AtriCure, Inc. ($ATRC)

[Audio Gap] CEO Mike Carrel and CFO, Angie Wirick; we're going to do a 30-minute fireside chat, but thanks, everyone, for joining us. .

I guess, Mike Angie, in storing it at a high level on the '26 guide and some of the growth drivers in the business. You delivered 15% revenue growth in 2025, you're guiding to 12% to 14% in '26 million. As a management team, you've consistently met or exceeded your guidance. So how should investors think about the setup for the year? What's giving you confidence in the range? And do you feel there's an appropriate level of conservatism baked in given kind of the macro environment?

I'm going to start with your last question first. Yes, I think there's appropriate conservatism. Our philosophy, we've said this many times as we would have put guidance out there that we feel really comfortable not just being able to meet, but that there's a pathway to beat. And when I look at the setup for 2026, I'd say the big thing that we say is innovation is really driving revenue growth in 2026. Continuation of a lot of the product launches that we started in 2025, so in our pain management business the cryoSPHERE MAX Probe. In our appendage management business, we have 2 prag launches that FLEX-Mini and the Pro-Mini. So those both give us a shot on goal, I think, in -- each one of these new product launches, you are talking about driving both growth in volume, but then also pricing uplift because there's new innovation built into the devices. And then even though it's not a new product launch, I don't think I can say EnCompass is a new product launch at this point in time, but we were also still very bullish on what we're seeing within the open ablation landscape and EnCompass continuing to drive growth.

Got it. And pain management has been one of the growth drivers for consecutive years now. MAX has been the core driver, but you recently launched XT for [indiscernible]. How should we think about the impact of XT on the franchise profile going forward, whether that be in '27 or in the second half of '26?

Yes. I think with XT, so the device specific to the amputations market, we launched soft launch at the very end of 2025 and have kind of started full launch at this point in time. From a guidance perspective, we said expect it to contribute more fulsome in the back half of 2026 as we're exiting the year, just giving us time with the new therapy and market development that takes some time to get up and going. I think the way that you think about XT in the context of our pain management franchise growth is, while you start to hit kind of bigger numbers, a lot of large numbers start to apply in the base area of the business, thoracic and sternotomy, this is another driver for us. This is another way to augment and keep that pain management business at a very high growth rate.

In terms of the other franchises, open ablation appendage management have been kind of the durable core of the business. EnCompass has been a big driver of that. But you said it's not a new product launch anymore, but it still driving growth. How should investors think about how much runway is left in the adoption curve there?

I think there's an incredible runway. I think even within -- at patients, you're talking about, the vast majority still don't get treated today. EnCompass helps us unlock [indiscernible] that there's a reason for you to ablate the patient to manage their appendage and the pathway to being able to do that is the EnCompass device.

And if you think about this data numbers, there's 1 million patients in cardiac search every year. And last year, just over 100,000 were treated with some sort of device mature here. So you've got a long runway with the trials that we're running that are very differentiated on that standpoint. EnCompass is what enables that. We took a procedure that was 40 minutes down to less than 10. So we operationalized it for those surgeons. We made a really an approachable area, but there's a ton of runway. So while it's not new, in many ways, it's new to the surgeons that we're introducing into because they weren't doing any treatment before. .

Got it. Kind of moving from top line drivers to profitability and margins, which has been a really good story for AtriCure as of late. You doubled adjusted EBITDA nearly in '25. You're guiding $80 million to $82 million in '26, it seems like kind of ahead of the curve on the LRP you gave in March. So thinking about that, is it possible we could see that 20% plus EBITDA margin before the 2030 target?

Yes. I think it's very real given the trajectory that we're on. Again, no differently from our top line philosophy when we guide on the bottom line, we want to make sure that we can deliver the number and a pathway to a beat. You've seen improvements to profitability, and I think that have exceeded our own expectations. I think what's so compelling about our story is that we're doing that while still making pretty big investments in landmark clinical trials, things that we expect to be growth drivers for the business longer term.

Got it. And your first quarter of positive GAAP net income in the fourth quarter '25, you're guiding to full year positive GAAP net income in '26, as AtriCure crosses into that profitable -- across that profitability threshold, how should we think about the financial story of the company evolving? Is there any change in kind of your view of the company as a growth company? Or is it still kind of steady at it that way?

