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Article Excerpt
OPERATOR: Good morning and welcome to the AtriCure's fourth-quarter and full-year 2008 earnings conference call. My name is Eric and I will be your coordinator for the call today.
At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. (Operator Instructions)
As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Dave Drachman, President and Chief Executive Officer of AtriCure. Mr. Drachman, please proceed.
DAVE DRACHMAN, PRESIDENT AND CEO, ATRICURE, INC: Thank you operator. Good morning and welcome to our fourth-quarter and full-year 2008 earnings conference call. Joining me on the call today is Julie Piton, Vice President of Finance and Administration and Chief Financial Officer. At this time, I would like to turn the call over to Julie for a few introductory comments.
JULIE PITON, CFO, ATRICURE, INC: Thank you Dave and good morning everyone. By now you should've received a copy of the earnings press release. If you have not received a copy, please call Sarah Wickman at 513-755-4136 and she will fax or e-mail you a copy.
Before we begin, let me remind you that the Company's remarks today may include forward-looking statements. These statements include but are not limited to those that address activities, events or developments that AtriCure expects, believes or anticipates will or may occur in the future such as revenue and earnings estimates, other predictions of financial performance, launches of new products and market acceptance of new products.
Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control, including but not limited to the rate and degree of market acceptance of AtriCure's products and other risks and uncertainties described from time to time in AtriCure's SEC filings.
AtriCure's results may differ materially from those projected on today's call and AtriCure undertakes no obligation to publicly update any forward-looking statement whether as a result of new information, future events or otherwise. I would like to remind everyone on the call today that the FDA has not cleared our products for the treatment of atrial fibrillation, or AF.
The majority of our products have been cleared for the ablation of cardiac tissue. The Company and others acting on its behalf may not promote any of its products for the surgical treatment of AF or train doctors to use the products for the surgical treatment of AF.
These restrictions, however, do not prevent doctors from choosing to use the products for the treatment of AF or prevent AtriCure from engaging in sales and marketing efforts that focus only on the general attributes of the products for the current cleared uses and not for the treatment of AF. AtriCure educates and trains doctors in the proper use of its products and related technologies and does not educates or train doctors to use any of its products for the surgical treatment of AF.
AtriCure has provided research grants to institutions for the purposes of conducting certain studies that may be referred to on this call. The primary authors of the papers referred to on this call may be consultants to AtriCure. With that, I would like to turn the call back to Dave.
DAVE DRACHMAN: Thank you, Julie, and welcome to members of the investment community who have joined us today. I will begin with opening remarks followed by a review of our workforce actions and our financial performance. Then I will provide an overview of the recent clinical science which affirms the power of our strategic plan, and validates our business thesis.
Next I will provide an update of our clinical trial and (inaudible) development initiatives followed by an update concerning the Department of Justice investigation. Following my remarks, Julie will provide a detailed review of our financial performance. We will then open the call for your questions.
We aim to leave you today with a deeper understanding of the elements of our strategic plans which are designed to preserve our capital structure and achieve sustainable profitability. Our strategic priorities include continued expansion of our leadership position through new product innovation, achievement of atrial fibrillation approvals and a commitment to providing our investors with a high rate of return. From this information, we would expect that the investment community will understand why we believe that AtriCure will emerge from our current challenges stronger and better positioned to deliver results for patients, physicians and shareholders.
Turning to our workforce actions. Importantly, we established the following financial priorities to guide our actions.
We prioritize cash, profitable market share, and profitable market share gains in that order. During the fourth quarter, we implemented a series of workforce actions designed to reduce our cost structure in order to achieve profitability.
These actions included a 12% reduction in our overall workforce. We currently have approximately 200 full-time employees.
The impact to the immediate or run rate cost structure was approximately $7 million. The estimated impact on our 2009 cost structure is expected to be approximately $5 million on a year-over-year comparative basis. Importantly, given our current cost structure, we anticipate generating positive EBITDA excluding non-cash compensation at an annual revenue run rate of 57 to $60 million.
