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 ~~June~~September 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 ~~August 1,~~October 31, 2022
Common Stock, $.001 par value			~~46,424,652~~46,508,360

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~(Loss) Income for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 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	1617
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2223
Item 4.	Controls and Procedures	2223
PART II. OTHER INFORMATION		2224
Item 1.	Legal Proceedings	2224
Item 1A.	Risk Factors	2224
Item 6.	Exhibits	2324
Signatures		2425

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)


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	54,556	$	43,654	Cash and cash equivalents	$	48,823	$	43,654
Short-term investments	Short-term investments	63,898		75,436		Short-term investments	73,821		75,436
Accounts receivable, less allowance for credit losses of $1,096	Accounts receivable, less allowance for credit losses of $1,096	41,488		33,021		Accounts receivable, less allowance for credit losses of $1,096	41,466		33,021
Inventories	Inventories	41,292		38,964		Inventories	43,953		38,964
Prepaid and other current assets	Prepaid and other current assets	4,932		5,001		Prepaid and other current assets	4,222		5,001
Total current assets	Total current assets	206,166		196,076		Total current assets	212,285		196,076
Long-term investments	Long-term investments	64,295		104,338		Long-term investments	51,413		104,338
Property and equipment, net	Property and equipment, net	36,053		31,409		Property and equipment, net	38,556		31,409
Operating lease right-of-use assets	Operating lease right-of-use assets	4,241		4,761		Operating lease right-of-use assets	3,969		4,761
Intangible assets, net	Intangible assets, net	41,049		42,992		Intangible assets, net	40,078		42,992
Goodwill	Goodwill	234,781		234,781		Goodwill	234,781		234,781
Other noncurrent assets	Other noncurrent assets	804		955		Other noncurrent assets	829		955
Total Assets	Total Assets	$	587,389	$	615,312	Total Assets	$	581,911	$	615,312
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	23,721	$	18,597	Accounts payable	$	24,405	$	18,597
Accrued liabilities	Accrued liabilities	30,775		36,092		Accrued liabilities	31,162		36,092
Current maturities of leases	Current maturities of leases	1,820		1,756		Current maturities of leases	2,031		1,756
Total current liabilities	Total current liabilities	56,316		56,445		Total current liabilities	57,598		56,445
Long-term debt	Long-term debt	59,954		59,741		Long-term debt	60,061		59,741
Finance lease liabilities	Finance lease liabilities	9,603		10,082		Finance lease liabilities	9,407		10,082
Operating lease liabilities	Operating lease liabilities	3,591		4,068		Operating lease liabilities	3,314		4,068
Other noncurrent liabilities	Other noncurrent liabilities	1,215		1,220		Other noncurrent liabilities	1,223		1,220
Total Liabilities	Total Liabilities	130,679		131,556		Total Liabilities	131,603		131,556
Commitments and contingencies (Note 8)	Commitments and contingencies (Note 8)	0		0		Commitments and contingencies (Note 8)
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock, $0.001 par value, 90,000 shares authorized and 46,423 and 46,016 issued and outstanding		46		46
Common stock, $0.001 par value, 90,000 shares authorized and 46,443 and 46,016 issued and outstanding						Common stock, $0.001 par value, 90,000 shares authorized and 46,443 and 46,016 issued and outstanding	46		46
Additional paid-in capital	Additional paid-in capital	771,185		764,811		Additional paid-in capital	778,006		764,811
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4,344)		(948)		Accumulated other comprehensive loss	(5,295)		(948)
Accumulated deficit	Accumulated deficit	(310,177)		(280,153)		Accumulated deficit	(322,449)		(280,153)
Total Stockholders’ Equity	Total Stockholders’ Equity	456,710		483,756		Total Stockholders’ Equity	450,308		483,756
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	587,389	$	615,312	Total Liabilities and Stockholders’ Equity	$	581,911	$	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~~(LOSS) INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenue	Revenue	$	84,529	$	71,376	$	159,105	$	130,651	Revenue	$	83,246	$	70,460	$	242,351	$	201,111
Cost of revenue	Cost of revenue	21,010		$	17,298	39,991		32,033		Cost of revenue	21,533		18,234		61,524		50,267
Gross profit	Gross profit	63,519		$	54,078	119,114		98,618		Gross profit	61,713		52,226		180,827		150,844
Operating expenses:
Operating expenses (benefit):										Operating expenses (benefit):
Research and development expenses	Research and development expenses	14,791		12,197		28,420		23,414		Research and development expenses	15,169		11,284		43,589		34,698
Selling, general and administrative expenses	Selling, general and administrative expenses	62,388		56,958		118,504		106,166		Selling, general and administrative expenses	57,267		49,873		175,771		150,939

Total operating expenses		77,179		69,155		146,924		129,580
Loss from operations		(13,660)		(15,077)		(27,810)		(30,962)
Change in fair value of contingent consideration										Change in fair value of contingent consideration	—		(189,900)		—		(184,800)
Intangible asset impairment										Intangible asset impairment	—		82,300		—		82,300
Total operating expenses (benefit)										Total operating expenses (benefit)	72,436		(46,443)		219,360		83,137
(Loss) income from operations										(Loss) income from operations	(10,723)		98,669		(38,533)		67,707
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(1,101)		(1,197)		(2,101)		(2,386)		Interest expense	(1,324)		(1,449)		(3,425)		(3,835)
Interest income	Interest income	76		103		192		237		Interest income	370		117		562		354
Other	Other	(111)		(14)		(204)		40		Other	(549)		(191)		(753)		(151)
Loss before income tax expense		(14,796)		(16,185)		(29,923)		(33,071)
(Loss) income before income tax expense										(Loss) income before income tax expense	(12,226)		97,146		(42,149)		64,075
Income tax expense	Income tax expense	45		66		101		97		Income tax expense	46		38		147		135
Net loss		$	(14,841)	$	(16,251)	$	(30,024)	$	(33,168)

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

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

Comprehensive loss:
Net (loss) income										Net (loss) income	$	(12,272)	$	97,108	$	(42,296)	$	63,940
Net (loss) income per share										Net (loss) income per share
Basic net (loss) income per share										Basic net (loss) income per share	$	(0.27)	$	2.15	$	(0.93)	$	1.42
Diluted net (loss) income per share										Diluted net (loss) income per share	$	(0.27)	$	2.11	$	(0.93)	$	1.39
Weighted average shares outstanding										Weighted average shares outstanding
Basic										Basic	45,823		45,258		45,682		44,977
Diluted										Diluted	45,823		46,100		45,682		45,996
Comprehensive (loss) income:										Comprehensive (loss) income:
Unrealized loss on investments	Unrealized loss on investments	$	(449)	$	(132)	$	(2,788)	$	(163)	Unrealized loss on investments	$	(691)	$	(14)	$	(3,479)	$	(177)
Foreign currency translation adjustment	Foreign currency translation adjustment	(430)		63		(608)		(236)		Foreign currency translation adjustment	(260)		(112)		(868)		(348)
Other comprehensive loss	Other comprehensive loss	(879)		(69)		(3,396)		(399)		Other comprehensive loss	(951)		(126)		(4,347)		(525)
Net loss		(14,841)		(16,251)		(30,024)		(33,168)
Comprehensive loss, net of tax		$	(15,720)	$	(16,320)	$	(33,420)	$	(33,567)
Net (loss) income										Net (loss) income	(12,272)		97,108		(42,296)		63,940
Comprehensive (loss) income, net of tax										Comprehensive (loss) income, net of tax	$	(13,223)	$	96,982	$	(46,643)	$	63,415

