AtriCure (ATRC) Q4 2006 earnings summary

Executive summary

• FY06 revenue reached $38.2M, up 23.5% YoY, while net loss widened to $13.7M; growth reflected higher disposable-unit volumes and lower unit costs after the Enable acquisition.

• Isolator system sales represented 98% of FY06 revenue, with substantially all sales tied to off-label AF treatment in the U.S.; U.S. FDA approval remained a pivotal commercial and regulatory dependency.

• Commercial progress included new open and minimally invasive products, broader international reach, and completion of enrollment for the 25-patient RESTORE-SR II feasibility study.

Financial highlights

• Revenue was $38.2M vs. $31.0M in FY05, up 23.5%; a 26% increase in disposable units added $8.3M, partly offset by $1.6M from lower worldwide average selling prices.

• Gross profit was $30.6M vs. $22.9M; gross margin rose to 80.1% from 74.0%, as lower average unit costs after the Enable acquisition more than offset volume-related costs.

• Operating loss was $14.8M vs. $10.8M; net loss was $13.7M vs. $12.7M, and diluted loss per share was $1.13 vs. $2.10.

• R&D expense increased to $12.2M from $9.1M; SG&A rose to $33.2M from $24.6M, including higher headcount, marketing, grants, training and corporate costs.

• Operating cash use was $12.5M; year-end cash, cash equivalents and short-term investments totaled $19.5M, with $23.0M working capital and $1.0M debt outstanding.

Outlook and guidance

• 2007 R&D and SG&A costs were expected to rise in absolute dollars but decline as a percentage of revenue; R&D growth was tied to product development and clinical trials, and SG&A to sales and marketing.

• Current cash and expected operating cash generation were projected to cover working capital and capital expenditures for at least 12 months; further financing might be needed if cash proves insufficient.

• Planned milestones included filing the open-procedure trial redesign IDE in Q3 2007, starting enrollment in H2 2007, and pursuing a PMA no sooner than H2 2009 if the trial succeeds.

• The endoscopic Isolator Synergy clamps were anticipated in H2 2007; expanded lesion-set and mapping products were targeted for Q4 2007, subject to development and regulatory progress.

• International revenue was expected to remain relatively constant as a percentage of sales; 2006 outside-U.S. sales were 10.9% of revenue.