Earnings Call Transcript - ATRC Q3 2022

Operator, Operator

Good afternoon, and welcome to AtriCure's Q3 2022 Earnings Conference Call. My name is Stacy, and I'll be your coordinator for the call today. I would like to turn the call over to Marissa Bych from the Gilmartin Group for a few introductory comments.

Marissa Bych, Gilmartin Group

Thank you. By now, you should have received a copy of the earnings press release. If you have not received a copy, please call 513-644-4484 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, including the adoption of the Hybrid AF therapy and 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 Chief Executive Officer.

Michael Carrel, CEO

Thank you, Marissa. Good afternoon, and thank you to everyone for joining us. We hope you're well. I am pleased to share another outstanding quarter for AtriCure, as we drive adoption across our therapies to improve patient lives and capture the substantial opportunities in front of us. We ended the third quarter with $83.2 million in revenue, reflecting growth of approximately 18% over a strong third quarter of 2021. Highlights for the quarter included continued expansion of our pain management franchise and rising commercial traction from our recently launched EnCompass Clamp, as well as mounting adoption of AtriClip devices globally. Turning to third quarter EPi-Sense product revenue in the U.S., which increased 12% year-over-year and 3% on a sequential basis. Hybrid AF therapy courses experienced record attendance in this quarter as we trained many cardiac teams on the overall benefits to patients and best practices for setting up a program and working through protocols and logistics. We are seeing growth in both the average number of accounts and procedure volume per account each quarter as we continue to focus on establishing Hybrid AF therapy as a standard of care for long-standing persistent atrial fibrillation patients. Additionally, we are seeing increased adoption at top-tier sites, with 14 of the top 25 cardiac programs in the U.S. building programs. To that end, in September, we highlighted the experiences of Dr. Eric Bush and Dr. Zayd Eldadah, implementing Hybrid AF therapy in their respective practices. Both EPs emphasize the excellent clinical outcomes for their patients as well as plans to substantially increase adoption. We believe the commentary from both physicians underscores the efficacy of Hybrid AF therapy, an immense opportunity for AtriCure, to address this unmet need for millions of patients. Shifting to our pain management franchise, Cryo Nerve Block continues to be our fastest-growing therapy. In the third quarter, we saw sequential revenue increase of 3% and are gaining traction within a broad base of accounts with well over 500 accounts year-to-date. We believe strong adoption of Cryo Nerve Block therapy is due to physicians seeing immediate results from providing temporary pain relief for patients after thoracic surgery. While we are working to impact more patients in this space, we are also exploring new opportunities, including the application of Cryo Nerve Block for sternotomy. We look forward to sharing our progress on future calls. Now on to our open ablation franchise. Earlier this year, we announced the full-scale commercial launch of the EnCompass Clamp in the United States. The EnCompass Clamp leverages the proven technology of our synergy ablation system to provide a simpler and faster approach to ablation in open heart procedures. Strong momentum from our initial launch carried into the third quarter, driving nearly 21% growth in the U.S. open ablation revenue year-over-year, reflecting a mix of new adoption and additional revenue per procedure upon conversion to the EnCompass Clamp. We are pleased to share that EnCompass contributed nearly 25% of our U.S. open ablation revenue in the third quarter and we are continuing to expand accounts and surgeons. Feedback from our customers has been exceptional and we remain confident in our ability to further penetrate the cardiac surgery market for many years to come. Finally, our AtriClip product line continues to see consistent growth worldwide with an 18% year-over-year growth this quarter. We are advancing our efforts to innovate the AtriClip platform, focusing on less invasive and easier-to-use devices. We've seen many opportunities for growth in our appendage management franchise as we increased demand in both our open and minimally invasive businesses. In addition to our existing opportunities, we are actively investigating an expanded application for the AtriClip platform through the LeAAPS clinical trial. This landmark trial examines the prophylactic use of AtriClip devices for stroke reduction in cardiac surgery patients without a pre-operative Afib diagnosis. Over two-thirds of the nearly 1 million cardiac surgery patients worldwide do not have a pre-operative Afib diagnosis, yet have an increased risk in their lifetime. We believe this trial will demonstrate the benefit of excluding the LAA with the AtriClip, providing a substantial extension of our markets. Trial initiation is underway with patient enrollment expected in the coming months. While the trial will take a number of years to complete, we anticipate awareness for appendage management in all cardiac surgery procedures to increase in the interim. In addition to our efforts at market expansion through the LeAAPS clinical trial, we are cultivating new markets by building upon existing technology and leveraging the unique physician relationships we have developed. Earlier this year, we announced the first patient was treated in the HEAL-IST clinical trial. HEAL-IST will study the treatment of patients with inappropriate Sinus Tachycardia or IST using hybrid ablation procedures. IST is characterized by an elevated heart rate and distressing symptoms of heart complications, contributing to the inability to sleep or exercise. It affects millions of people around the world and currently there are no approved treatments for this debilitating condition. We continue to make progress with the trial and remain excited for the potential of this new therapy to unlock another significant market opportunity and provide a solution to the many patients with IST. In addition, we are advancing product development efforts on a dedicated device for this therapy and will share more as we continue our efforts to build the market. Across our business, we are seeing growing interest in our differentiated solutions and are proud to work with all 50 of the U.S. News & World Report's best hospitals for cardiology and heart surgery. The investments we have made in innovation, clinical science, and education position AtriCure for accelerated and durable growth for years to come. I will now turn the call over to Angie Wirick, our Chief Financial Officer, to discuss more detail about the quarter.

