Aug 4, 2009
Executives
David J. Drachman - President, Chief Executive Officer, Director Julie A.
Piton - Vice President - Finance and Administration, Chief Financial Officer
Analysts
Tim Lee - Piper Jaffray Matt Ksiazek - BMO Capital Markets Charley Jones - Barrington Research Associates, Inc Matt Dolan - Roth Capital Partners Erica Selin - Noble Financial Jason Mills - Canaccord Adams
Operator
Good morning ladies and gentlemen my name is Jasmine and I will be your conference operator today. At this time I would like to welcome everyone to the AtriCure’s Second Quarter 2009 Earnings Conference Call.
(Operator Instructions). As a reminder this conference is being recorded for replay purposes.
I would now like to turn the call over to Mr. David Drachman, President and Chief Executive Officer of AtriCure.
Mr. Drachman please proceed.
David Drachman
Thank you, Jasmine. Good morning and welcome to our second quarter 2009 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
Thank you Dave and good morning everybody. By now you should have received a copy of the earnings press release as published this morning.
If you have not received a copy please call Sarah Wickman at 513-755-4136 and she will be happy to fax or email you a copy. Before we begin let me remind you that the Company’s remarks 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 revenues 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 Food and Drug Administration, or FDA, has not cleared our products for the treatment of atrial fibrillation or AF.
A 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 has provided research grants to institutions for the purposes of conducting certain studies that maybe referred to on this call.
The primary offers 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.
David Drachman
Thank you Julie and welcome to members of the investment community who have joined us today. We will begin with a review of our second quarter performance and strategic priorities.
Then we will review the recently published National Priorities for Comparative Effectiveness Research and their significance to our business. Next we will review the results for each of our three business sectors.
Then we will provide an update concerning the progress of our FDA clinical trials and product development initiatives followed by an update concerning the Department of Justice investigation. At that time Julie will present a detailed review of our financial performance.
We will then open the call for your questions. Consolidated revenues were down 7% compared to the same period a year ago and up 1% sequentially.
Approximately 65% of the decrease is due to a decline in capital equipment sales. Operating loss for the quarter of $1 million is our narrowest loss since becoming a public company and represents a 43% reduction when compared to the same period a year ago.
Adjusted EBITDA was $400,000.00 for the quarter representing a $1 million improvement. In addition, we generated $1.2 million in cash from operations during the quarter.
With that backdrop, the men and women of AtriCure had a solid quarter, one that demonstrates our determination, resilience, pride in ownership, and our unwavering commitment to our mission. Turning to a review of our strategic priorities in rank order: Our strategic priorities are profitability, atrial fibrillation approvals, and the expansion of our market share and leadership position through new product innovation including the upcoming launch of our AtriClip system or left atrial appendage exclusion platform.
We believe that the decisive actions that we implemented during the fourth quarter of 2008 have accelerated our march toward profitability. Despite our restructuring, which was aimed at aligning costs with revenues, our combined US market share is approximately 50%.
Furthermore, we are gaining market share in Europe and in other key regions outside the US. Going forward we believe that AtriCure is positioned to expand our worldwide footprint and increase market share in all three of our business sectors.
Moreover, our investments in innovation and FDA approvals have never been stronger. We believe that in downturns med tech companies that continue to invest in innovation and approvals will emerge stronger.
Most importantly, we believe that the successful execution of our strategic priorities will result in the restoration of our historical high growth trends and increased shareholder value. Due to the growing prevalence of atrial fibrillation there is a national call to action to improve the management of atrial fibrillation patients.
The American Recovery and Reinvestment Act of 2009 commissioned the Institute of Medicine to recommend a list of 100 priority topics to be the initial focus of a new national investment in comparative effectiveness research. The topics in the report are listed by court tile.
The first court tile is considered the highest priority group, notably the comparison of effectiveness of treatment strategies for atrial fibrillation including surgery, catheter ablation and pharmacology is listed in the first court tile, the highest priority ranking. We believe that the national call to action to improve management of atrial fibrillation patients and the high priority placed on the comparative effectiveness of atrial fibrillation treatment strategies are aligned with our commitment to clinical science and FDA approvals.
We anticipate that our commitment and investments and innovation, clinical science, and atrial fibrillation approvals will lead to improved patient management decisions, enhance quality of care, as well as cost savings through out our healthcare system. We believe that the surgical ablation will gain additional exposure and traction as a result of this and other high profile national initiatives.
Now turning to a review of our sales trends and performance by business sector, our sales and marketing realignment is resulting in profitable market share and accelerating our profitability objectives. Revenues from domestic open-heart products of $7.3 million are down 3% compared to the same period a year ago and importantly up 2% sequentially.
In terms of capital equipment sales, we discontinued selling our Frigitronics cryo console which supports both our well-established reusable cryo probes and our new Cryo1 disposable probes. Instead we adopted a policy of loaning our consoles, which conforms to industry practices and our procedures for placing radio frequency generators.
