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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 30, 20222023
or
¨ 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)

Delaware34-1940305
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.001 par valueATRCNASDAQ
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 FilerxAccelerated 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.
ClassOutstanding at August 1, 2022July 21, 2023
Common Stock, $.001 par value46,424,65247,349,899


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Item 5.


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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
June 30,
2023
December 31,
2022
AssetsAssetsAssets
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$54,556 $43,654 Cash and cash equivalents$67,240 $58,099 
Short-term investmentsShort-term investments63,898 75,436 Short-term investments59,785 63,014 
Accounts receivable, less allowance for credit losses of $1,09641,488 33,021 
Accounts receivable, less allowance for credit losses of $230Accounts receivable, less allowance for credit losses of $23048,362 42,693 
InventoriesInventories41,292 38,964 Inventories55,409 45,931 
Prepaid and other current assetsPrepaid and other current assets4,932 5,001 Prepaid and other current assets7,179 5,477 
Total current assetsTotal current assets206,166 196,076 Total current assets237,975 215,214 
Long-term investmentsLong-term investments64,295 104,338 Long-term investments7,598 51,509 
Property and equipment, netProperty and equipment, net36,053 31,409 Property and equipment, net40,540 38,833 
Operating lease right-of-use assetsOperating lease right-of-use assets4,241 4,761 Operating lease right-of-use assets4,353 3,787 
Intangible assets, netIntangible assets, net41,049 42,992 Intangible assets, net67,383 39,339 
GoodwillGoodwill234,781 234,781 Goodwill234,781 234,781 
Other noncurrent assetsOther noncurrent assets804 955 Other noncurrent assets1,541 1,985 
Total Assets$587,389 $615,312 
Total assetsTotal assets$594,171 $585,448 
Liabilities and Stockholders’ EquityLiabilities and Stockholders’ EquityLiabilities and Stockholders’ Equity
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$23,721 $18,597 Accounts payable$23,709 $19,898 
Accrued liabilitiesAccrued liabilities30,775 36,092 Accrued liabilities31,986 33,022 
Current maturities of leases1,820 1,756 
Current maturities of debt and leasesCurrent maturities of debt and leases15,715 5,472 
Total current liabilitiesTotal current liabilities56,316 56,445 Total current liabilities71,410 58,392 
Long-term debtLong-term debt59,954 59,741 Long-term debt47,047 56,834 
Finance lease liabilitiesFinance lease liabilities9,603 10,082 Finance lease liabilities8,614 9,147 
Operating lease liabilitiesOperating lease liabilities3,591 4,068 Operating lease liabilities3,458 3,095 
Other noncurrent liabilitiesOther noncurrent liabilities1,215 1,220 Other noncurrent liabilities1,220 1,226 
Total Liabilities130,679 131,556 
Commitments and contingencies (Note 8)00
Total liabilitiesTotal liabilities131,749 128,694 
Commitments and contingencies (Note 9)Commitments and contingencies (Note 9)
Stockholders’ Equity:Stockholders’ Equity:Stockholders’ Equity:
Common stock, $0.001 par value, 90,000 shares authorized and 46,423 and 46,016 issued and outstanding46 46 
Common stock, $0.001 par value, 90,000 shares authorized and 47,352 and 46,563 issued and outstandingCommon stock, $0.001 par value, 90,000 shares authorized and 47,352 and 46,563 issued and outstanding47 47 
Additional paid-in capitalAdditional paid-in capital771,185 764,811 Additional paid-in capital803,197 787,422 
Accumulated other comprehensive lossAccumulated other comprehensive loss(4,344)(948)Accumulated other comprehensive loss(2,609)(4,096)
Accumulated deficitAccumulated deficit(310,177)(280,153)Accumulated deficit(338,213)(326,619)
Total Stockholders’ Equity456,710 483,756 
Total Liabilities and Stockholders’ Equity$587,389 $615,312 
Total stockholders’ equityTotal stockholders’ equity462,422 456,754 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$594,171 $585,448 
See accompanying notes to condensed consolidated financial statements.
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ATRICURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
20222021202220212023202220232022
RevenueRevenue$84,529 $71,376 $159,105 $130,651 Revenue$100,918 $84,529 $194,412 $159,105 
Cost of revenueCost of revenue21,010 $17,298 39,991 32,033 Cost of revenue23,841 21,010 47,726 39,991 
Gross profitGross profit63,519 $54,078 119,114 98,618 Gross profit77,077 63,519 146,686 119,114 
Operating expenses:Operating expenses:Operating expenses:
Research and development expensesResearch and development expenses14,791 12,197 28,420 23,414 Research and development expenses17,438 14,791 32,765 28,420 
Selling, general and administrative expensesSelling, general and administrative expenses62,388 56,958 118,504 106,166 Selling, general and administrative expenses63,783 62,388 123,847 118,504 
Total operating expensesTotal operating expenses77,179 69,155 146,924 129,580 Total operating expenses81,221 77,179 156,612 146,924 
Loss from operationsLoss from operations(13,660)(15,077)(27,810)(30,962)Loss from operations(4,144)(13,660)(9,926)(27,810)
Other income (expense):Other income (expense):Other income (expense):
Interest expenseInterest expense(1,101)(1,197)(2,101)(2,386)Interest expense(1,719)(1,101)(3,355)(2,101)
Interest incomeInterest income76 103 192 237 Interest income961 76 1,836 192 
OtherOther(111)(14)(204)40 Other(123)(111)22 (204)
Loss before income tax expenseLoss before income tax expense(14,796)(16,185)(29,923)(33,071)Loss before income tax expense(5,025)(14,796)(11,423)(29,923)
Income tax expenseIncome tax expense45 66 101 97 Income tax expense93 45 171 101 
Net lossNet loss$(14,841)$(16,251)$(30,024)$(33,168)Net loss$(5,118)$(14,841)$(11,594)$(30,024)
Basic and diluted net loss per shareBasic and diluted net loss per share$(0.32)$(0.36)$(0.66)$(0.74)Basic and diluted net loss per share$(0.11)$(0.32)$(0.25)$(0.66)
Weighted average shares outstanding—basic and dilutedWeighted average shares outstanding—basic and diluted45,692 45,035 45,610 44,834 Weighted average shares outstanding—basic and diluted46,266 45,692 46,187 45,610 
Comprehensive loss:
Unrealized loss on investments$(449)$(132)$(2,788)$(163)
Comprehensive income (loss):Comprehensive income (loss):
Unrealized gain (loss) on investmentsUnrealized gain (loss) on investments$427 $(449)$1,468 $(2,788)
Foreign currency translation adjustmentForeign currency translation adjustment(430)63 (608)(236)Foreign currency translation adjustment36 (430)19 (608)
Other comprehensive loss(879)(69)(3,396)(399)
Other comprehensive income (loss)Other comprehensive income (loss)463 (879)1,487 (3,396)
Net lossNet loss(14,841)(16,251)(30,024)(33,168)Net loss(5,118)(14,841)(11,594)(30,024)
Comprehensive loss, net of taxComprehensive loss, net of tax$(15,720)$(16,320)$(33,420)$(33,567)Comprehensive loss, net of tax$(4,655)$(15,720)$(10,107)$(33,420)
See accompanying notes to condensed consolidated financial statements.