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																		Three-Month Period Ended September 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—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
Impact of equity compensation plans	Impact of equity compensation plans	258	—		10,160				—			—				10,160			Impact of equity compensation plans	52			—			6,404				—				—				6,404
Other comprehensive loss	Other comprehensive loss	—	—		—				—			(69)				(69)			Other comprehensive loss	—			—			—				—				(126)				(126)
Net loss		—	—		—				(16,251)			—				(16,251)
Balance—June 30, 2021		45,881	$	46	$	748,644			$	(363,520)		$	(87)			$	385,083
Net income																			Net income	—			—			—				97,108				—				97,108
Balance—September 30, 2021																			Balance—September 30, 2021	45,933			$	46		$	755,048			$	(266,412)			$	(213)			$	488,469

		Three-Month Period Ended June 30, 2022																		Three-Month Period Ended September 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—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
Impact of equity compensation plans	Impact of equity compensation plans	155	—		9,605				—			—				9,605			Impact of equity compensation plans	20			—			6,821				—				—				6,821
Other comprehensive loss	Other comprehensive loss	—	—		—				—			(879)				(879)			Other comprehensive loss	—			—			—				—				(951)				(951)
Net loss	Net loss	—	—		—				(14,841)			—				(14,841)			Net loss	—			—			—				(12,272)				—				(12,272)
Balance—June 30, 2022		46,423	$	46	$	771,185			$	(310,177)		$	(4,344)			$	456,710
Balance—September 30, 2022																			Balance—September 30, 2022	46,443			$	46		$	778,006			$	(322,449)			$	(5,295)			$	450,308

		Six-Month Period Ended June 30, 2021																		Nine-Month Period Ended September 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	535	1		6,255				—			—				6,256			Impact of equity compensation plans	587			1				12,659				—				—				12,660
Other comprehensive loss	Other comprehensive loss	—	—		—				—			(399)				(399)			Other comprehensive loss	—			—			—				—				(525)				(525)
Net loss		—	—		—				(33,168)			—				(33,168)
Balance—June 30, 2021		45,881	$	46	$	748,644			$	(363,520)		$	(87)			$	385,083
Net income																			Net income	—			—			—				63,940				—				63,940
Balance—September 30, 2021																			Balance—September 30, 2021	45,933			$	46		$	755,048			$	(266,412)			$	(213)			$	488,469

		Six-Month Period Ended June 30, 2022																		Nine-Month Period Ended September 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	407	—		6,374				—			—				6,374			Impact of equity compensation plans	427			—				13,195				—				—				13,195
Other comprehensive loss	Other comprehensive loss	—	—		—				—			(3,396)				(3,396)			Other comprehensive loss	—			—			—				—				(4,347)				(4,347)
Net loss	Net loss	—	—		—				(30,024)			—				(30,024)			Net loss	—			—			—				(42,296)				—				(42,296)
Balance—June 30, 2022		46,423	$	46	$	771,185			$	(310,177)		$	(4,344)			$	456,710
Balance—September 30, 2022																			Balance—September 30, 2022	46,443			$	46		$	778,006			$	(322,449)			$	(5,295)			$	450,308

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss		$	(30,024)	$	(33,168)
Net income (loss)						Net income (loss)	$	(42,296)	$	63,940
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	14,573		13,745		Share-based compensation expense	21,574		20,539
Depreciation	Depreciation	3,861		3,815		Depreciation	5,877		5,672
Amortization of intangible assets	Amortization of intangible assets	1,943		965		Amortization of intangible assets	2,914		1,936
Amortization of deferred financing costs	Amortization of deferred financing costs	255		249		Amortization of deferred financing costs	383		628
Loss on disposal of property and equipment	Loss on disposal of property and equipment	25		52		Loss on disposal of property and equipment	34		68
Amortization of investments	Amortization of investments	983		1,206		Amortization of investments	1,272		1,847
Change in fair value of contingent consideration	Change in fair value of contingent consideration	—		5,100		Change in fair value of contingent consideration	—		(184,800)

Intangible asset impairment						Intangible asset impairment	—		82,300
Other non-cash adjustments	Other non-cash adjustments	654		472		Other non-cash adjustments	1,424		896
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(8,757)		(10,799)		Accounts receivable	(8,985)		(10,583)
Inventories	Inventories	(2,727)		(2,707)		Inventories	(5,710)		(3,809)
Other current assets	Other current assets	32		(308)		Other current assets	699		436
Accounts payable	Accounts payable	4,240		3,571		Accounts payable	5,675		4,527
Accrued liabilities	Accrued liabilities	(5,136)		4,529		Accrued liabilities	(4,606)		3,987
Other noncurrent assets and liabilities	Other noncurrent assets and liabilities	(325)		(571)		Other noncurrent assets and liabilities	(442)		(1,665)
Net cash used in operating activities	Net cash used in operating activities	(20,403)		(13,849)		Net cash used in operating activities	(22,187)		(14,081)
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)		Purchases of available-for-sale securities	(24,637)		(160,577)
Sales and maturities of available-for-sale securities	Sales and maturities of available-for-sale securities	51,749		147,884		Sales and maturities of available-for-sale securities	74,351		190,047
Purchases of property and equipment	Purchases of property and equipment	(7,565)		(5,539)		Purchases of property and equipment	(12,710)		(7,043)

Net cash provided by investing activities	Net cash provided by investing activities	40,243		47,528		Net cash provided by investing activities	37,004		22,427
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Payments on leases		(437)		(399)
Payments on debt and leases						Payments on debt and leases	(662)		(2,269)

