Good afternoon, and welcome to AtriCure’s Fourth Quarter and Full Year 2023 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. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Marissa Bych, the Gilmartin Group for a few introductory comments.

Great. Thank you, and good afternoon. By now, you should have received a copy of the earnings press release. If you have not received a copy, please call 513-644-4484 to have one e-mailed to you. Before we begin, 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, financial expectations and guidance, expectations regarding the potential market opportunity for AtriCure’s franchises and growth initiatives, future product approvals, clearances, reimbursement and clinical trial outcomes. 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. And with that, I would like to turn the call over to Mike Carrel, President and CEO.

Good afternoon, and thank you for joining us today. 2023 was an exceptional year at AtriCure, and I am proud to report a strong finish with fourth quarter growth of 21%, showing robust momentum throughout our entire business. Our full year revenue of $399 million represents 21% over 2022, our third consecutive year of above 20% revenue growth, and globally, we saw increasing adoption of our broad portfolio of products for the treatment of atrial fibrillation, the left atrial appendage, and postoperative pain. Our patient impact extended further than before, resulting in the achievement of our one millionth patient treated with AtriCure technology. In addition, our top line performance and increasing leverage drove $19 million of positive adjusted EBITDA in 2023, making significant progress towards sustained profitability throughout our business. Before sharing operational highlights of the fourth quarter of 2023, I would like to frame the opportunity in front of AtriCure now. We identify markets where patients are underserved and create standards-of-care to improve these patients' lives. We know that creating new standards-of-care requires sustained investment in innovation, clinical science, and comprehensive education and awareness. Investing across these areas has allowed us to unlock new opportunities over the last two decades, and we are now positioned to offer solutions for millions of patients worldwide. This translates to a more than $5 billion global market opportunity today, with significant potential to expand our market opportunity in the future. AtriCure is in a unique position as a leader in each of our markets, with every market still significantly underpenetrated. Therefore, we remain focused on driving adoption, as well as identifying and cultivating new opportunities to drive strong growth for many years to come. As such, we are reiterating our expectations for full year 2024 revenue of $459 million to $466 million, reflecting 15% to 17% growth over 2023. We are also reaffirming our expectations to achieve adjusted EBITDA of $26 million to $29 million for the full year, with improvements annually thereafter as we progress towards positive cash flow. Now shifting to highlights of the quarter and 2023. Starting with the open ablation franchise, where our ablation solutions for the treatment of Afib are used concomitant to open heart surgery. In the fourth quarter, we surpassed 10,000 patients treated with our EnCompass clamp and achieved the best quarter yet for EnCompass clamp sales, which accounted for nearly half of our U.S. open ablation revenue for the quarter. The uptake of this product has been extraordinary since the BoD commercial launch in early 2022. At the recent Society of Thoracic Surgeons Conference, I heard from many surgeons about the impact this device is having on patients, expanding our reach throughout cardiac surgery procedures. Globally, our open ablation franchise achieved 21% annual growth in 2023, showing a continued elevation over historical growth rates in this franchise. As we begin 2024, we are confident in the increasing adoption of the EnCompass clamp in the United States and look forward to the European launch later in the year and other markets in the future. Next, turning to appendage management. AtriClip products for left atrial appendage closure in both open heart and minimally invasive procedures remain a foundation of our business. In many markets around the world, AtriClip devices are leading our growth as left atrial appendage management becomes the standard-of-care in cardiac surgery. We are excited to have seen the STS, AHA, and ACC all elevate surgical LA exclusion to Class 1A within their guidelines recently and we expect this evolution in guidelines to propel strong continued growth for our business. Overall, our appendage management business grew 21% in 2023 and we closed out the year with an acceleration in quarterly growth at 24% for the fourth quarter. Our growth was driven primarily by sales of AtriClip FlexV, Pro2, and ProV devices reflecting strong attachment to both open and minimally invasive procedures and is indicative of the immense opportunity that is still ahead. To that end, we celebrated a milestone in 2023 with more than a half a million AtriClip devices sold to date. This milestone stands on AtriClip's longstanding commitment and decades of innovation and research which we are continuing