Feb 18, 2008
Executives
Julie Piton - VP of Finance and Administration and CFO
Analyst
Suraj Kalia - Piper Jaffray Charley Jones - Barrington Research Matt Dolan - Roth Capital Partners Larry Haimovitch - HMTC Steve Ogilvie - ThinkEquity
Operator
Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2007 Earnings Call for AtriCure. My name is Annie, and I'll be your coordinator for today.
At this time, all participants are in 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 conference is being recorded for replay purposes.
And 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, Annie. Good morning, and welcome to AtriCure's fourth quarter and full year 2007 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, everyone.
By now you should have received a copy of the earnings press release. If you have not received a copy, please call Sarah Wichman 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 of AtriCure expects, believes or anticipates will or may occur in the future, such as revenue and earning 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 our 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 or approved the company's isolator bipolar ablation systems or Pen for the treatment of AF. They 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 product for the current cleared uses and not for the treatment of AF.
AtriCure educates and trains its doctors in the proper use of its products and related technologies and does not educate or train doctors to use any of its products for the surgical treatment of AF. Additionally, AtriCure's Left Atrial Appendage Clip System is not commercially available and is pending FDA 510(k) clearance in the United States.
It is, however, currently being used in clinical evaluations in Europe. 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 also may be consultants to AtriCure. With that, I'd like to turn the call back to Dave.
David Drachman
Thank you, Julie, and thank you everyone for joining our fourth quarter and full year 2007 conference call. 2007 was another high performance and momentum building year for AtriCure.
During the year, we continued to advance our leadership position and made significant progress on several key fronts. As a result, we believe strongly that no other atrial fibrillation company is better prepared or positioned than AtriCure to deliver results for patients, physicians and shareholders.
While 2007 was a high-growth year for AtriCure, we are just beginning to scratch the surface. We believe that AtriCure will become one of the elite, high-growth cardiac companies of our time.
In fact, AtriCure was recently ranked 80th in North America in the prestigious Technology Fast 500. The Fast 500 is the five-year ranking of the 500 fastest growing technology, media, telecommunications and life sciences companies sponsored by Deloitte and Touche.
Moreover, AtriCure ranked third in the medical equipment space and first in Ohio. The passion of our people has fueled our growth and our significant contributions toward preserving and improving human life.
I want to commend our management team and the employees for their high-performance during 2007. The strength of our company is our people and their talent, drive, passion and extraordinary will toward building on our leadership position in the large and growing market opportunity for our cardiac ablation and left atrial appendage products.
Since AtriCure was founded in November of 2000, we have spent less than $65 million to achieve a year-end 2007 revenue run rate of approximately $53 million, facilitated by high gross margins of 79%. Behind our strong revenue, and high gross margin performance, AtriCure is a company of highly motivated people that practice disciplined management, particularly as it relates to expense and financial controls.
We plan to manage the pressures of short-term expectations, while focusing on the [point] resources and areas that we believe will accelerate our historical growth trends and lead our company to profitability. Now, I will briefly summarize our full year 2007 financial results.
Later in the call, Julie will provide more detail on our full year and fourth quarter performance. Full year 2007 consolidated revenues were $48.3 million, which represents a 26% year-over-year increase.
US revenues from open heart products of $27.3 million represents an 18% year-over-year increase. US revenues minimally invasive products were $14.4 million which represents a 31% year-over-year increase.
Additionally, minimally invasive procedures were performed in 83 US medical centers during the fourth quarter. International revenues were a record breaking performance of $6.6 million, which represents a 58% year-over-year increase.
Additionally, during 2007 we demonstrated strong operating leverage trends. For the full year 2007, gross profit dollars increased by 24.7% while operating expenses increased by only 11.8%.
,
Third, atrial fribrillation often develops into a chronic disease. Patients with chronic diseases will often choose a single minimally invasive procedure that is potentially safer and has superior long-term outcomes as opposed to somewhat less in invasive catheter approach, which often required multiple procedures each of which carries additional risk.
Fourth, in evolution of incremental well executed market development activities such as publications, national presentations and new product releases will lead to a tipping point. Fifth, because of our high revenue and high gross profit dollars per procedure limited penetration into the relative patient pool can result in the tipping point.
Sixth, adoption curves in newly accepted treatment paradigms in large disease states are non-liner but contagious and growth can be vertical. Lastly, we believe that for the foreseeable future the more minimally invasive ablation procedures the more ablation procedures, catheter ablation procedures will be performed.
We apply the high tide floats or boats theory to these products and markets. Now, turning to our favorable market place trends supporting our minimally invasive business.