Proceeds from stock option exercises and employee stock purchase plan	Proceeds from stock option exercises and employee stock purchase plan	3,374		9,010		Proceeds from stock option exercises and employee stock purchase plan	3,757		10,020
Shares repurchased for payment of taxes on stock awards	Shares repurchased for payment of taxes on stock awards	(11,573)		(16,500)		Shares repurchased for payment of taxes on stock awards	(12,136)		(17,900)
Net cash used in financing activities	Net cash used in financing activities	(8,636)		(7,889)		Net cash used in financing activities	(9,041)		(10,149)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(302)		(115)		Effect of exchange rate changes on cash and cash equivalents	(607)		(255)
Net increase in cash and cash equivalents		10,902		25,675
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	5,169		(2,058)
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	$	54,556	$	67,619	Cash and cash equivalents—end of period	$	48,823	$	39,886
Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid for interest	Cash paid for interest	$	1,797	$	2,147	Cash paid for interest	$	2,926	$	3,225
Cash paid for income taxes, net of refunds	Cash paid for income taxes, net of refunds	132		128		Cash paid for income taxes, net of refunds	135		153
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	2,562		529		Accrued purchases of property and equipment	1,917		606

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. There have been no changes in the Company's significant accounting policies for the ~~six~~nine months ended ~~June~~September 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.~~expense. 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 ~~$1,516~~$1,670 as of ~~June~~September 30, 2022 and $1,399 as of December 31, 2021 located primarily in Europe.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

Earnings Per Share—Basic ~~and diluted net loss~~earnings per share is computed by dividing the net ~~loss~~(loss) income by the weighted average number of shares of common shares outstanding during the period. ~~Since~~Diluted earnings per share reflects net income available to common stockholders divided by the ~~Company has experienced net losses for all periods presented,~~weighted average number of common shares outstanding during the period and any dilutive common share equivalents, including shares issuable upon the vesting of restricted stock awards and restricted stock units, exercise of stock options as well as shares issuable under the Company's employee stock purchase plan (ESPP).


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net (loss) income available to common stockholders	$	(12,272)	$	97,108	$	(42,296)	$	63,940
Basic weighted average common shares outstanding	45,823		45,258		45,682		44,977
Effect of dilutive securities	—		842		—		1,019
Diluted weighted average common shares outstanding	45,823		46,100		45,682		45,996

Basic net (loss) income per common share	$	(0.27)	$	2.15	$	(0.93)	$	1.42
Diluted net (loss) income per common share	$	(0.27)	$	2.11	$	(0.93)	$	1.39

For the three and nine months ended September 30, 2022, net loss per share excludes the effect of ~~1,548 and 1,807 stock options, restricted~~1,472 shares ~~restricted stock units and performance award shares as~~because the effect would be anti-dilutive. The computation of ~~June 30, 2022 and 2021 because they are anti-dilutive. Therefore, the number of shares calculated for basic net loss~~diluted earnings per share ~~is also used for~~in the ~~diluted net loss per share calculation.~~three and nine months periods ended September 30, 2021 excludes 491 and 582 shares because the effect would be anti-dilutive.

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.

•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.

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(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 ~~June~~September 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	$	—	$	48,832	$	—	$	48,832	Money market funds	$	—	$	43,130	$	—	$	43,130
Commercial paper	Commercial paper	—		15,940		—		15,940		Commercial paper	—		18,817		—		18,817
Government and agency obligations	Government and agency obligations	31,735		—		—		31,735		Government and agency obligations	32,446		—		—		32,446
Corporate bonds	Corporate bonds	—		66,789		—		66,789		Corporate bonds	—		70,944		—		70,944
Asset-backed securities	Asset-backed securities	—		13,729		—		13,729		Asset-backed securities	—		3,027		—		3,027
Total assets	Total assets	$	31,735	$	145,290	$	—	$	177,025	Total assets	$	32,446	$	135,918	$	—	$	168,364

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three and ~~six~~nine months ended ~~June~~September 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~~aMAZE™ IDE clinical trial, including ~~PMA~~pre-market approval (PMA) approval and reimbursement for the therapy involving SentreHEART’s devices. During the third quarter 2021, the Company was informed that the data from the aMAZE clinical trial did not achieve statistical superiority, and the Company assessed the projected probability of payment to be remote. The Company recorded a credit to operating expenses of $189,900 reflecting the change in fair value of the contingent consideration. 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 ~~June~~September 30, 2022 and December 31, 2021.

3.INVENTORIES

Inventories consist of the following:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Raw materials	Raw materials	$	14,235	$	12,653	Raw materials	$	16,742	$	12,653
Work in process	Work in process	2,742		2,064		Work in process	3,268		2,064
Finished goods	Finished goods	24,315		24,247		Finished goods	23,943		24,247
Total	Total	$	41,292	$	38,964	Total	$	43,953	$	38,964

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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:

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


		September 30, 2022				December 31, 2021
	Estimated Useful Life	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Technology	10 - 15 years	$	55,712	$	15,634	$	55,712	$	12,720

Amortization expense of intangible assets was $971 ~~and $727~~ for both the three months ended ~~June~~September 30, 2022 and 2021 and ~~$1,943~~$2,914 and ~~$965~~$1,936 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. Future amortization expense is projected as follows:


2022 (excluding the six months ended June 30, 2022)		$	1,710
2022 (excluding the nine months ended September 30, 2022)				2022 (excluding the nine months ended September 30, 2022)	$	739
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	$	41,049	Total	$	40,078

During the third quarter 2021, the Company recorded an impairment charge of $82,300 to reduce the carrying value of the aMAZE IPR&D asset to $0 as a result of data from the aMAZE clinical trial not achieving statistical superiority.

5.ACCRUED LIABILITIES

Accrued liabilities consist of the following:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Accrued compensation and employee-related expenses	Accrued compensation and employee-related expenses	$	25,197	$	30,990	Accrued compensation and employee-related expenses	$	25,256	$	30,990
Sales returns and allowances	Sales returns and allowances	2,613		2,416		Sales returns and allowances	2,802		2,416
Accrued taxes and value-added taxes payable	Accrued taxes and value-added taxes payable	1,572		1,452		Accrued taxes and value-added taxes payable	1,757		1,452
Other accrued liabilities	Other accrued liabilities	1,393		1,234		Other accrued liabilities	1,347		1,234
Total	Total	$	30,775	$	36,092	Total	$	31,162	$	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~~provides a $60,000 term loan, a $30,000 revolving line of credit, and an option 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. AtIf the ~~option of~~Company meets certain conditions, as specified by the ~~Company,~~Loan Agreement, the commencement of term loan principal payments may be ~~extended~~deferred by 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 ~~$240~~$330 included in the outstanding loan balance as of ~~June~~September 30, 2022. Additionally, the unamortized original financing costs related to the term loan of ~~$286~~$269 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%, 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 June 30, 2022, the Company had no borrowings under the revolving credit facility and had borrowing availability of $28,750.~~

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(In Thousands, except per share amounts)

(Unaudited)

calculation as defined by the Loan Agreement. As of September 30, 2022, the Company had no borrowings under the revolving credit facility and had borrowing availability of $28,750.

