What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 83 added, 76 removed, 155 unchanged (51% of the section changed)

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There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business.

Forward-looking statements address our expected future business, financial performance, financial condition and results of operations, and often contain words such as “intends,” “estimates,” “anticipates,” “hopes,” “projects,” “plans,” “expects,” “seek,” “believes,” “see,” “should,” “will,” “would,” “could,” “can,” “may,” “future,” “predicts,” “target,” and similar expressions and the negative versions thereof.

Forward-looking statements address our expected future business, financial performance, financial condition and results of operations, and often contain words such as “intends,” “estimates,” “anticipates,” “hopes,” “projects,” “plans,” “expects,” “seek,” “believes,” “see,” “should,” “will,” “would,” “opportunity,” “could,” “can,” “may,” “future,” “predicts,” “target,” “potential,” and similar expressions and the negative versions of those words, and may be identified by the context in which they are used.

Such statements are based only upon current expectations of AtriCure.

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Forward-looking statements include statements that address activities, events, circumstances or developments that AtriCure expects, believes or anticipates will or may occur in the future.

Forward-looking statements are based on AtriCure’s experience and perception of current conditions, trends, expected future developments and other factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond AtriCure’s control including developments related to the COVID-19 pandemic, as discussed herein.

Forward-looking statements are based on AtriCure’s experience and perception of current conditions, trends, expected future developments and other factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond AtriCure’s control including, without limitation, developments related to the COVID-19 pandemic, as discussed herein.

With respect to the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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We are a leading innovator in treatments for atrial fibrillation (Afib), left atrial appendage (LAA) management and post-operative pain management.

Afib affects 1-2% of the population in the United States and an estimated 33 million people worldwide.

Afib affects 1% to 2% of the population in the United States and an estimated 37 million people worldwide.

It is the most common cardiac arrhythmia, or irregular heartbeat, encountered in clinical practice and results in high utilization of healthcare services.

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Direct visualization, in this context, requires that the surgeon is able to see the heart directly, with or without assistance from a camera, endoscope or other appropriate viewing technologies.

Studies have demonstrated exclusion of the LAA with AtriClip also results in electrical isolation of the LAA.

demonstrated exclusion of the LAA with AtriClip also results in electrical isolation of the LAA.

The LARIAT® system is cleared under the 510(k) process for soft tissue ligation.

Several of our products are currently being studied to expand labeling

claims or to support indications specifically for the treatment of Afib, prophylactic stroke reduction or other arrhythmias.

Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail ® linear pen, cryoablation devices, cryoSPHERE ® probe, certain products of the AtriClip LAA Exclusion System, the EPi-Sense ® system and LARIAT Suture Delivery Device bear the CE mark and may be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror the Medical Device Directive.

Several of our products are currently being studied to expand labeling claims or to support indications specifically for the treatment of Afib, prophylactic stroke reduction or other arrhythmias.

Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail ® linear pen, cryoablation devices, cryoSPHERE ® probe, certain products of the AtriClip LAA Exclusion System, the EPi-Sense ® system and LARIAT system bear the CE mark and may be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror the Medical Device Directive.

Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail linear pen, cryoablation devices and certain products of the AtriClip LAA Exclusion System are available in select Asia-Pacific countries.

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Our business is primarily transacted in U.S.

Dollars, with certain exceptions.

direct sales transactions outside the United States are transacted in Euros, British Pounds or Australian Dollars.

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During 2022, we continued to experience variability and intermittent demand for our products as non-emergent procedures were deferred in order to preserve resources for COVID-19 patients and caregivers and hospital staffing was impacted by the pandemic and related factors.

We saw many regions stabilize through the quarter with overall improvements in procedure volumes.

Beginning in the second quarter many regions began to stabilize with overall improvements in procedure volumes.

However, we expect some variability to continue as we operate in many geographic regions with diverse restrictions that are impacted as new COVID-19 variants emerge.

Despite the challenging environment resulting from the pandemic, our worldwide revenue in the six months ended June 30, 2022 was $159,105, representing an increase of $28,454, or 21.8%, over the first six months of 2021, driven by growing adoption across key product lines.

We continue to build on our strategic initiatives of product innovation, investing in clinical science and expanding awareness and adoption by providing superior training and education.

Despite the challenging environment resulting from the pandemic, our worldwide revenue in the nine months ended September 30, 2022 was $242,351, representing an increase of $41,240, or 20.5%, over the first nine months of 2021, driven by growing adoption across key product lines.

We continue to build on our strategic initiatives of product innovation, clinical science and expanding awareness and adoption by providing superior training and education.

PRODUCT INNOVATION .

During the first half of 2022, we launched our ENCOMPASS ® clamp, following the receipt of 510(k) clearance for ablation of cardiac tissue during cardiac surgery in July 2021.

In April 2022 we launched our EnCompass ® clamp, following 510(k) clearance for ablation of cardiac tissue during cardiac surgery in July 2021.

The EnCompass clamp marks innovation in our core open ablation market and is designed to make concomitant surgical ablations more efficient.

It is expected to drive deeper penetration of cardiac surgery procedures.

During September 2022, the Company received final labeling approval for the next generation EPi-Sense ST device that will be launched in the fourth quarter.

CLINICAL SCIENCE .

We continue to invest in studies to expand labeling claims or support various indications for our products, and we also conduct various studies to gather clinical data regarding our products.

We continue to invest in studies to expand labeling claims, support various indications for our products, and gather clinical data regarding our products.

In February 2022, FDA approved the protocol for the Hybrid Epicardial and Endocardial Sinus Node Sparing Ablation Therapy for Inappropriate Sinus Tachycardia (IST) clinical trial (HEAL-IST) .

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The trial provides for enrollment of up to 142 patients at up to 40 sites in the United States, United Kingdom and European Union.

We announced the first patient enrollment in the trial in June 2022;

The first patient enrollment in the trial occurred in June 2022;

site initiation and enrollment is ongoing.

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The trial is designed to evaluate the effectiveness of prophylactic LAA exclusion using the AtriClip LAA Exclusion System for the prevention of ischemic stroke or systemic arterial embolism in cardiac surgery patients without pre-operative AF diagnosis who are at risk for these events.

The trial is a prospective, multicenter, randomized trial that evaluates safety at 30 days post-procedure to demonstrate no increased risk with LAA exclusion during cardiac surgery.

This prospective, multicenter, randomized trial evaluates safety at 30 days post-procedure to demonstrate no increased risk with LAA exclusion during cardiac surgery.

The trial provides for enrollment of up to 6,500 subjects at up to 250 sites worldwide.

The Company anticipates enrollment to begin later this year.

Our professional education and marketing teams conduct virtual, in-person and mobile training for physicians and our sales teams.

Our professional education and marketing teams conduct virtual, in-person and mobile training for physicians and other healthcare professionals, as well as our sales teams.

These training methods ensure invaluable access to continuing education and awareness of our products and related procedures.

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Results of Operations

Three months ended June 30, 2022 compared to three months ended June 30, 2021

Three months ended September 30, 2022 compared to three months ended September 30, 2021

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of revenue:

Three Months Ended

September 30,

Revenues Amount % of

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Gross profit 61,713 74.1 % 52,226 74.1 %

Operating expenses:

Operating expenses (benefit):

Research and development expenses 15,169 18.2 % 11,284 16.0 %

Selling, general and administrative expenses 57,267 68.8 % 49,873 70.8 %

Total operating expenses 77,179 91.3 % 69,155 96.9 %

Loss from operations (13,660) (16.2) % (15,077) (21.1) %

Change in fair value of contingent consideration — — % (189,900) (269.5) %

Intangible asset impairment — — % 82,300 116.8 %

Total operating expenses (benefit) 72,436 87.0 % (46,443) (65.9) %

(Loss) income from operations (10,723) (12.9) % 98,669 140.0 %

Other expense, net:

(1,503) (1.8) % (1,523) (2.2) %

Loss before income tax expense (14,796) (17.5) % (16,185) (22.7) %

(Loss) income before income tax expense (12,226) (14.7) % 97,146 137.9 %

Income tax expense 46 0.1 % 38 0.1 %

Net loss $ (14,841) (17.6) % $ (16,251) (22.8) %

Net (loss) income $ (12,272) (14.7) % $ 97,108 137.8 %

The following table sets forth, for the periods indicated, our revenue by product type and geography expressed as dollar amounts and the corresponding change in such revenues between periods, in both dollars and percentages:

Three Months Ended

June 30, Change

September 30, Change

2022 2021 Amount %

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Worldwide revenue increased 18.1% (19.8% on a constant currency basis).

In the United States, we experienced growth in most of our key product lines.

Physician acceptance of our cryoSPHERE ® probe for post-operative pain management and expanded sales efforts drove growth in pain management revenue.

Appendage management sales were driven by continuing adoption of our AtriClip® Flex⋅V ® and Pro⋅V ® devices, while the launch of the new ENCOMPASS clamp accelerated growth in our open ablation revenue.

While minimally invasive procedures continue to experience residual impacts from the pandemic and staffing, we saw growing adoption of the EPi-Sense ® System in an increasing customer base.

The increase in EPi-Sense revenue was largely offset by a decline in revenue from all other minimally invasive ablation products.

International sales increased 17.3% (26.3% on a constant currency basis), a result of rebounding procedure volumes in Europe, primarily in the Netherlands and United Kingdom, and growth in Australia.

In the United States, we experienced growth in all key product lines.

Strong physician adoption of our cryoSPHERE ® probe for post-operative pain management and our AtriClip ® Flex⋅V ® device drove increased pain management and appendage management sales.

Open ablation revenue increased as a result of both procedure volume and additional revenue per procedure from the EnCompass clamp.

Growth in Epi-Sense System sales, reflecting continuing adoption of Convergent Hybrid AF Therapy in a growing number of accounts, was offset by a decline in sales of all other legacy minimally invasive devices.

Minimally invasive procedures, which are the most elective of our therapies, continue to experience some residual impact from the pandemic and staffing constraints.

International sales increased 4.2% (13.5% on a constant currency basis), primarily a result of growth in Australia and Japan.

The increase in international revenue was driven mainly by our appendage management business which grew 19.5%.

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Cost of revenue and gross margin.

Cost of revenue increased $3,712, reflecting higher sales volumes, while gross margin decreased approximately 70 basis points, reflecting changes in U.S.

product mix and cost increases driven by inflationary and supply chain pressures.

Cost of revenue increased $3,299, while gross margin remained flat, reflecting the benefit of higher sales volumes offset by inflationary and supply chain cost pressures and shift in product mix to lower margin products.

Research and development expenses.

Research and development expenses increased $3,885 or 34.4%.

Personnel costs rose $1,372 from increased headcount as we continue to build our product development, regulatory and clinical teams, and from increased travel costs.

Product development and regulatory expenses increased $869 driven mainly by regulatory filings, submissions and consulting related to compliance with the European Union Medical Device Regulation (EU MDR).

Amortization expense increased $247 following the April 2021 PMA resulting from the CONVERGE IDE clinical trial.

Personnel costs increased $1,755 as a result of increased headcount and travel costs as we continue to build our product development, regulatory and clinical teams.

Continued development of our product pipeline and clinical trial activity, as well as compliance with the European Union Medical Device Regulation (EU MDR), resulted in a $1,992 increase in discretionary expense.

Selling, general and administrative expenses.

Selling, general and administrative expenses increased $5,430, or 9.5%.

Additional headcount and travel activities of $4,058 drove the increase in expenses, primarily reflecting the expansion of our sales and training teams, while meetings, marketing, trainings and tradeshow activities contributed $2,054 of the increase in expenses as we saw further transition from virtual to in-person events.

Other operating costs grew $838 compared with the prior period, which includes consulting, professional services and information systems enhancements.

Additionally, 2021 included a $2,600 charge for the change in fair value of the SentreHEART contingent consideration liability, as well as a reduction in expenses from a one-time tax credit of $759.

Selling, general and administrative expenses increased $7,394, or 14.8%, as a result of a $5,975 increase in headcount and travel costs.

Training expenses increased $1,150 for additional physician training programs to drive further adoption of our products.

Change in fair value of contingent consideration.

The credit to operating expenses during the three months ended September 30, 2021 reflects the change in probability of payment during the contractual achievement periods to remote for the regulatory and reimbursement milestones related to the aMAZE clinical trial.

Impairment of intangible assets.

During the three months ended September 30, 2021, the Company recorded an impairment charge for the IPR&D asset associated with the aMAZE PMA.

Other income (expense).

Other income and expense consists primarily of net interest expense and foreign currency transaction gains and losses.

Net interest expense decreased $69 primarily due to lower interest expense as a result of the November 2021 amendment of our Loan Agreement.

Six months ended June 30, 2022 compared to six months ended June 30, 2021

Other income and expense consists primarily of net interest expense and net foreign currency transaction losses.

Net interest expense decreased $378 primarily due to lower interest expense as a result of the November 2021 amendment of our Loan Agreement, while foreign currency transaction losses increased $360 primarily as a result of the strengthening U.S.

Nine months ended September 30, 2022 compared to nine months ended September 30, 2021

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of revenue:

Six Months Ended

Nine Months Ended

September 30,

Revenues Amount % of

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Gross profit 180,827 74.6 % 150,844 75.0 %

Operating expenses:

Operating expenses (benefit):

Research and development expenses 43,589 18.0 % 34,698 17.3 %

Selling, general and administrative expenses 175,771 72.5 % 150,939 75.1 %

Total operating expenses 146,924 92.3 % 129,580 99.2 %

Loss from operations (27,810) (17.5) % (30,962) (23.7) %

Change in fair value of contingent consideration — — % (184,800) (91.9) %

Intangible asset impairment — — % 82,300 40.9 %

Total operating expenses (benefit) 219,360 90.5 % 83,137 41.3 %

(Loss) income from operations (38,533) (15.9) % 67,707 33.7 %

Other expense, net:

(3,616) (1.5) % (3,632) (1.8) %

Loss before income tax expense (29,923) (18.8) % (33,071) (25.3) %

(Loss) income before income tax expense (42,149) (17.4) % 64,075 31.9 %

Income tax expense 147 0.1 % 135 0.1 %

Net loss $ (30,024) (18.9) % $ (33,168) (25.4) %

Net (loss) income $ (42,296) (17.5) % $ 63,940 31.8 %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

2022 2021 Amount %

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Worldwide revenue increased 20.5% (21.9% on a constant currency basis).

In the United States, we experienced growth across most key product lines as cardiac surgery volumes began to stabilize.

Appendage management revenue increases were driven by sales of the AtriClip® Flex⋅V ® and Pro⋅V ® devices, while continuing adoption of the cryoSPHERE ® probe for post-operative pain management drove pain management sales.

The launch of the new ENCOMPASS clamp contributed to the open ablation sales growth, while adoption of the EPi-Sense ® System drove increases in minimally invasive ablation and offset declines in other minimally invasive ablation products.

International sales increased 26.1% (33.7% on a constant currency basis), with procedure volumes rising across all major franchises and regions.

In the United States, growth reflected continuing adoption of our products and recovery of cardiac surgery volume.

Appendage management revenue increases were driven by sales of the AtriClip ® Flex⋅V ® device, while pain management growth reflects continuing adoption of the cryoSPHERE ® probe for post-operative pain.

The launch of the new EnCompass clamp in April 2022 contributed to the open ablation sales growth.

Wider adoption of the EPi-Sense ® System drove increases in minimally invasive ablation, offset by declines in our legacy minimally invasive ablation products.

International sales increased 17.6% (25.8% on a constant currency basis), with growth across all major franchises and regions.

Cost of revenue and gross margin.

Cost of revenue increased $7,958, reflecting higher revenue and a decrease in gross margin of approximately 60 basis points, resulting from changes in U.S.

product mix and cost inflation and supply chain pressures, slightly offset by geographic mix.

Cost of revenue increased $11,257, while gross margin decreased approximately 40 basis points, reflecting a shift in product mix to lower margin products and inflationary and supply chain cost pressures, partially offset by the benefit of higher sales volumes.

Research and development expenses.

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Personnel costs increased $4,315 from additional headcount as we continue to build our product development, regulatory and clinical teams and return to historical travel levels.

Regulatory submissions, consulting, as well as product development projects increased $1,119.

Product development project spend increased $1,859 on continued expansion of our product

Clinical activities, regulatory submissions and consulting activities increased $1,288, largely the result of compliance with EU MDR.

Amortization expense increased $998 following the April 2021 PMA resulting from the CONVERGE IDE clinical trial.

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Selling, general and administrative expenses increased $24,832, or 16.5%.

Additional headcount and travel activities increased $9,459, primarily reflecting the expansion across our teams, as well as a return to historical travel levels.

Additional tradeshow, meetings, physician training and marketing activities contributed $4,969 of the increase reflecting continuing transition from virtual to in-person events and the expansion of training programs.

Other operating costs, including contracting, product demo costs and professional services grew $1,161 as compared to the prior period.

Additionally, 2021 expenses included a $5,100 charge for the change in fair value of the SentreHEART contingent consideration liability, partially offset by a one-time tax credit of $759.

Higher headcount and travel activities contributed an additional $15,435 in personnel costs, while training activities, meetings and trade shows increased $6,532 reflecting an increase in the frequency and cost of in-person events.

Other administrative expenses increased $2,168 for legal activity and information technology costs.

Change in fair value of contingent consideration.

The credit to operating expenses during the nine months ended September 30, 2021 reflects a change in the forecasted timing and probability of achievement of the regulatory and reimbursement milestones related to the aMAZE clinical trial.

Impairment of intangible assets.

During the nine months ended September 30, 2021, the Company recorded an impairment charge for the IPR&D asset associated with the aMAZE PMA.

Other income (expense).

Other income and expense consists primarily of net interest expense and foreign currency transaction gains and losses.

Net interest expense decreased $240 primarily due to lower interest expense stemming from the November 2021 amendment of our Loan Agreement.

Other income and expense consists primarily of net interest expense and net foreign currency transaction losses.

Net interest expense decreased $618 due to lower interest expense stemming from the November 2021 amendment of our Loan Agreement, offset by an increase in foreign currency transaction losses of $603 primarily as a result of the strengthening U.S.

Liquidity and Capital Resources

As of June 30, 2022, the Company had cash, cash equivalents and investments of $182,749 and outstanding debt of $60,000.

As of September 30, 2022, the Company had cash, cash equivalents and investments of $174,057 and outstanding debt of $60,000.

We had unused borrowing capacity of $28,750 under our revolving credit facility.

Most of our operating cash and all cash equivalents and investments are held by United States financial institutions.

We had net working capital of $149,850 and an accumulated deficit of $310,177 as of June 30, 2022.

Six Months Ended June 30,

We had net working capital of $154,687 and an accumulated deficit of $322,449 as of September 30, 2022.

Nine Months Ended September 30,

2022 2021 Change

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Cash flows used in operating activities.

Net cash used in operating activities increased $6,554 in 2022 compared to 2021.

This change is driven by the fluctuation in working capital and other assets and liabilities of $6,389, primarily due to the

$9,665 reduction in accrued liabilities as a result of higher annual variable compensation payments due to improved operating performance, offset by a $2,042 decrease in accounts receivable.

The remaining fluctuation is a decrease in the net loss of $3,144, largely driven by a decrease in non-cash expenses, including $5,100 non-cash impact for the fair value adjustment of the SentreHEART contingent consideration liability in 2021, offset partially by increased amortization of the CONVERGE technology asset.

Net cash used in operating activities increased $8,106 from 2021 to 2022.

This change is driven by the fluctuation in working capital and other assets and liabilities of $6,261.

Working capital fluctuations are primarily due to the $8,593 reduction in accrued liabilities from higher annual variable compensation payments in 2022 due to improved operating performance in 2021 versus 2020, offset by a decrease of $1,598 in accounts receivable.

Cash flows provided by investing activities.

Net cash provided by investing activities decreased by $7,285 in 2022 compared to 2021, reflecting decreases in net sales and maturities of available-for-sale securities of $5,259 and increased purchases of property and equipment of $2,026 for the expansion of our manufacturing facilities and new product introductions.

Net cash provided by investing activities increased by $14,577 in 2022 compared to 2021, reflecting higher net sales and maturities of available-for-sale securities of $20,244 and increase in purchases of property and equipment of $5,667 primarily for the expansion of our manufacturing facilities.

Cash flows used in financing activities.

Net cash used in financing activities increased by $747 in 2022 largely reflecting lower stock option exercise activity of $6,090, offset by a decrease of $4,927 in cash tax payments from restricted and performance share vesting and increased proceeds from issuance of shares under ESPP of $453.

Net cash used in financing activities decreased by $1,108 in 2022 largely reflecting lower proceeds from stock option exercise activity and employee stock purchase plan of $6,263, a decrease of $5,764 in share repurchases for payment of taxes for stock awards and a decrease of $1,607 in repayments of debt and lease obligations.

Credit facility.

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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.

As of June 30, 2022, our outstanding debt was $60,000 and is classified as noncurrent.

As of September 30, 2022, our outstanding debt was $60,000 and is classified as noncurrent.

We had unused borrowing capacity of $28,750 under our revolving credit facility.

For additional information on the terms and conditions, as well as applicable interest and fee payments, see Note 6 — Indebtedness.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of June 30, 2022.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of September 30, 2022.

Uses of liquidity and capital resources.

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and possible acquisitions and joint ventures, including potential business integration costs.

We continue to evaluate additional measures to maintain financial flexibility, and we will continue to closely monitor our liquidity and capital resources through the recovery from, and any further disruptions caused by, COVID-19 and other macroeconomic conditions including, but not limited to, inflationary pressures, rising interest rates and fluctuations in currency exchange rates.

Our principal cash requirements include costs of operations, capital expenditures, debt service costs and other contractual obligations.

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Recent Accounting Pronouncements

As of June 30, 2022, there were no material changes to the information provided in Note 2, “Recent Accounting Pronouncements” in the Company’s Form 10-K for the fiscal year ended December 31, 2021.

As of September 30, 2022, there were no material changes to the information provided in Note 2, “Recent Accounting Pronouncements” in the Company’s Form 10-K for the fiscal year ended December 31, 2021.

Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 2022, there were no material changes to the information provided under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Form 10-K for the year ended December 31, 2021.

As of September 30, 2022, there were no material changes to the information provided under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Form 10-K for the year ended December 31, 2021.

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 2. Management’s Discussion and Analysis