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2022 Delaware 34-1940305 or other jurisdiction of Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $.001 par value ATRC NASDAQ Large Accelerated Filer x Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller reporting company ¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: ¨ Class Outstanding at August Common Stock, $.001 par value June 30, December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 67,619 $ 41,944 Short-term investments 92,246 202,274 Accounts receivable, less allowance for credit losses of $1,121 and $1,096 33,835 23,146 Inventories 37,608 35,026 Prepaid and other current assets 4,636 4,347 Total current assets 235,944 306,737 Property and equipment, net 30,175 28,290 Operating lease right-of-use assets 2,683 1,914 Long-term investments 69,770 14,178 Intangible assets, net 127,234 128,199 Goodwill 234,781 234,781 Other noncurrent assets 488 440 Total Assets $ 701,075 $ 714,539 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 16,496 $ 12,736 Accrued liabilities 32,444 27,984 Other current liabilities and current maturities of debt and leases 18,493 8,417 Total current liabilities 67,433 49,137 Long-term debt 43,669 53,435 Finance lease liabilities 10,540 10,969 Operating lease liabilities 1,833 1,180 Contingent consideration and other noncurrent liabilities 192,517 187,424 Total Liabilities 315,992 302,145 Commitments and contingencies (Note 7) Stockholders’ Equity: Common stock, $0.001 par value, 90,000 shares authorized and 45,881 and 45,346 issued and outstanding 46 45 Additional paid-in capital 748,644 742,389 Accumulated other comprehensive (loss) income (87) 312 Accumulated deficit (363,520) (330,352) Total Stockholders’ Equity 385,083 412,394 Total Liabilities and Stockholders’ Equity $ 701,075 $ 714,539 See accompanying notes to condensed consolidated financial statements. ATRICURE, INC. AND SUBSIDIARIES Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Revenue $ 71,376 $ 40,824 $ 130,651 $ 94,049 Cost of revenue 17,298 13,170 32,033 27,511 Gross profit 54,078 27,654 98,618 66,538 Operating expenses: Research and development expenses 12,197 10,036 23,414 21,623 Selling, general and administrative expenses 56,958 24,903 106,166 67,654 Total operating expenses 69,155 34,939 129,580 89,277 Loss from operations (15,077) (7,285) (30,962) (22,739) Other income (expense): Interest expense (1,197) (1,231) (2,386) (2,459) Interest income 103 263 237 668 Other (14) 29 40 (94) Loss before income tax expense (16,185) (8,224) (33,071) (24,624) Income tax expense 66 12 97 20 Net loss $ (16,251) $ (8,236) $ (33,168) $ (24,644) Basic and diluted net loss per share $ (0.36) $ (0.20) $ (0.74) $ (0.61) Weighted average shares outstanding—basic and diluted 45,035 41,649 44,834 40,160 Comprehensive loss: Unrealized (loss) gain on investments $ (132) $ 174 $ (163) $ 111 Foreign currency translation adjustment 63 101 (236) (49) Other comprehensive (loss) income (69) 275 (399) 62 Net loss (16,251) (8,236) (33,168) (24,644) Comprehensive loss, net of tax $ (16,320) $ (7,961) $ (33,567) $ (24,582) ATRICURE, INC. AND SUBSIDIARIES Three-Month Period Ended June 30, 2020 Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders’ Shares Amount Capital Deficit Income (Loss) Equity Balance—March 31, 2020 40,077 $ 40 $ 526,302 $ (298,605) $ (371) $ 227,366 Issuance of common stock through public offering 4,574 5 188,953 — — 188,958 Impact of equity compensation plans 288 — 8,499 — — 8,499 Other comprehensive income — — — — 275 275 Net loss — — — (8,236) — (8,236) Balance—June 30, 2020 44,939 $ 45 $ 723,754 $ (306,841) $ (96) $ 416,862 Three-Month Period Ended June 30, 2021 Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders’ Shares Amount Capital Deficit Income (Loss) Equity Balance—March 31, 2021 45,623 $ 46 $ 738,484 $ (347,269) $ (18) $ 391,243 Impact of equity compensation plans 258 — 10,160 — — 10,160 Other comprehensive loss — — — — (69) (69) Net loss — — — (16,251) — (16,251) Balance—June 30, 2021 45,881 $ 46 $ 748,644 $ (363,520) $ (87) $ 385,083 Six-Month Period Ended June 30, 2020 Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders’ Shares Amount Capital Deficit Income (Loss) Equity Balance—December 31, 2019 39,655 $ 40 $ 529,658 $ (282,197) $ (158) $ 247,343 Issuance of common stock through public offering 4,574 5 188,953 — — 188,958 Impact of equity compensation plans 710 — 5,143 — — 5,143 Other comprehensive income — — — — 62 62 Net loss — — — (24,644) — (24,644) Balance—June 30, 2020 44,939 $ 45 $ 723,754 $ (306,841) $ (96) $ 416,862 Six-Month Period Ended June 30, 2021 Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders’ Shares Amount Capital Deficit Income (Loss) Equity Balance—December 31, 2020 45,346 $ 45 $ 742,389 $ (330,352) $ 312 $ 412,394 Impact of equity compensation plans 535 1 6,255 — — 6,256 Other comprehensive loss — — — — (399) (399) Net loss — — — (33,168) — (33,168) Balance—June 30, 2021 45,881 $ 46 $ 748,644 $ (363,520) $ (87) $ 385,083 See accompanying notes to condensed consolidated financial statements. ATRICURE, INC. AND SUBSIDIARIES Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net loss $ (33,168) $ (24,644) Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation expense 13,745 10,577 Depreciation 3,815 3,925 Amortization of intangible assets 965 977 Amortization of deferred financing costs 249 282 Loss on disposal of property and equipment 52 97 Amortization of investments 1,206 127 Change in value of contingent consideration 5,100 (5,046) Other non-cash adjustments to income 472 656 Changes in operating assets and liabilities: Accounts receivable (10,799) 5,127 Inventories (2,707) (3,402) Other current assets (308) (7) Accounts payable 3,571 (1,970) Accrued liabilities 4,529 (14,841) Other noncurrent assets and liabilities (571) 507 Net cash used in operating activities (13,849) (27,635) Cash flows from investing activities: Purchases of available-for-sale securities (94,817) (127,069) Sales and maturities of available-for-sale securities 147,884 33,732 Purchases of property and equipment (5,539) (2,944) Proceeds from capital grant — 800 Net cash provided by (used in) investing activities 47,528 (95,481) Cash flows from financing activities: Proceeds from sale of stock, net of offering costs of $0 and $218 — 188,958 Payments on debt and leases (399) (280) Payments of debt fees — (4) Proceeds from stock option exercises and employee stock purchase plan 9,010 6,889 Shares repurchased for payment of taxes on stock awards (16,500) (12,323) Net cash (used in) provided by financing activities (7,889) 183,240 Effect of exchange rate changes on cash and cash equivalents (115) (85) Net increase in cash and cash equivalents 25,675 60,039 Cash and cash equivalents—beginning of period 41,944 28,483 Cash and cash equivalents—end of period $ 67,619 $ 88,522 Supplemental cash flow information: Cash paid for interest $ 2,147 $ 2,195 Cash paid for income taxes, net of refunds 128 282 Non-cash investing and financing activities: Accrued purchases of property and equipment 529 525 June 30, December 31, 2021 2020 Raw materials $ 12,381 $ 11,966 Work in process 3,599 2,424 Finished goods 21,628 20,636 Inventories $ 37,608 $ 35,026 Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Total accumulated other comprehensive income (loss) at beginning of period $ (18) $ (371) $ 312 $ (158) Unrealized Gains (Losses) on Investments Balance at beginning of period $ 23 $ 37 $ 54 $ 100 Other comprehensive (loss) income before reclassifications (132) 174 (163) 92 Amounts reclassified from accumulated other comprehensive income to other income (expense) — — — 19 Balance at end of period $ (109) $ 211 $ (109) $ 211 Foreign Currency Translation Adjustment Balance at beginning of period $ (41) $ (408) $ 258 $ (258) Other comprehensive income (loss) before reclassifications 36 109 (262) (113) Amounts reclassified from accumulated other comprehensive income (loss) to other income (expense) 27 (8) 26 64 Balance at end of period $ 22 $ (307) $ 22 $ (307) Total accumulated other comprehensive loss at end of period $ (87) $ (96) $ (87) $ (96) Use of Estimates—The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Estimates are based on historical experience, where applicable, and other assumptions believed to be reasonable by management. Actual results could differ from those estimates. 2022: Quoted Prices in Significant Other Significant Other Total Assets: Money market funds $ — $ 64,732 $ — $ 64,732 Commercial paper — 17,985 — 17,985 Government and agency obligations 20,023 — — 20,023 Corporate bonds — 94,674 — 94,674 Asset-backed securities — 29,334 — 29,334 Total assets $ 20,023 $ 206,725 $ — $ 226,748 Liabilities: Contingent consideration — — 189,900 189,900 Total liabilities $ — $ — $ 189,900 $ 189,900 The following table represents the Company’s fair value hierarchy for its financial assets 2021: Quoted Prices in Significant Other Significant Other Total Assets: Money market funds $ — $ 38,452 $ — $ 38,452 Commercial paper — 76,914 — 76,914 Government and agency obligations 45,399 — — 45,399 Corporate bonds — 73,730 — 73,730 Asset-backed securities — 20,409 — 20,409 Total assets $ 45,399 $ 209,505 $ — $ 254,904 Liabilities: Contingent consideration $ — $ — $ 184,800 184,800 Total liabilities $ — $ — $ 184,800 $ 184,800 The Company Weighted average Fair Value Valuation Technique Input Range by relative fair value Probability of payment 70.00 - 85.00 % 80.62 % Regulatory & Reimbursement milestones $ 189,900 Probability-weighted scenario approach Projected year of payment 2022 - 2025 n/a Discount rate 5.56 % 5.56 % following: Six Months Ended Twelve Months Ended June 30, 2021 December 31, 2020 Beginning Balance $ 184,800 $ 185,157 Amounts acquired — — Changes in fair value included in earnings 5,100 (357) Ending Balance $ 189,900 $ 184,800 4. June 30, 2021 December 31, 2020 Estimated Useful Life Cost Accumulated Amortization Cost Accumulated Amortization Technology 5-15 years $ 55,712 $ 10,778 $ 11,691 $ 9,813 IPR&D 82,300 — 126,321 — Total $ 138,012 $ 10,778 $ 138,012 $ 9,813 2021. Future amortization expense is projected as follows: 2021 (excluding the six months ended June 30, 2021) $ 1,943 2022 3,653 2023 2,953 2024 2,953 2025 2,953 2026 and thereafter 30,479 Total $ 44,934 June 30, December 31, 2021 2020 Accrued compensation and employee-related expenses $ 27,036 $ 17,730 Sales returns and allowances 2,579 1,889 Accrued taxes and value-added taxes payable 1,616 1,256 Accrued royalties 827 703 Other accrued liabilities 362 406 Accrued legal settlement 24 6,000 Total $ 32,444 $ 27,984 2021 (excluding the six months ended June 30, 2021) $ 6,667 2022 20,000 2023 20,000 2024 13,333 Total long-term debt, of which $16,667 is current and $43,333 is noncurrent $ 60,000 June 30, 2021 December 31, 2020 Operating Leases Weighted average remaining lease term (years) 3.5 3.2 Weighted average discount rate 5.61 % 5.68 % Finance leases Weighted average remaining lease term (years) 9.1 9.7 Weighted average discount rate 6.91 % 6.91 % 2022. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Operating lease cost $ 203 $ 340 $ 481 $ 690 Finance lease cost: Amortization of right-of-use assets 242 263 484 526 Interest on lease liabilities 200 212 403 428 Total finance lease cost $ 442 $ 475 $ 887 $ 954 Six Months Ended Six Months Ended June 30, 2021 June 30, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 494 $ 666 Operating cash flows from finance leases 403 428 Financing cash flows from finance leases 399 280 Right-of-use assets obtained in exchange for lease obligations: Operating Leases 1,221 1,691 Finance Leases — — Early termination of operating lease — 2,473 June 30, 2021 December 31, 2020 Operating Leases Operating lease right-of-use assets $ 2,683 $ 1,914 Other current liabilities and current maturities of debt and leases 973 927 Operating lease liabilities 1,833 1,180 Total operating lease liabilities $ 2,806 2,107 Finance Leases Property and equipment, at cost $ 14,650 14,659 Accumulated depreciation (5,570) (5,247) Property and equipment, net $ 9,080 9,412 Other current liabilities and current maturities of debt and leases $ 853 823 Finance lease liabilities 10,540 10,969 Total finance lease liabilities $ 11,393 11,792 Operating Leases Finance Leases 2021 (excluding the six months ended June 30, 2021) $ 415 $ 806 2022 895 1,629 2023 688 1,652 2024 615 1,674 2025 354 1,625 2026 and thereafter — 8,172 Total payments $ 2,967 $ 15,558 Less imputed interest (161) (4,165) Total $ 2,806 $ 11,393 Legal. The Company may, from time to time, become a party to legal proceedings. Such matters are subject to many uncertainties and to outcomes of which the financial impacts are not predictable with assurance and that may not be known for extended periods of time. A liability is established once management determines a loss is probable and an amount allowance. Employee Stock Purchase Plan Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Cost of revenue $ 598 $ 351 $ 1,017 $ 638 Research and development expenses 1,083 1,017 2,020 1,672 Selling, general and administrative expenses 5,460 4,825 10,708 8,267 Total $ 7,141 $ 6,193 $ 13,745 $ 10,577 Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 United States $ 60,070 $ 33,664 $ 110,379 $ 77,137 Europe 7,015 4,316 12,781 10,261 Asia 4,088 2,634 6,961 6,171 Other international 203 210 530 480 Total international 11,306 7,160 20,272 16,912 Total revenue $ 71,376 $ 40,824 $ 130,651 $ 94,049 Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Open ablation $ 24,839 $ 15,550 $ 45,914 $ 34,768 Minimally invasive ablation 9,702 4,755 18,087 11,316 Appendage management 25,156 13,021 45,743 30,440 Total ablation and appendage management 59,697 33,326 109,744 76,524 Valve tools 373 338 635 613 Total United States $ 60,070 $ 33,664 $ 110,379 $ 77,137 12. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Open ablation $ 5,513 $ 3,744 $ 9,930 $ 8,859 Minimally invasive ablation 1,575 1,109 2,849 2,654 Appendage management 4,194 2,271 7,452 5,333 Total ablation and appendage management 11,282 7,124 20,231 16,846 Valve tools 24 36 41 66 Total international $ 11,306 $ 7,160 $ 20,272 $ 16,912 tax: We sell our products to medical centers through our direct sales force in the United States and in certain international markets, such as Germany, France, the United Kingdom, Australian Dollars. new COVID-19 variants emerge. Despite the challenging environment resulting from the pandemic, Results of Operations 2021 Three Months Ended June 30, 2021 2020 Amount % of Amount % of Revenue $ 71,376 100.0 % $ 40,824 100.0 % Cost of revenue 17,298 24.2 % 13,170 32.3 % Gross profit 54,078 75.8 % 27,654 67.7 % Operating expenses: Research and development expenses 12,197 17.1 % 10,036 24.6 % Selling, general and administrative expenses 56,958 79.8 % 24,903 61.0 % Total operating expenses 69,155 96.9 % 34,939 85.6 % Loss from operations (15,077) (21.1) % (7,285) (17.8) % Other income (expense) (1,108) (1.6) % (939) (2.3) % Loss before income tax expense (16,185) (22.7) % (8,224) (20.1) % Income tax expense 66 0.1 % 12 0.0 % Net loss $ (16,251) (22.8) % $ (8,236) (20.2) % Six months ended June 30, 2021 Six Months Ended June 30, 2021 2020 Amount % of Amount % of Revenue $ 130,651 100.0 % $ 94,049 100.0 % Cost of revenue 32,033 24.5 % 27,511 29.3 % Gross profit 98,618 75.5 % 66,538 70.7 % Operating expenses: Research and development expenses 23,414 17.9 % 21,623 23.0 % Selling, general and administrative expenses 106,166 81.3 % 67,654 71.9 % Total operating expenses 129,580 99.2 % 89,277 94.9 % Loss from operations (30,962) (23.7) % (22,739) (24.2) % Other income (expense): (2,109) (1.6) % (1,885) (2.0) % Loss before income tax expense (33,071) (25.3) % (24,624) (26.2) % Income tax expense 97 0.1 % 20 0.0 % Net loss $ (33,168) (25.4) % $ (24,644) (26.2) % 2022. Cash flows provided by investing activities. 2022. different assumptions or conditions. Our Annual Report on Form 10-K for the fiscal year ended December 31, condition and/or operating results. There have been no material changes with respect to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, Item 6. Exhibits Exhibit No. Description 31.1 31.2 32.1 32.2 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) SIGNATURES Date: August /s/ Michael H. Carrel Michael H. Carrel Date: August /s/ Angela L. Wirick Angela L. Wirick_____________________________________________2021_______________________________________________________________________________________________________________________________________YESYes x NONo ¨YESYes x NONo ¨Emerging growth company ¨ Emerging growth company¨3, 202145,882,449PARTPART I. FINANCIAL INFORMATIONItemCONDENSED June 30,
2022December 31,
2021Assets Current assets: Cash and cash equivalents $ 54,556 $ 43,654 Short-term investments 63,898 75,436 Accounts receivable, less allowance for credit losses of $1,096 41,488 33,021 Inventories 41,292 38,964 Prepaid and other current assets 4,932 5,001 Total current assets 206,166 196,076 Long-term investments 64,295 104,338 Property and equipment, net 36,053 31,409 Operating lease right-of-use assets 4,241 4,761 Intangible assets, net 41,049 42,992 Goodwill 234,781 234,781 Other noncurrent assets 804 955 Total Assets $ 587,389 $ 615,312 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 23,721 $ 18,597 Accrued liabilities 30,775 36,092 Current maturities of leases 1,820 1,756 Total current liabilities 56,316 56,445 Long-term debt 59,954 59,741 Finance lease liabilities 9,603 10,082 Operating lease liabilities 3,591 4,068 Other noncurrent liabilities 1,215 1,220 Total Liabilities 130,679 131,556 Commitments and contingencies (Note 8) 0 0 Stockholders’ Equity: Common stock, $0.001 par value, 90,000 shares authorized and 46,423 and 46,016 issued and outstanding 46 46 Additional paid-in capital 771,185 764,811 Accumulated other comprehensive loss (4,344) (948) Accumulated deficit (310,177) (280,153) Total Stockholders’ Equity 456,710 483,756 Total Liabilities and Stockholders’ Equity $ 587,389 $ 615,312
CONSOLIDATEDCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSThree Months Ended
June 30,Six Months Ended
June 30,2022 2021 2022 2021 Revenue $ 84,529 $ 71,376 $ 159,105 $ 130,651 Cost of revenue 21,010 $ 17,298 39,991 32,033 Gross profit 63,519 $ 54,078 119,114 98,618 Operating expenses: Research and development expenses 14,791 12,197 28,420 23,414 Selling, general and administrative expenses 62,388 56,958 118,504 106,166 Total operating expenses 77,179 69,155 146,924 129,580 Loss from operations (13,660) (15,077) (27,810) (30,962) Other income (expense): Interest expense (1,101) (1,197) (2,101) (2,386) Interest income 76 103 192 237 Other (111) (14) (204) 40 Loss before income tax expense (14,796) (16,185) (29,923) (33,071) Income tax expense 45 66 101 97 Net loss $ (14,841) $ (16,251) $ (30,024) $ (33,168) Basic and diluted net loss per share $ (0.32) $ (0.36) $ (0.66) $ (0.74) Weighted average shares outstanding—basic and diluted 45,692 45,035 45,610 44,834 Comprehensive loss: Unrealized loss on investments Unrealized loss on investments $ (449) $ (132) $ (2,788) $ (163) Foreign currency translation adjustment (430) 63 (608) (236) Other comprehensive loss Other comprehensive loss (879) (69) (3,396) (399) Net loss (14,841) (16,251) (30,024) (33,168) Comprehensive loss, net of tax $ (15,720) $ (16,320) $ (33,420) $ (33,567)
Three-Month Period Ended June 30, 2021 Accumulated
DeficitBalance—March 31, 2021 45,623 $ 46 $ 738,484 $ (347,269) $ (18) $ 391,243 Impact of equity compensation plans 258 — 10,160 — — 10,160 Other comprehensive loss — — — — (69) (69) Net loss — — — (16,251) — (16,251) Balance—June 30, 2021 45,881 $ 46 $ 748,644 $ (363,520) $ (87) $ 385,083 Three-Month Period Ended June 30, 2022 Accumulated
DeficitBalance—March 31, 2022 Balance—March 31, 2022 46,268 $ 46 $ 761,580 $ (295,336) $ (3,465) $ 462,825 Impact of equity compensation plans Impact of equity compensation plans 155 — 9,605 — — 9,605 Other comprehensive loss Other comprehensive loss — — — — (879) (879) Net loss Net loss — — — (14,841) — (14,841) Balance—June 30, 2022 Balance—June 30, 2022 46,423 $ 46 $ 771,185 $ (310,177) $ (4,344) $ 456,710 Six-Month Period Ended June 30, 2021 Accumulated
Deficit Balance—December 31, 2020 Balance—December 31, 2020 45,346 $ 45 $ 742,389 $ (330,352) $ 312 $ 412,394 Impact of equity compensation plans Impact of equity compensation plans 535 1 6,255 — — 6,256 Other comprehensive loss Other comprehensive loss — — — — (399) (399) Net loss Net loss — — — (33,168) — (33,168) Balance—June 30, 2021 Balance—June 30, 2021 45,881 $ 46 $ 748,644 $ (363,520) $ (87) $ 385,083 Six-Month Period Ended June 30, 2022 Accumulated
Deficit Balance—December 31, 2021 Balance—December 31, 2021 46,016 $ 46 $ 764,811 $ (280,153) $ (948) $ 483,756 Impact of equity compensation plans Impact of equity compensation plans 407 — 6,374 — — 6,374 Other comprehensive loss Other comprehensive loss — — — — (3,396) (3,396) Net loss Net loss — — — (30,024) — (30,024) Balance—June 30, 2022 Balance—June 30, 2022 46,423 $ 46 $ 771,185 $ (310,177) $ (4,344) $ 456,710 STATEMENTSSTATEMENTS OF CASH FLOWSSix Months Ended
June 30,2022 2021 Cash flows from operating activities: Net loss $ (30,024) $ (33,168) Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation expense 14,573 13,745 Depreciation 3,861 3,815 Amortization of intangible assets 1,943 965 Amortization of deferred financing costs 255 249 Loss on disposal of property and equipment 25 52 Amortization of investments 983 1,206 Change in fair value of contingent consideration Change in fair value of contingent consideration — 5,100 Other non-cash adjustments Other non-cash adjustments 654 472 Changes in operating assets and liabilities: Accounts receivable (8,757) (10,799) Inventories (2,727) (2,707) Other current assets 32 (308) Accounts payable 4,240 3,571 Accrued liabilities (5,136) 4,529 Other noncurrent assets and liabilities (325) (571) Net cash used in operating activities (20,403) (13,849) Cash flows from investing activities: Purchases of available-for-sale securities (3,941) (94,817) Sales and maturities of available-for-sale securities 51,749 147,884 Purchases of property and equipment (7,565) (5,539) Net cash provided by investing activities Net cash provided by investing activities 40,243 47,528 Cash flows from financing activities: Payments on leases Payments on leases (437) (399) Proceeds from stock option exercises and employee stock purchase plan 3,374 9,010 Shares repurchased for payment of taxes on stock awards (11,573) (16,500) Net cash used in financing activities Net cash used in financing activities (8,636) (7,889) Effect of exchange rate changes on cash and cash equivalents (302) (115) Net increase in cash and cash equivalents 10,902 25,675 Cash and cash equivalents—beginning of period 43,654 41,944 Cash and cash equivalents—end of period $ 54,556 $ 67,619 Supplemental cash flow information: Cash paid for interest $ 1,797 $ 2,147 Cash paid for income taxes, net of refunds 132 128 Non-cash investing and financing activities: Accrued purchases of property and equipment 2,562 529 DESCRIPTIONDESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES and, left atrial appendage (LAA) management and post-operative pain management, and sells its products to medical centers globally through its direct sales force and distributors.Condensed Consolidated Financial Statementsinterim financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20202021 filed with the SEC. All intercompany accounts and transactionsThere have been eliminated in consolidation.Cash and Cash Equivalents—The Company considers highly liquid investments with maturities of three months or less at the date of purchase as cash equivalents. Cash equivalents include demand deposits, money market funds and repurchase agreements on deposit with financial institutions.Investments—The Company invests primarily in government and agency obligations, corporate bonds, commercial paper and asset-backed securities and classifies all investments as available-for-sale. Investments maturing in less than one year are classified as short-term investments. Investments are recorded at fair value, with unrealized gains and losses recorded as accumulated other comprehensive income (loss). Gains and losses are recognized using the specific identification method when securities are sold and are included in interest income.Revenue Recognition—The Company recognizes revenue when control of promised goods is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. This generally occurs upon shipment of goods to customers. See Note 8 for further discussion on revenue.Sales Returns and Allowances—The Company maintains a provision for potential returns of defective or damaged products and invoice adjustments. The Company adjusts the provision using the expected value method based on historical experience. Increases to the provision reduce revenue, and the provision is included in accrued liabilities.Allowance for Credit Losses on Accounts Receivable—The Company evaluates the expected credit losses of accounts receivable, considering historical credit losses, current customer-specific information and other relevant factors when determining the allowance. An increase to the allowance for credit losses results in a corresponding increase in selling, general and administrative expenses. The Company charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs has not been significant.Inventories—Inventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method (FIFO) and consist of raw materials, work in process and finished goods. The Company’s industry is characterized by rapid product development and frequent new product introductions. Uncertain timing of regulatory approvals, variability in product launch strategies and variation in product use all impact inventory reserves for excess, obsolete and expired products. An increase to inventory reserves results in a corresponding increase in cost of revenue. Inventories are written off against the reserve when they are physically disposed.