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 six months ended June 30, 2022)		$	—
2022 (excluding the nine months ended September 30, 2022)				2022 (excluding the nine months ended September 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 office, manufacturing and warehouse facilities and equipment. The Company’s leases have remaining lease terms of less than one year to ~~nine~~eight years. Options to renew or extend leases beyond their initial term have been excluded from measurement of the ROU assets and lease liabilities as exercise is not reasonably certain.

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


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Operating Leases	Operating Leases					Operating Leases
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)	4.8		3.6		Weighted average remaining lease term (years)	4.6		3.6
Weighted average discount rate	Weighted average discount rate	4.66	%	4.69	%	Weighted average discount rate	4.61	%	4.69	%

Finance Leases	Finance Leases					Finance Leases
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)	8.1		8.6		Weighted average remaining lease term (years)	7.9		8.6
Weighted average discount rate	Weighted average discount rate	6.92	%	6.91	%	Weighted average discount rate	6.91	%	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 ~~June~~September 30, 2022.

The components of lease expense are as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	284	$	203	$	570	$	481	Operating lease cost	$	281	$	234	$	851	$	715

Finance lease cost:	Finance lease cost:									Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	338		242		508		484		Amortization of right-of-use assets	253		267		761		765
Interest on lease liabilities	Interest on lease liabilities	185		200		375		403		Interest on lease liabilities	182		196		557		599
Total finance lease cost	Total finance lease cost	$	523	$	442	$	883	$	887	Total finance lease cost	$	435	$	463	$	1,318	$	1,364

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

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(In Thousands, except per share amounts)

(Unaudited)

Supplemental cash flow information related to leases was as follows:


		Six Months Ended June 30, 2022		Six Months Ended June 30, 2021			Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	Operating cash flows for operating leases	$	505	$	494	Operating cash flows for operating leases	$	610	$	748
Operating cash flows for finance leases	Operating cash flows for finance leases	375		403		Operating cash flows for finance leases	557		597
Financing cash flows for finance leases	Financing cash flows for finance leases	437		399		Financing cash flows for finance leases	662		599

Right-of-use assets obtained in exchange for lease obligations:	Right-of-use assets obtained in exchange for lease obligations:					Right-of-use assets obtained in exchange for lease obligations:
Operating leases	Operating leases	—		1,221		Operating leases	—		1,221
Finance leases	Finance leases	—		—		Finance leases	62		—

Supplemental balance sheet information related to leases was as follows:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Operating Leases	Operating Leases					Operating Leases
Operating lease right-of-use assets	Operating lease right-of-use assets	$	4,241	$	4,761	Operating lease right-of-use assets	$	3,969	$	4,761

Current maturities of leases	Current maturities of leases	884		861		Current maturities of leases	1,062		861
Operating lease liabilities	Operating lease liabilities	3,591		4,068		Operating lease liabilities	3,314		4,068
Total operating lease liabilities	Total operating lease liabilities	$	4,475	$	4,929	Total operating lease liabilities	$	4,376	$	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	$	14,645	$	14,607
Accumulated depreciation	Accumulated depreciation	(6,624)		(6,116)		Accumulated depreciation	(6,616)		(6,116)
Property and equipment, net	Property and equipment, net	$	7,983	$	8,491	Property and equipment, net	$	8,029	$	8,491

Current maturities of leases	Current maturities of leases	$	936	$	895	Current maturities of leases	$	969	$	895
Finance lease liabilities	Finance lease liabilities	9,603		10,082		Finance lease liabilities	9,407		10,082
Total finance lease liabilities	Total finance lease liabilities	$	10,539	$	10,977	Total finance lease liabilities	$	10,376	$	10,977

Future maturities of lease liabilities as of ~~June~~September 30, 2022 were as follows:


		Operating Leases		Finance Leases			Operating Leases		Finance Leases
2022 (excluding the six months ended June 30, 2022)		$	356	$	817
2022 (excluding the nine months ended September 30, 2022)						2022 (excluding the nine months ended September 30, 2022)	$	251	$	417
2023	2023	1,160		1,652		2023	1,160		1,665
2024	2024	1,164		1,674		2024	1,164		1,689
2025	2025	920		1,625		2025	920		1,638
2026	2026	592		1,657		2026	592		1,671
2027 and thereafter	2027 and thereafter	868		6,515		2027 and thereafter	868		6,527
Total payments	Total payments	$	5,060	$	13,940	Total payments	$	4,955	$	13,607
Less imputed interest	Less imputed interest	(585)		(3,401)		Less imputed interest	(579)		(3,231)
Total	Total	$	4,475	$	10,539	Total	$	4,376	$	10,376

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(In Thousands, except per share amounts)

(Unaudited)

8.COMMITMENTS AND CONTINGENCIES

~~Royalty~~License Agreement. The Company has a ~~royalty~~license 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~~license agreement have the right at any time to terminate the agreement immediately for cause. Royalty expense of ~~$877~~$804 and ~~$842~~$792 was recorded for the three months ended ~~June~~September 30, 2022 and 2021 and ~~$1,670~~$2,474 and ~~$1,564~~$2,356 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 as a component of Cost of Revenue in the accompanying Condensed and Consolidated Statement of 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 various state and local 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. During the third quarter, the relator filed a Fourth Amended Complaint, which dropped allegations of off-label promotion and now alleges that the Company paid illegal kickbacks to healthcare providers in exchange for using or referring the Company’s products, in violation of the federal Anti-Kickback Statute and various comparable state and local laws. 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~~On August 23, 2022, the ~~first quarter,~~Cleveland Clinic Foundation (“Clinic”) and IDx Medical, Ltd. (“IDX”) filed a Demand for Arbitration against the Company ~~received a notice of breach under a license agreement regarding its potential underpayment of royalties. The notice asserts~~with the American Arbitration Association (“AAA”), alleging that the ~~Company's calculation~~Company breached certain provisions of ~~royalties payable under~~ the ~~license agreement throughout~~License Agreement dated December 9, 2003 among the ~~agreement term~~Company, Clinic and IDX (“License Agreement”). Clinic and IDX allege the Company did not include the revenues from sales of ~~all~~certain products in its calculation of royalty payments due under the License Agreement. Clinic and IDX also allege that ~~were subject~~the Company did not provide related notices required under the License Agreement. The Demand for Arbitration requests a declaration that the termination of the License Agreement shall not occur until the expiration of certain patents and that the Company violated the License Agreement’s non-competition provisions. Clinic and IDX claim they are entitled to no less than $6 million plus interest and costs, fees and expenses associated with their claims and future royalties.

