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 ~~September 30, 2023~~March 31, 2024

¨ 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 Global Market

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 ☒ 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 ☒ No ☐

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

Large Accelerated Filer

☒

Accelerated Filer

☐

Emerging growth company

☐

Non-Accelerated Filer

☐

Smaller reporting company

☐

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

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

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 ~~October 30, 2023~~April 29, 2024
Common Stock, $.001 par value			~~47,395,082~~48,382,325

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of ~~September~~ ~~30, 2023~~March 31, 2024 and December 31, ~~2022~~2023	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~ ~~30,~~March 31, 2024 and 2023 ~~and 2022~~	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~ ~~30,~~March 31, 2024 and 2023 ~~and 2022~~	5
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September~~ ~~30,~~March 31, 2024 and 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	2221
Item 4.	Controls and Procedures	2221
PART II. OTHER INFORMATION		2322
Item 1.	Legal Proceedings	2322
Item 1A.	Risk Factors	2322
Item 5.	Other Information	2322
Item 6.	Exhibits	2422

Signatures		2523

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)


		September 30, 2023		December 31, 2022			March 31, 2024	December 31, 2023
Assets	Assets
Current assets:	Current assets:
Current assets:
Current assets:
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents	Cash and cash equivalents	$	80,598	$	58,099
Short-term investments	Short-term investments	52,416		63,014
Accounts receivable, less allowance for credit losses of $300 and $230		51,528		42,693
Accounts receivable, less allowance for credit losses of $350 and $500
Inventories	Inventories	61,894		45,931
Prepaid and other current assets	Prepaid and other current assets	6,283		5,477
Total current assets	Total current assets	252,719		215,214
Long-term investments		—		51,509

Property and equipment, net
Property and equipment, net
Property and equipment, net	Property and equipment, net	41,400		38,833
Operating lease right-of-use assets	Operating lease right-of-use assets	4,043		3,787
Intangible assets, net	Intangible assets, net	65,684		39,339
Goodwill	Goodwill	234,781		234,781
Other noncurrent assets	Other noncurrent assets	1,644		1,985
Total assets		$	600,271	$	585,448
Total Assets
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:
Current liabilities:
Current liabilities:
Accounts payable
Accounts payable
Accounts payable	Accounts payable	$	24,542	$	19,898
Accrued liabilities	Accrued liabilities	37,294		33,022
Current maturities of debt and leases		20,702		5,472
Current maturities of lease liabilities
Total current liabilities	Total current liabilities	82,538		58,392
Long-term debt	Long-term debt	42,153		56,834
Finance lease liabilities		8,340		9,147
Operating lease liabilities		3,180		3,095
Finance and operating lease liabilities

Other noncurrent liabilities	Other noncurrent liabilities	1,227		1,226
Total liabilities		137,438		128,694
Other noncurrent liabilities
Other noncurrent liabilities
Total Liabilities
Commitments and contingencies (Note 9)	Commitments and contingencies (Note 9)					Commitments and contingencies (Note 9)
Stockholders’ Equity:	Stockholders’ Equity:
Common stock, $0.001 par value, 90,000 shares authorized and 47,392 and 46,563 issued and outstanding		47		47
Common stock, $0.001 par value, 90,000 shares authorized and 48,381 and 47,526 issued and outstanding
Common stock, $0.001 par value, 90,000 shares authorized and 48,381 and 47,526 issued and outstanding
Common stock, $0.001 par value, 90,000 shares authorized and 48,381 and 47,526 issued and outstanding
Additional paid-in capital	Additional paid-in capital	812,238		787,422
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,184)		(4,096)
Accumulated deficit	Accumulated deficit	(347,268)		(326,619)
Total stockholders’ equity		462,833		456,754
Total liabilities and stockholders’ equity		$	600,271	$	585,448
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity

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 September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
		2024
		2024
		2024
Revenue
Revenue
Revenue	Revenue	$	98,290	$	83,246	$	292,702	$	242,351
Cost of revenue	Cost of revenue	24,421		21,533		72,147		61,524
Cost of revenue
Cost of revenue
Gross profit
Gross profit
Gross profit	Gross profit	73,869		61,713		220,555		180,827
Operating expenses:	Operating expenses:
Operating expenses:
Operating expenses:
Research and development expenses
Research and development expenses
Research and development expenses	Research and development expenses	20,354		15,169		53,119		43,589
Selling, general and administrative expenses	Selling, general and administrative expenses	61,604		57,267		185,451		175,771
Selling, general and administrative expenses
Selling, general and administrative expenses
Total operating expenses
Total operating expenses
Total operating expenses	Total operating expenses	81,958		72,436		238,570		219,360
Loss from operations	Loss from operations	(8,089)		(10,723)		(18,015)		(38,533)
Loss from operations
Loss from operations
Other income (expense):
Other income (expense):
Other income (expense):	Other income (expense):
Interest expense	Interest expense	(1,772)		(1,324)		(5,127)		(3,425)
Interest expense
Interest expense
Interest income	Interest income	915		370		2,751		562
Other		(62)		(549)		(40)		(753)
Interest income
Interest income
Loss on debt extinguishment
Loss on debt extinguishment
Loss on debt extinguishment
Other income (expense)
Other income (expense)
Other income (expense)
Loss before income tax expense
Loss before income tax expense
Loss before income tax expense	Loss before income tax expense	(9,008)		(12,226)		(20,431)		(42,149)
Income tax expense	Income tax expense	47		46		218		147
Income tax expense
Income tax expense
Net loss	Net loss	$	(9,055)	$	(12,272)	$	(20,649)	$	(42,296)
Net loss
Net loss

Basic and diluted net loss per share

Basic and diluted net loss per share

Basic and diluted net loss per share	Basic and diluted net loss per share	$	(0.20)	$	(0.27)	$	(0.45)	$	(0.93)

Weighted average shares outstanding—basic and diluted	Weighted average shares outstanding—basic and diluted	46,411		45,823		46,262		45,682

Weighted average shares outstanding—basic and diluted

Weighted average shares outstanding—basic and diluted

Comprehensive income (loss):	Comprehensive income (loss):
Unrealized gain (loss) on investments		$	701	$	(691)	$	2,169	$	(3,479)

Comprehensive income (loss):

Comprehensive income (loss):
Unrealized gain on investments
Unrealized gain on investments
Unrealized gain on investments
Foreign currency translation adjustment	Foreign currency translation adjustment	(276)		(260)		(257)		(868)
Other comprehensive income (loss)		425		(951)		1,912		(4,347)
Foreign currency translation adjustment
Foreign currency translation adjustment
Other comprehensive income
Other comprehensive income
Other comprehensive income
Net loss
Net loss
Net loss	Net loss	(9,055)		(12,272)		(20,649)		(42,296)
Comprehensive loss, net of tax	Comprehensive loss, net of tax	$	(8,630)	$	(13,223)	$	(18,737)	$	(46,643)
Comprehensive loss, net of tax
Comprehensive loss, net of tax

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 September 30, 2022
		Common Stock			Additional Paid-in Capital				Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
		Shares	Amount
Balance—June 30, 2022		46,423	$	46			$	771,185			$	(310,177)	$	(4,344)			$	456,710
Impact of equity compensation plans		20	—		6,821				—		—		6,821
Other comprehensive loss		—	—		—				—		(951)		(951)
Net loss		—	—		—				(12,272)		—		(12,272)
Balance—September 30, 2022		46,443	$	46	$	778,006			$	(322,449)	$	(5,295)	$	450,308

