atrc-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_____________________________________________

FORM 10-Q

___________________________________________________________________________________________

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

For the quarterly period ended March 31, 2023

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

For the transition period from_____________to_____________

Commission File Number 000-51470

_____________________________________________

AtriCure, Inc.

(Exact name of Registrant as specified in its charter)

_____________________________________________


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

7555 Innovation Way

Mason, OH 45040

(Address of principal executive offices)

(513) 755-4100

(Registrant’s telephone number, including area code)

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

_____________________________________________

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


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

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

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

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

Large Accelerated Filer

Accelerated Filer

Emerging growth company

Non-Accelerated Filer

Smaller reporting company

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

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

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


Class			Outstanding at April 28, 2023
Common Stock, $.001 par value			47,242,346

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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	21
Item 4.	Controls and Procedures	21
PART II. OTHER INFORMATION		21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 6.	Exhibits	22
Signatures		23

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Amounts)

(Unaudited)


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

See accompanying notes to condensed consolidated financial statements.

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ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In Thousands, Except Per Share Amounts)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Revenue	$	93,494	$	74,576
Cost of revenue	23,885		18,981
Gross profit	69,609		55,595
Operating expenses:
Research and development expenses	15,327		13,629
Selling, general and administrative expenses	60,064		56,116
Total operating expenses	75,391		69,745
Loss from operations	(5,782)		(14,150)
Other income (expense):
Interest expense	(1,636)		(1,000)
Interest income	875		116
Other	145		(93)
Loss before income tax expense	(6,398)		(15,127)
Income tax expense	78		56
Net loss	$	(6,476)	$	(15,183)

Basic and diluted net loss per share	$	(0.14)	$	(0.33)


Weighted average shares outstanding—basic and diluted	46,107		45,528

Comprehensive income (loss):
Unrealized gain (loss) on investments	$	1,041	$	(2,339)
Foreign currency translation adjustment	(17)		(178)
Other comprehensive income (loss)	1,024		(2,517)
Net loss	(6,476)		(15,183)
Comprehensive loss, net of tax	$	(5,452)	$	(17,700)

See accompanying notes to condensed consolidated financial statements.

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ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands)

(Unaudited)


	Three-Month Period Ended March 31, 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	252	—		(3,231)		—		—		(3,231)
Other comprehensive loss	—	—		—		—		(2,517)		(2,517)
Net loss	—	—		—		(15,183)		—		(15,183)
Balance—March 31, 2022	46,268	$	46	$	761,580	$	(295,336)	$	(3,465)	$	462,825

	Three-Month Period Ended March 31, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance—December 31, 2022	46,563	$	47	$	787,422	$	(326,619)	$	(4,096)	$	456,754
Impact of equity compensation plans	681	—		3,543		—		—		3,543
Other comprehensive income	—	—		—		—		1,024		1,024
Net loss	—	—		—		(6,476)		—		(6,476)
Balance—March 31, 2023	47,244	$	47	$	790,965	$	(333,095)	$	(3,072)	$	454,845

See accompanying notes to condensed consolidated financial statements.

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ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(6,476)	$	(15,183)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense	8,760		7,049
Depreciation	2,205		1,895
Amortization of intangible assets	738		972
Amortization of deferred financing costs	121		128
Amortization of investments	169		559
Other non-cash adjustments	160		338
Changes in operating assets and liabilities:
Accounts receivable	(2,900)		(7,950)
Inventories	(2,847)		(1,934)
Other current assets	(2,472)		(1,581)
Accounts payable	3,066		1,729
Accrued liabilities	(4,819)		(10,701)
Other noncurrent assets and liabilities	216		47
Net cash used in operating activities	(4,079)		(24,632)
Cash flows from investing activities:

Sales and maturities of available-for-sale securities	31,315		23,103
Purchases of property and equipment	(2,502)		(3,381)

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

Payments on leases	(240)		(217)
Payment of debt fees	(60)		—
Proceeds from stock option exercises	522		355
Shares repurchased for payment of taxes on stock awards	(5,739)		(10,635)
Net cash used in financing activities	(5,517)		(10,497)
Effect of exchange rate changes on cash and cash equivalents	25		(106)
Net increase (decrease) in cash and cash equivalents	19,242		(15,513)
Cash and cash equivalents—beginning of period	58,099		43,654
Cash and cash equivalents—end of period	$	77,341	$	28,141
Supplemental cash flow information:
Cash paid for interest	$	1,487	$	866
Net cash (received) paid for income taxes	(12)		50
Non-cash investing and financing activities:
Accrued purchases of property and equipment	787		1,558

See accompanying notes to condensed consolidated financial statements.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

1.DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

The accompanying interim financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC. Except as discussed herein, there have been no changes in the Company's significant accounting policies for the three months ended March 31, 2023 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates—The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense. Estimates are based on historical experience, where applicable, and other assumptions believed to be reasonable by management. Actual results could differ from those estimates.

Segments—The Company's chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis, accompanied only by revenue information by product type and geographic area, for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating segment. The Company’s long-lived assets are located in the United States, except for $2,859 as of March 31, 2023 and $1,616 as of December 31, 2022 located primarily in Europe.

Earnings Per Share—Basic and diluted net loss per share are computed by dividing the net loss by the weighted average number of shares of common shares outstanding during the period. Since the Company has experienced net losses for all periods presented, net loss per share excludes the effect of 1,882 and 1,567 shares as of March 31, 2023 and 2022 because they are anti-dilutive. Therefore, the number of shares used for basic and diluted net loss per share are the same.