The Company ~~disputes~~denies the ~~basis~~allegations of Clinic and IDX. The Company filed its Answering Statement and Counterclaims to the allegations in September 2022, denying each claim and ~~any potential underpayment.~~counterclaiming for breach of contract, correction of inventorship, declaratory judgment, patent prosecution and legal fees. No dates have been scheduled for this arbitration. While ~~a loss related to this claim is possible,~~ the Company ~~does~~is contesting the case, it is not ~~believe such loss is probable~~possible to predict when this matter may be resolved or ~~estimable at~~what impact, if any, the outcome of this ~~time.~~matter might have on our consolidated financial position, results of operations, or cash flows.

9.REVENUE

The Company develops, manufactures and sells devices designed primarily for surgical ablation of cardiac tissue, 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.

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(In Thousands, except per share amounts)

(Unaudited)

United States revenue by product type is as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Open ablation	Open ablation	$	22,070	$	19,503	$	41,044	$	36,942	Open ablation	$	21,569	$	17,893	$	62,613	$	54,835
Minimally invasive ablation	Minimally invasive ablation	10,154		9,702		18,769		18,087		Minimally invasive ablation	10,077		9,990		28,846		28,077
Pain management	Pain management	10,210		5,709		18,224		9,607		Pain management	10,510		6,253		28,734		15,860
Total ablation	Total ablation	$	42,434	$	34,914	$	78,037	$	64,636	Total ablation	$	42,156	$	34,136	$	120,193	$	98,772
Appendage management	Appendage management	28,831		25,156		55,500		45,743		Appendage management	27,620		23,401		83,120		69,144
Total United States	Total United States	$	71,265	$	60,070	$	133,537	$	110,379	Total United States	$	69,776	$	57,537	$	203,313	$	167,916

International revenue by product type is as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Open ablation	Open ablation	$	6,213	$	5,526	$	12,705	$	9,960	Open ablation	$	6,680	$	6,690	$	19,385	$	16,650
Minimally invasive ablation	Minimally invasive ablation	1,271		1,575		2,804		2,849		Minimally invasive ablation	1,445		1,849		4,249		4,698
Pain management	Pain management	114		11		254		11		Pain management	121		11		375		22
Total ablation	Total ablation	$	7,598	$	7,112	$	15,763	$	12,820	Total ablation	$	8,246	$	8,550	$	24,009	$	21,370
Appendage management	Appendage management	5,666		4,194		9,805		7,452		Appendage management	5,224		4,373		15,029		11,825
Total International	Total International	$	13,264	$	11,306	$	25,568	$	20,272	Total International	$	13,470	$	12,923	$	39,038	$	33,195

Revenue attributed to customer geographic locations is as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
United States	United States	$	71,265	$	60,070	$	133,537	$	110,379	United States	$	69,776	$	57,537	$	203,313	$	167,916

Europe	Europe	7,783		7,015		15,020		12,781		Europe	7,296		7,770		22,316		20,551
Asia	Asia	4,933		4,088		9,490		6,961		Asia	5,518		4,734		15,008		11,695
Other International	Other International	548		203		1,058		530		Other International	656		419		1,714		949
Total International	Total International	13,264		11,306		25,568		20,272		Total International	13,470		12,923		39,038		33,195
Total Revenue	Total Revenue	$	84,529	$	71,376	$	159,105	$	130,651	Total Revenue	$	83,246	$	70,460	$	242,351	$	201,111

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 ~~June~~September 30, 2022 and 2021 was ~~(0.30%~~(0.38%) and ~~(0.41%)~~0.04%. The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was ~~(0.34%~~(0.35%) and ~~(0.29%)~~0.21%. 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 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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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

operating losses. However, if required, the Company will recognize interest and penalties within income tax expense and within the related tax liability.

11.EQUITY COMPENSATION PLANS

The Company has 2two 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 ~~June~~September 30, 2022, ~~12,899~~13,999 shares of common stock had been reserved for issuance under the 2014 Plan, and ~~1,076~~2,188 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 15% 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 more than $25 of the Company’s common stock in a calendar year or more than 3 shares during an offering period. As of ~~June~~September 30, 2022, there were 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,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Cost of revenue	Cost of revenue	$	487	$	598	$	1,058	$	1,017	Cost of revenue	$	405	$	622	$	1,463	$	1,639
Research and development expenses	Research and development expenses	1,186		1,083		2,316		2,020		Research and development expenses	1,115		1,077		3,431		3,097
Selling, general and administrative expenses	Selling, general and administrative expenses	5,851		5,460		11,199		10,708		Selling, general and administrative expenses	5,481		5,095		16,680		15,803
Total	Total	$	7,524	$	7,141	$	14,573	$	13,745	Total	$	7,001	$	6,794	$	21,574	$	20,539

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		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	$	(3,465)	$	(18)	$	(948)	$	312	Total accumulated other comprehensive (loss) income at beginning of period	$	(4,344)	$	(87)	$	(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	$	(3,226)	$	23	$	(887)	$	54	Balance at beginning of period	$	(3,675)	$	(109)	$	(887)	$	54
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(377)		(132)		(2,716)		(163)		Other comprehensive loss before reclassifications	(691)		(14)		(3,407)		(177)
Amounts reclassified from accumulated other comprehensive loss to other income (expense)	Amounts reclassified from accumulated other comprehensive loss to other income (expense)	(72)		—		(72)		—		Amounts reclassified from accumulated other comprehensive loss to other income (expense)	—		—		(72)		—
Balance at end of period	Balance at end of period	$	(3,675)	$	(109)	$	(3,675)	$	(109)	Balance at end of period	$	(4,366)	$	(123)	$	(4,366)	$	(123)
Foreign Currency Translation Adjustment	Foreign Currency Translation Adjustment									Foreign Currency Translation Adjustment
Balance at beginning of period	Balance at beginning of period	$	(239)	$	(41)	$	(61)	$	258	Balance at beginning of period	$	(669)	$	22	$	(61)	$	258
Other comprehensive income (loss) before reclassifications		(527)		36		(787)		(262)
Other comprehensive loss before reclassifications										Other comprehensive loss before reclassifications	(721)		(293)		(1,508)		(555)
Amounts reclassified from accumulated other comprehensive loss to other income (expense)	Amounts reclassified from accumulated other comprehensive loss to other income (expense)	97		27		179		26		Amounts reclassified from accumulated other comprehensive loss to other income (expense)	461		181		640		207
Balance at end of period	Balance at end of period	$	(669)	$	22	$	(669)	$	22	Balance at end of period	$	(929)	$	(90)	$	(929)	$	(90)
Total accumulated other comprehensive loss at end of period	Total accumulated other comprehensive loss at end of period	$	(4,344)	$	(87)	$	(4,344)	$	(87)	Total accumulated other comprehensive loss at end of period	$	(5,295)	$	(213)	$	(5,295)	$	(213)

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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,” “opportunity,” “could,” “can,” “may,” “future,” “predicts,” “target,” “potential,” and similar expressions and the negative versions ~~thereof.~~of those words, and may be identified by the context in which they are used. 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, without limitation, 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. Afib affects ~~1-2%~~1% to 2% of the population in the United States and an estimated 3337 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 surgical procedures using AtriCure ablation and LAAM products 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. 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

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demonstrated exclusion of the LAA with AtriClip also results in electrical isolation of the LAA. The 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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claims or to support indications specifically for the treatment of 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, the EPi-Sense® system and LARIAT ~~Suture Delivery Device~~system 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, the Benelux 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. Direct~~Dollars; direct sales transactions outside the United States are transacted in Euros, British Pounds or Australian Dollars.