		Three-Month Period Ended September 30, 2023
		Common Stock			Additional Paid-in Capital				Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
		Shares	Amount
Balance—June 30, 2023		47,352	$	47			$	803,197			$	(338,213)	$	(2,609)			$	462,422
Impact of equity compensation plans		40	—		9,041				—		—		9,041
Other comprehensive income		—	—		—				—		425		425
Net loss		—	—		—				(9,055)		—		(9,055)
Balance—September 30, 2023		47,392	$	47	$	812,238			$	(347,268)	$	(2,184)	$	462,833

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

Impact of equity compensation plans		427	—		13,195				—		—		13,195
Other comprehensive loss		—	—		—				—		(4,347)		(4,347)
Net loss		—	—		—				(42,296)		—		(42,296)
Balance—September 30, 2022		46,443	$	46	$	778,006			$	(322,449)	$	(5,295)	$	450,308






		Nine-Month Period Ended September 30, 2023													Three Months Ended March 31, 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
Balance—December 31, 2022	Balance—December 31, 2022	46,563	$	47			$	787,422			$	(326,619)	$	(4,096)			$	456,754
Balance—December 31, 2022
Balance—December 31, 2022

Impact of equity compensation plans
Impact of equity compensation plans
Impact of equity compensation plans	Impact of equity compensation plans	829	—		24,816				—		—		24,816
Other comprehensive income	Other comprehensive income	—	—		—				—		1,912		1,912
Net loss	Net loss	—	—		—				(20,649)		—		(20,649)
Balance—September 30, 2023		47,392	$	47	$	812,238			$	(347,268)	$	(2,184)	$	462,833
Balance—March 31, 2023



																Three Months Ended March 31, 2024
																Common Stock			Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)	Total Stockholders’ Equity

Balance—December 31, 2023
Balance—December 31, 2023
Balance—December 31, 2023
Impact of equity compensation plans
Other comprehensive income
Net loss
Balance—March 31, 2024

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


		Nine Months Ended September 30,
		2023		2022
	Three Months Ended March 31,						Three Months Ended March 31,
	2024					2024		2023
Cash flows from operating activities:	Cash flows from operating activities:
Net loss	Net loss	$	(20,649)	$	(42,296)
Net loss
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Share-based compensation expense
Share-based compensation expense
Share-based compensation expense	Share-based compensation expense	26,416		21,574
Depreciation	Depreciation	6,979		5,877
Amortization of intangible assets	Amortization of intangible assets	3,655		2,914
Amortization of deferred financing costs	Amortization of deferred financing costs	364		383
Amortization of investments	Amortization of investments	461		1,272
Loss on debt extinguishment
Other non-cash adjustments	Other non-cash adjustments	972		1,458
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:
Accounts receivable
Accounts receivable
Accounts receivable	Accounts receivable	(8,940)		(8,985)
Inventories	Inventories	(16,037)		(5,710)
Other current assets	Other current assets	(828)		699
Accounts payable	Accounts payable	4,147		5,675
Accrued liabilities	Accrued liabilities	4,314		(4,606)
Other noncurrent assets and liabilities	Other noncurrent assets and liabilities	(400)		(442)
Net cash provided by (used in) operating activities		454		(22,187)
Net cash used in operating activities
Cash flows from investing activities:	Cash flows from investing activities:
Purchases of available-for-sale securities		—		(24,637)

Sales and maturities of available-for-sale securities

Sales and maturities of available-for-sale securities

Sales and maturities of available-for-sale securities	Sales and maturities of available-for-sale securities	63,815		74,351
Purchases of property and equipment	Purchases of property and equipment	(9,212)		(12,710)
Acquisition of intellectual property		(30,000)		—

Net cash provided by investing activities

Net cash provided by investing activities

Net cash provided by investing activities	Net cash provided by investing activities	24,603		37,004
Cash flows from financing activities:	Cash flows from financing activities:

Payments on leases		(731)		(662)
Payment of debt fees		(60)		—
Proceeds from stock option exercises and employee stock purchase plan		4,873		3,757
Proceeds from revolving credit facility, net of financing costs

Proceeds from revolving credit facility, net of financing costs

Proceeds from revolving credit facility, net of financing costs
Payments on debt and leases
Payment of financing costs and bank fees
Proceeds from stock option exercises
Shares repurchased for payment of taxes on stock awards	Shares repurchased for payment of taxes on stock awards	(6,473)		(12,136)
Net cash used in financing activities	Net cash used in financing activities	(2,391)		(9,041)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(167)		(607)
Net increase in cash and cash equivalents		22,499		5,169
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents—beginning of period	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	$	80,598	$	48,823
Supplemental cash flow information:	Supplemental cash flow information:
Cash paid for interest	Cash paid for interest	$	4,716	$	2,926
Net cash paid for income taxes		228		135
Cash paid for interest
Cash paid for interest
Net cash paid (received) for income taxes
Non-cash investing and financing activities:	Non-cash investing and financing activities:
Accrued purchases of property and equipment	Accrued purchases of property and equipment	714		1,917
Accrued purchases of property and equipment
Accrued purchases of property and equipment

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~~2023 filed with the SEC. ~~Except as discussed herein, there~~There have been no changes in the Company's significant accounting policies for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 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.~~2023.

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 reasonable assumptions. 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 ~~$2,933~~$3,625 as of ~~September 30, 2023~~March 31, 2024 and ~~$1,616~~$3,432 as of December 31, ~~2022~~2023 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 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 ~~1,776~~2,615 and ~~1,472~~1,882 shares as of ~~September 30,~~March 31, 2024 and 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. Prior to January 1, 2023, the Company estimated forfeitures at the time of grant and revised 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 five 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 supportable assumptions and projections.~~

~~Table of Contents~~

~~ATRICURE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~

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 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.

Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of ~~September 30, 2023:~~March 31, 2024:


		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)												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:
Money market funds	Money market funds	$	—	$	76,501	$	—	$	76,501
Money market funds
Money market funds											$	—		$	55,411			$	—			$	55,411

Government and agency obligations
Government and agency obligations
Government and agency obligations	Government and agency obligations	12,531		—		—		12,531		12,852						—				12,852
Corporate bonds	Corporate bonds	—		37,674		—		37,674		Corporate bonds	—			25,891				—				25,891
Asset-backed securities	Asset-backed securities	—		2,211		—		2,211		Asset-backed securities	—			2,247				—				2,247
Total assets	Total assets	$	12,531	$	116,386	$	—	$	128,917	Total assets	$	12,852		$	83,549			$	—			$	96,401

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three ~~and nine~~ months ended ~~September 30, 2023.~~March 31, 2024.

