AtriCure, Inc. Q1 FY2020 Earnings Call

Good afternoon, and welcome to AtriCure's First Quarter 2020 Earnings Conference Call. My name is Josh, and I will be your coordinator for the call today. 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.

Thanks, Josh. 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. 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, and thank you for joining us today. Before moving to a review of the quarter results, I would like to first take a moment to acknowledge the COVID-19 pandemic and its impact on our world, our employees here at AtriCure, and all of our stakeholders. We are navigating through an extraordinary time of uncertainty but remain resolute in our focus on our people, patients, and partners. We are truly grateful for the selfless dedication of our caregivers battling on the front lines to secure the health and safety of our patients and our communities. For today's call, we are going to reverse the order of discussion. Andy Wade, our Chief Financial Officer, will start with a brief overview of our first quarter performance. I will then comment on our response to the pandemic and our commitment to supporting physicians and Afib patients, current trends in our business, and our positioning for the long term. With that, I'll turn the call over to Andy to review our financials.

Thanks, Mike. Our financial results were significantly impacted by the ever-changing landscape caused by the COVID-19 pandemic as revenue in the U.S. started to decline in the second week of March, with sales in the final weeks of the quarter down roughly 70% compared to the earlier part of Q1. These final weeks are when we would typically experience strong results with an increase in daily bookings. As a result, first quarter 2020 worldwide revenue was $53.2 million, a decline of 1.4% on a GAAP basis and a decline of 1% on a constant currency basis when compared to the first quarter of 2019. U.S. revenue was $43.5 million, an increase of 1.1% from the first quarter of 2019. The slow growth was due to the impact of COVID-19 on the last 3 weeks of the quarter. U.S. sales of appendage management products grew 11.2% to $17.4 million for the first quarter of 2020. The U.S. open ablation-related product sales increased to $19.2 million, representing growth of 1.2%. These increases were offset by the continued volatility of our minimally invasive ablation franchise. U.S. sales of products used in minimally invasive procedures were $6.6 million in the first quarter, down 15.5%. International revenue decreased to $9.8 million, down 11% on a GAAP basis and 9.4% on a constant currency basis as compared to the first quarter of 2019. The decline was caused largely by COVID-19, which included not receiving an order from our Chinese distributor in the first quarter. Since then, cases have started to ramp back up in China, and we have received our first order in early April foreshadowing a slight rebound. Gross margin for the first quarter of 2020 was 73.1% as compared with 73.9% for the first quarter of 2019. Gross margin remains consistent with the fourth quarter of 2019 as we continued production at comparable levels for the quarter and absorbed higher manufacturing costs from SentreHEART operations. Looking at operating expenses, excluding the effect of noncash adjustments to the contingent consideration liability, our operating costs increased $5 million from $46.9 million for the first quarter of 2019 to $51.9 million for the first quarter of 2020. This increase is largely due to the incorporation of approximately $3.7 million of SentreHEART costs, which were not present in the first quarter of 2019. As a reminder, SentreHEART operating expenses consist primarily of the aMAZE clinical trial and supporting field team as well as PMA readiness efforts. Organic expense drivers included an increase in product development and training activities from the first quarter of 2019 while incremental headcount costs in 2020 were offset by decreased variable compensation and travel spend. Our operating loss for the quarter was $15.5 million compared to the operating loss of $5.3 million for the first quarter of 2019. In addition, the increased operating expenses just noted, the increase in operating loss this quarter also stems from a $4.1 million change in contingent consideration adjustment as a result of a $2.4 million charge for accretion of the SentreHEART-related liability in the first quarter of 2020 and versus a $1.7 million credit related to the nContact liability in the first quarter of 2019. In the first quarter of 2020, we had an adjusted EBITDA loss of $6.1 million compared to an adjusted EBITDA loss of $491,000 for the first quarter of 2019. Our loss per share was $0.42 for the first quarter of 2020 compared to a $0.15 loss per share in the first quarter of 2019, while the adjusted loss per share each period was $0.36 and $0.20, respectively. We ended the quarter with approximately $68.5 million in cash, cash equivalents, and investments. As a reminder, our cash burn is seasonally higher in the first quarter due to year-end variable compensation payouts, taxes on vesting of equity awards, heavy trade show spend, and internal training meetings. Due to the unpredictability of the duration and magnitude of the impact from the COVID-19 pandemic, we withdrew our previously announced financial guidance for 2020 on April 9. As I mentioned, we saw an almost 70% decline in the final weeks of the quarter and into the first 2 weeks of April. As Mike will discuss, and as you have likely heard on other calls, we have started to see increased activity in the past 1.5 weeks as states and hospitals are starting to do more emergent and elective procedures where our products tend to be used. This is a positive trend, and we do expect case volumes to increase in May and June and into the summer, but we do not want to get ahead of ourselves and cannot predict exact numbers. As noted in our April 9 release, in response to the changing business conditions, we have implemented several measures to reduce our operating expenses, taking out over $25 million in costs including delaying certain capital investments and hiring, reducing executive management and Board compensation, and reducing nonessential sales, general and administrative expenses where possible, all without sacrificing investments in critical strategic initiatives. While we may take additional action to further reduce our operating costs as the year progresses, we believe our current cash, cash equivalents, and investments are sufficient to fund our continuing operations. At this point, I would like to turn the call back over to Mike.