Recent Developments

During 2022, we 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~~Beginning in the second quarter many regions began to stabilize ~~through the quarter~~ with overall improvements in procedure volumes. However, we expect some variability to continue as we operate in many geographic regions with diverse restrictions that are impacted as new COVID-19 variants emerge. Despite the challenging environment resulting from the pandemic, our worldwide revenue in the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$159,105,~~$242,351, representing an increase of ~~$28,454,~~$41,240, or ~~21.8%~~20.5%, over the first ~~six~~nine 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. ~~During the first half of~~In April 2022 we launched our ~~ENCOMPASS~~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. During September 2022, the Company received final labeling approval for the next generation EPi-Sense ST device that will be launched in the fourth quarter.

CLINICAL SCIENCE. We continue to invest in studies to expand labeling claims, or support various indications for 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) . 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. ~~We announced the~~The first patient enrollment in the trial occurred 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~~This 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 other healthcare professionals, as well as our sales 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 and Advanced Hybrid Ablation Training Course are co-sponsored by the Hearth Rhythm Society (HRS).

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Results of Operations

Three months ended ~~June~~September 30, 2022 compared to three months ended ~~June~~September 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 June 30,									Three Months Ended September 30,
		2022				2021					2022				2021
		Amount		% of Revenues		Amount		% of Revenues			Amount		% of Revenues		Amount		% of Revenues
Revenue	Revenue	$	84,529	100.0	%	$	71,376	100.0	%	Revenue	$	83,246	100.0	%	$	70,460	100.0	%
Cost of revenue	Cost of revenue	21,010		24.9	%	17,298		24.2	%	Cost of revenue	21,533		25.9	%	18,234		25.9	%
Gross profit	Gross profit	63,519		75.1	%	54,078		75.8	%	Gross profit	61,713		74.1	%	52,226		74.1	%
Operating expenses:
Operating expenses (benefit):										Operating expenses (benefit):
Research and development expenses	Research and development expenses	14,791		17.5	%	12,197		17.1	%	Research and development expenses	15,169		18.2	%	11,284		16.0	%
Selling, general and administrative expenses	Selling, general and administrative expenses	62,388		73.8	%	56,958		79.8	%	Selling, general and administrative expenses	57,267		68.8	%	49,873		70.8	%

Total operating expenses		77,179		91.3	%	69,155		96.9	%
Loss from operations		(13,660)		(16.2)	%	(15,077)		(21.1)	%
Change in fair value of contingent consideration										Change in fair value of contingent consideration	—		—	%	(189,900)		(269.5)	%
Intangible asset impairment										Intangible asset impairment	—		—	%	82,300		116.8	%
Total operating expenses (benefit)										Total operating expenses (benefit)	72,436		87.0	%	(46,443)		(65.9)	%
(Loss) income from operations										(Loss) income from operations	(10,723)		(12.9)	%	98,669		140.0	%
Other expense, net:	Other expense, net:	(1,136)		(1.3)	%	(1,108)		(1.6)	%	Other expense, net:	(1,503)		(1.8)	%	(1,523)		(2.2)	%
Loss before income tax expense		(14,796)		(17.5)	%	(16,185)		(22.7)	%
(Loss) income before income tax expense										(Loss) income before income tax expense	(12,226)		(14.7)	%	97,146		137.9	%
Income tax expense	Income tax expense	45		0.1	%	66		0.1	%	Income tax expense	46		0.1	%	38		0.1	%
Net loss		$	(14,841)	(17.6)	%	$	(16,251)	(22.8)	%
Net (loss) income										Net (loss) income	$	(12,272)	(14.7)	%	$	97,108	137.8	%

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 June 30,				Change					Three Months Ended September 30,				Change
		2022		2021		Amount		%			2022		2021		Amount		%
Open ablation	Open ablation	$	22,070	$	19,503	$	2,567	13.2	%	Open ablation	$	21,569	$	17,893	$	3,676	20.5	%
Minimally invasive ablation	Minimally invasive ablation	10,154		9,702		452		4.7	%	Minimally invasive ablation	10,077		9,990		87		0.9	%
Pain management	Pain management	10,210		5,709		4,501		78.8	%	Pain management	10,510		6,253		4,257		68.1	%
Appendage management	Appendage management	28,831		25,156		3,675		14.6	%	Appendage management	27,620		23,401		4,219		18.0	%
Total United States	Total United States	$	71,265	$	60,070	$	11,195	18.6	%	Total United States	$	69,776	$	57,537	$	12,239	21.3	%
Total International	Total International	13,264		11,306		1,958		17.3	%	Total International	13,470		12,923		547		4.2	%
Total revenue	Total revenue	$	84,529	$	71,376	$	13,153	18.4	%	Total revenue	$	83,246	$	70,460	$	12,786	18.1	%

Worldwide revenue increased ~~18.4%~~18.1% (19.8% on a constant currency basis). In the United States, we experienced growth in ~~most of our~~all key product lines. ~~Physician acceptance~~Strong physician adoption of our cryoSPHERE® probe for post-operative pain management and ~~expanded sales efforts drove growth in pain management revenue. Appendage management sales were driven by continuing adoption of~~ our ~~AtriClip®~~AtriClip® Flex⋅V® device drove increased pain management and ~~Pro⋅V~~® ~~devices, while~~appendage management sales. Open ablation revenue increased as a result of both procedure volume and additional revenue per procedure from the ~~launch~~EnCompass clamp. Growth in Epi-Sense System sales, reflecting continuing adoption of ~~the new ENCOMPASS clamp accelerated growth~~Convergent Hybrid AF Therapy in ~~our open ablation revenue. While~~a growing number of accounts, was offset by a decline in sales of all other legacy minimally invasive devices. Minimally invasive procedures, which are the most elective of our therapies, continue to experience some residual ~~impacts~~impact from the pandemic and staffing ~~we saw growing adoption of the EPi-Sense~~® ~~System in an increasing customer base. The increase in EPi-Sense revenue was largely offset by a decline in revenue from all other minimally invasive ablation products.~~constraints. International sales increased ~~17.3% (26.3%~~4.2% (13.5% on a constant currency basis), primarily a result of ~~rebounding procedure volumes in Europe, primarily in the Netherlands and United Kingdom, and~~ growth in ~~Australia.~~Australia and Japan. The increase in international revenue was driven mainly by our appendage management business which grew ~~35.1%~~19.5%.