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:~~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)												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:
Money market funds	Money market funds	$	—	$	54,414	$	—	$	54,414
Commercial paper		—		11,935		—		11,935
Money market funds
Money market funds											$	—		$	77,864			$	—			$	77,864

Government and agency obligations
Government and agency obligations
Government and agency obligations	Government and agency obligations	32,637		—		—		32,637		12,711						—				12,711
Corporate bonds	Corporate bonds	—		67,598		—		67,598		Corporate bonds	—			38,033				—				38,033
Asset-backed securities	Asset-backed securities	—		2,353		—		2,353		Asset-backed securities	—			2,231				—				2,231
Total assets	Total assets	$	32,637	$	136,300	$	—	$	168,937	Total assets	$	12,711		$	118,128			$	—			$	130,839

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)~~PMA approval and reimbursement for the therapy involving SentreHEART’s devices. The PMA approval milestone expired December 31, 2023. 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, 2024 and December 31, 2023.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

~~during the contractual achievement periods to be remote, resulting in no reported fair value as of September 30, 2023 and December 31, 2022.~~

3.INVESTMENTS

Investments as of ~~September 30,~~March 31, 2024 consisted of the following:


	Cost Basis		Unrealized Losses		Fair Value
Corporate bonds	$	26,000	$	(109)	$	25,891
Government and agency obligations	12,999		(147)		12,852

Asset-backed securities	2,252		(5)		2,247
Total	$	41,251	$	(261)	$	40,990

Investments as of December 31, 2023 consisted of the following:

Cost Basis Unrealized
Losses Fair Value
Corporate bonds $ 38,674 $ (1,000) $ 37,674
Government and agency obligations 12,996 (465) 12,531
Asset-backed securities 2,275 (64) 2,211
Total $ 53,945 $ (1,529) $ 52,416

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


		Cost Basis		Unrealized Losses		Fair Value
	Cost Basis										Cost Basis				Unrealized Losses				Fair Value
Corporate bonds	Corporate bonds	$	69,832	$	(2,234)	$	67,598	Corporate bonds	$	38,514			$	(481)			$	38,033
Government and agency obligations	Government and agency obligations	33,971		(1,334)		32,637		Government and agency obligations	12,998				(287)				12,711
Commercial paper		11,935		—		11,935

Asset-backed securities
Asset-backed securities
Asset-backed securities	Asset-backed securities	2,483		(130)		2,353		2,263				(32)				2,231
Total	Total	$	118,221	$	(3,698)	$	114,523	Total	$	53,775			$	(800)			$	52,975

The gross realized gains or losses from sales of available-for-sale investments were not significant in the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023.

The cost and fair value of investments in debt securities, by contractual maturity, as of ~~September 30, 2023~~March 31, 2024 were as follows:


		Available-for-sale
		Amortized Cost		Fair Value
	Available-for-sale											Available-for-sale
	Amortized Cost								Amortized Cost				Fair Value
Due in 1 year or less	Due in 1 year or less	$	51,670	$	50,205	Due in 1 year or less	$	38,999		$	38,743

Instruments not due at a single maturity date	Instruments not due at a single maturity date	2,275		2,211

Instruments not due at a single maturity date

Instruments not due at a single maturity date							2,252			2,247
Total	Total	$	53,945	$	52,416	Total	$	41,251		$	40,990

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:


		September 30, 2023		December 31, 2022
	March 31, 2024								March 31, 2024			December 31, 2023
Raw materials	Raw materials	$	30,086	$	19,880	Raw materials	$	35,862		$	36,751
Work in process	Work in process	4,327		2,959		Work in process	5,789			3,582
Finished goods	Finished goods	27,481		23,092		Finished goods	30,294			27,564
Total	Total	$	61,894	$	45,931	Total	$	71,945		$	67,897

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

5.INTANGIBLE ASSETS

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

September 30, 2023 December 31, 2022
Cost Accumulated
Amortization Cost Accumulated
Amortization
Technology $ 46,470 $ 9,346 $ 46,470 $ 7,131
Patents 30,000 1,440 — —
Total $ 76,470 $ 10,786 $ 46,470 $ 7,131

In May 2023, the Company acquired patents that will be amortized over an estimated useful life of five years. See Note 9 - Commitments and Contingencies for further information on the asset acquisition.


	March 31, 2024				December 31, 2023
	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Technology	$	46,470	$	10,822	$	46,470	$	10,084
Patents	30,000		3,525		30,000		2,400
Total	$	76,470	$	14,347	$	76,470	$	12,484

The following table summarizes the allocation of amortization expense of intangible assets:


		Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
		2024
		2024
		2024
Cost of revenues
Cost of revenues
Cost of revenues	Cost of revenues	$	960	$	—	$	1,440	$	—
Selling, general and administrative expenses	Selling, general and administrative expenses	739		971		2,215		2,914
Selling, general and administrative expenses
Selling, general and administrative expenses
Total	Total	$	1,699	$	971	$	3,655	$	2,914
Total
Total

Future amortization expense is projected as follows:


2023 (excluding the nine months ended September 30, 2023)		$	1,698
2024		7,453
2024 (excluding the three months ended March 31, 2024)				2024 (excluding the three months ended March 31, 2024)	$	5,590
2025	2025	8,353		2025	8,353
2026	2026	9,553		2026	9,553
2027	2027	10,453		2027	10,453
2028 and thereafter		28,174
2028				2028	6,553
2029 and thereafter				2029 and thereafter	21,621
Total	Total	$	65,684	Total	$	62,123

6.ACCRUED LIABILITIES

Accrued liabilities consist of the following:


		September 30, 2023		December 31, 2022			March 31, 2024		December 31, 2023
Accrued compensation and employee-related expenses	Accrued compensation and employee-related expenses	$	32,288	$	26,924	Accrued compensation and employee-related expenses	$	24,271		$	39,425
Sales returns and allowances	Sales returns and allowances	2,870		2,797		Sales returns and allowances	2,749			2,503
Other accrued liabilities	Other accrued liabilities	2,136		3,301		Other accrued liabilities	2,699			2,754
Total	Total	$	37,294	$	33,022	Total	$	29,719		$	44,682

7.INDEBTEDNESS

~~Credit Facility.~~ ~~The~~On January 5, 2024, the Company ~~has~~entered into a ~~Loan~~credit agreement (Credit Agreement) with JPMorgan Chase Bank, N.A., as administrative agent, and ~~Security Agreement,~~JPMorgan Chase Bank, N.A., as ~~amended~~bookrunner and ~~modified effective November 1, 2021, (Loan Agreement). Our primary banking relationship in the United States was with Silicon Valley Bank. During the first quarter of 2023 all deposits~~lead arranger (JPMCB), and ~~loans of~~ Silicon Valley Bank, ~~were purchased by~~a Division of First-Citizens Bank & Trust Company, as Joint Lead Arrangers and ~~our banking relationship is now with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company.~~Joint Bookrunners, and the lenders party thereto (Lenders). The ~~Loan~~Credit Agreement provides for an asset based revolving credit facility (ABL Facility) in an amount of up to $125,000. Borrowing availability under the ABL Facility is based on the lesser of $125,000 or a ~~$60,000 term loan,~~borrowing base calculation as defined by the Credit Agreement. The Company may request an increase in the revolving commitment by up to $40,000 (not to exceed a ~~$30,000 revolving line~~total of $165,000). A portion of the ABL Facility, limited to $5,000, is available for the issuance of letters of credit ~~and an option for an additional $30,000~~by JPMCB or other financial institutions. JPMCB in ~~term loan borrowings. The Loan Agreement has~~its sole discretion, may create swingline loans by advancing floating rate revolving loans requested. Any such swingline loans will reduce availability under the ABL Facility on a ~~five year term, expiring November 2026.~~dollar-for-dollar basis.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

~~Principal payments~~At closing, the Company borrowed $61,865. The proceeds of the ABL Facility were used to terminate the Company’s outstanding indebtedness and final fee 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~~Security Agreement with $690 included in the outstanding loan balance as of September 30, 2023. Additionally, the unamortized original financing costs related to the term loan of $204 are netted against the outstanding loan balance in the Condensed Consolidated Balance Sheets and are amortized ratably over the term of theSilicon Valley Bank (SVB 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 September 30, 2023, the Company had no borrowings under the revolving credit facility and had borrowing availability of $28,750.

