Good afternoon and welcome to AtriCure’s Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. [Operator Instructions] I would now like to turn the call over to Lynn Lewis from the Gilmartin Group for a few introductory comments. Lynn?

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 emailed 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. These statements include but are not limited to expectations regarding the timing of FDA review expectations regarding the FDA’s response and whether it will approve CONVERGE the potential CONVERGE launch timing the potential market opportunity for CONVERGE and the adoption of the CONVERGE procedure. AtriCure’s results may differ materially from those projected. AtriCure undertakes no obligation to publicly update any forward-looking statements. 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 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?

Thanks Lynn. Good afternoon everyone and thank you for joining us. We know that it’s been a challenging time for all and hope you are remaining safe and healthy during these times. Even with the backdrop of the pandemic and the difficulties that has caused many we continue to focus on the physicians we support and the patients they help. We are dedicated to our strategic priorities of helping those affected by arrhythmias strokes and post-operative pain. Yes the pandemic is still with us but we have rebounded well and we are in the enviable position to have many strategic catalysts coming to fruition and expect to significantly expand our markets and growth rates in the coming years. It is truly an exciting time to be a part of AtriCure. For today’s call I will begin with an overview of our third quarter revenue and current trends that we are seeing in hospital procedures followed by an update on CONVERGE and our other key initiatives. Total revenue for the third quarter were $54.8 million. In the U.S. the quarter began with a modest decline from the revenue trends we experienced in June as we saw regional variability due to the surge in COVID cases in some key markets. As the quarter progressed we saw some growth and stabilization in September which continued into October. Hospitals have become better at managing through these resurgences of COVID-19 and we believe cardiac surgery procedures in most areas have returned to approximately 80% to 90% of pre-COVID levels as of the end of the third quarter. Internationally we experienced similar trends to the U.S. with a strong recovery in certain countries namely Germany the Netherlands and Japan offset by countries experiencing a slower recovery including the U.K. and parts of southern Europe. We are…

Thanks Mike. Third quarter 2020 worldwide revenue was $54.8 million a decrease of 3% on a GAAP basis and a decrease of 4% on a constant currency basis compared to the third quarter of 2019. U.S. revenue was $44.7 million a decrease of 3% from the third quarter of 2019. U.S. sales of appendage management products were $17.4 million showing improvement over 2019 with 3% growth. Open ablation product sales which include our Cryo Nerve Block business were $19.9 million which is relatively flat to the third quarter of 2019. Minimally invasive ablation sales in the U.S. were $7 million down 23% from 2019 reflecting the procedural trends that Mike mentioned in his opening comments. As our appendage management and open ablation products are used concomitant to procedures which are less likely to be deferred as compared to minimally invasive ablation procedures. International revenue decreased $10.1 million down 4% on a GAAP basis and down 7% on a constant currency basis as compared to the third quarter of 2019. We saw increases in the appendage management franchise in our Asia markets while both open and minimally invasive ablation had a slower recovery. Gross margin was 73.7% for the third quarter of 2020 consistent with our third quarter 2019 results of 73.8%. Following a temporary reduction in manufacturing operations during the second quarter we returned to normal production volumes in the third quarter of 2020. And now turning to operating expenses. Excluding onetime acquisition costs incurred in 2019 and the recurring effect of noncash adjustments to the Contingent consideration liability our total operating cost decreased $6.5 million from $50.6 million for the third quarter of 2019 to $44.1 million for the third quarter of 2020. This decrease was primarily driven by lower variable compensation expense as well as decreases in travel…

Thank you, Angie. While this year has been challenging it has not altered our mission or vision. If anything it has solidified our conviction that we are building AtriCure into something truly differentiated with a world-class and robust pipeline for the next decade. We are on a great path and we are at the forefront of meaningfully expanding our addressable markets potentially treating many more patients who do not have any other options. Concurrently we are adding resources across our teams to support our growth with the backdrop of ongoing focus in investments in launching hybrid therapies of CONVERGE and aMAZE and strengthening our penetration in open with EnCompass while building new markets in pain management. These investments and the progress we’ve made put us in a better place today than at the beginning of the year and enable us to begin 2021 from a position of strength. Please stay safe and healthy everyone and thank you again for joining us. And with that I will turn it over to questions.

