UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2022

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____________to_____________

Commission File Number 000-51470

AtriCure, Inc.

(Exact name of Registrant as specified in its charter)


Delaware			34-1940305
(State or other jurisdiction of incorporation)			(IRS Employer Identification No.)

7555 Innovation Way

Mason, OH 45040

(Address of principal executive offices)

(513) 755-4100

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 par value	ATRC	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Emerging growth company

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: ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES ¨ NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class			Outstanding at ~~May 2,~~August 1, 2022
Common Stock, $.001 par value			~~46,287,944~~46,424,652

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2022
Item 4.	Controls and Procedures	2022
PART II. OTHER INFORMATION		2122
Item 1.	Legal Proceedings	2122
Item 1A.	Risk Factors	2122
Item 6.	Exhibits	2123
Signatures		2224

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Amounts)

(Unaudited)


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	28,141	$	43,654	Cash and cash equivalents	$	54,556	$	43,654
Short-term investments	Short-term investments	83,256		75,436		Short-term investments	63,898		75,436
Accounts receivable, less allowance for credit losses of $1,096	Accounts receivable, less allowance for credit losses of $1,096	40,878		33,021		Accounts receivable, less allowance for credit losses of $1,096	41,488		33,021
Inventories	Inventories	40,762		38,964		Inventories	41,292		38,964
Prepaid and other current assets	Prepaid and other current assets	6,570		5,001		Prepaid and other current assets	4,932		5,001
Total current assets	Total current assets	199,607		196,076		Total current assets	206,166		196,076
Long-term investments	Long-term investments	70,514		104,338		Long-term investments	64,295		104,338
Property and equipment, net	Property and equipment, net	32,867		31,409		Property and equipment, net	36,053		31,409
Operating lease right-of-use assets	Operating lease right-of-use assets	4,509		4,761		Operating lease right-of-use assets	4,241		4,761
Intangible assets, net	Intangible assets, net	42,020		42,992		Intangible assets, net	41,049		42,992
Goodwill	Goodwill	234,781		234,781		Goodwill	234,781		234,781
Other noncurrent assets	Other noncurrent assets	685		955		Other noncurrent assets	804		955
Total Assets	Total Assets	$	584,983	$	615,312	Total Assets	$	587,389	$	615,312
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	20,294	$	18,597	Accounts payable	$	23,721	$	18,597
Accrued liabilities	Accrued liabilities	25,321		36,092		Accrued liabilities	30,775		36,092
Current maturities of leases	Current maturities of leases	1,760		1,756		Current maturities of leases	1,820		1,756
Total current liabilities	Total current liabilities	47,375		56,445		Total current liabilities	56,316		56,445
Long-term debt	Long-term debt	59,848		59,741		Long-term debt	59,954		59,741
Finance lease liabilities	Finance lease liabilities	9,845		10,082		Finance lease liabilities	9,603		10,082
Operating lease liabilities	Operating lease liabilities	3,865		4,068		Operating lease liabilities	3,591		4,068
Other noncurrent liabilities	Other noncurrent liabilities	1,225		1,220		Other noncurrent liabilities	1,215		1,220
Total Liabilities	Total Liabilities	122,158		131,556		Total Liabilities	130,679		131,556
Commitments and contingencies (Note 8)	Commitments and contingencies (Note 8)	0		0		Commitments and contingencies (Note 8)	0		0
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock, $0.001 par value, 90,000 shares authorized and 46,268 and 46,016 issued and outstanding		46		46
Common stock, $0.001 par value, 90,000 shares authorized and 46,423 and 46,016 issued and outstanding						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	Additional paid-in capital	761,580		764,811		Additional paid-in capital	771,185		764,811
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,465)		(948)		Accumulated other comprehensive loss	(4,344)		(948)
Accumulated deficit	Accumulated deficit	(295,336)		(280,153)		Accumulated deficit	(310,177)		(280,153)
Total Stockholders’ Equity	Total Stockholders’ Equity	462,825		483,756		Total Stockholders’ Equity	456,710		483,756
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	584,983	$	615,312	Total Liabilities and Stockholders’ Equity	$	587,389	$	615,312

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In Thousands, Except Per Share Amounts)

(Unaudited)


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2022			2021			2022		2021		2022		2021
Revenue	Revenue		$	74,576		$	59,275	Revenue	$	84,529	$	71,376	$	159,105	$	130,651
Cost of revenue	Cost of revenue		18,981			14,735		Cost of revenue	21,010		$	17,298	39,991		32,033
Gross profit	Gross profit		55,595			44,540		Gross profit	63,519		$	54,078	119,114		98,618
Operating expenses:	Operating expenses:							Operating expenses:
Research and development expenses	Research and development expenses		13,629			11,217		Research and development expenses	14,791		12,197		28,420		23,414
Selling, general and administrative expenses	Selling, general and administrative expenses		56,116			49,208		Selling, general and administrative expenses	62,388		56,958		118,504		106,166

Total operating expenses	Total operating expenses		69,745			60,425		Total operating expenses	77,179		69,155		146,924		129,580
Loss from operations	Loss from operations		(14,150)			(15,885)		Loss from operations	(13,660)		(15,077)		(27,810)		(30,962)
Other income (expense):	Other income (expense):							Other income (expense):
Interest expense	Interest expense		(1,000)			(1,189)		Interest expense	(1,101)		(1,197)		(2,101)		(2,386)
Interest income	Interest income		116			134		Interest income	76		103		192		237
Other	Other		(93)			54		Other	(111)		(14)		(204)		40
Loss before income tax expense	Loss before income tax expense		(15,127)			(16,886)		Loss before income tax expense	(14,796)		(16,185)		(29,923)		(33,071)
Income tax expense	Income tax expense		56			31		Income tax expense	45		66		101		97
Net loss	Net loss		$	(15,183)		$	(16,917)	Net loss	$	(14,841)	$	(16,251)	$	(30,024)	$	(33,168)

Basic and diluted net loss per share	Basic and diluted net loss per share		$	(0.33)		$	(0.38)	Basic and diluted net loss per share	$	(0.32)	$	(0.36)	$	(0.66)	$	(0.74)

Weighted average shares outstanding—basic and diluted	Weighted average shares outstanding—basic and diluted		45,528			44,632		Weighted average shares outstanding—basic and diluted	45,692		45,035		45,610		44,834

Comprehensive loss:	Comprehensive loss:							Comprehensive loss:
Unrealized loss on investments	Unrealized loss on investments		$	(2,339)		$	(31)	Unrealized loss on investments	$	(449)	$	(132)	$	(2,788)	$	(163)
Foreign currency translation adjustment	Foreign currency translation adjustment		(178)			(299)		Foreign currency translation adjustment	(430)		63		(608)		(236)
Other comprehensive loss	Other comprehensive loss		(2,517)			(330)		Other comprehensive loss	(879)		(69)		(3,396)		(399)
Net loss	Net loss		(15,183)			(16,917)		Net loss	(14,841)		(16,251)		(30,024)		(33,168)
Comprehensive loss, net of tax	Comprehensive loss, net of tax		$	(17,700)		$	(17,247)	Comprehensive loss, net of tax	$	(15,720)	$	(16,320)	$	(33,420)	$	(33,567)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands)

(Unaudited)