~~The Loan Agreement also provides for certain~~Agreement). Certain prepayment and early termination fees under the SVB Loan Agreement were waived at termination. The termination of the SVB Loan Agreement was treated as ~~well as establishes~~ a debt extinguishment and the resulting loss on debt extinguishment is $1,362. As of March 31, 2024, the Company had borrowings of $61,865 and had borrowing capacity of $61,885 under the ABL facility.

The Credit Agreement has a three-year term, and all outstanding borrowings are due upon maturity of the Credit Agreement on January 5, 2027. Through January 2025, the Company's required minimum ~~liquidity covenant~~utilization of the ABL facility is 40% of the aggregate revolving commitment or $50,000. Subject to customary exceptions and ~~dividend~~ restrictions, ~~along with other customary terms and conditions. Specified assets have been pledged as collateral.~~the Company may voluntarily prepay outstanding amounts under the ABL Facility at any time thereafter without premium or penalty. Any voluntary prepayments made will not reduce commitments under the ABL Facility. The Credit Agreement contains mandatory prepayment provisions which require prepayment of amounts outstanding under the ABL Facility upon specified events or Availability shortfall.

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

2023 (excluding the nine months ended September 30, 2023) $ 3,333
2024 20,000
2025 20,000
2026 16,667
Total long-term debt, of which $18,333 is current and $41,667 is noncurrent $ 60,000


2024 (excluding the three months ended March 31, 2024)	$	—
2025	—
2026	—
2027	61,865
2028	—
Total long-term debt, of which $61,865 is noncurrent	$	61,865

The ABL Facility is subject to a facility fee of 0.37% per annum of the daily available revolving commitment and paid on a quarterly basis. Outstanding amounts under the Credit Agreement bear interest at a rate per annum equal to, at the Company's election: (i) an alternate base rate (ABR) plus an applicable margin or (ii) an adjusted term secured overnight financing rate (SOFR) plus an applicable margin. All swingline loans bear interest at a rate per annum equal to the ABR plus the applicable margin under the Credit Agreement. Alternate base rate is equal to the greater of Prime, the NYFRB Rate plus 0.50% or Adjusted Term SOFR Rate plus 1.00%. The applicable margin on borrowings will adjust ranging 1.50% to 1.75% per annum for ABR borrowings and from 2.50% to 2.75% per annum for SOFR term borrowings determined by the average historical excess availability. Participation and fronting fees are accrued and paid on a quarterly basis.

The ABL Facility is secured by the assets of the Company, consisting of personal, tangible or intangible property, including certain outstanding equity interests of the Company’s direct subsidiaries, subject to limitations specified in the Credit Agreement. The Credit Agreement contains customary representations and warranties, events of default and financial, affirmative and negative covenants for facilities of this type, including but not limited to financial covenants relating to a fixed charge coverage ratio, a minimum liquidity requirement and a minimum excess availability requirement, and restrictions on indebtedness, liens, investments and acquisitions, asset dispositions, specified agreements, restricted payments and prepayment of certain indebtedness.

8.LEASES

The Company has operating and finance leases for office, manufacturing and warehouse facilities and ~~equipment.~~automobiles. The Company’s leases have remaining lease terms of less than one year to ~~ten~~nine years. Options to renew or extend leases beyond their initial term have been excluded from measurement of the ~~ROU~~right-of-use (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:~~

September 30, 2023 December 31, 2022
Operating Leases
Weighted average remaining lease term (years) 5.0 4.4
Weighted average discount rate 5.39 % 4.60 %
Finance Leases
Weighted average remaining lease term (years) 6.9 7.6
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 September 30, 2023.~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

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


	March 31, 2024		December 31, 2023
Operating Leases
Weighted average remaining lease term (years)	4.6		4.8
Weighted average discount rate	5.89	%	5.75	%

Finance Leases
Weighted average remaining lease term (years)	6.4		6.7
Weighted average discount rate	6.93	%	6.93	%

A letter of credit for $1,250 issued to the lessor of the Company's corporate headquarters building is renewed annually and remains outstanding as of March 31, 2024.

The components of lease expense are as follows:






		Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
Operating lease cost	Operating lease cost	$	325	$	281	$	960	$	851
Operating lease cost
Operating lease cost



Finance lease cost:	Finance lease cost:
Finance lease cost:
Finance lease cost:
Amortization of right-of-use assets
Amortization of right-of-use assets
Amortization of right-of-use assets	Amortization of right-of-use assets	255		253		765		761
Interest on lease liabilities	Interest on lease liabilities	166		182		511		557
Interest on lease liabilities
Interest on lease liabilities
Total finance lease cost	Total finance lease cost	$	421	$	435	$	1,276	$	1,318
Total finance lease cost
Total finance lease cost

Short-term lease expense was not significant for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023.

Supplemental cash flow information related to leases is as follows:

Nine Months Ended
September 30, 2023 Nine Months Ended
September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ 905 $ 610
Operating cash flows for finance leases 511 557
Financing cash flows for finance leases 731 662
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 1,068 —
Finance leases — 62

~~Supplemental balance sheet information related to leases is as follows:~~

September 30, 2023 December 31, 2022
Operating Leases
Operating lease right-of-use assets $ 4,043 $ 3,787
Current maturities of leases 1,301 1,147
Operating lease liabilities 3,180 3,095
Total operating lease liabilities $ 4,481 $ 4,242
Finance Leases
Property and equipment, at cost $ 14,620 $ 14,645
Accumulated depreciation (7,849) (7,109)
Property and equipment, net $ 6,771 $ 7,536
Current maturities of leases $ 1,068 $ 992
Finance lease liabilities 8,340 9,147
Total finance lease liabilities $ 9,408 $ 10,139


	Three Months Ended March 31, 2024		Three Months Ended March 31, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	393	$	317
Operating cash flows for finance leases	158		175
Financing cash flows for finance leases	264		240

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	235		1,061
Finance leases	—		—

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

Supplemental balance sheet information related to leases is as follows:


	March 31, 2024		December 31, 2023
Operating Leases
Operating lease right-of-use assets	$	4,199	$	4,324

Current maturities of lease liabilities	1,451		1,447
Finance and operating lease liabilities	3,164		3,307
Total operating lease liabilities	$	4,615	$	4,754

Finance Leases
Property and equipment, at cost	$	14,620	$	14,620
Accumulated depreciation	(8,360)		(8,105)
Property and equipment, net	$	6,260	$	6,515

Current maturities of lease liabilities	$	1,091	$	1,086
Finance and operating lease liabilities	7,792		8,061
Total finance lease liabilities	$	8,883	$	9,147