in 2024 and beyond. In late 2023, we submitted a 510(k) clearance notification to the FDA for our next-generation AtriClip device, the FLEX Mini, which builds off our proven technology to increase ease-of-use and significantly decrease the size of our AtriClip device, which already has the smallest profile on the market. We anticipate clearance in late 2024 with the U.S. launch following quickly thereafter. Additionally, to extend our potential patient impact, we're actively investigating the application of AtriClip devices in patients with preoperative Afib diagnosis through our LeAAPS clinical trial. The LeAAPS trial seeks to demonstrate a clinically meaningful reduction in ischemic and systemic arterial embolism, differentiating our AtriClip product from all other appendage management options in cardiac surgery and expanding our addressable markets globally. Enrollment in LeAAPS began in late January 2023 and accelerated throughout the year. We ended 2023 far ahead of our internal expectations. And as of today, we have enrolled over 1,700 patients in the study. We are expanding clinical trial sites in 2024 and expect first enrollment from centers in Europe in the coming weeks. While the trial will take several years to complete, the pace of enrollment both validates our decision to embark on this trial and underscores the excitement from clinicians and patients. Moving now to our pain management franchise, where our cryoSPHERE probe provides temporary relief for postoperative pain. Since the launch in 2019, the cryoSPHERE device has exhibited remarkable growth with full year 2023 revenue exceeding $50 million worldwide reflecting growth of 26% year-over-year. The base of accounts we serve has expanded just as rapidly and we saw more than 750 accounts purchasing globally in 2023. That said, to capitalize on the full market potential, we have several parallel efforts underway to add growth drivers for this business. First, our next-generation technology, the cryoSPHERE Plus probe was cleared by the FDA in the fourth quarter. The cryoSPHERE Plus device will enable faster ablations, improving efficiency of procedures. Recently, we completed the first procedures with this device with a 25% reduction in ablation time. We expect to move to full launch in the second quarter. We're also conducting economic studies in partnership with multiple centers to expand clinical data to better illustrate the value proposition of Cryo Nerve Block therapy. We will continue to invest in commercial resources worldwide to promote awareness for this important alternative to traditional pain management practices. Lastly, while we focus on driving adoption in thoracic and sternotomy procedures, we are carefully evaluating potential new applications and market opportunities for Cryo Nerve Block therapy and look forward to updating you on progress. Finally, rounding out our portfolio is Hybrid AF therapy focusing on standalone treatment of the millions of patients with longstanding persistent Afib. We ended 2023 on a high note with 27% year-over-year franchise growth in the fourth quarter. As I've said on several calls over the past year, 2023 was a building year for Hybrid AF therapy to ensure a strong foundation for lasting success throughout our accounts and leading to accelerating growth in the future. We were thoughtful about partnering with our customers to address workflow challenges and understand their needs for program expansion. Our fourth quarter results confirmed that our work throughout 2023 is having an impact and we will continue our efforts into 2024. We expect 2024 to be an exciting year for standalone treatment of Afib, as peers introduced PFA catheter technology in the U.S. market, the focus on more efficient endocardial ablation driven by PFA should provide a tailwind for everyone in the Afib market. Our hybrid approach remains complementary to PFA just as it is complementary to other energy sources used in endocardial procedures. Further, Hybrid AF therapy remains the only proven solution for longstanding persistent Afib patients. In addition to our CONVERGE trial results, there is a rapidly growing body of clinical evidence from independent studies and registries showing catheter ablation alone is not an effective treatment for patients with advanced Afib. In 2023, data from our CEASE-AF study and DEEP-AF clinical trial provided even more support for a hybrid approach. Moreover, recent updates to clinical guidelines published by AHA and ACC demonstrate the importance of Hybrid AF therapy. As such, we will continue to build our program development efforts with the goal of cementing efficient, scalable workflows for a broader base of customers. We have a strong conviction in the accelerating adoption of our Hybrid AF therapy for the millions of patients suffering from longstanding, persistent atrial fibrillation. In summary, 2023 was another truly exceptional year for AtriCure, defined by major milestones in patient impact and accelerating top and bottom line growth. We are excited to carry this momentum into 2024 as we advance adoption of our therapies and invest in future growth prospects that will propel AtriCure forward for many years to come. And with that, I will turn the call over to Angie Wirick, our Chief Financial Officer.