																				Three-Month Period Ended June 30, 2021
																				Common Stock						Additional Paid-in Capital					Accumulated Deficit				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity
																				Shares			Amount
Balance—March 31, 2021																			Balance—March 31, 2021	45,623			$	46					$	738,484					$	(347,269)			$	(18)			$	391,243
Impact of equity compensation plans																			Impact of equity compensation plans	258			—			10,160					—				—				10,160
Other comprehensive loss																			Other comprehensive loss	—			—			—					—				(69)				(69)
Net loss																			Net loss	—			—			—					(16,251)				—				(16,251)
Balance—June 30, 2021																			Balance—June 30, 2021	45,881			$	46		$	748,644				$	(363,520)			$	(87)			$	385,083

																				Three-Month Period Ended June 30, 2022
																				Common Stock						Additional Paid-in Capital					Accumulated Deficit				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity
																				Shares			Amount
Balance—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

		Three Months Ended March 31, 2021																		Six-Month Period Ended June 30, 2021
		Common Stock			Additional Paid-in Capital				Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity				Common Stock						Additional Paid-in Capital					Accumulated Deficit				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity
		Shares	Amount								Shares								Amount
Balance—December 31, 2020	Balance—December 31, 2020	45,346	$	45			$	742,389						$	(330,352)			$	312		$	412,394	Balance—December 31, 2020		45,346			$	45				$	742,389			$	(330,352)			$	312			$	412,394

Impact of equity compensation plans	Impact of equity compensation plans	277	1		(3,905)				—			—				(3,904)			Impact of equity compensation plans	535			1				6,255					—				—				6,256
Other comprehensive loss	Other comprehensive loss	—	—		—				—			(330)				(330)			Other comprehensive loss	—			—			—					—				(399)				(399)
Net loss	Net loss	—	—		—				(16,917)			—				(16,917)			Net loss	—			—			—					(33,168)				—				(33,168)
Balance—March 31, 2021		45,623	$	46	$	738,484			$	(347,269)		$	(18)			$	391,243
Balance—June 30, 2021																			Balance—June 30, 2021	45,881			$	46		$	748,644				$	(363,520)			$	(87)			$	385,083

		Three Months Ended March 31, 2022																		Six-Month Period Ended June 30, 2022
		Common Stock			Additional Paid-in Capital				Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity				Common Stock						Additional Paid-in Capital					Accumulated Deficit				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity
		Shares	Amount								Shares								Amount
Balance—December 31, 2021	Balance—December 31, 2021	46,016	$	46			$	764,811						$	(280,153)			$	(948)		$	483,756	Balance—December 31, 2021		46,016			$	46				$	764,811			$	(280,153)			$	(948)			$	483,756
Impact of equity compensation plans	Impact of equity compensation plans	252	—		(3,231)				—			—				(3,231)			Impact of equity compensation plans	407			—				6,374					—				—				6,374
Other comprehensive loss	Other comprehensive loss	—	—		—				—			(2,517)				(2,517)			Other comprehensive loss	—			—			—					—				(3,396)				(3,396)
Net loss	Net loss	—	—		—				(15,183)			—				(15,183)			Net loss	—			—			—					(30,024)				—				(30,024)
Balance—March 31, 2022		46,268	$	46	$	761,580			$	(295,336)		$	(3,465)			$	462,825
Balance—June 30, 2022																			Balance—June 30, 2022	46,423			$	46		$	771,185				$	(310,177)			$	(4,344)			$	456,710

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(15,183)	$	(16,917)	Net loss	$	(30,024)	$	(33,168)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense	Share-based compensation expense	7,049		6,604		Share-based compensation expense	14,573		13,745
Depreciation	Depreciation	1,895		1,884		Depreciation	3,861		3,815
Amortization of intangible assets	Amortization of intangible assets	972		238		Amortization of intangible assets	1,943		965
Amortization of deferred financing costs	Amortization of deferred financing costs	128		124		Amortization of deferred financing costs	255		249
Loss on disposal of property and equipment	Loss on disposal of property and equipment	18		17		Loss on disposal of property and equipment	25		52
Amortization of investments	Amortization of investments	559		555		Amortization of investments	983		1,206
Change in fair value of contingent consideration	Change in fair value of contingent consideration	—		2,500		Change in fair value of contingent consideration	—		5,100

Other non-cash adjustments to income		320		254
Other non-cash adjustments						Other non-cash adjustments	654		472
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(7,950)		(6,696)		Accounts receivable	(8,757)		(10,799)
Inventories	Inventories	(1,934)		(1,264)		Inventories	(2,727)		(2,707)
Other current assets	Other current assets	(1,581)		(891)		Other current assets	32		(308)
Accounts payable	Accounts payable	1,729		2,835		Accounts payable	4,240		3,571
Accrued liabilities	Accrued liabilities	(10,701)		1,799		Accrued liabilities	(5,136)		4,529
Other noncurrent assets and liabilities	Other noncurrent assets and liabilities	47		(358)		Other noncurrent assets and liabilities	(325)		(571)
Net cash used in operating activities	Net cash used in operating activities	(24,632)		(9,316)		Net cash used in operating activities	(20,403)		(13,849)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Purchases of available-for-sale securities						Purchases of available-for-sale securities	(3,941)		(94,817)
Sales and maturities of available-for-sale securities	Sales and maturities of available-for-sale securities	23,103		64,913		Sales and maturities of available-for-sale securities	51,749		147,884
Purchases of property and equipment	Purchases of property and equipment	(3,381)		(1,326)		Purchases of property and equipment	(7,565)		(5,539)

Net cash provided by investing activities	Net cash provided by investing activities	19,722		63,587		Net cash provided by investing activities	40,243		47,528
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Payments on leases	Payments on leases	(217)		(198)		Payments on leases	(437)		(399)

Proceeds from stock option exercises		355		4,588
Proceeds from stock option exercises and employee stock purchase plan						Proceeds from stock option exercises and employee stock purchase plan	3,374		9,010
Shares repurchased for payment of taxes on stock awards	Shares repurchased for payment of taxes on stock awards	(10,635)		(15,097)		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	(10,497)		(10,707)		Net cash used in financing activities	(8,636)		(7,889)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(106)		(128)		Effect of exchange rate changes on cash and cash equivalents	(302)		(115)
Net (decrease) increase in cash and cash equivalents		(15,513)		43,436
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	10,902		25,675
Cash and cash equivalents—beginning of period	Cash and cash equivalents—beginning of period	43,654		41,944		Cash and cash equivalents—beginning of period	43,654		41,944
Cash and cash equivalents—end of period	Cash and cash equivalents—end of period	$	28,141	$	85,380	Cash and cash equivalents—end of period	$	54,556	$	67,619
Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid for interest	Cash paid for interest	$	866	$	1,066	Cash paid for interest	$	1,797	$	2,147
Cash paid for income taxes, net of refunds	Cash paid for income taxes, net of refunds	50		47		Cash paid for income taxes, net of refunds	132		128
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Accrued purchases of property and equipment	Accrued purchases of property and equipment	1,558		239		Accrued purchases of property and equipment	2,562		529

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

1.DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business—The “Company” or “AtriCure” consists of AtriCure, Inc. and its wholly-owned subsidiaries. The Company is a leading innovator in surgical treatments and therapies for atrial fibrillation (Afib), 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.