Thank you, Andy. We continue to experience unprecedented uncertainty as we collectively combat the COVID-19 pandemic. The situation remains fluid, particularly in the health care space, where main hospitals and resources are centered around the treatment of those who are affected by this virus. As many of you are aware, nonemergent procedures have been indeterminately deferred in order to preserve resources for COVID-19 patients and caregivers and to protect patients from potential exposure to COVID-19. While some HQ procedures may be insulated from this delay due to an emergent need, the variability is too great to allow us to measure the true impact of this disruption on our business into the future. However, we are confident that a large majority of procedures that have been deferred will return and patients will receive treatment. Every day, we are seeing states and sites across the country from Florida to Oklahoma to California and Washington begin to open up and perform more cases for patients in need. Additionally, our teams in the field have done a wonderful job of staying positive, doing what they can to ensure the best possible customer care. Early on, we took measures to ensure the protection and well-being of our employees, patients, and communities and to position our business to mitigate the disruption without weakening our readiness for a strong future. Following federal, local, and agency guidelines, most of our employees continue to work remotely and are restricted from nonessential travel with few exceptions, which are primarily our field support teams. Additionally, we are continuing critical manufacturing, assembly, and fulfillment of our products. We have taken essential steps to streamline and implement processes to mitigate potential health and safety risks to our employees posed by COVID-19. Without a doubt, one of AtriCure's key differentiators is the personal touch that we bring to our work. Our healthcare partners trust our products and rely extensively on the expertise of our field teams. It's a privilege that we have earned by working tirelessly and often in person to forge authentic relationships with each other and those that we serve. These strong connections have helped immensely as we now rely on virtual communication tools to innovate, learn, and support cases in new ways. I want to share a few wonderful examples of the creativity of our team and their commitment to our mission. A surgeon in the northeastern United States was able to perform an ablation procedure and AtriClip placement on a patient with the virtual support of AtriCure's regional sales manager and his team despite hospital rules that bar vendor personnel due to the pandemic. The AtriCure team utilized a virtual communication platform to connect with the staff member's phone in the operating room, and they communicated with the surgeon beginning at 6:00 a.m. at the scrub sink and through the end of the case. In another case, a clinical support specialist in the New England area answered the last-minute call of the thoracic surgeon in New York, who requested help with a cryo nerve block case. Again, utilizing virtual communication, our clinical support specialists walked the surgeon's staff through the procedure from setup to proper placement of the probe. Afterward, this surgeon said the willingness to go the extra mile did not go unnoticed. In addition to continued case coverage support, our teams are in regular communication with customer sites, providing encouragement and gratitude, as well as clinical help when needed. Our field team also remains very focused on education and training to continue building our market by utilizing online interactive training opportunities to enable remote learning for our customers and employees. At the time of this call, our teams across the globe have already completed hundreds of hours of programming, including sessions on ablation, conversion procedures, appendage management, and more. There is no shortage of examples of stellar work like this across all functions of our company. We have an amazing group of resilient people at AtriCure, whether they are building products, supporting cases, or volunteering to make face shields for their local community. The spirit, thoughtfulness, and creativity of our team is truly amazing. Responses like this make me even more proud to be part of the AtriCure team. Operationally, financially, and strategically, AtriCure is well-positioned to navigate through the current business environment, and our continued commitment to our pillars of innovation, education, and clinical science will enable us to help millions of patients over the next decade. Turning now to