Good afternoon and welcome to AtriCure's First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today’s call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Lynn Lewis from the Gilmartin Group for a few introductory comments.

Thank you. By now you should have received a copy of the earnings press release. If you've not received a copy, please call 513-755-4136 to have one e-mailed to you. Before we begin today let me remind you 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. AtriCure undertakes no obligation to publicly update any forward-looking statement. Additionally, we refer to non-GAAP financial measures specifically revenue reported on a constant currency basis, adjusted EBITDA, and adjusted loss per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measure 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?

Thanks Lynn. Good afternoon and thank you for joining us. We have started 2019 with a solid first quarter of 15% revenue growth, our 26th straight double-digit growth quarter. We again had meaningful contribution from our appendage management products, launched a Why Treat marketing campaign focused on concomitant ablation, and made excellent progress along multiple operational initiatives. Our team continues to deliver strong consistent revenue growth driven by our patient-first culture, technologically advanced products, and investments in innovation, clinical trials, and education. Coupled with the diverse nature of our business and vast under penetration of concomitant ablation in all types of major cardiac surgery, we are confident we are well-positioned for continued growth. We are seeing in the field that evolving guidelines and emerging clinical data are driving behavior change leading to steady demand for training and increasing adoption of our products. Demonstrating our confidence in our business, we are pulling up the bottom end of our 2019 guidance which we now expect to be in the range of $222 million to $228 million corresponding to growth of 10% to 13% for the year. Now, turning to our first quarter performance. Revenue for the first quarter of 2019 was $54 million, reflecting 15% growth over the first quarter of 2018. This was highlighted by strong performance in the U.S. led by our appendage management products and international growth of 28% compared to 2018 first quarter. Our appendage management franchise continues to outperform with first quarter growth of 32% year-over-year. We have now sold over 180,000 AtriClip devices worldwide. We anticipate this business will be our fastest-growing franchise for the foreseeable future. In the field, we receive steady positive feedback on our innovative approach to advancing products in this franchise to meet clinical needs. Our approach in conjunction with evolving market…

Thanks Mike. For the first quarter of 2019, revenue increased 14.8% on a GAAP basis to $54.0 million. On a constant currency basis, worldwide revenue increased 16.0%. Revenue from product sales in the U.S. was $43.0 million, an increase of 11.9% from the first quarter of 2018. Revenue from open chest ablation-related products in the U.S. increased by approximately $1.4 million to $19 million, representing growth of 8.1% driven by solid cryo probe growth and the including the launch of our new cryoSPHERE probe. U.S. sale, of products used in minimally invasive procedures was $7.8 million in the first quarter down 9.9% and continuing the trend of volatility on the low volume of this business. U.S. sales of appendage management products, during the first quarter of 2019 were $15.7 million, an increase of 32.8% driven by very strong growth of the AtriClip FLEX.V device. We remain confident in strong and sustained growth rates for our appendage management products. International revenue grew to $11.0 million up, 28.1% on a GAAP basis and 34.4% on a constant currency basis as compared to the first quarter of 2018. As a reminder, we had no sales to our distributor in China for Q1 of last year. Outside of China, starting to return to a more normal order pattern we had strong growth throughout Europe particularly in the UK, France and Germany. Appendage management in our international markets had a very strong quarter at 36.5% growth year-over-year. Gross margin for the first quarter of 2019 was 73.9% as compared with 73.4% for the first quarter of 2018 due primarily to improvements to operations and lower costs partially offset by unfavorable geographic and product mix due to a higher concentration of sales in Asia and other distributor markets. We are making strong progress toward our long-term…

Thank you, Andy. In closing, we are extremely pleased with our first quarter performance and our track record of sustained double-digit top line growth. We are confident, we will continue on this trajectory for the foreseeable future. Our platform of growth is diverse and we continue to focus on the three pillars critical to our mission, which are innovation, clinical science, and education. With that, I'll now turn it over to open the questions. Operator?