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, except per share amounts)(Unaudited)Inventories consist of the following:Property and Equipment—Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of assets. The estimated useful life by major asset category is the following:Estimated Useful LifeGenerators and related equipment1-3 yearsBuilding and building under finance lease15 - 20 yearsComputers, software and office equipment3 yearsMachinery and equipment3 - 7 yearsFurniture and fixtures3 - 7 yearsLeasehold improvements5 - 15 yearsEquipment under finance leases3 - 5 yearsThe Company assesses the useful lives of property and equipment at least annually and retires assets no longer in use. Maintenance and repair costs are expensed as incurred. The Company reviews property and equipment for impairment at least annually using its best estimates based on reasonable and supportable assumptions and expected future cash flows. Property and equipment impairments have not been significant.The Company’s radiofrequency (RF) and cryo generators are generally placed with customers that use the Company’s disposable products. The estimated useful lives of generators are based on anticipated usage by customers and may change in future periods with changes in usage or introduction of new technology. Depreciation of generators and related equipment, which is included in cost of revenue, was $601 and $635 for the three months ended June 30, 2021 and 2020 and $1,203 and $1,285Company's significant accounting policies for the six months ended June 30, 2021 and 2020. As of June 30, 2021 and2022 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, the net carrying value of generators and related equipment included in net property and equipment was $3,542 and $3,410.Leases— The Company leases office, manufacturing and warehouse facilities and computer equipment under leases that qualify as either financing or operating leases, as determined at the inception of the lease arrangement. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease assets and liabilities are measured and recorded at the commencement date based on the present value of lease payments over the lease term.Lease assets and liabilities exclude lease incentives and include options to extend or terminate when it is reasonably certain the Company will exercise that option. The Company uses the implicit rate when readily determinable; however, most of the leases do not provide an implicit rate and therefore, the Company uses the incremental borrowing rate based on the information available at measurement. The Company applies the short-term lease recognition exemption, recognizing lease payments in profit or loss, for leases that have a lease term of 12 months or less at commencement and do not include an option to extend the lease whose exercise is reasonably certain. For real estate and equipment leases, the Company accounts for the lease and non-lease components as a single lease component. Additionally, the portfolio approach is applied for the operating leases based on the terms of the underlying leases.Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities, while finance leases are included in property and equipment and finance lease liabilities. The short-term portions of both lease liabilities are included in other current liabilities and current maturities of debt and leases. Operating lease expense is recognized on a straight-line basis over the lease term. See Note 6 for further discussion.Intangible Assets—Intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated periods benefited. Intangible assets include In Process Research and Development (IPR&D), representing the value of technology acquired in business combinations that has not yet reached technological feasibility. The primary basis for determining technological feasibility is obtaining specific regulatory approvals. IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonment of the IPR&D project. Upon completion of the development project, IPR&D will be amortized over its estimatedATRICURE, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, except per share amounts)(Unaudited)useful life. If the IPR&D project is abandoned or regulatory approvals are not obtained, the Company may have a full or partial impairment charge related to the IPR&D, calculated as the excess carrying value of the IPR&D asset over the estimated fair value.As of June 30, 2021 the IPR&D asset represents an estimate of the fair value of the pre-market approval (PMA) that could result from the aMAZE™ IDE clinical trial. See Note 12 for further discussion. Through April 2021, the IPR&D asset also included an estimate of the fair value of the PMA that could result from the CONVERGE IDE clinical trial. The Company received PMA approval for CONVERGE on April 28, 2021 and began amortizing the technology asset over an estimated fifteen year life.The Company reviews intangible assets at least annually for impairment using its best estimates based on reasonable and supportable assumptions and projections. The Company performs impairment testing annually on October 1 or more often if impairment indicators are present.Goodwill—Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. The Company’s goodwill is accounted for in a single reporting unit representing the Company as a whole. The Company performs impairment testing annually on October 1 or more often if impairment indicators are present.Contingent Consideration and Other Noncurrent Liabilities—This balance consists of contingent consideration from business combinations, as well as deferred payroll taxes as a result of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), asset retirement obligations and other contractual obligations. The contingent consideration balance is included in noncurrent liabilities as settlement is expected to be made primarily in shares of the Company’s common stock pursuant to the SentreHEART, Inc. (SentreHEART) merger agreement.Other Income (Expense)—Other income (expense) consists primarily of foreign currency transaction gains and losses generated by settlements of intercompany balances denominated in Euros and customer invoices transacted in British Pounds.Taxes—Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities from a change in tax rates is recognized in the period that includes the enactment date.The Company’s estimate of the valuation allowance for deferred income tax assets requires significant estimates and judgments about future operating results. Deferred income tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that the deferred income tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. The Company evaluates deferred income tax assets on an annual basis to determine if valuation allowances are required. Deferred income tax assets are realized by having sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable. The sources of taxable income that may be available to realize the benefit of deferred income tax assets are future taxable income, future reversals of existing taxable temporary differences, carryforwards and tax planning strategies that are both prudent and feasible. In evaluating the need for a valuation allowance, the existence of cumulative losses in recent years is significant objectively verifiable negative evidence that must be overcome by objectively verifiable positive evidence to avoid the need to record a valuation allowance. The Company has recorded a full valuation allowance against substantially all net deferred income tax assets as it is more-likely-than-not that the benefit of the deferred income tax assets will not be recognized in future periods. The Company has not reclassified income tax effects of the Tax Cuts and Jobs Act within accumulated other comprehensive income (loss) to retained earnings due to its full valuation allowance.Net Loss Per Share—Basic and diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Since the Company has experienced net losses for all periods presented, net loss per share excludes the effect of stock options, restricted stock shares, restricted stock units and performance award shares totaling 1,807 and 2,770 as of June 30, 2021 and 2020 because they are anti-dilutive. Therefore, the number of shares calculated for basic net loss per share is also used for the diluted net loss per share calculation.Comprehensive Loss and Accumulated Other Comprehensive Income (Loss)—In addition to net losses, the comprehensive loss includes foreign currency translation adjustments and unrealized gains (losses) on investments.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, except per share amounts)(Unaudited)Accumulated other comprehensive income (loss) consisted of the following, net of tax:Research and Development Costs—Research and development costs are expensed as incurred. These costs include compensation and other internal and external costs associatedfiled with the development of and research related to new and existing products or concepts, preclinical studies, clinical trials and related regulatory activities, as well as amortization of technology assets.Advertising Costs—The Company expenses advertising costs as incurred. Advertising costs were not significant during the three and six months ended June 30, 2021 and 2020.Share-Based Compensation—The Company records share-based compensation for all share-based payment awards, including stock options, restricted stock awards, restricted stock units, performance shares (PSAs) and stock purchases related to an employee stock purchase plan, based on estimated fair values. The value of the portion of an award that is ultimately expected to vest, net of estimated forfeitures, is recognized as expense over the service period. The Company estimates forfeitures at the time of grant and revises them, as necessary, in subsequent periods as actual forfeitures differ from those estimates. The Company recognized share-based compensation expense of $7,141 and $6,193 for the three months ended June 30, 2021 and 2020 and $13,745 and $10,577 for the six months ended June 30, 2021 and 2020.The Company estimates the fair value of time-based options on the date of grant using the Black-Scholes option-pricing model (Black-Scholes model). The Company’s determination of the fair value is affected by the Company’s stock price, as well as assumptions regarding several subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. The Company estimates the fair value of restricted stock awards and restricted stock units based upon the grant date closing market price of the Company’s common stock.The Company estimates the fair value of PSAs with a performance condition based on the closing stock price on the date of grant assuming the performance goal will be achieved and may adjust expense over the performance period based on changes to estimates of performance target achievement. If such goals are not met or service is not rendered for the requisite service period, no compensation cost is recognized, and any recognized compensation cost will be reversed. For PSAs with a market condition, a Monte Carlo simulation is performed to estimate the fair value on the date of grant, and compensation cost is recognized over the requisite service period as the employee renders service, even if the market condition is not satisfied. The Company’s determination of the fair value is affected by the Company and the peer group’s stock price, as defined by the award agreement, at the beginning of the service period and grant date, the expected volatility of the Company and peer group’s stock price over the performance period and the correlation coefficient of the daily returns for the Company and peer group over the performance period.The Company also has an employee stock purchase plan (ESPP) which is available to all eligible employees as defined by the plan document. Under the ESPP, shares of the Company’s common stock may be purchased at a discount. The Company estimates the number of shares to be purchased under the ESPP at the beginning of each purchase period based upon the fair value of the stock at the beginning of the purchase period using the Black-Scholes model and records estimated compensation expense during the purchase period. Expense is adjusted at the time of stock purchase.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, except per share amounts)(Unaudited)three-levelsthree levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:•Level 1—Quoted prices in active markets for identical assets or liabilities.•Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.The Company classifies cash and investments in government and agency obligations, accounts receivable, short-term other assets, accounts payable and accrued liabilities as Level 1 within the fair value hierarchy. The carrying amounts of these assets and liabilities approximate their fair value due to their relatively short-term nature. Cash equivalents and investments in corporate bonds, commercial paper and asset-backed securities are classified as Level 2 within the fair value hierarchy. The fair value of fixed term debt is estimated by calculating the net present value of future debt payments at current market interest rates and is classified as Level 2. The book value of the Company’s fixed term debt approximates its fair value because the interest rate varies with market rates.and liabilities measured at fair value on a recurring basis as of June 30, 2021:
Active Markets for
Identical Assets
(Level 1)
Observable Inputs
(Level 2)
Unobservable
Inputs (Level 3)Quoted Prices in
Active Markets for
Identical Assets
(Level 1)Significant Other
Observable Inputs
(Level 2)Significant Other
Unobservable
Inputs (Level 3)Total Assets: Money market funds $ — $ 48,832 $ — $ 48,832 Commercial paper — 15,940 — 15,940 Government and agency obligations 31,735 — — 31,735 Corporate bonds — 66,789 — 66,789 Asset-backed securities — 13,729 — 13,729 Total assets $ 31,735 $ 145,290 $ — $ 177,025 2021.2022.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, except per share amounts)(Unaudited)and liabilities measured at fair value on a recurring basis as of December 31, 2020:
Active Markets for
Identical Assets
(Level 1)
Observable Inputs
(Level 2)
Unobservable
Inputs (Level 3)Quoted Prices in
Active Markets for
Identical Assets
(Level 1)Significant Other
Observable Inputs
(Level 2)Significant Other
Unobservable
Inputs (Level 3)Total Assets: Money market funds $ — $ 38,360 $ — $ 38,360 Commercial paper — 22,978 — 22,978 Government and agency obligations 32,690 — — 32,690 Corporate bonds — 95,845 — 95,845 Asset-backed securities — 28,261 — 28,261 Total assets $ 32,690 $ 185,444 $ — $ 218,134 See Note 12 for further discussion. As of December 31, 2020, the terms of the contingent consideration arrangements under the nContact merger agreement expired.measures contingent consideration liabilities using unobservable inputs by applyinghas assessed the probability-weighted scenario method, an income approach. Various key assumptions, such asprojected probability of payment during the probability and timing ofcontractual achievement of the agreed milestones, are significantperiods to the determination ofbe remote, resulting in no remaining fair value of contingent consideration arrangements and are not observable in the market, thus representing a Level 3 measurement within the fair value hierarchy.The recurring Level 3 fair value measurements of the contingent consideration liabilities include the following significant inputs as of June 30, 2021:Contingent consideration liabilities are periodically measured, with changes in the estimated fair value reflected in selling, general2022 and administrative expenses. Changes in the discount rate, projected time until payment and probability of payment may result in materially different fair value measurements. A decrease in the discount rate would result in a higher fair value measurement, while a decrease in the probability of payment would result in a lower fair value measurement. Movement in the forecasted timing of achievement to later in the milestone periods would cause a decrease in the fair value measurement. The fair valueDecember 31, 2021.SentreHEART contingent consideration was remeasured as of June 30, 2021 resulting in an increase in fair value due to accretion.The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration:June 30,
2022December 31,
2021Raw materials $ 14,235 $ 12,653 Work in process 2,742 2,064 Finished goods 24,315 24,247 Total $ 41,292 $ 38,964 3. INTANGIBLE ASSETS June 30, 2022 December 31, 2021 Estimated Useful Life Cost Accumulated
AmortizationCost Accumulated
AmortizationTechnology 10 - 15 years $ 55,712 $ 14,663 $ 55,712 $ 12,720 Due to the PMA approval of the EPi-Sense® System in the second quarter of 2021, the related IPR&D asset with an estimated value of $44,021 was determined to have a finite useful life. The intangible asset is now included in technology assets and is amortized over an estimated fifteen year life.with definite lives, which excludes the IPR&D assets, was $727$971 and $488$727 for the three months ended June 30, 2022 and 2021 and 2020$1,943 and $965 and $977 for the six months ended June 30, 20212022 and 2020.2022 (excluding the six months ended June 30, 2022) $ 1,710 2023 2,953 2024 2,953 2025 2,953 2026 2,953 2027 and thereafter 27,527 Total $ 41,049 4. ACCRUED LIABILITIESconsistedconsist of the following: June 30,
2022 December 31,
2021Accrued compensation and employee-related expenses $ 25,197 $ 30,990 Sales returns and allowances 2,613 2,416 Accrued taxes and value-added taxes payable 1,572 1,452 Other accrued liabilities 1,393 1,234 Total $ 30,775 $ 36,092 5. INDEBTEDNESS, which. The Loan Agreement includes a $60,000 term loan, and a $20,000 revolving line of credit. The total combined term loan and$30,000 revolving line of credit, outstandingand an option for an additional $30,000 in term loan borrowings. The Loan Agreement has a five year term, expiring November 2026.cannot exceed $70,000 at any time priorare to SVB’s consent. The term loan and revolving credit facility both mature or expire, as applicable, on August 1, 2024. On February 8, 2021,be made ratably commencing 24 months after inception through the loan's maturity date. At the option of the Company, and SVB entered into an amendment to the Loan Agreement which modified conditions which allow the Company to defer thecommencement of term loan principal payments may be extended an additional six months, commencing in September 2021. Additionally, the covenant reporting requirements were modified. The amendment was treated as a debt modification.Term loan principal payments commence September 1, 2021.twelve months. The term loan accrues interest at the greater of the Prime Rate or 5.00%, plus 0.75%1.25% and is subject to an additional 3.00% fee on the $60,000 term loan principal payableamount at maturity or upon acceleration or prepayment of the term loan.maturity. The Company is accruing the 3.00% fee over the term of the Loan Agreement, with $675ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, except per share amounts)(Unaudited)accrued$240 included in the outstanding loan balance as of June 30, 2021.2022. Additionally, the unamortized original financing costs related to the term loan of $339$286 are netted against the outstanding loan balance in the Condensed Consolidated Balance Sheets and are amortized ratably over the term of the Loan Agreement.0.15% of the revolving line of credit,0.20%, and any borrowings thereunder bear interest at the greater of the Prime Rate or 5.00%.Rate. Borrowing availability under the revolving credit facility is based on the lesser of $20,000$30,000 or a borrowing base calculation as defined by the Loan Agreement. As of June 30, 2021,2022, the Company had 0no borrowings under the revolving credit facility and had borrowing availability of $8,750. Financing costs related to the revolving line$28,750.2022 (excluding the six months ended June 30, 2022) $ — 2023 3,333 2024 20,000 2025 20,000 2026 16,667 Total long-term debt $ 60,000 6. LEASESoffices,office, manufacturing and warehouse facilities and computer equipment. The Company’s leases have remaining lease terms of less than one year to tennine years. Options to renew or extend leases beyond their initial term have been excluded from measurement of the ROU assets and lease liabilities for the majority of leases as exercise is not reasonably certain.isare as follows:June 30, 2022 December 31, 2021 Operating Leases Weighted average remaining lease term (years) 4.8 3.6 Weighted average discount rate 4.66 % 4.69 % Finance Leases Finance Leases Weighted average remaining lease term (years) 8.1 8.6 Weighted average discount rate 6.92 % 6.91 % In connection with the terms of the Company’s corporate headquarters lease, afor $1,250 was issued to the building lessor in October 2015. The letter of creditthe Company's corporate headquarters building is renewed annually and remains outstanding as of June 30, 2021.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, except per share amounts)(Unaudited) Three Months Ended
June 30,Six Months Ended
June 30, 2022 2021 2022 2021 Operating lease cost $ 284 $ 203 $ 570 $ 481 Finance lease cost: Amortization of right-of-use assets 338 242 508 484 Interest on lease liabilities 185 200 375 403 Total finance lease cost $ 523 $ 442 $ 883 $ 887 Short termShort-term lease expense was not significant for the three and six months ended June 30, 20212022 and 2020.2021.Six Months Ended
June 30, 2022Six Months Ended
June 30, 2021Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 505 $ 494 Operating cash flows for finance leases 375 403 Financing cash flows for finance leases 437 399 Right-of-use assets obtained in exchange for lease obligations: Operating leases — 1,221 Finance leases — — June 30, 2022 December 31, 2021 Operating Leases Operating lease right-of-use assets $ 4,241 $ 4,761 Current maturities of leases Current maturities of leases 884 861 Operating lease liabilities 3,591 4,068 Total operating lease liabilities $ 4,475 $ 4,929 Finance Leases Property and equipment, at cost $ 14,607 $ 14,607 Accumulated depreciation (6,624) (6,116) Property and equipment, net $ 7,983 $ 8,491 Current maturities of leases Current maturities of leases $ 936 $ 895 Finance lease liabilities 9,603 10,082 Total finance lease liabilities $ 10,539 $ 10,977 Maturities20212022 were as follows:Operating Leases Finance Leases 2022 (excluding the six months ended June 30, 2022) $ 356 $ 817 2023 1,160 1,652 2024 1,164 1,674 2025 920 1,625 2026 592 1,657 2027 and thereafter 868 6,515 Total payments $ 5,060 $ 13,940 Less imputed interest (585) (3,401) Total $ 4,475 $ 10,539 7. COMMITMENTS AND CONTINGENCIESAgreements.Agreement. The Company has a royalty agreementsagreement in place with terms that include payment of royalties of 3% to 5% of specified product sales. NaN royaltyThe agreement remains in effect through 2025, while the other agreement remains in effectterminates the later of 2023 or untilupon expiration of the underlying patents or patent applications.applications, which is expected to occur after 2023. Parties to the royalty agreementsagreement have the right at any time to terminate the agreement immediately for cause. Royalty expense of $842$877 and $505$842 was recorded for the three months ended June 30, 2022 and 2021 and 2020$1,670 and $1,564 and $1,181 for the six months ended June 30, 2022 and 2021 as a component of Cost of Revenue in the accompanying Condensed and 2020.Consolidated Statement of Operations. certain vendors in the ordinary course of business, generally with terms that allow cancellation. The Company is committed to funding renovation of a recently purchasedATRICURE, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, except per share amounts)(Unaudited)building for additional manufacturing capacity. The Company estimates the cost of the construction project to be approximately $5,500.that can be reasonably estimated.under federal and state False Claims Acts, and thaton behalf of the United States and various state and local governments under the various states named inqui tam provisions of federal and certain state and local False Claims Acts. Although the lawsuit were electing notUSDOJ and all of the state and local governments declined to intervene, inthe relator continues to pursue the case. USDOJ subsequently filed a Notice of Election to Decline Intervention and to Unseal Complaint, andWhile the Company is vigorously contesting the case, was unsealed. Itit is not possible to predict when this matter may be resolved or what impact, if any, the outcome of this matter might have on our consolidated financial position, results of operations, or cash flows.The Company acquired nContact Surgical, Inc. pursuant to a merger agreement dated October 4, 2015. The merger agreement provided for contingent consideration or “earnout” to be paid upon attaining specified regulatory approvals and clinical and revenue milestones. The merger agreement’s earnout provisions requiredCompany to deliver periodic earnout reports to a designated representative of former nContact stockholders. In response to the reports delivered in and after February 2018,first quarter, the Company received letters from representatives purportinga notice of breach under a license agreement regarding its potential underpayment of royalties. The notice asserts that the Company's calculation of royalties payable under the license agreement throughout the agreement term did not include sales of all products that were subject to serve as “earnout objection statements” (as that termroyalties. The Company disputes the basis of the claim and any potential underpayment. While a loss related to this claim is defined in the merger agreement) and claim that for purposes of determining the commercial milestone payment,possible, the Company should be including revenues of certain additional items and products that the Company hasdoes not included in its earnout statements. During February 2021, the Company entered into