our strategic initiatives. We are prioritizing our investments in CONVERGE and aMAZE trials as well as the progression of our new product development pipeline. As many of you know, the trial results of CONVERGE, our landmark IDE clinical trial, were accepted as part of the late-breaking presentations at the Heart Rhythm Society, or HRS Annual Meeting. Since the in-person physician meeting was canceled, the late-breaker presentations will be conducted via webinar hosted on the Heart Rhythm 365, the society's digital information platform. Dr. David DeLurgio, Director of Electrophysiology at the Emory Heart and Vascular Center and the National PI for the CONVERGE trial, will present the results on the morning of May 8. Additionally, the abstract will be published in a supplement to the May issue of the Heart Rhythm Journal. We will be hosting a virtual analyst and investor meeting and briefing on May 8 at 1:00 p.m. Eastern Time, which will feature Dr. DeLurgio, as well as Dr. Hugh Calkins, Director of Cardiac Arrhythmia Services at Johns Hopkins, and Dr. Christian Shults, a cardiac surgeon from MedStar Washington Hospital in Washington, D.C., who was also a PI for his site. The clinicians will offer brief presentations on the data and its implications as well as take questions. We will announce the details of the webcast shortly. As a reminder, the CONVERGE trial is designed as a randomized, controlled superiority trial comparing our hybrid approach to catheter ablation alone for this patient population, the first trial of its kind in the Afib market. In addition to our late-breaker at HRS in May, there will be other nonrandomized controlled trials studying some advanced forms of Afib. Needless to say, the CONVERGE trial is uniquely differentiated. We firmly believe that we are investing in the future with both CONVERGE and aMAZE trials, both of which have the potential to substantially increase our addressable markets. As you might expect, this is an exciting time, and I am thankful for the expertise and focus of our clinical and regulatory teams on CONVERGE as well as all the other clinical trials. There is still much work to do after the CONVERGE results are presented, and our teams are actively working with the FDA to complete the regulatory process and make this therapy broadly available to patients suffering from advanced forms of Afib. We continue to expect the FDA to convene a panel later in 2020. In addition to our advancements in clinical data and science, the strength of our innovation remains steadfast. The V clip line of products launched in 2018 continues to be a driver of growth for our appendage management business. In the open ablation platform, we are awaiting 510(k) clearance for our new open clamp, EnCompass, and the team is preparing for market launch. This new clamp provides a simpler and faster approach to ablating the heart in open procedures. We expect the EnCompass clamp to resonate with surgeons in the open concomitant space and to be accretive to our open ablation revenue in future years. As we look out over the next several months, we expect a meaningful portion of AtriCure procedures across the United States and globally to be deferred, with the largest impacts falling in the second quarter. Further, we believe progress back to normalcy will occur at different rates and timelines throughout our markets. We have completed an extensive demand analysis, hospital by hospital, and we monitor this daily. There are early and encouraging signs in certain regions and hospital systems that are beginning to come back online, such as Florida, Texas, Seattle, and throughout California. And just the other day, we heard HCA and UPMC plan to start some elective cases again in May. In Asia, procedures in China are also starting to resume. While it's too early to call a trend, we are optimistic that there is light at the end of the tunnel, and the majority of procedures that have been deferred will return, and patients will receive treatment. Before closing, I want to thank our team at AtriCure for the strength and effort they have shown through these tenuous times. Every day, they are working to improve the lives of patients and dedicating their time and expertise helping hospital customers in response to the pandemic. I am incredibly proud to be part of this team and the foundation we have built together, a pipeline of new products, robust, randomized clinical data, and a continued commitment to world-class education, all of which will enable us to help millions of patients over the next decade. I have full confidence that together we will come out of this period even stronger as a company. Now I will open up for questions.