We believe this change will accelerate sales of our Cryo1 probes, however on a year-over-year comparative basis discontinuing selling our Cryo consoles unfavorably impacted revenues. Turning to our Cryo1 product launch, we completed the US launch of our Cryo1 system near the end of the second quarter.
We are encouraged that physicians at leading centers have made their product decisions and are requesting that hospitals stock our Cryo1 system. Due to the timing of our product launch and longer lead time for stocking new products, which is a result of hospitals tightening their budgets, sales from Cryo1 system did not have a significant contribution to second quarter revenues.
We strongly believe that our Cryo1 system will lead to new growth opportunities and market share gains which will incrementally increase during the remainder of the year and throughout 2010. Revenues from domestic minimally invasive products declined from $5.1 million to $4 million compared to the same period a year ago.
Not withstanding revenues the number of minimally invasive procedures performed is consistent and modestly up on a year-over-year comparative basis and up sequentially. We believe that there are two primary factors that resulted in a difference between revenues and procedures.
The first factor was capital equipment sales. As a reminder a main initiative of our 2008 strategy was to sell the ORLab system into our minimally invasive install base.
This key initiative was largely accomplished during 2008. Our 2009 sales plan has been focused largely on increasing adoption within our install base.
Our focus on adoption, along with a challenging capital equipment environment has resulted in a significant decline in ORLab sales. The other factor that impacted sales from minimally invasive products is the movement to a single clamp technique.
We are steadily transitioning our minimally invasive users to a single clamp approach in order to head off pricing pressures, maintain our high gross margins, and prepare our customers for our new minimally invasive products such as our AtriClip system. In addition, our new premium clamp platform synergy access features a wide range of benefits and is specifically designed to facilitate a single clamp totally thorcoscopic procedure.
In terms of our minimally invasive growth prospects, we believe our growth will be driven by the large and increasing demand for alternative ablation approaches for those patients where catheter ablation is not indicated our ineffective. In addition, there is a rapidly growing opportunity for surgical ablation in patients that have failed single or multiple catheter attempts.
Turning to our international market performance, compared to the same period a year ago international revenues were up 13% or 22% on a constant currency basis, to a new high of $2.6 million for the quarter. Sequentially international revenues were up 12%.
Our international growth for the quarter was primarily attributable to our increasing market share in Europe. We anticipate that these growth trends will continue as we plan our initial release of our Cryo1 system in Europe during the third quarter of this year and product launch during the fourth quarter of 2009.
In addition, we anticipate the initial release of our AtriClip system in Europe during the fourth quarter of 2009 and full product launch during the first quarter of 2010. Moreover, we have lower market share in the international markets and these markets are under penetrated in comparison to the US markets; as a result we anticipate that our growth from international markets will remain strong.
Now a review of our investments and clinical science and FDA approvals: first a review of our ABLATE pivotal trial. The ABLATE clinical trial is designed to treat patients undergoing elective, open-heart surgical procedures that present with a documented history of permanent atrial fibrillation.
The efficacy endpoint will be determined at the 6-month patient follow up based on the results of a 24-hour Holter monitor and the discontinuation of anti-arrhythmic drugs. In addition, the ABLATE protocol utilizes a Bayesian statistical plan and requires enrollment of between 50 and 100 patients.
The trial is non-randomized and non-blinded; therefore the Company and our consultants have continuous access to the data. If the data trends are favorable the statistical plan allows for an interim analysis when a minimum of 50 patients have been enrolled in order to assess whether the results are predictive of a successful clinical trial, thereby reducing the potential number of patients required to demonstrate safety and efficacy.
In simple terms the better the results, the fewer the patients required to meet the trial endpoints. In working closely with our statistical and clinical consultants we are in the process of completing an interim analysis of the first 55 patients.
Based on our first review of the data we anticipate that the results from this analysis will be predictive of the successful clinical trial; as a result we have suspended enrollment in the study. We plan to complete our analysis during the current quarter; at that point we will make our final determination.
In addition, since our previous call we have submitted the third module of our PMA shell. If the review of our interim analysis continues to be predictive of a successful clinical trial then we would plan to submit our final PMA, the clinical module, during the first quarter of 2010.
Now I will turn to a review of our FDA EXCLUDE clinical trial in support of our AtriClip system. As reminder the pathway for US approvals of 510-K clearance with supporting clinical data, the FDA has granted us approval to enroll up to 70 patients.
We enrolled all 70 patients and we plan to submit our 510-K during the fourth quarter of 2009 when all patients have reached their clinical trial endpoint. As a result, we anticipate US launch of the AtriClip system during the first half of 2010.
Turning to our pipeline and product development initiatives, AtriCure is the leader in the cardiac surgical ablation markets. We have evolved our technology platform to five distinctive product groups or brands.
Our competitive position and product leadership has never been wider or stronger. In terms of our Cryo1 system our initial market feedback suggests that the Cryo1 system offers several important user benefits; moreover AtriCure is the only cardiac surgical company marketing a series of radio frequency and cyro thermia ablation systems.
In addition, during the fourth quarter of 2009 we are planning our initial release of a new generation premium clamp platform Synergy Access. Synergy Access is a premium minimally invasive single clamp platform and is intended to simplify and expand totally thorcoscopic procedures.
