STIFEL 2026 HEALTHCARE CONFERENCE - ATRICURE INC

Financial Performance:

• Updated Q4 2026 guidance set at $606–610 million, implying 11–14% year-over-year growth; Q3 2026 actual growth accelerated to 15%.
• Long-term 2028 targets remain $750 million revenue and 14% adjusted EBITDA margin, with the company currently outperforming these trajectory expectations (midpoint 2026 EBITDA margin implied at ~15%).
• Q3 2026 pain management segment reported 33% growth, driven by broad-based utilization and new account acquisition.
• Gross margin outlook faces a near-term headwind from the full-year impact of expanding manufacturing capacity (doubling production capability), though long-term margins are projected to improve due to higher-volume, high-margin product mix.
• Capital allocation prioritizes internal reinvestment in R&D and sales expansion over M&A; no transformational external investments planned.

Guidance and Future Outlook:

• Full-year 2027 is expected to show modest growth initially as the STS quality metric rollout begins, with significant upside anticipated in 2028–2029.
• Management expects continued double-digit revenue growth (mid-teens range), outpacing the 2025 Long-Range Plan (LRP) assumptions due to accelerated catalysts.
• Q4 growth guidance reflects conservative caution rather than anticipated slowdown, specifically accounting for headwinds in international markets and the US hybrid segment.
• 2027 focus includes ramping new product launches (Flex Mini 30mm) and responding to the phased STS quality metric implementation.

Business Segments and Product Lines:

• LAA (Left Atrial Appendage): Open heart penetration is high; growth drivers include new products (Flex Mini 30mm launching late 2026, Flex Mini V late 2027) and competitive dynamics with Edwards' Eclipsys.
• Box X (Post-op AFib): Trial enrolled faster than expected; primary endpoint data on 30-day post-op AFib reduction expected May 2027. Potential to reduce rates from ~40% control to 30% (10% absolute differential).
• LEAPS Trial: Fully enrolled July 2025; on track to hit 75% event threshold (~469 total events) in 2028, ahead of the original 5-year timeline.
• Pain Management: Three focus areas—Amputations ($1.5M Q3 revenue, high stickiness), Thoracic (25% penetration, revitalized by CryoMax), and Sternotomy (<10% penetration, largest market at 250k procedures, unlocked by shorter freeze times).
• Hybrid Business: Currently facing pressure from Pulsed Field Ablation (PFA), which now accounts for 85–90% of US AFib ablations; bottom expected to be gradual with continued caution.
• Sales Force: 350 US personnel; planning targeted splits of existing territories to support Box X adoption rather than doubling the headcount.

Market and Competitive Landscape:

• STS Quality Metrics: A new phased metric requiring 70% of qualifying AFib patients to undergo LAA management or ablation by 2027, rising to ~90%+ later; data reported bi-annually to sites and individual surgeons.
• Competition: Edwards' Eclipsys device is entering the market, but management views competition positively, citing Atricure's superior product profile (smallest device) and clinical evidence.
• Market Penetration: LAA has the highest penetration; significant growth opportunity exists in under-penetrated markets like Sternotomy pain management and Post-op AFib prevention.
• PFA Impact: Shift toward PFA has impacted Converge programs, but Atricure maintains relevance for long-standing persistent AFib patients.

Risks and Challenges:

• Manufacturing Costs: Full-year impact of new facility expansion may temporarily depress gross margins due to lower capacity utilization.
• Hybrid Segment Pressure: Continued adoption of PFA technology is expected to keep the hybrid business segment under pressure.
• Adoption Rates: Success of Box X depends on convincing physicians of the clinical relevance of a 10% absolute reduction in post-op AFib.
• Regulatory/Market: Slow burn of the STS quality metric implementation and potential hesitation by individual surgeons regarding new metrics.

Management Commentary and Tone:

• Tone is highly confident, emphasizing that current growth rates exceed the 2025 LRP targets.
• Management views the current strong cash flow and margin position as an opportunity to "lean in" on R&D and new product development.
• Explicitly dismisses the need for M&A, citing a rich pipeline of internal catalysts as the primary growth engine.
• Cautious but optimistic regarding the STS metric rollout, predicting it will drive behavior change over time.

Analyst Questions and Answers:

• Q: Will Q4 guidance slowdown reflect specific dynamics? A: No, it is typical prudential conservatism, accounting for international and hybrid headwinds.
• Q: Can 2027 outperform the 2025 LRP? A: Yes, due to faster trial enrollment (Box X) and the new STS quality metric.
• Q: How will the STS metric be judged (site vs. individual)? A: Reported at site level but granular data provided to individual surgeons to manage performance.
• Q: What is the competitive impact of Edwards? A: Minimal headwind currently; Atricure believes its product profile and evidence offer a superior competitive position.
• Q: When will Box X data impact revenue? A: Potential for higher impact in 2027 than STS metrics once FDA label is secured following data readout in May 2027.
• Q: Are new sales reps being hired for Box X? A: No net increase planned; existing territory sizes will be split to support the new product without adding to total headcount.
• Q: What is the status of the LEAPS trial? A: Ahead of plan; 75% event threshold expected in 2028, earlier than the original 5-year projection.
• Q: Is the hybrid business bottoming out? A: Not yet; growth is expected to be gradual as centers adapt to PFA trends, though the therapy remains relevant for specific patient subsets.

Other Key Points:

• New Products: Launching Flex Mini 30mm (FDA cleared) later this year and Flex Mini V in late 2027.
• Trial Dynamics: Box X control rates in real-world monitoring are likely higher (35–55%) than what physicians intuitively report (15–20%) due to under-reporting of asymptomatic AFib.
• Clinical Relevance: A 10% absolute reduction in post-op AFib is deemed clinically sufficient to start physician conversations and drive adoption.
• Market Sizing: Sternotomy represents the largest pain management market (250k procedures), while Amputations and Thoracic markets are growing in the low single digits.