a settlement agreement with the former nContact stockholders requiring payment of $6,000. believe such loss is probable or estimable at this time.recorded the $6,000 settlement as a componentdevelops, manufactures and sells devices designed primarily for surgical ablation of current liabilities as of December 31, 2020 as the underlying cause occurred prior to December 31, 2020, and has made the majoritycardiac tissue, exclusion of the settlement payment as of June 30, 2021.8. REVENUERevenue is generated primarily from the saleleft atrial appendage, and blocking pain by temporarily ablating peripheral nerves. These devices are developed and marketed to a broad base of medical devices.centers globally. The Company recognizes revenue when control of promised goods is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those devices when control of promised devices is transferred to customers. At contract inception, the Company assesses the products promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a product that is distinct. The Company’s devices are distinct and represent performance obligations. These performance obligations are satisfied, and revenue is recognized at a point in time upon shipment or delivery of products. Sales of devices are categorized as follows: open ablation, minimally invasive ablation, appendage management and valve tools. Shipping and handling activities performed after control over products transfers to customers are considered activities to fulfill the promise to transfer the products rather than as separate promises to customers.Products are sold primarily through a direct sales force and through distributors in certain international markets. Terms of sale are generally consistent for both end-users and distributors except that payment terms are generally net 30 days for end-users and net 60 days for distributors, with some exceptions. The Company does not maintain any post-shipping obligations to customers. No installation, calibration or testing of products is performed by the Company subsequent to shipment in order to render products operational.Significant judgments and estimates involved in the Company’s recognition of revenue include the estimation of a provision for returns. The Company estimates the provision for sales returns and allowances using the expected value method based on historical experience and other factors that we believe could impact our expected returns, including defective or damaged products and invoice adjustments. In the normal course of business, the Company generally does not accept product returns unless a product is defective as manufactured. The Company does not provide customers with the right to a refund.The Company expects to be entitled to the total consideration for the products ordered by customers as product pricing is fixed according to the terms of customer contracts and payment terms are short. Payment terms fall within the one-year guidance for thepractical expedient which allows the Company to forgo adjustment of the promised amount of consideration for the effects of a significant financing component. The Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price.Costs associated with product sales include commissions and royalties. Considering that product sales are performance obligations in contracts that are satisfied at a point in time, commission expense associated with product sales and royalties paid based on sales of certain products is incurred at that point in time rather than over time. Therefore, the Company applies the practical expedient and recognizes commissions and royalties as expense when incurred because the expense is incurred at a point in time and the amortization period is less than one year. Commissions are included in selling expense while royalties are included in cost of revenue.See Note 11 for disaggregatedUnited States revenue by geographic area andproduct type is as follows:Three Months Ended
June 30,Six Months Ended
June 30,2022 2021 2022 2021 Open ablation $ 22,070 $ 19,503 $ 41,044 $ 36,942 Minimally invasive ablation 10,154 9,702 18,769 18,087 Pain management 10,210 5,709 18,224 9,607 Total ablation $ 42,434 $ 34,914 $ 78,037 $ 64,636 Appendage management 28,831 25,156 55,500 45,743 Total United States $ 71,265 $ 60,070 $ 133,537 $ 110,379 category.type is as follows: Three Months Ended
June 30,Six Months Ended
June 30, 2022 2021 2022 2021 Open ablation $ 6,213 $ 5,526 $ 12,705 $ 9,960 Minimally invasive ablation 1,271 1,575 2,804 2,849 Pain management 114 11 254 11 Total ablation $ 7,598 $ 7,112 $ 15,763 $ 12,820 Appendage management 5,666 4,194 9,805 7,452 Total International $ 13,264 $ 11,306 $ 25,568 $ 20,272 Three Months Ended
June 30,Six Months Ended
June 30,2022 2021 2022 2021 United States $ 71,265 $ 60,070 $ 133,537 $ 110,379 Europe 7,783 7,015 15,020 12,781 Asia 4,933 4,088 9,490 6,961 Other International 548 203 1,058 530 Total International 13,264 11,306 25,568 20,272 Total Revenue $ 84,529 $ 71,376 $ 159,105 $ 130,651 9. INCOME TAX PROVISIONand 2020 was (0.41%(0.30%) and (0.15%(0.41%). The effective tax rate for the six months ended June 30, 2022 and 2021 and 2020 was (0.29%(0.34%) and (0.08%(0.29%). The Company’s worldwide effective tax rate differs from the US statutory rate of 21% primarily due to the Company’s valuation allowance in the United States and Netherlands.of net operating losses. However, if required, the Company will recognize interest and penalties within income tax expense and within the related tax liability.10. 11.EQUITY COMPENSATION PLANS20182019 Employee Stock Purchase Plan (ESPP).or restricted stock units, (collectively RSAs), nonstatutory stock options, performance share awards (PSAs) orand stock appreciation rights to Company employees, directors and consultants. The Compensation Committee of the Board of Directors, as the administrator of the 2014 Plan, has the authority to determine the terms of any awards, including the number of shares subject to each award, the exercisability of the awards and the form of consideration. As of June 30, 2021,2022, 12,899 shares of common stock had been reserved for issuance under the 2014 Plan, and 1,4931,076 shares were available for future grants.Stock options, restricted stock awards and restricted stock units granted generally vest at a rate At the Company's 2022 Annual Meeting of 33.3% on the first, second and third anniversaries of the grant date. Stock options generally expire ten years from the date of grant.The award agreements for the PSAs provide that each PSA that vests represents the right to receive 1 share of the Company’s common stock at the end of the performance period. With respectStockholders, stockholders approved an amendment to the PSAs,2014 Plan increasing the number of shares that vest and are issued toauthorized under the recipient is based upon the Company’s performance with respect to specified targets at the end of the three year performance period. Payout opportunities range from 0% to 100% of the target amount for awards granted prior to 2021, while awards granted in 2021 have payout opportunities ranging from 0% to 200% of the target amount. These ranges are used to calculate the number of shares that will be issuable when the award vests. All or a portion of the PSAs may vest following a change of control or a termination of service2014 Plan by reason of death or disability. PSAs granted prior to 2021 have performance targets based on the Company’s revenue compound annual growth rate (CAGR) over the three year performance period. PSAs granted in 2021 have two equally weighted performance targets measured at the end of the three year performance period: (i) the Company’s revenue CAGR; and (ii) relative total shareholder return (TSR). TSR is measured against the Nasdaq Health Care Index constituents and the 20-trading-day average stock price prior to the end of the performance period over the 20-trading-day average stock price prior to the beginning of the performance period. TheATRICURE, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, except per share amounts)(Unaudited)performance and market condition payouts will be determined independently and accumulated to determine the total payout for the three year performance period, subject to the maximum payout defined in the PSA agreements.trading day or the last trading daydays of the offering period. The offering period (currently six months) and the offering price are subject to change. Participants may not purchase a value of more than $25 of the Company’s common stock in a calendar year and may not purchase a value ofor more than 3 shares during an offering period. As of June 30, 2021,2022, there were 338228 shares available for future issuance under the ESPP. Under FASB ASC 718Three Months Ended
June 30,Six Months Ended
June 30,2022 2021 2022 2021 Cost of revenue $ 487 $ 598 $ 1,058 $ 1,017 Research and development expenses 1,186 1,083 2,316 2,020 Selling, general and administrative expenses 5,851 5,460 11,199 10,708 Total $ 7,524 $ 7,141 $ 14,573 $ 13,745 11. SEGMENT AND GEOGRAPHIC INFORMATIONThe Company develops, manufactures, and sells devices designed primarily for the surgical ablation of cardiac tissue, systems designed for the exclusion of the left atrial appendage, and devices designed to block pain by temporarily ablating peripheral nerves. These devices are developed and marketed to a broad base of medical centers globally. Management considers all such sales to be part of a single operating segment. Revenue attributed to customer geographic locations is as follows:United States revenue by product type is as follows:International revenue by product type is as follows:COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE LOSSThe Company’s long-lived assets are located primarily in the United States, except for $1,493 as of June 30, 2021In addition to net losses, comprehensive loss includes foreign currency translation adjustments and $1,693 as of December 31, 2020 located primarily in Europe.12. SUBSEQUENT EVENTIn July 2021, the Company was informed that data from the aMAZE clinical trial did not achieve statistical superiority. Specifically, while the trial met the safety endpoint, the trial did not meet the primary efficacy endpoint. The Company is in the process of analyzing the aMAZE trial data and determining next steps for the trial and any related future development activities. While it is too early to ascertain the full impact to our financial statements, we anticipate that we may identify indicators of impairment for the IPR&D asset that represents an estimateunrealized gains (losses) on investments.fair valuefollowing, net of the PMA that could result from the aMAZE clinical trial. The potential adjustment to the IPR&D asset that may be necessary as a result of any required interim impairment analysis may be material. Additionally, the Company also expects to assess adjustments to the fair value of the contingent consideration arrangements arising from the SentreHEART acquisition, as such arrangements were success-based milestone payments. While we are unable to estimate the anticipated financial impact at this time, we expect potential adjustments, which may be material, will be recognized and reported within the second half of 2021. These adjustments could impact the Company’s future results of operations and financial condition.Three Months Ended
June 30,Six Months Ended