Based on certain features we believe that Synergy Access will also provide selling opportunities in our open-heart markets. In terms of our AtriClip platform we plan to release a minimally invasive system that can also be used in open-heart procedures.
Following our initial product launch we plan to release an additional AtriClip system specifically designed to be used in open-heart procedures. We continue to believe strongly that the AtriClip system represents a significant new growth opportunity.
Over time we envision the AtriClip system becoming a differentiated business within AtriCure. Now, with respect to the Department of Justice investigation: as we disclosed to the SEC in a Form 8-K filing last month we became aware of a [Ketron] complaint that had been filed against AtriCure in August 2007 in a federal district court in Houston, Texas.
The complaint had been filed under seal as the governing law requires and the court unsealed in on July 10, 2009. As we also disclosed the complaint alleges improper activities relating to AtriCure’s marketing practices in connection with its cardiac surgical ablation devices.
We believe that this complaint is related to the investigation by the Department of Justice that was disclosed last fall, because that investigation relates to the same issues that were described in the complaint. The [Ketron] relater also filed similar false claims acts and complaints against other companies in our space that sell or have sold surgical ablation devices including Boston Scientific, Medtronic, St Jude, and Aztec.
All of the complaints make allegations very similar to those in a complaint against AtriCure. The primary relater in each of these cases is a former cardiac ablation sales person who worked for Boston Scientific.
She filed her complaint against Boston Scientific several months before filing the cases against the other defending companies. Under the courts order the government has until August 21 to decide whether or not to intervene in the remaining cases.
Since learning of the investigation last fall we have responded to several non-compulsory document requests from the Department of Justice and we continue to cooperate with the DOS’s investigation. AtriCure’s outside counsel has also engaged in a series of subsistent discussions with the Department of Justice; however on the advice of counsel we cannot comment any further on the substance of those discussions or upon the allegations of the complaint.
At this point in the call I would like to turn over to Julie for a detailed review of our financial performance.
Julie Piton
Thank you, Dave. Total revenues were $13.8 million representing a 1% sequential increase over first quarter 2009 revenues and a year-over-year decrease of approximately 7% due primarily to a reduction in revenues from the sale of capital equipment which represented approximately 65% of the year-over-year reduction in revenues.
Revenues from domestic open-heart products were $7.3 million, a sequential increase of 2% and a 3% decrease over the second quarter of 2008. Concurrent with the introduction of our disposable cryo probe we transitioned from selling our cryo generator to loaning it to our direct customers who utilize our disposable Cryo1 device, which is consistent with our treatment for RS generators.
Neutralizing the impact of this change the open business grew modestly over the prior year. Revenues from domestic minimally invasive products were $4 million, a sequential decrease of 7%, and a 23% decrease over the second quarter of 2008.
Minimally invasive procedures during the quarter were consistent with the second quarter of 2008 and were up sequentially. Revenues from minimally invasive products reflect a reduction in revenues from the sale of our ORLab system and fewer products being utilized per procedure.
International revenues were a record $2.6 million, a 13% increase over 2008’s second quarter. On an exchange rate neutral basis international growth as compared to the second quarter of 2008 was 22%.
Consolidated revenue growth was negatively impacted by 1% as a result of exchange rate fluctuation. As a reminder, revenues from the short version of our multifunctional pen, which is used in both open and minimally invasive procedures, are allocated between open and minimally invasive product revenue based on our best estimate of the pens actual usage.
Now I will turn to gross profit and gross margin. Gross profit for the second quarter of 2009 was $10.7 million, reflecting a gross margin of 77.4% as compared with gross profit and gross margin of $11.4 million and 76.5% respectively for the second quarter of 2008.
The improvement in gross margin was primarily attributable to reduced mix of revenues from the sale of capital equipment which have a lower gross margin than our disposable products partially offset by an increased mix of international revenues. Next I will give you an update on operating expenses and our net loss per share.
Operating expenses for the second quarter of 2009 were $11.7 million, a $1.5 million or 11% decrease as compared to second quarter 2008 operating expenses of $13.2 million. The reduction in operating expenses was primarily due to reduced headcount related expenses of $1.8 million driven by our fourth quarter 2008 reduction in force and a reduction in marketing and education related expenses of approximately $500,000.00.
These reductions were partially offset by an increase in share-based compensation of approximately $200,000.00, an increase in expense in support of our product development and clinical activities of approximately $400,000.00 and an increase in legal fees of approximately $300,000.00 primarily related to the DOJ investigation. Our second quarter 2009 loss from operations was a record low of $1 million representing an improvement of 43% as compared with the second quarter of 2008 operating loss of $1.8 million.
Adjusted EBITDA for the second quarter of 2009 was approximately $400,000.00 as compared with a loss of approximately $600,000.00 for the second quarter of 2008. For the first half of 2009 our adjusted EBITDA is a positive $1 million.
