AtriCure, Inc. 10-Q

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. 3 Table of Contents ATRICURE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In Thousands, Except Per Share Amounts) (Unaudited) Three Months Ended 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. 4 Table of Contents 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. 5 Table of Contents 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. 6 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business —The “Company” or “AtriCure” consists of AtriCure, Inc. and its wholly-owned subsidiaries. The Company is a leading innovator in surgical treatments and therapies for atrial fibrillation (Afib), left atrial appendage (LAA) management and post-operative pain management and sells its products to medical centers globally through its direct sales force and distributors. Basis of Presentation —The accompanying interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). 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. 7 Table of Contents 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 8 Table of Contents 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 9 Table of Contents 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. 10 Table of Contents 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 4,068 Total operating lease liabilities $ 4,710 $ 4,929 Finance Leases Property and equipment, at cost $ 14,607 $ 14,607 Accumulated depreciation ( 6,285 ) ( 6,116 ) Property and equipment, net $ 8,322 $ 8,491 Current maturities of leases $ 915 $ 895 Finance lease liabilities 9,845 10,082 Total finance lease liabilities $ 10,760 $ 10,977 Maturities of lease liabilities as of March 31, 2022 were as follows: Operating Leases Finance Leases 2022 (excluding the three months ended March 31, 2022) $ 610 $ 1,223 2023 1,160 1,652 2024 1,164 1,674 2025 920 1,625 2026 592 1,657 2027 and thereafter 868 6,515 Total payments $ 5,314 $ 14,346 Less imputed interest ( 604 ) ( 3,586 ) Total $ 4,710 $ 10,760 11 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) 8. COMMITMENTS AND CONTINGENCIES Royalty Agreements. 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. Legal. The Company may, from time to time, become a party to legal proceedings. Such matters are subject to many uncertainties and to outcomes of which the financial impacts are not predictable with assurance and that may not be known for extended periods of time. A liability is established once management determines a loss is probable and an amount can be reasonably estimated. The Company received a Civil Investigative Demand (CID) from the U.S. Department of Justice (USDOJ) in December 2017 stating that it is investigating the Company to determine whether the Company has violated the False Claims Act, relating to the promotion of certain medical devices related to the treatment of atrial fibrillation for off-label use and submitted or caused to be submitted false claims to certain federal and state health care programs for medically unnecessary healthcare services related to the treatment of atrial fibrillation. The CID covers the period from January 2010 to December 2017 and required the production of documents and answers to written interrogatories. The Company had no knowledge of the investigation prior to receipt of the CID. The Company maintains rigorous policies and procedures to promote compliance with the False Claims Act and other applicable regulatory requirements. The Company provided the USDOJ with documents and answers to the written interrogatories. In March 2021, USDOJ informed the Company that its investigation was based on a lawsuit brought on behalf of the United States and 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. 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. 9. REVENUE 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. 12 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) 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 March 31, 2022 2021 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 March 31, 2022 2021 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 13 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) Revenue attributed to customer geographic locations is as follows: Three Months Ended March 31, 2022 2021 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 10. INCOME TAX PROVISION The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company uses the asset and liability method to determine its provision for income taxes. The Company’s provision for income taxes in interim periods is computed by applying the discrete method and is based on financial results through the end of the interim period. The Company determined that using the discrete method is more appropriate than using the annual effective tax rate method. The Company is unable to estimate the annual effective tax rate with sufficient precision to use the effective tax rate method, which requires a full-year projection of income. The effective tax rate for the three months ended 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. The Company has not accrued any interest and penalties related to unrecognized income tax benefits as a result of offsetting of net operating losses. However, if required, the Company will recognize interest and penalties within income tax expense and within the related tax liability. 11. EQUITY COMPENSATION PLANS The Company has two share-based incentive plans: the 2014 Stock Incentive Plan (2014 Plan) and the 2019 Employee Stock Purchase Plan (ESPP). 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, 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 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 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 more than 3 shares during an offering period. As of March 31, 2022, there were 305 shares available for future issuance under the ESPP. 14 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) Share-Based Compensation Expense Information The following table summarizes the allocation of share-based compensation expense: Three Months Ended March 31, 2022 2021 Cost of revenue $ 571 $ 419 Research and development expenses 1,130 937 Selling, general and administrative expenses 5,348 5,248 Total $ 7,049 $ 6,604 12. 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 March 31, 2022 2021 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 ) 15 Table of Contents