Yes. I think we are investing for growth. Primary focus for us, the capital allocation one, 2 and 3, you're focused very much on organic development of activities that we think are going to be long-term growth drivers. I mean we want to continue our path on profitability to show that we're good stewards of the investments that we're making. I think it just tells you between the markets that we're in, very consistent double-digit revenue growth and high gross margins, given the investments that we've made in the company, we have the ability to be very, very profitable as a business long term. But still focused very much so on investing for growth. .

And look on the profitability, you're turning into cash flow positivity as well. So you talked about capital allocation, obviously, being growth, growth, growth, but as you move into that positive free cash flow phase, is there any room for a formal return of capital program? Is that something you've considered?

In the near term, no. .

Okay. We also got a new manufacturing facility come online in the second half of the year. You called that out as a modest gross margin headwind. How long should we think about an absorption period lasting? And when does it move from maybe a structural headwind to a tailwind?

Yes. I think you're talking near term within the next year or so it's a bit of a from a gross margin perspective, we will start manufacturing in that building much later this year. We'll open it up, start to bear the burden of the facility. But once you get operational, I think that this is something that will ultimately turn. The vision behind the expanded manufacturing capacity very much dovetails into what we presented at our Investor Day a year ago, which was we expect to be able to hit $1 billion in revenue as we exit this decade, we felt very good about line of sight and the drivers that we have within the business to be able to do that. We want to make sure that we were investing to support that growth. This manufacturing expansion helps us do just that.

Got it. Kind of moving to the competitive landscape, which has been a very hot topic for atrial fibrillation the recent years. Penditure was an overhang on the stock for about a year, but it seems like you've kind of weathered that storm and come out on the other side, maybe stronger in some regards. What drove that outcome and your ability to weather that with the scale player entering the market? And how do you think that displays the moat you've built around AtriClip and the clinical data you've made?

I think first is just our view on competition is that if a market has big competitors coming into your space, that means it's a really big space and probably a lot bigger than where you are. So I think it's a recognition of the investments that we've made over the last 10-plus years. People now see because of our success, they're looking to kind of follow us into that space, especially coming from those big players. I think that is a complement to us in terms of the work that we've done on that front. Plus every other time, a second and third competitor come into the space, the overall market has grown because you've now got more people talking about it, and generating data and generating conversations with surgeons in our case. You saw that in TAVR. You saw that in the left atrial appendage space, in particular, both of those accelerated when they saw competition coming in. So we view competition in a very positive way, even though, obviously, you've got to detail it out and you want to win in the field, we do view it overall as positive. Now getting to the specifics of why do we think that we win and why have we won in this space because we've never stopped investing in the core principles of our company. And those are really 3 core principles. Number one is innovation. If you look at what we've done on the AtriClip side of things, we went from the original product to a V clip product, which is what everybody is trying to copy now to a mini product, which is 60% smaller than any product on the market today, even our own. And we're now coming out with a new one coming next year. What customers recognize from us is the quality of that product, the innovation that comes into it is that we're meeting their needs and that we're listening to them. And so we've got great products. They're smaller, they're safer, all you have to do is go out there and you can look, we actually have no events with this product. I mean it's like 0.001% event rate with it is an incredibly safe product. So you combine the innovation, the safety and quality you have, then you add to that the fact that we make investments in clinical evidence. We believe that innovation is great, but without clinical evidence, you can't really create that full moat that you're talking about. All the clinical evidence is generated over the last 10 years is with our product. So we have over 21,000 patients that have been studied, over 100 peer-reviewed papers many randomized controlled trials, and we've got LEAPs coming down the pathway, which is the largest cardiac surgery trial ever done. You invest in innovation, put clinical evidence behind that, that's very specific to your product and the performance of your product versus anybody else, people recognize this is what we do and what we know, which leads you to the third thing and the third pillar of what we build, which is education and training and awareness. And so our teams understand the space better than anybody else. They've got great relationships. They're in the cases, and this is what we do every day. We're super focused on atrial fibrillation and the left atrial appendage. That's what we do incredibly well. We've got a whole team of people that talk about it, think about it, study it every single day. And we're recognized as a result by the physicians as being that way, not just by physicians we buy hospitals as well. We've helped them get reimbursement. We've helped them get the guidelines to change you combine all those things, that's why we win. It's not like any one thing that allows us to win. But at the end of the day, the best product wins. And so we've got the best product on the market, and we believe that with the new competition, we'll have the best the best products.