Interest and other includes approximately $300,000 or $0.02 per share in debt related costs. Including interest on our term loan the write off of fees related to the termination of our previous credit facility and the amortization of warrant expense.
As a reminder, we expect ongoing quarterly expense related to our credit facility to be approximately $0.02 per share. Further, during the quarter we recorded approximately $100,000.00 in expense related to certain fully vested options which resulted primarily from an increase in our stock price.
The net loss for the second quarter of 2009 was $1.4 million and net loss per share was $0.10. In terms of the balance sheet in cash we ended the quarter with $15.7 million in cash, cash equivalents and investments and we had $6.1 million in gross debt outstanding under our credit facility.
Note that we issued warrants in conjunction with our credit facility and these are accounted for as a reduction in long-term debt on our balance sheet. During the quarter we generated positive cash from operations of $1.2 million as compared with a use of $2.7 million for the same period last year.
Looking at the first half of 2009 cash use in operations was $1.2 million, an improvement of $5.3 million as compared to the first half of 2008. As a reminder, on May 1st we completed a $10 million credit facility with Silicon Valley Bank.
The facility provides for a $6.5 million term loan which was funded in full at closing. Further, the facility includes a $10 million revolving credit facility.
In total our borrowings under the term and revolver cannot exceed $10 million. We also issued a warrant to Silicon Valley Bank to purchase 371, 732 shares of our common stock.
Our previous facility with National City Bank was terminated. At this point I would like to turn the call back to Dave.
David Drachman
Thank you, Julie. In terms of our outlook, first the impact of capital equipment sales will be neutralized by year-end.
Going forward we believe that our current sales and marketing cost structure will incrementally support growth. We anticipate that short-term growth will stem primarily from new products such as Cryo1 and our AtriClip systems.
In addition, we anticipate growth from our international markets as well as an increasing number of procedures. Based on the strength of our markets and our leadership position, the demand for effective cardiac ablation products, the power of our strategic plan, and the progress we’ve made toward achieving our strategic priorities, we believe that AtriCure is uniquely positioned to deliver results for patients, physicians, and shareholders.
At this point we will open the call up for questions.
Operator
(Operator Instructions) Your first question comes from Tim Lee of Piper Jaffray.
Tim Lee - Piper Jaffray
In terms of your outlook for the balance of the year, I know last year you suspended providing any type of forecast, but now with the business appearing to have stabilized would you care to provide some type of framework on how we should think about revenues in the second half and what the bottom line is for the second half of this year?
David Drachman
In terms of the third quarter I think the historical trends between the second and the third quarter will remain intact on a going forward basis. In terms of our guidance practices we will reevaluate our guidance practices during 2010.
Tim Lee - Piper Jaffray
Fair enough. In terms of your US business, I think one of your competitors last night reported that they were seeing some geographic anomalies, seeing slow downs in one area, more growth in others and it wasn’t really consistent across the US.
Are you seeing something similar on that front?
David Drachman
Well we have communicated that there has been some slow down for the past several quarters. In fact we communicated that in the fourth quarter that we saw a decline in the fourth quarter that tended to flatten during the first quarter.
So, we have acknowledged that there has been a slow down in procedure volumes for the past several quarters; however we do think that the slow down in procedure volumes has basically flattened and is more consistent on a quarter-over-quarter basis on a going forward basis.
Tim Lee - Piper Jaffray
But, just in terms of slow down is it broad based or is it primarily in any one specific region or customer group?
David Drachman
We can’t comment on the regional differences. In general our position has been that there has been an overall slow down that again occurred beginning with the fourth quarter; it began to accelerate through the fourth quarter, and began to flatten in the first quarter and in general we believe that the flattening of procedure volumes has stabilized.
Tim Lee - Piper Jaffray
Great and then on the ABLATE pivotal trial, what is the definition of success in that trial? I mean what kind of efficacy thresholds are you trying to hit?
David Drachman
At six months the patients receive a 24-hour Holter monitor and if the cumulative AF is less than an hour and no one single episode is greater than five minutes and the patient has discontinued the use of antiarrhythmic drugs, the patient would be considered a success.
Tim Lee - Piper Jaffray
In terms of the threshold that we are looking for, should we think about a 60% number, or a 70% number? Again, what is the range that you would consider a very good number, what is disappointing; just give us some framework to prepare for the data?
David Drachman
I think in a permanent group of atrialfibrillation patients certainly in the mid t0 range bases on historical peer review literature would be a good way to look at success in terms of using monitoring and getting patients off antiarrhythmic drugs. There is often a challenge with getting patients off antiarrhythmic drugs in such a short period of time.
Fundamentally many physicians will choose to leave patients on antiarrhythmic drugs certainly though the first three months and often longer even if the patient remains in normal sinus rhythm and is tolerating the drug. So, that component of the clinical trial makes it a little bit more challenging.
Tim Lee - Piper Jaffray
I got it, thank you very much.
Operator
Your next question comes from Joanne Wuensch of BMO Capital Markets.
Matt Ksiazek - BMO Capital Markets
Good morning, this is Matt for Joanne. You talked a little bit about your capital equipment shortfall, 65% of the loss.