We believe that there are macro market indicators that strongly suggest that our minimally invasive platform is evolving as a standard of care for a large group of patients and that this will result in accelerating growth and profitability. As we projected, there have been several recent peer reviewed manuscripts highlighting the use of our minimally invasive platform published in Electrophysiology, Cardiology and surgical journals.
We believe that these initial manuscripts further underscore the superior clinical outcomes achieved with the use of our minimally invasive platform. We anticipate that there will be a series of additional manuscripts reporting on larger patient populations with longer-term patient follow up and that these manuscripts will result in a pivotal change in the treatment algorithms and guidelines for thousands of physicians managing millions of patients.
As a result of the growing body of peer review publications, we foresee rapid and broad adoption for our minimally invasive platform. Now, in terms of presentations at the major meetings, there has recently been several key presentations at high profile international meetings highlighting the use of our minimally invasive products.
The Boston Atrial Fibrillation Meeting is the largest atrial fibrillation meeting in the world. On January 17, during the main accredited sessions, in front of approximately 1,000 potential referring electrophysiologists, there were three presentations highlighting the use of our minimally invasive products, including a live transmission from the Medical College of Virginia.
This minimally invasive procedure was performed by Dr. Kasirajan, a well-known cardiac surgeon.
Importantly, the patient was referred by a pioneer in electrophysiology, Dr. Kenneth Ellenbogen.
Dr. Ellenbogen was in the operating room to perform the EP testing and led the narration of the procedure.
Following the procedure, the panelists surveyed the physician audience. 30% of the audience responded that they have had initial experience referring patients for minimally invasive procedures.
Now, in terms of the patient that was ablated during the live demonstration, 13% of the physician audience responded that they would refer that same specific patient for a minimally invasive procedure. We believe that this is a highly favorable trend and strong indicator of our momentum in the marketplace.
We believe that this landmark event further validates our significance progress and indicates that our minimally invasive platform is in the early stages of being adopted as the standard of care by an increasing number of physicians. Furthermore, on January 27, the company sponsored a symposium preceding the Society of Thoracic Surgeons meeting.
During the meeting, Dr. James Edgerton presented his minimally invasive results and the ablation strategy to expand our current ablation procedure using our new Coolrail Linear Ablation Pen.
Now, following Dr. Edgerton’s presentation, Dr.
Warren Jackman, an electrophysiologist world renowned for his contributions toward advancing [original] treatments through the development of catheter ablation procedure said, “I am going to stick my neck out here, but I believe that this minimally invasive procedure will become the standard alternative for patients with permanent atrial fibrillation”. In addition, Dr.
Douglas Packer, professor of medicine and Director of Research for Clinical Electrophysiology at the Mayo Clinic will be moderating a Heart Rhythm Society live broadcast with Dr. James Edgerton entitled Reality EP: Epicardial Ablation for Atrial Fibrillation.
We anticipate that our minimally invasive products will be highlighted during this key broadcast. We believe that the Heart Rhythm Society live broadcast with doctors Packer and Edgerton insights some pioneering key opinion leaders such as Dr.
Warren Jackman along with the recently published manuscripts, our exposure at the Boston Atrial Fibrillation Meeting, and importantly the 2007 consensus statements which republished by the Heart Rhythm Society which characterizes minimally invasive ablation as a standard treatment alternative are all key macro indicators of our substantial progress in increasing market acceptance. As we reflect on the evolution of our minimally invasive business, it is important to note that our first endoscopic system for minimally invasive ablation was only just released in 2006 with clearance for soft tissue ablation.
At that time there was only one peer reviewed publication describing the results of just 23 patients followed for only three months. We believe our market development regulatory progress during the small window of time demonstrates a powerful trend.
These favorable market indicators along with our high revenue and high gross profit dollars for procedure position AtriCure for accelerated growth and profitability. Now, I would like to summarize and confirm the status of our key initiatives and comment on physician reimbursement trends.
Our Coolrail Linear Ablation Pen, an integrated mapping system which is designed to expand our cardiac ablation procedure is on scheduled for FDA clearance and limited US release later in the first quarter of 2008, disposable cryo probe which we believe will extend to open our business is on schedule for US release during the third quarter of 2008. In terms of our left atrial appendage exclusion system, we submitted our responses to FDA and we anticipate hearing back from the agency in March or April of 2008.
In the meantime we’re continuing with international clinical programs which we plan to expand during the second quarter of 2008. We’ve successfully implanted 14 clips in Europe and to-date the clip has met all of our requirements and expectations.
Subject to FDA responses, we continue to anticipate our fourth quarter release in the U.S. Turning to our FDA regulated Ablate clinical trial.
