atrc-20230930

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

¨ 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 ☒ 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
Common Stock, $.001 par value			47,395,082

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended Septe mber 30, 2023 and 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II. OTHER INFORMATION		23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 5.	Other Information	23
Item 6.	Exhibits	24
Signatures		25

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
Assets
Current assets:
Cash and cash equivalents	$	80,598	$	58,099
Short-term investments	52,416		63,014
Accounts receivable, less allowance for credit losses of $300 and $230	51,528		42,693
Inventories	61,894		45,931
Prepaid and other current assets	6,283		5,477
Total current assets	252,719		215,214
Long-term investments	—		51,509
Property and equipment, net	41,400		38,833
Operating lease right-of-use assets	4,043		3,787
Intangible assets, net	65,684		39,339
Goodwill	234,781		234,781
Other noncurrent assets	1,644		1,985
Total assets	$	600,271	$	585,448
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	24,542	$	19,898
Accrued liabilities	37,294		33,022
Current maturities of debt and leases	20,702		5,472
Total current liabilities	82,538		58,392
Long-term debt	42,153		56,834
Finance lease liabilities	8,340		9,147
Operating lease liabilities	3,180		3,095
Other noncurrent liabilities	1,227		1,226
Total liabilities	137,438		128,694
Commitments and contingencies (Note 9)
Stockholders’ Equity:
Common stock, $0.001 par value, 90,000 shares authorized and 47,392 and 46,563 issued and outstanding	47		47
Additional paid-in capital	812,238		787,422
Accumulated other comprehensive loss	(2,184)		(4,096)
Accumulated deficit	(347,268)		(326,619)
Total stockholders’ equity	462,833		456,754
Total liabilities and stockholders’ equity	$	600,271	$	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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	98,290	$	83,246	$	292,702	$	242,351
Cost of revenue	24,421		21,533		72,147		61,524
Gross profit	73,869		61,713		220,555		180,827
Operating expenses:
Research and development expenses	20,354		15,169		53,119		43,589
Selling, general and administrative expenses	61,604		57,267		185,451		175,771
Total operating expenses	81,958		72,436		238,570		219,360
Loss from operations	(8,089)		(10,723)		(18,015)		(38,533)
Other income (expense):
Interest expense	(1,772)		(1,324)		(5,127)		(3,425)
Interest income	915		370		2,751		562
Other	(62)		(549)		(40)		(753)
Loss before income tax expense	(9,008)		(12,226)		(20,431)		(42,149)
Income tax expense	47		46		218		147
Net loss	$	(9,055)	$	(12,272)	$	(20,649)	$	(42,296)

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


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

Comprehensive income (loss):
Unrealized gain (loss) on investments	$	701	$	(691)	$	2,169	$	(3,479)
Foreign currency translation adjustment	(276)		(260)		(257)		(868)
Other comprehensive income (loss)	425		(951)		1,912		(4,347)
Net loss	(9,055)		(12,272)		(20,649)		(42,296)
Comprehensive loss, net of tax	$	(8,630)	$	(13,223)	$	(18,737)	$	(46,643)

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

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)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(20,649)	$	(42,296)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Share-based compensation expense	26,416		21,574
Depreciation	6,979		5,877
Amortization of intangible assets	3,655		2,914
Amortization of deferred financing costs	364		383
Amortization of investments	461		1,272
Other non-cash adjustments	972		1,458
Changes in operating assets and liabilities:
Accounts receivable	(8,940)		(8,985)
Inventories	(16,037)		(5,710)
Other current assets	(828)		699
Accounts payable	4,147		5,675
Accrued liabilities	4,314		(4,606)
Other noncurrent assets and liabilities	(400)		(442)
Net cash provided by (used in) operating activities	454		(22,187)
Cash flows from investing activities:
Purchases of available-for-sale securities	—		(24,637)
Sales and maturities of available-for-sale securities	63,815		74,351
Purchases of property and equipment	(9,212)		(12,710)
Acquisition of intellectual property	(30,000)		—

Net cash provided by investing activities	24,603		37,004
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
Shares repurchased for payment of taxes on stock awards	(6,473)		(12,136)
Net cash used in financing activities	(2,391)		(9,041)
Effect of exchange rate changes on cash and cash equivalents	(167)		(607)
Net increase in cash and cash equivalents	22,499		5,169
Cash and cash equivalents—beginning of period	58,099		43,654
Cash and cash equivalents—end of period	$	80,598	$	48,823
Supplemental cash flow information:
Cash paid for interest	$	4,716	$	2,926
Net cash paid for income taxes	228		135
Non-cash investing and financing activities:
Accrued purchases of property and equipment	714		1,917

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 nine months ended September 30, 2023 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates—The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including inventories, intangible assets, valuation allowance for deferred income tax assets, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense, including share-based compensation expense. Estimates are based on historical experience, where applicable, and other 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 as of September 30, 2023 and $1,616 as of December 31, 2022 located primarily in Europe.

Earnings Per Share—Basic and diluted net loss per share are computed by dividing the net loss by the weighted average number of 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 and 1,472 shares as of September 30, 2023 and 2022 because they are anti-dilutive. Therefore, the number of shares used for basic and diluted net loss per share are the same.

Share-Based Compensation—The Company recognizes share-based compensation expense for all share-based payment awards, including stock options, restricted stock awards, restricted stock units, performance share awards (PSAs) and stock purchases through an employee stock purchase plan, based on estimated fair values. The value of the portion of an award that is ultimately expected to vest is recognized as expense ratably over the service period. 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.

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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.

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:


	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	$	—	$	76,501	$	—	$	76,501

Government and agency obligations	12,531		—		—		12,531
Corporate bonds	—		37,674		—		37,674
Asset-backed securities	—		2,211		—		2,211
Total assets	$	12,531	$	116,386	$	—	$	128,917

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.

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

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

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

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


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


Instruments not due at a single maturity date	2,275		2,211
Total	$	53,945	$	52,416

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
Raw materials	$	30,086	$	19,880
Work in process	4,327		2,959
Finished goods	27,481		23,092
Total	$	61,894	$	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:


	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.

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
Cost of revenues	$	960	$	—	$	1,440	$	—
Selling, general and administrative expenses	739		971		2,215		2,914
Total	$	1,699	$	971	$	3,655	$	2,914

Future amortization expense is projected as follows:


2023 (excluding the nine months ended September 30, 2023)	$	1,698
2024	7,453
2025	8,353
2026	9,553
2027	10,453
2028 and thereafter	28,174
Total	$	65,684

6.ACCRUED LIABILITIES

Accrued liabilities consist of the following:


	September 30, 2023		December 31, 2022
Accrued compensation and employee-related expenses	$	32,288	$	26,924
Sales returns and allowances	2,870		2,797
Other accrued liabilities	2,136

SEC Form 10-Q filed by AtriCure Inc.