What changed in this filing

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Item 1. Financial Statements

2022-05-04 compared with 2021-11-04 · 180 added, 451 removed, 281 unchanged (69% of the section changed)

4 unchanged sentences

(In Thousands, Except Per Share Amounts)

September 30,

2022 December 31,

2 unchanged sentences

Short-term investments 83,256 75,436

Accounts receivable, less allowance for credit losses of $ 1,161 and $ 1,096

Accounts receivable, less allowance for credit losses of $ 1,096

40,878 33,021

2 unchanged sentences

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

Long-term investments 105,097 14,178

Intangible assets, net 42,020 42,992

6 unchanged sentences

Accrued liabilities 25,321 36,092

Other current liabilities and current maturities of debt and leases 4,581 8,417

Current maturities of leases 1,760 1,756

Total current liabilities 47,375 56,445

2 unchanged sentences

Operating lease liabilities 3,865 4,068

Contingent consideration and other noncurrent liabilities 2,282 187,424

Other noncurrent liabilities 1,225 1,220

Total Liabilities 122,158 131,556

3 unchanged sentences

Additional paid-in capital 761,580 764,811

Accumulated other comprehensive (loss) income ( 213 ) 312

Accumulated other comprehensive loss ( 3,465 ) ( 948 )

Accumulated deficit ( 295,336 ) ( 280,153 )

4 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In Thousands, Except Per Share Amounts)

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Revenue $ 74,576 $ 59,275

1 unchanged sentence

Gross profit 55,595 44,540

Operating (benefit) expenses:

Operating expenses:

Research and development expenses 13,629 11,217

Selling, general and administrative expenses 56,116 49,208

Change in fair value of contingent consideration (Note 2) ( 189,900 ) 192 ( 184,800 ) ( 4,854 )

Intangible asset impairment (Note 3) 82,300 — 82,300 —

Total operating (benefit) expenses ( 46,443 ) 44,325 83,137 133,602

Income (loss) from operations 98,669 ( 3,991 ) 67,707 ( 26,730 )

Total operating expenses 69,745 60,425

Loss from operations ( 14,150 ) ( 15,885 )

Other income (expense):

2 unchanged sentences

Other ( 93 ) 54

Income (loss) before income tax expense 97,146 ( 4,953 ) 64,075 ( 29,577 )

Income tax expense (benefit) 38 ( 4 ) 135 16

Net income (loss) $ 97,108 $ ( 4,949 ) $ 63,940 $ ( 29,593 )

Net income (loss) per share

Basic net income (loss) per share $ 2.15 $ ( 0.11 ) $ 1.42 $ ( 0.71 )

Diluted net income (loss) per share $ 2.11 $ ( 0.11 ) $ 1.39 $ ( 0.71 )

Weighted average shares outstanding

Basic 45,258 44,012 44,977 41,442

Diluted 46,100 44,012 45,996 41,442

Comprehensive income (loss):

Unrealized (loss) gain on investments $ ( 14 ) $ ( 85 ) $ ( 177 ) $ 26

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) income ( 126 ) 153 ( 525 ) 215

Net income (loss) 97,108 ( 4,949 ) 63,940 ( 29,593 )

Comprehensive income (loss), net of tax $ 96,982 $ ( 4,796 ) $ 63,415 $ ( 29,378 )

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.

3 unchanged sentences

(In Thousands)

Three-Month Period Ended September 30, 2020

Deficit Accumulated

Comprehensive

Income (Loss)

Stockholders’

Balance—June 30, 2020 44,939 $ 45 $ 723,754 $ ( 306,841 ) $ ( 96 ) $ 416,862

Impact of equity compensation plans 82 — 5,466 — — 5,466

Other comprehensive income — — — — 153 153

Net loss — — — ( 4,949 ) — ( 4,949 )

Balance—September 30, 2020

45,021 $ 45 $ 729,220 $ ( 311,790 ) $ 57 $ 417,532

Three-Month Period Ended September 30, 2021

Deficit Accumulated

Comprehensive

Income (Loss)

Stockholders’

Balance—June 30, 2021 45,881 $ 46 $ 748,644 $ ( 363,520 ) $ ( 87 ) $ 385,083

Impact of equity compensation plans 52 — 6,404 — — 6,404

Other comprehensive loss — — — — ( 126 ) ( 126 )

Net income — — — 97,108 — 97,108

Balance—September 30, 2021

45,933 $ 46 $ 755,048 $ ( 266,412 ) $ ( 213 ) $ 488,469

Nine-Month Period Ended September 30, 2020

Three Months Ended March 31, 2021

Deficit Accumulated

4 unchanged sentences

45,346 $ 45 $ 742,389 $ ( 330,352 ) $ 312 $ 412,394

Issuance of common stock through public offering 4,574 5 188,953 — — 188,958

Impact of equity compensation plans 277 1 ( 3,905 ) — — ( 3,904 )

Other comprehensive income — — — — 215 215

Other comprehensive loss — — — — ( 330 ) ( 330 )

Net loss — — — ( 16,917 ) — ( 16,917 )

Balance—September 30, 2020

Balance—March 31, 2021

45,623 $ 46 $ 738,484 $ ( 347,269 ) $ ( 18 ) $ 391,243

Nine-Month Period Ended September 30, 2021

Three Months Ended March 31, 2022

Deficit Accumulated

6 unchanged sentences

Other comprehensive loss — — — — ( 2,517 ) ( 2,517 )

Net income — — — 63,940 — 63,940

Balance—September 30, 2021

Net loss — — — ( 15,183 ) — ( 15,183 )