As of January 31, 2008, three centers had approval to begin enrolling patients. We anticipate that the majority of the sites will be initiated in screening patients for enrolment by March 31st, 2008.
To-date we’ve treated 1 patient and we’re currently enrolling additional patients. In terms of 2008 physician reimbursement changes, in January of 2007 there were changes to physician reimbursement which required surgeons to use a miscellaneous code when performing ablation procedures concomitantly during open heart surgery.
In January of 2008 CMS published 3 new physicians CPT codes which are configured to be used for concomitant procedures. We anticipate that this will favorably impact adoption of ablation during open-heart procedures.
In addition, in January of 2008, CMS made changes to the physician coding which we believe will negatively impact reimbursement for catheter ablation procedures. We believe that this will provide more motivation for physicians to refer patients for minimally invasive procedures.
In summary, at AtriCure, we are rapidly becoming a broad-based technology company. The isolator synergy, open heart and minimally invasive systems, multifunctional bipolar pen, Coolrail linear ablation pen, cryogenic probes, left atrial appendage exclusion systems and our OR lab mapping systems are all significant platform technologies, which we believe will stimulate growth well into the future.
Additionally, we believe that there are macro market indicators and new product releases, which suggest that our minimally invasive business is closer to the tipping point. We strongly believe that our prospects for building a large, enduring company have never been greater.
At this point in the call, I would like to turn the call over to Julie for a detailed review of our financial performance.
Julie Piton
Thank you, Dave. Starting first with 2007 full year financial results, total revenues were $48.3 million, representing a 26.3% increase over 2006.
Each business sector set new revenue records. Revenues from domestic open heart products were $27.3 million, representing growth of 18.5% over 2006.
Revenues from domestic minimally invasive products were $14.4 million, a 30.6% increase over 2006. International revenues were $6.6 million, a 58.5% increase over 2006, benefiting modestly as a result of the strengthening of the euro to the dollar.
As a reminder, revenues from our multifunctional Pen which is utilized in both open and minimally invasive procedure are allocated between open and minimally invasive product revenues based on our best estimate of the Pen’s actual usage. Now turning to gross profit and gross margin, gross profit for 2007 was $38.2 million reflecting a gross margin of 79% as compared with the gross profit and gross margin of $30.6 million and 80.1% respectively for 2006.
The decline in gross margin was primarily attributable to an increased mix of international revenues which generally carry lower gross margin as we market and sell to most international markets through distributors. Next, an update on operating expenses and our net loss per share.
Operating expenses for 2007 were $50.7 million representing an 11.8% increase over 2006. The year-over-year increase in operating expenses was primarily driven by an increase in selling and marketing expenses attributable mostly to an increase in headcount, an increase in variable selling expenses and increased marketing expenses associated primarily with an increased presence at key industry events.
As a reminder, late in the second quarter of 2007 the activities of certain clinical education specialists, which had previously been reported as a component of product development were refocused to professional education and selling activities which are a component of SG&A. This redeployment of resources was the primary driver of the decrease in research and development expenses on a year basis.
The net loss for 2007 was $11.3 million representing an 18% improvement over 2006’s net loss of $13.7 million. Net loss per share for 2007 was $0.84 on $13.4 million average shares outstanding, as compared with a net loss per share of $1.13 for 2006.
As a reminder, the increase in average shares outstanding was primarily attributable to the issuance of 1.8 million shares of our common stock in a private placement transaction on May 30th of this past year. In terms of our balance sheet and cash, we ended the year with cash, cash equivalents and investments of $20 million.
Our cash used in operations improved $4.4 million or over 35% from 2006. 2006’s use of cash for operations was 12.5 and 2007 was 8.1.
We ended the year with total debt outstanding of $1.1 million, this includes a note payable to Cooper related to our acquisition of [Vembis] past summer. The note was paid in January of 2008 upon completion of the successful transfer of the manufacturing operations.
Now, a quick review of our fourth quarter 2007 financial results. Total revenues were $13.2 million, a 24.1% increased over the prior year and a 9.1% sequential increase.
Revenues from domestic open heart products were a record $7.3 million representing growth of 14.2% over the fourth quarter of 2006 and 8.4% sequential growth. Revenues from domestic minimally invasive products were $3.9 million, 17.9% increase over the fourth quarter of 2006 and a sequential increase of 10.1%.
International revenues hit a new record of $2 million representing growth in excess of 100% compared to prior year and sequential growth of 9.8%. International revenues as compared with prior year fourth quarter benefited modestly as a result of the strengthening of the euro to the U.S.
dollar. Now moving to fourth quarter gross profit and gross margin, gross profit for fourth quarter of 2007 was $10.5 million.