[Operator Instructions] And our first question is from Danielle Antalffy from SVB Leerink. Your line is now open.

Hey, good afternoon guys. Thanks so much for taking the question and congrats on a really solid quarter.

Thank you.

Mike, just to follow-up thank you so much for the color on the surgical aortic valve market. I was wondering if to maybe dig a little deeper into that you could talk a little bit about there's obviously three different markets for your open ablation business: mitral aortic and also CABG. And I think you've talked in the past about CABG being the fastest growing. Wondering if you can give any color about sort of how the growth breaks down amongst those three markets to maybe put people even more at ease that – my sense is that CABG is really the growth driver here so any color you can add there would be great. And then I have one follow up.

Sure. I can't give you specific data on a quarterly basis, because it takes time for STS and others to kind of report all that data. So, typically, you're looking back at the wrong times on that. But I can tell you from surveys that we've done with our sales force in the field that CABG is absolutely where the growth is. That's where our focus and efforts are around training. People that are coming to the courses are all coming on the CABG side. So that's really where a vast majority of the growth that we've got today is coming. And we've also got new innovations coming on the pipeline, likely next year for that CABG market to make it even easier for those physicians to treat the CABG patients as well. So it's under penetrated less than 10% today of the market and it is definitely the fastest growing. The mitral valve and TAVR market had been I'd say relatively consistent overall and growing a little bit and obviously offsetting some of the pressure on the TAVR side like we had expected. But like you said, CABG is the largest one without giving too many specifics on it.

Yeah. No, no, but that's very helpful. And then my one follow-up is, as we think about CONVERGE coming and the potential FDA panel meeting sometime in the first half of 2020, can you talk about or give us I assume you guys talk at least somewhat frequently with FDA what we should expect as far as the issues that FDA could raise at the panel. Are they going to be more focused on efficacy or safety? Is it going to be both? Because my sense is that, we all know this is effective and also pretty safe. So just curious, what FDA is going to be focused on at a panel meeting just to sort of give people a heads up as to what to expect when that comes to fruition. Thanks so much.

Really fair question, and I think you've hit on them. They are going to look at both safety and efficacy within the trial in terms of what events might have happened what do our rates look like relative to other trials that have happened and the catheter rates. Like you said, it's an incredibly safe procedure. Convergent is well in line quite frankly with just using a catheter by itself. So quite frankly, I think what they'll look at is how much efficacy are you getting for basically no difference in safety. I think that will likely be the conversation and the risk benefit in the conversations that we'll be having with the FDA. Obviously, you have to wait to find out what those specific numbers are. We've got a very good handle and understanding of the safety side of things and again feel very good that it's going to be about just the benefit that you're getting off of it, because on the safety side you're right, it's an incredibly safe procedure.

Thank you. Our next question's from Rick Wise from Stifel. Your line is now open.

Good afternoon Mike, hi Andy. Mike, just it's hard not to take notice the fact that you're starting -- you're feeling incredibly confident about the outlook for the year. Obviously, you had a strong first quarter this year. You actually started off last year with a strong first quarter. I was just wondering, just at a high level, why the confidence to sort of raise numbers at this point in 2019? Is it the data? Is it the momentum in the business? Is it some of the new products? Is it the performance of U.S. ablation? I'd just be curious to hear at a high level, what's making you so much more incrementally confident this year as you look at the year ahead. A – Mike Carrel: Yes. I mean as we looked at the bottom end of the range on that -- so it's a really good question Rick, as we look at that and said, we just have a tremendous amount of confidence looking at what's happening. We just finished a quarter at 15% growth well above the overall range and we looked at that bottom end and just mathematically thought, I mean we feel incredibly good about what's going on within our clip business. The open ablation business is doing very well. And well cryoSPHERE, we're really looking at having impact at the kind of 2020, 2021 time frame. We could see some upside on that later in the year as well. And so those are the kinds of things that kind of get us and make us bullish overall for our business. I mean those are really the big drivers at this point. International has obviously been solid and is in a really conformable space and has been very consistent over the last nine-plus months. And…

