UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended ~~March 31,~~June 30, 2023

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

For the transition period from_____________to_____________

Commission File Number 000-51470

AtriCure, Inc.

(Exact name of Registrant as specified in its charter)


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

7555 Innovation Way

Mason, OH 45040

(Address of principal executive offices)

(513) 755-4100

(Registrant’s telephone number, including area code)

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

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


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

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

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

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

Large Accelerated Filer

x☒

Accelerated Filer

¨☐

Emerging growth company

¨☐

Non-Accelerated Filer

¨☐

Smaller reporting company

¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: ¨☐

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

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


Class			Outstanding at ~~April 28,~~July 21, 2023
Common Stock, $.001 par value			~~47,242,346~~47,349,899

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended ~~March 31,~~June 30, 2023 and 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended ~~March 31,~~June 30, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2023 and 2022	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2122
Item 4.	Controls and Procedures	2122
PART II. OTHER INFORMATION		2123
Item 1.	Legal Proceedings	2123
Item 1A.	Risk Factors	2123
Item 5.	Other Information	23
Item 6.	Exhibits	2224
Signatures		2325

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Amounts)

(Unaudited)


		March 31, 2023		December 31, 2022			June 30, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	77,341	$	58,099	Cash and cash equivalents	$	67,240	$	58,099
Short-term investments	Short-term investments	58,519		63,014		Short-term investments	59,785		63,014
Accounts receivable, less allowance for credit losses of $230	Accounts receivable, less allowance for credit losses of $230	45,661		42,693		Accounts receivable, less allowance for credit losses of $230	48,362		42,693
Inventories	Inventories	48,848		45,931		Inventories	55,409		45,931
Prepaid and other current assets	Prepaid and other current assets	7,956		5,477		Prepaid and other current assets	7,179		5,477
Total current assets	Total current assets	238,325		215,214		Total current assets	237,975		215,214
Long-term investments	Long-term investments	25,561		51,509		Long-term investments	7,598		51,509
Property and equipment, net	Property and equipment, net	39,607		38,833		Property and equipment, net	40,540		38,833
Operating lease right-of-use assets	Operating lease right-of-use assets	4,605		3,787		Operating lease right-of-use assets	4,353		3,787
Intangible assets, net	Intangible assets, net	38,601		39,339		Intangible assets, net	67,383		39,339
Goodwill	Goodwill	234,781		234,781		Goodwill	234,781		234,781
Other noncurrent assets	Other noncurrent assets	1,620		1,985		Other noncurrent assets	1,541		1,985
Total Assets		$	583,100	$	585,448
Total assets						Total assets	$	594,171	$	585,448
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	23,561	$	19,898	Accounts payable	$	23,709	$	19,898
Accrued liabilities	Accrued liabilities	28,233		33,022		Accrued liabilities	31,986		33,022
Current maturities of debt and leases	Current maturities of debt and leases	10,677		5,472		Current maturities of debt and leases	15,715		5,472
Total current liabilities	Total current liabilities	62,471		58,392		Total current liabilities	71,410		58,392
Long-term debt	Long-term debt	51,940		56,834		Long-term debt	47,047		56,834
Finance lease liabilities	Finance lease liabilities	8,883		9,147		Finance lease liabilities	8,614		9,147
Operating lease liabilities	Operating lease liabilities	3,725		3,095		Operating lease liabilities	3,458		3,095
Other noncurrent liabilities	Other noncurrent liabilities	1,236		1,226		Other noncurrent liabilities	1,220		1,226
Total Liabilities		128,255		128,694
Total liabilities						Total liabilities	131,749		128,694
Commitments and contingencies (Note 9)	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 47,244 and 46,563 issued and outstanding		47		47
Common stock, $0.001 par value, 90,000 shares authorized and 47,352 and 46,563 issued and outstanding						Common stock, $0.001 par value, 90,000 shares authorized and 47,352 and 46,563 issued and outstanding	47		47
Additional paid-in capital	Additional paid-in capital	790,965		787,422		Additional paid-in capital	803,197		787,422
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,072)		(4,096)		Accumulated other comprehensive loss	(2,609)		(4,096)
Accumulated deficit	Accumulated deficit	(333,095)		(326,619)		Accumulated deficit	(338,213)		(326,619)
Total Stockholders’ Equity		454,845		456,754
Total Liabilities and Stockholders’ Equity		$	583,100	$	585,448
Total stockholders’ equity						Total stockholders’ equity	462,422		456,754
Total liabilities and stockholders’ equity						Total liabilities and stockholders’ equity	$	594,171	$	585,448

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In Thousands, Except Per Share Amounts)

(Unaudited)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022				2023		2022		2023		2022
Revenue	Revenue	$	93,494	$	74,576		Revenue	$	100,918	$	84,529	$	194,412	$	159,105
Cost of revenue	Cost of revenue	23,885		18,981			Cost of revenue	23,841		21,010		47,726		39,991
Gross profit	Gross profit	69,609		55,595			Gross profit	77,077		63,519		146,686		119,114
Operating expenses:	Operating expenses:						Operating expenses:
Research and development expenses	Research and development expenses	15,327		13,629			Research and development expenses	17,438		14,791		32,765		28,420
Selling, general and administrative expenses	Selling, general and administrative expenses	60,064		56,116			Selling, general and administrative expenses	63,783		62,388		123,847		118,504
Total operating expenses	Total operating expenses	75,391		69,745			Total operating expenses	81,221		77,179		156,612		146,924
Loss from operations	Loss from operations	(5,782)		(14,150)			Loss from operations	(4,144)		(13,660)		(9,926)		(27,810)
Other income (expense):	Other income (expense):						Other income (expense):
Interest expense	Interest expense	(1,636)		(1,000)			Interest expense	(1,719)		(1,101)		(3,355)		(2,101)
Interest income	Interest income	875		116			Interest income	961		76		1,836		192
Other	Other	145		(93)			Other	(123)		(111)		22		(204)
Loss before income tax expense	Loss before income tax expense	(6,398)		(15,127)			Loss before income tax expense	(5,025)		(14,796)		(11,423)		(29,923)
Income tax expense	Income tax expense	78		56			Income tax expense	93		45		171		101
Net loss	Net loss	$	(6,476)	$	(15,183)		Net loss	$	(5,118)	$	(14,841)	$	(11,594)	$	(30,024)

Basic and diluted net loss per share	Basic and diluted net loss per share	$	(0.14)	$	(0.33)		Basic and diluted net loss per share	$	(0.11)	$	(0.32)	$	(0.25)	$	(0.66)

Weighted average shares outstanding—basic and diluted	Weighted average shares outstanding—basic and diluted	46,107		45,528			Weighted average shares outstanding—basic and diluted	46,266		45,692		46,187		45,610