This reflects a gross margin of 80.1% as compared to 77.8% for the fourth quarter of 2006 and 77.1% as compared with the third quarter of 2007. The increasing gross margin in the fourth quarter of 2007 as compared with the prior year fourth quarter was primarily attributable to the prior year fourth quarter including a non-recurring inventory valuation adjustment.
The improvement in gross margin as compared with the third quarter was primarily due to reduced product cost associated with improved efficiency of the company’s new product lines. Next, an update on operating expenses and our net loss per share.
Operating expenses for the fourth quarter of 2007 were $12.2 million. This represents a 4.2% reduction over the prior’s fourth quarter and essentially flat on a sequential basis.
This is on 24% increase in revenues over the prior year and a 9% sequential increase in revenues. The year-over-year decline in operating expenses was primarily driven by a reduction in administrative cost.
The reduction in research and development expenses was primarily attributable to the classification change for the clinical education specialist we discussed earlier and a slight reduction and project related cost. The net loss for the quarter was $1.6 million, our smallest quarterly net loss since becoming a public company and 63.3% improvement over the net loss of $4.3 million for the fourth quarter of 2006.
Sequentially, the net loss improved $1 million, or 39.8%. Operating leverage has been demonstrated in each of our last three quarters, with three successive quarters of reporting a reduced net loss on higher revenues and a relatively consistent overall operating expense base.
Net loss per share for 2007's fourth quarter was a record low of $0.11 on 14.1 million average shares outstanding as compared with a net loss per share of $0.35 for the prior year's fourth quarter. That was on 12.2 million average shares outstanding.
Our cash, cash equivalents and short-term investments at September 30, 2007 were $21.2 million, and as we closed up the year, they were $20 million. Now, turning to 2008 guidance.
For 2008, we expect annual revenues to be in the range of $58 million to $60 million and net loss per share to be in the range of $0.55 to $0.70. Thank you, and at this time, I'd like to turn the call back to Dave.
David Drachman
Thank you, Julie, and at this point in the call, we'd like to open the call up for questions.
Operator
(Operator Instructions). And your first question comes from the line of Suraj Kalia with Piper Jaffray.
Please proceed.
Suraj Kalia - Piper Jaffray
Good morning, Dave, Julie.
Julie Piton
Hi, Suraj.
Suraj Kalia - Piper Jaffray
Congratulations on the quarter.
David Drachman
Thank you, Suraj.
Suraj Kalia - Piper Jaffray
Dave, first and foremost, congratulations on the live case at the Boston AF symposium. It went really well.
In terms of the guidance for FY’08, can you shed some more color on what do you all see in the open heart and the minimally invasive segments, vis-à-vis the overall guidance of 58 to 60?
David Drachman
Yes, we are basically calculating guidance on our current visibility. We believe that all three segments, both open and minimally invasive and international will demonstrate strong growth.
And the guidance that we are calculating based on our current visibility is in line with historical trends. What is challenging for us to predict, we believe strongly that we are closer to the tipping point in minimally invasive, but when that tipping point will occur, how much momentum it will take to basically reach that tipping point is unclear.
So, guidance, once again, is based on our current visibility and based on historical trends in our business over the last several years.
Suraj Kalia - Piper Jaffray
Okay, and pardon the question, Dave. In terms of the Ablate clinical trial, the patients are going to be free from all AF, is that the primary efficacy endpoint?
David Drachman
At six months, the primary efficacy endpoint is that no one patient, well, if the patient has more than five minutes of a single episode on a Holter monitor or in totality, has greater than one hour, there would be a failure. So, to put it the other way, if they have less no episode lasting more than five minutes, and in totality the AF on a 24-hour Holter is no longer than one hour, they would be declared a success.
Suraj Kalia - Piper Jaffray
Okay, and have you all indicated when you will intend to finish enrollment in the trial?
David Drachman
We really haven’t, and part of the reason is this, this is a [bazine] adaptive clinical trial. So, if the results are better, we will need a smaller sample size.
If the results aren’t quite as good we may need up to 75 or 80 patients. So, we really haven’t given any color.
Plus, and player sites are really up and running, and you have a few months of enrolment history, it is really hard to predict. So, we would rather wait several months and toward the middle of the year give you more guidance on when we would anticipate completing enrollment.
The positive news is that the study endpoints we believe are very achievable and the study endpoint is only six months.
Suraj Kalia - Piper Jaffray
Interesting, fair enough guys. Congratulations on the quarter again.
David Drachman
Thank you, Suraj.
Operator
Charley Jones - Barrington Research
Hi, good morning, congratulations guys, great quarter.
David Drachman
Thanks Charley.