Could you either quantify or just talk a little bit about how much of that is ORLab versus the Frigitronics?
David Drachman
Certainly the ORLab was a major initiative in 2008 and as we communicated during our previous earnings calls ORLab was a very key product for us. By placing ORLab in the body of our minimally invasive install base it enabled us to more adequately launch our Coolrails, move to an expanded lesion set, and begin to segment the market for cardiac ablation more toward the more persistent patients and those patients that have failed previous catheter ablation procedures.
It is safe to say that the ORLab contributed a larger portion to capital equipment sales in 2008.
Matt Ksiazek - BMO Capital Markets
Okay thanks and then on pricing pressure, you talked about going to the one clamp system. What kind of pricing pressure are you seeing overall in general and how are ASPs tracking now for your minimally invasive and open-heart procedures versus previous quarters?
David Drachman
There is some modest pricing pressure. The single clamp technique also has certain advantages.
There are certain physicians that have moved to a single plan technique. We have encouraged that in certain situations.
The geometry of the clamps you can really argue either way for a two-clamp technique or a single clamp technique so some of this is technical preference; that is why we developed the Synergy Access platform which we believe addresses the proper geometry for an ablation clamp doing a minimally invasive procedure. So, the actual pricing pressures have been modest.
I think the more prevailing concept is that there is a difference in opinion relative technique based on technology. In terms of the revenue per procedure two things, it is wide ranging depending upon the patient’s presentation, the physician preference we would characterize the ranges somewhere on the left boundary to be in the $6,000.00 range, on the right boundary to be in the $11,000.00 range.
Julie Piton
In terms of individual product ASPs we have maintained consistency in those across the portfolio.
Matt Ksiazek - BMO Capital Markets
Okay great. I just wanted to know how many centers you were at in the quarter and also could you give us any color around customer gains or losses how those are trending?
David Drachman
Fundamentally we have maintained our install base. The number of minimally invasive accounts performing procedures in the US in the second quarter was 81.
Matt Ksiazek - BMO Capital Markets
Okay, thanks guys.
Operator
Your next question comes from Charley Jones of Barrington Research Associates, Inc.
Charley Jones - Barrington Research Associates, Inc
Have you received CE mark for the AtriClip system and when do you expect to if you haven’t?
David Drachman
We expect CE mark in the fall. We are attempting, there is some risk associated with this, but we are attempting to do our first case at ES which is the largest cardiac surgical meeting in Europe and that meeting is in the mid-October timeframe, but we feel confident that we will do our initial cases with the AtriClip in Europe during the fourth quarter.
Charley Jones - Barrington Research Associates, Inc
When do you expect a minimally invasive delivery system for the AtriClip system in Europe?
David Drachman
Our first generation product, we focused on a minimally invasive deployment tool, so the clip that we plan to release during the fourth quarter in Europe will be a minimally invasive tool and the clip that we plan to release in the US will also use a minimally invasive deployment tool. Our strategy is to launch the minimally invasive tool first, which can be used in open procedures as well, but it is a premium deployment tool, and then to design and release later in 2010 a deployment tool that is designed more specifically for open-heart procedures.
Charley Jones - Barrington Research Associates, Inc
Have you finalized some of your pricing expectations for the AtriClip system? Can we assume it is going to be over $1000.00?
David Drachman
I think that is a safe assumption. We planned that the product is a premium product and we will derive premium pricing; however more resolution than that might not be wise from a competitive perspective.
Charley Jones - Barrington Research Associates, Inc
Then can you discuss whether or not you are going to receive a pricing premium for the new synergy platform?
David Drachman
We are certainly going to attempt to receive a pricing premium. We will have to balance the length of time that it takes the Synergy Access to get into accounts versus the number of procedures that could drive up; so there will be some decision making processes when we get into our initial release, but our first thought is that the Synergy Access has additional features and benefits and its moving position is to a single clamp and we should be able to derive some incremental pricing as a result.
Charley Jones - Barrington Research Associates, Inc
Julie, can you discuss your expectations for working capital in the second half? What was your stock comp in Q2?
Then Dave, do you still believe that you have the cash necessary to reached sustained profitable cash flow?
Julie Piton
In term so of the first question, working capital use still about $2 million through the first half of the year. Historical patterns indicate that we regain some of that on the second half of the year; however it is dependant and can fluctuate as a result of some of the product releases and inventory stocking associated with it.
I would hope to have regained, in essence, some of that $2 million that we still have utilized right now. In terms of stock based comp roughly $1 million during the quarter.
Charley Jones - Barrington Research Associates, Inc
Do you still feel like you have the cash to reach sustained profitability?
Julie Piton
I think we always evaluate and continue to reevaluate our capital structure, but at this point we feel very positive and optimistic with the $15.7 million that we have on our balance sheet as of June 30.
Charley Jones - Barrington Research Associates, Inc
When do you expect to release your next generation Coolrails and then how about your next generation cryo probe?
David Drachman
The cryo probe we are going to incrementally improve the probe. We have learned some things as we have launched the probe that we think will enhance the procedure and enhance the adoption.
