STIFEL 2026 HEALTHCARE CONFERENCE - ATRICURE INC

Financial Performance:

• 2026 Q4 revenue guidance raised to $606M–$610M, implying 11–14% growth; Q3 growth accelerated to 15%.
• Full-year 2026 growth expected to be in the mid-teens, outperforming the Long-Range Plan (LRP) trajectory.
• Revenue composition shows acceleration in U.S. cardiac and pain management segments, offset by headwinds in international and U.S. hybrid businesses.
• Gross margin headwinds expected due to costs associated with doubling manufacturing capacity; however, high-margin product mix (pain management, Encompass, AtroClip) supports long-term margin positivity.
• Current run rate implies ~15% adjusted EBITDA margin in 2026, beating the 2028 target of 14%.
• Capital allocation strategy prioritizes reinvestment in R&D and new product development over external M&A.
• Pain management segment recorded 33% growth in Q3, driven by broad adoption across amputation, thoracic, and sternotomy indications.

Guidance and Future Outlook:

• Confident in continued double-digit revenue growth through 2028, with 2027 potential for outperformance due to new catalysts.
• 2028 LRP targets remain $750M revenue and 14% adjusted EBITDA margin; current trajectory suggests beating these metrics.
• 2027 anticipated to be driven by Box X data readout (post-op AFib) and the phased implementation of new STS quality metrics.
• Management anticipates modest adoption of ablation therapies in 2027 due to quality metrics, with broader impact expected by 2028–2029.
• Long-term view includes expanding the sales team to manage territory splits rather than doubling headcount, focusing on high-value accounts.

Business Segments and Product Lines:

• Left Atrial Appendage (LAA): High penetration in H-Clip market; facing new competition from Edwards (Eclipsys) but maintaining market leadership via product profile and evidence.
• New Product Launches: Launching 30mm Flex Mini clip late this year for smaller appendages; developing Flex Mini V for 2027 combining Flex V ease of use with Mini profile.
• Pain Management: Three key indications—Amputations (early stage, ~$1.5M Q3 run rate), Thoracic (~25% penetration, revitalized by CryoMax device), and Sternotomy (<10% penetration, largest addressable market with ~250k procedures).
• Hybrid/PFA: Facing continued pressure from Pulsed Field Ablation (PFA) dominance (85–90% of AFib ablations); no definitive "bottom" declared yet, though some centers show recovery signs.
• Clinical Trials: Box X (preventative post-op AFib) fully enrolled by end of year; primary endpoint data expected May 2027. LEAPS trial (stroke prevention) 50% events hit; next milestone (75%) expected in 2028.

Market and Competitive Landscape:

• STS Quality Metrics: New metric requiring 70% of eligible AFib patients to receive appendage management or ablation; phased rollout starting with awareness in 2027, increasing to 90%+ targets later. Metrics reported at site and individual surgeon levels.
• Competition: Edwards' Eclipsys device has entered the market; management views competition as validating the market size and remains confident in Atricure's superior product profile (smallest clip) and clinical evidence.
• Market Trends: Post-op AFib is a significant clinical issue affecting hospital stay length and resource utilization; Box X addresses this $40% control rate gap.
• Penetration: Significant growth potential remains in pain management (sternotomy <10%, thoracic 25%) and LAA (ablation side under-penetrated compared to appendage).

Risks and Challenges:

• Manufacturing Costs: Near-term gross margin pressure due to facility expansion and lower initial capacity utilization.
• Adoption Timing: Hybrid business facing headwinds from PFA; potential delay in Box X commercialization until FDA label update and data release.
• Regulatory/Metric Volatility: STS quality metrics may be tied to hospital star ratings, creating pressure on specific surgeons and sites.
• Sales Force Efficiency: Need to restructure territories for Box X without massive headcount increases to ensure manageable account loads.

Management Commentary and Tone:

• Tone is highly confident, emphasizing "prudent conservatism" in guidance and "enviable" financial position.
• Management expresses strong belief in the quality of their product portfolio and clinical data, viewing new competition as a market expansion tool.
• CEO Mike Carroll and CFO Angie Weirich highlighted the dual strategy of reinvesting for growth while maintaining strong bottom-line profitability.
• Management downplays immediate concerns regarding PFA in the hybrid space, focusing on long-term value of their specific therapy for persistent AFib.

Analyst Questions and Answers:

• Q: Why is Q4 guidance growth (11-14%) lower than Q3 (15%)? A: Reflects typical conservative guidance rather than specific dynamics; international and hybrid segments present headwinds.
• Q: Can 2027 growth exceed previous LRP expectations? A: Yes; accelerated Box X enrollment and new STS quality metrics are catalysts for outperformance.
• Q: Will 2027 gross margins be lower than 2026? A: Yes, due to new manufacturing facility costs, but long-term margin outlook remains positive due to high-margin product mix.
• Q: How will STS metrics impact adoption? A: Phased approach (70% initial, rising to 90%+); 2027 focused on awareness and data collection, with ablation likely seeing more lift than appendage in near term.
• Q: How sensitive is Box X success to the size of the clinical benefit? A: A 10% absolute reduction (e.g., 40% to 30%) is considered the minimum threshold to drive clinical conversation; management expects better real-world results.
• Q: What is the timeline for Box X data? A: Primary endpoint (30-day post-op AFib) expected May 2027; 3-year endpoint will take longer.
• Q: Is PFA bottoming out the hybrid business? A: No definitive bottom declared yet; cautious optimism for individual centers, but continued pressure expected company-wide.
• Q: Are there M&A plans? A: None; focus remains on internal pipeline and clinical catalysts.

Other Key Points:

• Box X trial enrollment is ahead of schedule compared to the 2025 LRP assumptions.
• STS quality metrics will be reported on a "harvest period" basis twice a year, with granular data available down to the individual surgeon level for hospital management.
• The 30mm Flex Mini addresses surgeon feedback regarding oversized clips, aiming to capture a niche within existing patient subsets rather than a new population.
• Pain management adoption in amputations is described as "sticky," with focus on ensuring surgeons continue to use the device rather than a "one-and-done" approach.