[Operator Instructions] Your first question comes from the line of Robby Marcus from JP Morgan. Your line is now open.

This is actually Lilly on for Robby. So what assumptions are baked into this guidance range? Are you guys assuming current trends hold steady, or is there the potential for a material disruption in volumes with cases on the rise? And how much visibility do you feel that you have into this range at this point? Thanks.

Yes. I think we’ve got pretty good visibility into the range for the quarter. We feel very confident in the numbers that we put out there. I mean what we’re thinking about with it we’ve obviously gone through the first five weeks or so of the quarter. So we’ve got really good visibility to almost one-third of the quarter kind of behind us at this point as we kind of enter into it. And we’re assuming I mean obviously case volumes are coming up. Hospitals as we mentioned are doing a really nice job of being able to manage it. You do see some areas where they have a temporary slowdown for a couple of days or so as they kind of modify and go through things and we’ve put all that into our assumptions and guidance for the quarter.

Okay. Great. And just a quick follow-up on CONVERGE. What are you guys doing now to prepare ahead of the panel and/or a potential panel I guess and eventually approval? I understand that you’ve been preparing for this for some time now. But is there are there any missing pieces that you feel you need to work through and finalize ahead of the launch?

Yes. Well thank you for the question. There really are no missing pieces at this point in time. We feel like we are the only missing piece is obviously getting through and getting to the approval and getting that complete. But from an operating standpoint and ready to go to market we’ve been building out the team for the last three plus years ever since we bought the company back in 2015. We’ve added significant resources to our commercial team to our education team. We’ve got training plans in place training centers and sites a whole education program to get more and more surgeons and sites up and running. We’ve also put together full marketing campaigns that we’ll be ready to be able to support our customers as well. So I think we are good and ready for it as soon as we kind of make it through the process.

Our next question comes from the line of Rick Wise from Stifel.

And great to see the excellent quarter. Just want to make sure I understood the comments. I understood the fourth quarter guidance. But Angie or Mike when you said 2021 did I hear you correctly you expect sequential improvement? Are you talking about year-over-year or each quarter sequentially better than the quarter? I just want to make sure I understood your thinking there.

Yes. Not year-over-year but sequential growth. So we anticipate we’re not giving specific guidance to next year. But as we look into next year and as we begin to kind of see the trends that are happening and anticipating that COVID is going to be around and with us for a while we do anticipate that we’re going to continue to see sequential growth from Q4 and then into next year.

Right. And each quarter as we think about modeling it Mike.

I mean there was a little bit of a I mean obviously you’ve got the third quarter is a little weird because it obviously we all know the summer months can be changed on that front a little bit. But I mean in general yes the sequential growth.

Great. And just to take a couple of points you made again maybe you could just expand a little bit. Cardiac surgery volumes who knows back at that something approaching 90% maybe or 75% to 90% who knows?. But it’s like in your view how long to get back to normal from your perspective? And maybe just one other laggard. Obviously international some parts did better than others. How are you thinking and modeling and factoring that into your thinking for the fourth quarter and for 2021?

Yes. I think that as we I wish I could be the one to tell you that when exactly it’s going to come back to normal Rick. I mean I think some of that’s going to depend upon everything that’s happening within the pandemic and when do we get treatment options that are going to work and the vaccines etc and the timing of that? And how when does it get mass distributed? And I don’t think any of us really have a complete clear picture to that. We do know there’s going to be spikes. And as we look at this quarter and then even into next year. We believe that cardiac surgery obviously is something that people have to have at some point. And so you will probably be in that kind of 80% to 90% range for a bit. And we kind of anticipate that. But hopefully we’ll again see some sequential growth as the quarters kind of come out next year. That’s kind of how we’re looking at it right now even in the face of some of the COVID because hospitals are just getting better and better at managing both the COVID patients but also at kind of running their hospitals and kind of segmenting the patients so they can bring the cardiac surgery patients in as well.