Our first question comes from Robbie Marcus with JPMorgan.

This is actually Lilia on for Robbie. Can you give us a sense of how we should be thinking about the deferrability of your various business lines? How emergent are minimally invasive versus open versus AtriClip procedures? And how have each of those been trending in recent weeks?

I'm not going to discuss the specific weekly trends, as I don't believe it's particularly informative. However, if you examine our business, there are two main segments. The open business generally has more urgent cases, such as CABGs and aortic procedures, which are currently receiving some treatment. Some cases are being deferred, but patients with mitral valve disease will still be treated, just delayed by a month or two, which is evident in hospitals. This also explains the rise in the open segment of our business, as patients will eventually need treatment. Reports indicate that hospitals need to start addressing these patients in the operating room. On the elective side, procedures like Convergent or DEEP-type are expected to see a rebound, as we handle some of the most complicated and ill patients. We anticipate seeing an uptick in activity during May, June, and July, and we are beginning to see operating rooms opening up for some elective cases. Nonetheless, each hospital's situation varies significantly. The Northeast is currently performing very few procedures, but there have been discussions about resuming elective procedures. In contrast, areas such as the Central U.S. and California are starting to see a return to more regular procedures.

Great. And one more quick one. How are you thinking about the recovery of volumes over the coming months? Are you assuming we pick up any lost procedures?

We believe that April and May are likely to be challenging months for nearly everyone. However, as we noted in our comments, this week showed some improvement compared to last week, with signs of cases being scheduled for May, June, and July. We expect to see gradual growth as we progress through the second quarter, although it will still be a tough quarter. The third quarter should show some improvement over the second quarter, with expected increases month by month. By the fourth quarter, we hope to see a return to a more normal situation. While I can't pinpoint an exact date for when that will happen, I do anticipate a gradual recovery. We've heard from various regions that during the summer, there will be efforts to work on weekends and capture additional cases daily. While I remain optimistic about this potential, we won’t rely on it due to the logistical challenges involved. I believe everyone will need time over the coming months to assess the feasibility of these plans. Nonetheless, I do see a continuous monthly improvement toward normalcy by the fourth quarter.

Our next question comes from Matthew O'Brien with Piper Sandler.

Mike or Andy, I wanted to follow up on your previous comments, Mike. Can we say that procedure volumes reached a low point in the first few weeks of April? Was this observation limited to the domestic market, or did it apply globally as well? Additionally, you mentioned things have improved slightly in the last week. So, after hitting the bottom in the early part of April, with a decline of about 50% in recent weeks, do we expect to see continued declines over the next couple of months before things fully stabilize around Q3? Is this assessment based on domestic data or global data?

Yes, I'll go over the different regions, and that should clarify things. Starting with Asia, it was quite challenging in Q1. We had no revenue from China, as Andy noted, and case volumes were nearly zero during that period. However, by the end of March, we began to see an increase, and we have already received an order from them. Asia is getting close to returning to normal, although it's not fully there yet, progress is being made. I expect that by the end of the quarter, they will be in a more stable condition. This region represents a smaller part of our business. In the U.S. and Europe, we observed a similar trend. In the U.S., like many companies, we saw a significant drop in volumes during the last couple of weeks of that month as lockdowns began. This decline lasted about five weeks, where volumes plummeted by up to 70% compared to early March. Surprisingly, we anticipated an increase towards the end of March rather than a decrease. That low volume persisted for about four to five weeks, but last week we saw some pickup. This week, we're noticing slight improvements as well. In Europe, the trends are quite similar between the regions. Southern countries are still not placing orders, whereas northern countries like Germany, The Netherlands, and some Nordic countries are starting to get back to work and treat patients again. Countries like France, Spain, and Italy remain largely in lockdown, although we don’t have extensive business in those regions. In the U.S., the situation mirrors that of the northern European countries somewhat, but it varies by location. The Northeast has been severely affected, and there's been no sign of recovery there yet. However, we're beginning to see some activity in places like Oklahoma, California, Minnesota, and Texas as they start to gradually reopen. The recovery isn't swift; it's progressing slowly, but I expect improvements each week as the quarter advances. Does that clarify things?