Balance—March 31, 2022

46,268 $ 46 $ 761,580 $ ( 295,336 ) $ ( 3,465 ) $ 462,825

4 unchanged sentences

(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

Net income (loss) $ 63,940 $ ( 29,593 )

Adjustments to reconcile net income (loss) to net cash used in 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

5 unchanged sentences

Change in fair value of contingent consideration — 2,500

Intangible asset impairment 82,300 —

Other non-cash adjustments to income 320 254

8 unchanged sentences

Cash flows from investing activities:

Purchases of available-for-sale securities ( 160,577 ) ( 200,795 )

Sales and maturities of available-for-sale securities 23,103 64,913

Purchases of property and equipment ( 3,381 ) ( 1,326 )

Proceeds from capital grant — 800

Net cash provided by (used in) investing activities 22,427 ( 154,218 )

Net cash provided by investing activities 19,722 63,587

Cash flows from financing activities:

Proceeds from sale of stock, net of offering costs of $ 0 and $ 218

Payments on debt and leases ( 2,269 ) ( 468 )

Payments of debt fees — ( 34 )

Proceeds from stock option exercises and employee stock purchase plan 10,020 7,412

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) provided by financing activities ( 10,149 ) 182,939

Net cash used in financing activities ( 10,497 ) ( 10,707 )

Effect of exchange rate changes on cash and cash equivalents ( 106 ) ( 128 )

15 unchanged sentences

and its wholly-owned subsidiaries.

The Company is a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management and sells its products to medical centers globally through its direct sales force and distributors.

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).

5 unchanged sentences

All intercompany accounts and transactions have been eliminated in consolidation.

Reclassification —In the quarter ended September 30, 2021, the Company changed the presentation of its condensed consolidated statement of operations and comprehensive income (loss) to separately disclose the change in contingent consideration, previously reported in selling, general and administrative expenses.

Amounts for comparative prior fiscal periods have been reclassified to conform to the current period presentation.

This reclassification had no impact on previously reported net income or financial position.

Cash and Cash Equivalents —The Company considers highly liquid investments with maturities of three months or less at the date of purchase as cash equivalents.

Cash equivalents include demand deposits, money market funds and repurchase agreements on deposit with financial institutions.

Investments —The Company invests primarily in government and agency obligations, corporate bonds, commercial paper and asset-backed securities and classifies all investments as available-for-sale.

Investments maturing in less than one year are classified as short-term investments.

Investments are recorded at fair value, with unrealized gains and losses recorded as accumulated other comprehensive income (loss).

Gains and losses are recognized using the specific identification method when securities are sold and are included in interest income.

Revenue Recognition— 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.

This generally occurs upon shipment of goods to customers.

See Note 8 for further discussion on revenue.

Sales Returns and Allowances —The Company maintains a provision for potential returns of defective or damaged products and invoice adjustments.

The Company adjusts the provision using the expected value method based on historical experience.

Increases to the provision reduce revenue, and the provision is included in accrued liabilities.

Allowance for Credit Losses on Accounts Receivable —The Company evaluates the expected credit losses on accounts receivable, considering historical credit losses, current customer-specific information and other relevant factors when determining the allowance.

An increase to the allowance for credit losses results in a corresponding increase in selling, general and administrative expenses.

The Company charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed.

The Company’s history of write-offs has not been significant.

Inventories —Inventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method (FIFO) and consist of raw materials, work in process and finished goods.

The Company’s industry is characterized by rapid product development and frequent new product introductions.

Uncertain timing of regulatory approvals, variability in product launch strategies and variation in product use all impact inventory reserves for excess, obsolete and expired products.

An increase to inventory reserves results in a corresponding increase in cost of revenue.

Inventories are written off against the reserve when they are physically disposed.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

Inventories consist of the following:

September 30,

2021 December 31,

Raw materials $ 13,053 $ 11,966

Work in process 3,357 2,424

Finished goods 22,177 20,636

Inventories $ 38,587 $ 35,026

Property and Equipment —Property and equipment is stated at cost less accumulated depreciation.

Depreciation is computed using the straight-line method over the estimated useful lives of assets.

The estimated useful life by major asset category is the following:

Estimated Useful Life

Generators and related equipment 1 - 3 years

Building and building under finance lease 15 - 20 years

Computers, software and office equipment 3 - 5 years

Machinery and equipment 3 - 7 years

Furniture and fixtures 3 - 7 years

Leasehold improvements 5 - 15 years

Equipment under finance leases 3 - 5 years

The Company assesses the useful lives of property and equipment at least annually and retires assets no longer in use.

Maintenance and repair costs are expensed as incurred.

The Company reviews property and equipment for impairment at least annually using its best estimates based on reasonable and supportable assumptions and expected future cash flows.

Property and equipment impairments have not been significant.

The Company’s radiofrequency (RF) and cryo generators are generally placed with customers that use the Company’s disposable products.

The estimated useful lives of generators are based on anticipated usage by customers and may change in future periods with changes in usage or introduction of new technology.

Depreciation of generators and related equipment, which is included in cost of revenue, was $ 532 and $ 613 for the three months ended September 30, 2021 and 2020 and $ 1,735 and $ 1,898 for the nine months ended September 30, 2021 and 2020.

As of September 30, 2021 and December 31, 2020, the net carrying value of generators and related equipment included in net property and equipment was $ 3,609 and $ 3,410 .

Leases — The Company leases office, manufacturing and warehouse facilities and computer equipment under leases that qualify as either financing or operating leases, as determined at the inception of the lease arrangement.

Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease.

Lease assets and liabilities are measured and recorded at the commencement date based on the present value of lease payments over the lease term.

Lease assets and liabilities exclude lease incentives and include options to extend or terminate when it is reasonably certain the Company will exercise that option.