And just two last for me. Maybe you could you talked about investing in the CryoSPHERE sales team. Maybe give us some color where are you now? What are your goals over the next year? What you in terms of building a team? Just maybe give us some color there. But last you’ve been very clear on the CONVERGE and the likelihood or your assumption of a panel. Have there been any recent conversations about this? Is a dialogue under way? And I know this is all complicated by COVID the election everything. But when do you expect to have a little better sense if you could? Anything incremental obviously would be welcome.

There’s two questions there. So I’ll hit the first one Rick which is CryoSPHERE. We’ve built out that team and we’ve really built it up quite a bit this year. We’re well over 10 people on the team. We’re continuing to hire. You can check online. You can see the hiring that we’re doing right now. We believe we’ve got to cover all the mass markets in the United States there. Every area we go into we wind up making progress because the treatment works. And we’ve been very excited about that. So we’re really beginning to build out that team. If you recall at the beginning of this year before the pandemic we actually put it into sales for the first time. And they’ve been in a market development role before that. We moved it into sales. This was the first full year there and it just got better as the year went on and we anticipate that we’ll continue to add resources there both from a selling standpoint and from a clinical support because the volume is definitely going up. As it relates to CONVERGE and the panel we did submit we had many different pre sub meetings with the FDA as I had mentioned lots of great positive interactive conversations with the FDA and working collaboratively on that front. From a panel standpoint we submitted and now we’re kind of awaiting feedback. So as I mentioned hopefully within the next couple of months we’ll have some feedback from them but I can’t choose the FDA time frame at this time but it should be in reasonably short order.

Your next question comes from the line of Danielle Antalffy from SVB Leerink.

Mike I just have a quick question for you on CONVERGE. And it felt your focus it felt like the focus was shifting more to the long-standing persistent. And maybe I’m missing something but I just want to make sure two things. Number one from a market opportunity perspective there’s no real change here in the addressable TAM at least as far as I can hear but just tell me if I’m wrong there. And then number two just if there’s any more color you can give on the back end course with FDA. I mean it sounds like it took a little bit longer. I think back in August you thought you’d submit the final response somewhere around then. I know you never committed to a time frame. So realistically when should we hear what’s the latest I guess I would say that we’d hear about a panel?

Yes. I mean I’ll start with the latter one first which is that we’ve submitted to the FDA. So we’ve now got everything’s in and we’re now awaiting feedback I anticipate in the next couple of months or so. Obviously give or take that we anticipate kind of getting feedback. That’s really all I can give in terms of it right now. But yes I do believe it’s going to be in reasonably short order that’s not too far away. And again as I mentioned we’ve had really good interactive productive conversations with the FDA. So I feel like it’s moving down a good path. As the addressable market the overall addressable market you’re correct. Overall it’s the same. I really wanted to highlight because our submission was for that specific in what I’d like to call the extremely differentiated label of long-standing persistent patients because that market alone right now is we’re the only ones in the world or in the market that are going to have that level of differentiation. And we’re the only ones that have done a trial to show this and the results are incredibly compelling as you probably heard within that patient population. And so I really want to focus because that is the market that we’re going to really attack and really go after because we believe that’s where the biggest unmet need is. We know that our products are incredibly additive to what the catheters are doing today. Again as I mentioned they’re additive not competitive. And already in the United States alone today there are 25000 catheters for long-standing persistent patients and we’re only in 1800 of those procedures. And our trial proved and showed that they will benefit by adding on top of that catheter the EPi-Sense ablation. And we believe that is going to be the most robust and beginning part of the market because it’s the most unmet need. It’s the most differentiated and that is something that we believe provides what we like to call internally extreme differentiation.

Got it. Okay. So it’s less about you not being able to target the persistent patient population also more about like you’re going to be focused and sort of giving us a sense of the go-to-market strategy here. Is that fair to say?