Yes. That's really helpful, Mike. And then again, either for you, Mike or Andy, just on the OpEx reductions. I think I know the answer to this question. I just want to hear it from you guys. But as far as the investments go, as you think about prepping for convergence going forward, none of the $25 million reduction that you guys talked about is earmarked for slowing things down as far as adding folks to be able to sell Convergent more aggressively or education or anything else along those lines? And then better than that question is how durable is that $25 million going forward? Is there $10 million that you found that you don't think you'll need to spend next year or even in '22 if things are minimized?

I'll answer the beginning part, and I'll let Andy answer the other one. I mean what we've done for CONVERGE and then for aMAZE is that we've really made sure that fortunately for us, we have a great team in place. We did buy SentreHEART last year. So we took the opportunity to accelerate some of the training for that team. So we have a very robust EP team that is ready and in place for when we get that approval. We're cross-training people. We're taking advantage of this time to make sure everybody is cross-trained in all of our product lines to be ready for that launch. We will have more than enough people to be ready for when that comes back, and the teams are already beginning to talk and do their planning in their territories, getting ready for when that occurs. And so I'd say that we're super well positioned from that standpoint. Andy can refer or talk to the other costs if any of them can be saved.

No. I look at things like projects, Matt. So other research and development projects, outside of some of the things Mike mentioned like EnCompass, those things are more deferral rather than thinking about stripping out of the cost structure. So it's just a matter of sort of pushing off as we could navigate through the pandemic time frame.

Our next question comes from Jason Mills with Canaccord.

Mike and Andy, glad to hear everyone's healthy. Can you hear me okay?

Yes.

Yes.

I wanted to follow up on your earlier point, Mike, regarding CONVERGE and the training needed to start effectively once we receive FDA clearance. Assuming we are aligned on the timeline and that we expect to return to a normal operating environment by the fourth quarter, do you foresee that the projections you had for 2021 in terms of site activation, acquiring new customers, and conducting Convergent procedures in Q4 are still valid? Are you considering any adjustments to that model, such as targeting specific regions more intensively or altering the rollout strategy, particularly in relation to training for CONVERGE after FDA approval?

Yes. I don't think that we've necessarily changed much, but we have taken advantage at the time to solidify business plans and hospitals and where we're going to go first and the ordering of that and also in cross-training people across the business to make sure that we have more and more people trained in understanding both Convergent and then eventually LARIAT product for 2022. So we've taken advantage of the time to put together a lot of deep internal training as best you can without going to labs to make sure those teams are ready to rock and roll. So it's going to be a combination of how we've strategized by market. We've accelerated a little bit more on that side, and we basically accelerated some of the cross-training that would have otherwise happened. But from a go-to-market standpoint and which ones, that has not necessarily changed. Obviously, we're playing it day by day in terms of, one, when do we get the approval because that's not in our control at this point. And then two, is what happens with COVID, does it come back in the fall time, et cetera. Those will obviously be things we'll have to react to at the time when they come. But we're planning as if we're going to get that approval and move forward.

Good to hear. As a follow-up on that last point, how do you currently assess not just the number of sites that may want to activate but also their ability to generate interest? I'm certain that the interest in treating persistent Afib remains strong. Can you provide any insights based on your discussions with physicians or any surveys you've conducted to gauge patient responses to returning to the hospital? Additionally, how do you see physicians managing their capacity as they aim to catch up on procedures, including mitrals and others you mentioned? For electrophysiologists, what about ablations or other procedures they perform, like pacemaker implantation? Should we consider these factors in the medium term as well?

Yes. I think that absolutely is going to impact the medium term. I mean again, it depends on when we get the approval and does the approval come soon after things have gone back to normality or what is the exact time we get that letter. And again, we don't know the answer to that, I mean until it does come. I mean, meanwhile, obviously, the data will be coming out next week for people to digest from that standpoint. But in terms of all the nuances and tentacles that you just talked about are absolutely factors that we have to look into and that we have looked at, played out the different scenarios. And we've got to do our best to make sure that we're staying in front of our customers and helping them as best as they can, helping educate them about this. From EPs that we spoke to and have spoken to throughout, I mean, everybody is looking forward to seeing the data. And then obviously, when we get to the FDA and get the approval, we can then go market more broadly at that time. So yes, I think everything you just talked about is going to be out there for us to consider, and we'll just have to kind of wait and see how things progress.