Angela Wirick, CFO

Thank you, Mike. Our third quarter 2022 worldwide revenue of $83.2 million increased 18.1% on a reported basis and 19.8% on a constant currency basis when compared to the third quarter of 2021. Revenue was driven by solid growth across key product lines and geographies bolstered by outstanding results in pain management, appendage management, and open ablation. On a sequential basis, we experienced a 1.5% decline in revenue from the second quarter attributed to normal seasonal variation in underlying procedures. In the third quarter 2022, U.S. revenue was $69.8 million, a 21.3% increase from the third quarter of 2021. Open ablation product sales, which exclude pain management, were $21.6 million compared to $17.9 million, up 20.5% over 2021, showing building strength from the EnCompass launch with a combination of new adoption and incremental revenue per procedure. We estimate open concomitant procedure growth was roughly half of the growth for the quarter, consistent with our expectations of sustained and steady penetration of the cardiac surgery market. Minimally invasive ablation sales were $10.1 million, up 0.9% from 2021. As Mike noted earlier, within U.S. minimally invasive ablation sales, EPi-Sense revenues increased approximately 12% year-over-year and 3% on a sequential quarter basis. However, EPi-Sense revenue growth was offset by approximately 21% decline in the legacy MIS ablation revenue year-over-year. We exited the third quarter with 75% of U.S. MIS revenues attributed to the EPi-Sense system and continue to believe in the significant long-term growth potential for Hybrid AF therapy. Rounding out U.S. revenue, pain management sales were $10.5 million compared to $6.3 million, up 68.1% over the third quarter of 2021. Sales of appendage management products in the U.S. were $27.6 million, up 18% over the third quarter of 2021. International revenue was $13.4 million, up 4.2% on a reported basis and 13.5% on a constant currency basis as compared to the third quarter of 2021. European sales accounted for $7.3 million, driven by increased activity in the United Kingdom and broader markets, offset by unfavorable exchange rates as well as slowed activity in the Netherlands and Germany. Asia and other international markets accounted for $6.1 million in international sales on strength in most markets, but notably Australia and Japan, partially offset by prior year activity in China. Overall, international markets were fueled by growing adoption of AtriClip devices, resulting in an increase in appendage management revenue of 19.5% from the third quarter of 2021. Now turning to another key metric for the third quarter of 2022. Gross margin was 74.1%, flat to the third quarter of 2021. While we are seeing benefits from increasing scale of our operations, more recently, they have been offset by rising costs and supply chain pressure as well as a shift to lower gross margin products. Moving to detail on operating expenses for the quarter. As a reminder, operating expenses for the third quarter of 2021 included a $189.9 million credit to operating expenses with a change in fair value of contingent consideration, offset partially by an $82.3 million intangible asset impairment charge for the IPR&D asset associated with the aMAZE trial. Excluding these items, operating expenses increased $11.3 million or 18.4% from $61.2 million in the third quarter of 2021 to $72.4 million in the third quarter of 2022. The increase was primarily driven by research and development activities, which grew approximately 34% year-over-year, while selling, general, and administrative expenses increased 15%. Our adjusted EBITDA was negative $735,000 compared to a positive adjusted EBITDA of $691,000 for the third quarter of 2021. Our basic and diluted net loss per share was $0.27 in the third quarter of 2022 compared to a basic and diluted net income per share of $2.15 and $2.11 in the third quarter of 2021. The adjusted loss per share in the third quarter 2022 and 2021 was $0.27 and $0.23 respectively. Our balance sheet is very strong, and we ended the third quarter with $174 million in cash and investments. The