Charley Jones - Barrington Research
Dave, I was wondering if you could go on a little bit with that, I guess that means that you’re expecting an extremely high success rate, if you are only expecting the maximum of 75 to 80 patients is right? Or would be that what kind of efficacy rates will they need see to approve the device?
David Drachman
Approximately 70%.
Charley Jones - Barrington Research
Okay.
David Drachman
Now, if you look at the peer review literature the results on the concomitant procedure in the permanent AF population has been better than that and our own Restore SR trial which was very similar to ablate trial but had more challenging inclusion criteria so we convert that trial over to the ablate trial and use that data to acquire a cardiac ablation indication for claim. But if you look at those patients 39 patients were treated and it was basically the same population of patients and the results were approximately 85%.
So, we have that plus almost 45,000 patients treated with our open product, and a series of peer review literature in the open heart area that will led us to believe that these endpoints are highly achievable.
Charley Jones - Barrington Research
All right, thank you. And, I was wondering if you could talk us a little bit about how long it will take the Coolrail to get out of your installed base?
David Drachman
Very good question. Coolrail is the device that we have designed specifically to expand our ablation treatment and really mimic a Maze like procedure.
We’re going to release the product based on our best expectations of FDA clearance this month. We’re going to limit the release in the U.S.
so that we can go to a few of our key centers and make sure that we get the training methodology down. We want to make sure that the physicians understand how to mobilize key vessels to get to certain structures to perform the ablation or want to make sure that the ablation technology is used properly, and we’ll also want to make sure that we confirm conduction block with each ablation line that we place.
So, we’ll use the first 30 to 45 days to complete a pilot where we’ll gather ourselves in terms of creating our methods for training and advancing the products in the market place. But we’re very confident based on the pre-clinical studies that this technology is spot-on in terms of making the connecting lesions that complete the Maze like procedure and will allow us to have more successful outcomes in the persistent and permanent patients.
Charley Jones - Barrington Research
And I was wondering if you have finalized your design on the second generation clip and whether or not you think that’s going to be necessary?
David Drachman
Well, the first generation clip is the one that we’ve implanted and the one that we based on FDA responses hope to launch in the fourth quarter of this year. We’ve a series actually two next generation designs for clips that were going into pre-clinical studies in the next 30 days which are much more minimally invasive.
We view this as becoming the standard clip. It has a lower cost of goods and we’re developing some deployment tools which will allow it to be more easily deployed through minimally invasive procedures but also potentially through subxiphoid procedures.
So, we envision this next-generation clip and deployment tool potentially being used in the EP lab to exclude the left atrial appendage.
Charley Jones - Barrington Research
So, how many patients have been treated with the clip in Europe at this point? Sorry, if I missed that.
David Drachman
14 patients have been treated with the clip in Europe and we've had a series of manuscripts in the preclinical studies, which had demonstrated the safety and efficacy of the clip in terms of its ability to exclude the left atrial appendage over a chronic period of time.
Charles Jones - Barrington Research
And will you continue to treat, place clips in Europe throughout the year? Or are you kind of done with that now?
David Drachman
No. We want to expand our European participation in clinical trials, in part because right now we're negotiating with the FDA.
It's most likely, like we've said in the past, that even though this is a 510(k), the FDA will want human data. Our current assumption is that the FDA will accept international data.
So, we're continuing to expand our clinical programs internationally plus, that will stimulate publications and allow us to get through some of the learning curves involved with not just this generation of technology, but make sure that the designs that we develop for the next-generation technologies continue to improve.
Charley Jones - Barrington Research
Thank you, for the answers. Congratulations.
I'll turn it back in queue.
David Drachman
Thanks, Charley.
Operator
Your next question comes from the line of Matt Dolan with Roth Capital. Please proceed.
Matt Dolan - Roth Capital Partners
Good morning, Dave and Julie.
David Drachman
Hey, Matt.
Julie Piton
Hey, Matt.
Matt Dolan - Roth Capital Partners
With respect to the domestic open business, Dave, can you give us an idea of how much of an impact you thought the reimbursement change in '07 had, either quantitative or anecdotally? And can you expand on your sense of the effect of the new codes for 2008?
David Drachman
Well, we certainly felt pressure from the change to a miscellaneous code in 2007. We know this because we have a reimbursement specialist who is a consultant for the company and answers calls about reimbursement.
So, the calls about how to deal with open heart reimbursement were not [exponentially] in the first half of 2007. The new reimbursement code, we’re early in the year but so far our customers are seem to be very pleased with the level of reimbursement.
The level of reimbursement ranges from about $550 to $800. If you remember (inaudible) about $800, a valve procedure pays about $2200 and the ablation procedure takes 15 to 20 minutes to perform.