Thank you, Mike. Our fourth quarter 2023 worldwide revenue of $106.5 million increased 21% on a reported basis and 20.5% on a constant currency basis when compared to the fourth quarter of 2022. U.S. revenue was $88.8 million, a 20.1% increase from the fourth quarter of 2022, reflecting robust activity across each franchise, highlighted by an uptick in adoption of our Hybrid AF therapy representing 30.6% growth for the quarter, along with continued strength from key appendage management, open ablation, and pain management products. International revenue totaled $17.8 million, up 25.8% on a reported basis, and up 22.1% on a constant currency basis as compared to the fourth quarter of 2022. We continue to see strong demand for our differentiated solutions in major international markets with significant growth in appendage management and pain management. Sequentially, worldwide sales grew $8.3 million, or 8.4%, over Q3 2023. Gross margin for the fourth quarter 2023 was 74.9%, up 94 basis points from fourth quarter of 2022. The increase was driven primarily by favorable production efficiencies, partially offset by less favorable geographic and product mix. Fourth quarter 2023, research and development expenses increased $7 million, or 51%, and SG&A expenses increased $12.2 million, or 22%, over the fourth quarter 2022. Turning to the bottom line. We drove positive adjusted EBITDA of $4.8 million for the fourth quarter 2023 compared to positive adjusted EBITDA of $6 million for the fourth quarter 2022. While we are continuing to drive improvement to gross margin and realizing operating leverage in our commercial and administrative infrastructure, we experienced a significant increase in research and development costs in the fourth quarter of 2023 due to the rapid enrollment and expansion of our LeAAPS clinical trial and multiple product development initiatives underway. Our loss per share and adjusted loss per share was $0.21 for the fourth quarter 2023 compared to a loss per share and adjusted loss per share of $0.09 for the fourth quarter 2022. Now to review full year 2023 results. Worldwide revenue was $399.2 million, an increase of 20.8% on a recorded basis and 20.6% on a constant currency basis. U.S. sales increased 20.3% to $333.5 million, and international sales increased 23.5%, or 22.1% on a constant currency basis, to $65.7 million. The continued expansion of the EnCompass clamp drove U.S. open ablation sales to $105.3 million, or 22.3% growth over 2022. In 2023, our U.S. pain management franchise grew 23.1% to $49.2 million from increasing activity in existing accounts, along with new account adoption. U.S. MIS revenue was $44.6 million, reflecting single-digit growth in our legacy device sales, bolstered by approximately 18% growth in EPi-Sense sales, where we are successfully laying the groundwork for long-term growth. 2023 U.S. appendage management sales reached $134.5 million, a 19.5% increase over 2022, driven largely by our AtriClip FlexV device. And much like U.S. trends and activity in 2023, our international revenue growth was propelled by appendage management, open ablation, and pain management products. Gross margin for the year ended at 75.2%, an increase of 79 basis points from 2022. Similar to our fourth quarter results, the increase of gross margin reflects production efficiencies realized throughout the year, partially offset by less favorable geographic and product mix. Moving to operating expenses. Full year 2023 operating expenses increased 13.3% to $327.1 million from $288.6 million in 2022. Research and development costs expanded by $16.6 million, or 28.9% on both clinical trial and product development project spend as we extend our pipeline with clinical evidence and innovation. SG&A expenses increased $21.9 million, or 9.5%, with leverage in our training and education programs, commercial team, and infrastructure driving down operating expenses as a portion of revenue, in addition to a one-time benefit in 2023 from legal settlements. We remain focused on continued efficiencies in SG&A while maintaining investments in R&D for future expansion. Full year 2023, adjusted EBITDA was positive $19.4 million compared to a negative $2.2 million in 2022, an improvement of $21.6 million. Our loss per share was $0.66 in 2023 compared to a loss per share of $1.02 in 2022. Adjusted loss per share was $0.75 and $1.02, respectively. We ended 2023 with $137.3 million of cash and investments, a robust working capital position, and the flexibility to fund future opportunities and investments. Finally, turning to our outlook for 2024. Consistent with our guidance in early January, we expect to achieve between $459 million and $466 million in revenue for the year, reflecting growth of 15% to 17% over full year 2023 results. Embedded in our guidance is the assumption that product innovation and supporting clinical data will propel us to 15% growth and beyond. Also included in our guidance are market dynamics that include increasing competition. As we look at our progress with market development and the opportunities of each franchise, we expect our franchise growth rates in the United States to align closely with our expectations of 15% to 17% annual growth. We continue to see growth in our pain management business through deepening use in thoracic procedures and the addition of clinical data to lead to even wider acceptance of this therapy. We believe the exceptional adoption of our EnCompass clamp will continue to drive performance in open ablation, while broader progress with Hybrid AF therapy using our EPi-Sense system to lift MIS ablation growth in 2024. Complementing these drivers is our AtriClip products, which we see continuing delivery of steady growth over the large base of revenue. Additionally, we anticipate our international growth to remain on pace with the United States in 2024 and beyond. In terms of revenue cadence for the year, we expect typical seasonality to inform 2024 with first quarter revenue likely to be flat to our fourth quarter of 2023. From a margin perspective, we expect 2024 gross margin to be in line with our 2023 results with potential for modest improvement from cost savings initiatives later this year. We anticipate headwinds from product and geographic mix as well as increasing material costs to be offset by continued production efficiencies and leveraging scale within our operations as we grow. And as we have said before, our primary focus with capital allocation is to incubate the next set of growth drivers for AtriCure. Therefore, we expect to maintain R&D as a percentage of revenue at roughly 19% to 20% percent in 2024. Our spending across SG&A will continue to moderate in proportion to revenue, providing leverage and sustained improvement to profitability. With these priorities in mind, we expect full year 2024 adjusted EBITDA to range from $26 million to $29 million, translating to an adjusted loss per share of approximately $0.74 to $0.82. We also anticipate a moderate cash burn in 2024 against our strong cash balance and capital position. And as a reminder, our first quarter expense profile is typically highest, variable compensation payouts, share vesting and other operational needs will drive a higher overall cash burn and modest bottom line results.