I don’t know I would say that. We’re focused on the label’s going to be for and what we submitted for is for the long-standing persistent population. That is what the label is going to be for. That being said and that’s where most of the patients that get treated today are. As I think we all know there were two products that were recently approved on the catheter side for the persistent side. I mean there’s a lot of failures after that. As you know they have a lot of success and do good work which is obviously why they got approved. But then there’s also the failed catheter ablations that they could lead to into the future. But our focus is going to be really on that long-standing persistent market because we believe we’re additive in that environment and there are so many patients in the unmet need is biggest there.

Okay. Thank you so much.

Your next question comes from the line of Matthew O’Brien from Piper Sandler. Your line is open. Matthew O’Brien: Good afternoon. Thanks for taking my question. I guess Mike I’d anticipate there’s going to be some investor consternation about the Q4 guide. And I think it’s probably helpful to unpack things a little bit there from a U.S. and then an OUS perspective. So, if you -- the volumes are still down 10% in the U.S. roughly on a year-over-year basis and that’s what you’re expecting for Q4 but you’re expecting things to sequentially get better versus Q3 it would seem that there’s some improvement that you’re seeing from a clip perspective from an open perspective in terms of more clinicians or more utilization to get to that number? Is that fair? And then secondly the international number you had a really tough comp. There’s areas of Europe that are shutting down right now. And so it seems like it’s more of an acute issue internationally that could be a little bit of a headwind versus anything really durable as we kind of come out of this. So just any kind of comments about that would be that long-winded question would be helpful.

No that’s okay. I mean I feel great about our Q4 number. I think in the face of everything that and I’ve seen what all the other companies are kind of out they’re talking about right now. I think in the face of what’s happening with COVID the fact that we’re going to see a strong sequential growth. To your point as we look at Q4 we anticipate that the cardiac surgery volumes are going to be in that 80% to 90% kind of range from a procedure volume standpoint not necessarily from ours that’s just kind of like cardiac surgery procedures in terms of kind of where they are from a capacity standpoint and how they’re basically getting those patients back into the hospitals. And then so you’re right. I mean if we are obviously that’s down 10% to 20%. And if we’re closer to we’re not going to be down that much as a result of that. We’re obviously growing within there. It’s actually across all of our franchises that you see it. We’re getting more penetration in the open in the procedures that are occurring. You’re getting clips and you’re beginning to see some procedures come back on the minimally invasive side of our franchise as well. So kind of it crosses all barriers. We feel really good about how we’re able to manage through this and understand what’s happening in cardiac surgery. And that’s kind of how we’re going into the market. And I feel really good kind of about where we are right now. And you had a second question and I apologize. If you ask it again I can make sure I answer it. Matthew O’Brien: Yes that was a super long question. So just the international I mean you have the toughest comp of the year. And so with parts of Europe shutting down too that’s why the Q4 number may ostensibly look a little softer than people had expected but you’re just factoring those things in off of a tough comp.

Yes. That’s correct. Yes there’s no question about that from a but it’s I don’t when you say tough comp you mean tough comp from Q4 of last year? Matthew O’Brien: Exactly. Yes.

Yes. And I mean right now I mean I think the best way for analysts and investors to not just look at AtriCure but to look at most companies is really are you seeing improvement in case volumes every week? Growth year-over-year is we’ve got to get cardiac surgery volumes back to normal and get that kind of but we’re improving penetration and we’re seeing that sequential growth happen. So year-over-year comparisons are just tough to do. Matthew O’Brien: And then just next few questions I’ll ask them together because I’m getting long here. But the MIS piece of the business has been slower to recover. Can you talk about why that is? It’s just again it’s a different patient population but just why is that slower? And then have you made any incremental investments on the MIS side of the business in anticipation of CONVERGE that you can talk to? If it’s more and more sales reps you’re adding now or back office folks anything along those lines?