modest cash burn shown this quarter largely reflects capital expenditures associated with the expansion of our manufacturing operations as well as an increase in inventories. Turning to our outlook for 2022. Given the ongoing momentum across our business, we now expect to achieve approximately $328 million to $333 million in annual revenue, reflecting full year growth of approximately 20% to 21%. As we think about fourth quarter expectations by geography and franchise, we believe the EnCompass launch will continue to positively impact U.S. open ablation revenue. Within U.S. MIS ablation, throughout this year, we have seen more pronounced impact to procedures in our legacy MIS business as we operate within a much smaller base of customers. Therefore, while fourth quarter of 2021 included $3.7 million of a contribution from legacy MIS devices, we are trending at approximately $2.5 million currently. And finally, like many other companies, we faced increasing headwinds from unfavorable exchange rates in the third quarter and expect this pressure again in the fourth quarter. We continue to expect 2022 gross margin to be comparable to the full year 2021, with the potential for varying impacts from increasing costs and mix, largely on the strength of our pain management franchise and the EnCompass launch. We are maintaining our level of investment in research and development activities with spending in product development and clinical science initiatives across our platforms. Additionally, our plans anticipate thoughtful investments in our commercial team, along with market development activities and training and awareness programs. We expect the full year 2022 adjusted EBITDA to be a loss of approximately $4 million corresponding to an adjusted loss per share for 2022 of approximately $1.10 to $1.12. Therefore, fourth quarter results are expected to be approximately $4 million in positive adjusted EBITDA. As we navigate the remainder of this year, our employees across the globe remain focused on our patient-first mission. Whether that means clinical trial or product development activities, market awareness and education, administrative support, or the production and fulfillment of our products, the AtriCure team has shown immense collaboration and dedication despite a tough backdrop from various uncertainties in the world and economy. Thank you all for making our company truly a special place and breathing life into our mission and values each day. Now I will turn the call back to Mike for closing comments.

Michael Carrel, CEO

Thank you, Angie. In addition to being proud of our team for a great financial quarter in which we grew the business and advanced many long-term growth catalysts, I'm truly in awe of the wide-ranging talent of our employees. I'd like to highlight a program developed by our team, the Women's Cardiac Health Awareness initiative. In early October, AtriCure sponsored an All-Star Physician Panel discussing the unique needs of women in prevention, screening, and treatment of atrial fibrillation. This live online event brought together leaders in the field of cardiac surgery, electrophysiology, and thoracic surgery to educate peers about the importance of improving the heart health of women. The program was a tremendous success and a huge step in our effort to encourage a heart team approach to address gaps in healthcare. Additionally, I'm honored to share that AtriCure has been selected as one of only 20 finalists in the nation for the 2022 Diversity, Equity, and Inclusion Awards by the National Association of Corporate Directors or NACD. This prestigious recognition is a testament of our intentional action around DE&I, beginning with the composition of our Board of Directors and continuing with training, practices, and objectives that have a measurable impact across our employee base. The commitment to fostering a workplace that rejects discrimination, celebrates differences, and promotes equality is fundamental to our organization and how we operate. At AtriCure, our future is bright, and we're thankful for the support of all of you on this call today. With that, I'll turn it over to the operator.