As I turn the call back to Mike for closing comments, I would like to reiterate, 2023 was a stellar year at AtriCure. From expanding patient impact and revenue growth to realizing positive adjusted EBITDA, our results stem from the powerful collaboration of my AtriCure teammates. We enter 2024 with an unrelenting dedication to the patients we serve and drive to continue our financial progress.

Thank you. Our first question comes from Robbie Marcus with JP Morgan. Your line is now open.

Great. Thanks for taking the question. Congratulations on a successful quarter. I wanted to start with the Clip business and minimally invasive procedures, which had strong fourth quarters and exceeded expectations. You mentioned it broadly, but could you provide more specific details on how you are viewing those two in relation to open and pain as we move into 2024?

Yeah, Robbie, thanks for the comments. I think as you heard in the scripted comments, when we look at the guidance for the year, our expectation is that in the U.S., the growth rates of each franchise are pretty tightly coupled around the corporate average. I think unlike what we were saying in 2023, based on our expectations of the year of having some franchises as outperforming and some franchises kind of falling below the corporate growth rate, given the progress within each franchise and kind of development opportunities we would expect them to be more closely aligned around the corporate growth rate.

Great. I guess I have to ask, just given all the investor angst around your competitor Medtronic launching an AtriClip competitor, what you're seeing so far in the field in 2024 so far, how the salesforce is reacting to it, and any feedback you have from physicians? Thanks a lot.

I appreciate the second question, Robbie. I'll address it from a few different perspectives. First, I want to emphasize that we welcome competition, which we believe is a positive sign and confirms the validity of our market. Currently, we are still under 5% penetrated in the global market. There are over 2 million patients who undergo cardiac surgery worldwide, but less than 5% have either an AtriClip or an appendage managed today. This presents significant opportunities for us as we continue to focus on innovation. We are excited about the upcoming FLEX Mini product launch later this year, representing our eighth generation of AtriClip. Furthermore, we are investing in clinical evidence through the LeAAPS trial to demonstrate stroke reduction for patients undergoing cardiac surgery. We recognize Medtronic's Clip in the market and commend their investment. We see individuals trialing it, but we remain confident that our FlexV product is superior. With the innovations like FLEX Mini and others, we believe we are well-equipped to face any competition. We do not expect Medtronic to be the first competitor within our franchises. AtriCure is committed to establishing new standards of care, and we are investing in R&D for both product innovation and development. In fact, we have seven new products set to launch over the next two years, backed by comprehensive clinical evidence to showcase the effectiveness of our products. We are also focused on strengthening our sales team to ensure they are among the best at understanding our products and how they benefit patient care. Overall, we believe we are well-poised across all our product lines and view the competition as a validation of the markets we serve.

Appreciate it. Thanks a lot.

Thank you. Our next question comes from the line of Danielle Antalffy with UBS. Your line is now open. Danielle, your line is open. Please check your mute button.

Hey, everyone. Can you hear me? This is Simon on for Danielle.

We can hear you.

We can hear you, Simon.

Hey, guys. Thanks for taking the question. Your Cryo segment really demonstrated great growth over the past several years, but it's naturally moderated just given the scale. Do you think mid-teens' growth in the segment is sustainable? And what are the puts and takes to really think about moving forward here?