Our next question comes from David Saxon with Needham.

I guess just another one on CONVERGE. I just wanted to gauge your expectations. So can you talk about what you think the data needs to show to be clinically meaningful?

Yes, as we've mentioned in previous discussions, we don't address that directly. Essentially, we need to demonstrate both statistical and clinical significance. If we achieve statistical significance, it will translate to clinical significance, particularly given the small sample size of 153 patients. The change needs to be significant enough to achieve that statistical threshold. This is a practical way to consider it objectively. Additionally, it's important to focus not only on the primary endpoint but also on the burden rate reduction, which will influence clinical decisions over time.

Okay. Great. And then can you give an update on the aMAZE trial? And I'm assuming there's going to be some sort of delay. So any color there would be helpful.

Fortunately, on the aMAZE trial, it happened. We had finished enrollment on December 13 of last year. So fortunately for us, enrollment was complete. Now it's on follow-up. We fortunately also have a reasonable window to kind of follow up on that patient. So we're tracking it literally every day and week looking at what patient is supposed to come back that has hit that 1-year window that we have to follow up on. And so we're fairly confident that we won't see too much of a delay in those follow-up procedures and that we should be in a fine position. So the time behind it, as a reminder, is that the last patient should have follow-up in kind of the March, April time frame of next year. And after that, we will accumulate the data and submit it to the FDA. It took us about 4.5 months to do that with CONVERGE. So you can assume that sometime mid- to late summer, we would be submitting and working through the fall and into 2022 on getting the approval at that time. And obviously, then there's just the back and forth that is the natural occurrence once it's in the FDA's hands at that time. So that hopefully gives you a pretty good timeline of kind of how things are going to basically transpire over the next 1.5 years with aMAZE. But we don't anticipate any significant delays because the enrollment is complete.

Our next question comes from Suraj Kalia with Oppenheimer.

Hope everyone is safe and healthy. Mike, Andy, I have a couple of questions for you. Mike, I've heard this asked by others, so I'll approach it from a different angle. First, from a housekeeping perspective, I believe you mentioned a 70% reduction in the last 2 or 3 weeks of March. I'm trying to understand what the reference point is. Alternatively, how many regions do you think are currently open? What are your expectations for Q2? What does the 50% reduction indicate? How does the business performed in the last two weeks of the quarter? Was it down 70% from that? Any additional insights you can provide would be appreciated.

Sure, I'll do my best to provide meaningful information. When we mention a 70% reduction, we are referring to the first week of March and comparing it to the following week, where we experienced a decline of about 70% that continued into the subsequent weeks. We expected numbers to improve from that point. However, we do not plan to disclose weekly figures, as doing so does not benefit you and there are various fluctuations throughout each quarter. It is quite challenging for anyone to predict specific daily figures accurately year-over-year. From our perspective, we focused on the status from the previous week and noted the drop, which lasted approximately five weeks, but we are beginning to see some recovery. Regarding the locations that you mentioned being shut down, there were very few operational places in the United States for a while. Initially, there was a total shutdown on the West Coast around March and early April. Gradually, the West Coast began to reopen, with some cases being scheduled again as the situation improved. A key indication of reopening is when facilities announce the resumption of elective procedures or report a decrease in COVID cases. The Northeast region remains largely closed and is not generating much volume at this time. However, some areas, particularly in the Midwest, West Coast, parts of the Southeast, and southern regions, are starting to show activity.

Got it. And Mike, there are many questions about CONVERGE. I think a question was just asked about what you are expecting in CONVERGE. Let me approach this question from a slightly different angle. We understand the trial design in terms of statistical significance, and you explained it well. How do you envision the results influencing demand in the field versus creating a push environment once approval is granted? Assuming the results are statistically significant, which I believe is expected, what key factors do you think would lead to an increase in demand in the field starting in 2021?