During the fourth quarter, we recorded a onetime charge of $1 million or $0.07 per share for severance related expenses. In spite of these actions, we have retained our employees.
With the exception of one production associate, we have not received a single voluntary resignation since the implementation of our workforce actions. The reduction in workforce included a realignment plan of our sales support and professional education personnel. We developed and executed this plan with the support, leadership and active participation of sales management and 10 of our top sales performers.
This plan included position eliminations, flattening of the sales organization, realignment of sales support positions, retention plans, 2009 incentive programs and a development of a comprehensive internal and customer communication strategy. We began the process with a total of 27 sales territories.
Each of these territories remains intact and our customer relationships were uninterrupted. As part of our realignment, four areas sales directors were reassigned to sales territories and awarded long-term incentives. This repositioning focuses our top performers on direct selling.
Going forward, we have a focused, highly motivated sales organization that is staffed and aligned for profitable market share and profitable market share gains. Now, I will briefly summarize our full-year 2008 financial results and then review the circumstances which impacted our fourth-quarter financial performance.
Full-year 2008 consolidated revenues were $55.3 million which represents a 14.4% year-over-year increase. US revenues from open heart products of $27.1 million are consistent with 2007.
US revenues from minimally invasive products were $19.8 million which represents a 37.6% year-over-year increase. Additionally, minimally invasive procedures were performed in 84 US medical centers during the fourth quarter.
International revenues were $8.3 million which represents a 26.5% year-over-year increase. As we anticipated and communicated during our previous earnings call, the fourth quarter presented several distinct challenges which we believe impacted sales. Specifically there are five areas that I would like to address.
One, sales realignment. As mentioned previously, we developed and executed an extensive sales, sales support and professional education realignment plan which significantly impacted our selling time. Two, moderation of procedure volumes.
We experienced a moderation of procedure volumes which we believe were related to the macroeconomics. These trends were more evident in the minimally invasive segment of our business.
Three, a strong third-quarter run rate. Despite seasonality, our third-quarter 2008 revenues were consistent with Company highs.
During the fourth quarter, hospitals began to focus of reducing inventory levels. We believe that the combination of a strong third-quarter run rate, of moderation in procedures volumes followed by efforts by our customers to reduce inventory levels impacted fourth quarter revenues.
Open heart trends. As we anticipated, communicated and planned for; over time there's been an uncontested technology market trend towards using long disposable cryo probes for specific open heart procedures. As we have discussed on previous calls, we believe this represents a new market opportunity for AtriCure. We're confident that our long disposable cryo probe which we anticipate will be introduced during the second quarter of 2009 will compete favorably in this market segment.
Five, our fourth-quarter Department of Justice announcement. We believe this announcement is not impacting our market share with our existing customers, however, it has temporarily lengthened the selling process with hospital administration in several new accounts.
Most importantly, we believe the majority of these selling challenges can be resolved. Furthermore, managing this announcement during the fourth quarter was a significant distraction which also impacted selling time.
Now, turning to a review of the clinical validation that addresses our $2 billion minimally invasive US opportunity. There is an increasing body of evidence supporting the adoption of our minimally invasive products.
This clinical data is being published in the major peer review journals and presented at national and international meetings. There was a recent publication in the new technology section of the Annals of Cardiac Surgery.
This manuscript from Ohio State University is entitled 'Toward a Definitive Totally Thoracoscopic Procedure.' The manuscript highlights the use of our minimally invasive platform to implement [a complete lesion set] in a truly minimally invasive (inaudible) approach.
This published study describes a [true port] access procedure that addresses the autonomic anatomic sources of atrial fibrillation. In this study, all patients presented with persistent or long-standing persistent atrial fibrillation and underwent a totally thoracoscopic cardiac ablation procedure.
The ablation procedure incorporated a complete lesion set and...
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