Basis of Presentation—The accompanying interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). All intercompany accounts and transactions have been eliminated in consolidation. The accompanying interim financial statements are unaudited, but in the opinion of the Company’s management, contain all normal, recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America (GAAP) applicable to interim periods. Certain information and footnote disclosures included in annual financial statements prepared in accordance with GAAP have been omitted or condensed. The Company believes the disclosures herein are adequate to make the information presented not misleading. Results of operations are not necessarily indicative of the results expected for the full year or for any future period.

The accompanying interim 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, 2021 filed with the SEC. ~~All intercompany accounts and transactions have been eliminated in consolidation.~~

There have been no changes in the Company's significant accounting policies for the ~~three~~six months ended ~~March 31,~~June 30, 2022 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.

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.

Segments—The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied only by information about revenue by product type and geographic area, for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating segment. The Company’s long-lived assets are located primarily in the United States, except for ~~$1,321~~$1,516 as of ~~March 31,~~June 30, 2022 and $1,399 as of December 31, 2021 located primarily in Europe.

Net Loss Per Share—Basic and diluted net loss per share is computed by dividing the net loss by the weighted average number of shares 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 ~~1,567~~1,548 and ~~1,955~~1,807 stock options, restricted shares, restricted stock units and performance award shares as of ~~March 31,~~June 30, 2022 and 2021 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.

2.FAIR VALUE

The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 820, “Fair Value Measurements and Disclosures” (ASC 820), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three 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.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of ~~March 31,~~June 30, 2022:


		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	—	$	25,244	$	—	$	25,244	Money market funds	$	—	$	48,832	$	—	$	48,832
Commercial paper	Commercial paper	—		22,989		—		22,989		Commercial paper	—		15,940		—		15,940
Government and agency obligations	Government and agency obligations	31,919		—		—		31,919		Government and agency obligations	31,735		—		—		31,735
Corporate bonds	Corporate bonds	—		84,059		—		84,059		Corporate bonds	—		66,789		—		66,789
Asset-backed securities	Asset-backed securities	—		14,803		—		14,803		Asset-backed securities	—		13,729		—		13,729
Total assets	Total assets	$	31,919	$	147,095	$	—	$	179,014	Total assets	$	31,735	$	145,290	$	—	$	177,025

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three and six months ended ~~March 31,~~June 30, 2022.

The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2021:


	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

Contingent Consideration. The Company’s contingent consideration arrangements arising from the SentreHEART acquisition obligate the Company to pay certain defined amounts to former shareholders of SentreHEART if specified milestones are met related to the aMAZE IDE clinical trial, including PMA approval and reimbursement for the therapy involving SentreHEART’s devices. The Company has assessed the projected probability of payment during the contractual achievement periods to be remote, resulting in no remaining fair value as of ~~March 31,~~June 30, 2022 and December 31, 2021.

3.INVENTORIES

Inventories consist of the following:


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Raw materials	Raw materials	$	13,709	$	12,653	Raw materials	$	14,235	$	12,653
Work in process	Work in process	2,497		2,064		Work in process	2,742		2,064
Finished goods	Finished goods	24,556		24,247		Finished goods	24,315		24,247
Total	Total	$	40,762	$	38,964	Total	$	41,292	$	38,964

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

4.INTANGIBLE ASSETS

The following table provides a summary of the Company’s intangible assets:

March 31, 2022 December 31, 2021
Estimated Useful Life Cost Accumulated
Amortization Cost Accumulated
Amortization
Technology 10 - 15 years $ 55,712 $ 13,692 $ 55,712 $ 12,720
Total $ 55,712 $ 13,692 $ 55,712 $ 12,720


		June 30, 2022				December 31, 2021
	Estimated Useful Life	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Technology	10 - 15 years	$	55,712	$	14,663	$	55,712	$	12,720

Amortization expense of intangible assets was ~~$972~~$971 and ~~$238~~$727 for the three months ended ~~March 31,~~June 30, 2022 and 2021 and $1,943 and $965 for the six months ended June 30, 2022 and 2021. Future amortization expense is projected as follows:


2022 (excluding the three months ended March 31, 2022)		$	2,681
2022 (excluding the six months ended June 30, 2022)				2022 (excluding the six months ended June 30, 2022)	$	1,710
2023	2023	2,953		2023	2,953
2024	2024	2,953		2024	2,953
2025	2025	2,953		2025	2,953
2026	2026	2,953		2026	2,953
2027 and thereafter	2027 and thereafter	27,527		2027 and thereafter	27,527
Total	Total	$	42,020	Total	$	41,049

5.ACCRUED LIABILITIES

Accrued liabilities consist of the following:


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Accrued compensation and employee-related expenses	Accrued compensation and employee-related expenses	$	20,305	$	30,990	Accrued compensation and employee-related expenses	$	25,197	$	30,990
Sales returns and allowances	Sales returns and allowances	2,173		2,416		Sales returns and allowances	2,613		2,416
Accrued taxes and value-added taxes payable	Accrued taxes and value-added taxes payable	1,592		1,452		Accrued taxes and value-added taxes payable	1,572		1,452
Accrued royalties		774		754
Other accrued liabilities	Other accrued liabilities	477		480		Other accrued liabilities	1,393		1,234
Total	Total	$	25,321	$	36,092	Total	$	30,775	$	36,092

6.INDEBTEDNESS

Credit Facility. The Company has a Loan and Security Agreement, as amended and modified effective November 1, 2021 (Loan Agreement), with Silicon Valley Bank (SVB). The Loan Agreement includes a $60,000 term loan, a $30,000 revolving line of credit, and an option ~~to make available~~for an additional $30,000 in term loan borrowings. The Loan Agreement has a five year term, expiring November 2026.

Principal payments under the Loan Agreement are to be made ratably commencing 24 months after inception through the loan's maturity date. At the option of the Company, the commencement of term loan principal payments may be extended an additional twelve months. The term loan accrues interest at the Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. The Company is accruing the 3.00% fee over the term of the Loan Agreement, with ~~$150~~$240 included in the outstanding loan balance as of ~~March 31,~~June 30, 2022. Additionally, the unamortized original financing costs related to the term loan of ~~$302~~$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.

The revolving line of credit is subject to an annual facility fee of 0.20% ~~of the revolving line of credit,~~, and any borrowings thereunder bear interest at the Prime Rate. Borrowing availability under the revolving credit facility is based on the lesser of $30,000 or a borrowing base calculation as defined by the Loan Agreement. As of ~~March 31,~~June 30, 2022, the Company had no borrowings under the revolving credit facility and had borrowing availability of ~~approximately~~ $28,750. ~~Financing costs related~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

~~to the revolving line of credit are included in other assets in the Condensed Consolidated Balance Sheets and amortized ratably over the twelve-month period of the annual fee.~~

The Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes a minimum liquidity covenant and dividend restrictions, along with other customary terms and conditions. Specified assets have been pledged as collateral.

Future maturities of long-term debt, excluding the term loan final fee, are projected as follows:


2022 (excluding the three months ended March 31, 2022)		$	—
2022 (excluding the six months ended June 30, 2022)				2022 (excluding the six months ended June 30, 2022)	$	—
2023	2023	3,333		2023	3,333
2024	2024	20,000		2024	20,000
2025	2025	20,000		2025	20,000
2026	2026	16,667		2026	16,667
Total long-term debt	Total long-term debt	$	60,000	Total long-term debt	$	60,000

7.LEASES

The Company has operating and finance leases for ~~offices,~~office, manufacturing and warehouse facilities and ~~computer~~ equipment. The Company’s leases have remaining lease terms of less than one year to nine 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.