I'm going to respond in a way that I've answered previously. I understand that there is a desire for more information. However, I believe that if the results are statistically significant, they will also be clinically significant, generating enthusiasm among a patient population currently without treatment. This trial is unique as it includes randomized control data for patients with persistent and long-standing persistent conditions. Recall that this trial examines patients who could have had atrial sizes of up to 6 centimeters for up to 10 years. There is no other trial that matches that. Other trials offer comparisons that are fundamentally different due to their single-arm designs. This is a randomized trial, and if we demonstrate statistical significance within this complex patient population, I believe there will be excitement for them once we are able to market the product. However, just because the data is released next week, it does not mean we can start marketing immediately. We are committed to working closely with the FDA for as long as necessary to obtain approval and move forward. I believe that, in the long run, achieving statistical significance will translate into both statistical and clinical significance, ultimately impacting the treatment of these severely ill patients. Additionally, it's important to note that our procedure is hybrid, meaning it incorporates not only our product but also a catheter-based product used during the procedure. This combination is what provides the durable and long-standing results for those lesion sets.

Our next question comes from Rick Wise with Stifel.

Mike and Andy, it's Drew filling in for Rick tonight. I have a question about CONVERGE. We've heard from various specialties that they're addressing the inefficiencies post-COVID and working to recover lost procedures. As you consider launching Convergent, do you think the adoption of the procedure could transition to a more staged approach instead of a single-day method? This might help resolve potential inefficiencies or logistical issues hospitals face, and could also simplify the placement of minimally invasive surgery. What are your thoughts on this?

Yes, you can see how it is currently practiced. The trial was conducted on the same day, so any discussions about efficacy will be based on that same-day setting. Many sites independently decide to stage the procedure for logistical reasons or patient benefits. Currently, about 60% of the sites we collaborate with opt to stage. Our company remains neutral on this matter; ultimately, the decision rests with them based on what they believe is best for their patients. As you mentioned, some of these decisions are driven by logistical factors. It will be interesting to observe whether COVID-related demands lead to more sites adopting a staged approach. I can't say for certain, but it seems like there will always be advocates for both same-day and staged processes, and they will make their choices accordingly. I suspect the 60-40 percentage might remain even after CONVERGE is approved.

Got it. I have two follow-up questions regarding that. For the 60% of procedures that are now staged instead of done in a single day, is there a noticeable difference in their AtriClip attachment rate? You've mentioned it before being around 50%, but I'm just curious.

You might assume that's how it works, but that's not the case. We have sites performing same-day procedures for the clip. It really depends on the Electrophysiologist's belief in managing the appendage and whether they choose to combine the procedure. Many sites do perform them on the same day. So, I'm not convinced that this is a major factor at the sites currently. That could change as we expand to more locations, but for now, it's more about the Electrophysiologist’s perspective on the clip.

Got it. And then touching on cryoICE here for a moment. You launched the product in basically February 2019. Just hoping to hear how the first year went relative to your expectations. And how is performance trending heading into the pandemic?

It's a great question. We're quite pleased as we've exceeded our overall expectations. We initially set low expectations because we were entering a new market, and we were unsure how much it would affect our existing sales. We aimed to strike a balance when establishing those expectations. What we’re discovering is that we are attracting many new sites that are trying our product and are satisfied with the outcomes. Interestingly, during COVID, this product has performed reasonably well as it helps expedite patient discharge from hospitals. Consequently, we’ve received numerous inquiries from individuals seeking training on how to utilize the product. It's been fascinating to witness this development, which has emerged as one of the positive aspects of our business over the past month and a half.

Our next question comes from Marie Thibault with BTIG.

I want to ask a quick one on CONVERGE or really more around the approval of the technology. Just wanted to be sure that any of the logistical things like pre-approval inspections and audits, that can be handled under the new environment? Or if you foresee any delays around that?