Comprehensive income (loss):	Comprehensive income (loss):						Comprehensive income (loss):
Unrealized gain (loss) on investments	Unrealized gain (loss) on investments	$	1,041	$	(2,339)		Unrealized gain (loss) on investments	$	427	$	(449)	$	1,468	$	(2,788)
Foreign currency translation adjustment	Foreign currency translation adjustment	(17)		(178)			Foreign currency translation adjustment	36		(430)		19		(608)
Other comprehensive income (loss)	Other comprehensive income (loss)	1,024		(2,517)			Other comprehensive income (loss)	463		(879)		1,487		(3,396)
Net loss	Net loss	(6,476)		(15,183)			Net loss	(5,118)		(14,841)		(11,594)		(30,024)
Comprehensive loss, net of tax	Comprehensive loss, net of tax	$	(5,452)	$	(17,700)		Comprehensive loss, net of tax	$	(4,655)	$	(15,720)	$	(10,107)	$	(33,420)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands)

(Unaudited)


																				Three-Month Period Ended June 30, 2022
																				Common Stock						Additional Paid-in Capital					Accumulated Deficit				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity
																				Shares			Amount
Balance—March 31, 2022																			Balance—March 31, 2022	46,268			$	46					$	761,580					$	(295,336)			$	(3,465)			$	462,825
Impact of equity compensation plans																			Impact of equity compensation plans	155			—			9,605					—				—				9,605
Other comprehensive loss																			Other comprehensive loss	—			—			—					—				(879)				(879)
Net loss																			Net loss	—			—			—					(14,841)				—				(14,841)
Balance—June 30, 2022																			Balance—June 30, 2022	46,423			$	46		$	771,185				$	(310,177)			$	(4,344)			$	456,710

																				Three-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—March 31, 2023																			Balance—March 31, 2023	47,244			$	47					$	790,965					$	(333,095)			$	(3,072)			$	454,845
Impact of equity compensation plans																			Impact of equity compensation plans	108			—			12,232					—				—				12,232
Other comprehensive income																			Other comprehensive income	—			—			—					—				463				463
Net loss																			Net loss	—			—			—					(5,118)				—				(5,118)
Balance—June 30, 2023																			Balance—June 30, 2023	47,352			$	47		$	803,197				$	(338,213)			$	(2,609)			$	462,422

		Three-Month Period Ended March 31, 2022																		Six-Month Period Ended June 30, 2022
		Common Stock			Additional Paid-in Capital				Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity				Common Stock						Additional Paid-in Capital					Accumulated Deficit				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity
		Shares	Amount								Shares								Amount
Balance—December 31, 2021	Balance—December 31, 2021	46,016	$	46			$	764,811						$	(280,153)			$	(948)		$	483,756	Balance—December 31, 2021		46,016			$	46				$	764,811			$	(280,153)			$	(948)			$	483,756

Impact of equity compensation plans	Impact of equity compensation plans	252	—		(3,231)				—			—				(3,231)			Impact of equity compensation plans	407			—				6,374					—				—				6,374
Other comprehensive loss	Other comprehensive loss	—	—		—				—			(2,517)				(2,517)			Other comprehensive loss	—			—			—					—				(3,396)				(3,396)
Net loss	Net loss	—	—		—				(15,183)			—				(15,183)			Net loss	—			—			—					(30,024)				—				(30,024)
Balance—March 31, 2022		46,268	$	46	$	761,580			$	(295,336)		$	(3,465)			$	462,825
Balance—June 30, 2022																			Balance—June 30, 2022	46,423			$	46		$	771,185				$	(310,177)			$	(4,344)			$	456,710

		Three-Month Period Ended March 31, 2023																		Six-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, 2022	Balance—December 31, 2022	46,563	$	47			$	787,422						$	(326,619)			$	(4,096)		$	456,754	Balance—December 31, 2022		46,563			$	47				$	787,422			$	(326,619)			$	(4,096)			$	456,754
Impact of equity compensation plans	Impact of equity compensation plans	681	—		3,543				—			—				3,543			Impact of equity compensation plans	789			—				15,775					—				—				15,775
Other comprehensive income	Other comprehensive income	—	—		—				—			1,024				1,024			Other comprehensive income	—			—			—					—				1,487				1,487
Net loss	Net loss	—	—		—				(6,476)			—				(6,476)			Net loss	—			—			—					(11,594)				—				(11,594)
Balance—March 31, 2023		47,244	$	47	$	790,965			$	(333,095)		$	(3,072)			$	454,845

Balance—June 30, 2023																			Balance—June 30, 2023	47,352			$	47		$	803,197				$	(338,213)			$	(2,609)			$	462,422

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


		Three Months Ended March 31,					Six Months Ended June 30,
		2023		2022			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(6,476)	$	(15,183)	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 expense	Share-based compensation expense	8,760		7,049		Share-based compensation expense	17,755		14,573
Depreciation	Depreciation	2,205		1,895		Depreciation	4,567		3,861
Amortization of intangible assets	Amortization of intangible assets	738		972		Amortization of intangible assets	1,956		1,943
Amortization of deferred financing costs	Amortization of deferred financing costs	121		128		Amortization of deferred financing costs	243		255
Amortization of investments	Amortization of investments	169		559		Amortization of investments	294		983
Other non-cash adjustments	Other non-cash adjustments	160		338		Other non-cash adjustments	487		679
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(2,900)		(7,950)		Accounts receivable	(5,563)		(8,757)
Inventories	Inventories	(2,847)		(1,934)		Inventories	(9,377)		(2,727)
Other current assets	Other current assets	(2,472)		(1,581)		Other current assets	(1,696)		32
Accounts payable	Accounts payable	3,066		1,729		Accounts payable	2,945		4,240
Accrued liabilities	Accrued liabilities	(4,819)		(10,701)		Accrued liabilities	(1,084)		(5,136)
Other noncurrent assets and liabilities	Other noncurrent assets and liabilities	216		47		Other noncurrent assets and liabilities	(1)		(325)
Net cash used in operating activities	Net cash used in operating activities	(4,079)		(24,632)		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 securities						Purchases of available-for-sale securities	—		(3,941)
Sales and maturities of available-for-sale securities	Sales and maturities of available-for-sale securities	31,315		23,103		Sales and maturities of available-for-sale securities	48,315		51,749
Purchases of property and equipment	Purchases of property and equipment	(2,502)		(3,381)		Purchases of property and equipment	(5,582)		(7,565)
Acquisition of intellectual property						Acquisition of intellectual property	(30,000)		—