So, we did feel some pressure, particularly we think in the western portion of the country in 2007, and we do anticipate some increased momentum from the new code in 2008. But I will tell you that, in the middle of February, it is a little to tell what impact, how much that new code will have.
Matt Dolan - Roth Capital Partners
Sure, okay. That helps.
And in terms of, MIS and I don’t know if I missed this, but did you provide the number of treating centers during the quarter? And going forward are you sticking with your strategy of going deep into accounts in the US or should we expect that to expand in ’08?
David Drachman
We did, we mentioned 83 centers performing MIS procedures in the fourth quarter of 2007. But what is impressive about that is if you look at the 2006, sort of year-end number of centers and our strategy again has been to fragment the number of centers for several reasons.
One is, we want to basically make sure that we train centers appropriately and limit the complications in the early stages of the rollout of a new treatment paradigm. Secondly, is that we want to focus centers on publishing papers.
So, we want our volumes of procedures to be focused on a small number of centers. And third, we create efficiencies by focusing.
And fourth, we create centers of excellence and one of the signs of the clipping points is that on the centers that are regional centers around your centers of excellence begin to open programs to stay competitive that’s a sign of the tipping point. And so, there are several good reasons why we want to stay focused, but what’s a very impressive from our perspective is that we ended the year the fourth quarter 2006 versus the fourth quarter of 2007 weren’t very different in terms of numbers of centers yet, year-over-year our minimally invasive business grew by 31%.
Matt Dolan - Roth Capital Partners
Okay, great. And then, at Boston A-Fib there is a fair amount of discussion regarding MIS moving to a totally thorascopic approach.
Can you give us an idea of your expectations, when this could be a reality for the procedure, and thinking about your commentary on the variables that will drive MIS, What is that specifically mean for your ability to penetrate the sole therapy market?
David Drachman
There are two major MIS initiatives, one is to expand the ablation treatment and two is to go totally thorascopic. Now, we’re currently doing totally thorascopic procedures.
We’ve at least 10 accounts that perform routine totally thorascopic procedures. The issue for us still in terms of focusing our procedure development activities is to focus them on the expansion of the ablation treatment first, and totally thorascopic second.
And the reason is that our minimally invasive thesis is largely based on market segmentation. We believe that it's more important to stay within certain boundaries of minimally invasive but to actually be able to treat the patient with more ablation and be able to delineate catheter ablation more from surgical ablation.
So, if catheter ablation is pulmonary vein isolation and minimally invasive ablation is pulmonary vein isolation a connecting legion across the roof aligned to the mitrovalue annulus innovation of the left atrium and left atrial appendage exclusion that procedure is different, more different and will allow us to segment the market particularly in the high profile centers where we’ve the key opinion leaders that perform catheter ablation. And that market segmentation in those major centers we believe will lead to exceptional growth and contagious adoption in the mainstream.
Matt Dolan - Roth Capital Partners
Okay, very good. I’ll let somebody else jump on.
Congratulations on the progress.
Julie Piton
Thank you, Matt.
Matt Dolan - Roth Capital Partners
Thanks.
Operator
And your next question comes from the line Larry Haimovitch with HMTC. Please proceed, sir.
Larry Haimovitch - HMTC
Good Morning. Nice year, nice quarter, Dave.
David Drachman
Hey Larry.
Larry Haimovitch - HMTC
I wanted to just check on a couple of things. The international business was very strong during the year, wanted to get a little more color on that, which countries, what things you're doing over there?
And also the fact that the fourth quarter was much stronger than the rest of the year. Well, how much of that was currency based versed just intrinsic growth?
David Drachman
Well, I'll answer the first one and let Julie talk more about the foreign exchange rates. But in terms of international business, I think it's important to look back and say that AtriCure was a privately held company, a venture-backed company until August of 2005.
And we had a very clear strategy to deploy resources in the U.S. to create value for the company.
After the IPO, using the net proceeds, we opened up a European BV and developed a European presence. We also got more aggressive along the Pacific Rim.
So, we're really just beginning to scratch the surface of the international markets. If you look at our markets here in the U.S, I think most people would concede that we have in the range of a 50% share in the U.S.
Our international markets are much less penetrated. So, over the past several years, we've been bolstering up our distribution channels in Europe and along the Pacific Rim.
Specifically, we've had a significant focus on Germany, a lot because Germany obviously has 85 million people. They now have good reimbursement for ablation, so we can be very efficient in Germany.
We have some direct people in Germany. And we've also been very successful in the northern part of Europe as well and are becoming more successful in the south.
Japan has been a strong market for us. China is becoming a stronger market for us, and we believe that we have lots of opportunity all along the Pacific Rim.