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ATRICURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands)
(Unaudited)
Three-Month Period Ended June 30, 2021
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Shares
Amount
Balance—March 31, 202145,623 $46 $738,484 $(347,269)$(18)$391,243 
Impact of equity compensation plans258 — 10,160 — — 10,160 
Other comprehensive loss— — — — (69)(69)
Net loss— — — (16,251)— (16,251)
Balance—June 30, 202145,881 $46 $748,644 $(363,520)$(87)$385,083 
Three-Month Period Ended June 30, 2022Three-Month Period Ended June 30, 2022
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Shares
Amount
Shares
Amount
Balance—March 31, 2022Balance—March 31, 202246,268 $46 $761,580 $(295,336)$(3,465)$462,825 Balance—March 31, 202246,268 $46 $761,580 $(295,336)$(3,465)$462,825 
Impact of equity compensation plansImpact of equity compensation plans155 — 9,605 — — 9,605 Impact of equity compensation plans155 — 9,605 — — 9,605 
Other comprehensive lossOther comprehensive loss— — — — (879)(879)Other comprehensive loss— — — — (879)(879)
Net lossNet loss— — — (14,841)— (14,841)Net loss— — — (14,841)— (14,841)
Balance—June 30, 2022Balance—June 30, 202246,423 $46 $771,185 $(310,177)$(4,344)$456,710 Balance—June 30, 202246,423 $46 $771,185 $(310,177)$(4,344)$456,710 
Six-Month Period Ended June 30, 2021Three-Month Period Ended June 30, 2023
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, 202045,346 $45 $742,389 $(330,352)$312 $412,394 
Balance—March 31, 2023Balance—March 31, 202347,244 $47 $790,965 $(333,095)$(3,072)$454,845 
Impact of equity compensation plansImpact of equity compensation plans535 6,255 — — 6,256 Impact of equity compensation plans108 — 12,232 — — 12,232 
Other comprehensive loss— — — — (399)(399)
Other comprehensive incomeOther comprehensive income— — — — 463 463 
Net lossNet loss— — — (33,168)— (33,168)Net loss— — — (5,118)— (5,118)
Balance—June 30, 202145,881 $46 $748,644 $(363,520)$(87)$385,083 
Balance—June 30, 2023Balance—June 30, 202347,352 $47 $803,197 $(338,213)$(2,609)$462,422 
Six-Month Period Ended June 30, 2022 Six-Month Period Ended June 30, 2022
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Shares
Amount
Shares
Amount
Balance—December 31, 2021Balance—December 31, 202146,016 $46 $764,811 $(280,153)$(948)$483,756 Balance—December 31, 202146,016 $46 $764,811 $(280,153)$(948)$483,756 
Impact of equity compensation plansImpact of equity compensation plans407 — 6,374 — — 6,374 Impact of equity compensation plans407 — 6,374 — — 6,374 
Other comprehensive lossOther comprehensive loss— — — — (3,396)(3,396)Other comprehensive loss— — — — (3,396)(3,396)
Net lossNet loss— — — (30,024)— (30,024)Net loss— — — (30,024)— (30,024)
Balance—June 30, 2022Balance—June 30, 202246,423 $46 $771,185 $(310,177)$(4,344)$456,710 Balance—June 30, 202246,423 $46 $771,185 $(310,177)$(4,344)$456,710 
Six-Month Period Ended June 30, 2023
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Shares
Amount
Balance—December 31, 2022Balance—December 31, 202246,563 $47 $787,422 $(326,619)$(4,096)$456,754 
Impact of equity compensation plansImpact of equity compensation plans789 — 15,775 — — 15,775 
Other comprehensive incomeOther comprehensive income— — — — 1,487 1,487 
Net lossNet loss— — — (11,594)— (11,594)
Balance—June 30, 2023Balance—June 30, 202347,352 $47 $803,197 $(338,213)$(2,609)$462,422 
See accompanying notes to condensed consolidated financial statements.
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ATRICURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
Six Months Ended
June 30,
2022202120232022
Cash flows from operating activities:Cash flows from operating activities: Cash flows from operating activities: 
Net lossNet loss$(30,024)$(33,168)Net loss$(11,594)$(30,024)
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 expenseShare-based compensation expense14,573 13,745 Share-based compensation expense17,755 14,573 
DepreciationDepreciation3,861 3,815 Depreciation4,567 3,861 
Amortization of intangible assetsAmortization of intangible assets1,943 965 Amortization of intangible assets1,956 1,943 
Amortization of deferred financing costsAmortization of deferred financing costs255 249 Amortization of deferred financing costs243 255 
Loss on disposal of property and equipment25 52 
Amortization of investmentsAmortization of investments983 1,206 Amortization of investments294 983 
Change in fair value of contingent consideration— 5,100 
Other non-cash adjustmentsOther non-cash adjustments654 472 Other non-cash adjustments487 679 
Changes in operating assets and liabilities:Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivableAccounts receivable(8,757)(10,799)Accounts receivable(5,563)(8,757)
InventoriesInventories(2,727)(2,707)Inventories(9,377)(2,727)
Other current assetsOther current assets32 (308)Other current assets(1,696)32 
Accounts payableAccounts payable4,240 3,571 Accounts payable2,945 4,240 
Accrued liabilitiesAccrued liabilities(5,136)4,529 Accrued liabilities(1,084)(5,136)
Other noncurrent assets and liabilitiesOther noncurrent assets and liabilities(325)(571)Other noncurrent assets and liabilities(1)(325)
Net cash used in operating activitiesNet cash used in operating activities(20,403)(13,849)Net cash used in operating activities(1,068)(20,403)
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Purchases of available-for-sale securitiesPurchases of available-for-sale securities(3,941)(94,817)Purchases of available-for-sale securities— (3,941)
Sales and maturities of available-for-sale securitiesSales and maturities of available-for-sale securities51,749 147,884 Sales and maturities of available-for-sale securities48,315 51,749 
Purchases of property and equipmentPurchases of property and equipment(7,565)(5,539)Purchases of property and equipment(5,582)(7,565)
Acquisition of intellectual propertyAcquisition of intellectual property(30,000)— 
Net cash provided by investing activitiesNet cash provided by investing activities40,243 47,528 Net cash provided by investing activities12,733 40,243 
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Payments on leasesPayments on leases(437)(399)Payments on leases(483)(437)
Payment of debt feesPayment of debt fees(60)— 
Proceeds from stock option exercises and employee stock purchase planProceeds from stock option exercises and employee stock purchase plan3,374 9,010 Proceeds from stock option exercises and employee stock purchase plan4,058 3,374 
Shares repurchased for payment of taxes on stock awardsShares repurchased for payment of taxes on stock awards(11,573)(16,500)Shares repurchased for payment of taxes on stock awards(6,038)(11,573)
Net cash used in financing activitiesNet cash used in financing activities(8,636)(7,889)Net cash used in financing activities(2,523)(8,636)
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents(302)(115)Effect of exchange rate changes on cash and cash equivalents(1)(302)
Net increase in cash and cash equivalentsNet increase in cash and cash equivalents10,902 25,675 Net increase in cash and cash equivalents9,141 10,902 
Cash and cash equivalents—beginning of periodCash and cash equivalents—beginning of period43,654 41,944 Cash and cash equivalents—beginning of period58,099 43,654 
Cash and cash equivalents—end of periodCash and cash equivalents—end of period$54,556 $67,619 Cash and cash equivalents—end of period$67,240 $54,556 
Supplemental cash flow information:Supplemental cash flow information:Supplemental cash flow information:
Cash paid for interestCash paid for interest$1,797 $2,147 Cash paid for interest$3,078 $1,797 
Cash paid for income taxes, net of refunds132 128 
Net cash paid for income taxesNet cash paid for income taxes159 132 
Non-cash investing and financing activities:Non-cash investing and financing activities:Non-cash investing and financing activities:
Accrued purchases of property and equipmentAccrued purchases of property and equipment2,562 529 Accrued purchases of property and equipment1,046 2,562 
See accompanying notes to condensed consolidated financial statements.