The weighted average remaining lease term and the discount rate for the reporting periods are as follows:


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Operating Leases	Operating Leases					Operating Leases
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)	5.0		3.6		Weighted average remaining lease term (years)	4.8		3.6
Weighted average discount rate	Weighted average discount rate	4.69	%	4.69	%	Weighted average discount rate	4.66	%	4.69	%

Finance leases
Finance Leases						Finance Leases
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)	8.4		8.6		Weighted average remaining lease term (years)	8.1		8.6
Weighted average discount rate	Weighted average discount rate	6.92	%	6.91	%	Weighted average discount rate	6.92	%	6.91	%

A $1,250 letter of credit issued to the lessor of the Company's corporate headquarters building is renewed annually and remains outstanding as of ~~March 31,~~June 30, 2022.

The components of lease expense are as follows:


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021			2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	286	$	279	Operating lease cost	$	284	$	203	$	570	$	481

Finance lease cost:	Finance lease cost:					Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	169		256		Amortization of right-of-use assets	338		242		508		484
Interest on lease liabilities	Interest on lease liabilities	189		203		Interest on lease liabilities	185		200		375		403
Total finance lease cost	Total finance lease cost	$	358	$	459	Total finance lease cost	$	523	$	442	$	883	$	887

Short-term lease expense was not significant for the three and six months ended ~~March 31,~~June 30, 2022 and 2021.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

Supplemental cash flow information related to leases was as follows:

Three Months Ended
March 31, 2022 Three Months Ended
March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 251 $ 331
Operating cash flows from finance leases 189 203
Financing cash flows from finance leases 217 198

~~No right-of-use assets were obtained in exchange for lease obligations during the three months ended March 31, 2022 and 2021.~~


	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021
Cash 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	—		—

Supplemental balance sheet information related to leases was as follows:


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Operating Leases	Operating Leases					Operating Leases
Operating lease right-of-use assets	Operating lease right-of-use assets	$	4,509	$	4,761	Operating lease right-of-use assets	$	4,241	$	4,761

Current maturities of leases	Current maturities of leases	845		861		Current maturities of leases	884		861
Operating lease liabilities	Operating lease liabilities	3,865		4,068		Operating lease liabilities	3,591		4,068
Total operating lease liabilities	Total operating lease liabilities	$	4,710	$	4,929	Total operating lease liabilities	$	4,475	$	4,929

Finance Leases	Finance Leases					Finance Leases
Property and equipment, at cost	Property and equipment, at cost	$	14,607	$	14,607	Property and equipment, at cost	$	14,607	$	14,607
Accumulated depreciation	Accumulated depreciation	(6,285)		(6,116)		Accumulated depreciation	(6,624)		(6,116)
Property and equipment, net	Property and equipment, net	$	8,322	$	8,491	Property and equipment, net	$	7,983	$	8,491

Current maturities of leases	Current maturities of leases	$	915	$	895	Current maturities of leases	$	936	$	895
Finance lease liabilities	Finance lease liabilities	9,845		10,082		Finance lease liabilities	9,603		10,082
Total finance lease liabilities	Total finance lease liabilities	$	10,760	$	10,977	Total finance lease liabilities	$	10,539	$	10,977

~~Maturities~~Future maturities of lease liabilities as of ~~March 31,~~June 30, 2022 were as follows:


		Operating Leases		Finance Leases			Operating Leases		Finance Leases
2022 (excluding the three months ended March 31, 2022)		$	610	$	1,223
2022 (excluding the six months ended June 30, 2022)						2022 (excluding the six months ended June 30, 2022)	$	356	$	817
2023	2023	1,160		1,652		2023	1,160		1,652
2024	2024	1,164		1,674		2024	1,164		1,674
2025	2025	920		1,625		2025	920		1,625
2026	2026	592		1,657		2026	592		1,657
2027 and thereafter	2027 and thereafter	868		6,515		2027 and thereafter	868		6,515
Total payments	Total payments	$	5,314	$	14,346	Total payments	$	5,060	$	13,940
Less imputed interest	Less imputed interest	(604)		(3,586)		Less imputed interest	(585)		(3,401)
Total	Total	$	4,710	$	10,760	Total	$	4,475	$	10,539

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

8.COMMITMENTS AND CONTINGENCIES

Royalty ~~Agreements.~~Agreement. The Company has a royalty agreement in place with terms that include payment of royalties of 5% of specified product sales. The agreement terminates the later of 2023 or upon expiration of the underlying patents or patent applications, which is expected to occur after 2023. Parties to the royalty agreement have the right at any time to terminate the agreement immediately for cause. Royalty expense of ~~$794~~$877 and ~~$722~~$842 was recorded for the three months ended June 30, 2022 and 2021 and $1,670 and $1,564 for the six months ended June 30, 2022 and 2021 as a component of Cost of Revenue in the accompanying Condensed and Consolidated Statement of ~~Operations for the three months ended March 31, 2022 and 2021.~~Operations.

Purchase Agreements. The Company enters into standard purchase agreements with vendors in the ordinary course of business, generally with terms that allow cancellation.

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 can be reasonably estimated.

The Company received a Civil Investigative Demand (CID) from the U.S. Department of Justice (USDOJ) in December 2017 stating that it is investigating the Company to determine whether the Company has violated the False Claims Act, relating to the promotion of certain medical devices related to the treatment of atrial fibrillation for off-label use and submitted or caused to be submitted false claims to certain federal and state health care programs for medically unnecessary healthcare services related to the treatment of atrial fibrillation. The CID covers the period from January 2010 to December 2017 and required the production of documents and answers to written interrogatories. The Company had no knowledge of the investigation prior to receipt of the CID. The Company maintains rigorous policies and procedures to promote compliance with the False Claims Act and other applicable regulatory requirements. The Company provided the USDOJ with documents and answers to the written interrogatories. In March 2021, USDOJ informed the Company that its investigation was based on a lawsuit brought on behalf of the United States and ~~the~~ various state and local ~~government~~governments under the qui tam provisions of federal and certain state and local False Claims Acts. Although the USDOJ and all of the state and local governments declined to intervene, the relator continues to pursue the case. While the Company is vigorously contesting the case, it 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.

During the first quarter, the Company received a 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 royalties. The Company disputes the basis of the claim and any potential underpayment. While a loss related to this claim is possible, the Company does not believe such loss is probable or estimable at this time.

9.REVENUE

The Company develops, manufactures and sells devices designed primarily for ~~the~~ surgical ablation of cardiac tissue, ~~the~~ exclusion of the left atrial appendage, and blocking pain by temporarily ablating peripheral nerves. These devices are developed and marketed to a broad base of medical 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 goods.