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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.

Cost of revenue and gross margin. Cost of revenue increased ~~$3,712,~~$3,299, while gross margin remained flat, reflecting the benefit of higher sales volumes ~~while gross margin decreased approximately 70 basis points, reflecting changes in U.S. product mix and cost increases driven~~offset by inflationary and supply chain ~~pressures.~~cost pressures and shift in product mix to lower margin products.

Research and development expenses. Research and development expenses increased ~~$2,594~~$3,885 or ~~21.3%~~34.4%. Personnel costs ~~rose $1,372 from~~increased $1,755 as a result of increased headcount and travel costs as we continue to build our product development, regulatory and clinical ~~teams,~~teams. Continued development of our product pipeline and ~~from increased travel costs. Product development and regulatory expenses increased $869 driven mainly by regulatory filings, submissions and consulting related to~~clinical trial activity, as well as 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.~~, resulted in a $1,992 increase in discretionary expense.

Selling, general and administrative expenses. Selling, general and administrative expenses increased ~~$5,430,~~$7,394, or ~~9.5%. Additional~~14.8%, as a result of a $5,975 increase in headcount and travel ~~activities of $4,058 drove the increase in~~costs. Training expenses ~~primarily reflecting the expansion~~increased $1,150 for additional physician training programs to drive further adoption of our sales and training teams, while meetings, marketing, trainings and tradeshow activities contributed $2,054 of the increase in expenses as we saw further transition from virtual to in-person events. Other operating costs grew $838 compared with the prior period, which includes consulting, professional services and information systems enhancements. Additionally, 2021 included a $2,600 charge for the changeproducts.

Change in fair value of contingent consideration. The credit to operating expenses during the ~~SentreHEART contingent consideration liability, as well as a reduction~~three months ended September 30, 2021 reflects the change in ~~expenses from a one-time tax credit~~probability of ~~$759.~~payment during the contractual achievement periods to remote for the regulatory and reimbursement milestones related to the aMAZE clinical trial.

Impairment of intangible assets. During the three months ended September 30, 2021, the Company recorded an impairment charge for the IPR&D asset associated with the aMAZE PMA.

Other income (expense). Other income and expense consists primarily of net interest expense and net foreign currency transaction ~~gains and~~ losses. Net interest expense decreased ~~$69~~$378 primarily due to lower interest expense as a result of the November 2021 amendment of our Loan ~~Agreement.~~Agreement, while foreign currency transaction losses increased $360 primarily as a result of the strengthening U.S. Dollar.

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Nine months ended ~~June~~September 30, 2022 compared to ~~six~~nine months ended ~~June~~September 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,									Nine Months Ended September 30,
		2022				2021					2022				2021
		Amount		% of Revenues		Amount		% of Revenues			Amount		% of Revenues		Amount		% of Revenues
Revenue	Revenue	$	159,105	100.0	%	$	130,651	100.0	%	Revenue	$	242,351	100.0	%	$	201,111	100.0	%
Cost of revenue	Cost of revenue	39,991		25.1	%	32,033		24.5	%	Cost of revenue	61,524		25.4	%	50,267		25.0	%
Gross profit	Gross profit	119,114		74.9	%	98,618		75.5	%	Gross profit	180,827		74.6	%	150,844		75.0	%
Operating expenses:
Operating expenses (benefit):										Operating expenses (benefit):
Research and development expenses	Research and development expenses	28,420		17.9	%	23,414		17.9	%	Research and development expenses	43,589		18.0	%	34,698		17.3	%
Selling, general and administrative expenses	Selling, general and administrative expenses	118,504		74.5	%	106,166		81.3	%	Selling, general and administrative expenses	175,771		72.5	%	150,939		75.1	%

Total operating expenses		146,924		92.3	%	129,580		99.2	%
Loss from operations		(27,810)		(17.5)	%	(30,962)		(23.7)	%
Change in fair value of contingent consideration										Change in fair value of contingent consideration	—		—	%	(184,800)		(91.9)	%
Intangible asset impairment										Intangible asset impairment	—		—	%	82,300		40.9	%
Total operating expenses (benefit)										Total operating expenses (benefit)	219,360		90.5	%	83,137		41.3	%
(Loss) income from operations										(Loss) income from operations	(38,533)		(15.9)	%	67,707		33.7	%
Other expense, net:	Other expense, net:	(2,113)		(1.3)	%	(2,109)		(1.6)	%	Other expense, net:	(3,616)		(1.5)	%	(3,632)		(1.8)	%
Loss before income tax expense		(29,923)		(18.8)	%	(33,071)		(25.3)	%
(Loss) income before income tax expense										(Loss) income before income tax expense	(42,149)		(17.4)	%	64,075		31.9	%
Income tax expense	Income tax expense	101		0.1	%	97		0.1	%	Income tax expense	147		0.1	%	135		0.1	%
Net loss		$	(30,024)	(18.9)	%	$	(33,168)	(25.4)	%
Net (loss) income										Net (loss) income	$	(42,296)	(17.5)	%	$	63,940	31.8	%

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		Six Months Ended June 30,				Change					Nine Months Ended September 30,				Change
		2022		2021		Amount		%			2022		2021		Amount		%
Open ablation	Open ablation	$	41,044	$	36,942	$	4,102	11.1	%	Open ablation	$	62,613	$	54,835	$	7,778	14.2	%
Minimally invasive ablation	Minimally invasive ablation	18,769		18,087		682		3.8	%	Minimally invasive ablation	28,846		28,077		769		2.7	%
Pain management	Pain management	18,224		9,607		8,617		89.7	%	Pain management	28,734		15,860		12,874		81.2	%
Appendage management	Appendage management	55,500		45,743		9,757		21.3	%	Appendage management	83,120		69,144		13,976		20.2	%
Total United States	Total United States	$	133,537	$	110,379	$	23,158	21.0	%	Total United States	$	203,313	$	167,916	$	35,397	21.1	%
Total International	Total International	25,568		20,272		5,296		26.1	%	Total International	39,038		33,195		5,843		17.6	%
Total revenue	Total revenue	$	159,105	$	130,651	$	28,454	21.8	%	Total revenue	$	242,351	$	201,111	$	41,240	20.5	%