Thank you. Our next question is from Robbie Marcus from JPMorgan. Your line is now open. Q – Robbie Marcus: Great and congrats on a good quarter. A – Mike Carrel: Thanks Robbie. Q – Robbie Marcus: I thought that was a great way to frame the discussion on the metrics you gave about the 7% exposed to the business. And I also think it's really interesting that there is still so much opportunity of the patients that are on the table not having the treatment today for ablation. So what do you see as something maybe in the near to midterm that you can do as a company or whether it's you or the societies or how you drive it to increase that penetration in the already existing market that exists today? A – Mike Carrel: That's a great question. There's several items that we can do. I'll start with the Why Treat campaign that we've just rolled out. So we've been pulling data from not just the guidelines, but more and more publications have come out over the last two years showing the benefits of treatment. And we've launched the campaign to our entire sales force globally about why it's important to treat, why these patients do better. And we've done a really proactive campaign both at the surgeons first and then also at the cardiologists that are referring to show the benefits to the patients that they're referring to get them to treat and kind of move down that pathway of actually helping those patients out long term. That's kind of step one is this continued drumbeat of awareness, awareness, awareness and we're doing a lot of work from a marketing front on that to kind of create that awareness. Two, is to continue to advance our…

Great color. And then on international, even when adjusting for the year-over-year that maybe there wasn't a million or so in China sales first quarter 2018, it was still a phenomenal growth rate. So maybe just walk through the puts and takes and how sustainable that growth trajectory is here. Thanks.

Yeah, I mean, as you said it was strong across the board even with that China adjustment like you mentioned. And it's really strong in particular in Europe but it was strong across the board. I mentioned Germany, the UK in particular we're very strong. We saw lots more clips and a lot more EPi-Sense being sold there. We've put a dedicated team that's focused on MIS over there now and that's really starting to have an impact across the continent. We started that last year. The other thing I mentioned and people talk about it, but the team there is really beginning to gel. They've been working together real closely for two, three years. And now you're starting to see that the maturation of that team. They understand the markets, they understand how they're selling and how to create that market. And that's really driving a much more consistent growth coming out of the European market for us across all of those countries. We've got great leadership over there and I'd say that's really driving a lot of the consistency that we saw in the first quarter and we anticipate for many years to come quite frankly. If you look at the other markets in Asia you mentioned China and Japan. Japan's just been consistent for many years. And we really look at them on an annual basis as opposed to a quarterly ordering pattern and so -- but they were strong for the quarter they were solid but we anticipate a really good year out of Japan coming again. They're the second largest country in the world. They've got clip and cryo in those markets now and it's -- that continues to get high level of adoption.

Thank you. Our next question's from Jason Mills from Canaccord Genuity. Your line is now open.

Hi, Mike. Hi, Andy. Thanks for taking the question. Great quarter. So first question generally about guidance and the calculus behind your guidance. So, let me put it into context. It looks like the midpoint of your range just looking at the trends in each of your businesses over the last several quarters, it's high-single digits, mid to high-single digits open U.S. Appendage management's been growing faster, but if we're modeling 25%, thereabout, going forward and then flat MIS, which has got some volatility with 10% international growth, which you did better than this quarter, you'll -- that's kind of the midpoint. So I suppose the question is, is that -- in general I probably oversimplified it, the calculus that goes into your guidance. And then you're going to see upside as you drive these programs in the nearer term in open ablation. And then if you just continue to see 30% plus growth in appendage management and perhaps some kicker outside the United States that's where the top end comes into play. Do I have the calculus in part right?

Yeah, I think that's an in general fair characterization of kind of the franchises of the business and in terms of where we sit. And there's the upside that you talked about and the gives and takes, but I think that's a fair overall assessment of it.