In the quarter ended March 31, 2022, the Company changed the presentation of its disaggregated revenue within the notes to the Condensed Consolidated Financial Statements to align with current product line offerings. Specifically, pain management revenue, representing sales of the cryoSPHERE® product, was historically presented within open ablation revenue and is now a separately stated revenue product type. Valve revenue, historically presented as a separate product type revenue, is now included in open ablation revenue. Revenue amounts for comparative prior fiscal periods have been reclassified to conform to the current period presentation.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

~~Revenue reclassified by product type for 2021 is as follows:~~

Three Months Ended
March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021
United States Revenue:
Open ablation $ 17,439 $ 19,503 $ 17,893 $ 17,561
Minimally invasive ablation 8,385 9,702 9,990 11,303
Pain management 3,898 5,709 6,253 6,927
Total ablation 29,722 34,914 34,136 35,791
Appendage management 20,587 25,156 23,401 25,424
Total United States $ 50,309 $ 60,070 $ 57,537 $ 61,215
International Revenue:
Open ablation $ 4,434 $ 5,526 $ 6,690 $ 6,544
Minimally invasive ablation 1,274 1,575 1,849 1,711
Pain management — 11 11 39
Total ablation 5,708 7,112 8,550 8,294
Appendage management 3,258 4,194 4,373 3,709
Total International $ 8,966 $ 11,306 $ 12,923 $ 12,003
Total revenue $ 59,275 $ 71,376 $ 70,460 $ 73,218

United States revenue by product type is as follows:


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021			2022		2021		2022		2021
Open ablation	Open ablation	$	18,974	$	17,439	Open ablation	$	22,070	$	19,503	$	41,044	$	36,942
Minimally invasive ablation	Minimally invasive ablation	8,615		8,385		Minimally invasive ablation	10,154		9,702		18,769		18,087
Pain management	Pain management	8,014		3,898		Pain management	10,210		5,709		18,224		9,607
Total ablation	Total ablation	$	35,603	$	29,722	Total ablation	$	42,434	$	34,914	$	78,037	$	64,636
Appendage management	Appendage management	26,669		20,587		Appendage management	28,831		25,156		55,500		45,743
Total United States	Total United States	$	62,272	$	50,309	Total United States	$	71,265	$	60,070	$	133,537	$	110,379

International revenue by product type is as follows:

Three Months Ended
March 31,
2022 2021
Open ablation $ 6,492 $ 4,434
Minimally invasive ablation 1,533 1,274
Pain management 140 —
Total ablation $ 8,165 $ 5,708
Appendage management 4,139 3,258
Total International $ 12,304 $ 8,966

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~~ATRICURE, INC. AND SUBSIDIARIES~~

~~NOTES 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
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

Revenue attributed to customer geographic locations is as follows:


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021			2022		2021		2022		2021
United States	United States	$	62,272	$	50,309	United States	$	71,265	$	60,070	$	133,537	$	110,379
Europe	Europe	7,237		5,766		Europe	7,783		7,015		15,020		12,781
Asia	Asia	4,557		2,873		Asia	4,933		4,088		9,490		6,961
Other International	Other International	510		327		Other International	548		203		1,058		530
Total International	Total International	12,304		8,966		Total International	13,264		11,306		25,568		20,272
Total revenue		$	74,576	$	59,275
Total Revenue						Total Revenue	$	84,529	$	71,376	$	159,105	$	130,651

10.INCOME TAX PROVISION

The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company uses the asset and liability method to determine its provision for income taxes. The Company’s provision for income taxes in interim periods is computed by applying the discrete method and is based on financial results through the end of the interim period. The Company determined that using the discrete method is more appropriate than using the annual effective tax rate method. The Company is unable to estimate the annual effective tax rate with sufficient precision to use the effective tax rate method, which requires a full-year projection of income. The effective tax rate for the three months ended ~~March 31,~~June 30, 2022 and 2021 was ~~(0.37%~~(0.30%) and ~~(0.18%~~(0.41%). The effective tax rate for the six months ended June 30, 2022 and 2021 was (0.34%) and (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.

Federal, state and local returns of the Company are routinely subject to review by various taxing authorities. The Company has not accrued any interest and penalties related to unrecognized income tax benefits as a result of offsetting of net operating losses. However, if required, the Company will recognize interest and penalties within income tax expense and within the related tax liability.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

11.EQUITY COMPENSATION PLANS

The Company has 2 share-based incentive plans: the 2014 Stock Incentive Plan (2014 Plan) and the 2019 Employee Stock Purchase Plan (ESPP).

Stock Incentive Plan

Under the 2014 Plan, the Board of Directors may grant incentive stock options to Company employees and may grant restricted stock awards, restricted stock units, nonstatutory stock options, performance share awards and 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 ~~March 31,~~June 30, 2022, 12,899 shares of common stock had been reserved for issuance under the 2014 Plan, and ~~1,152~~1,076 shares were available for future grants. At the Company's 2022 Annual Meeting of Stockholders, stockholders approved an amendment to the 2014 Plan increasing the shares authorized under the 2014 Plan by 1,100.

Employee Stock Purchase Plan

Under the ESPP, shares of the Company’s common stock may be purchased at a discount (15%) of the lesser of the closing price of the Company’s common stock on the first or last trading days 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~~or more than 3 shares during an offering period. As of ~~March 31,~~June 30, 2022, there were ~~305~~228 shares available for future issuance under the ESPP.

Share-Based Compensation Expense Information

The following table summarizes the allocation of share-based compensation expense:


	Three 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

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

~~Share-Based Compensation Expense Information~~

~~The following table summarizes the allocation of share-based compensation expense:~~

Three Months Ended
March 31,
2022 2021
Cost of revenue $ 571 $ 419
Research and development expenses 1,130 937
Selling, general and administrative expenses 5,348 5,248
Total $ 7,049 $ 6,604

12.COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE LOSS

In addition to net losses, comprehensive loss includes foreign currency translation adjustments and unrealized gains (losses) on investments.

Accumulated other comprehensive loss consisted of the following, net of tax:


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021			2022		2021		2022		2021
Total accumulated other comprehensive (loss) income at beginning of period	Total accumulated other comprehensive (loss) income at beginning of period	$	(948)	$	312	Total accumulated other comprehensive (loss) income at beginning of period	$	(3,465)	$	(18)	$	(948)	$	312
Unrealized Gains (Losses) on Investments	Unrealized Gains (Losses) on Investments					Unrealized Gains (Losses) on Investments
Balance at beginning of period	Balance at beginning of period	$	(887)	$	54	Balance at beginning of period	$	(3,226)	$	23	$	(887)	$	54
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(2,339)		(31)		Other comprehensive loss before reclassifications	(377)		(132)		(2,716)		(163)
Amounts reclassified from accumulated other comprehensive loss to other income (expense)	Amounts reclassified from accumulated other comprehensive loss to other income (expense)	—		—		Amounts reclassified from accumulated other comprehensive loss to other income (expense)	(72)		—		(72)		—
Balance at end of period	Balance at end of period	$	(3,226)	$	23	Balance at end of period	$	(3,675)	$	(109)	$	(3,675)	$	(109)
Foreign Currency Translation Adjustment	Foreign Currency Translation Adjustment					Foreign Currency Translation Adjustment
Balance at beginning of period	Balance at beginning of period	$	(61)	$	258	Balance at beginning of period	$	(239)	$	(41)	$	(61)	$	258
Other comprehensive loss before reclassifications		(261)		(298)
Other comprehensive income (loss) before reclassifications						Other comprehensive income (loss) before reclassifications	(527)		36		(787)		(262)
Amounts reclassified from accumulated other comprehensive loss to other income (expense)	Amounts reclassified from accumulated other comprehensive loss to other income (expense)	83		(1)		Amounts reclassified from accumulated other comprehensive loss to other income (expense)	97		27		179		26
Balance at end of period	Balance at end of period	$	(239)	$	(41)	Balance at end of period	$	(669)	$	22	$	(669)	$	22
Total accumulated other comprehensive loss at end of period	Total accumulated other comprehensive loss at end of period	$	(3,465)	$	(18)	Total accumulated other comprehensive loss at end of period	$	(4,344)	$	(87)	$	(4,344)	$	(87)

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollar amounts referenced in this Item 2 are in thousands, except per share amounts.)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and notes thereto contained in Item 1 of Part I of this Form 10-Q and our audited financial statements and notes thereto as of and for the year ended December 31, 2021 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.