Operator, Operator

Our first question comes from Robert Marcus of J.P. Morgan.

Robert Marcus, Analyst

Congrats on a good quarter. Maybe to start off, the focus is on the MIS business, and I appreciate that it looks like CONVERGE did grow in the quarter. It was the legacy business that there was something like a $2 million headwind or so. It was really helpful to have that online event last month. How do we think about when we might start to see some more tangible improvements and sequential growth there? Now with one month under your belt, do you think it might be fourth quarter or do you think we're going to have to wait until 2023 to start to see it pick up?

Michael Carrel, CEO

It's a great question, and one we've anticipated. From our perspective regarding the EPi-Sense segment of our business, we're making good progress. We're currently in 14 of the top 25 programs in the country, and many of these sites are just starting their programs. Therefore, we may not see a significant impact in the fourth quarter, but looking ahead to next year and the year after, we are seeing real traction with an increase in the number of accounts and deeper engagement within those accounts. While I can't specify an exact timeline for when we will see a substantial uptick, we feel confident that momentum is building and expanding within these programs. At the recent show, we aimed to highlight two exceptional programs at different stages. Dr. Eldadah’s program has been established for a long time, and the data has allowed them to expand beyond just his referrals to other EPs in his practice and associated hospitals. They recently announced their 350th case, demonstrating the momentum in that program. Conversely, Dr. Bush's program began shortly after we got the label a year and a half ago, and they are currently approaching 35 to 40 cases this year. We expect those newly initiated programs to contribute significantly by the end of next year and into the following year, with some early contributions as soon as the start of next year. These programs are beginning to grow and will provide strong, long-lasting revenue for these accounts. We have a lot of interest in our training programs, so it's not a question of if, but rather when, as the data is compelling and the market potential is vast.

Robert Marcus, Analyst

Maybe as we look to 2023, I think it's important that the fourth quarter is going to be the first in a while, if not the first ever. I didn't look all the way back, just EBITDA profitable quarter. Is this a trend you think you should be carrying forward into 2023 and its profitability from here on out or might the first half of the year turn back negative before turning profitable again?

Angela Wirick, CFO

It's a good question, Robbie. What we typically see in the first two quarters of the year is typically a higher loss, and the balance for the full year typically comes down. That's if you were to look back at AtriCure's P&L for many, many years. Where we're sitting at today, it's an $8 million loss year-to-date. We are expecting positive $4 million for the fourth quarter, bringing the full year to the guide of about a $4 million loss. I think as we enter next year, without giving a specific date of achieving full-year profitability, I think pretty naturally, this happens in the near-term. Historically, we've been able to make good improvements to the bottom line at lower growth rates in the history of AtriCure and would expect despite a lot of the great investments that we're making in the big opportunities that are in front of us that we would turn to profitability in the near-term. It's definitely a focus of us and our team, and I think without having to sacrifice a lot of the great initiatives, particularly when you think about our R&D spending.

Operator, Operator

Our next question comes from Rick Wise with Stifel.

Rick Wise, Analyst

To begin with gross margin, it was flat year-over-year, which was a bit surprising considering the increase in sales volume. Could you elaborate on the pressures from inflationary supply chain costs? Is the situation deteriorating? What is AtriCure's current experience regarding these pressures? I also found the reference to a shift in product mix and lower-margin products somewhat unclear. Could you clarify that? Additionally, at a high level, should we anticipate an improvement in gross margins in 2023?

