge on doing the Maze procedures. And there maybe some referrals that go there for that. But a lot of times we’re getting referred there, because they’ve got the best mitral surgeon, aortic surgeon and/or by the way, they also treat their Afib the same time. The other two, quite frankly, are that I mentioned, are not academically focused in that way. They are really great community areas, so the Ashville, North Carolina has catchment area of one million plus people and they are getting people within there and yes they are getting a lot of patients, because they are great surgeons that are not only great at treating the mitral valve or the aortic, they are also doing the – they can [indiscernible] procedure at the same time. I couldn’t tell you what percentage are getting referred because of the Maze to those different places, but they are very different types of centers. Which is why we offer that to surgeons, because we want to be able to show them. Some people are like well, yes, that’s Cleveland Clinic, so and you say well there’s actually other sites and other areas that are also doing this as well. And we’ll send them to places like I just mentioned, Asheville or we’ll send them to Centera [ph] and some of the other great heart centers around the country that are more community based and kind a get in to [indiscernible] and as they are getting people from around the country.

Yes, that’s helpful, that helpful color. The other question I has was on – was on the rollout and continuing enrollment of the clinical trials that you’re representing for MIS and both procedure types now. Hence the training that you’re doing for open, I guess, you could talk a little bit about how your sort of segmenting those resources or how you’re going to avoid any kind of distraction if you will or dilution of resources that you sort of bring on the new technologies are sort of this footprint and efforts behind enrollment and yet also as to talk about continue to sort of push forward with training for open ablation.

Yes, I mean, there are really two, there are two separate groups partially for the reasons you just described. The first group that’s focused on concomitant training, its led by Dr Cox. We’ve also got a Vice President in the business whose sole focus is to build out these training programs for the contaminant treatment and the on-label products. And so we’ve got a whole team that basically is dedicated and focused to bringing on surgeons to do that. We have a whole group and network of surgeons that are very deep in the concomitant treatment, I mentioned several of them. But we’ve got about 10 plus surgeons around the country that actually do these programs and we continue to learn from those. And that’s really – so if you have dedicated group that’s focused on that, it’s really a different group that is part of the clinical trial group, that is dedicated and focused to the clinical trial. And so they really don’t get in the way of one another. They are obviously part of the same AtriCure team obviously, but they are not part of the same groups, they report differently in the organization. The team that focuses on the clinical trials reports into our VP of clinical trials and she really works very closely with them to make sure that we’ve got the right sites they are setting expectations for the sites that are going to come on and come into trials. We’ve got a medical first record that reviews them, one in the U.S., one O-U.S. and then we’ve also leverage quite extensively the principal investigators involved in the trial to do some of the training and education as well. So VCU has done several of the trainings for people that are interested in being a part of the DEEP trial. And so we really leverage the infrastructure from that standpoint, and we separate them. And hopefully that gives you some context to kind how – they’re very different and they’re not getting in the way of one another. For the new – this company, for nContact, obviously we’re bringing out a team. They had a team that was doing some similar items relative to the trials that they’ve got up and running. But they didn’t have as big an organization and so that’s actually one of things that we’re putting in place as to make sure that we can actually focus efforts on that.

That’s helpful color Mike, thank you.

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Mike Carrel, for any further remarks.

Great. Thank you for all your great questions today. And thank you for participating in the call and your interest in AtriCure. Have a wonderful evening.

Thank you ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.