June 30,2022 2021 2022 2021 Total accumulated other comprehensive (loss) income at beginning of period $ (3,465) $ (18) $ (948) $ 312 Unrealized Gains (Losses) on Investments Balance at beginning of period $ (3,226) $ 23 $ (887) $ 54 Other comprehensive loss before reclassifications (377) (132) (2,716) (163) Amounts reclassified from accumulated other comprehensive loss to other income (expense) (72) — (72) — Balance at end of period $ (3,675) $ (109) $ (3,675) $ (109) Foreign Currency Translation Adjustment Balance at beginning of period $ (239) $ (41) $ (61) $ 258 Other comprehensive income (loss) before reclassifications (527) 36 (787) (262) Amounts reclassified from accumulated other comprehensive loss to other income (expense) 97 27 179 26 Balance at end of period $ (669) $ 22 $ (669) $ 22 Total accumulated other comprehensive loss at end of period $ (4,344) $ (87) $ (4,344) $ (87) ItemItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations20202021 included in our Form 10-K filed with the Securities and Exchange Commission (SEC) to provide an understanding of our results of operations, financial condition and cash flows.2020.2021. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. Forward-looking statements address our expected future business, financial performance, financial condition and results of operations, and often contain words such as “intends,” “estimates,” “anticipates,” “hopes,” “projects,” “plans,” “expects,” “seek,” “believes,” “see,” “should,” “will,” “would,” “could,” “can,” “may,” “future,” “predicts,” “target,” and similar expressions and the negative versions thereof. Such statements are based only upon current expectations of AtriCure. Any forward-looking statement speaks only as of the date made. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to differ materially from those expressed or implied. Forward-looking statements include statements that address activities, events, circumstances or developments that AtriCure expects, believes or anticipates will or may occur in the future. Forward-looking statements are based on AtriCure’s experience and perception of current conditions, trends, expected future developments and other factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond AtriCure’s control including developments related to the COVID-19 pandemic, as discussed herein. With respect to the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise unless required by law. and, left atrial appendage (LAA) management and post-operative pain management. Afib affects 1-2% of the population in the United States and an estimated 33 million people worldwide. It is the most common cardiac arrhythmia, or irregular heartbeat, encountered in clinical practice and results in high utilization of healthcare services. Patients often progress from being in Afib intermittently (paroxysmal) to being in Afib continuously. The continuous Afib patient population includes persistent Afib, which lasts seven days to one year, and long-standing persistent Afib, which lasts longer than one year. Afib often occurs in conjunction with other cardiovascular diseases, including hypertension, congestive heart failure, left ventricular dysfunction, coronary artery disease and valvular disease. Our ablation and left atrial appendage management (LAAM) products are used by physicians during both open-heart and minimally invasive procedures. In open-heart procedures, the physician is performing heart surgery for other conditions, and our products are used in conjunction with (“concomitant” to) such a procedure. Minimally invasive procedures are performed on a standalone basis, and often include multi-disciplinary or “hybrid” approaches, combining both surgical procedures using AtriCure ablation and LAAM products andwith catheter ablation.have several product lines forbelieve that we are currently the ablationmarket leader in the surgical treatment of cardiac tissue, including ourAfib. Our Isolator® Synergy™ Ablation System is approved by the United States Food and Drug Administration (FDA) for the treatment of persistent and long-standing persistent forms of Afib concomitant to other open-heart surgical procedures. TheOur EPi-Sense® systemSystem is approved by FDA to treat patients with long-standing persistent Afib. All of our other ablation devices are approvedcleared for sale in the United States under FDA 510(k) clearances, including our other RFradio frequency (RF) and cryoablation products, which are indicated for the ablation of cardiac tissue and/or the treatment of cardiac arrhythmias. In addition, certain of our cryoablation probes are cleared for managing pain by temporarily ablating peripheral nerves.nerves, or Cryo Nerve Block therapy. Our AtriClip® LAA Exclusion System products are 510(k)-cleared with an indication for the exclusion of the heart’s LAA, performed under direct visualization and in conjunction with other cardiac surgical procedures. Direct visualization, in this context, requires that the surgeon is able to see the heart directly, with or without assistance from a camera, endoscope or other appropriate viewing technologies. Studies have demonstrated exclusion of the LAA with AtriClip also results in electrical isolation of the LAA. The LARIAT®LARIAT® system is cleared under the 510(k) process for soft tissue ligation. Several of our products are currently being studied to expand labelingAfib.Afib, prophylactic stroke reduction or other arrhythmias. Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail® linear pen, cryoablation devices, cryoSPHERE® probe, certain products of the AtriClip LAA Exclusion System, COBRA Fusion® Ablation System, the EPi-Sense® Guided Coagulation System with VisiTrax® technology,system and LARIAT Suture Delivery Device bear the CE mark and may be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror the Medical Device Directive. Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail linear pen, cryoablation devices and certain products of the AtriClip LAA Exclusion System are available in select Asia-Pacific countries. We anticipate that substantially all of our revenue for the foreseeable future will relate to products we currently sell or are in the process of developing.and the Benelux region.region and Australia. We also sell our products tothrough distributors who in turn sell our products to medical centers in other international markets. Our business is primarily transacted in U.S. Dollars, with certain exceptions. Direct sales transactions outside the exception of transactions with our European subsidiaries, whichUnited States are transacted in the EuroEuros, British Pounds or British Pounds.Throughout 2020the beginning of the first quarter of 2021, we experienced a significant decrease inintermittent demand for our products asnon-emergent procedures were being indeterminately deferred in order to preserve resources for COVID-19 patients and caregivers and to protect patients from potential exposure to COVID-19. While we have seenhospital staffing was impacted by the pandemic and related factors. We saw many regions begin to stabilize through the quarter with overall improvements in procedure volumes, there continues to bevolumes. However, we expect some variability throughout our international markets and uncertainty as variants of the virus emerge. We can make no assurance regarding any future level of demand for our products, and COVID-19 may adversely impact our results of operations and financial condition.We are continuing to serve our customers while taking every precaution to provide a safe work environment for our employees and customers. Field-based sales and clinical employees continue to support cases, using technology to engage with customers in virtual settings when physical access is prohibited. We are maintaining manufacturing and fulfillment operations to continue providing products to our customers. We continue to modify our remote working protocols and evaluate hybrid work models for our office-based employees, andas we will take further actionsoperate in the best interests of our employees ormany geographic regions with diverse restrictions that are impacted as required by law.weour worldwide revenue in the six months ended June 30, 2022 was $159,105, representing an increase of $28,454, or 21.8%, over the first six months of 2021, driven by growing adoption across key product lines. We continue to build on our strategic initiatives of product innovation, investing in clinical science and expanding awareness and adoption by providing superior training and education.We remain confident in our liquidity position, which includes cash and investments of $229,635 as of June 30, 2021, and access to additional funding through our credit facility.In July 2021,During the first half of 2022, we receivedlaunched our ENCOMPASS® clamp, following the receipt of 510(k) clearance for the new ENCOMPASS® clamp and are preparing for the subsequent market launchablation of cardiac tissue during cardiac surgery in lateJuly 2021. The ENCOMPASS clamp marks innovation in our core open ablation market and is designed to make concomitant surgical ablations more efficient. It is expected to drive deeper penetration of cardiac surgery procedures.have adapted to the pandemic by conducting onlineconduct virtual, in-person and mobile trainingstraining for physicians and our sales team.teams. These adaptations expanded our training methods and ensuredensure invaluable access to continuing education and awareness of our products and related procedures. The recent2021 FDA approval of the EPi-Sense system has enabled us to educate and train physicians on the benefits of Hybrid AFAF™ therapy in treating long-standing persistent Afib patients, with the first training course held in June 2021.CLINICAL SCIENCE. We continue to invest in studies to expand labeling claims or support indications for the treatment of Afib,patients. Our Hybrid Training Course and we also conduct various studies to gather clinical data regarding our products. In April 2021, we announced the PMA approval of the EPi-Sense system for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with an endocardial ablation catheter. We believe the Convergent procedure, orAdvanced Hybrid AF therapy, provides the only compelling treatment option for a large and vastly underpenetrated patient population. The CONVERGE™ trial demonstrated superiority in the hybrid AF™ therapy arm compared to endocardial catheter ablation alone. In patients diagnosed with long-standing persistent Afib, the hybrid therapy arm showed a 29% absolute difference in efficacy at 12 months (78% relative improvement) and an absolute difference of 35% at 18 months (110% relative improvement). There was also a 33% absolute difference in Afib burden reduction in favor of the hybrid AF therapy at 12 months, which increased to 37% at 18 months.aMAZE. Enrollment was completed in December 2019. Patient follow-up for twelve months post pulmonary vein isolation catheter ablation is requiredAblation Training Course are co-sponsored by the study protocol and was completed in April 2021. Hearth Rhythm Society (HRS).In January 2020, we received approval for a Continued Access Protocol (CAP) for the aMAZE study. The aMAZE CAP provides for additional enrollment of up to 85 patients at existing aMAZE trial sites, with the opportunity to further expand to 250 patients while the PMA application is under review. In July 2021, the Company was informed that data from the aMAZE clinical trial did not achieve statistical superiority. Specifically, while the trial met the safety endpoint, the trial did not meet the primary efficacy endpoint. The Company is in the process of analyzing the aMAZE trial data and determining next steps for the trial and any related future development activities.20212022 compared to three months ended June 30, 2020Three Months Ended
June 30,2022 2021
Revenues
RevenuesAmount % of
RevenuesAmount % of
RevenuesRevenue $ 84,529 100.0 % $ 71,376 100.0 % Cost of revenue 21,010 24.9 % 17,298 24.2 % Gross profit 63,519 75.1 % 54,078 75.8 % Operating expenses: Research and development expenses 14,791 17.5 % 12,197 17.1 % Selling, general and administrative expenses 62,388 73.8 % 56,958 79.8 % Total operating expenses 77,179 91.3 % 69,155 96.9 % Loss from operations (13,660) (16.2) % (15,077) (21.1) % Other expense, net: Other expense, net: (1,136) (1.3) % (1,108) (1.6) % Loss before income tax expense (14,796) (17.5) % (16,185) (22.7) % Income tax expense 45 0.1 % 66 0.1 % Net loss $ (14,841) (17.6) % $ (16,251) (22.8) % RevenueThe following table sets forth, for the periods indicated, our revenue by product type and geography expressed as dollar amounts and the corresponding change in such revenues between periods, in both dollars and percentages:Three Months Ended