Angela Wirick, CFO

So with regards to the cost and some of the supply pressures, I'd say this was the first quarter where we started to see maybe a bit of an increase in some of the costs. It may be the timeline of different contracts that we're working under. But the other pressure that we saw was maybe not the optimized production volumes we would have liked to have seen during the quarter, so maybe some limitation there. That being said, exceptionally proud of the team given the backdrop that we're operating in that we haven't had any backstop in being able to fulfill orders. So with regard to the second part of the commentary, the shift in product mix really is focused on two products. So the cryoSPHERE device is a lower gross margin product. And as that becomes a bigger component of our overall revenue, it is having an impact on the gross margin. Great growth rate. It's a phenomenal therapy, but it does come at a slightly lower gross margin than you see out of our other RF and cryo products. The other big driver this quarter, in particular, was we had a nice uptick in the EnCompass Clamp revenue, and that is another one. This is just the first year out of development and first year into production, and it will take some time for us to lean the cost, but the team has identified some great areas that they're focusing on for 2023. So that being said, I feel comfortable in the balance. I think our guide in general is for the balance of the year to be around what we did in the full year 2021, which was right about 75%. The big impacts here really being product shift in mix and then geography mixes as well.

Rick Wise, Analyst

And just one on Cryo Nerve Block. I mean, it continues to grow sequentially, very impressive, the 500 accounts. We've done some checks recently with thoracic surgeons who are using it, their reactions have been incredibly positive. Talk about the physician reaction. You touched on it a little bit, Mike. Maybe help us understand what's next for the technology? How your thoughts are evolving about the opportunity? And can this growth continue?

Michael Carrel, CEO

Great question, and you're right. The immediate feedback we receive from physicians, as well as those who care for patients post-surgery in the ICU, like nurses and PAs, reflects a sense of instant gratification. They observe that patients are recovering more rapidly, breathing better, and able to get up and move around, which is crucial for recovery, particularly in various thoracic cases. This dramatic and immediate impact is a recurring theme we hear consistently. Regarding the overall market, there are approximately 140,000 to 150,000 thoracic procedures performed annually in the U.S., and that number is increasing. This year, we expect to handle about 16,000 to 18,000 of those cases. As you can see, we're only slightly above 10% penetrated in this market, and we believe there is significant room for growth. This growth can occur as we deepen our presence within our existing accounts, which number around 500, and as we expand into additional accounts. Additionally, we are exploring new markets for our technology, particularly in sternotomy procedures. We anticipate being able to roll something out more aggressively in that area by mid-to-late next year. While this may not significantly impact our revenue for 2023, we expect this expansion could greatly enhance market opportunities in 2024 and beyond. In the U.S. alone, there are about 250,000 sternotomies, and globally, over 600,000. Considering these numbers and the potential benefits, this represents a substantial market opportunity for us. We are in the early stages of understanding this segment and hope to make more official progress by the middle of next year.

Operator, Operator

Our next question will come from Marie Thibault from BTIG.

Marie Thibault, Analyst

I wanted to ask a question here first on CONVERGE. And maybe you can give us some more detailed thoughts on how you're thinking about the ramp going forward. It certainly sounds like you're feeling optimistic about the momentum you're seeing. But as we look into 2023, are there ways to sort of characterize the ramp in terms of the cadence you'd expect into the next year? And as a second part of that same question, on the legacy MIS declines, is that $2.5 million? Is that a number we should think about going forward, or do you expect that to eventually rebound?