Thank you for the question. You've expressed it very well. We’ve reached a size of a $50 million business with 26% growth this year. We believe that mid-teen growth rates are sustainable, especially in the thoracic market where we are currently less than 20% penetrated. There’s a lot of potential for growth. As I mentioned, we’re investing in clinical evidence to showcase the economic and clinical value of our offerings, aiming to increase those numbers in the future. We are also investing in our product lines, including the recently launched cryoSPHERE Plus and an upcoming product later this year that advances our technology. This new product is designed to reduce the time required for ablation procedures, which should help us expand into the sternotomy market more aggressively, addressing a historical challenge in that area. Currently, thoracotomies are underpenetrated at less than 20%, but our new products will help us penetrate the sternotomy market as well over the coming years. We feel confident about our growth prospects in this sector. Additionally, as mentioned in my comments, we're exploring other areas, particularly extremities, that could also benefit from our Cryo ablation technology. While we’re not ready to announce anything yet, I believe that in the next couple of years, we will be making announcements about expanding beyond just thoracic and sternotomy areas, both of which already present significant growth opportunities. In summary, we are comfortable maintaining mid-teens growth for the foreseeable future.

That's really helpful. Thank you guys. One quick one for you. You mentioned potentially launching a product in the IST segments this year. Is that still on target? And any details on that would be incredibly helpful.

Yeah. So, a reminder for people, because we didn't really go into detail on today's call, we're running a trial called HEAL-IST for patients with inappropriate sinus tachycardia. What that represents are people that have elevated heart rates while they're resting, typically above 90 consistently. Most of these patients are in the mid-100s, and it tends to affect women kind of in their 20s to 40s or so. It's a very large patient population, well over a million patients that actually represent this market. There were some, an EP and a surgeon out of Belgium kind of invented a procedure in which you could leverage using our technology in combination with the mapping and the work done by the electrophysiologist to basically reduce that. And they showed almost 100% improvement at both a six-month and one-year timeframe after the procedure. The existing products that we have work incredibly well. It's under investigation for this particular disease in the United States right now, and we're making great progress on enrollment there. And yes, we are developing a new product, because right now our product today works incredibly well, but it takes a little while to actually get access to what you need to do there. And so the new product is custom-built very specifically for IST and for this specific surgery. And we do anticipate late this year, early next year to kind of have that product on the market.

Thanks so much.

Thank you. Our next question comes from the line of Bill Plovanic with Canaccord. Your line is now open.

Hi, Mike and Angie. It's John on for Bill tonight. Thanks for taking our questions. And congrats on a strong Q4 too. Maybe just starting on EnCompass. You said about 50% of U.S. revenues is from the clamp now. Can you talk about what hurdles still exist, the remaining users, the shifts, the new device? Is this just contract timing or price sensitivity? And do you plan on eventually stopping selling the older versions of the clamp? Thanks.

Yeah. I'll start with the last. We don't anticipate stopping selling any of our old clamps. They're actually exceptional. We continue to get really good feedback on that. They work incredibly well. They're really geared towards specific surgeons who are doing the full Cox-Maze for. They're the ones that we studied under PMA. For EnCompass, quite frankly, it's just going to take time to educate people how to use the product, get people comfortable with that. We're expanding into new sites. We're in about 55% to 60% of the sites in the U.S., so we've got a lot of room for growth relative to that. We're also planning to do a clinical trial as well, very specifically, much like we did for the ABLATE trial, which was what got us the PMA approval for our original clamps. We will anticipate doing that. We think that with that additional clinical evidence, that could also have an impact on adoption over time. This isn't one of those ones that is just going to grow overnight, but it's accelerated our growth rate. If you would have asked, I think, anybody if our open business could grow kind of above the low double-digits, kind of the 9%, 10%, 11% that we were growing for many, many years, this combined with reimbursement changes that have happened over the last couple of years have really accelerated adoption and more ablations that have happened. So, I think I feel really good about the progress. It's much better than we ever expected. And we'll continue to kind of talk about it out in the field from that standpoint.

Great. Thanks, Mike. And then just on pain management, too, to circle back to some of the other comments. How should we think about the timing of the economic outcome data that you've mentioned? Is that going to move the needle in 2024 or beyond? Are you still considering gathering data to support an opioid reduction label? Thanks.

Yeah. I don't know that I would say that it's going to be a 2024 event relative to that data. It's going to be a cumulative aspect of the data for Cryo Nerve Block and not one definitive trial. We're actually supporting many trials that are multi-center across the country and over in Europe. The purpose of that is that the totality of all that evidence, we think, is what's going to actually change practice. That's going to take several years to do it, but I think more and more papers are coming out every year. We had 14 trials that we were supporting or so last year. That number is going to continue into this year. Many of those are looking at opioid reduction as part of what they're looking at overall as the outcome. And so, I do believe that that is something that's very important for people to track and to know. And I think more and more papers are going to be written about the fact that people that do use this product tend to have a lower use of opioids once they leave the hospital.