Future maturities of lease liabilities as of ~~September 30, 2023~~March 31, 2024 are as follows:


		Operating Leases		Finance Leases
2023 (excluding the nine months ended September 30, 2023)		$	330	$	423
2024		1,270		1,689
	Operating Leases					Operating Leases	Finance Leases
2024 (excluding the three months ended March 31, 2024)
2025	2025	1,034		1,638
2026	2026	727		1,671
2027	2027	754		1,703
2028 and thereafter		1,169		4,824
2028
2029 and thereafter
Total payments	Total payments	$	5,284	$	11,948
Less imputed interest	Less imputed interest	(803)		(2,540)
Total	Total	$	4,481	$	9,408

9.COMMITMENTS AND CONTINGENCIES

License Agreement. The Company had been a party to a license agreement that required royalty payments of 5% of specified product sales. In May 2023, the Company entered into an agreement that terminated the license agreement and the Company's obligations to make royalty payments under the license agreement. ~~See~~ ~~Legal~~ ~~section below~~Royalty expense of $0 and $901 was recorded for ~~additional information.~~the three months ended March 31, 2024 and 2023 as a component of Cost of Revenue in the accompanying Condensed Consolidated Statement of Operations.

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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

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) and IDx Medical, Ltd. (IDx) filed a Demand for Arbitration against the Company with the American Arbitration Association (AAA), alleging that the Company breached certain provisions of the License Agreement dated December 9, 2003 among the Company, Clinic and IDx (License Agreement). Clinic and IDx alleged that the Company did not include the revenues from sales of certain products in its royalty payments due under the License Agreement, and the Company did not provide related notices required under the License Agreement. The Company filed its Answering Statement and Counterclaims to the allegations in September 2022, denying each

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~~ATRICURE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~

claim and counterclaiming for breach of contract, correction of inventorship, declaratory judgment, patent prosecution and legal fees. In May 2023, the Company entered into an Assignment and Agreement Regarding IDx and CCF Intellectual Property (Assignment Agreement) with Clinic and IDx. Pursuant to the Assignment Agreement, during the second quarter of 2023, the Company made a one-time payment of $33,400 to Clinic and IDx for the acquisition of patents and other intellectual property. The Assignment Agreement also requires dismissal of the arbitration and release of payment for royalty obligations due to Clinic and IDx under the License Agreement after March 31, 2023. The amount paid, together with transaction costs, was allocated between the acquired intangible asset, the release of payment for royalty obligations and the settlement of the dispute. The intangible asset was assigned a value of $30,000 and is being amortized over an estimated useful life of 5 years. The release of the royalty obligations was valued at $432. The remaining $3,088 was allocated to the settlement and is included in selling, general and administrative expenses for the nine months ended September 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. The Company recorded a ~~$7,500~~$4,000 gain for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 for the proceeds received as a reduction to selling, general and administrative expenses.

10. REVENUE

The Company develops, manufactures and sells devices designed primarily for surgical ablation of cardiac tissue, exclusion of the left atrial appendage, and temporarily blocking ~~post-operative~~ pain by 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 September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
		2024
		2024
		2024
Open ablation
Open ablation
Open ablation	Open ablation	$	25,844	$	21,569	$	77,988	$	62,613
Minimally invasive ablation	Minimally invasive ablation	10,893		10,077		31,900		28,846
Minimally invasive ablation
Minimally invasive ablation
Pain management
Pain management
Pain management	Pain management	12,591		10,510		36,249		28,734
Total ablation	Total ablation	$	49,328	$	42,156	$	146,137	$	120,193
Total ablation
Total ablation
Appendage management
Appendage management
Appendage management	Appendage management	32,364		27,620		98,647		83,120
Total United States	Total United States	$	81,692	$	69,776	$	244,784	$	203,313
Total United States
Total United States

International revenue by product type is as follows:






		Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
Open ablation	Open ablation	$	8,007	$	6,680	$	23,015	$	19,385
Open ablation
Open ablation
Minimally invasive ablation
Minimally invasive ablation
Minimally invasive ablation	Minimally invasive ablation	1,578		1,445		4,820		4,249
Pain management	Pain management	547		121		1,214		375
Pain management
Pain management
Total ablation
Total ablation
Total ablation	Total ablation	$	10,132	$	8,246	$	29,049	$	24,009
Appendage management	Appendage management	6,466		5,224		18,869		15,029
Appendage management
Appendage management
Total International	Total International	$	16,598	$	13,470	$	47,918	$	39,038
Total International
Total International

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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 September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
		2024
		2024
		2024
United States
United States
United States	United States	$	81,692	$	69,776	$	244,784	$	203,313

Europe	Europe	9,217		7,296		28,075		22,316

Europe

Europe
Asia Pacific
Asia Pacific
Asia Pacific	Asia Pacific	6,568		5,518		18,095		15,008
Other International	Other International	813		656		1,748		1,714
Other International
Other International
Total International
Total International
Total International	Total International	16,598		13,470		47,918		39,038
Total Revenue	Total Revenue	$	98,290	$	83,246	$	292,702	$	242,351
Total Revenue
Total Revenue

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 ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~ was ~~(0.5%~~(1.4%) and ~~(0.4%). The effective tax rate for the nine months ended September 30, 2023 and 2022 was (1.1%) and (0.4%~~(1.2%). 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 2023 Stock Incentive Plan (2023 Plan) and the 2018 Employee Stock Purchase Plan (ESPP). ~~Stockholders approved the 2023 Plan at the 2023 Annual Meeting of Stockholders. Pursuant to its terms, the 2023 Plan supersedes and replaces the 2014 Stock Incentive Plan (Prior Plan).~~

Stock Incentive Plan

Under the 2023 Plan, the Board of Directors may grant restricted stock awards or restricted stock units (collectively RSAs), nonstatutory stock options, performance share awards ~~and~~(PSAs) or stock appreciation rights to Company employees, directors and consultants, and may grant incentive stock options to Company employees. The Compensation Committee of the Board of Directors, as the administrator of the 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 ~~September 30, 2023,~~March 31, 2024, 2,287 shares of common stock have been reserved for issuance under the 2023 Plan, and ~~2,268~~869 shares were available for future grants. The Company issues registered shares of common stock for stock option exercises, restricted stock grants and performance share award payments.

Employee Stock Purchase Plan

Under the ESPP, shares of the Company’s common stock may be purchased at a ~~15%~~ discount of(15%) to the lesser of the closing price of the Company’s common stock on the first or last trading ~~days~~day 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 ~~September 30, 2023,~~March 31, 2024, there were ~~847~~782 shares available for future issuance under the ESPP.