They are relatively minor derivative changes such as tubing to make the product handle from an ergonomics perspective, make it easier for the physician to move the probe and a few other sort of minor sustaining improvements that we plan to implement through out the course of the year. The new Coolrail system we are going to postpone that system until likely the first half of 2010.
Part of that was to maintain our current gains in terms of profitability and part of that was that the current Coolrail system. Physicians are largely very pleased with the current Coolrail performance; so between the concept of trying to control our expense and allow the Coolrail to have more time to mature in the marketplace, based on the primarily positive feedback that we have received on the product, we decided to delay the release of Coolrail 2.
Charley Jones - Barrington Research Associates, Inc
Can you give us an update on when you expect to file an IDE for a minimally invasive trial?
David Drachman
We are contemplating that right now. We are evaluating our options, but I wouldn’t be surprised if we had more resolution on our next earnings call.
Charley Jones - Barrington Research Associates, Inc
Thanks for all of the questions I appreciate it.
Operator
Your next question comes from Matt Dolan of Roth Capital Partners.
Matt Dolan - Roth Capital Partners
If we take a look at MIS can you maybe walk us through some of the variables there considering the fall off in revenue, but an increase in procedures? How should we think about MIS going forward in terms of how many customers, first of all, have shifted to the single clip, meaning what is revenue per procedure going to look like as that conversion takes place?
Then secondly on procedure volumes, things appear to be stabilizing, but could you give us some commentary even month to month, are you seeing a return to some of the historical growth rates we’ve seen?
David Drachman
First in terms of the movement to a single clamp, I want to reinforce that that was a planned decision. We designed Synergy Access well over a year ago with the concept of moving our users to a single clamp technique.
We believe that the single clamp and the geometry of that clamp and the features of that clamp will allow physicians to actually create ablation that captures more atrial muscle. The second component in terms of Synergy Access and the movement to a single clamp, we have had a steady movement, about 30% of our current users are either using a single clamp or evaluating a single clamp technique, but this planned transition also was in order to maintain our high gross margins.
Remember all of our revenues derived from our minimally invasive procedures are disposable revenues and these revenues, on the disposable products, have gross margins in excess of 80%; so on a going forward basis we want to protect our gross margins and also release new premium products into the minimally invasive market. As we look at releasing the AtriClip, for example, into the minimally invasive market we want to maintain a competitive pricing position.
So, we now have a portfolio of minimally invasive products that we believe is certainly wider and stronger than any of our competitors and also derives very high gross margins. In order to maintain a competitive pricing position and maintain our high gross margins the single clamp technique was an important transition.
Matt Dolan - Roth Capital Partners
Okay so revenue pre procedure with new products over time should return to what we have seen historically. Then the second part of the question was on procedure volumes and expectations there, what you have seen more on a sequential basis.
David Drachman
On a sequential basis procedure volumes were up fairly significantly on a sequential basis. Certainly we are facing seasonality, but the general trends on minimally invasive are that we are seeing incremental increases on procedure volumes.
Matt Dolan - Roth Capital Partners
Okay and then moving to AtriClip and the potential for a loss there, can you start talking about your commercial plans with the device? How will you market the product initially relative to both procedures and what kind of revenue contribution should we potentially think about for next year?
David Drachman
In terms of our marketing we will certainly market the product to people performing minimally invasive procedures. In the open market anybody that is receiving an ablation procedure we think is a candidate for the clip.
Additionally there are patients that have atrial fibrillation that undergo cardiac surgical procedures, such as valve and bypass operations that are very high-risk procedures. That is a growing population as the age for patients undergoing cardiac surgery increases.
Certain surgeons decide not to perform the ablation because of the other risks associated with performing a primary operation. We think the clip is the perfect fit for that population of patients.
Then within our own clinical trial 42% of the patients that were enrolled in our EXCLUDE clinical trial did not have a pre-existing condition of atrial fibrillation, because the criteria allowed for patients to be enrolled that had markers for atrial fibrillation such as a CHADS score. too, patients that are 75-years or greater, patients that are 55-years of age with hypertension and patients that have had a previous cardioembolic stroke.
So those we believe are the general markets for the clip. There is also a potential stand-alone market.
There are still patients that get their AV node ablated and get paced and would benefit from a clip and we envision down the road that there could be hybrid procedures where the catheter ablation is performed and then the patient is referred for a clip procedure prior to pre-discharge.
Matt Dolan - Roth Capital Partners
Okay, great. On the DOJ investigation, a couple of updates it sounds like throughout the quarter there.
Since similar companies have faced similar allegations it appears that it is fairly comforting that it is not a company specific issue. With STEC reaching a settlement, is that an option for you or a way we can start thinking about the worse case scenario?
Then the second part of the DOJ scenario is the August 21st cut off for a government response kind of a timeline that we can start thinking about maybe year-end for this to be wrapped up?
David Drachman
Certainly as you can appreciate, our attorney’s are in a series of discussions that have real substance right now with the Department of Justice. What we communicated in the script were the facts and we’re not really prepared to add any additional color to our circumstances at this point in time, as I am sure that you can appreciate.