The Company uses the implicit rate when readily determinable;

however, as most leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at measurement.

The Company also applies the short-term lease recognition exemption, recognizing lease payments in profit or loss, for leases that have a lease term of 12 months or less at commencement and do not include an option to extend the lease whose exercise is reasonably certain.

For real estate and equipment leases, the Company accounts for the lease and non-lease components as a single lease component.

Additionally, the portfolio approach is applied for the operating leases based on the terms of the underlying leases.

Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities, while finance leases are included in property and equipment and finance lease liabilities.

The short-term portions of both lease liabilities are included in other current liabilities and current maturities of debt and leases.

Operating lease expense is recognized on a straight-line basis over the lease term.

See Note 6 for further discussion.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

Intangible Assets —Intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated periods benefited.

Intangible assets include In Process Research and Development (IPR&D), representing the value of technology acquired in business combinations that has not yet reached technological feasibility.

The primary basis for determining technological feasibility is obtaining specific regulatory approvals.

IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonment of the IPR&D project.

Upon completion of the development project, IPR&D will be amortized over its estimated useful life.

Due to the nature of IPR&D projects, the Company may experience future delays or failures to obtain regulatory approvals or market clearances, or may discontinue or abandon the project, all which may impact the estimated fair value of the IPR&D project.

As a result, the Company may have a full or partial impairment charge related to the IPR&D, calculated as the excess carrying value of the IPR&D asset over the estimated fair value.

The Company reviews intangible assets at least annually for impairment using its best estimates based on reasonable and supportable assumptions and projections.

The Company performs impairment testing annually on October 1 or more often if impairment indicators are present.

Through April 2021, the IPR&D asset included an estimate of the fair value of the pre-market approval (PMA) that could result from the CONVERGE IDE and aMAZE™ IDE clinical trials.

The Company received PMA approval for CONVERGE on April 28, 2021 and began amortizing the $ 44,021 technology asset over an estimated fifteen year life.

During the third quarter 2021, the Company identified indicators of impairment for the IPR&D asset that represents an estimate of the fair value of the PMA that could result from the aMAZE clinical trial.

As a result of the analysis performed, the Company recorded an impairment loss of $ 82,300 .

See Note 3 for further discussion.

Goodwill— Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations.

The Company’s goodwill is accounted for in a single reporting unit representing the Company as a whole.

The Company performs impairment testing annually on October 1 or more often if impairment indicators are present.

Contingent Consideration and Other Noncurrent Liabilities— This balance consists of contingent consideration from business combinations, as well as deferred payroll taxes as a result of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), asset retirement obligations and other contractual obligations.

The contingent consideration balance is included in noncurrent liabilities as any settlement is expected to be made primarily in shares of the Company’s common stock pursuant to the SentreHEART, Inc.

(SentreHEART) merger agreement.

See Note 2 for further discussion.

Other Income (Expense) —Other income (expense) consists primarily of foreign currency transaction gains and losses generated by settlements of intercompany balances denominated in Euros and customer invoices transacted in British Pounds.

Taxes —Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred income tax assets and liabilities from a change in tax rates is recognized in the period that includes the enactment date.

The Company’s estimate of the valuation allowance for deferred income tax assets requires significant estimates and judgments about future operating results.

Deferred income tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that the deferred income tax asset will not be realized.

Significant weight is given to evidence that can be objectively verified.

The Company evaluates deferred income tax assets on an annual basis to determine if valuation allowances are required.

Deferred income tax assets are realized by having sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable.

The sources of taxable income that may be available to realize the benefit of deferred income tax assets are future taxable income, future reversals of existing taxable temporary differences, carryforwards and tax planning strategies that are both prudent and feasible.

In evaluating the need for a valuation allowance, the existence of cumulative losses in recent years is significant objectively verifiable negative evidence that must be overcome by objectively verifiable positive evidence to avoid the need for a valuation allowance.

The Company has established a full valuation allowance against substantially all net deferred income tax assets as it is more-likely-than-not that the benefit of the deferred income tax assets will not be recognized in future periods.

The Company has not reclassified income tax effects of the Tax Cuts and Jobs Act within accumulated other comprehensive income (loss) to retained earnings due to its full valuation allowance.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

Earnings Per Share —Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share reflects net income available to common stockholders divided by the weighted average number of common shares outstanding during the period and any dilutive common share equivalents, including shares issuable upon the vesting of restricted stock awards and restricted stock units, exercise of stock options as well as shares issuable under the Company's employee stock purchase plan (ESPP).

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net income (loss) available to common stockholders $ 97,108 $ ( 4,949 ) $ 63,940 $ ( 29,593 )

Basic weighted average common shares outstanding 45,258 44,012 44,977 41,442

Effect of dilutive securities 842 — 1,019 —

Diluted weighted average common shares outstanding 46,100 44,012 45,996 41,442

Basic net income (loss) per common share $ 2.15 $ ( 0.11 ) $ 1.42 $ ( 0.71 )

Diluted net income (loss) per common share $ 2.11 $ ( 0.11 ) $ 1.39 $ ( 0.71 )

For the three and nine months ended September 30, 2020, net loss per share excludes the effect of 2,687 shares because the effect would be anti-dilutive.

The computation of diluted earnings per share in the three and nine month periods ended September 30, 2021 excludes 491 and 582 shares because the effect would be anti-dilutive.

Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss) —In addition to net income (loss), the comprehensive income (loss) includes foreign currency translation adjustments and unrealized gains (losses) on investments.