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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 September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
		2024
		2024
		2024
Cost of revenue
Cost of revenue
Cost of revenue	Cost of revenue	$	442	$	405	$	1,356	$	1,463
Research and development expenses	Research and development expenses	1,485		1,115		4,329		3,431
Research and development expenses
Research and development expenses
Selling, general and administrative expenses
Selling, general and administrative expenses
Selling, general and administrative expenses	Selling, general and administrative expenses	6,734		5,481		20,731		16,680
Total	Total	$	8,661	$	7,001	$	26,416	$	21,574
Total
Total

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 September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
		2024
		2024
		2024
Total accumulated other comprehensive loss at beginning of period
Total accumulated other comprehensive loss at beginning of period
Total accumulated other comprehensive loss at beginning of period	Total accumulated other comprehensive loss at beginning of period	$	(2,609)	$	(4,344)	$	(4,096)	$	(948)
Unrealized Gains (Losses) on Investments	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	$	(2,230)	$	(3,675)	$	(3,698)	$	(887)
Other comprehensive income (loss) before reclassifications		701		(691)		2,169		(3,407)
Balance at beginning of period
Balance at beginning of period
Other comprehensive income before reclassifications
Other comprehensive income before reclassifications
Other comprehensive income before reclassifications

Balance at end of period

Balance at end of period

Balance at end of period
Foreign Currency Translation Adjustment
Foreign Currency Translation Adjustment
Foreign Currency Translation Adjustment
Balance at beginning of period
Balance at beginning of period
Balance at beginning of period
Other comprehensive (loss) income before reclassifications
Other comprehensive (loss) income before reclassifications
Other comprehensive (loss) income before reclassifications
Amounts reclassified to other income (expense)
Amounts reclassified to other income (expense)
Amounts reclassified to other income (expense)	Amounts reclassified to other income (expense)	—		—		—		(72)
Balance at end of period	Balance at end of period	$	(1,529)	$	(4,366)	$	(1,529)	$	(4,366)
Foreign Currency Translation Adjustment
Balance at beginning of period		$	(379)	$	(669)	$	(398)	$	(61)
Other comprehensive loss before reclassifications		(286)		(721)		(133)		(1,508)
Amounts reclassified to other income (expense)		10		461		(124)		640
Balance at end of period
Balance at end of period	Balance at end of period	$	(655)	$	(929)	$	(655)	$	(929)
Total accumulated other comprehensive loss at end of period	Total accumulated other comprehensive loss at end of period	$	(2,184)	$	(5,295)	$	(2,184)	$	(5,295)
Total accumulated other comprehensive loss at end of period
Total accumulated other comprehensive loss at end of period

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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~~2023 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. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under Item 1A “Risk Factors,” the cautionary statement regarding forward-looking statements below and elsewhere in this Form 10-Q.

Forward-Looking Statements

This Form 10-Q, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, "Quantitative and Qualitative Disclosures about Market Risk" 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.~~2023. 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 often 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,” "forecast," "trend," "might" 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. However, the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements include, without limitation, statements that address activities, events, circumstances or developments that AtriCure expects, believes or anticipates will or may occur in the future, such as earnings estimates (including projections and guidance), other predictions of financial performance, launches by AtriCure of new products, developments with competitors and market acceptance of AtriCure's products. Such statements are based largely 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~~different 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. In other words, these statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. 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”~~(or “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.~~electrophysiologists. Our pain management ~~device is~~devices are 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, ~~Canada~~Australia and ~~Australia.~~Canada. 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, ~~Canadian~~Australian Dollars or ~~Australian~~Canadian Dollars.

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Recent Developments

~~In 2023,~~During the first quarter of 2024, we realized ~~significant~~strong global revenue growth and continued our strategic initiatives of product innovation, clinical science and ~~expanding~~ physician education and training to expand awareness and ~~adoption through superior training and education.~~adoption. Our worldwide revenue for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 was ~~$292,702,~~$108,851, representing an increase of ~~$50,351,~~$15,357, or ~~20.8%~~16.4%, over the first ~~nine~~three months of ~~2022,~~2023, driven by growing adoption across key product lines. Historically there have been limited competitors in our key markets, but we have begun to see more entrants that may cause variability in 2024 results. Highlights of the strategic and operational advancements include:

~~Table of Contents~~

PRODUCT INNOVATION. ~~During September 2022, the Company received final labeling approval from~~In October 2023, FDA granted 510(k) clearance for ~~the~~our next generation ~~EPi-Sense~~cryoSPHERE® ~~ST device and began~~+ cryoablation probe for pain management. During the first quarter of 2024, we completed the initial procedures with the cryoSPHERE+, realizing a 25% reduction in ablation time. The product is currently in an extended limited launch period in the ~~fourth quarter of 2022,~~United States with a full launch ~~commencing in~~expected by the end of the second ~~quarter of 2023. We continue to make significant progress on the submission of our products for clearance~~quarter. In addition, we received several CE mark certifications under the European Medical Device Regulation (EU MDR). As of the second quarter of 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 continue to invest in studies to expand labeling claims, support various indications for our products and gather clinical data regarding our products.

~~LeAAPS.~~ ~~In April 2022, the FDA approved the protocol for~~ One of our critical initiatives is the Left Atrial Appendage Exclusion for Prophylactic Stroke Reduction (LeAAPS) IDE clinical trial. ~~The trial~~LeAAPS 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.~~surgery, and efficacy over a minimum follow-up of five years post procedure. The trial provides for enrollment of up to 6,500 subjects at up to 250 sites worldwide. InThe first patient was enrolled in the trial in January 2023, and we ~~enrolled our~~ended the first ~~patient in the trial; site~~quarter of 2024 with over 2,000 patients enrolled. Site initiation and enrollment is ~~ongoing.~~

~~CEASE-AF.~~ During the second quarter of 2023, results from our CEASE-AF trial were presented at the European Heart Rhythm Association meeting. CEASE-AF is a prospective, multi-center randomized control trial that demonstrated superior freedom from atrial arrhythmias for staged hybrid ablation compared to endocardial catheter ablation.

~~ICE-AFIB. 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~~in-person and ~~in-person~~virtual training programs for physicians and other healthcare ~~professionals, as well as our sales teams.~~professionals. 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 therapies. These ~~trainings~~training events allow for collaborative, hands-on engagement with our physician partners and other healthcare professionals. Additionally, our professional education courses continue to ~~benefit from~~be enhanced by the use of ~~inanimate~~simulation models or synthetic cadavers, known as CADets. These reusable CADets provide a sustainable alternative to the use of ~~animals or cadavers,~~cadaver specimens, in addition to ~~reducing spend on~~increasing the efficiencies of education and more cost effective training ~~programs.~~alternatives.

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Results of Operations

Three months ended ~~September 30, 2023~~March 31, 2024 compared to three months ended ~~September 30, 2022~~March 31, 2023

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 September 30,
		2023				2022
		Amount		% of Revenues		Amount		% of Revenues
	Three Months Ended March 31,																						Three Months Ended March 31,
	2024																2024							2023
	Amount													Amount					% of Revenues				Amount					% of Revenues
Revenue	Revenue	$	98,290	100.0	%	$	83,246	100.0	%	Revenue	$	108,851			100.0		%			$	93,494				100.0	%
Cost of revenue	Cost of revenue	24,421		24.8		21,533		25.9
Gross profit	Gross profit	73,869		75.2		61,713		74.1
Operating expenses:	Operating expenses:
Research and development expenses	Research and development expenses	20,354		20.7		15,169		18.2
Research and development expenses
Research and development expenses
Selling, general and administrative expenses	Selling, general and administrative expenses	61,604		62.7		57,267		68.8
Total operating expenses	Total operating expenses	81,958		83.4		72,436		87.0
Loss from operations	Loss from operations	(8,089)		(8.2)		(10,723)		(12.9)
Other income (expense), net:		(919)		(0.9)		(1,503)		(1.8)
Other expense, net:
Loss before income tax expense	Loss before income tax expense	(9,008)		(9.2)		(12,226)		(14.7)
Income tax expense	Income tax expense	47		—		46		0.1
Net loss	Net loss	$	(9,055)	(9.2)	%	$	(12,272)	(14.7)	%	Net loss	$	(13,269)	(12.2)			(12.2)		%			$	(6,476)	(7.0)			(7.0)	%