Okay. And then so I guess just a two-part follow-up question. Where would you and based on your field feedback, where do you feel the most confident perhaps seeing some more strength relative to that midpoint of your guidance going forward? It would seem like it would be open in appendage management, but I'll not put words in your mouth. And then the second unrelated part of my follow up is on the CONVERGE. And following up on what Danielle was asking, I'm getting increasing number of questions from investors about this space and more specifically the historical context from a data perspective. In other words what does the literature say about treatment success rates for this patient population historically, and what do you think clinicians would respond to positively when they see the CONVERGE data set? If you can be at all quantitative based on what the historical literature says that'd be helpful. Thanks, Mike.

Yeah. So the confidence as you mentioned and it hopefully came across on the call today, we've got confidence across the diversity of the business in general. I think that's probably the primary piece. We've built a really diverse base of business that allows us to be double-digit revenue growth when you start to add-up all the pieces and the gives and takes in any given quarter. And especially, as you kind of look out for the year that gives us great confidence because you just got a lot of cylinders going across many different areas. So for one quarter something isn't quite as good, you've got this balance across those that I think really provides for a really strong long-term business for us to continue to see double-digit revenue growth for a long time. That being said, if you want a specific area the clip is obviously an incredibly strong juggernaut for us right now. We're doing really well in that space and we continue to see momentum in that area. We saw it in the first quarter. The products are very well received as I mentioned. The innovations that we've come out with, the way they've been adopted we just continue to see increasing activity in that space. And I'd say that probably gives you the most confidence relative to overall hitting the numbers as well. As it relates to CONVERGE, I think, it's an excellent question. Like you we've definitely gotten more and more confidence or more and more questions on that data. When you look at the data that's out there in the market relative to CONVERGE and how CONVERGE was kind of put together. If you look at the 2017 HRS consensus statements and that really indicates kind of a 30% to 40% treatment effectiveness…

Perfect. Thank you.

Thank you. Our next question's from Mike Matson from Needham & Company. Your line is now open.

Hi. Thanks for taking my questions. Just wanted to start out with the minimally invasive business. I understand -- the comments around volatility, but it was down a bit more than we've seen in some time particularly in the U.S. So just want to make sure that you don't have any of the physicians that are kind of backing away from the procedure anything like that. And then just looking over the longer term it's never really been like a real high-growth business. Is that just mainly because you're sort of handcuffed by the lack of the FDA approval and that's what should really change once you get the FDA approval hopefully next year?

Yes, to answer the last part, absolutely, I think that's the biggest piece which is that upon getting the FDA approval that obviously gives us a lot more armamentarium to be able to discuss and push the procedure. Right now we're more reacting to sites that want to do this back wall ablation. We're capable of doing that. And so you're right on that front. The volatility is, I mean, like we saw this -- if you look at Q3 last year, we were down 13%. Then we had a big -- we were up 10 -- plus 10% or so in the fourth quarter. We were down this quarter. That's kind of the volatility. It's going to be up and down depending on the patient flow at some of these sites. And again without that -- when we get that FDA approval and we kind of move down that path I think that'll -- we'll be able to control that and the market becomes a lot bigger. I mean, it's an absolutely enormous market. These patients are not getting treated today. And even if they are trying to treat them the first-line therapy it's not very durable. So they have to come back at a later date. And so -- there's nothing fundamental going on within the business there quite frankly. We've got a lot of really good sites and they're comfortable with the procedure. And so it's just a matter of kind of patient flow. And again once that FDA approval comes in, I think, that we'll be able to treat more patients at that point.

Okay, thanks. And then just wondering, if you could give us more color on the cryoSPHERE launch. And then just curious which category you're putting that revenue into. I thought I heard Andy say, it was in the open heart category but I just wanted to make sure that was right?

Yes, most of the activity, I mean, it's only been on the market for six weeks now so it's not really about revenue right now. It's just about we're getting lots of activity from sites who are trying it out for the first time. They're testing the products. We anticipate that for the first six months. We'll do a lot of that and we want to make sure people are trained properly on it, using it correctly. And we're getting really good feedback from the sites that are using it and they kind of want to test it and then kind of see how it comes together. So right now it is in the open business like you mentioned. And we'll look at where the geography in the future but for right now it's sitting in the open business yet.