Accumulated other comprehensive income (loss) consisted of the following, net of tax:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Total accumulated other comprehensive income (loss) at beginning of period $ ( 87 ) $ ( 96 ) $ 312 $ ( 158 )

Unrealized Gains (Losses) on Investments

Balance at beginning of period $ ( 109 ) $ 211 $ 54 $ 100

Other comprehensive (loss) income before reclassifications ( 14 ) ( 85 ) ( 177 ) 7

Amounts reclassified from accumulated other comprehensive income (loss) to other income (expense) — — — 19

Balance at end of period $ ( 123 ) $ 126 $ ( 123 ) $ 126

Foreign Currency Translation Adjustment

Balance at beginning of period $ 22 $ ( 307 ) $ 258 $ ( 258 )

Other comprehensive (loss) income before reclassifications ( 293 ) 290 ( 555 ) 177

Amounts reclassified from accumulated other comprehensive income (loss) to other income (expense) 181 ( 52 ) 207 12

Balance at end of period $ ( 90 ) $ ( 69 ) $ ( 90 ) $ ( 69 )

Total accumulated other comprehensive income (loss) at end of period $ ( 213 ) $ 57 $ ( 213 ) $ 57

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

Research and Development Costs —Research and development costs are expensed as incurred.

These costs include compensation and other internal and external costs associated with the development and research of new and existing products or concepts, preclinical studies, clinical trials and related regulatory activities, as well as amortization of technology assets.

Advertising Costs — The Company expenses advertising costs as incurred.

Advertising costs were not significant during the three and nine months ended September 30, 2021 and 2020.

Share-Based Compensation —The Company records share-based compensation for all share-based payment awards, including stock options, restricted stock awards, restricted stock units, performance shares (PSAs) and stock purchases related to an employee stock purchase plan, based on estimated fair values.

The value of the portion of an award that is ultimately expected to vest, net of estimated forfeitures, is recognized as expense over the service period.

The Company estimates forfeitures at the time of grant and revises them, as necessary, in subsequent periods as actual forfeitures differ from those estimates.

The Company recognized share-based compensation expense of $ 6,794 and $ 5,549 for the three months ended September 30, 2021 and 2020 and $ 20,539 and $ 16,126 for the nine months ended September 30, 2021 and 2020.

The Company estimates the fair value of time-based options on the date of grant using the Black-Scholes option-pricing model (Black-Scholes model).

The Company’s determination of the fair value is affected by the Company’s stock price as well as several subjective assumptions, such as the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors.

The Company estimates the fair value of restricted stock awards and restricted stock units based upon the grant date closing market price of the Company’s common stock.

The Company estimates the fair value of PSAs with a performance condition based on the closing stock price on the date of grant assuming the performance goal will be achieved and may adjust expense over the performance period based on changes to estimates of performance target achievement.

If such goals are not met or service is not rendered for the requisite service period, no compensation cost is recognized, and any recognized compensation cost will be reversed.

For PSAs with a market condition, a Monte Carlo simulation is performed to estimate the fair value on the date of grant, and compensation cost is recognized over the requisite service period as the employee renders service, even if the market condition is not satisfied.

The Company’s determination of the fair value is affected by the Company and the peer group’s stock price, as defined by the award agreement, at the beginning of the service period and grant date, the expected volatility of the Company and peer group’s stock price over the performance period and the correlation coefficient of the daily returns for the Company and peer group over the performance period.

The Company also has an employee stock purchase plan (ESPP) which is available to all eligible employees as defined by the plan document.

Under the ESPP, shares of the Company’s common stock may be purchased at a discount.

The Company estimates the number of shares to be purchased under the ESPP at the beginning of each purchase period based upon the fair value of the stock at the beginning of the purchase period using the Black-Scholes model and records estimated compensation expense during the purchase period.

Expense is adjusted at the time of stock purchase.

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.

1 unchanged sentence

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.

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

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

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.

2 unchanged sentences

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

• 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 Company classifies cash and investments in government and agency obligations, accounts receivable, short-term other assets, accounts payable and accrued liabilities as Level 1 within the fair value hierarchy.

The carrying amounts of these assets and liabilities approximate their fair value due to their relatively short-term nature.

Cash equivalents and investments in corporate bonds, commercial paper and asset-backed securities are classified as Level 2 within the fair value hierarchy.

The fair value of fixed term debt is estimated by calculating the net present value of future debt payments at current market interest rates and is classified as Level 2.

The book value of the Company’s fixed term debt approximates its fair value because the interest rate varies with market rates.

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021:

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

11 unchanged sentences

Total assets $ 31,919 $ 147,095 $ — $ 179,014

Contingent consideration $ — $ — $ — $ —

Total liabilities $ — $ — $ — $ —

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, 2021.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2020:

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

12 unchanged sentences

Contingent Consideration.

Total liabilities $ — $ — $ 184,800 $ 184,800

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.

As of December 31, 2020, the terms of the contingent consideration arrangements under the nContact merger agreement expired.

The Company measures contingent consideration liabilities using unobservable inputs by applying the probability-weighted scenario method, an income approach.

Various key assumptions, such as the probability and timing of achievement of the agreed milestones, are significant to the determination of fair value of contingent consideration arrangements and are not observable in the market, thus representing a Level 3 measurement within the fair value hierarchy.

Contingent consideration liabilities are periodically measured, with changes in the estimated fair value reflected in operating expenses.

Changes in the discount rate, projected time until payment and probability of payment may result in materially different fair value measurements.

A decrease in the discount rate would result in a higher fair value measurement, while a decrease in the probability of payment would result in a lower fair value measurement.

Movement in the forecasted timing of achievement to later in the milestone periods would cause a decrease in the fair value measurement.

In July 2021, the Company was informed that data from the aMAZE clinical trial did not achieve statistical superiority.