Matt Dolan - Roth Capital Partners
Okay fair enough, thanks guys.
Operator
Your next question comes from Jan Wald with Noble Financial.
Erica Selin - Noble Financial
This is actually Erica in for Jan. I have some questions on the ABLATE trial.
I am wondering if the Bayesian design allows for a shorter end point, or do you just have enough confidence in the results of the first 55 patients that it makes more sense to save the money on enrolling additional patients versus continuing?
David Drachman
The ABLATE trial and the Bayesian statistical model; it doesn’t change the six-month endpoint. The clinical plan requires all patients to receive a Holter monitor at six months.
The Bayesian trial actually is more of a sliding scale in terms of the results of those patients within that six month window, so the better the results the fewer the patients.
Erica Selin - Noble Financial
Okay so you are confident so far with these patients that this group will be good enough, so you have the level of confidence needed that you are not going to continue enrolling at this point?
David Drachman
We have access to the data and we review the data. Now the second phase in the process is to go out and actually scrub the data and what we mean by that is we had been monitoring, but we want to confirm that the source documents and our data collection documents coincide.
Once we have final confirmation that source documents and our own data collection documents completely coincide then we will have the confidence to make the final determination that we have the appropriate sample size to have a successful clinical trial.
Erica Selin - Noble Financial
Thanks for the information that sounds like good news.
Operator
Your next question comes from Jason Mills of Canaccord Adams.
Jason Mills - Canaccord Adams
Dave you gave a pretty wide range in terms of revenue per procedure. I am wondering in the areas where you’re perhaps at the lower end of that scale if it is helping to augment procedure growth such that if we have seen stabilization in overall procedure growth currently and we perhaps see some growth off of this level that at that lower revenue per procedure run rate you could see volumes sort of offset some of the lower revenue per procedure rates.
David Drachman
That is a very interesting question. I think the answer to that, there are physicians that we have that, for example, are in line with our market segmentation strategy and will only perform minimally invasive procedures on those patients that have, for example, long standing persistent AF or have failed single or multiple attempts at catheter placement.
Then we have physicians that treat a broader spectrum of patients, for example some of our larger accounts treat patients with paroxysmal atrial fibrillation. If they are doing a paroxysmal procedure they are inclined to use less tools.
If they are treating patients that require a more expanded lesion site they are often inclined to use more tools. So, those circumstances I think are more driving the wide range in pricing as well as what we talked about earlier: if there is a steady transition toward a single clamp technique.
Jason Mills - Canaccord Adams
I got it. Within the persistent or chronic AF area it is our belief that the penetration of applicable patient populations is even lower than paroxysmal patients being treated with catheter, ablation, or as you mentioned surgical ablation.
Given the under penetration in chronic AF I am just wondering what the industry would need, what you are doing to drive further penetration there and what really will it take? I am just wondering given the under penetration, given what we need to see, and within what timeframe could we see some acceleration and penetration of a very under penetrated market?
David Drachman
I think certainly the continued movement to a less invasive procedure makes patients more likely to sign up for a minimally invasive approach. The second issue is if you look back on our evolving MIS approach we began minimally invasive approach with pulmonary vein isolation only and we have now moved with the Coolrail device to a much more complete lesion set, something that mimics a nasal like procedure.
That procedure and that adoption, if you remember, we just launched the Coolrails really in the second quarter of 2008 was our full launch. So, we are really just getting underway in terms of implementing the expanded lesion set in our entire install base.
Now that is going to drive peer review literature. I think the two answers to your question are the least invasive, minimally invasive approaches with the most complete ablation that are developing a body of peer review literature will trigger significant growth in the marketplace.
Jason Mills - Canaccord Adams
That is helpful and a good segue into the next question which is your totally thoracoscopic approach, what percentage of the MIS procedures within your arena are performed using that approach today? Where does that come from over the last 12 months or so?
David Drachman
It is fairly consistent over the last several quarters and it is in the range of about 30%.
Jason Mills - Canaccord Adams
Okay and do you see that going higher near term or will it take a little longer to get to the majority of procedures using that approach do you think?
David Drachman
We think that first of all it requires training and a focused training effort, and technology. So, we are realigning certain resources in the second half of the year to focus more on our minimally invasive business and we are launching our Synergy Access, which will really be fully launched in the first quarter of 2010.
We will release the product by year-end in the fourth quarter, but full launch really will be in the first quarter of 2010. So, I think the concept of realigning professional education resources and sales resources on these initiatives, and expanding the training platform, as well as technology, will result in a growing number of physicians performing totally thoracoscopic procedures.
Jason Mills - Canaccord Adams
That is helpful. Going back to procedural volume growth and what could drive it.
Capturing patients, I am wondering if you could just provide us your perspective, specifically in the US market, on capturing the clinicians ability, the industries ability to capture patients whether it be through continuous monitoring and how the impact of some of the recent reimbursement changes, whether they stick or not, could have an impact on the ability to capture patients, which ultimately would drive procedure volume in your business?