Sure. Yes. MIS we is coming back slower per se because it came from a lower base. When the pandemic hit back in April that got hit the hardest. Those are the most elective procedures those are the ones that could push out the most. A lot of cardiac surgery you just can’t push out. So you tended to see the volume get hit the hardest on MIS. It did have a faster recovery. But obviously it’s coming from a lower point back in the April May time frame and it is still the most elective portion of our procedure base. But obviously once things kind of get back to more normal that should kind of comeback nicely. It is economically viable for it. There are a lot of patients that need it. And obviously we’re going to build off of when we get the approval from that standpoint. In terms of adding and investing yes we’ve been investing in our team a lot of team on the field. The big areas are the ones I talked about earlier. First is not only having the team out in the field and making sure that they’re trained and well prepared but also making sure we’ve got the educational platform in place. We’ve got sites ready to go. We’ve moved to a very creative mobile cadaver lab where we can begin to train people around the country during COVID and we will be rolling that out quite extensively after we get the approval as well to make sure that we can effectively train people all over the place without having everybody have to get on airplanes because docs can’t get an airplane etc. So we’ve been making some investments in those areas so that when we get to that we are ready to go.

Your next question comes from the line of Mike Matson from Needham & Company.

Just given the potential for the long-standing persistent label with Convergent are you aware of any other trials for any other devices or products out there for these patients? This category of the AF patients.

There are no trials out there right now for this category of patients. There are trials that are for the persistent patient population. So for that 12 months or less. We are the only trials out there for more than 12 months are three trials run by AtriCure. The first trial is CONVERGE which is the one obviously we’re part of right now. But we’ve already got the data. We’ve seen as I mentioned earlier how compelling that data is for that patient population and there are no other treatment options for those patients. The second trial is the aMAZE trial because the aMAZE trial is also for patients that are out to three years in Afib. So it kind of covers two of those years as well. And that will be additive to what we’re talking about with CONVERGE. And then our DEEP trial is the other one as well that also takes in the long-standing persistent patients. So we’re the only ones. That’s why it’s a lot of differentiation. There’s nobody else that’s in the market with a clinical trial going on today.

Okay. And then assuming that you do get the FDA approval how do you see this being used for that particular group of patients? Because I think I’ve heard some discussion of patients being treated with a catheter first and then seeing how they do. And then if they don’t get enough improvement then they’d be brought back for the surgical portion. But that maybe that’s more for kind of this persistent as opposed to the long-standing persistent. So are you guys going to kind of push for just doing a true hybrid and really doing both just upfront?

Yes. I mean what our trial showed was that you should do this on de novo patients upfront as the first-line therapy. I mean that is essentially we achieved superiority. As I mentioned the delta at 12 months in the long-standing persistent patient population was 29% at 18 months. It was even greater than that in terms of the delta between the catheter and the Convergent arm. So our obviously what we’re going to be talking about is saying look at that delta. It tells you, you should be doing this all upfront. So all 25,000 of those patients in our minds should be getting the Convergent procedure this hybrid procedure at the same basically de novo and as the first-line therapy. And we think the file shows that data. I mean that’s what we will be talking about from that standpoint.

Okay. And then on the aMAZE trial is there any possibility we could see the results of that in 2021? If it’s going to the file’s going to be done I think you said mid 2021. Or is it really going to be more realistic in ‘22?

We anticipate data coming out at the end of 2021. For the aMAZE trial, absolutely.

Your next question comes from the line of Suraj Kalia from Oppenheimer. All right. Next question comes from the line of Marie Thibault from BTIG.

I appreciate it. I’ll ask just one more on CONVERGE. Really focusing we’re moving past FDA approval really focusing on the launch. I know in the past you’ve said 2021 would be kind of a building year and we’d see more in 2022. With the time lines now I know they’re a little bit up in the air but how do you envision this launch rolling out? How long after FDA approval do you think it might be before we start seeing material uplift in the sales?

