atrc-20220331

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, 2022

¨ 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 May 2, 2022
Common Stock, $.001 par value			46,287,944

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II. OTHER INFORMATION		21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 6.	Exhibits	21
Signatures		22

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, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	28,141	$	43,654
Short-term investments	83,256		75,436
Accounts receivable, less allowance for credit losses of $1,096	40,878		33,021
Inventories	40,762		38,964
Prepaid and other current assets	6,570		5,001
Total current assets	199,607		196,076
Long-term investments	70,514		104,338
Property and equipment, net	32,867		31,409
Operating lease right-of-use assets	4,509		4,761
Intangible assets, net	42,020		42,992
Goodwill	234,781		234,781
Other noncurrent assets	685		955
Total Assets	$	584,983	$	615,312
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	20,294	$	18,597
Accrued liabilities	25,321		36,092
Current maturities of leases	1,760		1,756
Total current liabilities	47,375		56,445
Long-term debt	59,848		59,741
Finance lease liabilities	9,845		10,082
Operating lease liabilities	3,865		4,068
Other noncurrent liabilities	1,225		1,220
Total Liabilities	122,158		131,556
Commitments and contingencies (Note 8)
Stockholders’ Equity:
Common stock, $0.001 par value, 90,000 shares authorized and 46,268 and 46,016 issued and outstanding	46		46
Additional paid-in capital	761,580		764,811
Accumulated other comprehensive loss	(3,465)		(948)
Accumulated deficit	(295,336)		(280,153)
Total Stockholders’ Equity	462,825		483,756
Total Liabilities and Stockholders’ Equity	$	584,983	$	615,312

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,
		2022		2021
Revenue		$	74,576	$	59,275
Cost of revenue		18,981		14,735
Gross profit		55,595		44,540
Operating expenses:
Research and development expenses		13,629		11,217
Selling, general and administrative expenses		56,116		49,208


Total operating expenses		69,745		60,425
Loss from operations		(14,150)		(15,885)
Other income (expense):
Interest expense		(1,000)		(1,189)
Interest income		116		134
Other		(93)		54
Loss before income tax expense		(15,127)		(16,886)
Income tax expense		56		31
Net loss		$	(15,183)	$	(16,917)

Basic and diluted net loss per share		$	(0.33)	$	(0.38)

Weighted average shares outstanding—basic and diluted		45,528		44,632


Comprehensive loss:
Unrealized loss on investments		$	(2,339)	$	(31)
Foreign currency translation adjustment		(178)		(299)
Other comprehensive loss		(2,517)		(330)
Net loss		(15,183)		(16,917)
Comprehensive loss, net of tax		$	(17,700)	$	(17,247)

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 Months Ended March 31, 2021
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance—December 31, 2020	45,346	$	45	$	742,389	$	(330,352)	$	312	$	412,394

Impact of equity compensation plans	277	1		(3,905)		—		—		(3,904)
Other comprehensive loss	—	—		—		—		(330)		(330)
Net loss	—	—		—		(16,917)		—		(16,917)
Balance—March 31, 2021	45,623	$	46	$	738,484	$	(347,269)	$	(18)	$	391,243

	Three Months 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

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,
	2022		2021
Cash flows from operating activities:
Net loss	$	(15,183)	$	(16,917)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense	7,049		6,604
Depreciation	1,895		1,884
Amortization of intangible assets	972		238
Amortization of deferred financing costs	128		124
Loss on disposal of property and equipment	18		17
Amortization of investments	559		555
Change in fair value of contingent consideration	—		2,500

Other non-cash adjustments to income	320		254
Changes in operating assets and liabilities:
Accounts receivable	(7,950)		(6,696)
Inventories	(1,934)		(1,264)
Other current assets	(1,581)		(891)
Accounts payable	1,729		2,835
Accrued liabilities	(10,701)		1,799
Other noncurrent assets and liabilities	47		(358)
Net cash used in operating activities	(24,632)		(9,316)
Cash flows from investing activities:

Sales and maturities of available-for-sale securities	23,103		64,913
Purchases of property and equipment	(3,381)		(1,326)

Net cash provided by investing activities	19,722		63,587
Cash flows from financing activities:

Payments on leases	(217)		(198)

Proceeds from stock option exercises	355		4,588
Shares repurchased for payment of taxes on stock awards	(10,635)		(15,097)
Net cash used in financing activities	(10,497)		(10,707)
Effect of exchange rate changes on cash and cash equivalents	(106)		(128)
Net (decrease) increase in cash and cash equivalents	(15,513)		43,436
Cash and cash equivalents—beginning of period	43,654		41,944
Cash and cash equivalents—end of period	$	28,141	$	85,380
Supplemental cash flow information:
Cash paid for interest	$	866	$	1,066
Cash paid for income taxes, net of refunds	50		47
Non-cash investing and financing activities:
Accrued purchases of property and equipment	1,558		239

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). 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, 2021 filed with the SEC. All intercompany accounts and transactions have been eliminated in consolidation.

There have been no changes in the Company's significant accounting policies for the three months ended March 31, 2022 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.