Michael Carrel, CEO

Yes, I'll start with the first on the legacy MIS business. The 2.5% is kind of where we anticipate it being for the time being, and that's kind of where we are. It's obviously at a much lower number than it had been historically. I'd say that just a little bit more color into that, that was the part that got hit the most by COVID. And those programs are just more difficult to get back up and running and going and get consistent again. Find the staffing, they're in the hospital for a longer period of time. And so while we had some really good sites, it was in a much smaller base of customers. So that impact had a broader impact on that base. And it's kind of been consistent we think in that kind of $2.5 million range or so. As it relates to the kind of cadence for next year, we do see next year obviously being better than this year. We anticipate that we're going to see momentum build into the next year and throughout as we're adding more of these accounts. I'm not ready to give real specific cadence throughout next year yet just because I think we want to learn more as we're getting more consistency coming out of COVID and getting these sites to have more consistent streams of patients that are coming in before I'm ready to kind of give a specific cadence kind of by quarter or anything like that for next year. So I don't think we're ready to kind of give that kind of cadence. But we do anticipate growth to really pick up next year quite a bit and feel confident that that's going to happen.

Marie Thibault, Analyst

And then my follow-up here on the strength you had in the open ablation market this quarter, certainly, we've heard positive commentary on cardiac surgery this quarter so far from some of your peers. Do you expect some of that to be sustainable? Are we working through a backlog? How do you sort of see the open ablation franchise moving forward here over the very near-term?

Michael Carrel, CEO

From a cardiac surgery perspective, this segment of our business has shown strong durability. Although growth is not happening at a rapid pace at the case level, we are beginning to see a return to conditions reminiscent of the pre-COVID period, and we are optimistic about the overall cardiac surgery market. In the past, there were concerns, but confidence has grown, especially with the aging baby boomer population and longer life expectancies, positioning cardiac surgery as a viable and effective solution. We see a solid foundation for future growth. A key priority for us is increasing our market penetration, as we currently serve about 27% of patients with atrial fibrillation, a significant increase from around 10% twelve years ago, yet still far from where it could be. Numerous guidelines support this path, and we have introduced new technology that simplifies heart ablation without the need for traditional surgery, addressing previous limitations in this area. Our focus will be on reaching surgeons who currently do not perform ablations. Furthermore, changes in reimbursement policies from October 2021 are expected to enhance profitability for providers over time, making this treatment more appealing not just for patients but for the healthcare system as a whole. While improvement is gradual and patient care remains paramount, these factors position us well to significantly increase our penetration beyond 27% in the coming years.

Operator, Operator

Our next question comes from William Plovanic from Canaccord Genuity.

John Young, Analyst

Could you discuss the quarter-over-quarter trends in the U.S. appendage management business? Was the product mix for AtriClip different this quarter?

Angela Wirick, CFO

No, John, mix was relatively similar quarter-to-quarter.

John Young, Analyst

And then back to cryoSPHERE, I mean, you've seen really great growth in the pain management business. Can you talk about your thoughts on label expansion and possible clinical work to show opioid reduction label or maybe improvements in length of stay?

Michael Carrel, CEO

Yes, that's a great question that we often discuss internally. We are exploring various ways to expand and share more data. We've invested in several trials, including single-center and small multi-center trials, to demonstrate the impact on length of stay. However, in some robotic thoracic cases, the length of stay is limited since patients are only in the hospital for a couple of days. The focus there is to show significant pain reduction for patients, not just during their hospital stay but also over a longer period. We are examining different economic studies to understand the overall benefits within a four to six week or four to six month timeframe for those patients. Our work is not solely about label expansion; it's more focused on the economic analysis to justify expenses based on the impact on patients. Additionally, we are looking into the opioid aspect, where consistency is an issue since not every site administers opioids the same way, and there is no standard care for these patients. We've conducted advisory boards to pinpoint the most suitable approach after completing the study. We aim to have a study planned by next year or late next year. It may not be strictly a label expansion study; it could involve multi-center studies, which reflects our current focus.