Specifically, while the trial met the safety endpoint, the trial did not meet the primary efficacy endpoint.

As the contingent consideration arrangements were success-based milestone payments, the fair value of the SentreHEART contingent consideration was remeasured as of September 30, 2021 resulting in a decrease in fair value due to changes in estimates related to both the forecasted timing and probability of achievement of the regulatory and reimbursement milestones.

Specifically, the Company assessed the projected probability of payment during the contractual achievement periods to be remote as of September 30, 2021, resulting in no remaining fair value.

Accordingly, the Company recorded a credit to operating expenses of $ 189,900 in the third quarter 2021, reflecting the change in fair value of the contingent consideration during the three months ended September 30, 2021.

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.

Inventories consist of the following:

2022 December 31,

Raw materials $ 13,709 $ 12,653

Work in process 2,497 2,064

Finished goods 24,556 24,247

Total $ 40,762 $ 38,964

ATRICURE, INC.

2 unchanged sentences

(In Thousands, except per share amounts)

The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration:

Nine Months Ended

September 30, 2021 Twelve Months Ended

December 31, 2020

Beginning Balance $ 184,800 $ 185,157

Amounts acquired — —

Changes in fair value included in earnings ( 184,800 ) ( 357 )

Ending Balance $ — $ 184,800

INTANGIBLE ASSETS

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Estimated Useful Life Cost Accumulated

2 unchanged sentences

$ 55,712 $ 13,692 $ 55,712 $ 12,720

IPR&D — — 126,321 —

Total $ 55,712 $ 13,692 $ 55,712 $ 12,720

Following PMA approval of the EPi-Sense ® System in the second quarter 2021, the related IPR&D asset with a value of $ 44,021 was determined to have a finite useful life.

The intangible asset is now included in technology assets and is amortized over an estimated fifteen year life.

As a result of data from the aMAZE clinical trial not achieving statistical superiority, the Company identified indicators of impairment for the IPR&D asset that represents an estimate of the fair value of the PMA that could result from the aMAZE clinical trial.

During the third quarter 2021, an impairment test was performed using estimates based on reasonable and supportable assumptions and projections of expected future cash flows, and the Company recorded an impairment charge of $ 82,300 , reducing the carrying value of the aMAZE IPR&D asset to $ 0 at September 30, 2021.

This impairment charge is reflected as a component of operating expenses.

Amortization expense of intangible assets with definite lives, which excludes IPR&D assets, was $ 971 and $ 467 for the three months ended September 30, 2021 and 2020 and $ 1,936 and $ 1,444 for the nine months ended September 30, 2021 and 2020.

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:

2021 (excluding the nine months ended September 30, 2021)

2022 (excluding the three months ended March 31, 2022)

2027 and thereafter

Total $ 42,020

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

September 30,

Accrued liabilities consist of the following:

2022 December 31,

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Other accrued liabilities 477 480

Accrued legal settlement 10 6,000

Total $ 25,321 $ 36,092

Credit Facility.

The Company has a Loan and Security Agreement (Loan Agreement) with Silicon Valley Bank (SVB), which includes a $ 60,000 term loan and a $ 20,000 revolving line of credit.

The total combined term loan and revolving line of credit outstanding under the Loan Agreement cannot exceed $ 70,000 at any time prior to SVB’s consent.

The term loan and revolving credit facility both mature or expire, as applicable, on August 1, 2024 .

On February 8, 2021, the Company and SVB entered into an amendment to the Loan Agreement which modified the covenant reporting requirements and allowed the Company to defer the term loan principal payments until September 2021.

The amendment was treated as a debt modification.

Term loan principal payments commenced September 1, 2021.

The term loan accrues interest at the greater of the Prime Rate or 5.00 %, plus 0.75 % and is subject to an additional 3.00 % fee on the $ 60,000 term loan principal payable at maturity or upon acceleration or prepayment of the term loan.

The Company is accruing the 3.00 % fee over the term of the Loan Agreement, with $ 1,020 accrued in the current portion of the outstanding loan balance as of September 30, 2021.

Additionally, the unamortized original financing costs related to the term loan of $ 313 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 0.15 % of the revolving line of credit, and any borrowings thereunder bear interest at the greater of the Prime Rate or 5.00 %.

Borrowing availability under the revolving credit facility is based on the lesser of $ 20,000 or a borrowing base calculation as defined by the Loan Agreement.

As of September 30, 2021, the Company had no borrowings under the revolving credit facility and had borrowing availability of approximately $ 10,000 .

Financing costs related 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.

Effective November 1, 2021, the Company and SVB entered into the Sixth Amendment to the Loan and Security Agreement (Amended Loan and Security Agreement).

The agreement provides for a $ 60,000 term loan, with an option to make available an additional $ 30,000 in term loan borrowings, and a $ 30,000 revolving line of credit.

The Amended Loan and Security 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.

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 revolving line of credit is subject to an annual facility fee of 0.20 %, and any borrowings bear interest at the floating Prime Rate.

The Amended Loan and Security Agreement also provides for certain prepayment and early termination fees, as well as establishes a liquidity covenant, along with other customary terms and conditions similar to those in the Company's current agreement with SVB.

This refinancing has been treated as a debt modification, with the $ 1,667 principal repayment made in October 2021 classified as current, while the remaining borrowings of $ 56,666 have been classified as long-term in the Condensed Consolidated Balance Sheet as of September 30, 2021.

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

ATRICURE, INC.

2 unchanged sentences

(In Thousands, except per share amounts)

Future maturities of long-term debt, excluding the term loan final fee, and after consideration of the refinancing transaction in November 2021, are projected as follows:

2021 (excluding the nine months ended September 30, 2021)

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.