Great. Thanks again.

Thank you. Our next question comes from the line of Matthew O’Brien with Piper Sandler. Your line is now open.

Good afternoon. I appreciate you taking my question. I'm not sure if this is directed to Mike or Angie, but I recall Angie mentioning that competitive pressures for 2024 are being considered in your guidance. You've reported a 20% growth in the top line over the past two years, and your guidance indicates a 16% growth at the midpoint, which is about a 400 basis point difference. This suggests an anticipated competition impact of around $16 million. I'm curious if that's an accurate way to describe the level of pressure you're expecting and whether it's limited to the Clip business. Additionally, based on my calculations, it appears you're factoring in a potential share loss of about 10%, or slightly more. Is that the correct interpretation?

I think you know that as we start the year, we want to provide guidance that we are confident we can follow through on and that allows us to potentially exceed as the year progresses. The range takes into account both the growth factors in our business and the competitive landscape in our market. However, we are operating in markets that remain largely untapped, and we believe there is still substantial growth potential despite competitive pressures. So, to clarify, it’s not a significant loss in market share relative to Medtronic. More importantly, our guidance for 2024 is shaped by the strength of our portfolio and the momentum we are experiencing as we move from 2023 into 2024. We want to ensure that we set targets that we can effectively achieve, which has been our guiding principle for years as we enter the New Year.

Okay. And Angie, specifically, I know there's a lot of trialing going on. Have you seen people flipping over to your offerings and using it in a lot more cases, or are you still seeing a dynamic where they maybe trial it and then just say, you know what, I don't like this for the most part? I'm sure there's some people that'll flip, but what are you seeing specifically there? And I do have one more follow-up.

I mean, we're definitely seeing people trial it across the country, but we feel really good about the strength of our franchise out there, Matt, and feel like people really love the AtriClip. It's set a very high bar in terms of how well it works. People understand that we have a tremendous amount of clinical evidence and data behind it.

Order basis, so just curious what you're seeing there in terms of adoption, expectations for growth there. Is it still another mid-teens? I don't know if the guidelines can help a little bit as well. And then just any thoughts on competition? I know there's somebody that's filed to compete with you. Is that something that you're building in a little bit this year, or something that potentially could impact that business as we head into '25? Thanks.

As Angie mentioned in the guidance, we believe that almost all of our businesses are aligning around that 15% to 17% growth range. We see significant potential for upside across all our segments. We're experiencing strong growth, and we feel confident about maintaining our current growth rates in cardiac surgery. We expect most of our franchises to fall within that 15% to 17% range. We constantly monitor the competition, though there's nothing specific to address right now. Should competition emerge, we are prepared to respond. We are comfortable with the guidance we've provided and, as Angie noted, we take a conservative approach at the beginning of the year to ensure we can meet and exceed expectations as the year progresses.

Thank you. Our next question comes from the line of Marie Thibault with BTIG. Your line is now open.

Hey, Mike. Hey, Angie. You've got Sam Eiber from Marie. Thanks for taking the questions and congrats on a nice finish to the year. Maybe I can start on CONVERGE and just looking at the U.S. business growing for the MIS business growing 16% sequentially, 30% year-over-year. It does sound like things are really starting to click there. And I know you addressed some of it in your prepared remarks. But any more color you can give on any specifics and maybe does that give you the confidence now to push a little bit harder on new site activation this year?

Yes, Sam. I think we feel really good about the activity in the fourth quarter. I think this is reflective of a year plus of our team in the field, supported by many others in the business really trying to hone in on where programs had a really good interest in starting a CONVERGE program, why they've not been able to accelerate and see the kind of growth that we would expect. So, we feel really good that the activities are paying off and that we're making a difference in the accounts that we're focusing in on. I'd say longer term when you think through 2024, we're looking for that to be more broadly replicated throughout the base of accounts so that we can continue these kinds of growth rates. But I'd say the efforts in the field are really what we're seeing is starting to pay off and looking for that to have a broader impact in 2024. The second part of your question was about new account activations. We saw a few new account activations in 2023. Our team's primary focus right now is on existing accounts. As they move through 2024, there is still significant interest from customers. We remain under-penetrated in terms of the potential accounts that could adopt CONVERGE procedures or programs, and we are still bringing new accounts up to speed. The work we are doing today to enhance the efficiency of existing accounts and assist them in developing their programs will ultimately help us attract new accounts and enable them to scale rapidly.