Net cash provided by investing activities	Net cash provided by investing activities	28,813		19,722		Net cash provided by investing activities	12,733		40,243
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Payments on leases	Payments on leases	(240)		(217)		Payments on leases	(483)		(437)
Payment of debt fees	Payment of debt fees	(60)		—		Payment of debt fees	(60)		—
Proceeds from stock option exercises		522		355
Proceeds from stock option exercises and employee stock purchase plan						Proceeds from stock option exercises and employee stock purchase plan	4,058		3,374
Shares repurchased for payment of taxes on stock awards	Shares repurchased for payment of taxes on stock awards	(5,739)		(10,635)		Shares repurchased for payment of taxes on stock awards	(6,038)		(11,573)
Net cash used in financing activities	Net cash used in financing activities	(5,517)		(10,497)		Net cash used in financing activities	(2,523)		(8,636)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	25		(106)		Effect of exchange rate changes on cash and cash equivalents	(1)		(302)
Net increase (decrease) in cash and cash equivalents		19,242		(15,513)
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	9,141		10,902
Cash and cash equivalents—beginning of period	Cash and cash equivalents—beginning of period	58,099		43,654		Cash and cash equivalents—beginning of period	58,099		43,654
Cash and cash equivalents—end of period	Cash and cash equivalents—end of period	$	77,341	$	28,141	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 interest	Cash paid for interest	$	1,487	$	866	Cash paid for interest	$	3,078	$	1,797
Net cash (received) paid for income taxes		(12)		50
Net cash paid for income taxes						Net cash paid for income taxes	159		132
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Accrued purchases of property and equipment	Accrued purchases of property and equipment	787		1,558		Accrued purchases of property and equipment	1,046		2,562

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

1.DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business—The “Company” or “AtriCure” consists of AtriCure, Inc. and its wholly-owned subsidiaries. The Company is a leading innovator in surgical treatments and therapies for atrial fibrillation (Afib), left atrial appendage (LAA) management and post-operative pain management, and sells its products to medical centers globally through its direct sales force and distributors.

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

The accompanying interim financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC. Except as discussed herein, there have been no changes in the Company's significant accounting policies for the ~~three~~six months ended ~~March 31,~~June 30, 2023 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 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, 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 is its Chief Executive Officer, who reviews financial information presented on a consolidated basis, accompanied only by revenue information 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 in the United States, except for ~~$2,859~~$2,934 as of ~~March 31,~~June 30, 2023 and $1,616 as of December 31, 2022 located primarily in Europe.

Earnings Per Share—Basic and diluted net loss per share are 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 ~~1,882~~1,839 and ~~1,567~~1,548 shares as of ~~March 31,~~June 30, 2023 and 2022 because they are anti-dilutive. Therefore, the number of shares used for basic and diluted net loss per share 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. ~~The~~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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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 settle 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

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~~(In Thousands, except per share amounts)~~

~~(Unaudited)~~

of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

•Level 1—Quoted prices in active markets for identical assets or liabilities.

•Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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

The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of ~~March 31,~~June 30, 2023:


		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	—	$	72,418	$	—	$	72,418	Money market funds	$	—	$	62,100	$	—	$	62,100
Commercial paper		—		2,977		—		2,977

Government and agency obligations	Government and agency obligations	33,044		—		—		33,044		Government and agency obligations	24,273		—		—		24,273
Corporate bonds	Corporate bonds	—		45,865		—		45,865		Corporate bonds	—		40,914		—		40,914
Asset-backed securities	Asset-backed securities	—		2,194		—		2,194		Asset-backed securities	—		2,196		—		2,196
Total assets	Total assets	$	33,044	$	123,454	$	—	$	156,498	Total 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 ~~March 31,~~June 30, 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, 2022:


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	54,414	$	—	$	54,414
Commercial paper	—		11,935		—		11,935
Government and agency obligations	32,637		—		—		32,637
Corporate bonds	—		67,598		—		67,598
Asset-backed securities	—		2,353		—		2,353
Total 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 aMAZE™ IDE clinical trial, including pre-market approval (PMA) approval and

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reimbursement for the therapy involving SentreHEART’s devices. The Company assessed the projected probability of payment during the contractual achievement periods to be remote, resulting in no reported fair value as of ~~March 31,~~June 30, 2023 and December 31, 2022.

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3.INVESTMENTS

Investments as of ~~March 31,~~June 30, 2023 consisted of the following:


		Cost Basis		Unrealized Losses		Fair Value			Cost Basis		Unrealized Losses		Fair Value
Corporate bonds	Corporate bonds	$	47,477	$	(1,612)	$	45,865	Corporate bonds	$	42,334	$	(1,420)	$	40,914
Government and agency obligations	Government and agency obligations	33,985		(941)		33,044		Government and agency obligations	24,993		(720)		24,273
Commercial paper		2,977		—		2,977

Asset-backed securities	Asset-backed securities	2,298		(104)		2,194		Asset-backed securities	2,286		(90)		2,196
Total	Total	$	86,737	$	(2,657)	$	84,080	Total	$	69,613	$	(2,230)	$	67,383

Investments as of December 31, 2022 consisted of the following:


	Cost Basis		Unrealized Losses		Fair Value
Corporate bonds	$	69,832	$	(2,234)	$	67,598
Government and agency obligations	33,971		(1,334)		32,637
Commercial paper	11,935		—		11,935
Asset-backed securities	2,483		(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 ~~March 31,~~June 30, 2023 and 2022.

The cost and fair value of investments in debt securities, by contractual maturity, as of ~~March 31,~~June 30, 2023 were as follows:


		Available-for-sale					Available-for-sale
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Due in 1 year or less	Due in 1 year or less	$	59,947	$	58,519	Due in 1 year or less	$	59,332	$	57,589
Due after 1 year through 5 years	Due after 1 year through 5 years	24,492		23,367		Due after 1 year through 5 years	7,995		7,598
Due after 5 years through 10 years	Due after 5 years through 10 years	—		—		Due after 5 years through 10 years	—		—
Instruments not due at a single maturity date	Instruments not due at a single maturity date	2,298		2,194		Instruments not due at a single maturity date	2,286		2,196
Total	Total	$	86,737	$	84,080	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:


		March 31, 2023		December 31, 2022			June 30, 2023		December 31, 2022
Raw materials	Raw materials	$	22,289	$	19,880	Raw materials	$	26,487	$	19,880
Work in process	Work in process	5,742		2,959		Work in process	3,893		2,959
Finished goods	Finished goods	20,817		23,092		Finished goods	25,029		23,092
Total	Total	$	48,848	$	45,931	Total	$	55,409	$	45,931

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5.INTANGIBLE ASSETS

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

March 31, 2023 December 31, 2022
Cost Accumulated
Amortization Cost Accumulated
Amortization
Technology $ 46,470 $ 7,869 $ 46,470 $ 7,131