Operator, Operator

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

Matthew O'Brien, Analyst

So Mike, can we talk a little bit more about Convergent in the quarter? I'm pretty sure Q3 tends to be a seasonally slower quarter, but I think you said that you were actually up 3% sequentially. First of all, is that right? Where did that growth come from? I know it's existing centers, but what did you see as far as adoption? And then again, kind of to Marie's question about next year, it feels like you're trying to guide us to be a little bit more conservative with our view on Convergent for early next year, maybe building more so towards the end of next year and then maybe more of an inflection in '24. Am I characterizing that right?

Angela Wirick, CFO

We observed a 3% growth in EPi-Sense compared to the previous quarter, primarily driven by an increase in the number of accounts placing orders. We reached a peak in the number of accounts ordering during the third quarter of this year, which included both new accounts and a deeper engagement with existing ones.

Michael Carrel, CEO

And then as it relates to the cadence of kind of the trend, again, I think you're kind of characterizing it reasonably accurately around kind of what we're thinking about. But we don't want to get too far ahead of ourselves after one quarter. We've had a couple of quarters earlier, we've seen some nice sequential growth. We do feel like this is going to be a long-term durable strategy for us or business, but we don't want to get ahead and kind of give numbers specifically yet for the earlier part of next year.

Matthew O'Brien, Analyst

I appreciate the feedback. There have been discussions regarding PFA and its perceived dominance in the industry, which some believe may hinder Convergent's growth. However, a recent safety notice about PFA has highlighted its off-label use, suggesting that practitioners should focus on their specific areas of expertise. I'm curious if this warning will encourage more physicians to prefer PFAs for paroxysmal cases rather than for long-standing persistent cases, potentially driving them towards the Convergent approach in the future for those longer-term conditions. Additionally, regarding the IST side, is it challenging to identify the patient population, and could that present difficulties as you work to promote that indication going forward? I understand it's still early in the process.

Michael Carrel, CEO

First, regarding the PFA side, our views remain largely unchanged. We see it as a potentially complementary product, and there is much to learn from the data emerging from early studies, which show great promise for this technology. Currently, most studies focus on paroxysmal patients. We believe we add significant value, and Dr. Eldadah articulated this well on our call by explaining that integrating the epicardial portion with any endocardial approach, whether it be PFA, RF, or cryo, will benefit patients. Achieving a durable transmitral lesion requires a comprehensive approach. We are optimistic that whether using PFA, RF, or cryo, the epicardial technique will enhance long-term outcomes, though we still have much to learn about PFA's future. Conversations with electrophysiologists suggest that once we move past the initial excitement, we will need to carefully consider implementation strategies. CONVERGE could play a crucial role in PFA setups should they gain traction. As for IST, there is indeed a significant patient population, but developing a care pathway and establishing referral networks requires considerable effort. We've observed substantial activity in Belgium, where many patients were found after announcing a solution. Once we have a definitive solution, there will be opportunities for direct-to-consumer outreach since patients will actively seek treatment given the current lack of options. However, this is dependent on obtaining the proper label, so there is still a long road ahead. I expect that will be a key method to engage this patient population.

Operator, Operator

Our next question is coming from Mike Matson of Needham & Company.

Michael Matson, Analyst

Just one on cryoSPHERE. So to expand into the sternotomy opportunity, what do you have to do from a product and regulatory standpoint? Do you have to redesign the product? Do you have to get another 510(k), et cetera?

Michael Carrel, CEO

Yes, it's a really good question, Mike. Right now, we've got to go through some internal testing just to make sure that we kind of understand how it works and so on. We do have cases that are actually happening there today. So from that standpoint, the biggest thing we've got to do is just make sure that they can apply it safely, but the product itself doesn't have to change. The product actually works very well. I'm guessing many of them are going to want maybe a little shorter shaft or maybe a little bend in it so they can kind of get a little bit different access to it as opposed to the report. But otherwise, the actual way we deliver the cryo energy to the ball at the end, how that comes delivering the exact right amount, it's the same intercostal nerve that you're ablating when you're doing the with thoracotomy. So it's very consistent from that standpoint. And so from that standpoint, we don't think we need to make much on the regulatory or the product standpoint side.

Michael Matson, Analyst

And then you gave us your latest penetration numbers for open heart ablation. I was wondering if you could do the same with AtriClip? I mean, continuing to see really strong growth here. But just wondering what you think the penetration is in U.S. and worldwide for AtriClip? And that's assuming you don't obviously have the stroke indication that you're running a LeAAPS trial for?

Michael Carrel, CEO

We believe that we're probably closer into the mid-40s or so on the overall AtriClip on open cardiac cases today. So there's still a lot of room for growth even in open cardiac cases. Obviously, we're expanding the market with the LeAAPS trial and feel very confident in moving forward on that. And so from our standpoint, we feel like we're in a good position to not only just expand penetration but also into a new market.

Michael Matson, Analyst

And then it sounds like you've got some new versions of AtriClip coming. And I think part of the growth story there has been that you've gotten some nice price premiums when you've launched them in the past. So do you think you can continue to do that with new versions? In other words, price them at a premium?

Michael Carrel, CEO

I think to be told on the pricing side of things, but the biggest thing right now is that we're always innovating to make the product easier to use for them to be able to put on all anatomies to make it simple, leaving less behind. Those are the kinds of things that we're looking for. So it's making it smaller, making it more mobile and really continuing to innovate to show people we're making major investments in the platform long-term that they can apply it on every one of their cases.

Operator, Operator

Our next question comes from Suraj Kalia of Oppenheimer.

Suraj Kalia, Analyst

The primary focus right now is on continuous innovation to simplify the product for users, enabling them to apply it across all anatomies with minimal residual issues. We aim to make the product smaller and more mobile while consistently demonstrating our commitment to long-term investments in the platform that can be utilized for every case.

Michael Carrel, CEO

Suraj, if you're speaking on this call, it's a little tough to hear you.

Suraj Kalia, Analyst

Sorry about that, Mike. I know people have asked a lot about CONVERGE. When you look at the growth pie chart for the quarter, could you break it down? What portion of the growth comes from CONVERGE compared to cryoSPHERE, AtriClip, and other components? The reason I ask is that while we can see the embedded numbers in CONVERGE, it seems most of the growth is coming from cryoSPHERE and AtriClip. It would be helpful if you could provide more details on this.

Angela Wirick, CFO

So Suraj, when you analyze the U.S. business, the figures are as follows. The pain management segment, specifically the cryoSPHERE probe, experienced growth of just over 68% year-over-year. This was followed by our open ablation segment, where approximately half of the 20% growth for the quarter can be attributed to an increase in procedures, while the other half is due to a rise in pricing for the EnCompass Clamp. Following that, the appendage management segment reported about 18% growth in the U.S. year-over-year. The EPi-Sense tool saw a growth of 12%, but this was counterbalanced by a decline in the legacy MIS tools year-over-year.

Suraj Kalia, Analyst

And Angie, did you talk about new stores, same-store sales specifically for CONVERGE?

Angela Wirick, CFO

The prepared comments included that this was one of our record quarters from a number of centers that we're ordering. And we've cautioned investors to take a look at the kind of number of centers that are ordering. Some centers may be ordering, but it's a one or two buy during the quarter, which is why we've been hesitant to give kind of the total population. Until we get accounts that are really going and fully have adopted driving significant volume, I'd say number of centers to us is an encouraging sign of adoption, but maybe not the best time relative to overall revenue.

Operator, Operator

And with that, I'm showing no further questions at this time. I would now like to turn the conference back to Mike Carrel for closing remarks.

Michael Carrel, CEO

Great. Again everyone, thank you for joining us tonight. As you can probably tell from our tone and tenor on the call tonight, we are really excited about our future, about the diverse platform we have across all of the parts of our business and momentum in each and every area that we've got there. Thanks again for supporting us, and we look forward to hearing or talking to you early next year. Have a great one.

Operator, Operator

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