Revenue. The following table sets forth, for the periods indicated, our revenue by product type and geography expressed as dollar amounts and the corresponding change in such revenues between periods, in both dollars and percentages:


		Three Months Ended September 30,				Change
		2023		2022		Amount		%
	Three Months Ended March 31,																Three Months Ended March 31,							Change
	2024													2024					2023				Amount				%
Open ablation	Open ablation	$	25,844	$	21,569	$	4,275	19.8	%	Open ablation	$	29,300	$		$	25,142		$		$	4,158	16.5			16.5	%
Minimally invasive ablation	Minimally invasive ablation	10,893		10,077		816		8.1
Pain management	Pain management	12,591		10,510		2,081		19.8
Appendage management	Appendage management	32,364		27,620		4,744		17.2
Total United States	Total United States	$	81,692	$	69,776	$	11,916	17.1
Total International	Total International	16,598		13,470		3,128		23.2
Total revenue	Total revenue	$	98,290	$	83,246	$	15,044	18.1	%	Total revenue	$	108,851	$		$	93,494		$		$	15,357	16.4			16.4	%

Worldwide revenue increased ~~18.1% (17.3%~~16.4% (16.3% on a constant currency basis). In the United States, we experienced growth in ~~all~~ key product lines, ~~led by~~including the ~~EnCompass~~ENCOMPASS® clamp in open ablation, Hybrid AF™ Therapy procedures using the EPi-Sense System in minimally invasive ablation, cryoSPHERE® probe for post-operative pain management and AtriClip® Flex⋅V® for appendage management. International sales increased ~~23.2% (18.7%~~21.5% (21.1% on a constant currency basis), across ~~all~~ franchises and major geographic regions, bolstered by strong sales of ~~open ablation~~appendage management and ~~LAAM products in key markets in Europe and ablation products in the Asia Pacific market.~~post-operative pain management products.

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 ~~$2,888~~$3,698 primarily reflecting higher sales volumes. Gross margin increased ~~approximately 110~~21 basis points, driven by ~~favorable production efficiencies, partially offset by unfavorable~~product and geographic ~~and product~~ mix.

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Research and development expenses. Research and development expenses increased ~~$5,185~~$4,518 or ~~34.2%~~29.5%. Expansion of product development, clinical and regulatory teams resulted in $1,964 of increased personnel costs, including travel and share-based compensation. Clinical trial expenses increased ~~$2,455 due to strong~~$1,455 from increased enrollment activity in the LeAAPS clinical trial throughout the quarter. ~~Expansion of product development, regulatory and clinical teams resulted in $1,320 of increased personnel costs, including variable compensation, travel and share-based compensation.~~ Product development project spend increased ~~$1,034 as we continue to invest~~$1,001 reflecting continued investment in our product ~~development pipeline, with a corresponding $747 increase in spend for regulatory filings and submissions.~~pipeline.

Selling, general and administrative expenses. Selling, general and administrative expenses increased ~~$4,337,~~$12,276, or ~~7.6%~~20.4%, driven by a ~~$5,309~~$6,429 increase in personnel costs as a result of growth in headcount and ~~share-based compensation. This~~travel expenses. The increase was ~~partially offset~~further driven by the $4,000 gain on proceeds from a ~~$1,375 decrease in training costs as a result~~legal settlement during the first quarter of ~~growing efficiencies~~2023. During the first quarter of 2024, fees for professional services, legal and ~~enhancements to our global training programs.~~IT increased $930 and marketing activities also increased $654.

Other income (expense). ~~Other income and expense~~During the first quarter of 2024, the Company recognized a loss on debt extinguishment of $1,362; see Note 7 - Indebtedness for related discussion. The remaining activity consists primarily of net interest expense and net foreign currency transaction losses.

~~Nine months ended September 30, 2023 compared to nine months ended September 30, 2022~~

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

Nine Months Ended
September 30,
2023 2022
Amount % of
Revenues Amount % of
Revenues
Revenue $ 292,702 100.0 % $ 242,351 100.0 %
Cost of revenue 72,147 24.6 61,524 25.4
Gross profit 220,555 75.4 180,827 74.6
Operating expenses:
Research and development expenses 53,119 18.1 43,589 18.0
Selling, general and administrative expenses 185,451 63.4 175,771 72.5
Total operating expenses 238,570 81.5 219,360 90.5
Loss from operations (18,015) (6.2) (38,533) (15.9)
Other income (expense), net: (2,416) (0.8) (3,616) (1.5)
Loss before income tax expense (20,431) (7.0) (42,149) (17.4)
Income tax expense 218 0.1 147 0.1
Net loss $ (20,649) (7.1) % $ (42,296) (17.5) %

~~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:

Nine Months Ended
September 30, Change
2023 2022 Amount %
Open ablation $ 77,988 $ 62,613 $ 15,375 24.6 %
Minimally invasive ablation 31,900 28,846 3,054 10.6
Pain management 36,249 28,734 7,515 26.2
Appendage management 98,647 83,120 15,527 18.7
Total United States $ 244,784 $ 203,313 $ 41,471 20.4
Total International 47,918 39,038 8,880 22.7
Total revenue $ 292,702 $ 242,351 $ 50,351 20.8 %

~~Table of Contents~~

Worldwide revenue increased 20.8% (20.7% on a constant currency basis). In the United States, growth in all key product lines reflected continuing adoption of our products. The EnCompass clamp in open ablation revenue, cryoSPHERE probe in pain management and the AtriClip Flex⋅Vwithin appendage management continue to demonstrate superior product adoption and growth. The EPi-Sense System drove revenue growth in minimally invasive ablation. International sales increased 22.7% (22.1% on a constant currency basis) across all franchises and major geographic regions.

~~Cost of revenue and gross margin.~~ Cost of revenue increased $10,623 primarily reflecting higher sales volumes, while gross margin increased approximately 80 basis points as realization of increasing production efficiencies more than offset cost pressure from supply chain challenges and geographic and product mix.

~~Research and development expenses.~~ Research and development expenses increased $9,530 or 21.9%, primarily due to increased clinical trial activity of $4,617 driven by the LeAAPS trial and $4,463 in personnel costs due to additional headcount in our product development, regulatory and clinical teams. Research and development expenses were further increased by $1,482 for additional product development activity to expand our product pipeline and regulatory submissions both domestically and internationally. These increases were partially offset by a $545 decrease in consulting activities for EU MDR submission costs incurred in the prior year.

~~Selling, general and administrative expenses.~~ Selling, general and administrative expenses increased $9,680, or 5.5%, largely due to increased personnel costs of $17,328 as a result of growth in headcount, variable compensation and share-based compensation. Offsetting these increases was a $4,257 decrease in training due to improved efficiencies and other enhancements. Selling, general and administrative expenses were also offset by a net gain of $4,412 for non-recurring legal settlements during the first half of 2023, including a $7,500 gain from proceeds on a legal matter settled during the first quarter of 2023, partially offset by a $3,088 charge for settlement of an intellectual property matter during the second quarter of 2023. See Note 9 – Commitments and Contingencies for further discussion.