David Drachman
I think again, the growing body of evidence in the peer review literature moving to less invasive totally thoracoscopic procedures and demonstrating at the national meetings and in the peer review literature that for these patients that have persistent and permanent atrialfibrillation with long-term continuous monitoring, that the results are significantly better than a catheter platform would really stimulate the market and that is our aim, and we believe that that is achievable. However, the other component is that we have got to get a more balanced view on success.
From the very beginning AtriCure is the company that has brought continuous monitoring to bear and our publications to date and our clinical consultants have been committed to using continuous monitoring. As I think we get to a more balanced view of the clinical results where catheter, drug, and surgical approaches are all using the same clinical endpoints I think that will bode very well for surgical procedures and the market segmentation strategy that we have been talking about.
Jason Mills - Canaccord Adams
Great and Julie, you had very good performance on the gross margin line the last few quarters. I am wondering, as you look forward in lieu of giving sort of overall guidance, I am wondering what sort of color you can give us with respect to your gross margins going forward in light of what is going on with revenue per procedure, with the new products that are launching, and your initiatives there can we see gross margins tick up from here, or should we look at these pretty good levels as levels to model on a go forward basis?
Julie Piton
Yes, Jason we actually can reaffirm what we talked about last quarter that we would expect gross margins to be between 74 and 77. That would still be a workable range for the balance of the year, certainly I think on the higher end of that.
The factors that would contribute to that would be the international business growth to the extent that that business would grow and become a larger portfolio in the mix then that actually depresses at the gross margin line, but improves at the operating line. So, that combined with the new product mixes could have you dip a little bit from where we are at, but I feel comfortable with the net 74 to 77 and hopefully at the higher end of that range.
Jason Mills - Canaccord Adams
Okay, thanks guys.
Operator
Your last question is a follow up question from Charley Jones of Barrington Research.
Charley Jones - Barrington Research Associates, Inc
Julie how do you think that giving away the Cryo system is going to affect your margins and how many systems should we expect you guys to place over the next 12 months. Dave, is there a bigger opportunity to place those internationally or an equal opportunity in the US?
Julie Piton
With respect to the impact on margins I don’t expect any material impact because it is similar to the RF generators; our practice is to place the equipment and then to depreciate it over a three year cycle, so different than the RF generators. A lot of our customers already have the Cryo console in house, so I really expect a negligible impact to margins prospectively with respect to the decision to place them as opposed to sell them.
David Drachman
In terms of the European markets there are some very large institutions that perform a lot of cryo ablation and primarily we sell through stocking distributors; so we will sell the consoles to our stocking distributors, so it won’t have the same impact on gross margins in the international market as it does in the US market. But, we are very encouraged.
We have just done our initial release of the Cryo1 system in Europe this past week and we continue to be encouraged and impressed by the performance of the product and feel like Cryo1 is an opportunity for AtriCure to expand its worldwide footprint and take market share in the open-heart business.
Charley Jones - Barrington Research Associates, Inc
Dave do you have an idea of the trial designs for the comparative effectiveness on initiative? Has the government asked for your feedback and when do you expect the initiative to begin?
David Drachman
That is a really good question. We are trying to sort through all of that now.
I do know that HHS is receiving $400 million, NIH is receiving $400 million, and the Agency for Health and Quality Research is receiving $300 million as a result of this initiative. The steps beyond that, beyond allocating the dollars and the process is something that we’re working on with a few consultants to see what our plan to take advantage of this national initiative and participate in this national initiative might be.
Charley Jones - Barrington Research Associates, Inc
Is this likely a positive development in your opinion given the poor results of drugs and I guess even manual catheter ablation?
David Drachman
We view this as a very positive initiative. The fact that the comparative effectiveness research, which was developed at the Institute of Medicine with the consultation of the arrhythmia experts, that they included surgery capped ablation and pharmacology as areas where we need more information as a very positive step in terms of both exposure and ongoing traction for surgical ablation.
Charley Jones - Barrington Research Associates, Inc
Then how many sales reps do you have and can you kind of give a breakdown between cardiac EP and maybe some national guidance?
David Drachman
Our total field force in the US is in the mid 43 range.
Charley Jones - Barrington Research Associates, Inc
Okay and then I was hoping you could discuss the closure rates you have seen with our European clinical study for the AtriClip and how that compares to suturing, stapling, and maybe discuss some of the implications of this.
David Drachman
The two technical, clinical endpoints are looking at the acute closure under a TEE to make sure that there is no communication between the atrium and the appendage and then the three months CT scans. Those endpoints are consistent with our US trial.
With respect to those endpoints the clip has met all of our expectations.
Charley Jones - Barrington Research Associates, Inc
Thank you very much.
Operator
I would now like to turn the call back to Mr. David Drachman for closing remarks.
Please proceed sir.
David Drachman
Thank you very much. For our AtriCure comrades stay the course, our best days are ahead.
Thank you very much.
Operator
Thank you for attending today’s conference. This concludes the presentation.
(Operator Instructions). Have a great day.