I don't necessarily see delays with that. Obviously, to be told as to what's going to happen within the FDA. But at this point, we're in very collaborative and active discussions with the FDA. They've been incredibly responsive, and we've been going back and forth on a variety of different matters, and they're continuing to move forward on the audits as well. So we've had many of the audits. The only audit really outstanding at this time is the one of our manufacturing facility, but all the other audits of customers, suppliers, they've continued to be active on that front and feedback. So to date, we have not seen that. I've not gotten any indication relative to that particular group that's working on our project that that would necessarily get in the way.

That's great to hear. And then last one on HRS and thinking about the data release next week. Typically, these medical societies are kind of a chance for doctors to discuss the data and get a little bit of buzz on and that's a little tougher, obviously in kind of a virtual setting. So I'm curious if the PIs will be hosting things with clinicians to discuss the data in more detail beyond what they're doing with us? And then just generally, if you could frame up kind of the excitement or level of interest for the technology in the field at this point?

Yes, we are taking a somewhat different approach regarding the data release. The primary purpose of releasing the data is for investors to access it in the market. It will also serve as a platform for customers to discuss and debate the findings during the scientific session. However, we are not planning any promotional activities beyond this session, as we currently have clearance for the product but not the approval for aggressive promotion. Therefore, we will not facilitate discussions between physicians at this time. We intend to let the data speak for itself, allowing for rich discussions during the scientific sessions. We will be hosting an Analyst Day and an Investor Day shortly after, providing a platform for investors and analysts to ask questions. Additionally, we will have participants from the trial and an independent expert, Dr. Calkins from Johns Hopkins, to share their insights on how they foresee the market evolving in the coming years based on the data.

Our next question comes from Danielle Antalffy with SVB Leerink.

I have a follow-up question regarding the recovery curve. Specifically, for the minimally invasive business, it seems more elective and deferrable, so it might not bounce back quickly. However, in the open ablation sector, these procedures appear to be quite urgent and cannot be delayed for long. I'm interested in your perspective on this, especially in light of your comments about returning to normal by Q4. I have one additional question after that.

Yes, it depends on the type. CABGs are typically more urgent procedures. However, mitral valves are treated earlier in the disease state nowadays, so they can be delayed a bit longer. Interestingly, there are more CABGs and aortic procedures happening now compared to mitrals, which are being postponed. I believe the return will be gradual rather than all at once, and there will certainly be discussions about operating room availability. Mitrals can be deferred further, which is the key takeaway here. I can't remember if you had a second question, Danielle.

Well, yes, no, I hadn't asked it yet. So you didn't forget anything. So my follow-up, and you sort of started to allude to this, just from a logistics perspective, is there anything about these procedures that logistically makes it tougher? I think about other service lines like TAVR, for example, and cath labs can extend hours. You mentioned hearing about physicians wanting to extend hours, you also have to consider capacity at the hospital from a resource perspective, anesthesiologists, et cetera. So is there anything unique to these procedures that your products are used in that could make the logistics a little tougher on the recovery?

I mean I think you hit on the biggest logistical issues that I think is it to be told by hospital, how well they're managed and how they're managing their workforce. I think it's going to be a matter of everything you just described. Each hospital is a little bit different in terms of that. And those are going to be the pieces that are going to be obstacles at certain places. Do they have enough staff, nursing staff, anesthesiology, et cetera? Are they willing to work the extra hours during this time? And certain places we're hearing absolutely. Others, like you were kind of mentioning, probably maybe a little bit less so. And so I think that's part of the calculus as things begin to come back and how you want to meter that out. The other one is just making sure that you've got the rooms available. I think that's probably the other big one, meaning the rooms and then the ICU beds and making sure that they've got enough of those available so that if they're actually operating 6, 7 days a week, do they have enough of that? Can they get patients out of that hospital faster, but also safely as well? They're going to be able to treat everybody. Those are the obstacles that are going to have to be overcome. I don't have a direct answer. I don't know all the answers to that because it’s going to be hospital by hospital.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Mike Carrel for any closing remarks.

Great. Well, again, thank you, everybody, for joining tonight. We remain fully committed to support our people, patients, and customers in our communities. Our strong foundation is built to weather this changing period for all of us, and we are well positioned operationally, financially, and strategically for the long term. We look forward to talking to every one of you in just over a week. And stay safe, everyone, and thank you for joining us.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.