Okay, thanks. And just with DEEP getting restarted here do you have any sense for timing on that in terms of when you could potentially complete the enrollment or is it just too early to tell?

It's really too early to tell, Mike. I'd love to be able to say that. We are enrolling patients. We've enrolled as we've talked about the first patient we announced earlier this week. We've had a couple of other enrollments since then. We anticipate having up to eight sites or so enrolling by sometime in early Q3 or so. And so we've got the sites kind of getting back to the IRB process right now. So we're kind of in that initial phase. As we learn more, we'll kind of update everybody on that, but I don't have an end date on it right now. But it is good in terms of a lot of these sites. I'm really excited that we're still committed to this. These are people that are committed to treating this way, and they're really excited that we're still committed to providing this solution for patients.

Thank you. Our next question is from Matthew O'Brien from Piper Jaffray. Your line is now open.

Afternoon, thanks for taking my questions. Just quick housekeeping. When will we know the timing of the panel? Is that kind of a Q3/Q4 event, we'll actually know the timing of the panel?

I don’t -- at this point, I don't know that. I'd be just -- I’d be rendering a guess at this point in time. And so we'll finalize the -- we'll pull the data together in the fourth quarter of this year likely and submit sometime some of the information in the early part of next year and then it will be up to the FDA to come back. I don't want to hazard a guess at this point.

Okay. Fair enough. So I have two questions. First of all, on the calculus question that Jason had earlier I look at the performance of the international business this quarter very strong. And then I look at the comps that you have in the U.S. business for the back half of this year. So isn't it fair to think about, I just want to make sure, I'm modeling things appropriately that most of the or the biggest chunk of growth this year probably will come OUS, especially in the back half of the year with the U.S. maybe quote-unquote decelerating with tough comps? Is that the right way to think about that? And then within that question as far as the appendage management business goes, how do we think about you lapping that clip launch early last year and being able to drive growth there?

I'll hit on both of those and let Andy kind of chime in as well. When it comes to the overall growth, we actually think there's going to be balanced growth across the whole -- across geographies. We were stronger this quarter for sure, but if you look at the overall growth rates, I think we'll -- by the end of the year be relatively consistent within a couple points of each other. There won't be far exceeding one way or the other. Maybe international will be a little stronger because of the China scenario, but beyond that I think you'll see overall relative consistency between Europe and the U.S. for sure. As it relates to the clip, what we're seeing is volume increases. So -- and most of the growth that we're seeing is actually coming from volume increases and not necessarily from any kind of pricing changes. We're actually just getting more and more clips sold. We get a little bit of bump, but it's not much. And I don't see, I mean, the lapping is going to be last year we grew 40%. Now we're at 30%. Obviously, we're not predicting or saying that we're going to be growing at 32% every single quarter, so there might be some little pressure on that. But we are really bullish on the volume that we're seeing as well, so we feel comfortable with it as a business.

Okay. And then last one for me. It's a two-parter for Andy. Andy, there was more currency impact this quarter than I thought. And actually you guys grew 16%; not 15% when adjusting for currency. So how do we think about the impact of currency throughout the course of this year? And specifically, wouldn't the 10% to 13% growth rate that you've guided to actually been higher? And the same kind of question goes for EBITDA not necessarily on the currency side, but Q1 is typically your low watermark for EBITDA. It was much better than I was modeling. Why shouldn't we expect something closer to the higher end of the range you've guided to?

Yes, Matt. We try to do our best with the currency rates. The FX rates don't typically take a real strong stance going one way. So we kind of think about the rest of the year around where we are today. As far as the impact on EBITDA, because of our general being around EBITDA positive the FX tends to affect both the revenue margin side and the expense side, so we're a little bit in a unique spot at this point there. Hopefully, that makes sense to you.