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)

Total long-term debt $ 60,000

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 one year to ten years .

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:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Operating Leases

4 unchanged sentences

Weighted average discount rate 6.92 % 6.91 %

A letter of credit for $ 1,250 was issued to the lessor of the Company's corporate headquarters building in October 2015, which is renewed annually and remains outstanding as of September 30, 2021.

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

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Operating lease cost $ 286 $ 279

3 unchanged sentences

Total finance lease cost $ 358 $ 459

Short term lease expense was not significant for the three and nine months ended September 30, 2021 and 2020.

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

ATRICURE, INC.

3 unchanged sentences

Supplemental cash flow information related to leases was as follows:

Nine Months Ended

September 30, 2021 Nine Months Ended

September 30, 2020

Three Months Ended

March 31, 2022 Three Months Ended

March 31, 2021

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Financing cash flows from finance leases 217 198

Right-of-use assets obtained in exchange for lease obligations:

Operating Leases 1,221 1,691

Finance Leases — —

Early termination of operating lease — 2,473

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:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Operating Leases

Operating lease right-of-use assets $ 4,509 $ 4,761

Other current liabilities and current maturities of debt and leases 1,020 927

Current maturities of leases 845 861

Operating lease liabilities 3,865 4,068

4 unchanged sentences

Property and equipment, net $ 8,322 $ 8,491

Other current liabilities and current maturities of debt and leases $ 874 $ 823

Current maturities of leases $ 915 $ 895

Finance lease liabilities 9,845 10,082

Total finance lease liabilities $ 10,760 $ 10,977

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

Maturities of lease liabilities as of September 30, 2021 were as follows:

Maturities of lease liabilities as of March 31, 2022 were as follows:

Operating Leases Finance Leases

2021 (excluding the nine months ended September 30, 2021)

2022 (excluding the three months ended March 31, 2022)

$ 610 $ 1,223

2 unchanged sentences

2025 920 1,625

2026 592 1,657

2027 and thereafter

2 unchanged sentences

Total $ 4,710 $ 10,760

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

COMMITMENTS AND CONTINGENCIES

Royalty Agreements.

The Company has royalty agreements in place with terms that include payment of royalties of 3 % to 5 % of specified product sales.

One royalty agreement remains in effect through 2025, while the other agreement remains in effect until the later of 2023 or expiration of the underlying patents or patent applications.

Parties to the royalty agreements have the right at any time to terminate the agreement immediately for cause.

Royalty expense of $ 792 and $ 699 was recorded for the three months ended September 30, 2021 and 2020 and $ 2,356 and $ 1,880 for the nine months ended September 30, 2021 and 2020.

The Company has a royalty agreement in place with terms that include payment of royalties of 5 % of specified product sales.

The agreement terminates the later of 2023 or upon expiration of the underlying patents or patent applications, which is expected to occur after 2023.

Parties to the royalty agreement have the right at any time to terminate the agreement immediately for cause.

Royalty expense of $ 794 and $ 722 was recorded as a component of Cost of Revenue in the accompanying Condensed and Consolidated Statement of Operations for the three months ended March 31, 2022 and 2021.

Purchase Agreements.

The Company enters into standard purchase agreements with vendors in the ordinary course of business, generally with terms that allow cancellation.

The Company is committed to funding renovation of a recently purchased building for additional manufacturing capacity.

The Company estimates the cost of the construction project to be approximately $ 5,500 .

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 that can be reasonably estimated.

A liability is established once management determines a loss is probable and an amount can be reasonably estimated.

The Company received a Civil Investigative Demand (CID) from the U.S.

4 unchanged sentences

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 the various state and local governments under the qui tam provisions of federal and certain state and local False Claims Acts.

In March 2021, USDOJ informed the Company that its investigation was based on a lawsuit brought on behalf of the United States and the various state and local government 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.

The Company is vigorously contesting the case, however, 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.

The Company acquired nContact Surgical, Inc.

pursuant to a merger agreement dated October 4, 2015.

The merger agreement provided for contingent consideration or “earnout” to be paid upon attaining specified regulatory approvals and clinical and revenue milestones.

The merger agreement’s earnout provisions required the Company to deliver periodic earnout reports to a designated representative of former nContact stockholders.

In response to the reports delivered in and after February 2018, the Company received letters from representatives purporting to serve as “earnout objection statements” (as that term is defined in the merger agreement) and claim that for purposes of determining the commercial milestone payment, the

While the Company is vigorously 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.

During the first quarter, the Company received a notice of breach under a license agreement regarding its potential underpayment of royalties.

The notice asserts that the Company's calculation of royalties payable under the license agreement throughout the agreement term did not include sales of all products that were subject to royalties.

The Company disputes the basis of the claim and any potential underpayment.

While a loss related to this claim is possible, the Company does not believe such loss is probable or estimable at this time.

The Company develops, manufactures and sells devices designed primarily for the surgical ablation of cardiac tissue, the exclusion of the left atrial appendage, and blocking pain by temporarily ablating peripheral nerves.

These devices are developed and 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.

In the quarter ended March 31, 2022, the Company changed the presentation of its disaggregated revenue within the notes to the Condensed Consolidated Financial Statements to align with current product line offerings.

Specifically, pain management revenue, representing sales of the cryoSPHERE ® product, was historically presented within open ablation revenue and is now a separately stated revenue product type.

Valve revenue, historically presented as a separate product type revenue, is now included in open ablation revenue.

Revenue amounts for comparative prior fiscal periods have been reclassified to conform to the current period presentation.

ATRICURE, INC.