Really helpful, Angie. Thanks for the added color there. Maybe just flipping to AtriClip and maybe looking beyond some of the competitive dynamics. But you also mentioned some guideline changes. And I'm just wondering if that can be maybe an additional tailwind to the underlying market and adoption for the Clip business. Thanks for taking the questions.

Yeah. Absolutely. We think that the guidelines are pretty monumental for the entire space. And it's basically saying a Class 1A recommendation is basically saying you should treat this appendage every single time somebody has atrial fibrillation today. And that is not just the cardiac surgeons doing it, but it's ACC and AHA to the referring cardiology community is basically saying everybody needs to treat the appendage when they're undergoing cardiac surgery. And so absolutely, we think that's a really good sign for this market overall. And obviously, AtriClip is being used to manage the appendage by many people around the globe. So it's a great validation, just like competition is a great validation of the space and what we're doing there. And then obviously, we're expanding that market with LeAAPS so that eventually the data we get with that changes the guidelines for every patient, not just those that have Afib. That's our goal with that. That's why we're investigating it. And you can see the excitement with 1,700 patients already enrolled out of a 6,500-person trial. It's pretty remarkable to see that kind of growth. That's the excitement people have and the belief in managing the appendage.

Well understood. Thanks again for taking the questions.

Thank you. Our next question comes from the line of Joseph Conway with Needham. Your line is now open.

Hi, Mike. Hi, Angie. It's Joseph on for Mike. I guess maybe just touching on gross margin improvement in the quarter, I think Angie called out some production efficiencies. And looking into 2024, I think in the comments, you guys talked about just being in line for 2024, potential modest improvement. I was just wondering if you could maybe give some more color around what happened in this quarter and some of those cost-saving initiatives that you expect to rollout this year, how you expect that to be phased.

Yeah. So, what you saw in the fourth quarter, really strong, I'd say, production efficiencies offsetting. We had quite a few headwinds coming from the mix of our international business. That led to an improvement off of 2020, 2022, the fourth quarter comp. And as we enter into 2024, I'd say kind of more of the same. You're going to see nice improvements. If the only thing that we saw was improvements to kind of production efficiencies with the same kind of mix of revenue, you'd see some nice improvements in 2024. But we are expecting some headwinds given the mix anticipation in 2024. We've talked about in the past a couple of areas where we expect to see some improvements to margin. The first would be with the launch of cryoSPHERE Plus probe to the extent that the adoption of that probe takes off in comparison or replaces our existing cryoSPHERE probe. There is a nice benefit to our gross margin. Again, our launch is anticipated in the second quarter. So you would see more of that benefit in the second half of the year. And then the other thing we've talked about on other calls is the EnCompass clamp. Our operations team and engineering team did really nice work throughout 2023 to say, given the demand that we're seeing in this particular product line, what are some ways that we can produce this product better and more efficiently. They also have come with some cost-savings that we would anticipate later in 2024. So I think the big driver in 2024 when you think about gross margin is primarily mix, but knowing that there's some fundamental production efficiencies and some nice things happening within our operations that help be a tailwind to the overall number.

Okay. Thank you. That's very helpful. And then I guess just a quick one on the new AtriClip product. You gave some commentary around timing for the launch, but just maybe if you could talk about pricing, what you guys are thinking about that, especially with Medtronic coming into the market, if there's anything that you're trying to hold back, any price increases for that?

Yeah. So, first, I'll comment on the product. It's called the FLEX Mini. We did file for a 510(k) and we feel like this product is going to be incredibly well-received. It's about a third of the profile and size of our product, our FlexV product on the market today. It's incredibly easy to deploy. All the testing that we've seen so far is that it is going to be by far and away the most superior product on the market going forward. We have not determined our pricing strategy at this point. And so we'll probably hold back in terms of discussing that in any kind of detail, but we're evaluating what the best pricing strategy is right now.

Okay. Great. Thanks so much and congrats on a great quarter.

Thanks.

Thank you. Our next question comes from the line of Danny Stauder with Citizens JMP. Your line is now open.

Great. Thanks. Can you hear me?

We can hear you.

Great. So, first off, I wanted to ask about procedure volumes. We've heard from some of your peers mentioning elevated volume levels and I wanted to get your perspective on that, especially regarding the open surgical market. Have you noticed any significant changes in valve or CABG procedures that have contributed to the growth in open ablation and your open AtriClip procedures? Thanks.

