AtriCure, Inc. 10-Q

Item 1. Financial Statements ATRICURE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Per Share Amounts) (Unaudited) June 30, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 54,556 $ 43,654 Short-term investments 63,898 75,436 Accounts receivable, less allowance for credit losses of $ 1,096 41,488 33,021 Inventories 41,292 38,964 Prepaid and other current assets 4,932 5,001 Total current assets 206,166 196,076 Long-term investments 64,295 104,338 Property and equipment, net 36,053 31,409 Operating lease right-of-use assets 4,241 4,761 Intangible assets, net 41,049 42,992 Goodwill 234,781 234,781 Other noncurrent assets 804 955 Total Assets $ 587,389 $ 615,312 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 23,721 $ 18,597 Accrued liabilities 30,775 36,092 Current maturities of leases 1,820 1,756 Total current liabilities 56,316 56,445 Long-term debt 59,954 59,741 Finance lease liabilities 9,603 10,082 Operating lease liabilities 3,591 4,068 Other noncurrent liabilities 1,215 1,220 Total Liabilities 130,679 131,556 Commitments and contingencies (Note 8) Stockholders’ Equity: Common stock, $ 0.001 par value, 90,000 shares authorized and 46,423 and 46,016 issued and outstanding 46 46 Additional paid-in capital 771,185 764,811 Accumulated other comprehensive loss ( 4,344 ) ( 948 ) Accumulated deficit ( 310,177 ) ( 280,153 ) Total Stockholders’ Equity 456,710 483,756 Total Liabilities and Stockholders’ Equity $ 587,389 $ 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 June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue $ 84,529 $ 71,376 $ 159,105 $ 130,651 Cost of revenue 21,010 $ 17,298 39,991 32,033 Gross profit 63,519 $ 54,078 119,114 98,618 Operating expenses: Research and development expenses 14,791 12,197 28,420 23,414 Selling, general and administrative expenses 62,388 56,958 118,504 106,166 Total operating expenses 77,179 69,155 146,924 129,580 Loss from operations ( 13,660 ) ( 15,077 ) ( 27,810 ) ( 30,962 ) Other income (expense): Interest expense ( 1,101 ) ( 1,197 ) ( 2,101 ) ( 2,386 ) Interest income 76 103 192 237 Other ( 111 ) ( 14 ) ( 204 ) 40 Loss before income tax expense ( 14,796 ) ( 16,185 ) ( 29,923 ) ( 33,071 ) Income tax expense 45 66 101 97 Net loss $ ( 14,841 ) $ ( 16,251 ) $ ( 30,024 ) $ ( 33,168 ) Basic and diluted net loss per share $ ( 0.32 ) $ ( 0.36 ) $ ( 0.66 ) $ ( 0.74 ) Weighted average shares outstanding—basic and diluted 45,692 45,035 45,610 44,834 Comprehensive loss: Unrealized loss on investments $ ( 449 ) $ ( 132 ) $ ( 2,788 ) $ ( 163 ) Foreign currency translation adjustment ( 430 ) 63 ( 608 ) ( 236 ) Other comprehensive loss ( 879 ) ( 69 ) ( 3,396 ) ( 399 ) Net loss ( 14,841 ) ( 16,251 ) ( 30,024 ) ( 33,168 ) Comprehensive loss, net of tax $ ( 15,720 ) $ ( 16,320 ) $ ( 33,420 ) $ ( 33,567 ) 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-Month Period Ended June 30, 2021 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance—March 31, 2021 45,623 $ 46 $ 738,484 $ ( 347,269 ) $ ( 18 ) $ 391,243 Impact of equity compensation plans 258 — 10,160 — — 10,160 Other comprehensive loss — — — — ( 69 ) ( 69 ) Net loss — — — ( 16,251 ) — ( 16,251 ) Balance—June 30, 2021 45,881 $ 46 $ 748,644 $ ( 363,520 ) $ ( 87 ) $ 385,083 Three-Month Period Ended June 30, 2022 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance—March 31, 2022 46,268 $ 46 $ 761,580 $ ( 295,336 ) $ ( 3,465 ) $ 462,825 Impact of equity compensation plans 155 — 9,605 — — 9,605 Other comprehensive loss — — — — ( 879 ) ( 879 ) Net loss — — — ( 14,841 ) — ( 14,841 ) Balance—June 30, 2022 46,423 $ 46 $ 771,185 $ ( 310,177 ) $ ( 4,344 ) $ 456,710 Six-Month Period Ended June 30, 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 535 1 6,255 — — 6,256 Other comprehensive loss — — — — ( 399 ) ( 399 ) Net loss — — — ( 33,168 ) — ( 33,168 ) Balance—June 30, 2021 45,881 $ 46 $ 748,644 $ ( 363,520 ) $ ( 87 ) $ 385,083 Six-Month Period Ended June 30, 2022 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance—December 31, 2021 46,016 $ 46 $ 764,811 $ ( 280,153 ) $ ( 948 ) $ 483,756 Impact of equity compensation plans 407 — 6,374 — — 6,374 Other comprehensive loss — — — — ( 3,396 ) ( 3,396 ) Net loss — — — ( 30,024 ) — ( 30,024 ) Balance—June 30, 2022 46,423 $ 46 $ 771,185 $ ( 310,177 ) $ ( 4,344 ) $ 456,710 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) Six Months Ended June 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 30,024 ) $ ( 33,168 ) Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation expense 14,573 13,745 Depreciation 3,861 3,815 Amortization of intangible assets 1,943 965 Amortization of deferred financing costs 255 249 Loss on disposal of property and equipment 25 52 Amortization of investments 983 1,206 Change in fair value of contingent consideration — 5,100 Other non-cash adjustments 654 472 Changes in operating assets and liabilities: Accounts receivable ( 8,757 ) ( 10,799 ) Inventories ( 2,727 ) ( 2,707 ) Other current assets 32 ( 308 ) Accounts payable 4,240 3,571 Accrued liabilities ( 5,136 ) 4,529 Other noncurrent assets and liabilities ( 325 ) ( 571 ) Net cash used in operating activities ( 20,403 ) ( 13,849 ) Cash flows from investing activities: Purchases of available-for-sale securities ( 3,941 ) ( 94,817 ) Sales and maturities of available-for-sale securities 51,749 147,884 Purchases of property and equipment ( 7,565 ) ( 5,539 ) Net cash provided by investing activities 40,243 47,528 Cash flows from financing activities: Payments on leases ( 437 ) ( 399 ) Proceeds from stock option exercises and employee stock purchase plan 3,374 9,010 Shares repurchased for payment of taxes on stock awards ( 11,573 ) ( 16,500 ) Net cash used in financing activities ( 8,636 ) ( 7,889 ) Effect of exchange rate changes on cash and cash equivalents ( 302 ) ( 115 ) Net increase in cash and cash equivalents 10,902 25,675 Cash and cash equivalents—beginning of period 43,654 41,944 Cash and cash equivalents—end of period $ 54,556 $ 67,619 Supplemental cash flow information: Cash paid for interest $ 1,797 $ 2,147 Cash paid for income taxes, net of refunds 132 128 Non-cash investing and financing activities: Accrued purchases of property and equipment 2,562 529 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). All intercompany accounts and transactions have been eliminated in consolidation. The accompanying interim financial statements are unaudited, but in the opinion of the Company’s management, contain all normal, recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America (GAAP) applicable to interim periods. Certain information and footnote disclosures included in annual financial statements prepared in accordance with GAAP have been omitted or condensed. The Company believes the disclosures herein are adequate to make the information presented not misleading. Results of operations are not necessarily indicative of the results expected for the full year or for any future period. The accompanying interim financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. There have been no changes in the Company's significant accounting policies for the six months ended June 30, 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 $ 1,516 as of June 30, 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 1,548 and 1,807 stock options, restricted shares, restricted stock units and performance award shares as of June 30, 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 June 30, 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 $ — $ 48,832 $ — $ 48,832 Commercial paper — 15,940 — 15,940 Government and agency obligations 31,735 — — 31,735 Corporate bonds — 66,789 — 66,789 Asset-backed securities — 13,729 — 13,729 Total assets $ 31,735 $ 145,290 $ — $ 177,025 There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three and six months ended June 30, 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 June 30, 2022 and December 31, 2021. 3. INVENTORIES Inventories consist of the following: June 30, 2022 December 31, 2021 Raw materials $ 14,235 $ 12,653 Work in process 2,742 2,064 Finished goods 24,315 24,247 Total $ 41,292 $ 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: June 30, 2022 December 31, 2021 Estimated Useful Life Cost Accumulated Amortization Cost Accumulated Amortization Technology 10 - 15 years $ 55,712 $ 14,663 $ 55,712 $ 12,720 Amortization expense of intangible assets was $ 971 and $ 727 for the three months ended June 30, 2022 and 2021 and $ 1,943 and $ 965 for the six months ended June 30, 2022 and 2021. Future amortization expense is projected as follows: 2022 (excluding the six months ended June 30, 2022) $ 1,710 2023 2,953 2024 2,953 2025 2,953 2026 2,953 2027 and thereafter 27,527 Total $ 41,049 5. ACCRUED LIABILITIES Accrued liabilities consist of the following: June 30, 2022 December 31, 2021 Accrued compensation and employee-related expenses $ 25,197 $ 30,990 Sales returns and allowances 2,613 2,416 Accrued taxes and value-added taxes payable 1,572 1,452 Other accrued liabilities 1,393 1,234 Total $ 30,775 $ 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 for an additional $ 30,000 in term loan borrowings. The Loan Agreement has a five year term, expiring November 2026. Principal payments under the Loan Agreement are to be made ratably commencing 24 months after inception through the loan's maturity date. 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 $ 240 included in the outstanding loan balance as of June 30, 2022. Additionally, the unamortized original financing costs related to the term loan of $ 286 are netted against the outstanding loan balance in the Condensed Consolidated Balance Sheets and are amortized ratably over the term of the Loan Agreement. The revolving line of credit is subject to an annual facility fee of 0.20 %, and any borrowings thereunder bear interest at the Prime Rate. Borrowing availability under the revolving credit facility is based on the lesser of $ 30,000 or a borrowing base calculation as defined by the Loan Agreement. As of June 30, 2022, the Company had no borrowings under the revolving credit facility and had borrowing availability of $ 28,750 . 9 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) The Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes a minimum liquidity covenant and dividend restrictions, along with other customary terms and conditions. Specified assets have been pledged as collateral. Future maturities of long-term debt, excluding the term loan final fee, are projected as follows: 2022 (excluding the six months ended June 30, 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 office, manufacturing and warehouse facilities and 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 as exercise is not reasonably certain. The weighted average remaining lease term and the discount rate for the reporting periods are as follows: June 30, 2022 December 31, 2021 Operating Leases Weighted average remaining lease term (years) 4.8 3.6 Weighted average discount rate 4.66 % 4.69 % Finance Leases Weighted average remaining lease term (years) 8.1 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 June 30, 2022. The components of lease expense are as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Operating lease cost $ 284 $ 203 $ 570 $ 481 Finance lease cost: Amortization of right-of-use assets 338 242 508 484 Interest on lease liabilities 185 200 375 403 Total finance lease cost $ 523 $ 442 $ 883 $ 887 Short-term lease expense was not significant for the three and six months ended June 30, 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: Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 505 $ 494 Operating cash flows for finance leases 375 403 Financing cash flows for finance leases 437 399 Right-of-use assets obtained in exchange for lease obligations: Operating leases — 1,221 Finance leases — — Supplemental balance sheet information related to leases was as follows: June 30, 2022 December 31, 2021 Operating Leases Operating lease right-of-use assets $ 4,241 $ 4,761 Current maturities of leases 884 861 Operating lease liabilities 3,591 4,068 Total operating lease liabilities $ 4,475 $ 4,929 Finance Leases Property and equipment, at cost $ 14,607 $ 14,607 Accumulated depreciation ( 6,624 ) ( 6,116 ) Property and equipment, net $ 7,983 $ 8,491 Current maturities of leases $ 936 $ 895 Finance lease liabilities 9,603 10,082 Total finance lease liabilities $ 10,539 $ 10,977 Future m aturities of lease liabilities as of June 30, 2022 were as follows: Operating Leases Finance Leases 2022 (excluding the six months ended June 30, 2022) $ 356 $ 817 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 $ 5,060 $ 13,940 Less imputed interest ( 585 ) ( 3,401 ) Total $ 4,475 $ 10,539 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 Agreement. 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 $ 877 and $ 842 was recorded for the three months ended June 30, 2022 and 2021 and $ 1,670 and $ 1,564 for the six months ended June 30, 2022 and 2021 as a component of Cost of Revenue in the accompanying Condensed and Consolidated Statement of Operations. 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 various state and local governments 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 surgical ablation of cardiac tissue, 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. 12 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) United States revenue by product type is as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Open ablation $ 22,070 $ 19,503 $ 41,044 $ 36,942 Minimally invasive ablation 10,154 9,702 18,769 18,087 Pain management 10,210 5,709 18,224 9,607 Total ablation $ 42,434 $ 34,914 $ 78,037 $ 64,636 Appendage management 28,831 25,156 55,500 45,743 Total United States $ 71,265 $ 60,070 $ 133,537 $ 110,379 International revenue by product type is as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Open ablation $ 6,213 $ 5,526 $ 12,705 $ 9,960 Minimally invasive ablation 1,271 1,575 2,804 2,849 Pain management 114 11 254 11 Total ablation $ 7,598 $ 7,112 $ 15,763 $ 12,820 Appendage management 5,666 4,194 9,805 7,452 Total International $ 13,264 $ 11,306 $ 25,568 $ 20,272 Revenue attributed to customer geographic locations is as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 United States $ 71,265 $ 60,070 $ 133,537 $ 110,379 Europe 7,783 7,015 15,020 12,781 Asia 4,933 4,088 9,490 6,961 Other International 548 203 1,058 530 Total International 13,264 11,306 25,568 20,272 Total Revenue $ 84,529 $ 71,376 $ 159,105 $ 130,651 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 June 30, 2022 and 2021 was ( 0.30 %) and ( 0.41 %). The effective tax rate for the six months ended June 30, 2022 and 2021 was ( 0.34 %) and ( 0.29 %). 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 net operating losses. However, if required, the Company will recognize interest and penalties within income tax expense and within the related tax liability. 13 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) 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 June 30, 2022, 12,899 shares of common stock had been reserved for issuance under the 2014 Plan, and 1,076 shares were available for future grants. At the Company's 2022 Annual Meeting of Stockholders, stockholders approved an amendment to the 2014 Plan increasing the shares authorized under the 2014 Plan by 1,100 . 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 more than $ 25 of the Company’s common stock in a calendar year or more than 3 shares during an offering period. As of June 30, 2022, there were 228 shares available for future issuance under the ESPP. Share-Based Compensation Expense Information The following table summarizes the allocation of share-based compensation expense: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Cost of revenue $ 487 $ 598 $ 1,058 $ 1,017 Research and development expenses 1,186 1,083 2,316 2,020 Selling, general and administrative expenses 5,851 5,460 11,199 10,708 Total $ 7,524 $ 7,141 $ 14,573 $ 13,745 14 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) 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 June 30, Six Months Ended June 30, 2022 2021 2022 2021 Total accumulated other comprehensive (loss) income at beginning of period $ ( 3,465 ) $ ( 18 ) $ ( 948 ) $ 312 Unrealized Gains (Losses) on Investments Balance at beginning of period $ ( 3,226 ) $ 23 $ ( 887 ) $ 54 Other comprehensive loss before reclassifications ( 377 ) ( 132 ) ( 2,716 ) ( 163 ) Amounts reclassified from accumulated other comprehensive loss to other income (expense) ( 72 ) — ( 72 ) — Balance at end of period $ ( 3,675 ) $ ( 109 ) $ ( 3,675 ) $ ( 109 ) Foreign Currency Translation Adjustment Balance at beginning of period $ ( 239 ) $ ( 41 ) $ ( 61 ) $ 258 Other comprehensive income (loss) before reclassifications ( 527 ) 36 ( 787 ) ( 262 ) Amounts reclassified from accumulated other comprehensive loss to other income (expense) 97 27 179 26 Balance at end of period $ ( 669 ) $ 22 $ ( 669 ) $ 22 Total accumulated other comprehensive loss at end of period $ ( 4,344 ) $ ( 87 ) $ ( 4,344 ) $ ( 87 ) 15 Table of Contents