2 unchanged sentences

(In Thousands, except per share amounts)

Company should be including revenues of certain additional items and products that the Company has not included in its earnout statements.

During February 2021, the Company entered into a settlement agreement with the former nContact stockholders requiring payment of $ 6,000 .

The Company recorded the $ 6,000 settlement as a component of current liabilities as of December 31, 2020 as the underlying cause occurred prior to December 31, 2020, and has made substantially all of the settlement payment as of September 30, 2021.

Revenue is generated primarily from the sale of medical devices.

The Company recognizes revenue in an amount that reflects the consideration the Company expects to be entitled to in exchange for those devices when control of promised devices is transferred to customers.

At contract inception, the Company assesses the products promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a product that is distinct.

The Company’s devices are distinct and represent performance obligations.

These performance obligations are satisfied, and revenue is recognized at a point in time upon shipment or delivery of products.

Sales of devices are categorized as follows:

open ablation, minimally invasive ablation, appendage management and valve tools.

Shipping and handling activities performed after control over products transfers to customers are considered activities to fulfill the promise to transfer the products rather than as separate promises to customers.

Products are sold primarily through a direct sales force and through distributors in certain international markets.

Terms of sale are generally consistent for both end-users and distributors except that payment terms are generally net 30 days for end-users and net 60 days for distributors, with some exceptions.

The Company does not maintain any post-shipping obligations to customers.

No installation, calibration or testing of products is performed by the Company subsequent to shipment in order to render products operational.

Significant judgments and estimates involved in the Company’s recognition of revenue include the estimation of a provision for returns.

The Company estimates the provision for sales returns and allowances using the expected value method based on historical experience and other factors that we believe could impact our expected returns, including defective or damaged products and invoice adjustments.

In the normal course of business, the Company generally does not accept product returns unless a product is defective as manufactured.

The Company does not provide customers with the right to a refund.

The Company expects to be entitled to the total consideration for the products ordered by customers as product pricing is fixed according to the terms of customer contracts and payment terms are short.

Payment terms fall within the one-year guidance for the practical expedient which allows the Company to forgo adjustment of the promised amount of consideration for the effects of a significant financing component.

The Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price.

Costs associated with product sales include commissions and royalties.

Considering that product sales are performance obligations in contracts that are satisfied at a point in time, commission expense associated with product sales and royalties paid based on sales of certain products is incurred at that point in time rather than over time.

Therefore, the Company applies the practical expedient and recognizes commissions and royalties as expense when incurred because the expense is incurred at a point in time and the amortization period is less than one year.

Commissions are included in selling expense while royalties are included in cost of revenue.

See Note 11 for disaggregated revenue by geographic area and by product category.

Revenue reclassified by product type for 2021 is as follows:

Three Months Ended

March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021

United States Revenue:

Open ablation $ 17,439 $ 19,503 $ 17,893 $ 17,561

Minimally invasive ablation 8,385 9,702 9,990 11,303

Pain management 3,898 5,709 6,253 6,927

Total ablation 29,722 34,914 34,136 35,791

Appendage management 20,587 25,156 23,401 25,424

Total United States $ 50,309 $ 60,070 $ 57,537 $ 61,215

International Revenue:

Open ablation $ 4,434 $ 5,526 $ 6,690 $ 6,544

Minimally invasive ablation 1,274 1,575 1,849 1,711

Pain management — 11 11 39

Total ablation 5,708 7,112 8,550 8,294

Appendage management 3,258 4,194 4,373 3,709

Total International $ 8,966 $ 11,306 $ 12,923 $ 12,003

Total revenue $ 59,275 $ 71,376 $ 70,460 $ 73,218

United States revenue by product type is as follows:

Three Months Ended

Open ablation $ 18,974 $ 17,439

Minimally invasive ablation 8,615 8,385

Pain management 8,014 3,898

Total ablation $ 35,603 $ 29,722

Appendage management 26,669 20,587

Total United States $ 62,272 $ 50,309

International revenue by product type is as follows:

Three Months Ended

Open ablation $ 6,492 $ 4,434

Minimally invasive ablation 1,533 1,274

Pain management 140 —

Total ablation $ 8,165 $ 5,708

Appendage management 4,139 3,258

Total International $ 12,304 $ 8,966

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

Revenue attributed to customer geographic locations is as follows:

Three Months Ended

United States $ 62,272 $ 50,309

Europe 7,237 5,766

Asia 4,557 2,873

Other International 510 327

Total International 12,304 8,966

Total revenue $ 74,576 $ 59,275

INCOME TAX PROVISION

4 unchanged sentences

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, 2021 and 2020 was 0.04 % and 0.08 %.

The effective tax rate for the nine months ended September 30, 2021 and 2020 was 0.21 % and ( 0.05 %) The Company’s worldwide effective tax rate differs from the US statutory rate of 21% primarily due to the Company’s valuation allowance in the United States and Netherlands.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

The effective tax rate for the three months ended March 31, 2022 and 2021 was ( 0.37 %) and ( 0.18 %).

The Company’s worldwide effective tax rate differs from the US statutory rate of 21% primarily due to the Company’s valuation allowance.

Federal, state and local returns of the Company are routinely subject to review by various taxing authorities.

5 unchanged sentences

Stock Incentive Plan

Under the 2014 Plan, the Board of Directors may grant incentive stock options to Company employees and may grant restricted stock awards or restricted stock units (collectively RSAs), nonstatutory stock options, performance share awards (PSAs) or stock appreciation rights to Company employees, directors and consultants.

Under the 2014 Plan, the Board of Directors may grant incentive stock options to Company employees and may grant restricted stock awards, restricted stock units, nonstatutory stock options, performance share awards and stock appreciation rights to Company employees, directors and consultants.