~~Other income (expense).~~ Other income and expense consists primarily of net interest expense and net foreign currency transaction losses, with the fluctuation between periods primarily driven by a $716 decrease in foreign currency transaction losses in 2023.

Liquidity and Capital Resources

As of ~~September 30, 2023,~~March 31, 2024, the Company had cash, cash equivalents and investments of ~~$133,014~~$105,957 and outstanding debt of ~~$60,000.~~$61,865. We had unused borrowing capacity of ~~$28,750 under~~$61,885 (see Note 7 - Indebtedness for related discussion). All cash equivalents and investments and most of our ~~revolving credit facility. Our primary banking relationship~~operating cash are held in ~~the~~ United States ~~was with Silicon Valley Bank. During the first quarter~~financial institutions. A small portion of ~~2023 all deposits and loans of Silicon Valley Bank were purchased by First-Citizens Bank & Trust Company, and~~ our ~~banking relationship~~cash is ~~now with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company. Access~~held in foreign banks to support our ~~funds, funding sources and other credit arrangements are adequate to finance or capitalize our current and projected future business~~international operations. We had net working capital of ~~$170,181~~$183,973 and an accumulated deficit of ~~$347,268~~$370,326 as of ~~September 30, 2023.~~March 31, 2024.


		Nine Months Ended September 30,
		2023		2022		Change
		(dollars in thousands)
Net cash provided by (used in) operating activities		$	454	$	(22,187)	$	22,641
	Three Months Ended March 31,
		2024
		2024
		2024						2023	Change
	(dollars in thousands)									(dollars in thousands)
Net cash used in operating activities
Net cash provided by investing activities	Net cash provided by investing activities	24,603		37,004		(12,401)
Net cash used in financing activities	Net cash used in financing activities	(2,391)		(9,041)		(6,650)

Cash flows used in operating activities. Net cash ~~provided by~~used in operating activities increased ~~$22,641~~$16,937 from ~~2022~~2023 to 2023, reflecting the improvement in operating results of $21,647, driven by higher sales, improvements to gross margin and a net gain from legal settlements. This was partially offset by a $4,375 increase in cash2024. Cash used for working capital and other assets and liabilities ~~primarily~~increased $13,543 on higher annual variable compensation payments due to improved operating performance, as well as continued investment in inventory to support future growth. The remaining change is largely attributable to decrease in operating margin due to a ~~result~~one-time gain on legal settlement recorded in 2023 of ~~an increase in inventory.~~$4,000.

Cash flows provided by investing activities. Net cash provided by investing activities decreased by ~~$12,401~~$19,169 in ~~2023~~2024 compared to ~~2022, reflecting the $30,000 acquisition of intellectual property, partially offset~~2023, driven by a ~~$14,101 increase~~$18,897 decrease in ~~net~~sales and maturities of available-for-sale ~~securities and $3,498 decrease in purchases of property and equipment following our 2022 manufacturing facilities expansion.~~securities.

Cash flows used in financing activities. Net cash used in financing activities ~~decreased~~increased by ~~$6,650~~$2,345 in ~~2023, reflecting savings~~2024. This increase was a result of ~~$5,663 due to fewer~~$1,451 payment for extinguishment of debt and financing fees, net of borrowings, and a $798 increase in shares repurchased ~~at a lower value~~ for payment of taxes on stock ~~awards~~awards.

Credit facility. As of January 5, 2024, we entered into a credit agreement (Credit Agreement) with JPMorgan Chase Bank, N.A. as Administrative Agent, JPMorgan Chase Bank, N.A. and Silicon Valley Bank, a division of First-Citizens Bank and Trust Company, as Joint Lead Arrangers and Joint Bookrunners that provides for a $125,000 asset-based revolving credit facility (ABL Facility), with an option to increase the revolving commitment by an additional $40,000. A portion of ~~$1,116~~the ABL Facility, limited to $5,000, is available for the issuance of letters of credit. The Credit Agreement has a three-year term and expires January 5, 2027. Amounts available to be drawn from time to time under the ABL Facility are determined by calculating the applicable borrowing base, which is based upon applicable percentages of the values of eligible accounts receivable, eligible inventory, eligible liquid assets, less reserves as determined by the Administrative Agent, all as specified in ~~proceeds from stock option exercise activity~~the Credit Agreement. The borrowings bear interest at a rate per annum equal to, at the Company's election: (i) an alternate base rate (ABR) plus an applicable margin or (ii) an adjusted term secured overnight financing rate (SOFR) plus an applicable margin. As of March 31, 2024, the Company has borrowed $61,865, classified as noncurrent and ~~the employee stock purchase plan.~~had unused borrowing availability of $61,885.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which we renew annually and remains outstanding as of March 31, 2024.

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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 September 30, 2023, our outstanding debt was $60,000, of which $18,333 is classified as current and $41,667 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 September 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~~2023 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 ~~September 30, 2023,~~March 31, 2024, 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.~~2023.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of ~~September 30, 2023,~~March 31, 2024, 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.~~2023.

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

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succeed in achieving its stated goals under all future conditions. Because of the inherent limitations in any cost-effective control system, misstatements due to errors or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

In the ordinary course of business, we routinely enhance our information systems by either upgrading current systems or implementing new ones. There were no changes in our internal control over financial reporting that occurred during the three months ended ~~September 30, 2023~~March 31, 2024 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 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, as amended by risk factors provided in our Form 10-Q for the quarter ended March 31,~~ 2023, which are incorporated herein by reference.

Item 5. Other Information

During the three months ended ~~September 30, 2023,~~March 31, 2024, none of our executive officers or directors adopted, terminated or ~~terminated any contract, instruction~~modified a "Rule 10b5-1(c) trading arrangement" or ~~written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any~~a “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).

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Item 6. Exhibits


Exhibit No.			Description
10.1#			Form of Performance Share Award Agreement for Awards Granted in 2024.
10.2#			Form of Performance Stock Unit Award Agreement for Employees.
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: ~~November~~May 2, ~~2023~~2024			/s/ Michael H. Carrel
			Michael H. Carrel
			President and Chief Executive Officer (Principal Executive Officer)


Date: ~~November~~May 2, ~~2023~~2024			/s/ Angela L. Wirick
			Angela L. Wirick
			Chief Financial Officer (Principal Accounting and Financial Officer)

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	September 30, 2023				December 31, 2022
	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Technology	$	46,470	$	9,346	$	46,470	$	7,131
Patents	30,000		1,440		—		—
Total	$	76,470	$	10,786	$	46,470	$	7,131


2023 (excluding the nine months ended September 30, 2023)	$	3,333
2024	20,000
2025	20,000
2026	16,667
Total long-term debt, of which $18,333 is current and $41,667 is noncurrent	$	60,000


	Nine Months Ended September 30, 2023		Nine Months Ended September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	905	$	610
Operating cash flows for finance leases	511		557
Financing cash flows for finance leases	731		662

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	1,068		—
Finance leases	—		62