Forward-Looking Statements

This Form 10-Q, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” contains forward-looking statements regarding our future performance. All forward-looking information is inherently uncertain and actual results may differ materially from assumptions, estimates or expectations reflected or contained in the forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this quarterly report on Form 10-Q, and in our annual report on Form 10-K for the year ended December 31, 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.

Overview

We are a leading innovator in treatments for atrial fibrillation (Afib), left atrial appendage (LAA) management and post-operative pain management. ~~According to the American Heart Association,~~ Afib affects 1-2% of the population in the United ~~States.~~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 ~~and~~with catheter ablation.

We believe that we are currently the market leader in the surgical treatment of Afib. 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 Afib concomitant to other open-heart surgical procedures. ~~The~~Our EPi-Sense® System is approved by FDA to treat patients with long-standing persistent Afib. All of our other ablation devices are cleared for sale in the United States under FDA 510(k) clearances, including our other radio 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, or Cryo Nerve Block therapy. Our AtriClip® LAA Exclusion System products are 510(k)-cleared with an indication for the exclusion of the 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 labeling

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~~to expand labeling~~ claims or to support indications specifically for the treatment of ~~Afib.~~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® 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.

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, ~~and~~ the Benelux ~~region.~~region and Australia. We also sell our products through 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. ~~The majority of direct~~Direct sales transactions outside the United States are transacted in Euros, British Pounds or ~~the British Pound.~~Australian Dollars.

Recent Developments

During ~~early~~ 2022, we ~~experienced~~continued to experience variability and intermittent demand for our products as non-emergent procedures were deferred in order to preserve resources for COVID-19 patients and caregivers and hospital staffing was impacted by the pandemic and related factors. We saw many regions stabilize through the quarter with overall improvements in procedure volumes. However, we expect ~~this~~some variability to continue as we operate in many geographic regions with diverse restrictions that are impacted as new COVID-19 variants emerge. ~~However, we saw many regions stabilize at the end of the first quarter of 2022 with improvements in procedure volumes.~~ Despite the challenging environment resulting from the pandemic, 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.

PRODUCT INNOVATION. ~~Recently,~~During the first half of 2022, we ~~announced the launch of the new EnCompass Clamp~~launched our ENCOMPASS®, clamp, following the receipt of 510(k) clearance for ablation of cardiac tissue during cardiac surgery in July 2021. The ~~EnCompass~~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.

CLINICAL SCIENCE. We continue to invest in studies to expand labeling claims or support various indications for ~~the treatment of Afib,~~our products, and we also conduct various studies to gather clinical data regarding our products.

HEAL-IST. In February 2022, FDA approved the protocol for the Hybrid Epicardial and Endocardial Sinus Node Sparing Ablation Therapy for Inappropriate Sinus Tachycardia (IST) clinical trial (HEAL-IST) ~~clinical trial.~~. The HEAL-IST clinical trial is designed to study the safety and efficacy of a hybrid sinus node sparing ablation procedure using the Isolator Synergy Surgical Ablation System for the treatment of symptomatic, drug refractory or drug intolerant IST. The trial is a prospective, multicenter, single arm trial that evaluates safety 30 days post-procedure and evaluates primary effectiveness of freedom from IST (as specified) at 12 months post-procedure. The trial provides for enrollment of up to 142 patients at up to 40 sites in the United States, United Kingdom and European Union. ~~The Company anticipates~~We announced the first patient enrollment ~~to begin this year.~~in the trial in June 2022; site initiation and enrollment is ongoing.

LeAAPS. In April 2022, FDA approved the protocol for the Left Atrial Appendage Exclusion for Prophylactic Stroke Reduction (LeAAPS) IDE clinical trial. The trial is designed to evaluate the effectiveness of prophylactic LAA exclusion using the AtriClip LAA Exclusion System for the prevention of ischemic stroke or systemic arterial embolism in cardiac surgery patients without pre-operative AF diagnosis who are at risk for these events. The trial is a prospective, multicenter, randomized trial that evaluates safety at 30 days post-procedure to demonstrate no increased risk with LAA exclusion during cardiac surgery. The trial provides for enrollment of up to 6,500 subjects at up to 250 sites worldwide. The Company anticipates enrollment to begin later this year.

TRAINING. Our professional education and marketing teams conduct virtual, in-person and mobile training for physicians and our sales ~~team.~~teams. These training methods ensure invaluable access to continuing education and awareness of our products and related procedures. The 2021 FDA approval of the EPi-Sense system has enabled us to educate and train physicians on the benefits of Hybrid AF™ therapy in treating long-standing persistent Afib patients. Our Hybrid Training Course isand Advanced Hybrid Ablation Training Course are co-sponsored by the Hearth Rhythm Society (HRS).

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Results of Operations

Three months ended ~~March 31,~~June 30, 2022 compared to three months ended ~~March 31,~~June 30, 2021

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of revenue:


		Three Months Ended March 31,									Three Months Ended June 30,
		2022				2021					2022				2021
		Amount		% of Revenues		Amount		% of Revenues			Amount		% of Revenues		Amount		% of Revenues
Revenue	Revenue	$	74,576	100.0	%	$	59,275	100.0	%	Revenue	$	84,529	100.0	%	$	71,376	100.0	%
Cost of revenue	Cost of revenue	18,981		25.5	%	14,735		24.9	%	Cost of revenue	21,010		24.9	%	17,298		24.2	%
Gross profit	Gross profit	55,595		74.5	%	44,540		75.1	%	Gross profit	63,519		75.1	%	54,078		75.8	%
Operating expenses:	Operating expenses:									Operating expenses:
Research and development expenses	Research and development expenses	13,629		18.3	%	11,217		18.9	%	Research and development expenses	14,791		17.5	%	12,197		17.1	%
Selling, general and administrative expenses	Selling, general and administrative expenses	56,116		75.2	%	49,208		83.0	%	Selling, general and administrative expenses	62,388		73.8	%	56,958		79.8	%

Total operating expenses	Total operating expenses	69,745		93.5	%	60,425		101.9	%	Total operating expenses	77,179		91.3	%	69,155		96.9	%
Loss from operations	Loss from operations	(14,150)		(19.0)	%	(15,885)		(26.8)	%	Loss from operations	(13,660)		(16.2)	%	(15,077)		(21.1)	%
Other expense, net:	Other expense, net:	(977)		(1.3)	%	(1,001)		(1.7)	%	Other expense, net:	(1,136)		(1.3)	%	(1,108)		(1.6)	%
Loss before income tax expense	Loss before income tax expense	(15,127)		(20.3)	%	(16,886)		(28.5)	%	Loss before income tax expense	(14,796)		(17.5)	%	(16,185)		(22.7)	%
Income tax expense	Income tax expense	56		0.1	%	31		0.1	%	Income tax expense	45		0.1	%	66		0.1	%
Net loss	Net loss	$	(15,183)	(20.4)	%	$	(16,917)	(28.5)	%	Net loss	$	(14,841)	(17.6)	%	$	(16,251)	(22.8)	%

Revenue. The 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 March 31,				Change					Three Months Ended June 30,				Change
		2022		2021		Amount		%			2022		2021		Amount		%
Open ablation	Open ablation	$	18,974	$	17,439	$	1,535	8.8	%	Open ablation	$	22,070	$	19,503	$	2,567	13.2	%
Minimally invasive ablation	Minimally invasive ablation	8,615		8,385		230		2.7	%	Minimally invasive ablation	10,154		9,702		452		4.7	%
Pain management	Pain management	8,014		3,898		4,116		105.6	%	Pain management	10,210		5,709		4,501		78.8	%
Appendage management	Appendage management	26,669		20,587		6,082		29.5	%	Appendage management	28,831		25,156		3,675		14.6	%
Total United States	Total United States	$	62,272	$	50,309	$	11,963	23.8	%	Total United States	$	71,265	$	60,070	$	11,195	18.6	%
Total International	Total International	12,304		8,966		3,338		37.2	%	Total International	13,264		11,306		1,958		17.3	%
Total revenue	Total revenue	$	74,576	$	59,275	$	15,301	25.8	%	Total revenue	$	84,529	$	71,376	$	13,153	18.4	%

Worldwide revenue increased ~~25.8% (26.7%~~18.4% (19.8% on a constant currency basis). In the United States, we experienced growth ~~across~~in most of our key product ~~lines~~lines. Physician acceptance of our cryoSPHERE® probe for post-operative pain management and ~~franchises.~~expanded sales efforts drove growth in pain management revenue. Appendage management ~~and pain management~~ sales ~~increases~~ were driven by ~~sales~~continuing adoption of ~~the~~our AtriClip® Flex⋅V® ~~device~~ and ~~cryoSPHERE~~Pro⋅V® ~~probe. The soft~~devices, while the launch of the new ~~EnCompass Clamp contributed to the~~ENCOMPASS clamp accelerated growth in our open ablation ~~sales growth, while~~revenue. While minimally invasive procedures continue to experience residual impacts from the pandemic and staffing, we saw growing adoption of the EPi-Sense® System ~~alone drove increases~~ 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.~~ablation products. International sales increased ~~37.2% (43.1%~~17.3% (26.3% on a constant currency basis), ~~rising across all major franchises due~~a result of rebounding procedure volumes in Europe, primarily toin the ~~Asian markets~~Netherlands and ~~our direct markets in the~~ United Kingdom, and ~~Germany.~~growth in Australia. The increase in international revenue was driven mainly by our appendage management business which grew 35.1%.

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Revenue reported on a constant currency basis is a non-GAAP measure and is calculated by applying previous period foreign currency (Euro) exchange rates, which are determined by the average daily Euro to Dollar exchange rate, to each of the comparable periods. Revenue is analyzed on a constant currency basis to better measure the comparability of results between periods. Because changes in foreign currency exchange rates have a non-operating impact on revenue, we believe that evaluating growth in revenue on a constant currency basis provides an additional and meaningful assessment of revenue to both management and investors.

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Cost of revenue and gross margin. Cost of revenue increased ~~$4,246,~~$3,712, reflecting higher sales volumes, while gross margin decreased approximately 6070 basis points, reflecting ~~geographic and~~changes in U.S. product mix ~~between periods~~ and cost ~~increases.~~increases driven by inflationary and supply chain pressures.

Research and development expenses. Research and development expenses increased ~~$2,412~~$2,594 or ~~21.5%~~21.3%. Personnel costs ~~grew $995~~rose $1,372 from increased headcount as we continue to build our product development, regulatory and clinical teams, and from increased travel ~~activity resumes. Amortization of the technology asset~~costs. Product development and regulatory expenses increased $869 driven mainly by regulatory filings, submissions and consulting related to compliance with the European Union Medical Device Regulation (EU MDR). Amortization expense increased $247 following the April 2021 PMA resulting from the CONVERGE IDE clinical ~~trial, which commenced in April 2021, drove higher depreciation and amortization expense of $730. Finally, share-based compensation increased $193 compared with the prior period.~~trial.

Selling, general and administrative expenses. Selling, general and administrative expenses increased ~~$6,908,~~$5,430, or ~~14.0%~~9.5%. Additional headcount and travel activities of ~~$5,301~~$4,058 drove the increase in expenses, primarily reflecting the expansion of our sales and training teams, while meetings, marketing, trainings and tradeshow activities contributed ~~$2,915~~$2,054 of the increase in expenses as we saw further transition from virtual to in-person events. Other operating costs ~~including IT, legal and administrative expenses~~ grew ~~$768 as~~$838 compared towith the prior ~~period. Partially offsetting these increases was~~period, which includes consulting, professional services and information systems enhancements. Additionally, 2021 included a ~~$2,500~~$2,600 charge for the change in fair value of the SentreHEART contingent consideration liability, as well as a reduction in ~~2021.~~expenses from a one-time tax credit of $759.

Other income (expense). Other income and expense consists primarily of net interest expense and foreign currency transaction gains and losses. Net interest expense decreased $69 primarily due to lower interest expense as a result of the November 2021 amendment of our Loan Agreement.

Six months ended June 30, 2022 compared to six months ended June 30, 2021

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of revenue:


	Six Months Ended June 30,
	2022				2021
	Amount		% of Revenues		Amount		% of Revenues
Revenue	$	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)	%

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	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	%

Worldwide revenue increased ~~$171~~21.8% (23.0% on a constant currency basis). In 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 ~~lower interest income~~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 26.1% (33.7% on a constant currency basis), with procedure volumes rising across all major franchises and regions.

Cost of revenue and gross margin. Cost of revenue increased $7,958, reflecting higher revenue and a decrease in gross margin of approximately 60 basis points, resulting from changes in U.S. product mix and cost inflation and supply chain pressures, slightly offset by geographic mix.

Research and development expenses. Research and development expenses increased $5,006 or 21.4%. 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 April 2021 PMA resulting from the CONVERGE IDE clinical trial.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $12,338, or 11.6%. Additional headcount and travel activities increased $9,459, primarily reflecting the expansion across our teams, as well as a ~~decline~~return to historical travel levels. Additional tradeshow, meetings, physician training and marketing activities contributed $4,969 of the 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 ~~investment yields~~fair value of the SentreHEART contingent consideration liability, partially offset by a one-time tax credit of $759.

Other income (expense). Other income and expense consists primarily of net interest expense and foreign currency transaction gains and losses. Net interest expense decreased $240 primarily due to lower interest expense ~~on the term loan,~~ stemming from the November 2021 ~~refinancing.~~amendment of our Loan Agreement.

Liquidity and Capital Resources

As of ~~March 31,~~June 30, 2022, the Company had cash, cash equivalents and investments of ~~$181,911~~$182,749 and outstanding debt of $60,000. We had unused borrowing capacity of ~~approximately~~ $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 ~~$152,232~~$149,850 and an accumulated deficit of ~~$295,336~~$310,177 as of ~~March 31,~~June 30, 2022.