June 30,Change 2022 2021 Amount % Open ablation $ 22,070 $ 19,503 $ 2,567 13.2 % Minimally invasive ablation 10,154 9,702 452 4.7 % Pain management 10,210 5,709 4,501 78.8 % Appendage management 28,831 25,156 3,675 14.6 % Total United States $ 71,265 $ 60,070 $ 11,195 18.6 % Total International 13,264 11,306 1,958 17.3 % Total revenue $ 84,529 $ 71,376 $ 13,153 18.4 % 74.8% (73.5% on a constant currency basis) as we experienced recovery from the significant impact of COVID-19 on our second quarter 2020 results, patient backlog was addressed and we saw growth across our product lines. Revenue from customers in the United States increased $26,406, or 78.4% while revenue from international customers increased $4,146 or 57.9% (50.2%18.4% (19.8% on a constant currency basis). In the United States, we experienced growth in most of our key product lines. Physician acceptance of our cryoSPHERE® probe for post-operative pain management and expanded sales efforts drove growth in pain management revenue. Appendage management sales were driven by continuing adoption of our AtriClip® Flex⋅V® and Pro⋅V® devices, while the launch of the new ENCOMPASS clamp accelerated growth in our open ablation revenue. While minimally invasive procedures continue to experience residual impacts from the pandemic and staffing, we saw growing adoption of the EPi-Sense® System in an increasing customer base. The increase in EPi-Sense revenue was largely offset by a decline in revenue from all other minimally invasive ablation products. International sales increased $9,289 (59.7%) from stabilizing cardiac surgery17.3% (26.3% on a constant currency basis), a result of rebounding procedure volumes in Europe, primarily in the Netherlands and United Kingdom, and growth in Cryo Nerve Block therapy. Minimally invasive (MIS) ablation sales, which represent the most elective and deferrable procedures, increased $4,947 (104.0%) driven by the receding impact of COVID-19 in 2021 and Hybrid AF therapy procedure growth from the PMA approval of the EPi-Sense system in late April 2021. Rising open and MIS surgical procedures boosted AtriClip volumes, resulting in anAustralia. The increase in international revenue was driven mainly by our appendage management salesbusiness which grew 35.1%. growth on a constant currency basis provides an additional and meaningful assessment of revenue to both management and our investors.$4,128$3,712, reflecting primarily the increase in revenue. Throughout the three months ended June 30, 2020, productionhigher sales volumes, were reduced below our normal operating levels, leading to an increase in fixed costs burdened to cost of revenue. Grosswhile gross margin increased more than 800decreased approximately 70 basis points, benefiting from both increased revenue as well as normal production activityreflecting changes in 2021, as compared to the fixed costs burden during 2020 due to the COVID-19 pandemic, in addition to beneficial geographicU.S. product mix and product mix.cost increases driven by inflationary and supply chain pressures.$2,161,$2,594 or 21.5%,21.3%. Personnel costs rose $1,372 from increased headcount as we continue to build our product development, regulatory and clinical teams, and from increased travel costs. Product development and regulatory expenses increased $869 driven mainly by a $1,483 increase in personnel costregulatory filings, submissions and a $650 increase in clinical activity primarilyconsulting related to compliance with the aMAZEEuropean Union Medical Device Regulation (EU MDR). Amortization expense increased $247 following the April 2021 PMA resulting from the CONVERGE IDE clinical trial.$32,055,$5,430, or 128.7%9.5%. The change in selling, generalAdditional headcount and administrative costs is primarily a resulttravel activities of a $16,552 increase in personnel expenses attributable to$4,058 drove the increase in variable compensation, headcountexpenses, primarily reflecting the expansion of our sales and travel. There wastraining teams, while meetings, marketing, trainings and tradeshow activities contributed $2,054 of the increase in expenses as we saw further transition from virtual to in-person events. Other operating costs grew $838 compared with the prior period, which includes consulting, professional services and information systems enhancements. Additionally, 2021 included a $10,104 fluctuation$2,600 charge for the change in fair value of the SentreHEART contingent consideration liability, as compared to prior year (see Note 2 for further discussion). Selling, general and administrativewell as a reduction in expenses also increased due to the revivalfrom a one-time tax credit of live training, tradeshow and marketing activities as compared to the prior year, with $2,781 and $636 of incremental costs in 2021. The remaining increase in selling, general and administrative costs relates to legal and professional fees, share-based compensation, and other corporate costs, including IT and facilities-related expenses.$759.increased $126 driven bydecreased $69 primarily due to lower interest income fromexpense as a decline in investment yields.result of the November 2021 amendment of our Loan Agreement.20212022 compared to six months ended June 30, 2020
Revenues
RevenuesSix Months Ended
June 30,2022 2021 Amount % of
RevenuesAmount % of
RevenuesRevenue $ 159,105 100.0 % $ 130,651 100.0 % Cost of revenue 39,991 25.1 % 32,033 24.5 % Gross profit 119,114 74.9 % 98,618 75.5 % Operating expenses: Research and development expenses 28,420 17.9 % 23,414 17.9 % Selling, general and administrative expenses 118,504 74.5 % 106,166 81.3 % Total operating expenses 146,924 92.3 % 129,580 99.2 % Loss from operations (27,810) (17.5) % (30,962) (23.7) % Other expense, net: (2,113) (1.3) % (2,109) (1.6) % Loss before income tax expense (29,923) (18.8) % (33,071) (25.3) % Income tax expense 101 0.1 % 97 0.1 % Net loss $ (30,024) (18.9) % $ (33,168) (25.4) % RevenueThe following table sets forth, for the periods indicated, our revenue by product type and geography expressed as dollar amounts and the corresponding change in such revenues between periods, in both dollars and percentages:Six Months Ended
June 30,Change 2022 2021 Amount % Open ablation $ 41,044 $ 36,942 $ 4,102 11.1 % Minimally invasive ablation 18,769 18,087 682 3.8 % Pain management 18,224 9,607 8,617 89.7 % Appendage management 55,500 45,743 9,757 21.3 % Total United States $ 133,537 $ 110,379 $ 23,158 21.0 % Total International 25,568 20,272 5,296 26.1 % Total revenue $ 159,105 $ 130,651 $ 28,454 21.8 % 38.9% (37.8%21.8% (23.0% on a constant currency basis). Revenue from customers inIn the United States, we experienced growth across most key product lines as cardiac surgery volumes began to stabilize. Appendage management revenue increases were driven by sales of the AtriClip® Flex⋅V® and Pro⋅V® devices, while continuing adoption of the cryoSPHERE® probe for post-operative pain management drove pain management sales. The launch of the new ENCOMPASS clamp contributed to the open ablation sales growth, while adoption of the EPi-Sense® System drove increases in minimally invasive ablation and offset declines in other minimally invasive ablation products. International sales increased $33,242, or 43.1%, while revenue from international customers increased $3,360, or 19.9% (13.8%26.1% (33.7% on a constant currency basis). Sales in the United States increased, with procedure volumes rising across all product lines with appendage management sales increasing $15,303 (50.3%), MIS ablation sales increasing $6,771 (59.8%)major franchises and open ablation sales increasing $11,146 (32.1%).regions.$4,522,$7,958, reflecting higher sales volumes, while gross margin increased approximately 480 basis points. The overall increaserevenue and a decrease in gross margin was driven largely by both geographic andof approximately 60 basis points, resulting from changes in U.S. product mix and the lessening impact of fixed costs due to normal production activitycost inflation and rising sales in 2021. supply chain pressures, slightly offset by geographic mix.$1,791,$5,006 or 8.3%, which is primarily attributable21.4%. Personnel costs increased $2,560 from additional headcount as we continue to build our product development, regulatory and clinical teams and return to historical travel levels. Regulatory submissions, consulting, as well as product development projects increased $1,119. Amortization expense increased $978 following the $2,201 increase in personnel cost driven by additional variable compensation and headcount, partially offset by a $290 decrease inApril 2021 PMA resulting from the CONVERGE IDE clinical activity.trial.$38,512,$12,338, or 56.9%,11.6%. Additional headcount and travel activities increased $9,459, primarily reflecting the expansion across our teams, as well as a resultreturn to historical travel levels. Additional tradeshow, meetings, physician training and marketing activities contributed $4,969 of the $21,911 increase reflecting continuing transition from virtual to in-person events and the expansion of training programs. Other operating costs, including contracting, product demo costs and professional services grew $1,161 as compared to the prior period. Additionally, 2021 expenses included a $5,100 charge for the change in personnel and related costs driven by higher variable compensation, travel and additional headcount. There was a $10,146 fluctuation infair value of the SentreHEART contingent consideration liability, (see Note 2 for further discussion). Other increases included $2,937 additional training costs,partially offset by a $2,440 increase in share-based compensation and a $937 increase in legal and professional fees.one-time tax credit of $759.increased $358 driven bydecreased $240 primarily due to lower interest incomeexpense stemming from a decline in investment yields.the November 2021 amendment of our Loan Agreement.2021,2022, the Company had cash, cash equivalents and investments of $229,635$182,749 and outstanding debt of $60,000. We had unused borrowing capacity of $8,750$28,750 under our revolving credit facility. Most of our operating cash and all cash equivalents and investments are held by United States financial institutions. We had net working capital of $168,511$149,850 and an accumulated deficit of $363,520$310,177 as of June 30, 2021.Six Months Ended June 30, 2022 2021 Change (dollars in thousands) Net cash used in operating activities $ (20,403) $ (13,849) $ 6,554 Net cash provided by investing activities 40,243 47,528 (7,285) Net cash used in financing activities (8,636) (7,889) 747 We Net cash used $13,849 of net cash in operating activities duringincreased $6,554 in 2022 compared to 2021. This change is driven by the six months ended June 30, 2021.fluctuation in working capital and other assets and liabilities of $6,389, primarily due to thenet cash outflow from operating activities reflects ourremaining fluctuation is a decrease in the net loss of $33,168,$3,144, largely driven by a decrease in non-cash expenses, including $5,100 non-cash impact for the fair value adjustment of the SentreHEART contingent consideration liability in 2021, offset partially by $25,604increased amortization of non-cash expenses, as well as $6,285 net cash used for operating assets and liabilities. Non-cash expenses included $13,745 of share-based compensation, a $5,100 increase in the contingent consideration liability and $4,780 of depreciation and amortization. Net cash used for operating assets and liabilities was driven by higher customer receivables in the first six months of 2021 due to the increase in revenue and investment in inventories, offset by increases to both accounts payable and accrued liabilities balances, reflecting the increase in inventories, operating expenses and variable compensation as of June 30, 2021.CONVERGE technology asset.We generated $47,528 of net Net cash fromprovided by investing activities during the six months ended June 30,decreased by $7,285 in 2022 compared to 2021, reflecting $53,067 ofdecreases in net sales and maturities of available-for-sale securities partially offset by $5,539 of $5,259 and increased purchases of property and equipment.equipment of $2,026 for the expansion of our manufacturing facilities and new product introductions.WeNet cash used $7,889 of net cash in financing activities during the six months ended June 30, 2021. Activity included $16,500 for shares repurchased for paymentincreased by $747 in 2022 largely reflecting lower stock option exercise activity of taxes on stock awards, partially$6,090, offset by $9,010a decrease of $4,927 in cash tax payments from restricted and performance share vesting and increased proceeds from stock option exercises.issuance of shares under ESPP of $453., as amended, (Loan Agreement), provides for a $60,000 term loan, and a $20,000$30,000 revolving line of credit. Thecredit, and an option to make available an additional $30,000 in term loan and revolving credit facility both mature or expire, as applicable, on August 1, 2024.borrowings. The Loan Agreement has a five year term, expiring November 2026. Principal payments onare to be made ratably commencing 24 months after the inception of the loan through the loan's maturity date. At the option of the Company, the commencement of term loan will commence September 1, 2021 through the loan’s maturity date.principal payments may be extended an additional twelve months. The term loan accrues interest at the greater of the Prime Rate or 5.00%, plus 0.75%1.25% and is subject to an additional 3.00% fee on the $60,000 term loan principal amount payable at maturity or upon acceleration or prepayment of the term loan. Our borrowing availability under the revolving credit facility is based on the lesser of $20,000 or a borrowing base calculation as defined by the Loan Agreement. Borrowing availability under the revolving credit facility is further limited by a cap on total debt outstanding under the Loan Agreement, including outstanding letters of credit, of $70,000.maturity. As of June 30, 2021 we2022, our outstanding debt was $60,000 and is classified as noncurrent. We had no borrowingsunused borrowing capacity of $28,750 under theour revolving credit facility, and we had borrowing availability of $8,750. The Loan Agreement also provides for certain prepayment and early termination fees iffacility. For additional information on the term loan is repaid before maturity and establishes a minimum liquidity ratio and dividend restrictions, along with other customary terms and conditions. Specified assets have been pledgedconditions, as collateral.well as applicable interest and fee payments, see Note 6 — Indebtedness.2021.the resources we devotecosts to developingdevelop and supportingsupport our products;products, including professional training; future expenses to supportexpand and expandsupport our sales and marketing efforts; operating