Share-Based Compensation—The Company recognizes share-based compensation expense for all share-based payment awards, including stock options, restricted stock awards, restricted stock units, performance share awards (PSAs) and stock purchases through an employee stock purchase plan, based on estimated fair values. The value of the portion of an award that is ultimately expected to vest is recognized as expense ratably over the service period. The Company estimated forfeitures at the time of grant and revises them, as necessary, in subsequent periods as actual forfeitures differ from those estimates. Effective January 1, 2023, the Company's policy was amended to account for forfeitures as they occur rather than estimating at the time of grant, and the effect on income from continuing operations and retained earnings is not significant.

2.FAIR VALUE

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

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

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

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

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

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

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


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	72,418	$	—	$	72,418
Commercial paper	—		2,977		—		2,977
Government and agency obligations	33,044		—		—		33,044
Corporate bonds	—		45,865		—		45,865
Asset-backed securities	—		2,194		—		2,194
Total assets	$	33,044	$	123,454	$	—	$	156,498

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

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


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	54,414	$	—	$	54,414
Commercial paper	—		11,935		—		11,935
Government and agency obligations	32,637		—		—		32,637
Corporate bonds	—		67,598		—		67,598
Asset-backed securities	—		2,353		—		2,353
Total assets	$	32,637	$	136,300	$	—	$	168,937

Contingent Consideration. The Company’s contingent consideration arrangements arising from the SentreHEART acquisition obligate the Company to pay certain defined amounts to former shareholders of SentreHEART if specified milestones are met related to the aMAZE™ IDE clinical trial, including pre-market approval (PMA) approval and reimbursement for the therapy involving SentreHEART’s devices. The Company assessed the projected probability of payment during the contractual achievement periods to be remote, resulting in no reported fair value as of March 31, 2023 and December 31, 2022.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

3.INVESTMENTS

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


	Cost Basis		Unrealized Losses		Fair Value
Corporate bonds	$	47,477	$	(1,612)	$	45,865
Government and agency obligations	33,985		(941)		33,044
Commercial paper	2,977		—		2,977
Asset-backed securities	2,298		(104)		2,194
Total	$	86,737	$	(2,657)	$	84,080

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


	Cost Basis		Unrealized Losses		Fair Value
Corporate bonds	$	69,832	$	(2,234)	$	67,598
Government and agency obligations	33,971		(1,334)		32,637
Commercial paper	11,935		—		11,935
Asset-backed securities	2,483		(130)		2,353
Total	$	118,221	$	(3,698)	$	114,523

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

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


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

Instruments not due at a single maturity date consist of asset-backed securities. Actual maturities may differ from the contractual maturities due to call or prepayment rights.

4.INVENTORIES

Inventories consist of the following:


	March 31, 2023		December 31, 2022
Raw materials	$	22,289	$	19,880
Work in process	5,742		2,959
Finished goods	20,817		23,092
Total	$	48,848	$	45,931

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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:


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

Amortization expense of intangible assets was $738 and $972 for the three months ended March 31, 2023 and 2022. Future amortization expense is projected as follows:


2023 (excluding the three months ended March 31, 2023)	$	2,215
2024	2,953
2025	2,953
2026	2,953
2027	2,953
2028 and thereafter	24,574
Total	$	38,601

6.ACCRUED LIABILITIES

Accrued liabilities consist of the following:


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

7.INDEBTEDNESS

Credit Facility. The Company has a Loan and Security Agreement, as amended and modified effective November 1, 2021, (Loan Agreement). Our primary banking relationship in the United States was with Silicon Valley Bank. All deposits and loans of Silicon Valley Bank were purchased by First-Citizens Bank & Trust Company, and our banking relationship is now with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company as of March 31, 2023. The Loan Agreement provides a $60,000 term loan, a $30,000 revolving line of credit, and an option for an additional $30,000 in term loan borrowings. The Loan Agreement has a five year term, expiring November 2026.

Principal payments under the Loan Agreement are to be made ratably commencing 24 months after inception through the loan's maturity date. If the Company meets certain conditions, as specified by the Loan Agreement, the commencement of term loan principal payments may be deferred by an additional twelve months. The term loan accrues interest at the Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. The Company is accruing the 3.00% fee over the term of the Loan Agreement, with $510 included in the outstanding loan balance as of March 31, 2023. Additionally, the unamortized original financing costs related to the term loan of $237 are netted against the outstanding loan balance in the Condensed Consolidated Balance Sheets and are amortized ratably over the term of the Loan Agreement.

The revolving line of credit is subject to an annual facility fee of 0.20%, and any borrowings thereunder bear interest at the Prime Rate. Borrowing availability under the revolving credit facility is based on the lesser of $30,000 or a borrowing base calculation as defined by the Loan Agreement. As of March 31, 2023, the Company had no borrowings under the revolving credit facility and had borrowing availability of $28,750.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

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

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


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

8.LEASES

The Company has operating and finance leases for office, manufacturing and warehouse facilities and equipment. The Company’s leases have remaining lease terms of less than one year to eight years. Options to renew or extend leases beyond their initial term have been excluded from measurement of the ROU assets and lease liabilities as exercise is not reasonably certain.

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


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

Finance Leases
Weighted average remaining lease term (years)	7.4		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 March 31, 2023.

The components of lease expense are as follows:


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

SEC Form 10-Q filed by AtriCure Inc.