Worldwide revenue increased ~~21.8% (23.0%~~20.5% (21.9% on a constant currency basis). In the United States, ~~we experienced~~ growth ~~across most key product lines as~~reflected continuing adoption of our products and recovery of cardiac surgery ~~volumes began to stabilize.~~volume. Appendage management revenue increases were driven by sales of the ~~AtriClip®~~AtriClip® Flex⋅V® ~~and Pro⋅V~~® ~~devices,~~device, while pain management growth reflects continuing adoption of the cryoSPHERE® probe for post-operative ~~pain management drove pain management sales.~~pain. The launch of the new ~~ENCOMPASS~~EnCompass clamp in April 2022 contributed to the open ablation sales ~~growth, while~~growth. Wider adoption of the EPi-Sense® System drove increases in minimally invasive ablation, ~~and~~ offset by declines in ~~other~~our legacy minimally invasive ablation products. International sales increased ~~26.1% (33.7%~~17.6% (25.8% on a constant currency basis), with ~~procedure volumes rising~~growth 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~~$11,257, while gross margin ofdecreased approximately 6040 basis points, ~~resulting from changes~~reflecting a shift in ~~U.S.~~ product mix to lower margin products and ~~cost inflation~~inflationary and supply chain cost pressures, ~~slightly~~partially offset by ~~geographic mix.~~the benefit of higher sales volumes.

Research and development expenses. Research and development expenses increased ~~$5,006~~$8,891 or ~~21.4%~~25.6%. Personnel costs increased ~~$2,560~~$4,315 from additional headcount as we continue to build our product development, regulatory and clinical teams and return to historical travel levels. ~~Regulatory~~Product development project spend increased $1,859 on continued expansion of our product

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pipeline. Clinical activities, regulatory submissions and consulting ~~as well as product development projects~~activities increased ~~$1,119.~~$1,288, largely the result of compliance with EU MDR. Amortization expense increased ~~$978~~$998 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,~~$24,832, or ~~11.6%~~16.5%. ~~Additional~~Higher headcount and travel activities contributed an additional $15,435 in personnel costs, while training activities, meetings and trade shows increased ~~$9,459, primarily~~$6,532 reflecting an increase in the ~~expansion across our teams, as well as a return to historical travel levels. Additional tradeshow, meetings, physician training~~frequency and ~~marketing activities contributed $4,969~~cost of ~~the increase reflecting continuing transition from virtual to~~ in-person ~~events~~events. Other administrative expenses increased $2,168 for legal activity 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 changeinformation technology costs.

Change in fair value of contingent consideration. The credit to operating expenses during the ~~SentreHEART contingent consideration liability, partially offset by~~nine months ended September 30, 2021 reflects a ~~one-time tax credit~~change in the forecasted timing and probability of ~~$759.~~achievement of the regulatory and reimbursement milestones related to the aMAZE clinical trial.

Impairment of intangible assets. During the nine months ended September 30, 2021, the Company recorded an impairment charge for the IPR&D asset associated with the aMAZE PMA.

Other income (expense). Other income and expense consists primarily of net interest expense and net foreign currency transaction ~~gains and~~ losses. Net interest expense decreased ~~$240 primarily~~$618 due to lower interest expense stemming from the November 2021 amendment of our Loan ~~Agreement.~~Agreement, offset by an increase in foreign currency transaction losses of $603 primarily as a result of the strengthening U.S. Dollar.

Liquidity and Capital Resources

As of ~~June~~September 30, 2022, the Company had cash, cash equivalents and investments of ~~$182,749~~$174,057 and outstanding debt of $60,000. We had unused borrowing capacity of $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 ~~$149,850~~$154,687 and an accumulated deficit of ~~$310,177~~$322,449 as of ~~June~~September 30, 2022.


		Six Months Ended June 30,							Nine Months Ended September 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	$	(20,403)	$	(13,849)	$	6,554	Net cash used in operating activities	$	(22,187)	$	(14,081)	$	8,106
Net cash provided by investing activities	Net cash provided by investing activities	40,243		47,528		(7,285)		Net cash provided by investing activities	37,004		22,427		14,577
Net cash used in financing activities	Net cash used in financing activities	(8,636)		(7,889)		747		Net cash used in financing activities	(9,041)		(10,149)		(1,108)

Cash flows used in operating activities. Net cash used in operating activities increased ~~$6,554 in 2022 compared~~$8,106 from 2021 to ~~2021.~~2022. This change is driven by the fluctuation in working capital and other assets and liabilities of ~~$6,389,~~$6,261. Working capital fluctuations are primarily due to the

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~~$9,665~~ $8,593 reduction in accrued liabilities ~~as a result of~~from higher annual variable compensation payments in 2022 due to improved operating performance in 2021 versus 2020, offset by a ~~$2,042~~ decrease of $1,598 in accounts receivable. The remaining fluctuation is a decrease in the net loss of $3,144, largely driven by a decrease in non-cash expenses, including $5,100 non-cash impact for the fair value adjustment of the SentreHEART contingent consideration liability in 2021, offset partially by increased amortization of the CONVERGE technology asset.

Cash flows provided by investing activities. Net cash provided by investing activities ~~decreased~~increased by ~~$7,285~~$14,577 in 2022 compared to 2021, reflecting ~~decreases in~~higher net sales and maturities of available-for-sale securities of ~~$5,259~~$20,244 and ~~increased~~increase in purchases of property and equipment of ~~$2,026~~$5,667 primarily for the expansion of our manufacturing ~~facilities and new product introductions.~~facilities.

Cash flows used in financing activities. Net cash used in financing activities ~~increased~~decreased by ~~$747~~$1,108 in 2022 largely reflecting lower proceeds from stock option exercise activity and employee stock purchase plan of ~~$6,090, offset by~~$6,263, a decrease of ~~$4,927~~$5,764 in ~~cash tax payments from restricted~~share repurchases for payment of taxes for stock awards and ~~performance share vesting~~a decrease of $1,607 in repayments of debt and ~~increased proceeds from issuance of shares under ESPP of $453.~~lease obligations.

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 ~~June~~September 30, 2022, our outstanding debt was $60,000 and is classified as noncurrent. We had unused borrowing capacity of $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.

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Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of ~~June~~September 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.~~COVID-19 and other macroeconomic conditions including, but not limited to, inflationary pressures, rising interest rates and fluctuations in currency exchange rates. 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 ~~June~~September 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 ~~June~~September 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 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

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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 ~~June~~September 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. 2014 Stock Incentive Plan (Amended and Restated as of May 25, 2022) (incorporated by reference to our Current Report on Form 8-K on 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: ~~August 3,~~November 2, 2022			/s/ Michael H. Carrel
			Michael H. Carrel
			President and Chief Executive Officer (Principal Executive Officer)


Date: ~~August 3,~~November 2, 2022			/s/ Angela L. Wirick
			Angela L. Wirick
			Chief Financial Officer (Principal Accounting and Financial Officer)

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