But that's basically been more or less our strategy is to bolster our distribution channels a lot in Europe through the European BV, develop a European presence and also to be more calculated about distribution channels along the Pacific Rim.
Larry Haimovitch - HMTC
And Dave, do you have plans to increase the direct effort overseas, as time goes on?
David Drachman
We do have an outstanding Vice President of European Sales. We have two direct people in Germany; we are going to go two additional people in Germany.
We like the German market, we think with 85 million people and the size of Montana it is a very efficient market. It has good reimbursement and they tend to adopt new technology.
So, we like the German market. But we are having lots of success in UK; we are certainly having success in the Netherlands and some smaller countries.
Overall, we think that Europe is a very hot market for us. And we also have a very strong effort, again along the Pacific Rim, we think it is a, a very much an under-penetrated opportunity for the company.
In terms of foreign exchange, Julie?
Julie Piton
Yes, Larry, I would just indicate that, I mean, the majority of our international revenues are still denominated in US dollars. So, certainly as the dollar weakened, the balance obviously would be in the euro and as the dollar weakened in the latter half of the year we did get a modest increase but virtually all of the revenue growth is for all the reasons Dave just articulated.
Larry Haimovitch - HMTC
And there is no stocking order really because the fourth quarter was especially strong
Julie Piton
No, it was strong, but if you compare to the third quarter, it was up roughly 9% or 10%, so wasn’t dramatic growth…
Larry Haimovitch - HMTC
Yes.
Julie Piton
Quarter-over-quarter. I think it’s really the, the impact of the business taking off.
Larry Haimovitch - HMTC
On the minimally invasive side you did very, very well this year as we thought you would and hoped you would, but I think the fourth quarter was not as strong as the rest of year. Is there anything, should we read into that Dave, or is it just, probably relatively small numbers still and not that many cases?
David Drachman
Yeah, I think in the earlier stage business, more subject to variability. I also think that the piece of the market development process that’s important to think about.
And again, in 2006 we really started with an endoscopic product that, our first generation endoscopic product with a soft tissue indication and one peer review publication from Randy Wolf with 23 patients followed only through three months. So, we go out to the market we open up accounts and you see some product being placed on the shelf.
What’s encouraging to us is that the minimally invasive business grew 31% year-over-year in basically the same accounts, which tell us that we getting check traction and that we are changing referral patterns and now we are experiencing real adoption. Additionally, if you just look at the growth trends, what’s interesting is if you move away from year-over-year the third quarter of 2007 was a very strong quarter for us despite seasonality, in fact it is only $300,000 offer all-time high and minimally invasive actually grew 10% sequentially, international grew 10% sequentially, our open business grew 8.4% sequentially, on a consolidated basis the business grew 9% sequentially.
So, we think that currently all segments of our business are demonstrating strong performance.
Larry Haimovitch - HMTC
And the average revenue per minimally invasive case for the year was approximately what?
David Drachman
There really hasn’t been any changes of any significance, some mild oscillations Larry, but no real changes in ASPs per procedure.
Larry Haimovitch - HMTC
Is it approximately $8,000 and above?
David Drachman
Yeah, its $8,000 to $9,000 range depending on what series of product they use.
Larry Haimovitch - HMTC
And then one more question for Julie and I will jump back in queue. The loss for the quarter was the smallest you had; I would have assumed that as you continue to build volume going into ’08 that the loss diminished even more.
Can you explain why the loss is not going to be that much smaller and more importantly, what you look for in terms of a breakeven quarter either from a P&L standpoint Julie or a cash flow standpoint. When could you be cash flow neutral?
Julie Piton
Yes, we look a cash flow neutral very more in terms of a kind of annual revenue run rates. So, I think the past we felt comfortable between a $65 million to $80 million range and that’s still the range we’re comfortable in, in terms of cash flow and probably profitability neutral also.
And I definitely think that’s where we’re still marching towards.
Larry Haimovitch - HMTC
Great, thanks very much.
David Drachman
Thank you, Larry.
Operator
And as a reminder (Operator Instructions). And your next question comes from the line Steve Ogilvie with ThinkEquity.
Please proceed.
Steve Ogilvie - ThinkEquity
Hey guys.
David Drachman
Hi Steve.
Steve Ogilvie - ThinkEquity
You prepare your bonuses at year end and should that be in the fourth quarter still?
Julie Piton
I am sorry, but say it again, Steve. Was it with for the sales reps or?
Steve Ogilvie - ThinkEquity
Yes for annual sales bonuses. Are those paid in 4Q?
Julie Piton
No, actually our sales reps paid on a monthly basis, and then they have modest quarterly objectives.