Yeah. I think we think the same. Obviously we’re in the face of COVID in 2021. So there’s just a lot going on at hospitals and at sites and getting programs up and running. But we do believe that we’ll get the approval. And then like we said before we do see an acceleration happening in 2022. I mean that doesn’t mean that next year we’re not going to get new sites up and running and then we’re not going to begin to get some revenue. But to predict the exact time frame of that it’s difficult to do kind of sitting here right now until I know exactly when the approval comes in and everything is going on with COVID. But we’re very confident that by 2022 we’ll be things will begin to really get going at that point in time.

Okay. So no change there. Great.

No change.

And then I wanted to ask one on EnCompass. You mentioned that a clearance would get you into kind of the high-volume CABG surgeons where you don’t have a whole lot of penetration so far. Are you needing to build out a new small sales force for that? Is there anything necessary in terms of standing order to make that a successful launch?

Not at all. I mean we actually have relationships. That’s actually one of the things that we’ve built over the many years here is that we’ve got wonderful relationships pretty much with every cardiac surgeon in the country CABG mitrals aortics. This is just a new and innovative clamp that allows them and makes it easier for them to not have to open up the atrium to do the ablation. And so we’re really excited about it. We’ve got relationships with most of them. And so it’s not going to be any kind of additional add from that standpoint in terms of head count or needs.

Okay, great. Thank you so much.

Last question comes from the line of Bill Plovanic from Canaccord. Your line is open.

Thanks. Good evening. A couple of questions just on the FDA discussions regarding Convergent. One in terms of the label it sounds like you’ve pretty much gone through all the label discussions and you have final label at this point. Am I reading that correctly?

I wouldn’t say that we’ve got final label at this point. We’ve submitted for that. We’ve had lots of conversations with them about the label but we submitted it and now we have to kind of wait for final feedback as to whether or not it will go to panel or not at this point. We have a lot more conversation but we’ve submitted they gave us a list of questions back earlier in the year. We responded we basically worked with them over the summer. That was a lot of the back and forth on the additional analysis that we did. And a big part of that was actually looking at this long-standing persistent patient population because the difference was so dramatic and so compelling had lots of conversation with them and then we submitted recently for that long-standing persistent label.

Right. But I mean the actual wording of the label in the IFU has that been worked through yet? Or where are you in that process?

No we just submitted. I mean we literally we’ve just recently submitted that. So what I’m suggesting is that we will be I mean we might be in conversations with them and we anticipate that could happen but that’s not happened yet.

Okay. And then in terms of just manufacturing and have they done a site audit? Or would you expect them to come and audit manufacturing prior to launch?

We’ve gone through lots of site audits. At this point we’ve gone through many manufacturing audits with the FDA. We’ve gone through customer site audits. I can never guarantee that we’re not going to get audited again but I think we’re in a very good place.

And then have you started building inventory for the launch yet?

We have enough inventory built. We’ve been building inventory for a long time and we’re in a very solid space from that standpoint.

Great. And then I think just in terms of a distribution standpoint have you’ve talked I think pretty detailed about being prepared for the launch. Should we assume just as we look at the operations of the business that you now it’s more of a normal cadence going forward in terms of adding your direct reps and your clinical reps and all those different components of your field force? How should we think about that cadence going forward?

I’m not sure when you say normal what normal would be. I mean what we will do is we’ve built out a robust team right now which has both a management layer and also kind of our direct reps and clinical specialists out in the field. We will be adding quite a few more as we roll out. We’ve got open headcount right now. We’ll be opening up more into next year. We’ll continue to expand. We think this is a very large opportunity. So we’re going to continue to expand and build out that team. I’m not sure what normal is. I’m not going to give a specific number yet because some of that depends on kind of the timing of what happens and the approval etc. But I mean we’re in a really good spot right now because we spend a lot of time and energy building out a big portion of that team over the last three years.

I don’t see any questions at this time. I will turn it over to Mike for [indiscernible] remarks.

Well again once again everyone thank you so much for joining us tonight. As you can tell we are excited about our opportunities in front of us. We appreciate all of the questions and have a wonderful and safe evening. Talk to you soon.