I don't think we've observed any significant improvement recently. There has been consistent progress since COVID, but we seem to be in a stable period now, where typically, cardiac surgeries increase about 1% to 2% per year. Over the past year, I don't think we've seen anything beyond that. I've heard varying reports that suggest there might be some growth in procedures in 2024 from certain areas. For instance, HCA mentioned their cardiac surgery volumes in one of their calls, but I haven't heard that from every system. So, I would say that I’m cautiously optimistic about the situation right now.

Great. Thank you. And then this one follow-up, turn to appendage management. The growth in MIS ablation was great to see, but with that, are you seeing an uptick in your AtriClip minimally invasive procedures? And then could you remind us where that AtriClip mix has opened to MIS today and how has that changed over the past year or so, and where you think that could go in 2024? Thank you.

Yeah. That was a nice byproduct of the strength of our MIS business in the fourth quarter. We saw an uptick in our MIS appendage management, the AtriClip Pro products, realizing pretty equal growth to the open AtriClip products leading to about 22% growth to the fourth quarter in the U.S. And our attachment rates, we continue to see a steady increase in attachment a year or so ago. We were talking about around a 75% attachment to our CONVERGE procedure and now we're, I'd say, kind of mid-80s at this point in time and continue to receive really good, strong feedback from accounts that are starting CONVERGE programs or have adopted CONVERGE programs, the interest in treating the appendage surgically during the CONVERGE procedure. As we exited the year, when you look at our U.S. appendage management business, about 25% of the revenue was from our MIS AtriClip business and about 75% of the revenue was in our open Clip business and I think, given the strength of both of those franchises, our open and MIS ablation businesses would expect for that next to remain relatively similar with the potential for upside, I think, for the MIS product.

Great. Thank you very much.

Thank you. Our next question comes from the line of Suraj Kalia with Oppenheimer & Company. Your line is now open.

Hi, Angie, Mike. Can you hear me all right?

We can hear you.

Perfect. Hey, Mike. So, a couple of esoteric questions. I was wondering if you could help us out. AtriClip, in general, is it on consignment or should we think about inventory also? And more specifically, as you'll enter FY '24, just given all the dynamics and your prepared remarks, how should we think about the pricing flow through that you'll think about for FY '24?

We don't actually have any consignment products. Our model focuses on use and replacement, so we maintain very limited inventory at locations, just enough for them to plan procedures for the upcoming week or two. This approach is intentional, as we want to accurately understand demand. We have ample inventory ready to supply in real-time, ensuring a 99.8% delivery rate so that every patient receives treatment. Regarding pricing, we believe our strategy is solid. Our initial product, the original AtriClip, as well as the first three generations, are available at a lower price point. The FlexV, which is our premium offering, is also on the market, along with our highest-priced minimally invasive products. Overall, we feel well-positioned with our pricing and do not anticipate making any changes in the near future.

Got it. Mike, in terms of AtriClip Mini, is this just a desire for product stratification? And what I'm looking at is in terms of complete isolation of the LAA, you're presumably going a smaller form factor. So just kind of walk us through the rationale for introducing Mini. And Mike, also remind us in terms of persistent AF, what percent of the cases being done by AtriCure today are persistent AF versus longstanding persistent AF? Thank you for taking my questions.

Sure. Regarding the FLEX Mini, we have conducted around 500,000 implants so far and have engaged extensively with our customers to identify desired improvements for the product. The main feedback we received was a request for a smaller overall profile. The FLEX Mini meets this demand, as it has about one-third the profile of other products, offering significant benefits. Additionally, we have a V-shaped product and the original hoop-like product on the market. The hoop-like product has not performed as well in terms of deployment compared to the V-Clip, and customers have expressed interest in a smaller hoop-like product with a more user-friendly deployment tool. This feedback has shaped the Mini’s development. Furthermore, the Mini will be integrated into our ProV product, and we plan to introduce a ProMini product around late 2025. This new product will be able to use at least a seven millimeter, and possibly a five millimeter trocar, making it even less invasive for procedures. The small profile allows it to fit through these smaller trocars, which is a significant advantage. Regarding your second question, it seems you are inquiring about the CONVERGE area and the difference between persistent and longstanding persistent conditions. Our labeling focuses on longstanding persistent cases, which represent the majority of the patients we encounter. Most patients we see have experienced one to three failed catheter ablations before opting for a CONVERGENT or Hybrid procedure. I hope this answers your question.

Fair enough. Thank you.

Thank you. This concludes the question-and-answer session. I'd now like to hand the call back over to Mike Carrel, CEO, for closing remarks.

Great. Again, everybody thank you for joining us today, and we look forward to having a great 2024 together. Have a good one. Bye now.

This concludes today's conference call. Thank you for your participation. You may now disconnect.