And you said that competitors are trying to copy the V clip, but you're already 1 generation working on 2 generations ahead of that. So in a way that kind of embolism even more. Yes. Obviously, kind of the 100 million pound elephant in the room, Edwards announced that they are going to be entering the appendage management market. When you think about kind of markets Edwards addresses, does that threaten a meaningful portion of your revenue? How should we think about the impact of Edwards entering the market? And how do you think your experience with Penditure influences your ability to kind of continue to maintain that moat that you talked about?

Again, let's start first. The fact that Edwards is interested in our market or the market that we're in that we've been focused on for the last 10-plus years, we take it as a compliment. They think this market is that big. So to us, we think it's going to elevate everybody in the space that they're actually getting into the space, we welcome them with open arms, and then we'll compete with them on a day-to-day basis. How do we think we can compete with them is that, that focus I talked about before, the continued innovation. We know we're going to have better products. We believe that our products are incredibly differentiated and that they're chasing old products when they're coming out with their new product when they come to market. They're not going to have the level of data or evidence in that area. For Edwards in particular, great company. I mean, obviously, they've done wonderful things to build markets over many years. And we've got a ton of respect for what they want on that front. They just don't know the space nearly well as we do. And so as they enter into it, most of the procedures they are going to be involved with, they're a valve company that they're adding this to the value of procedures, and they've been very open about that. 2/3 of all patients that go into cardiac surgery are coronary bypass patients. And we are in there for the ablation and the AtriClip not just the AtriClip. And so we're in the CABG procedures, so there's not as much of an exposure on that front. And then when you add in the valve side, they're going to do an ablation on those patients as well, and we're in there with them. And we have a huge sales force that's well trained on that front. So I think we're well positioned on that front. We're not taking it lightly. We know they're going to be coming into the market. I think we're all waiting for what does that product look like and how are they going to compete with us on that one, but we're going to be ready, and we welcome them.

Can you talk about the limited exposure on the CABG side. What can you do to accelerate and kind of deepen your position in that portion of the business?

I think you're seeing it. I talked about and one is the LEAPS trial, which is a trial we started well before we knew this competition was coming into the space is that upon like we invested in it, we're fully enrolled in it. We will be the only company with a stroke label that is very specific to our product. That is a global positioning that we're basically done. It was a global trial that we did for that. Number 2 is we invested in BoxX-NoAF, which is the prophylactic treatment of that patient so that you're basically reducing anybody's chance of getting Afib both postoperatively and in their lifetime. V clip is in every one of those as well. So you're adding an ablation tool plus the AtriClip. I think that puts us in a great position overall in creating that moat that you talked about.

Got it. And we've touched on this a lot so far, your clinical trial is just something AtriCure has been heavily using a kind of a leader in the space. I think you talked about roughly 2/3 of cardiac surgery patients don't present with Afib, but a significant portion will develop it post operatively. So when you think about the BoxX-NoAF trials and LEAPs, like you said, you touched on this. But like at a high level, what do these trials mean for AtriCure as a whole? .

The game changing to think about it. Our vision is that every patient that enters the operating room for cardiac surgery has an ablation plus a nature coupon and maybe they also get a sternotomy nerve block on it if they're going in first sternotomy. So we think that we're there. We understand ablation and the Afib incredibly well. We -- our products are the only ones used in these trials. They're very specific in terms of what will actually work on those -- that patient population. There very large randomized control trials. We think it changes the game. It makes it from 100,000 patients getting treated every year to hopefully to mean at some point in time, not obviously overnight. But I mean, obviously, that's the big patient population. What you do know a cardiac surgery is there are 2 million patients that undergo cardiac surgery every year. If we can prove that almost every one of them will benefit from an ablation with our technology, our EnCompass Clamp and the AtriClip that is a huge benefit for AtriCure overall. And quite frank at the end of the day, for the patients.