Yes. Fair enough. Thanks so much.

Our next question is from Suraj Kalia from Northland Securities. Your line is now open.

Hi Mike. Hi Andy. Could you hear me okay?

Hi Suraj. Yeah, I can Suraj.

Okay. Pardon the background noise. I'm on the road. Hey, Andy and Mike look; when you look at the different buckets of your business, right, you guys have done a phenomenal job in terms of managing the different buckets. Maybe you can give us some color. How do you view new store sales versus recurring or same store sales? I guess, what I'm trying to understand is any directionally, any color you can provide look; this is what a recurring business looks like, this is what new biz every quarter looks like so that we can somehow start mapping it as some of these structural changes in the market come online?

Yes, and what we -- I'm not sure that I can give you an exact number there Suraj. And I know what you're looking for, and I wish I could say it would be a perfect dynamic from that standpoint. We do sell to last year. We sold into over 1,024 cardiac surgery centers in the United States out of the 1,050. So we're selling into just about everywhere. So a lot of what we're doing now is expanding within sites to get to more surgeons to treat. That's really the focus now, because we're in just about every site with at least one of our products. And so our focus is we're no longer getting new sites per se as relationships. We're getting them to expand and expand usage. So they might be using the RF clamp today, and we get them to use the clip or they're using the clip and we start to get them to use something else. And so we're kind of expanding within products and within each surgeon and then we're expanding the number of surgeons as well. If they've got five surgeons at a site and two are doing the procedure, we're trying to get after the other three that aren't treating. And that's kind of been the focus. And so, a big part of the focus of the Why Treat campaign is to really kind of make sure we've got more blanket coverage across every surgeon in the United States and having that kind of impact. So, it's kind of the best -- that's how we think about it and how we're attacking it, but it's more difficult to kind of do a same-store sale per se. We obviously look at what the dollars look like, but usually that's a retrospective look as you typically have to look at that once a year after the data comes out, and by then we're far ahead in our planning to looking forward in terms of what's going on and putting things in place.

Fair enough. And Mike, one last question. This question about the hybrid procedure was asked and I believe it was Jason that asked about how -- the clinicians how would they look upon the efficacy data. Let me flip that question a little bit. So next year when the data comes out for the hybrid procedure, right, one of the things that we keep picking up in the field is all the clinicians say Suraj, I love the reimbursement. I'm getting upwards of 50k for the procedure. Can you venture to give us some goalposts in terms of, you know, what this is what the delta and incremental efficacy -- and I mean efficacy not safety -- would have to be to justify this level of reimbursement? I guess I think it's almost well understood right now that this procedure is safe, we are going to have excellent level of efficacy. I'm just trying to understand that delta ex where you can get a healthy reimbursement and be able to be off to the races. Thanks for taking my questions.

Yeah, I mean, the reimbursement for various procedures is out there today. So, I'm not sure exactly how to answer that question specifically, Suraj. I'd say that, again, I think it's going to come down to multiple factors in terms of how they're clinically treating and what's in the best interest of that particular patient. They're going to look at their -- I believe once all the data comes out, they'll look at -- again they'll look at the Afib burden. They'll look at the fact that again it's safe and that they're getting a lot of durable long-term benefits to it. It's not just about the one-year data. I think you'll wind up seeing more and more data come out at two and three years, more and more papers coming out with that as well. As many of you may know we've got a registry called Track AF and we're tracking much of the data not just at one year, but two years and three years and the data is very strong on that front. And again, I think that that's what clinicians will be looking at is both the long-term data, the Afib burden. They will be looking at one-year data, of course, but I don't think there's going to be one pinpoint on that. So that's kind of, I guess, the best way that I know how to answer that question at this point.

Thanks.

Thank you. At this time, I am showing no further questions. I would like to turn the conference call back over to Mike Carrel for closing remarks.

Great. Again, everyone thank you for joining us and look forward to talking to many of you out in the field and at next quarter's call. Have a great one. Bye.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.