		Three Months Ended March 31,							Six Months Ended June 30,
		2022		2021		Change			2022		2021		Change
		(dollars in thousands)							(dollars in thousands)
Net cash used in operating activities	Net cash used in operating activities	$	(24,632)	$	(9,316)	$	15,316	Net cash used in operating activities	$	(20,403)	$	(13,849)	$	6,554
Net cash provided by investing activities	Net cash provided by investing activities	19,722		63,587		(43,865)		Net cash provided by investing activities	40,243		47,528		(7,285)
Net cash used in financing activities	Net cash used in financing activities	(10,497)		(10,707)		(210)		Net cash used in financing activities	(8,636)		(7,889)		747

Cash flows used in operating activities. Net cash used in operating activities increased ~~$15,316~~$6,554 in 2022 compared to 2021. This change is driven by the fluctuation in working capital and other assets and liabilities of ~~$15,815, driven by~~$6,389, primarily due to the ~~$12,500~~

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$9,665 reduction in accrued liabilities ~~primarily~~ as a result of higher annual variable compensation payments due to improved operating performance, ~~and~~offset by a ~~$1,254 increase~~$2,042 decrease in accounts ~~receivable as a result of sales growth.~~receivable. The remaining fluctuation is a decrease in the net loss of ~~$1,734,~~$3,144, largely driven by a decrease in non-cash expenses, ~~of $1,235. Fluctuation in non-cash expenses is largely the $2,500~~including $5,100 non-cash impact for the fair value adjustment of the SentreHEART contingent consideration liability in 2021, offset partially by increased amortization of the CONVERGE technology asset.

Cash flows provided by investing activities. Net cash provided by investing activities decreased by ~~$43,865~~$7,285 in 2022 compared to 2021, ~~due to a decrease~~reflecting decreases in net sales and maturities of available-for-sale securities of ~~$41,810, offset by an increase of $2,055 for the purchase~~$5,259 and increased purchases of property and equipment ~~to support~~of $2,026 for the expansion of our manufacturing facilities and new product ~~introductions and construction costs to expand our manufacturing facilities.~~introductions.

Cash flows used in financing activities. Net cash used in financing activities ~~decreased~~increased by ~~$210~~$747 in 2022 ~~due primarily to~~largely reflecting lower stock option exercise activity of ~~$4,233~~$6,090, offset by a decrease of ~~$4,462~~$4,927 in cash tax payments from restricted and performance share ~~vesting.~~vesting and increased proceeds from issuance of shares under ESPP of $453.

Credit facility. Our Loan and Security Agreement, as amended and modified effective November 1, 2021 (Loan Agreement) with Silicon Valley Bank (SVB) provides for a $60,000 term loan, a $30,000 revolving line of credit, and an option to make available an additional $30,000 in term loan borrowings. The Loan Agreement has a five year term, expiring November 2026. Principal payments are 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 principal payments may be extended an additional twelve months. The term loan accrues interest at the Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. As of ~~March 31,~~June 30, 2022, our outstanding debt was $60,000 and is classified as

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noncurrent. We had unused borrowing capacity of ~~approximately~~ $28,750 under our revolving credit facility. For additional information on the terms and conditions, as well as applicable interest and fee payments, see Note 6 — Indebtedness.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of ~~March 31,~~June 30, 2022.

Uses of liquidity and capital resources. Our executive officers and Board of Directors review our funding sources and future capital requirements in connection with our annual operating plan and periodic updates to the plan. Our future capital requirements depend on a number of factors, including, without limitation: market acceptance of our current and future products; costs to develop and support our products, including professional training; future expenses to expand and support our sales and marketing efforts; operating and filing costs relating to changes in regulatory policies or laws; costs for clinical trials and to secure regulatory approval for new products; costs to prosecute, defend and enforce our intellectual property rights; maintenance and enhancements to our information systems and security; and possible acquisitions and joint 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. Our principal cash requirements include costs of operations, capital expenditures, debt service costs and other contractual obligations.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses and disclosures of contingent assets and liabilities at the date of the financial statements. On a periodic basis, we evaluate our estimates, including those related to sales returns and allowances, inventories, share-based compensation and income taxes. We use authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results could differ from those estimates under different assumptions or conditions. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 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.

Recent Accounting Pronouncements

As of ~~March 31,~~June 30, 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, 2021.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of ~~March 31,~~June 30, 2022, 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, 2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the President and Chief Executive Officer (the Principal Executive Officer) and Chief Financial Officer (the Principal Accounting and Financial Officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13(a) -15(e) and 15(d) -15(e) of the Securities Exchange Act of 1934 as amended (Exchange Act), as of the end of the period covered by this report. Based on this evaluation, we concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s forms and rules, and the material information relating to the Company is accumulated and communicated to management, including the President and Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that control objectives are met. Because of inherent limitations in all control systems, no evaluation of controls can provide assurance that all control issues and instances of fraud, if any, within a company will be detected. Additionally, controls can be circumvented by individuals, by collusion of two or more people or by management override. Over time, controls can become

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inadequate because of changes in conditions or the degree of compliance may deteriorate. Further, the design of any system of controls is based in part upon assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Because of the inherent limitations in any cost-effective control system, misstatements due to errors or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

In the ordinary course of business, we routinely enhance our information systems by either upgrading current systems or implementing new ones. There were no changes in our internal control over financial reporting that occurred during the three months ended ~~March 31,~~June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information with respect to legal proceedings can be found under the heading “Legal” in Note 8 – 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.

Item 1A. Risk Factors

In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Item 1A, “Risk Factors” in our Form 10-K for the year ended December 31, 2021, all of which could materially affect our business, financial condition or future results. The risks described 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, financial 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, 2021.

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Item 6. Exhibits


Exhibit No.			Description
10.1#			AtriCure, Inc. ~~2018 Employee~~2014 Stock ~~Purchase~~Incentive Plan (Amended and Restated ~~effective January 1,~~as of May 25, 2022) (incorporated by reference to our ~~Quarterly~~Current Report on Form ~~10-Q, filed~~8-K on ~~November 4, 2021)~~May 27, 2022).
31.1			Rule 13a-14(a) Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Rule 13a-14(a) Certification of Principal Accounting and Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification pursuant to 18 U.S.C. Section 1350 by the Principal Executive Officer, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification pursuant to 18 U.S.C. Section 1350 by the Principal Accounting and Financial Officer, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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)

____________________________

# Compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			AtriCure, Inc.
			(REGISTRANT)


Date: ~~May 4,~~August 3, 2022			/s/ Michael H. Carrel
			Michael H. Carrel
			President and Chief Executive Officer (Principal Executive Officer)


Date: ~~May 4,~~August 3, 2022			/s/ Angela L. Wirick
			Angela L. Wirick
			Chief Financial Officer (Principal Accounting and Financial Officer)

2224


	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	251	$	331
Operating cash flows from finance leases	189		203
Financing cash flows from finance leases	217		198


	Three Months Ended
	March 31, 2021		June 30, 2021		September 30, 2021		December 31, 2021
United States Revenue:
Open ablation	$	17,439	$	19,503	$	17,893	$	17,561
Minimally invasive ablation	8,385		9,702		9,990		11,303
Pain management	3,898		5,709		6,253		6,927
Total ablation	29,722		34,914		34,136		35,791
Appendage management	20,587		25,156		23,401		25,424
Total United States	$	50,309	$	60,070	$	57,537	$	61,215
International Revenue:
Open ablation	$	4,434	$	5,526	$	6,690	$	6,544
Minimally invasive ablation	1,274		1,575		1,849		1,711
Pain management	—		11		11		39
Total ablation	5,708		7,112		8,550		8,294
Appendage management	3,258		4,194		4,373		3,709
Total International	$	8,966	$	11,306	$	12,923	$	12,003
Total revenue	$	59,275	$	71,376	$	70,460	$	73,218