So if we fast forward and both trials read out positively, obviously, there's kind of a lag for guidelines to update. You kind of touched on this a second ago, but how should we think about the impact on your addressable market and the kind of commercial investments and infrastructure upgrades that might be necessary to kind of facilitate ramping that growth?

Yes. I think when you get positive data, there should be a bit of a bump in terms of the revenue boost here I think definitively, once you have the label, you've gone through the full PMA process and you've got an approval that gives our team the license they're able to go out and really market to this. I think the good news is this is an existing customer with an existing sales force that we will, of course, look to see where we need to augment in territory sizes that maybe make sense upon the launch to split here. But this isn't training a new surgeon. This isn't a new call point for us. This is an existing market. They're using the devices. They're just saying, look, rather than looking only for patients that they said to treat. I'm going to treat every patient effectively. That's on my operating table.

LEAPs also recently hit the 50% event rate. What does that mean for the trial exactly? And how should we think about the path to a readout from here?

What it does -- I mean, the events are accumulating at a reasonably fast pace. We -- you've got a 5-year follow-up from the end of enrollment was into 2030. Since we've already got 50% that likely tells you, we're probably going to be earlier than 2030. It's tough to predict exactly because you get waves of the events that come in, but we have to hit 469 events in total. Again, like you said, we're over 50%, we'll just keep marching towards that full -- it's kind of a wait-and-see game at this point in time. It will be before 2030. I just don't know how much earlier.

Got it. And then on BoxX-NoAF, almost a year ahead of schedule, I believe, can you walk us through the time line from enrollment completion, data adjudication presentation and then eventual PMA submission. And any conference you're targeting for presenting that data?

Yes. So we expect to complete enrollment around the end of 2026. The first follow-up to the first primary endpoint was 30 days post procedure, relatively short time frame after you've completed enrollment, we'll go through the data adjudication process. We are targeting a surgical conference early in 2027. I think logically, AATS is probably the right one to think about just -- but it depends on pace of enrollment when we finalize. And then typically working through FDA process is around a 12-month time frame. So you're talking about positive data, we believe, in early in 2027 and then approval in early '28. The nice thing about this trial is it doesn't just end there. I mean, that gives us a chance to win in a very short time frame. We will follow these same patients for a 3-year time line to see what happens to their clinical AF burden and then go back to the FDA upon again, positive results to later at the end of this decade, and other chance of enhancing the label further.

I want to touch something you said earlier about the label being exclusive for AtriCure. These trials are successful. And you do have the label expansion that would be exclusively for your products. That would not be something that would be rising tide to raise all boats.

Correct. I mean somebody might try to they have a 510k they can sell their products, but they can't make the claims that we're making relative to this. Relative to stroke, reduction post Afib in clinical Afib.

Got it. You have a good slide in your Investor Day where you showed the progression of guidelines for your treatments over time. Guidances have been a tailwind of the business been consistent and upgraded. Most recently, you had some STS post-operative quality metric updates come out. That goes into effect in 2027, I believe, only 35% of cardiac surgery, Afib patients end up getting treated. How should we think about that number increasing over the next couple of years? And how should we think about the commercial tailwind to AtriCure on that? .

I think that combined with BoxX-NoAF is going to improve adoption quite dramatically. What that means is that the surgeon is going to be effectively required to do an ablation on the patients that have atrial fibrillation. And as you said, it's only 35% today. This is the society's way of saying, okay, we gave you guidelines that said you should treat. Now we're going to put some teeth behind that. And we're going to tell you that not only are the guidelines, we're going to actually make it part of your metrics that your hospital will be dinged if you don't ablate or treat enough patients. The reason they're doing that is because -- they know that if you treat that patient, that patient does better why they're doing it. And so I think that, that's going to have a big boom to our business. Likely, obviously, sometime at the end of next year, you might see some kind of effect of that around the same time, the BoxX is going to basically hopefully have some data out as well. So I think that, that's a big positive. As Angie said, we think the combination of that probably helps the growth rate in that part of the business.

Got it. And you mentioned the star ratings. Is there a commercial playbook you're thinking of for how you can take the most advantage of this? Any incremental investment? And then was were these guideline changes probably not incorporated in the LRP, so that's probably a positive, right? .

Yes, definitely a positive, I'd say, relative to the LRP. So I think we're -- our team is always looking about the best way to have the -- to drive some of these initiatives beyond just the commercial team, start to think about your reimbursement team, your marketing folks, can you help further that message. You've got kind of feet on the street, but then how do you -- how does the company overall provide our leverage and thinking through what that looks like once the quality metrics are out there and helping our accounts further understand how they can really take advantage of this and not be behind when this comes into play.

Kind of switching gears to the franchises. Pain management, which you talked about has kind of been a nice growth driver for you. It's grown quickly, but without the benefit of reimbursement. How do you see the path to coverage? Is there a credible path to coverage? And what would unlock in reimbursement, if that did happen, I mean for the TAM and adoption curve?

Unlock reimbursement, we need data. So we're investing in a lot of digital site data getting it published. The more and more of that data gets published. That's what happened in cardiac surgery. So you have something to compare to. In cardiac surgery, we saw the guidelines came out first. That was often data we basically put together and we invested in that the guideline changes then led to 4 years later, reimbursement changes, which has obviously continued on now leading to star ratings. . I think the same playbook is going to happen within cryo, which is that we're investing in the data, hopefully, that leads the guideline changes, which then lead to reimbursement, that would be a game changer in this space because that is one of the big pushbacks is they're not getting paid for it, and the margins aren't nearly as good in thoracic surgery as they are in cardiac surgery.

And kind of building on that, XT is now launched and you had a kind of deliberate ramp in terms of your accounts, like how many accounts are active? What is the current physician feedback you're hearing? And then does the amputation market have a meaningfully adoption profile in thoracic?

Yes. So at this point, we're in about 2 dozen accounts. So every cryo rep that we have in the field was told focus on 1 account, 1 account only go really deep with your initial procedure, make sure that it's well understood. So about 2 dozen or so accounts, which we think is good progress to start the year at this point in time. This is in the amputation space. This is the procedure itself, the primary procedure of doing amputation hasn't changed in a very long time. So this is new technology into procedures that hasn't seen a lot of innovation. I think beyond the excitement of, hey, there's something to be excited about. The feedback that the physicians can see. And the nice thing about our pain management business, as you know, is you can see that immediately post procedure. You're not waiting for a year to see, okay, as the patient's Afib, but still a problem or not. You can see this immediately post procedure. And the feedback that we get from surgeons who use the device along with the care teams for caring for the patients post procedure is exceptional. They can see the benefit it has for the patients. I think longer term, no different from our other markets within Cryo Nerve Block looking to surround this therapy additional data, being able to market to not just postoperative pain, but the potential for could it help with phantom limb pain. So thinking really big on this opportunity here. I think given this a new therapy and a new call point for us and a new area that hasn't seen a lot of innovation the ramp may be a little bit slower than we saw in our thoracic business, but it still keeps us very bullish that this is long term, a great growth opportunity for the company.

In terms of growth opportunities, MAX has been a nice growth driver. But now it's in roughly about 75% of your accounts. When we think about pay management growth, is there an aspect where we start to get law of large numbers and you start to see growth slow a little bit? Or do you think there's a way to kind of offset that with Afib launch and a possible sternotomy expansion to extend the runway for that growth acceleration?

Yes, yes and yes. I think that's what's happening today in the field. I think we're starting to see with sternotomy, the feedback that we got from surgeons was we can see that it works, but to add the time that the legacy to do the ablation that it too long. I think cryoSPHERE MAX gives us our chance our team to go back to those surgeons say, you believed in it, you thought it had an impact, but we're talking about a significant reduction in time. And those have been sticky procedures, not the volume of growth, the volume of activity we do still is within the thoracic space. I think in this particular area, continuing to find ways where cryoablation, managing a patient's pain for nerves that are exposed to surgical procedures, I think we're going to find multiple ways to continue to develop and cultivate new markets that help keep this as a high-growth driver.

And kind of turning to your leading franchise dependent management. You talked about this earlier, the next-generation AtriClip that's coming in 2027. Can you talk about what that product is, how it fits in the portfolio? And if it's addressing a different segment of the market that the current lineup doesn't?

Currently, we've got the FLEX-Mini product in the market. That market -- that is taken over the market by storm. It is much smaller than anything else that's out there, super easy to deploy allows for great visualization, knowing that you're getting down to the base of the appendage. The new product that's coming out is going to be a V version of that. So an open-ended version, so you can kind of place that. Some people like that approach. And so that's the whole piece behind it. One is to give that to surgeons who like open end versus the closed and you've got a mix of surgeons on that front. Number 2 is it also allows us on the minimally invasive side, to get it down a smaller trocar, which is really important towards any type of procedure, whether it's a hybrid procedure, but also towards minimally invasive cardiac surgery, mitral valve surgery, et cetera, getting that visualization is really important. And that V clip, I think, is going to make a big difference on that.

And you just talked about hybrid. Obviously, another point of discussion about the company has been PFA and its impact on the ablation franchises. And obviously, PFA has been kind of a hot topic as a whole. You recently committed -- completed first-in-human treatments with your combo RF PFA EnCompass Clamp in December. What does combining those modalities offer surgeons? And how should we think about the clinical trial path from here?

Sure. So we believe it's incredibly differentiated technology that we have, combining PFA plus RF because it actually hit different mechanisms of action on the heart. So you're going to have a much more complete, much more durable procedure when you do that, and you're going to -- it's going to be on our EnCompass Clamp first, and that's going to enable for that really fast and efficient procedure. I told you before that to do the same level of ablation before, you had to do 30-plus minutes. Most of that is not the ablation time. It's the access time. That's why you were able to get down to less than 10 minutes. This will actually reduce the ablation times that we're in there quite dramatically from 3 minutes or so of total ablation times down to well less than 1 minute. Just makes it easier for that certain to do it and to make it more approachable from that standpoint.

As PFA came out of the market, there's kind of a distraction from the MIS business as PFA has gotten more penetrated into the market, we're kind of hitting significantly higher levels of penetration than we saw maybe a year ago. Does that change your view? Is it a structural headwind? Or is this something you still think is an opportunity to as the market matures for you to gain clarity on or to see a rebound in that business?

Yes. I think the -- where we sit today with our hybrid business, we have incredibly compelling clinical data and outcomes when used on patients we know are unrivaled. This is in long-standing persistent patients, the CONVERGE procedure, a dual approach, combining the best of surgery as well as what an EP is doing, we know is unrivaled for that patient that I think are believe that this could be a first-line therapy. At this point in time, given the shift in this landscape to PFA. This is probably not a first-line therapy. But that being said, this is a good option for patients who have failed catheter ablation, something else has been tried or there's a belief that they're just ready for the convergent procedure out of the gate. I just think this is a place where clinically, we're still very relevant, there isn't another device that's been proven to help these patients in this way. So we look at this and say there's still an opportunity here. What we're looking for very frankly, is within kind of the account landscape to see a little bit more consistency in that referral flow. PFA has been a great technology for EPs and for that base. But coming to the realization of this may not be best thing for every patient and repeatedly doing a catheter ablation and moving on to a therapy that will help the patient. I think we look at that and say, we're here to catch when that happens and believe that this is a very compelling clinical advantage for the company has.

Can you talk about CONVERGE, it takes multiple PFA catheter failures before and EP can refer for it. What does it take to shorten the referral pathway? Is there anything you can do on the data or commercial side to accelerate that?

I think the biggest thing from that is, once you get somebody who starts to do patients with CONVERGE and they realize that I'm only going to do one PFA and then refer to them. I don't think you're going to get it where it's going to be first-line therapy. I think what you're going to see is maybe after that one or that second one, then sites that are starting to see success with CONVERGE, will then start to obviously do a little bit earlier after the first one. That's going to have to be time on that front.

Okay. I think we're out of time. Mike, Angie, thank you for joining us and audience.

Thank you. Appreciate it.

Thanks.