Steve Ogilvie - ThinkEquity
Okay, and then maybe you can help me understand because last year in the fourth quarter there was a big uptick in SG&A I thought I remembered that some of that was bonus related but it was sequentially down this year?
Julie Piton
Right. So, there was a change to the plan between 2006 and 2007.
You’re exactly right. So, in 2006 there was a sort of an annual component to the boat to the commission plan for the sales force and that plan was changed during 2007.
Steve Ogilvie - ThinkEquity
Okay. Could you speak to whether or not they are hitting the objectives that would trigger bonuses?
I guess I am curious about this at the start of the you’ve studied sequential declines in SG&A, is that related to sales not hitting the targets they’d hoped to hit?
David Drachman
Actually no. I think the sales quotas and certainly our guidance are fairly well correlated.
There's not a significant difference between the two. It's not uncommon for you to have somewhat of a 20/80 percent role in your sales organization.
We have some of that in our sales organization. We have 20% or 30% of the sales people contributed more than the other 70% or 80% of the sales people.
But, in general, we think that a high percentage of our people did make quota in that range that we're talking about and that the quotas are consistent with the numbers that we project for the Street.
Steve Ogilvie - ThinkEquity
Okay. And then just lastly again on the guidance on the bottom line, just it seems like the 55 to 70 range allows a lot of spending.
Is that, are you thinking that the ABLATE trial is going to be expensive? Or is it new headcount hires?
It just seems like this last quarter was pretty efficient in terms of spending, but the projection for '08 doesn't mimic that.
David Drachman
Well, here's one of the issues to consider, Steve, is that if you remember last year we had a $0.35 loss in the first quarter. First quarter can be heavy because we have FTS.
We have Boston A-Fib. We have a national sales meeting.
We have to pay for ATS and pay some of the fees for HRS, so the first quarter of the year can be fairly heavy in terms of expense. That's one thing.
The second thing is that we're into some other areas that have potentially very high opportunity for the company such as this subxiphoid research project that we talked about that deals with potentially using clips from a subxiphoid position in the EP lab, potentially doing an endo-epi-ablation. So, imagine an electrophysiologist goes into to do a catheter ablation and then comes in from the subxiphoid position and mops up some of that ablation with a Coolrails technology from an epicardial perspective.
So, one of the things that we did over the past 12 months that's worked very well for the company, and one of the reasons why you see so many new platform technologies in the company is we separated product development and research and development. As a young company those two functions we coupled.
We have one of the most talented experienced people running product development, and we have one of our most talented and experienced people running the research and development. And that has worked out very well.
And so, we have designs for products that are well out into 2009 and 2010. And how much we invest in those products, it is not crystal clear yet depending upon the progress and some of the feasibility phases of the development stage.
Julie Piton
And I’d add to that Steve, we talk a lot about being relatively comfortable with the number of domestic sales rep we have in the field. But as Dave mentioned, we will be investing some additional reps in the international markets, so that is also something to think about as you think about ’08.
Steve Ogilvie - ThinkEquity
Okay, that is very helpful. Thank you.
And then last question on the appendage clip. Could you maybe characterize your conversations with the FDA in terms of, they have given you an indication they may want to see human data.
Do you have any idea how much does that have to be domestic? It seems like there could be a huge swing factor in terms of quarters delay or earlier on the launch depending on what they say?
David Drachman
.
Steve Ogilvie - ThinkEquity Partners
Is there any precedence in terms of follow-up on one of the predicate devices and what FDA likes to see?
David Drachman
The interesting issue is the FDA for these devices that had LAA claims like statements system didn’t do any human data. So, there is two systems or three systems out there, for our example one of the company is actually submitted they had general indications on their product and submitted for a specific LAA claim and show that they are equal to the predicate devices which were the US Surgical and Ethicon stapling system and showed no human data.
The FDA here has been again leading us to believe that we will, but they will want to see some small sample of human data, and we’ve been talking to them about the lease burdensome way for us to do that is to use our international studies. So, I don’t want to characterize the sample size and the follow-up window yet, but based on our current conversations we are optimistic that the sample size will be small follow-up will be consistent with our preclinical studies, it was 90 days and we’ll just have to wait and see come the March and April time when we get our formal responses back from the agency but that’s been the totality of our conversations.
Steve Ogilvie - ThinkEquity
Okay, great. Thanks guys.
David Drachman
Thanks.
Operator
At this time there are no further questions. I would like to turn the call back over to Mr.
David Drachman for closing remarks.
David Drachman
Thank you everyone for joining us today. We look forward to revisiting with you in the very near future.
Thank you.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect and have a great day.