AtriCure (ATRC) to Acquire nContact in Cash, Stock Deal

AtriCure (NASDAQ: ATRC) announced that it has entered into a definitive merger agreement under which AtriCure has agreed to acquire nContact, Inc., a privately held developer of innovative cardiac ablation solutions.

The transaction consideration consists of an upfront payment of approximately 3.7 million shares of AtriCure common stock, valued at $24.60 per share, and approximately $8 million in cash, subject to closing adjustments. The transaction also includes up to $50 million in additional contingent consideration based on completion of enrollment of the CONVERGE IDE trial and PMA approval. Additionally, nContact shareholders are entitled to additional sales-based contingent consideration on revenue in excess of an annual growth rate of greater than 25% through 2019. All contingent consideration can be paid in either cash or AtriCure common stock, or a combination of both.

“nContact is an excellent strategic addition to AtriCure, as it expands and strengthens our presence in the Afib market. We expect the combined entity to provide improved market access and additional collaboration opportunities with cardiac surgeons and electrophysiologists,” said Mike Carrel, President and Chief Executive Officer of AtriCure. “This acquisition reinforces our commitment to the Afib market, product innovation and clinical science. We are excited to be able to offer this therapy to our combined customer base, further the CONVERGE IDE trial, and continue our mission to grow the market with new solutions.”

The transaction will combine two companies committed to solving the challenges associated with the most serious forms of Afib and is expected to:

• Expand AtriCure’s addressable market with the addition of a proven technology that treats an under-served population of patients as well as expand AtriCure’s customer account base
• Complement and expand AtriCure’s current product portfolio and minimally invasive (MIS) intellectual property portfolio
• Enhance AtriCure’s commitment to clinical science with the CONVERGE IDE clinical trial
• Accelerate and sustain AtriCure’s revenue growth rate
• Drive continued margin expansion and operating leverage opportunities

nContact, based in Morrisville, North Carolina, develops and markets a portfolio of innovative devices that provide for less invasive ablation options for the treatment of cardiac arrhythmias. The company’s technology is used in the Convergent procedure, a multi-disciplinary therapy in which a closed-chest surgical epicardial ablation is performed, and then complemented by an endocardial catheter ablation performed by an electrophysiologist. nContact is currently conducting the CONVERGE IDE clinical trial, the first head-to-head study to evaluate the Convergent procedure versus catheter ablation in patients with persistent Afib. In addition to the ongoing IDE trial, individual center results have been published in numerous peer reviewed papers.

Subject to customary closing conditions, the transaction is expected to close in the next several weeks. AtriCure shareholder approval is not required.

Financial Impact

AtriCure expects that the transaction will be accretive to its revenue growth rate going forward. As a result of the transaction, AtriCure expects to increase sales and marketing expenditures as well as clinical trial expenditures in order to accelerate efforts in those areas. The company expects the transaction to be dilutive to EBITDA through 2017 and accretive in 2018 and beyond. nContact had 2014 revenues of $8.2 million and is growing approximately 25% this year.

Preliminary Results for the Third Quarter 2015

Preliminary revenue for the third quarter of 2015 is expected to be approximately $31.6 million, reflecting constant currency growth of approximately 21.2% over the third quarter of 2014. Based on this preliminary estimate, revenue from U.S. customers is expected to be $24.7 million, reflecting growth of 23.1%, and revenue from international customers is expected to be $6.9 million, reflecting growth of 15.5% on a constant currency basis. Preliminary revenue for the nine months ending September 30, 2015 is expected to be $94 million, reflecting year-over-year constant currency growth of 23.9% over the nine months ending September 30, 2014.

“We are pleased to report preliminary third quarter results, which reflect strong and sustained growth through the first nine months of the year. Our U.S. sales continue to perform extremely well, and while international sales continue to be impacted by the weak Euro and softness in certain Eastern European markets, we remain excited about our prospects for continued growth going forward,” said Mr. Carrel. “In addition, with this acquisition and the success we have seen in our core business, we are confident that we can sustain organic revenue growth of approximately 18% through the end of the decade. This is up from the 15% long term growth expectations we have previously communicated.”

These preliminary, unaudited financial results for the third quarter of 2015 are based on current expectations and are subject to quarter-end closing adjustments; actual results may differ.

2015 Outlook

The company is narrowing its expectations for 2015 revenue to the range of $128 million to $129 million, which represents an increase of 19% to 20% over 2014 (21% to 23% on a constant currency basis), excluding the impact of this transaction. The company expects nContact product sales of approximately $1.5 million for the remainder of 2015.

Management projects adjusted EBITDA, a non-GAAP measure, to be a loss in the range of $10 million to $12 million for 2015, including the impact of the transaction. This compares to previous expectations of 2015 adjusted EBITDA to be a loss in the range of $7 million to $8 million. The difference between the projected Adjusted EBITDA amount, a non-GAAP metric, and net loss, the most directly comparable financial measure, is primarily driven by depreciation, amortization, share-based compensation, and other minor non-cash items.

2016 Outlook

For 2016, AtriCure projects consolidated revenue growth of 25%, which includes the expectation for approximately 18% organic growth. For 2016, adjusted EBITDA loss is expected to increase due to acquisition and integration costs resulting from the nContact transaction, with the impact slowing in 2017. The company expects to be adjusted EBITDA positive for full year 2018.

Conference Call

AtriCure will host a conference call at 8:30 a.m. Eastern Time on Monday, October 5th to discuss the transaction. A live webcast of the conference call will be available online on the Investor page of AtriCure’s corporate website at www.atricure.com. You may also access this call through an operator by calling 855-307-9214 for domestic callers and 330-863-3275 for international callers, using participant passcode 54265701.

The webcast will be available on AtriCure’s website and a telephonic replay of the call will be available through October 13, 2015. The replay dial-in numbers are 855-859-2056 for domestic callers and 404-537-3406 for international callers. The participant passcode is 54265701.

Advisors

Piper Jaffray & Co. is acting as exclusive financial advisor, and Keating Muething & Klekamp PLL is serving as legal counsel, to AtriCure. Perella Weinberg Partners LP is acting as exclusive financial advisor, and Wyrick Robbins Yates & Ponton LLP is serving as legal counsel, to nContact.

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