and filing costs relating to changes in regulatory policies or laws that affect our operations and cost of filings;laws; costs associated withfor clinical trials and securingto secure regulatory approval for new products; costs associated with acquiringto prosecute, defend and integrating businesses; costs associated with prosecuting, defending and enforcingenforce our intellectual property rights; maintenance and enhancements to our information systems and security; and possible acquisitions and joint ventures.ventures, including potential business integration costs. We continue to evaluate additional measures to maintain financial flexibility, and we will continue to closely monitor our liquidity and capital resources through the recovery from, and any further disruptions caused by, COVID-19.We have on file with the SEC a shelf registration statement which allows us to sell any combination Our principal cash requirements include costs of senior or subordinated debt securities, common stock, preferred stock, warrants, depository shares and units in one or more offerings should we choose to do so in the future. We expect to maintain the effectiveness of this shelf registration statement for the foreseeable future.We believe that our current cash, cash equivalents and investments, along with the cash we expect to generate or use for operations, or access via our revolving line of credit, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures, for at least the next twelve months. The SentreHEART acquisition provides for contingent consideration to be paid upon PMA approval before December 2023 and CPT reimbursement before December 2026. Subject to the terms and conditions of the SentreHEART merger agreement, such contingent consideration is expected to be paid primarily in AtriCure common stock, up to a specified maximum number of shares. Over the next twelve months, we do not expect our cash requirements to include significant cash payments for contingent consideration based on progress towards achievement of the related milestones and terms of the acquisition agreement.If our sources of cash are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain a revised or additional credit facility. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations. Finally, our term loan agreement and revolving line of credit require compliance with certain financialservice costs and other covenants. If we are unable to maintain these financing arrangements, we may be required to reduce the scope of our planned research and development, clinical activities and selling, training, education and marketing efforts.contractual obligations.accounts receivable, inventories, intangible assets including goodwill, contingent liabilitiesshare-based compensation and share-based compensation.income taxes. We use authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results could differ from those estimates under20202021 includes additional information about the Company, our operations, our financial position and our critical accounting policies and estimates and should be read in conjunction with this Quarterly Report on Form 10-Q.2021,2022, there were no material changes to the information provided in Note 2, “Recent Accounting Pronouncements” in the Company’s Form 10-K for the fiscal year ended December 31, 2020. 2021.20212022, there were no material changes to the information provided under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Form 10-K for the year ended December 31, 2020.Item2021.20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Item78 – Commitments and Contingencies to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and is incorporated herein by reference.Item2020,2021, all of which could materially affect our business, financial condition or future results. The risks described herein and therein are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may adversely affect our business, financial2020, except for the following:Our success depends, in part, on the commercial success of the EPi-Sense device for the treatment of Afib following FDA pre-market approval of this product.On April 29, 2021, we announced U.S. Food and Drug Administration (FDA) approval of the EPi-Sense® System to treat patients diagnosed with long-standing persistent Afib. Our success depends, in part, on the medical community’s acceptance of this and other of our products in the United States, which is the largest revenue market in the world for medical devices. We expect that our future revenue will depend largely on the increasing acceptance by the medical community of our products as standard of care for treating Afib. The U.S. medical community’s acceptance of this and other of our products will depend upon our ability to demonstrate the safety and efficacy, advantages, long-term clinical performance and cost-effectiveness of our products. In addition, acceptance of products for the treatment of Afib is dependent upon, among other factors, the level of awareness and education of the medical community about the surgical treatment of Afib and the existence, effectiveness and safety of our products. Market acceptance and adoption of our products or procedures for the treatment of Afib, including but not limited to, the EPi-Sense System, also depends on the level of health insurer (including Medicare) reimbursement to physicians and hospitals for procedures using our products. Negative publicity resulting from incidents involving our products, or similar products, could have a significant adverse effect on the overall acceptance of our products. Market acceptance could be delayed by lack of surgeon willingness to attend training sessions by the time required to complete this training or by state or institutional restrictions on our ability to provide training. If we are unable to gain and/or maintain such support, training services and collaboration, our ability to grow the market for our products may be impacted and we may not be able to increase our revenue enough to achieve or sustain profitability, and our business and operating results may be seriously harmed.The outbreak of coronavirus (COVID-19) has materially and adversely affected demand for our products and with prolonged delays or significant resurgences of the virus, could affect the demand for our products and impact our clinical trials, causing disruption to our business and negatively impacting our results of operations and financial condition.We are subject to risks related to public health crises such as the global pandemic associated with COVID-19, including the “Delta variant”. The COVID-19 outbreak has negatively impacted and, in the future may negatively impact, our operations and revenues and overall financial condition by significantly decreasing the number of procedures performed with our products. The number of procedures performed during 2020 and early 2021 significantly decreased as health care organizations globally deferred non-emergent procedures to preserve resources and prioritized the treatment of patients with COVID-19 and protect patients from potential exposure to COVID-19. For example, in the United States, governmental authorities recommended, and in certain cases required, that elective, specialty and other procedures and appointments, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and focused limited resources and personnel on the treatment of COVID-19. Although we have seen a decrease in such measures over the last six to nine months, we expect that challenges resulting from these recommendations and requirements will likely continue for the duration of the pandemic, which is uncertain, and may significantly reduce our revenue while the pandemic continues.Our business was most impacted in the second, third and fourth quarters of 2020, in terms of the decline in patients and revenue from the shelter-in-place restrictions in a majority of countries and limitations on procedures in hospitals. We experienced sequential quarterly improvement beginning with the third quarter of 2020 as patient procedure volume trends and availability of healthcare resources improved as certain restrictions were lifted and limitations eased even though our 2020 third and fourth quarter revenue was below that in prior year periods. Despite these challenges, we experienced increased recovery in patient utilization and revenue during the first and second quarters of 2021; however, there continues to be variability as variants of the virus emerge and may significantly reduce our revenue while the pandemic continues.Numerous state and local jurisdictions have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders or restrictions have resulted in slowdowns and delays, travel restrictions and cancellation of events, among other effects. Other disruptions or potential disruptions include restrictions on our personnel and partners to travel and access customers for training and case support; delays in approvals by regulatory bodies; delays in product development efforts; and additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers’ capacity to manufacture, sell and support the use of our products. Although we have seen a decrease in such measures over the last six to nine months, we expect that challenges resulting from these recommendations and requirements will likely continue for the duration of the pandemic, which is uncertain.We may experience diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites. Key clinical trial activities, such as clinical trial site monitoring, subject visits and study procedures, may be interrupted due to limitations imposed or recommended by federal or state governments, trial sites, employers orothers. We may also encounter interruption or delays in the operations of FDA or other regulatory authorities, which may impact review and approval timelines.In addition, the COVID-19 pandemic may impact the trading price of shares of our common stock and could impact our ability to raise additional capital on a timely basis or at all. The COVID-19 pandemic continues to rapidly evolve. The extent to which COVID-19 may impact our business, including our nonclinical activities, clinical trials and financial condition, will depend on future developments, which are highly uncertain, such as the geographic spread of the disease (including new variants of COVID-19), the duration and severity of the pandemic, travel restrictions, business closures or business disruptions, the distribution and efficacy of vaccines and other treatments, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks set forth in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2020.Disruptions of critical information systems or material breaches in the security of our systems could harm our business, customer relations and financial condition.In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Like other companies, we experience attempts to gain unauthorized access to our systems and information on a regular basis. Despite our security measures, including employee training, our information technology and infrastructure are vulnerable to cyber-attacks, malicious intrusions, breakdowns, destruction, loss of data privacy, breaches due to employee error, malfeasance or other disruptions. Cyber-attacks are becoming more sophisticated and frequent, and our systems could be the target of malware and other cyber-attacks. We have invested in our systems and the protection of our data to reduce the risk of an intrusion or interruption, and we monitor our systems on an ongoing basis for any current or potential threats. We can give no assurances that these measures and efforts will prevent interruptions or breakdowns. If we are unable to detect or prevent a security breach or cyber-attack or other disruption from occurring, then we could incur losses or damage to our data, or inappropriate disclosure of our confidential information or that of others; and we could sustain damage to our reputation and customer and employee relationships, suffer disruptions to our business and incur increased operating costs including costs to mitigate any damage caused and protect against future damage, and be exposed to additional regulatory scrutiny or penalties and to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, operating margins, revenues and competitive position.We also rely in part on information technology to store information, interface with customers, maintain financial accuracy, secure our data and accurately produce our financial statements. If our information technology systems do not effectively and securely collect, store, process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, human error or cyber incident, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations could be materially impaired. Any such impairment could have a material adverse effect on our results of operations, financial condition and the timeliness with which we report our operating results.
Exhibit10.1# No.
SIGNATURESAtriCure, Inc.(REGISTRANT)(REGISTRANT)5, 20215, 2021