	June 30, 2023				December 31, 2022
	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Technology	$	46,470	$	8,607	$	46,470	$	7,131
Patents	30,000		480		—		—
Total	$	76,470	$	9,087	$	46,470	$	7,131

~~Amortization~~In 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 $738 and $972 for the three months ended March 31, 2023 and 2022.~~ assets:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenues	$	480	$	—	$	480	$	—
Selling, general and administrative expenses	738		971		1,476		1,943
Total	$	1,218	$	971	$	1,956	$	1,943

Future amortization expense is projected as follows:


2023 (excluding the three months ended March 31, 2023)		$	2,215
2023 (excluding the six months ended June 30, 2023)				2023 (excluding the six months ended June 30, 2023)	$	3,397
2024	2024	2,953		2024	7,453
2025	2025	2,953		2025	8,353
2026	2026	2,953		2026	9,553
2027	2027	2,953		2027	10,453
2028 and thereafter	2028 and thereafter	24,574		2028 and thereafter	28,174
Total	Total	$	38,601	Total	$	67,383

6.ACCRUED LIABILITIES

Accrued liabilities consist of the following:


		March 31, 2023		December 31, 2022			June 30, 2023		December 31, 2022
Accrued compensation and employee-related expenses	Accrued compensation and employee-related expenses	$	22,300	$	26,924	Accrued compensation and employee-related expenses	$	26,807	$	26,924
Sales returns and allowances						Sales returns and allowances	3,172		2,797
Other accrued liabilities	Other accrued liabilities	3,033		3,301		Other accrued liabilities	2,007		3,301
Sales returns and allowances		2,900		2,797
Total	Total	$	28,233	$	33,022	Total	$	31,986	$	33,022

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. ~~All~~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. The Loan Agreement provides a $60,000 term loan, a $30,000 revolving line of credit, and an option for an additional $30,000 in term loan borrowings. The Loan Agreement has a five year term, expiring November 2026.

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Principal payments under the Loan Agreement are to be made ratably commencing 24 months after inception through the loan's maturity date. If the Company meets certain conditions, as specified by the Loan Agreement, the commencement of term loan principal payments may be deferred by an additional twelve months. The term loan accrues interest at the Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. The Company is accruing the 3.00% fee over the term of the Loan Agreement, with ~~$510~~$600 included in the outstanding loan balance as of ~~March 31,~~June 30, 2023. Additionally, the unamortized original financing costs related to the term loan of ~~$237~~$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 ~~March 31,~~June 30, 2023, the Company had no borrowings under the revolving credit facility and had borrowing availability of $28,750.

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~~(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:


2023 (excluding the three months ended March 31, 2023)		$	3,333
2023 (excluding the six months ended June 30, 2023)				2023 (excluding the six months ended June 30, 2023)	$	3,333
2024	2024	20,000		2024	20,000
2025	2025	20,000		2025	20,000
2026	2026	16,667		2026	16,667
Total long-term debt, of which $8,333 is current and $51,667 is noncurrent		$	60,000
Total long-term debt, of which $13,333 is current and $46,667 is noncurrent				Total long-term debt, of which $13,333 is current and $46,667 is noncurrent	$	60,000

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 ~~eight~~ten 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:


		March 31, 2023		December 31, 2022			June 30, 2023		December 31, 2022
Operating Leases	Operating Leases					Operating Leases
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)	5.3		4.4		Weighted average remaining lease term (years)	5.2		4.4
Weighted average discount rate	Weighted average discount rate	5.36	%	4.60	%	Weighted average discount rate	5.39	%	4.60	%

Finance Leases	Finance Leases					Finance Leases
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)	7.4		7.6		Weighted average remaining lease term (years)	7.1		7.6
Weighted average discount rate	Weighted average discount rate	6.92	%	6.92	%	Weighted average discount rate	6.92	%	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 ~~March 31,~~June 30, 2023.

~~The components of lease expense are as follows:~~

Three Months Ended
March 31,
2023 2022
Operating lease cost $ 310 $ 286

Finance lease cost:
Amortization of right-of-use assets 255 169
Interest on lease liabilities 175 189
Total finance lease cost $ 430 $ 358

~~Short-term lease expense was not significant for the three months ended March 31, 2023 and 2022.~~

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(Unaudited)

The components of lease expense are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating lease cost	$	325	$	284	$	635	$	570

Finance lease cost:
Amortization of right-of-use assets	255		338		510		508
Interest on lease liabilities	170		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:


		Three Months Ended March 31, 2023		Three Months Ended March 31, 2022			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 leases	Operating cash flows for operating leases	$	317	$	251	Operating cash flows for operating leases	$	602	$	505
Operating cash flows for finance leases	Operating cash flows for finance leases	175		189		Operating cash flows for finance leases	345		375
Financing cash flows for finance leases	Financing cash flows for finance leases	240		217		Financing cash flows for finance leases	483		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 leases	Operating leases	1,061		—		Operating leases	1,068		—
Finance leases	Finance leases	—		—		Finance leases	—		—

Supplemental balance sheet information related to leases was as follows:

March 31, 2023 December 31, 2022
Operating Leases
Operating lease right-of-use assets $ 4,605 $ 3,787
Current maturities of leases 1,328 1,147
Operating lease liabilities 3,725 3,095
Total operating lease liabilities $ 5,053 $ 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 $ 1,016 $ 992
Finance lease liabilities 8,883 9,147
Total finance lease liabilities $ 9,899 $ 10,139

~~Future maturities of lease liabilities as of March 31, 2023 were as follows:~~

Operating Leases Finance Leases
2023 (excluding the three months ended March 31, 2023) $ 991 $ 1,250
2024 1,270 1,689
2025 1,034 1,638
2026 727 1,671
2027 754 1,703
2028 and thereafter 1,169 4,824
Total payments $ 5,945 $ 12,775
Less imputed interest (892) (2,876)
Total $ 5,053 $ 9,899


	June 30, 2023		December 31, 2022
Operating Leases
Operating lease right-of-use assets	$	4,353	$	3,787

Current maturities of leases	1,340		1,147
Operating lease liabilities	3,458		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 liabilities	8,614		9,147
Total finance lease liabilities	$	9,656	$	10,139

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(In Thousands, except per share amounts)

(Unaudited)

Future maturities of lease liabilities as of June 30, 2023 were as follows:


	Operating Leases		Finance Leases
2023 (excluding the six months ended June 30, 2023)	$	663	$	836
2024	1,270		1,689
2025	1,034		1,638
2026	727		1,671
2027	754		1,703
2028 and thereafter	1,169		4,824
Total payments	$	5,617	$	12,361
Less imputed interest	(819)		(2,705)
Total	$	4,798	$	9,656

9.COMMITMENTS AND CONTINGENCIES

License Agreement. The Company ~~has~~had been a party to a license agreement that ~~requires~~required royalty payments of 5% of specified product sales. ~~The~~In May 2023, the Company entered into an agreement ~~terminates the later of 2023 or upon expiration of the underlying patents or patent applications, which is expected to occur after 2023. Parties to~~that terminated the license agreement ~~have~~and the ~~right at any time~~Company's obligations to ~~terminate~~make royalty payments under the ~~agreement immediately~~license agreement. See Legal section below for cause. Royalty expense of $901 and $794 was recorded for the three months ended March 31, 2023 and 2022 as a component of Cost of Revenue in the accompanying Condensed Consolidated Statement of Operations.additional information.

Purchase Agreements. The Company enters into standard purchase agreements with suppliers 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 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 (“~~Clinic”~~CCF”) and IDx Medical, Ltd. (“~~IDX”~~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~~IDx (“License Agreement”). Clinic and ~~IDX allege~~IDx alleged that the Company did not include the revenues from sales of certain products in its royalty payments due under the License ~~Agreement. Clinic~~Agreement, and ~~IDX also allege that~~ the Company did not provide related notices required under the License Agreement. The Demand for Arbitration requests a declaration that the termination of the License Agreement shall not occur until the expiration of certain patents and that the Company violated the License Agreement’s non-competition provisions. Clinic and IDX claim they are entitled to no less than $6,000 plus interest and costs, fees and expenses associated with their claims and future royalties. The Company filed its Answering Statement and Counterclaims to the allegations in September 2022, denying each

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claim and counterclaiming for breach of contract, correction of inventorship, declaratory judgment, patent prosecution and legal fees. ~~This arbitration has been scheduled for~~In May ~~2023. While~~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 ~~contesting~~being amortized over an estimated useful life of 5 years. The release of the ~~case, it~~royalty obligations was valued at $432. The remaining $3,088 was allocated to the settlement and is ~~not possible to predict when this matter may be resolved or what impact, if any,~~included in selling, general and administrative expenses for the ~~outcome of this matter might have on our consolidated financial position, results of operations, or cash flows.~~three months ended June 30, 2023.

During the first quarter of 2023, the Company entered into a legal settlement for $7,500 in connection with the settlement of claims filed against a competitor. ~~As of March 31, 2023, the~~The Company recorded a ~~$4,000~~$3,500 gain for the three months ended June 30, 2023 and $7,500 for the six months ended June 30, 2023 for the proceeds received as a reduction to selling, general and administrative expenses. ~~In April 2023, the Company collected the remaining $3,500 proceeds.~~

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~~(In Thousands, except per share amounts)~~

~~(Unaudited)~~

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 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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022				2023		2022		2023		2022
Open ablation	Open ablation	$	25,142	$	18,974		Open ablation	$	27,002	$	22,070	$	52,144	$	41,044
Minimally invasive ablation	Minimally invasive ablation	9,637		8,615			Minimally invasive ablation	11,370		10,154		21,007		18,769
Pain management	Pain management	11,068		8,014			Pain management	12,590		10,210		23,658		18,224
Total ablation	Total ablation	$	45,847	$	35,603		Total ablation	$	50,962	$	42,434	$	96,809	$	78,037
Appendage management	Appendage management	32,342		26,669			Appendage management	33,941		28,831		66,283		55,500
Total United States	Total United States	$	78,189	$	62,272		Total United States	$	84,903	$	71,265	$	163,092	$	133,537

International revenue by product type is as follows:


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022				2023		2022		2023		2022
Open ablation	Open ablation	$	7,286	$	6,492		Open ablation	$	7,722	$	6,213	$	15,008	$	12,705
Minimally invasive ablation	Minimally invasive ablation	1,867		1,533			Minimally invasive ablation	1,375		1,271		3,242		2,804
Pain management	Pain management	228		140			Pain management	439		114		667		254
Total ablation	Total ablation	$	9,381	$	8,165		Total ablation	$	9,536	$	7,598	$	18,917	$	15,763
Appendage management	Appendage management	5,924		4,139			Appendage management	6,479		5,666		12,403		9,805
Total International	Total International	$	15,305	$	12,304		Total International	$	16,015	$	13,264	$	31,320	$	25,568

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

Revenue attributed to customer geographic locations is as follows:


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022				2023		2022		2023		2022
United States	United States	$	78,189	$	62,272		United States	$	84,903	$	71,265	$	163,092	$	133,537

Europe	Europe	9,401		7,237			Europe	9,457		7,783		18,858		15,020
Asia Pacific	Asia Pacific	5,402		4,557			Asia Pacific	6,125		4,933		11,527		9,490
Other International	Other International	502		510			Other International	433		548		935		1,058
Total International	Total International	15,305		12,304			Total International	16,015		13,264		31,320		25,568
Total Revenue	Total Revenue	$	93,494	$	74,576		Total Revenue	$	100,918	$	84,529	$	194,412	$	159,105

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 ~~March 31,~~June 30, 2023

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~~ATRICURE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In Thousands, except per share amounts)~~

~~(Unaudited)~~

and 2022 was ~~(1.2%~~(1.9%) and ~~(0.4%~~(0.3%). The effective tax rate for the six months ended June 30, 2023 and 2022 was (1.5%) and (0.3%). The Company’s worldwide effective tax rate differs from the US statutory rate of 21% primarily due to its valuation allowances.

The Company's federal, state, local and foreign tax returns 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.

12. EQUITY COMPENSATION PLANS

The Company has two share-based incentive plans: the ~~2014~~2023 Stock Incentive Plan ~~(2014~~(2023 Plan) and the 2018 Employee Stock Purchase Plan (ESPP). ~~The Company is asking stockholders~~Stockholders approved the 2023 Plan at the 2023 Annual Meeting of ~~Stockholders~~Stockholders. Pursuant to ~~approve~~its terms, the 2023 Plan supersedes and replaces the 2014 Stock Incentive Plan ~~which if adopted, will replace the 2014 Plan.~~(Prior Plan).

Stock Incentive Plan

Under the ~~2014~~2023 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 ~~2014~~2023 Plan, has the authority to determine the terms of any awards, including the number of shares subject to each award, the exercisability of the awards and the form of consideration. As of ~~March 31,~~June 30, 2023, ~~13,999~~2,287 shares of common stock ~~had~~have been reserved for issuance under the ~~2014~~2023 Plan, and ~~1,285~~2,269 shares were available for future grants.

Employee Stock Purchase Plan

Under the ESPP, shares of the Company’s common stock may be purchased at a 15% discount 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 ~~March 31,~~June 30, 2023, there were ~~184~~847 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
March 31,
2023 2022
Cost of revenue $ 443 $ 571
Research and development expenses 1,304 1,130
Selling, general and administrative expenses 7,013 5,348
Total $ 8,760 $ 7,049

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

Share-Based Compensation Expense Information

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	471	$	487	$	914	$	1,058
Research and development expenses	1,540		1,186		2,844		2,316
Selling, general and administrative expenses	6,984		5,851		13,997		11,199
Total	$	8,995	$	7,524	$	17,755	$	14,573

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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022				2023		2022		2023		2022
Total accumulated other comprehensive loss at beginning of period	Total accumulated other comprehensive loss at beginning of period	$	(4,096)	$	(948)		Total accumulated other comprehensive loss at beginning of period	$	(3,072)	$	(3,465)	$	(4,096)	$	(948)
Unrealized Gains (Losses) on Investments	Unrealized Gains (Losses) on Investments						Unrealized Gains (Losses) on Investments
Balance at beginning of period	Balance at beginning of period	$	(3,698)	$	(887)		Balance at beginning of period	$	(2,657)	$	(3,226)	$	(3,698)	$	(887)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	1,041		(2,339)			Other comprehensive income (loss) before reclassifications	427		(377)		1,468		(2,716)
Amounts reclassified to other income (expense)	Amounts reclassified to other income (expense)	—		—			Amounts reclassified to other income (expense)	—		(72)		—		(72)
Balance at end of period	Balance at end of period	$	(2,657)	$	(3,226)		Balance at end of period	$	(2,230)	$	(3,675)	$	(2,230)	$	(3,675)
Foreign Currency Translation Adjustment	Foreign Currency Translation Adjustment						Foreign Currency Translation Adjustment
Balance at beginning of period	Balance at beginning of period	$	(398)	$	(61)		Balance at beginning of period	$	(415)	$	(239)	$	(398)	$	(61)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	125		(261)			Other comprehensive income (loss) before reclassifications	28		(527)		153		(787)
Amounts reclassified to other income (expense)	Amounts reclassified to other income (expense)	(142)		83			Amounts reclassified to other income (expense)	8		97		(134)		179
Balance at end of period	Balance at end of period	$	(415)	$	(239)		Balance at end of period	$	(379)	$	(669)	$	(379)	$	(669)
Total accumulated other comprehensive loss at end of period	Total accumulated other comprehensive loss at end of period	$	(3,072)	$	(3,465)		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, 2022 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, 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 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. 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. 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 procedures performed by an electrophysiologist. Our pain management device is used by physicians to freeze nerves during cardiothoracic or thoracic surgical procedures. 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, 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; direct sales transactions outside the United States are transacted in Euros, British Pounds or Australian Dollars.

Recent Developments

~~During the first quarter of~~In 2023, we realized significant global revenue growth and expanded on our strategic initiatives of product innovation, clinical science and expanding physician awareness and adoption through superior training and education. Our worldwide revenue for the ~~three~~six months ended ~~March 31,~~June 30, 2023 was ~~$93,494,~~$194,412, representing an increase of ~~$18,918,~~$35,307, or ~~25.4%~~22.2%, over the first ~~three~~six months of 2022, driven by growing adoption across key product lines. ~~Key~~Highlights of the strategic and operational advancements ~~during the first quarter~~ include:

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PRODUCT INNOVATION. During September 2022, the Company received final labeling approval from FDA for the next generation EPi-Sense® ST device and began a limited launch in the fourth quarter of 2022, ~~that was completed in the first quarter. We expect to begin~~with a full launch ~~later~~commencing in the second quarter of 2023. We continue to make significant progress on the submission of our products for clearance under the European Medical Device ~~Regulation.~~Regulation (EU MDR). As of the second quarter 2023, all of our products have been submitted to our Notified Body under EU MDR. These activities are in addition to several new product development programs currently underway.

CLINICAL SCIENCE. We invest in studies to expand labeling claims, support various indications for our products and gather clinical data regarding our products. 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. This prospective, multicenter, randomized trial 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, ~~data~~results from our CEASE-AF trial ~~was~~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 trial provided for enrollment of up to 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. During 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~~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 use of animals or cadavers, in addition to reducing spend on training programs.

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Results of Operations

Three months ended ~~March 31,~~June 30, 2023 compared to three months ended ~~March 31,~~June 30, 2022

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


		Three Months Ended March 31,									Three Months Ended June 30,
		2023				2022					2023				2022
		Amount		% of Revenues		Amount		% of Revenues			Amount		% of Revenues		Amount		% of Revenues
Revenue	Revenue	$	93,494	100.0	%	$	74,576	100.0	%	Revenue	$	100,918	100.0	%	$	84,529	100.0	%
Cost of revenue	Cost of revenue	23,885		25.5		18,981		25.5		Cost of revenue	23,841		23.6		21,010		24.9
Gross profit	Gross profit	69,609		74.5		55,595		74.5		Gross profit	77,077		76.4		63,519		75.1
Operating expenses:	Operating expenses:									Operating expenses:
Research and development expenses	Research and development expenses	15,327		16.4		13,629		18.3		Research and development expenses	17,438		17.3		14,791		17.5
Selling, general and administrative expenses	Selling, general and administrative expenses	60,064		64.2		56,116		75.2		Selling, general and administrative expenses	63,783		63.2		62,388		73.8
Total operating expenses	Total operating expenses	75,391		80.6		69,745		93.5		Total operating expenses	81,221		80.5		77,179		91.3
Loss from operations	Loss from operations	(5,782)		(6.2)		(14,150)		(19.0)		Loss from operations	(4,144)		(4.1)		(13,660)		(16.2)
Other income (expense), net:	Other income (expense), net:	(616)		(0.7)		(977)		(1.3)		Other income (expense), net:	(881)		(0.9)		(1,136)		(1.3)
Loss before income tax expense	Loss before income tax expense	(6,398)		(6.8)		(15,127)		(20.3)		Loss before income tax expense	(5,025)		(5.0)		(14,796)		(17.5)
Income tax expense	Income tax expense	78		0.1		56		0.1		Income tax expense	93		0.1		45		0.1
Net loss	Net loss	$	(6,476)	(7.0)	%	$	(15,183)	(20.4)	%	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:

~~Table of~~ ~~Contents~~


		Three Months Ended March 31,				Change					Three Months Ended June 30,				Change
		2023		2022		Amount		%			2023		2022		Amount		%
Open ablation	Open ablation	$	25,142	$	18,974	$	6,168	32.5	%	Open ablation	$	27,002	$	22,070	$	4,932	22.3	%
Minimally invasive ablation	Minimally invasive ablation	9,637		8,615		1,022		11.9		Minimally invasive ablation	11,370		10,154		1,216		12.0
Pain management	Pain management	11,068		8,014		3,054		38.1		Pain management	12,590		10,210		2,380		23.3
Appendage management	Appendage management	32,342		26,669		5,673		21.3		Appendage management	33,941		28,831		5,110		17.7
Total United States	Total United States	$	78,189	$	62,272	$	15,917	25.6		Total United States	$	84,903	$	71,265	$	13,638	19.1
Total International	Total International	15,305		12,304		3,001		24.4		Total International	16,015		13,264		2,751		20.7
Total revenue	Total revenue	$	93,494	$	74,576	$	18,918	25.4	%	Total revenue	$	100,918	$	84,529	$	16,389	19.4	%

Worldwide revenue increased ~~25.4% (25.9%~~19.4% (19.3% on a constant currency basis). In the United States, we experienced growth in all key product lines, ~~including~~led by the EnCompass® clamp in open ablation, cryoSPHERE® probe for post-operative pain management and AtriClip® Flex⋅V® ~~in the~~for appendage ~~management franchise.~~management. Additionally, Hybrid AF™ Therapy procedures using the EPi-Sense System drove growth in minimally invasive sales. International sales increased ~~24.4% (27.7%~~20.7% (19.9% on a constant currency basis), across all franchises and major geographic ~~regions.~~regions, bolstered by strong sales of open ablation and LAAM products in the Asia Pacific market and our direct markets in the United Kingdom and Germany.

Revenue reported on a constant currency basis is a non-GAAP measure calculated by applying previous period foreign currency exchange rates, which are determined by the average daily 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 ~~$4,904~~$2,831 primarily reflecting higher sales ~~volumes, while gross~~volumes. Gross margin ~~remained flat as~~increased 130 basis points, driven by favorable production and strategic sourcing efficiencies and offset ~~continuing supply chain challenges~~partially by cost increases and unfavorable geographic and product ~~mix pressures.~~mix.

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Research and development expenses. Research and development expenses increased ~~$1,698~~$2,647 or ~~12.5%, primarily from $1,656 increase in personnel costs due to expansion~~17.9%. Expansion of product development, regulatory and clinical ~~teams. The LeAAPS~~teams resulted in $1,474 of increased personnel costs, including variable compensation, travel and ~~HEAL-IST clinical trials drove $755 increased cost, partially offset by~~share-based compensation. Clinical trial expenses contributed a ~~$525 reduction in product development and regulatory submission spending compared to 2022 primarily~~further $1,406 increase due to ~~project timing.~~strong enrollment activity in the LeAAPS clinical trial during the quarter.

Selling, general and administrative expenses. Selling, general and administrative expenses increased ~~$3,948,~~$1,395, or ~~7.0%. Growth~~2.2%, driven by a $4,240 increase in ~~both~~personnel costs as a result of growth in headcount and ~~variable compensation drove $7,763~~share-based compensation. This increase was offset by the $1,587 decrease in training costs as a result of growing efficiencies and enhancements to our training programs globally, and a $567 decrease in professional services, information technology, and consulting costs. The increase in ~~expense in addition to $948 increases in fees for professional services, consulting~~selling, general and ITadministrative expenses ~~during the quarter. These increases were partially~~was further offset by a ~~$4,000~~net credit to expense of $412 from non-recurring legal settlements, including a $3,500 gain for proceeds received in the second quarter for a ~~legal settlement~~matter settled during the first quarter of 2023, partially offset by $3,088 charge for settlement of an intellectual property matter in the second quarter of 2023. See Note 9 – Commitments and ~~$1,067 reduction~~Contingencies for further discussion.

Other income (expense). Other income and expense consists primarily of net interest expense and net foreign currency transaction losses.

Six months ended June 30, 2023 compared to six months ended June 30, 2022

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,
	2023				2022
	Amount		% of Revenues		Amount		% of Revenues
Revenue	$	194,412	100.0	%	$	159,105	100.0	%
Cost of revenue	47,726		24.5		39,991		25.1
Gross profit	146,686		75.5		119,114		74.9
Operating expenses:
Research and development expenses	32,765		16.9		28,420		17.9
Selling, general and administrative expenses	123,847		63.7		118,504		74.5
Total operating expenses	156,612		80.6		146,924		92.3
Loss from operations	(9,926)		(5.1)		(27,810)		(17.5)
Other income (expense), net:	(1,497)		(0.8)		(2,113)		(1.3)
Loss before income tax expense	(11,423)		(5.9)		(29,923)		(18.8)
Income tax expense	171		0.1		101		0.1
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 ~~legal spending, including~~such revenues between periods, in both dollars and percentages:


	Six Months Ended June 30,				Change
	2023		2022		Amount		%
Open ablation	$	52,144	$	41,044	$	11,100	27.0	%
Minimally invasive ablation	21,007		18,769		2,238		11.9
Pain management	23,658		18,224		5,434		29.8
Appendage management	66,283		55,500		10,783		19.4
Total United States	$	163,092	$	133,537	$	29,555	22.1
Total International	31,320		25,568		5,752		22.5
Total revenue	$	194,412	$	159,105	$	35,307	22.2	%

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Worldwide revenue increased 22.2% (22.4% on a ~~$740 legal~~constant currency basis). In the United States, growth in all key product lines reflected continuing adoption of our products. Open ablation revenue increases were driven by the EnCompass clamp, which was launched in April 2022. Sales of the AtriClip Flex⋅Vand cryoSPHERE probe contributed to revenue growth in the appendage management and post-operative pain management franchises. Increased physician adoption of the Hybrid AF™ Therapy procedure using the EPi-Sense System drove growth in minimally invasive sales. International sales increased 22.5% (23.8% on a constant currency basis) across all franchises and major geographic regions.

Cost of revenue and gross margin. Cost of revenue increased $7,735 primarily reflecting higher sales volumes, while gross margin increased 60 basis points as realization of increasing production efficiencies more than offset cost ~~reimbursement,~~pressure from supply chain challenges and geographic and product mix.

Research and development expenses. Research and development expenses increased $4,345 or 15.3%, primarily from a $3,130 increase in personnel costs due to additional headcount in our product development, regulatory and clinical teams. The increase in clinical activity driven by the LeAAPS and HEAL-IST clinical trials also contributed incremental expense of $2,162. This increase was offset by a $770 decrease in product development and consulting costs as EU MDR compliance efforts diminished in 2023.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $5,343, or 4.5%, largely due to increased personnel costs of $12,003 as a result of growth in headcount, variable compensation and share-based compensation and $1,229 of additional marketing, trade shows, and meeting activities. Offsetting the increase was a ~~recently~~$2,882 decrease in training due to improved efficiencies from our various global training programs, and a $1,182 decrease in legal spend as a result of settlements reached in the first half of 2023. Selling, general and administrative expenses were also offset by a net gain of $4,466 for non-recurring legal settlements, including a $7,500 gain from proceeds on a matter settled ~~legal~~during the first quarter of 2023, partially offset by $3,088 charge for settlement of 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 losses.

Liquidity and Capital Resources

As of ~~March 31,~~June 30, 2023, the Company had cash, cash equivalents and investments of ~~$161,421~~$134,623 and outstanding debt of $60,000. We had unused borrowing capacity of $28,750 under our revolving credit facility. Our primary banking relationship in the United States was with Silicon Valley Bank. ~~All~~During the first quarter of 2023 all deposits and loans of Silicon Valley ~~Bridge~~ Bank ~~N.A.~~ 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 ~~$175,854~~$166,565 and an accumulated deficit of ~~$333,095~~$338,213 as of ~~March 31,~~June 30, 2023.

Three Months Ended March 31,
2023 2022 Change
(dollars in thousands)
Net cash used in operating activities $ (4,079) $ (24,632) $ (20,553)
Net cash provided by investing activities 28,813 19,722 9,091
Net cash used in financing activities (5,517) (10,497) (4,980)

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	Six Months Ended June 30,
	2023		2022		Change
	(dollars in thousands)
Net cash used in operating activities	$	(1,068)	$	(20,403)	$	(19,335)
Net cash provided by investing activities	12,733		40,243		(27,510)
Net cash used in financing activities	(2,523)		(8,636)		(6,113)

Cash flows used in operating activities. Net cash used in operating activities decreased ~~$20,553~~$19,335 from 2022 to 2023, reflecting the improvement in operating results after non-cash charges of ~~$9,919~~$21,438 driven by higher sales and a net gain from legal ~~settlement. Cash~~settlements. This improvement was offset by a $2,103 increase in cash used in working capital and other assets and ~~liabilities decreased $10,634.~~liabilities. The ~~decrease~~increase in cash used in working capital was ~~primarily a reduction in variable compensation payments and~~driven by increased inventory, partially offset by increased collections of ~~increased sales as compared to the same period in 2022.~~accounts receivable.

Cash flows provided by investing activities. Net cash provided by investing activities ~~increased~~decreased by ~~$9,091~~$27,510 in 2023 compared to 2022, reflecting ~~higher sales and maturities~~$30,000 in cash paid for acquisition of ~~available-for-sale securities of $8,212~~intellectual property and a reduction in purchases of property and equipment ~~of $879.~~following our 2022 manufacturing facilities expansion.

Cash flows used in financing activities. Net cash used in financing activities decreased by ~~$4,980~~$6,113 in 2023, as fewer shares were repurchased for payment of taxes for stock awards.

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Credit facility. Our Loan and Security Agreement, as amended and modified effective November 1, 2021 (Loan Agreement) provides for a $60,000 term loan, a $30,000 revolving line of credit, and an option to make available an additional $30,000 in term loan borrowings. The Loan Agreement has a five year term, expiring November 2026. Principal payments are to be made ratably commencing 24 months after the inception of the loan through the loan's maturity date. At the option of the Company, the commencement of term loan principal payments may be extended an additional twelve months. The term loan accrues interest at the Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. As of ~~March 31,~~June 30, 2023, our outstanding debt was $60,000, of which ~~$8,333~~$13,333 is classified as current and ~~$51,667~~$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 7 – Indebtedness.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of ~~March 31,~~June 30, 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; costs 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. 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, 2022 includes additional information about the Company, our operations, our financial position and our critical accounting policies and estimates and should be read in conjunction with this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

As of ~~March 31,~~June 30, 2023, there were no material changes to the information provided regarding recent accounting pronouncements in Note 1, “Description of the Business and Summary of Significant Accounting Policies” in the Company’s Form 10-K for the fiscal year ended December 31, 2022.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of ~~March 31,~~June 30, 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, 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 ~~March 31,~~June 30, 2023 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 9 – 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, 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 ~~herein and~~ therein are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may adversely affect our business, 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, 2022, ~~except~~as amended by risk factors provided in our Form 10-Q for the ~~following:~~quarter ended March 31, 2023 which are incorporated herein by reference.

~~Adverse developments affecting~~

Item 5. Other Information

During the ~~financial services industry, such as actual events~~three months ended June 30, 2023, none of our executive officers or ~~concerns involving liquidity, defaults,~~directors adopted or ~~non-performance by financial institutions~~terminated any contract, instruction or ~~transactional counterparties, could adversely affect~~written plan for the purchase or sale of our ~~current and projected business operations, our financial condition and results~~securities that was intended to satisfy the affirmative defense conditions of ~~operations.~~

~~Actual events involving limited liquidity, defaults, non-performance~~Rule 10b5-1(c) or ~~other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about~~ any events of these kinds or other similar risks may adversely affect our liquidity in the future. Access to our funds could be significantly impaired by events such as liquidity constraints or failures, disruptions or instability in the financial services industry or financial markets, or concerns or“non-Rule 10b5-1 trading arrangement”.

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negative expectations about the prospects for companies in the financial services industry. These factors may also adversely affect our ability to access our cash and cash equivalents at affected financial institutions.

In addition, concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us, or at all. Declines in available funding or access to our cash and liquidity resources could, among other things, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our business, financial condition or results of operations.

Item 6. Exhibits


Exhibit No.			Description
10.1#			AtriCure, Inc. 2023 Stock Incentive Plan (incorporated by reference to our Current Report on Form 8-K, filed on May 26, 2023).
10.2#			AtriCure, Inc. 2018 Employee Stock Purchase Plan (Amended and Restated as of May 25, 2023) (incorporated by reference to our Current Report on Form 8-K, filed on May 26, 2023).
31.1			Rule 13a-14(a) Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Rule 13a-14(a) Certification of Principal Accounting and Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification pursuant to 18 U.S.C. Section 1350 by the Principal Executive Officer, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification pursuant to 18 U.S.C. Section 1350 by the Principal Accounting and Financial Officer, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			XBRL Instance Document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

____________________________

# Compensatory plan or arrangement.

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SIGNATURES

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


			AtriCure, Inc.
			(REGISTRANT)


Date: ~~May 3,~~July 26, 2023			/s/ Michael H. Carrel
			Michael H. Carrel
			President and Chief Executive Officer (Principal Executive Officer)


Date: ~~May 3,~~July 26, 2023			/s/ Angela L. Wirick
			Angela L. Wirick
			Chief Financial Officer (Principal Accounting and Financial Officer)

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	Three Months Ended March 31,
	2023		2022		Change
	(dollars in thousands)
Net cash used in operating activities	$	(4,079)	$	(24,632)	$	(20,553)
Net cash provided by investing activities	28,813		19,722		9,091
Net cash used in financing activities	(5,517)		(10,497)		(4,980)