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 during the reporting period. 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 chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied only by information about revenue by product type and geographic area, for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating segment. The Company’s long-lived assets are located primarily in the United States, except for $1,321 as of March 31, 2022 and $1,399 as of December 31, 2021 located primarily in Europe.

Net Loss Per Share—Basic and diluted net loss per share is 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 1,567 and 1,955 stock options, restricted shares, restricted stock units and performance award shares as of March 31, 2022 and 2021 because they are anti-dilutive. Therefore, the number of shares calculated for basic net loss per share is also used for the diluted net loss per share calculation.

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 transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

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

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

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

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

The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of March 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	$	—	$	25,244	$	—	$	25,244
Commercial paper	—		22,989		—		22,989
Government and agency obligations	31,919		—		—		31,919
Corporate bonds	—		84,059		—		84,059
Asset-backed securities	—		14,803		—		14,803
Total assets	$	31,919	$	147,095	$	—	$	179,014

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three months ended March 31, 2022.

The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2021:


	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	$	—	$	38,360	$	—	$	38,360
Commercial paper	—		22,978		—		22,978
Government and agency obligations	32,690		—		—		32,690
Corporate bonds	—		95,845		—		95,845
Asset-backed securities	—		28,261		—		28,261
Total assets	$	32,690	$	185,444	$	—	$	218,134

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 PMA approval and reimbursement for the therapy involving SentreHEART’s devices. The Company has assessed the projected probability of payment during the contractual achievement periods to be remote, resulting in no remaining fair value as of March 31, 2022 and December 31, 2021.

3.INVENTORIES

Inventories consist of the following:


	March 31, 2022		December 31, 2021
Raw materials	$	13,709	$	12,653
Work in process	2,497		2,064
Finished goods	24,556		24,247
Total	$	40,762	$	38,964

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

4.INTANGIBLE ASSETS

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


		March 31, 2022				December 31, 2021
	Estimated Useful Life	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Technology	10 - 15 years	$	55,712	$	13,692	$	55,712	$	12,720
Total		$	55,712	$	13,692	$	55,712	$	12,720

Amortization expense of intangible assets was $972 and $238 for the three months ended March 31, 2022 and 2021. Future amortization expense is projected as follows:


2022 (excluding the three months ended March 31, 2022)	$	2,681
2023	2,953
2024	2,953
2025	2,953
2026	2,953
2027 and thereafter	27,527
Total	$	42,020

5.ACCRUED LIABILITIES

Accrued liabilities consist of the following:


	March 31, 2022		December 31, 2021
Accrued compensation and employee-related expenses	$	20,305	$	30,990
Sales returns and allowances	2,173		2,416
Accrued taxes and value-added taxes payable	1,592		1,452
Accrued royalties	774		754
Other accrued liabilities	477		480
Total	$	25,321	$	36,092

6.INDEBTEDNESS

Credit Facility. The Company has a Loan and Security Agreement, as amended and modified effective November 1, 2021 (Loan Agreement) with Silicon Valley Bank (SVB). The Loan Agreement includes 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 under the Loan Agreement are to be made ratably commencing 24 months after inception 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. The Company is accruing the 3.00% fee over the term of the Loan Agreement, with $150 included in the outstanding loan balance as of March 31, 2022. Additionally, the unamortized original financing costs related to the term loan of $302 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% of the revolving line of credit, 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, 2022, the Company had no borrowings under the revolving credit facility and had borrowing availability of approximately $28,750. Financing costs related

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

to the revolving line of credit are included in other assets in the Condensed Consolidated Balance Sheets and amortized ratably over the twelve-month period of the annual fee.

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

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


2022 (excluding the three months ended March 31, 2022)	$	—
2023	3,333
2024	20,000
2025	20,000
2026	16,667
Total long-term debt	$	60,000

7.LEASES

The Company has operating and finance leases for offices, manufacturing and warehouse facilities and computer equipment. The Company’s leases have remaining lease terms of less than one year to nine years. Options to renew or extend leases beyond their initial term have been excluded from measurement of the ROU assets and lease liabilities for the majority of leases 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, 2022		December 31, 2021
Operating Leases
Weighted average remaining lease term (years)	5.0		3.6
Weighted average discount rate	4.69	%	4.69	%

Finance leases
Weighted average remaining lease term (years)	8.4		8.6
Weighted average discount rate	6.92	%	6.91	%

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, 2022.

The components of lease expense are as follows:


	Three Months Ended March 31,
	2022		2021
Operating lease cost	$	286	$	279

Finance lease cost:
Amortization of right-of-use assets	169		256
Interest on lease liabilities	189		203
Total finance lease cost	$	358	$	459

Short-term lease expense was not significant for the three months ended March 31, 2022 and 2021.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

(Unaudited)

Supplemental cash flow information related to leases was as follows:


	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	251	$	331
Operating cash flows from finance leases	189		203
Financing cash flows from finance leases	217		198

No right-of-use assets were obtained in exchange for lease obligations during the three months ended March 31, 2022 and 2021.

Supplemental balance sheet information related to leases was as follows:


	March 31, 2022		December 31, 2021
Operating Leases
Operating lease right-of-use assets	$	4,509	$	4,761

Current maturities of leases	845		861
Operating lease liabilities	3,865

SEC Form 10-Q filed by AtriCure Inc.