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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, 20212022 filed with the SEC. ThereExcept as discussed herein, there have been no changes in the Company's significant accounting policies for the six months ended June 30, 20222023 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.2022.
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 inventories, intangible assets, valuation allowance for deferred income tax 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.including share-based compensation 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 Company's chief operating decision maker for the Company is theits Chief Executive Officer. The Chief Executive Officer, who reviews financial information presented on a consolidated basis, accompanied only by revenue 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$2,934 as of June 30, 20222023 and $1,399$1,616 as of December 31, 20212022 located primarily in Europe.
Net LossEarnings Per Share—Basic and diluted net loss per share isare computed by dividing the net loss by the weighted average number of shares of common shares outstanding during the period. Since the Company has experienced net losses for all periods presented, net loss per share excludes the effect of 1,5481,839 and 1,807 stock options, restricted shares, restricted stock units and performance award1,548 shares as of June 30, 20222023 and 20212022 because they are anti-dilutive. Therefore, the number of shares calculatedused for basic net loss per share is also used for theand diluted net loss per share calculation.are the same.
Share-Based Compensation—The Company recognizes share-based compensation expense for all share-based payment awards, including stock options, restricted stock awards, restricted stock units, performance share awards (PSAs) and stock purchases through an employee stock purchase plan, based on estimated fair values. The value of the portion of an award that is ultimately expected to vest is recognized as expense ratably over the service period. Prior to January 1, 2023, the Company estimated forfeitures at the time of grant and revises them, as necessary, in subsequent periods as actual forfeitures differ from those estimates. Effective January 1, 2023, the Company's policy was amended to account for forfeitures as they occur rather than estimating at the time of grant, and the effect on income from continuing operations and retained earnings is not significant.
Intangible Assets—Technology intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated fifteen year period benefited. Patent intangible assets with determinable useful lives are amortized over the estimated useful life of 5 years in a pattern reflecting the estimated economic benefit of the asset to the Company. Amortization of technology intangible assets is recorded in selling, general and administrative expense, while amortization of patent intangible assets is recorded in cost of revenue.
The Company reviews intangible assets at least annually for impairment using its best estimates based on reasonable and
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
supportable assumptions and projections.
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 transfersettle a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of June 30, 2022:2023:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Other
Unobservable
Inputs (Level 3)
TotalQuoted 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 fundsMoney market funds$$48,832$$48,832Money market funds$$62,100$$62,100
Commercial paper15,94015,940
Government and agency obligationsGovernment and agency obligations31,73531,735Government and agency obligations24,27324,273
Corporate bondsCorporate bonds66,78966,789Corporate bonds40,91440,914
Asset-backed securitiesAsset-backed securities13,72913,729Asset-backed securities2,1962,196
Total assetsTotal assets$31,735$145,290$$177,025Total assets$24,273$105,210$$129,483
There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three and six months ended June 30, 2022.2023.
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, 2021:2022:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Other
Unobservable
Inputs (Level 3)
TotalQuoted 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 fundsMoney market funds$$38,360$$38,360Money market funds$$54,414$$54,414
Commercial paperCommercial paper22,97822,978Commercial paper11,93511,935
Government and agency obligationsGovernment and agency obligations32,69032,690Government and agency obligations32,63732,637
Corporate bondsCorporate bonds95,84595,845Corporate bonds67,59867,598
Asset-backed securitiesAsset-backed securities28,26128,261Asset-backed securities2,3532,353
Total assetsTotal assets$32,690$185,444$$218,134Total assets$32,637$136,300$$168,937
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 aMAZEaMAZE™ IDE clinical trial, including PMApre-market approval (PMA) approval and
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
reimbursement for the therapy involving SentreHEART’s devices. The Company has assessed the projected probability of payment during the contractual achievement periods to be remote, resulting in no remainingreported fair value as of June 30, 20222023 and December 31, 2021.2022.
3.INVESTMENTS
Investments as of June 30, 2023 consisted of the following:
Cost BasisUnrealized
Losses
Fair Value
Corporate bonds$42,334$(1,420)$40,914
Government and agency obligations24,993(720)24,273
Asset-backed securities2,286(90)2,196
Total$69,613$(2,230)$67,383
Investments as of December 31, 2022 consisted of the following:
Cost BasisUnrealized
Losses
Fair Value
Corporate bonds$69,832$(2,234)$67,598
Government and agency obligations33,971(1,334)32,637
Commercial paper11,93511,935
Asset-backed securities2,483(130)2,353
Total$118,221$(3,698)$114,523
The gross realized gains or losses from sales of available-for-sale investments were not significant in the three and six months ended June 30, 2023 and 2022.
The cost and fair value of investments in debt securities, by contractual maturity, as of June 30, 2023 were as follows:
Available-for-sale
Amortized CostFair Value
Due in 1 year or less$59,332$57,589
Due after 1 year through 5 years7,9957,598
Due after 5 years through 10 years
Instruments not due at a single maturity date2,2862,196
Total$69,613$67,383
Instruments not due at a single maturity date consist of asset-backed securities. Actual maturities may differ from the contractual maturities due to call or prepayment rights.
4.INVENTORIES
Inventories consist of the following:
June 30,
2022
December 31,
2021
June 30,
2023
December 31,
2022
Raw materialsRaw materials$14,235$12,653Raw materials$26,487$19,880
Work in processWork in process2,7422,064Work in process3,8932,959
Finished goodsFinished goods24,31524,247Finished goods25,02923,092
TotalTotal$41,292$38,964Total$55,409$45,931
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(In Thousands, except per share amounts)
(Unaudited)
4.5.INTANGIBLE ASSETS
The following table provides a summary of the Company’s intangible assets:
  June 30, 2022 December 31, 2021
Estimated Useful LifeCostAccumulated
Amortization
CostAccumulated
Amortization
Technology10 - 15 years$55,712$14,663$55,712$12,720
June 30, 2023 December 31, 2022
CostAccumulated
Amortization
CostAccumulated
Amortization
Technology$46,470$8,607$46,470$7,131
Patents30,000480
Total$76,470$9,087$46,470$7,131
AmortizationIn May 2023, the Company acquired patents that will be amortized over an estimated useful life of 5 years. See Note 9 - Commitments and Contingencies for further information on the asset acquisition.
The following table summarizes the allocation of amortization expense of intangible assets was $971 and $727 for the three months ended June 30, 2022 and 2021 and $1,943 and $965 for the six months ended June 30, 2022 and 2021. assets:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Cost of revenues$480 $— $480 $— 
Selling, general and administrative expenses738 971 1,476 1,943 
Total$1,218 $971 $1,956 $1,943 
Future amortization expense is projected as follows:
2022 (excluding the six months ended June 30, 2022)$1,710
20232,953
2023 (excluding the six months ended June 30, 2023)2023 (excluding the six months ended June 30, 2023)$3,397
202420242,95320247,453
202520252,95320258,353
202620262,95320269,553
2027 and thereafter27,527
2027202710,453
2028 and thereafter2028 and thereafter28,174
TotalTotal$41,049Total$67,383
5.6.ACCRUED LIABILITIES
Accrued liabilities consist of the following:
June 30,
2022
 December 31,
2021
June 30,
2023
 December 31,
2022
Accrued compensation and employee-related expensesAccrued compensation and employee-related expenses$25,197$30,990Accrued compensation and employee-related expenses$26,807$26,924
Sales returns and allowancesSales returns and allowances2,6132,416Sales returns and allowances3,1722,797
Accrued taxes and value-added taxes payable1,5721,452
Other accrued liabilitiesOther accrued liabilities1,3931,234Other accrued liabilities2,0073,301
TotalTotal$30,775$36,092Total$31,986$33,022
6.7.INDEBTEDNESS
Credit Facility. The Company has a Loan and Security Agreement, as amended and modified effective November 1, 2021, (Loan Agreement),. Our primary banking relationship in the United States was with Silicon Valley Bank. During the first quarter of 2023 all deposits and loans of Silicon Valley Bank were purchased by First-Citizens Bank & Trust Company, and our banking relationship is now with Silicon Valley Bank, (SVB).a division of First-Citizens Bank & Trust Company as of March 31, 2023. The Loan Agreement includesprovides 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.
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(In Thousands, except per share amounts)
(Unaudited)
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 ofCompany meets certain conditions, as specified by the Company,Loan Agreement, the commencement of term loan principal payments may be extendeddeferred 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$600 included in the outstanding loan balance as of June 30, 2022.2023. Additionally, the unamortized original financing costs related to the term loan of $286$220 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, 2022,2023, the Company had no borrowings under the revolving credit facility and had borrowing availability of $28,750.
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(In Thousands, except per share amounts)
(Unaudited)
The Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes a minimum liquidity covenant and dividend restrictions, along with other customary terms and conditions. Specified assets have been pledged as collateral.
Future maturities of long-term debt, excluding the term loan final fee, are projected as follows:
2022 (excluding the six months ended June 30, 2022)$
20233,333
2023 (excluding the six months ended June 30, 2023)2023 (excluding the six months ended June 30, 2023)$3,333
2024202420,000202420,000
2025202520,000202520,000
2026202616,667202616,667
Total long-term debt$60,000
Total long-term debt, of which $13,333 is current and $46,667 is noncurrentTotal long-term debt, of which $13,333 is current and $46,667 is noncurrent$60,000
7.8.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 nineten 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, 2022December 31, 2021June 30, 2023December 31, 2022
Operating LeasesOperating LeasesOperating Leases
Weighted average remaining lease term (years)Weighted average remaining lease term (years)4.83.6Weighted average remaining lease term (years)5.24.4
Weighted average discount rateWeighted average discount rate4.66%4.69%Weighted average discount rate5.39%4.60%
Finance LeasesFinance LeasesFinance Leases
Weighted average remaining lease term (years)Weighted average remaining lease term (years)8.18.6Weighted average remaining lease term (years)7.17.6
Weighted average discount rateWeighted average discount rate6.92%6.91%Weighted average discount rate6.92%6.92%
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 30, 2022.
The components of lease expense are as follows:
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Operating lease cost$284 $203 $570 $481 
 
Finance lease cost:
Amortization of right-of-use assets338 242 508 484 
Interest on lease liabilities185 200 375 403 
Total finance lease cost$523 $442 $883 $887 
Short-term lease expense was not significant for the three and six months ended June 30, 2022 and 2021.2023.
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(In Thousands, except per share amounts)
(Unaudited)
The components of lease expense are as follows:
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Operating lease cost$325 $284 $635 $570 
 
Finance lease cost:
Amortization of right-of-use assets255 338 510 508 
Interest on lease liabilities170 185 345 375 
Total finance lease cost$425 $523 $855 $883 
Short-term lease expense was not significant for the three and six months ended June 30, 2023 and 2022.
Supplemental cash flow information related to leases was as follows:
Six Months Ended
June 30, 2022
Six Months Ended
June 30, 2021
Six Months Ended
June 30, 2023
Six Months Ended
June 30, 2022
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 leasesOperating cash flows for operating leases$505 $494 Operating cash flows for operating leases$602 $505 
Operating cash flows for finance leasesOperating cash flows for finance leases375 403 Operating cash flows for finance leases345 375 
Financing cash flows for finance leasesFinancing cash flows for finance leases437 399 Financing cash flows for finance leases483 437 
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 leasesOperating leases— 1,221 Operating leases1,068 — 
Finance leasesFinance leases— — Finance leases— — 
Supplemental balance sheet information related to leases was as follows:
June 30, 2022December 31, 2021
Operating Leases
Operating lease right-of-use assets$4,241 $4,761 
Current maturities of leases884 861 
Operating lease liabilities3,591 4,068 
Total operating lease liabilities$4,475 $4,929 
Finance Leases
Property and equipment, at cost$14,607 $14,607 
Accumulated depreciation(6,624)(6,116)
Property and equipment, net$7,983 $8,491 
Current maturities of leases$936 $895 
Finance lease liabilities9,603 10,082 
Total finance lease liabilities$10,539 $10,977 
Future maturities of lease liabilities as of June 30, 2022 were as follows:
Operating LeasesFinance Leases
2022 (excluding the six months ended June 30, 2022)$356 $817 
20231,160 1,652 
20241,164 1,674 
2025920 1,625 
2026592 1,657 
2027 and thereafter868 6,515 
Total payments$5,060 $13,940 
Less imputed interest(585)(3,401)
Total$4,475 $10,539 
June 30, 2023December 31, 2022
Operating Leases
Operating lease right-of-use assets$4,353 $3,787 
Current maturities of leases1,340 1,147 
Operating lease liabilities3,458 3,095 
Total operating lease liabilities$4,798 $4,242 
Finance Leases
Property and equipment, at cost$14,620 $14,645 
Accumulated depreciation(7,339)(7,109)
Property and equipment, net$7,281 $7,536 
Current maturities of leases$1,042 $992 
Finance lease liabilities8,614 9,147 
Total finance lease liabilities$9,656 $10,139 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Future maturities of lease liabilities as of June 30, 2023 were as follows:
Operating LeasesFinance Leases
2023 (excluding the six months ended June 30, 2023)$663 $836 
20241,270 1,689 
20251,034 1,638 
2026727 1,671 
2027754 1,703 
2028 and thereafter1,169 4,824 
Total payments$5,617 $12,361 
Less imputed interest(819)(2,705)
Total$4,798 $9,656 
8.9.COMMITMENTS AND CONTINGENCIES
RoyaltyLicense Agreement. The Company hashad been a party to a license agreement that required royalty agreement in place with terms that include payment of royaltiespayments of 5% of specified product sales. TheIn May 2023, the Company entered into an agreement terminatesthat terminated the later of 2023 or upon expiration oflicense agreement and the underlying patents or patent applications, which is expectedCompany's obligations to occur after 2023. Parties tomake royalty payments under the royalty agreement have the right at any time to terminate the agreement immediatelylicense agreement. See Legal section below for cause. Royalty expense of $877 and $842 was recorded for the three months ended June 30, 2022 and 2021 and $1,670 and $1,564 for the six months ended June 30, 2022 and 2021 as a component of Cost of Revenue in the accompanying Condensed and Consolidated Statement of Operations.additional information.
Purchase Agreements. The Company enters into standard purchase agreements with vendorssuppliers 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 recognizes income from a favorable resolution of legal proceedings when the associated cash or assets are received.
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 of 2022, 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.
On August 23, 2022, the Cleveland Clinic Foundation (“CCF”) and IDx Medical, Ltd. (“IDx”) filed a Demand for Arbitration against the Company with the American Arbitration Association (“AAA”), alleging that the Company breached certain provisions of the License Agreement dated December 9, 2003 among the Company, Clinic and IDx (“License Agreement”). Clinic and IDx alleged that the Company did not include the revenues from sales of certain products in its royalty payments due under the License Agreement, and the Company did not provide related notices required under the License Agreement. The Company filed its Answering Statement and Counterclaims to the allegations in September 2022, denying each
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
claim and counterclaiming for breach of contract, correction of inventorship, declaratory judgment, patent prosecution and legal fees. In May 2023, the Company entered into an Assignment and Agreement Regarding IDx and CCF Intellectual Property (“Assignment Agreement”) with Clinic and IDx. Pursuant to the Assignment Agreement, during the second quarter of 2023, the Company made a one-time payment of $33,400 to Clinic and IDx for the acquisition of patents and other intellectual property. The Assignment Agreement also requires dismissal of the arbitration and release of payment for royalty obligations due to Clinic and IDx under the License Agreement after March 31, 2023. The amount paid, together with transaction costs, was allocated between the acquired intangible asset, the release of payment for royalty obligations and the settlement of the dispute. The intangible asset was assigned a value of $30,000 and is being amortized over an estimated useful life of 5 years. The release of the royalty obligations was valued at $432. The remaining $3,088 was allocated to the settlement and is included in selling, general and administrative expenses for the three months ended June 30, 2023.
During the first quarter of 2023, the Company receivedentered into a noticelegal settlement for $7,500 in connection with the settlement of breach underclaims filed against a license agreement regarding its potential underpayment of royalties. The notice asserts that the Company's calculation of royalties payable under the license agreement throughout the agreement term did not include sales of all products that were subject to royalties.competitor. The Company disputesrecorded a $3,500 gain for the basis ofthree months ended June 30, 2023 and $7,500 for the claimsix months ended June 30, 2023 for the proceeds received as a reduction to selling, general and any potential underpayment. While a loss related to this claim is possible, the Company does not believe such loss is probable or estimable at this time.administrative expenses.
9.10.REVENUE
The Company develops, manufactures and sells devices designed primarily for surgical ablation of cardiac tissue, exclusion of the left atrial appendage, and blocking post-operative 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.
United States revenue by product type is as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Open ablation$27,002$22,070$52,144$41,044
Minimally invasive ablation11,37010,15421,00718,769
Pain management12,59010,21023,65818,224
Total ablation$50,962$42,434$96,809$78,037
Appendage management33,94128,83166,28355,500
Total United States$84,903$71,265$163,092$133,537
International revenue by product type is as follows:
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Open ablation$7,722$6,213$15,008$12,705
Minimally invasive ablation1,3751,2713,2422,804
Pain management439114667254
Total ablation$9,536$7,598$18,917$15,763
Appendage management6,4795,66612,4039,805
Total International$16,015$13,264$31,320$25,568
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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,
2022202120222021
Open ablation$22,070$19,503$41,044$36,942
Minimally invasive ablation10,1549,70218,76918,087
Pain management10,2105,70918,2249,607
Total ablation$42,434$34,914$78,037$64,636
Appendage management28,83125,15655,50045,743
Total United States$71,265$60,070$133,537$110,379
International revenue by product type is as follows:
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Open ablation$6,213$5,526$12,705$9,960
Minimally invasive ablation1,2711,5752,8042,849
Pain management1141125411
Total ablation$7,598$7,112$15,763$12,820
Appendage management5,6664,1949,8057,452
Total International$13,264$11,306$25,568$20,272
Revenue attributed to customer geographic locations is as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
20222021202220212023202220232022
United StatesUnited States$71,265$60,070$133,537$110,379United States$84,903$71,265$163,092$133,537
EuropeEurope7,7837,01515,02012,781Europe9,4577,78318,85815,020
Asia4,9334,0889,4906,961
Asia PacificAsia Pacific6,1254,93311,5279,490
Other InternationalOther International5482031,058530Other International4335489351,058
Total InternationalTotal International13,26411,30625,56820,272Total International16,01513,26431,32025,568
Total RevenueTotal Revenue$84,529$71,376$159,105$130,651Total Revenue$100,918$84,529$194,412$159,105
10.11.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 30, 2023 and 2022 and 2021 was (0.30%(1.9%) and (0.41%(0.3%). The effective tax rate for the six months ended June 30, 2023 and 2022 and 2021 was (0.34%(1.5%) and (0.29%(0.3%). The Company’s worldwide effective tax rate differs from the US statutory rate of 21% primarily due to the Company’sits valuation allowance.allowances.
Federal,The Company's federal, state, local and localforeign tax 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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
11.12.EQUITY COMPENSATION PLANS
The Company has 2two share-based incentive plans: the 2023 Stock Incentive Plan (2023 Plan) and the 2018 Employee Stock Purchase Plan (ESPP). Stockholders approved the 2023 Plan at the 2023 Annual Meeting of Stockholders. Pursuant to its terms, the 2023 Plan supersedes and replaces the 2014 Stock Incentive Plan (2014(Prior Plan) and the 2019 Employee Stock Purchase Plan (ESPP).
Stock Incentive Plan
Under the 20142023 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.consultants, and may grant incentive stock options to Company employees. The Compensation Committee of the Board of Directors, as the administrator of the 20142023 Plan, has the authority to determine the terms of any awards, including the number of shares subject to each award, the exercisability of the awards and the form of consideration. As of June 30, 2022, 12,8992023, 2,287 shares of common stock hadhave been reserved for issuance under the 20142023 Plan, and 1,0762,269 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 30, 2022,2023, there were 228847 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,
2022202120222021
Cost of revenue$487 $598 $1,058 $1,017 
Research and development expenses1,186 1,083 2,316 2,020 
Selling, general and administrative expenses5,851 5,460 11,199 10,708 
Total$7,524 $7,141 $14,573 $13,745 
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(In Thousands, except per share amounts)
(Unaudited)
Share-Based Compensation Expense Information
The following table summarizes the allocation of share-based compensation expense:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Cost of revenue$471 $487 $914 $1,058 
Research and development expenses1,540 1,186 2,844 2,316 
Selling, general and administrative expenses6,984 5,851 13,997 11,199 
Total$8,995 $7,524 $17,755 $14,573 
12.13.COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE LOSS
In addition to net losses, comprehensive loss includes foreign currency translation adjustments and unrealized gains (losses) on investments.
Accumulated other comprehensive loss consisted of the following, net of tax:
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
20222021202220212023202220232022
Total accumulated other comprehensive (loss) income at beginning of period$(3,465)$(18)$(948)$312 
Total accumulated other comprehensive loss at beginning of periodTotal accumulated other comprehensive loss at beginning of period$(3,072)$(3,465)$(4,096)$(948)
Unrealized Gains (Losses) on InvestmentsUnrealized Gains (Losses) on InvestmentsUnrealized Gains (Losses) on Investments
Balance at beginning of periodBalance at beginning of period$(3,226)$23$(887)$54Balance at beginning of period$(2,657)$(3,226)$(3,698)$(887)
Other comprehensive loss before reclassifications(377)(132)(2,716)(163)
Amounts reclassified from accumulated other comprehensive loss to other income (expense)(72)(72)
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications427 (377)1,468 (2,716)
Amounts reclassified to other income (expense)Amounts reclassified to other income (expense)— (72)(72)
Balance at end of periodBalance at end of period$(3,675)$(109)$(3,675)$(109)Balance at end of period$(2,230)$(3,675)$(2,230)$(3,675)
Foreign Currency Translation AdjustmentForeign Currency Translation AdjustmentForeign Currency Translation Adjustment
Balance at beginning of periodBalance at beginning of period$(239)$(41)$(61)$258 Balance at beginning of period$(415)$(239)$(398)$(61)
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications(527)36(787)(262)Other comprehensive income (loss) before reclassifications28(527)153 (787)
Amounts reclassified from accumulated other comprehensive loss to other income (expense)9727 17926
Amounts reclassified to other income (expense)Amounts reclassified to other income (expense)897 (134)179
Balance at end of periodBalance at end of period$(669)$22 $(669)$22 Balance at end of period$(379)$(669)$(379)$(669)
Total accumulated other comprehensive loss at end of periodTotal accumulated other comprehensive loss at end of period$(4,344)$(87)$(4,344)$(87)Total accumulated other comprehensive loss at end of period$(2,609)$(4,344)$(2,609)$(4,344)
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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, 20212022 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, 2021.2022. 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,” “drives,” “seek,” “believes,” “see,” “focus,” “should,” “will,” “would,” “opportunity,” “outlook,” “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 developments related to the COVID-19 pandemic, as discussed herein.control. 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% of the population in the United States and an estimated 33 million people worldwide. It is the most common cardiac arrhythmia, or irregular heartbeat, encountered in clinical practice and results in high utilization of healthcare services. Patients often progress from being in Afib intermittently (paroxysmal) to being in Afib continuously. The continuous Afib patient population includes persistent Afib, which lasts seven days to one year, and long-standing persistent Afib, which lasts longer than one year. Afib often occurs in conjunction with other cardiovascular diseases, including hypertension, congestive heart failure, left ventricular dysfunction, coronary artery disease and valvular disease. Our ablation and left atrial appendage management (LAAM) products are used by physicians during both open-heart and minimally invasive procedures. In open-heart procedures, the physician is performing heart surgery for other conditions, and our products are used in conjunction with (“concomitant” to) such a procedure. Minimally invasive procedures are performed on a standalone basis, and often include multi-disciplinary or “hybrid” approaches, combining surgical procedures using AtriCure ablation and LAAM products with catheter ablation.
We believe that we are currently the market leader in theablation procedures performed by an electrophysiologist. Our pain management device is used by physicians to freeze nerves during cardiothoracic or thoracic 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 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 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. DirectDollars; direct sales transactions outside the United States are transacted in Euros, British Pounds or Australian Dollars.
Recent Developments
During 2022,In 2023, we continued to experience variabilityrealized significant global revenue growth and intermittent demand forexpanded on our products as non-emergent procedures were deferred in order to preserve resources for COVID-19 patientsstrategic initiatives of product innovation, clinical science and caregiversexpanding physician awareness and hospital staffing was impacted by the pandemicadoption through superior training and related factors. We saw many regions 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, oureducation. Our worldwide revenue infor the six months ended June 30, 20222023 was $159,105,$194,412, representing an increase of $28,454,$35,307, or 21.8%22.2%, over the first six months of 2021,2022, driven by growing adoption across key product lines. We continue to build on ourHighlights of the strategic initiativesand operational advancements include:
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Table of product innovation, investing in clinical science and expanding awareness and adoption by providing superior training and education.Contents
PRODUCT INNOVATION. During September 2022, the first half of 2022, we launched our ENCOMPASSCompany received final labeling approval from FDA for the next generation EPi-Sense® clamp, followingST device and began a limited launch in the receiptfourth quarter of 510(k) clearance for ablation2022, with a full launch commencing in the second quarter of cardiac tissue during cardiac surgery in July 2021. The ENCOMPASS clamp marks innovation in our core open ablation market and is designed2023. We continue to make concomitant surgical ablations more efficient. It is expectedsignificant progress on the submission of our products for clearance under the European Medical Device Regulation (EU MDR). As of the second quarter 2023, all of our products have been submitted to drive deeper penetration of cardiac surgery procedures.our Notified Body under EU MDR. These activities are in addition to several new product development programs currently underway.
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 first patient enrollment in the trial in June 2022; site initiation and enrollment is ongoing.
LeAAPS. In April 2022, the 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 aThis 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. In January 2023, we announced first patient enrollment in the trial; site initiation and enrollment is ongoing.
Recently, results from our CEASE-AF trial were presented at the European Heart Rhythm Association meeting. CEASE-AF is a prospective, multi-center randomized control trial that demonstrated superior freedom from atrial arrhythmias for staged hybrid ablation compared to endocardial catheter ablation.
Trial enrollment was completed in the second quarter of 2023 for the ICE-AFIB clinical trial, which is designed to study the safety and efficacy of our cryoICE® system for persistent and long-standing persistent Afib treatment during concomitant on-pump cardiac surgery. The Company anticipatestrial provided for enrollment of up to begin later this year.150 patients at up to 20 sites in the United States. Patient follow-up for twelve months post ablation required by the study protocol remains ongoing.
TRAINING. Our professional education and marketing teams conduct a variety of virtual and in-person and mobile training programs 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 approvalDuring 2023, we launched new training courses for Advanced Practice Providers, pain management in pectus procedures, as well as a best practice course for developing arrhythmia programs, with a primary focus on Hybrid therapies. Our professional education courses continue to benefit from the use of inanimate models or synthetic cadavers, known as cadets, for our physician training activities. These reusable cadets provide a sustainable alternative to the EPi-Sense system has enabled ususe of animals or cadavers, in addition to educate and train physiciansreducing spend 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).

training programs.
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Results of Operations
Three months ended June 30, 20222023 compared to three months ended June 30, 20212022
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
June 30,
2022202120232022
Amount% of
Revenues
Amount% of
Revenues
Amount% of
Revenues
Amount% of
Revenues
RevenueRevenue$84,529 100.0  %$71,376 100.0  %Revenue$100,918 100.0  %$84,529 100.0  %
Cost of revenueCost of revenue21,010 24.9  %17,298 24.2  %Cost of revenue23,841 23.6 21,010 24.9 
Gross profitGross profit63,519 75.1  %54,078 75.8  %Gross profit77,077 76.4 63,519 75.1 
Operating expenses:Operating expenses:Operating expenses:
Research and development expensesResearch and development expenses14,791 17.5  %12,197 17.1  %Research and development expenses17,438 17.3 14,791 17.5 
Selling, general and administrative expensesSelling, general and administrative expenses62,388 73.8  %56,958 79.8  %Selling, general and administrative expenses63,783 63.2 62,388 73.8 
Total operating expensesTotal operating expenses77,179 91.3  %69,155 96.9  %Total operating expenses81,221 80.5 77,179 91.3 
Loss from operationsLoss from operations(13,660)(16.2) %(15,077)(21.1) %Loss from operations(4,144)(4.1)(13,660)(16.2)
Other expense, net:(1,136)(1.3) %(1,108)(1.6) %
Other income (expense), net:Other income (expense), net:(881)(0.9)(1,136)(1.3)
Loss before income tax expenseLoss before income tax expense(14,796)(17.5) %(16,185)(22.7) %Loss before income tax expense(5,025)(5.0)(14,796)(17.5)
Income tax expenseIncome tax expense45 0.1  %66 0.1  %Income tax expense93 0.1 45 0.1 
Net lossNet loss$(14,841)(17.6) %$(16,251)(22.8) %Net loss$(5,118)(5.1) %$(14,841)(17.6) %
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,
ChangeThree Months Ended
June 30,
Change
20222021Amount%20232022Amount%
Open ablationOpen ablation$22,070 $19,503 $2,567 13.2  %Open ablation$27,002 $22,070 $4,932 22.3  %
Minimally invasive ablationMinimally invasive ablation10,154 9,702 452 4.7  %Minimally invasive ablation11,370 10,154 1,216 12.0 
Pain managementPain management10,210 5,709 4,501 78.8  %Pain management12,590 10,210 2,380 23.3 
Appendage managementAppendage management28,831 25,156 3,675 14.6  %Appendage management33,941 28,831 5,110 17.7 
Total United StatesTotal United States$71,265 $60,070 $11,195 18.6  %Total United States$84,903 $71,265 $13,638 19.1 
Total InternationalTotal International13,264 11,306 1,958 17.3  %Total International16,015 13,264 2,751 20.7 
Total revenueTotal revenue$84,529 $71,376 $13,153 18.4  %Total revenue$100,918 $84,529 $16,389 19.4  %
Worldwide revenue increased 18.4% (19.8%19.4% (19.3% on a constant currency basis). In the United States, we experienced growth in most of ourall key product lines. Physician acceptance of ourlines, led by the EnCompass® clamp in open ablation, cryoSPHERE® probe for post-operative pain management and expanded sales effortsAtriClip® Flex⋅V® for appendage management. Additionally, Hybrid AF™ Therapy procedures using the EPi-Sense System drove growth in pain management revenue. Appendage management sales were driven by continuing adoption of our AtriClip® Flex⋅V® and Pro⋅V® devices, while the launch of the new ENCOMPASS clamp accelerated growth in our open ablation revenue. While minimally invasive procedures continue to experience residual impacts from the pandemic and staffing, we saw growing adoption of the EPi-Sense® System in an increasing customer base. The increase in EPi-Sense revenue was largely offset by a decline in revenue from all other minimally invasive ablation products.sales. International sales increased 17.3% (26.3%20.7% (19.9% on a constant currency basis), a resultacross all franchises and major geographic regions, bolstered by strong sales of rebounding procedure volumes in Europe, primarilyopen ablation and LAAM products in the NetherlandsAsia Pacific market and our direct markets in the United Kingdom and growth in Australia. The increase in international revenue was driven mainly by our appendage management business which grew 35.1%.Germany.
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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,$2,831 primarily reflecting higher sales volumes, while grossvolumes. Gross margin decreased approximately 70increased 130 basis points, reflecting changes in U.S. product mixdriven by favorable production and strategic sourcing efficiencies and offset partially by cost increases driven by inflationary and supply chain pressures.unfavorable geographic and product mix.
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Research and development expenses. Research and development expenses increased $2,594$2,647 or 21.3%17.9%. Personnel costs rose $1,372 from increased headcount as we continue to build ourExpansion of product development, regulatory and clinical teams resulted in $1,474 of increased personnel costs, including variable compensation, travel and from increased travel costs. Product development and regulatoryshare-based compensation. Clinical trial expenses increased $869 driven mainly by regulatory filings, submissions and consulting relatedcontributed a further $1,406 increase due to compliance withstrong enrollment activity in the European Union Medical Device Regulation (EU MDR). Amortization expense increased $247 followingLeAAPS clinical trial during the April 2021 PMA resulting from the CONVERGE IDE clinical trial.quarter.
Selling, general and administrative expenses. Selling, general and administrative expenses increased $5,430,$1,395, or 9.5%. Additional2.2%, driven by a $4,240 increase in personnel costs as a result of growth in headcount and travel activitiesshare-based compensation. This increase was offset by the $1,587 decrease in training costs as a result of $4,058 drove thegrowing efficiencies and enhancements to our training programs globally, and a $567 decrease in professional services, information technology, and consulting costs. The increase in selling, general and administrative expenses primarily reflectingwas further offset by a net credit to expense of $412 from non-recurring legal settlements, including a $3,500 gain for proceeds received in the expansionsecond quarter for a matter settled during the first quarter 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 $2,6002023, partially offset by $3,088 charge for settlement of an intellectual property matter in the change in fair valuesecond quarter of the SentreHEART contingent consideration liability, as well as a reduction in expenses from a one-time tax credit of $759.2023. See Note 9 – Commitments and Contingencies for further discussion.
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 primarily due to lower interest expense as a result of the November 2021 amendment of our Loan Agreement.
Six months ended June 30, 20222023 compared to six months ended June 30, 20212022
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,
Six Months Ended
June 30,
2022202120232022
Amount% of
Revenues
Amount% of
Revenues
Amount% of
Revenues
Amount% of
Revenues
RevenueRevenue$159,105 100.0  %$130,651 100.0  %Revenue$194,412 100.0  %$159,105 100.0  %
Cost of revenueCost of revenue39,991 25.1  %32,033 24.5  %Cost of revenue47,726 24.5 39,991 25.1 
Gross profitGross profit119,114 74.9  %98,618 75.5  %Gross profit146,686 75.5 119,114 74.9 
Operating expenses:Operating expenses:Operating expenses:
Research and development expensesResearch and development expenses28,420 17.9  %23,414 17.9  %Research and development expenses32,765 16.9 28,420 17.9 
Selling, general and administrative expensesSelling, general and administrative expenses118,504 74.5  %106,166 81.3  %Selling, general and administrative expenses123,847 63.7 118,504 74.5 
Total operating expensesTotal operating expenses146,924 92.3  %129,580 99.2  %Total operating expenses156,612 80.6 146,924 92.3 
Loss from operationsLoss from operations(27,810)(17.5) %(30,962)(23.7) %Loss from operations(9,926)(5.1)(27,810)(17.5)
Other expense, net:(2,113)(1.3) %(2,109)(1.6) %
Other income (expense), net:Other income (expense), net:(1,497)(0.8)(2,113)(1.3)
Loss before income tax expenseLoss before income tax expense(29,923)(18.8) %(33,071)(25.3) %Loss before income tax expense(11,423)(5.9)(29,923)(18.8)
Income tax expenseIncome tax expense101 0.1  %97 0.1  %Income tax expense171 0.1 101 0.1 
Net lossNet loss$(30,024)(18.9) %$(33,168)(25.4) %Net loss$(11,594)(6.0) %$(30,024)(18.9) %
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:
Six Months Ended
June 30,
Change
20232022Amount%
Open ablation$52,144 $41,044 $11,100 27.0  %
Minimally invasive ablation21,007 18,769 2,238 11.9 
Pain management23,658 18,224 5,434 29.8 
Appendage management66,283 55,500 10,783 19.4 
Total United States$163,092 $133,537 $29,555 22.1 
Total International31,320 25,568 5,752 22.5 
Total revenue$194,412 $159,105 $35,307 22.2  %
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Six Months Ended
June 30,
Change
20222021Amount%
Open ablation$41,044 $36,942 $4,102 11.1  %
Minimally invasive ablation18,769 18,087 682 3.8  %
Pain management18,224 9,607 8,617 89.7  %
Appendage management55,500 45,743 9,757 21.3  %
Total United States$133,537 $110,379 $23,158 21.0  %
Total International25,568 20,272 5,296 26.1  %
Total revenue$159,105 $130,651 $28,454 21.8  %
Worldwide revenue increased 21.8% (23.0%22.2% (22.4% on a constant currency basis). In the United States, we experienced growth across mostin all key product lines as cardiac surgery volumes began to stabilize. Appendage managementreflected continuing adoption of our products. Open ablation revenue increases were driven by salesthe EnCompass clamp, which was launched in April 2022. Sales of the AtriClip®AtriClip Flex⋅V®and Pro⋅V® devices, while continuingcryoSPHERE probe contributed to revenue growth in the appendage management and post-operative pain management franchises. Increased physician adoption of the cryoSPHERE® probe for post-operative pain management drove pain management sales. The launch ofHybrid AF™ Therapy procedure using the new ENCOMPASS clamp contributed to the open ablation sales growth, while adoption of the EPi-Sense® System drove increasesgrowth in minimally invasive ablation and offset declines in other minimally invasive ablation products.sales. International sales increased 26.1% (33.7%22.5% (23.8% on a constant currency basis), with procedure volumes rising across all major franchises and major geographic regions.
Cost of revenue and gross margin. Cost of revenue increased $7,958,$7,735 primarily reflecting higher revenue and a decrease insales volumes, while gross margin of approximatelyincreased 60 basis points resultingas realization of increasing production efficiencies more than offset cost pressure from changes in U.S. product mix and cost inflation and supply chain pressures, slightly offset bychallenges and geographic and product mix.
Research and development expenses. Research and development expenses increased $5,006$4,345 or 21.4%. Personnel15.3%, primarily from a $3,130 increase in personnel costs increased $2,560 fromdue to additional headcount as we continue to buildin our product development, regulatory and clinical teamsteams. The increase in clinical activity driven by the LeAAPS and return to historical travel levels. Regulatory submissions, consulting, as well asHEAL-IST clinical trials also contributed incremental expense of $2,162. This increase was offset by a $770 decrease in product development projects increased $1,119. Amortization expense increased $978 following the April 2021 PMA resulting from the CONVERGE IDE clinical trial.and consulting costs as EU MDR compliance efforts diminished in 2023.
Selling, general and administrative expenses. Selling, general and administrative expenses increased $12,338,$5,343, or 11.6%. Additional headcount and travel activities4.5%, largely due to increased $9,459, primarily reflecting the expansion across our teams, as wellpersonnel costs of $12,003 as a return to historical travel levels. Additional tradeshow, meetings, physician trainingresult of growth in headcount, variable compensation and share-based compensation and $1,229 of additional marketing, activities contributed $4,969 oftrade shows, and meeting activities. Offsetting the increase reflecting continuing transitionwas a $2,882 decrease in training due to improved efficiencies from virtual to in-person eventsour various global training programs, and a $1,182 decrease in legal spend as a result of settlements reached in the expansionfirst half of training programs. Other operating costs,2023. Selling, general and administrative expenses were also offset by a net gain of $4,466 for non-recurring legal settlements, including contracting, product demo costs and professional services grew $1,161 as compared toa $7,500 gain from proceeds on a matter settled during the prior period. Additionally, 2021 expenses included a $5,100 charge for the change in fair valuefirst quarter of the SentreHEART contingent consideration liability,2023, partially offset by a one-time tax credit$3,088 charge for settlement of $759.an intellectual property matter. See Note 9 – Commitments and Contingencies for further discussion.
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 due to lower interest expense stemming from the November 2021 amendment of our Loan Agreement.
Liquidity and Capital Resources
As of June 30, 2022,2023, the Company had cash, cash equivalents and investments of $182,749$134,623 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 byOur primary banking relationship in the United States financial institutions.was with Silicon Valley Bank. During the first quarter of 2023 all deposits and loans of Silicon Valley Bank were purchased by First-Citizens Bank & Trust Company, and our banking relationship is now with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company as of March 31, 2023. Access to our funds, funding sources and other credit arrangements are adequate to finance or capitalize our current and projected future business operations. We had net working capital of $149,850$166,565 and an accumulated deficit of $310,177$338,213 as of June 30, 2022.2023.
Six Months Ended June 30,Six Months Ended June 30,
20222021Change20232022Change
(dollars in thousands)(dollars in thousands)
Net cash used in operating activitiesNet cash used in operating activities$(20,403)$(13,849)$6,554 Net cash used in operating activities$(1,068)$(20,403)$(19,335)
Net cash provided by investing activitiesNet cash provided by investing activities40,243 47,528 (7,285)Net cash provided by investing activities12,733 40,243 (27,510)
Net cash used in financing activitiesNet cash used in financing activities(8,636)(7,889)747 Net cash used in financing activities(2,523)(8,636)(6,113)
Cash flows used in operating activities. Net cash used in operating activities increased $6,554decreased $19,335 from 2022 to 2023, reflecting the improvement in 2022 compared to 2021. This change isoperating results after non-cash charges of $21,438 driven by the fluctuationhigher sales and a net gain from legal settlements. This improvement was offset by a $2,103 increase in cash used in working capital and other assets and liabilities of $6,389, primarily due to the
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$9,665 reductionliabilities. The increase in accrued liabilities as a result of higher annual variable compensation payments due to improved operating performance,cash used in working capital was driven by increased inventory, partially offset by a $2,042 decrease inincreased collections of 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 by $7,285$27,510 in 20222023 compared to 2021,2022, reflecting decreases$30,000 in net salescash paid for acquisition of intellectual property and maturities of available-for-sale securities of $5,259 and increaseda reduction in purchases of property and equipment of $2,026 for the expansion offollowing our 2022 manufacturing facilities and new product introductions.expansion.
Cash flows used in financing activities. Net cash used in financing activities increaseddecreased by $747$6,113 in 2022 largely reflecting lower2023, as fewer shares were repurchased for payment of taxes for stock option exercise activityawards.
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Table of $6,090, offset by a decrease of $4,927 in cash tax payments from restricted and performance share vesting and increased proceeds from issuance of shares under ESPP of $453.Contents
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 30, 2022,2023, our outstanding debt was $60,000, of which $13,333 is classified as current and $46,667 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 —7 – Indebtedness.
Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of June 30, 2022.2023.
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 expensescosts 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 macroeconomic conditions including, but not limited to, inflationary pressures, rising interest rates, and fluctuations in currency exchange rates that may impact our liquidity and access to capital resources through the recovery from, and any further disruptions caused by, COVID-19.resources. 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, 20212022 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 30, 2022,2023, there were no material changes to the information provided regarding recent accounting pronouncements in Note 2, “Recent1, “Description of the Business and Summary of Significant Accounting Pronouncements”Policies” 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 30, 2022,2023, 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, 2021.2022.
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,
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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 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 30, 20222023 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 89 – 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, 2021,2022, as amended by our Form 10-Q for the quarter ended March 31, 2023, 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, 2021.2022, as amended by risk factors provided in our Form 10-Q for the quarter ended March 31, 2023 which are incorporated herein by reference.
Item 5. Other Information
During the three months ended June 30, 2023, none of our executive officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement”.
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Item 6. Exhibits
Exhibit No.Description
10.1#
10.2#
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover 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, 2022July 26, 2023/s/ Michael H. Carrel
Michael H. Carrel
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 3, 2022July 26, 2023/s/ Angela L. Wirick
Angela L. Wirick
Chief Financial Officer
(Principal Accounting and Financial Officer)
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