The Compensation Committee of the Board of Directors, as the administrator of the 2014 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, 2021, 12,899 shares of common stock had been reserved for issuance under the 2014 Plan, and 1,471 shares were available for future grants.

Stock options, restricted stock awards and restricted stock units granted generally vest at a rate of 33.3 % on the first, second and third anniversaries of the grant date.

Stock options generally expire ten years from the date of grant.

The award agreements for the PSAs provide that each PSA that vests represents the right to receive one share of the Company’s common stock at the end of the performance period.

With respect to the PSAs, the number of shares that vest and are issued to the recipient is based upon the Company’s performance with respect to specified targets at the end of the three year performance period.

Payout opportunities range from 0 % to 100 % of the target amount for awards granted prior to 2021, while awards granted in 2021 have payout opportunities ranging from 0 % to 200 % of the target amount.

These ranges are used to calculate the number of shares that will be issuable when the award vests.

All or a portion of the PSAs may vest following a change of control or a termination of service by reason of death or disability.

PSAs granted prior to 2021 have performance targets based on the Company’s revenue compound annual growth rate (CAGR) over the three year performance period.

PSAs granted in 2021 have two equally weighted performance targets measured at the end of the three year performance period:

(i) the Company’s revenue CAGR;

and (ii) relative total shareholder return (TSR).

TSR is measured against the Nasdaq Health Care Index constituents and the 20 -trading-day average stock price prior to the end of the performance period over the 20 - trading-day average stock price prior to the beginning of the performance period.

The performance and market condition payouts will be determined independently and accumulated to determine the total payout for the three year performance period, subject to the maximum payout defined in the PSA agreements.

As of March 31, 2022, 12,899 shares of common stock had been reserved for issuance under the 2014 Plan, and 1,152 shares were available for future grants.

Employee Stock Purchase Plan

Under the ESPP, shares of the Company’s common stock may be purchased at a discount ( 15 %) of the lesser of the closing price of the Company’s common stock on the first trading day or the last trading day of the offering period.

Under the ESPP, shares of the Company’s common stock may be purchased at a discount ( 15 %) of the lesser of the closing price of the Company’s common stock on the first or last trading days of the offering period.

The offering period (currently six months ) and the offering price are subject to change.

Participants may not purchase a value of more than $ 25 of the Company’s common stock in a calendar year and may not purchase a value of more than 3 shares during an offering period.

As of September 30, 2021, there were 338 shares available for future issuance under the ESPP.

Participants may not purchase a value of more than $ 25 of the Company’s common stock in a calendar year and may not purchase more than 3 shares during an offering period.

As of March 31, 2022, there were 305 shares available for future issuance under the ESPP.

ATRICURE, INC.

2 unchanged sentences

(In Thousands, except per share amounts)

Expense Information Under FASB ASC 718

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,

2021 2020 2021 2020

Cost of revenue $ 571 $ 419

2 unchanged sentences

Total $ 7,049 $ 6,604

SEGMENT AND GEOGRAPHIC INFORMATION

The Company develops, manufactures, and sells devices designed primarily for the surgical ablation of cardiac tissue, systems designed for the exclusion of the left atrial appendage, and devices designed to block pain by temporarily ablating peripheral nerves.

These devices are developed and marketed to a broad base of medical centers globally.

Management considers all such sales to be part of a single operating segment.

Revenue attributed to customer geographic locations is as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

United States $ 57,537 $ 44,701 $ 167,916 $ 121,838

Europe 7,770 6,514 20,551 16,775

Asia 4,734 3,196 11,695 9,367

Other international 419 346 949 826

Total international 12,923 10,056 33,195 26,968

Total revenue $ 70,460 $ 54,757 $ 201,111 $ 148,806

United States revenue by product type is as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Open ablation $ 23,779 $ 19,911 $ 69,693 $ 54,679

Minimally invasive ablation 9,990 6,979 28,077 18,295

Appendage management 23,401 17,430 69,144 47,870

Total ablation and appendage management 57,170 44,320 166,914 120,844

Valve tools 367 381 1,002 994

Total United States $ 57,537 $ 44,701 $ 167,916 $ 121,838

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

International revenue by product type is as follows:

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,

2021 2020 2021 2020

Open ablation $ 6,699 $ 4,907 $ 16,629 $ 13,766

Minimally invasive ablation 1,849 1,692 4,698 4,346

Appendage management 4,373 3,445 11,825 8,778

Total ablation and appendage management 12,921 10,044 33,152 26,890

Valve tools 2 12 43 78

Total international $ 12,923 $ 10,056 $ 33,195 $ 26,968

The Company’s long-lived assets are located primarily in the United States, except for $ 1,415 as of September 30, 2021 and $ 1,693 as of December 31, 2020 located primarily in Europe.

Total accumulated other comprehensive (loss) income at beginning of period $ ( 948 ) $ 312

Unrealized Gains (Losses) on Investments

Balance at beginning of period $ ( 887 ) $ 54

Other comprehensive loss before reclassifications ( 2,339 ) ( 31 )

Amounts reclassified from accumulated other comprehensive loss to other income (expense) — —

Balance at end of period $ ( 3,226 ) $ 23

Foreign Currency Translation Adjustment

Balance at beginning of period $ ( 61 ) $ 258

Other comprehensive loss before reclassifications ( 261 ) ( 298 )

Amounts reclassified from accumulated other comprehensive loss to other income (expense) 83 ( 1 )

Balance at end of period $ ( 239 ) $ ( 41 )

Total accumulated other comprehensive loss at end of period $ ( 3,465 ) $ ( 18 )

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements