What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-17 · 100 added, 127 removed, 123 unchanged (65% of the section changed)

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(Dollar and share amounts referenced in this Item 7 are in thousands, except per share amounts.)

Changes from Prior Periodic Reports

In November 2020, the SEC issued Release No.

33-10890, "Management's Discussion and Analysis, Selected Financial Data and Supplementary Financial Information" which became fully effective on August 9, 2021.

This release was adopted to modernize, simplify and enhance certain financial disclosure requirements in Regulation S-K.

Specifically, the SEC eliminated the requirement for selected financial data, only requiring quarterly disclosure when there are retrospective changes affecting comprehensive income, and amending Management's Discussion and Analysis ("MD&A") to, among other things, eliminate the requirement of the contractual obligations table.

Information on our contractual obligations is still disclosed in the narrative within Item 7 of Part II of this report.

These changes are required for any annual period subsequent to the effective date of August 9, 2021.

As such, we have adopted these changes in this report.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying Consolidated Financial Statements and notes thereto contained in Item 8, “Financial Statements and Supplementary Data,” to provide an understanding of our results of operations, financial condition and cash flows.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022.

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

We believe that we are currently the market leader in the surgical treatment of Afib.

Our Isolator ® Synergy™ Ablation System is approved by the United States Food and Drug Administration (FDA) for the treatment of persistent and long-standing persistent Afib concomitant to other open-heart surgical procedures.

The EPi-Sense ® System is approved by FDA to treat patients with long-standing persistent Afib.

All of our other ablation devices are cleared for sale in the United States under FDA 510(k) clearances, including our other radio frequency (RF) and cryoablation products, which are indicated for the ablation of cardiac tissue and/or the treatment of cardiac arrhythmias.

In addition, certain of our cryoablation probes are cleared for managing pain by temporarily ablating peripheral nerves, or Cryo Nerve Block therapy.

Further, certain cryoablation probes are approved for the ablation of the intercostal nerves to temporarily block pain in adolescents aged 12 or older.

Our AtriClip ® LAA Exclusion System products are 510(k)-cleared with an indication for the exclusion of the LAA, performed under direct visualization and in conjunction with other cardiac surgical procedures.

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.

In July 2021, we received 510(k) clearance for the new ENCOMPASS ® clamp to ablate cardiac tissue during surgery.

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.

Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail ® linear pen, cryoablation devices, cryoSPHERE ® probe, certain products of the AtriClip LAA Exclusion System, COBRA Fusion ® Ablation 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.

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.

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

Our ablation and left atrial appendage management (LAAM) products are used by physicians during both open-heart and minimally invasive procedures.

In open-heart procedures, physicians are typically performing heart surgery for other conditions, and our products are used in conjunction with (or “concomitant” to) such a procedure.

Minimally invasive procedures are performed on a standalone basis, and often include multi-disciplinary or “hybrid” approaches, combining surgical procedures using AtriCure ablation and AtriCure LAAM products with catheter ablation procedures performed by an electrophysiologist.

Our pain management device is used by physicians to freeze nerves during cardiothoracic or thoracic surgical procedures.

We anticipate that substantially all of our revenue for the foreseeable future will relate to products we currently sell or are in the process of developing.

We sell our products to medical centers through our direct sales force in the United States and in certain international markets, such as Germany, France, the United Kingdom and the Benelux region.

We also sell our products to distributors who in turn sell our products to medical centers in other international markets.

We sell our products to medical centers through our direct sales force in the United States and in certain international markets, such as Germany, France, the United Kingdom, Australia and the Benelux region.

We also sell our products to distributors who in turn sell our products to medical centers in Japan, China and other international markets.

Our business is primarily transacted in U.S.

Dollars with the exception of transactions with our European and United Kingdom customers, which are transacted primarily in the Euro or the British Pound.

Throughout 2020 and periods of 2021, we experienced a significant decrease in demand for our products as non-emergent procedures were being indeterminately deferred in order to preserve resources for COVID-19 patients and caregivers.

While we saw many regions stabilize during 2021 with improvements in procedure volumes, there continues to be variability throughout our markets and uncertainty as variants of the virus emerge.

For the year ended December 31, 2021, we reported annual revenues of $274,329, an increase of 32.8% when compared to our prior year.

We can make no assurance regarding any future level of demand for our products, and COVID-19 may adversely impact our results of operations and financial condition.

We are continuing to serve our customers while taking every precaution to provide a safe work environment for our employees and customers.

Field-based sales and clinical employees continue to support cases, using technology to engage with customers in virtual settings when physical access is restricted.

We are maintaining manufacturing and fulfillment operations to continue providing products to our customers.

We continue to modify our remote working protocols and evaluate hybrid work models for our office-based employees, and we will take further actions in the best interests of our employees or as required by law.

Despite the challenging environment resulting from the pandemic, we continue to build on our strategic initiatives of product innovation, investing in clinical science and providing superior training and education.

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

During 2022, we continued to experience variability in 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.

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

We expect some variability to continue as we operate in many geographic regions with diverse restrictions that are impacted as new variants of the virus emerge and hospital staffing constraints continue to impact allocation of resources.

Despite the challenging environment resulting from the pandemic, we reported annual revenues of $330,379 for the year ended December 31, 2022, an increase of 20.4% when compared to our prior year as a result of growing adoption across key product lines.

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

PRODUCT INNOVATION.

In July 2021, we received 510(k) clearance for the new ENCOMPASS ® clamp, and we have initiated a limited product launch.

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

The EnCompass clamp marks innovation in our core open ablation market, and is expected to drive deeper penetration of cardiac surgery procedures.

During 2021, our cryoSPHERE probe for Cryo Nerve Block was approved for CE marking.

During September 2022, we received final labeling approval for the next generation EPi-Sense ST device and began a limited launch evaluation in the fourth quarter.

CLINICAL SCIENCE.

We continue to invest in studies to expand labeling claims, support indications for the treatment of Afib and other arrhythmias and stroke, and gather clinical data regarding our products.

In January 2021, we announced 510(k) clearance of additional labeling claims for Cryo Nerve Block therapy to include the treatment of adolescent patients (12-21 years of age).

In April 2021, we received PMA approval of the EPi-Sense System for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with an endocardial ablation catheter.

We believe the Convergent procedure, or Hybrid AF therapy, provides the only compelling treatment option for a large and vastly underpenetrated patient population.

The CONVERGE™ trial demonstrated superiority in the hybrid therapy arm compared to endocardial catheter ablation alone.

In patients diagnosed with long-standing persistent Afib, the hybrid therapy arm showed a 29% absolute difference in efficacy at 12 months (78% relative improvement) and an absolute difference of 35% at 18 months (110% relative improvement).

There was also a 33% absolute difference in Afib burden reduction in favor of the Hybrid AF therapy at 12 months, which increased to 37% at 18 months.

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

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

As a result, we identified indicators of impairment for the related IPR&D asset that represented an estimate of the fair value of the PMA that could have resulted from the aMAZE clinical trial and recorded an impairment charge of $82,300.

Additionally, the contingent consideration arrangements arising from the SentreHEART acquisition include success-based milestone payments.

We assessed the projected probability of payment during the contractual achievement periods to be remote, resulting in no remaining fair value.

The $184,800 change in fair value of the contingent consideration was credited to operating expenses in 2021.

Our professional education and marketing teams have adapted to the pandemic by conducting online and mobile trainings for physicians and our sales team.

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

The recent FDA approval of the EPi-Sense System has enabled us to educate and train physicians on the benefits of Hybrid AF therapy in treating long-standing persistent Afib patients.

The first of several training courses were offered beginning in June 2021.

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).

The HEAL-IST clinical trial is designed to study the safety and efficacy of a hybrid sinus node sparing ablation procedure using the Isolator Synergy Surgical Ablation System for the treatment of symptomatic, drug refractory or drug intolerant IST.

The trial is a

prospective, multicenter, single arm trial that evaluates safety 30 days post-procedure and evaluates primary effectiveness of freedom from IST (as specified) at 12 months post-procedure.

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

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

site initiation and enrollment is ongoing.

In April 2022, FDA approved the protocol for the Left Atrial Appendage Exclusion for Prophylactic Stroke Reduction (LeAAPS) IDE clinical trial.

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.

This prospective, multicenter, randomized trial evaluates safety at 30 days post-procedure to demonstrate no increased risk with LAA exclusion during cardiac surgery, and efficacy over a minimum follow-up of five years post procedure.

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

In January 2023, we announced first patient enrollment in the trial;

site initiation and enrollment is ongoing.

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

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

The 2021 FDA approval of the EPi-Sense System has enabled us to educate and train physicians on the benefits of Hybrid AF therapy in treating long-standing persistent Afib patients.

Our Advanced Hybrid Ablation Training Courses are co-sponsored by the Heart Rhythm Society (HRS).

Results of Operations

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Amount Revenue Amount Revenue

(dollars in thousands)

Revenue $ 330,379 100.0 % 274,329 100.0 %

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Gross profit 245,940 74.4 205,860 75.0

Operating (benefit) expenses:

Operating expense (benefit):

Research and development expenses 57,337 17.4 48,506 17.7

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Total operating expenses 288,609 87.4 150,655 54.9

Income (loss) from operations 55,205 20.1 (44,233) (21.4)

Other income (expense), net (4,818) (1.8) (3,808) (1.8)

Income (loss) before income tax expense 50,387 18.4 (48,041) (23.3)

(Loss) income from operations (42,669) (12.9) 55,205 20.1

Other expense, net (3,529) (1.1) (4,818) (1.8)

(Loss) income before income tax expense (46,198) (14.0) 50,387 18.4

Income tax expense 268 0.1 188 0.1

Net income (loss) $ 50,199 18.3 % $ (48,155) (23.3) %

Total revenue increased 32.8% (32.4% on a constant currency basis) reflecting a recovery of cardiac surgery procedure volumes during 2021 from the significant impact of COVID-19 during 2020 within each franchise and across our key markets globally, as well as further adoption of our products.

Revenue from customers in the United States increased $59,887, or 35.4%, across all product categories.

Open ablation sales increased $18,496, or 24.5%, primarily as a result of increased adoption of our Cryo Nerve Block therapy as well as volume increases in legacy products.

Minimally invasive (MIS) ablation sales increased $13,733, or 53.5%, reflecting the rebound in elective procedures in 2021, as well as Hybrid AF therapy procedure growth from the PMA approval of the EPi-Sense System in late April 2021.

Appendage management sales increased $27,587, or 41.2% due to volume growth in the AtriClip Flex·V ® and AtriClip Pro·V ® devices and other AtriClip products.

International revenue increased $7,911, or 21.2% (19.1% on a constant currency basis) throughout our major European and Asia markets.

International revenues increased from both ablation and appendage management product sales due to a lessening impact of COVID-19 in 2021.

Net (loss) income $ (46,466) (14.1) % $ 50,199 18.3 %

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:

Year Ended December 31, Change

2022 2021 Amount %

Open ablation $ 86,119 $ 72,396 $ 13,723 19.0 %

Minimally invasive ablation 38,553 39,380 (827) (2.1) %

Pain management 39,974 22,787 17,187 75.4 %

Appendage management 112,555 94,568 17,987 19.0 %

Total United States $ 277,201 $ 229,131 $ 48,070 21.0 %

Total International 53,178 45,198 7,980 17.7 %

Total Revenue $ 330,379 $ 274,329 $ 56,050 20.4 %

Worldwide revenue increased 20.4% (21.8% on a constant currency basis).

Throughout the United States market, cardiac surgery volumes recovered and product adoption continued.

Our Isolator Synergy System continued to generate the majority of our ablation-related revenue.

Key drivers of growth included the AtriClip ® Flex-V ® device within the appendage management franchise, the cryoSPHERE ® probe for pain management, and the 2022 launch of the EnCompass clamp in open ablation.

Minimally invasive ablation sales decreased as declines in legacy product sales outpaced growth in Hybrid AF therapy procedures using the EPi-Sense system.

International revenue increased 17.7% (25.7% on a constant currency basis) throughout our major European and Asia markets.

Similar to the Unites States, International revenue growth was driven by appendage management, open ablation and pain management products, while minimally invasive ablation sales declined due to reduction in revenues from legacy products exceeding the growth in Hybrid AF therapy procedures using the EPi-Sense system.

Revenue reported on a constant currency basis is a non-GAAP measure and is calculated by applying previous period foreign currency (Euro) exchange rates, which are determined by the average daily Euro to Dollar exchange rate, to each of the comparable periods.

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Cost of revenue increased $15,970 primarily reflecting revenue growth.

The gross margin improvement of 270 basis points was driven by our return to normal production activity in 2021, leverage from higher revenue and favorable geographic and product mix, offset by inventory management charges related to the LARIAT system.

The gross margin decrease of approximately 60 basis points was driven by inflationary and supply chain pressures and a shift in product mix to lower margin products, partially offsetting the benefit from higher volume.

Research and development expenses.

Research and development expenses increased $8,831, or 18.2%.

Personnel costs, including variable compensation, travel and share-based compensation, increased $6,289 as a result of additional headcount as we continued to expand our product development, regulatory and clinical teams throughout 2021.

Commencement of amortization of the technology asset related to the PMA resulting from the CONVERGE IDE clinical

trial drove increased depreciation and amortization expenses of $1,221.

Offsetting these increases were decreases in product development project costs of $997 and clinical trial costs of $806.

We expanded our product development, regulatory and clinical teams throughout 2022, resulting in additional $4,551 personnel costs including variable compensation, travel and share-based compensation.

Product development project spend increased $1,053 as we continue to evolve our product pipeline.

Clinical activities, regulatory submissions and consulting expenses, including compliance with EU MDR, drove $1,944 incremental costs, while amortization expense increased $820 following the April 2021 PMA of the CONVERGE IDE clinical trial.

See Note 4 of the Consolidated Financial Statements for further discussion.

Selling, general and administrative expenses.

Selling, general and administrative expenses increased $26,623, or 13.0%.

Personnel costs increased $47,161 due to an increase in headcount, variable and share-based compensation, as well as a return in travel expenses.

During 2021, quarantine and travel restrictions lifted, allowing for more live events.

This, along with additional training activities upon the CONVERGE PMA approval in April 2021, drove an increase in training expenses of $5,754, while tradeshow and marketing activities increased $1,322 as compared to the prior year.

Other expense drivers include a $1,769 rise in operating costs, including organization meetings, facility expenses and dues and subscriptions;

a $1,776 increase in professional services fees, corporate costs and consulting fees;

$1,717 of additional legal expenses and a $958 increase in product samples and demos expense.

These increases were offset in part by a decrease of $6,000 recorded in the prior year for the accrual of the value of the legal settlement with the former nContact stockholders.

See Note 11 – Commitments and Contingencies in the Consolidated Financial Statements for further discussion of the nContact legal settlement.

Higher headcount and rising travel expenses contributed $18,575 increase in personnel costs.

Our commitment to physician training and return to in-person meetings, trade shows and marketing activities drove a $5,007 increase in expenses as compared to the prior year.

Other administrative and operating expenses increased $3,114, largely for legal activity and information technology costs.

Change in fair value of contingent consideration.

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Net interest expense was $2,992 for 2022 and $4,452 for 2021.

Interest expense relates to our term loan and finance lease obligations, as well as the amortization of financing costs.

Interest income reflects returns on our investments, including gains and losses on investments sold during the period.

The increase in net interest expense was driven by lower interest income from lower investment yields and a lower investment balance.

The decrease in net interest expense was driven by higher interest income from funds received for interest on past due trade receivables.

Liquidity and Capital Resources

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Uses of liquidity and capital resources.

Our executive officers and Board of Directors review our funding sources and future capital requirements in connection with our annual operating plan.

Our future capital requirements depend on a number of factors, including market acceptance of our current and future products;

costs to develop and support our products, including professional training;

future expenses to expand and support our sales and marketing efforts;

Our executive officers and Board of Directors review our funding sources and future capital requirements in connection with our annual operating plan and periodic updates to the plan.

Our future capital requirements depend on a number of factors, including, without limitation:

market acceptance of our current and future products;

costs to develop and support our products, including clinical evidence needs;

future expenses to expand and support our sales, training and marketing efforts;

operating and filing costs relating to changes in regulatory policies or laws;

costs for clinical trials and to secure regulatory approval for new products;

business integration costs;

legal defense costs;

costs to prosecute, defend and enforce our intellectual property rights;

and possible acquisitions and joint ventures.

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

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

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Our Loan and Security Agreement with Silicon Valley Bank (SVB), as amended, (Loan Agreement), provides for a $60,000 term loan, with an option to make available an additional $30,000 in term loan borrowings, and a $30,000 revolving line of credit.

The Loan Agreement has a five year term, beginning November 1, 2021 and expires November 2026.

The Loan Agreement has a five year term and expires November 2026.

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.

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At the option of the Company, the commencement of term loan principal payments may be extended an additional twelve months.

As of December 31, 2021, our outstanding debt was $ 60,000 and is classified as noncurrent.

As of December 31, 2022, our outstanding debt was $60,000, of which $3,333 is classified as current and $56,667 is classified as noncurrent.

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

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Capital Expenditures.

As we continue to invest in our growth and our ability to better serve our customers, we recently purchased a building for additional manufacturing capacity.

We have committed to funding the renovation and estimate the remaining costs of the construction project to be approximately $ 3,800 over the next twelve months.

We incur other capital expenditures on an ongoing basis.

We incur capital expenditures on an ongoing basis to continue investment in our growth and our ability to better serve our customers.

Throughout 2021 and 2022, we expanded our manufacturing operations as we completed the renovation of an additional facility of our Mason, Ohio campus.

Other Contractual Obligations.

Our future obligations include both current and long-term obligations.

We have operating and finance leases for our corporate offices, manufacturing and warehouse facilities, as well as computer equipment.

Our finance leases consist of principal and interest payments related to our Mason, Ohio headquarters and computer equipment.

In December 2022, the Company entered into a clinical trial management agreement for the LeAAPS clinical trial.

The terms of the agreement require we make milestone payments upon achievement of various enrollment and project milestones over the estimated ten year term, yet the agreement may be terminated early for any reason.

Furthermore, we will incur additional variable costs, including pass through costs from clinical trial sites.

We expect to disburse between $6,000 and $9,000 of fixed and variable costs based on estimated achievement of milestone payments, site initiation and trial enrollment within the next twelve months.

We have operating and finance leases primarily for our corporate offices, manufacturing and warehouse facilities, as well as computer equipment.

Our finance leases consist primarily of principal and interest payments related to our Mason, Ohio headquarters.

As of December 31, 2022, we have current finance lease obligations of $992 and long-term obligations of $9,147.

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For additional information, see Note 9 - Leases.

We additionally maintain royalty agreements with terms that require royalty payments of 3 % to 5 % of specified product sales.

We additionally maintain a license agreement with terms that require royalty payments of 5% of specified product sales.

See Note 10 - Commitments and Contingencies for information about the terms.

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The SentreHEART milestones expire on December 31, 2023 and December 31, 2026.

As of December 31, 2021, the estimated fair value of the contingent consideration is $0.

As of December 31, 2022, we believe the likelihood of payment is remote, and the estimated fair value of the contingent consideration is $0.

See Note 2 – Fair Value.

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We believe that our current cash, cash equivalents and investments, along with the cash we expect to generate or use for operations or access via our term loan and revolving line of credit, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months.

We have on file with the SEC a shelf registration statement which allows us to sell any combination of debt securities, common stock, preferred stock, warrants, depository shares and units in one or more offerings should we choose to do so in the future.

However, we have on file with the SEC a shelf registration statement which allows us to sell any combination of debt securities, common stock, preferred stock, warrants, depository shares and units in one or more offerings should we choose to do so in the future.

We expect to maintain the effectiveness of the shelf registration statement for the foreseeable future.

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2022 2021 Change

(dollars in thousands)

Net cash used in operating activities $ (22,141) $ (13,780) $ 8,361

Net cash provided by (used in) investing activities 23,504 (156,198) 179,702

Net cash (used in) provided by financing activities (7,642) 189,392 (197,034)

Net cash provided by investing activities 44,006 23,504 20,502

Net cash used in financing activities (7,059) (7,642) (583)

Cash flows used in operating activities.

Net cash used in operating activities decreased $6,089 in 2021 as compared to 2020, largely reflecting recovery from the impact of COVID-19.

While customer receivables increased from higher sales volumes, our investment in inventories increased from 2020 and our accounts payable balance grew as a result of increasing operating costs.

Finally, based on higher variable compensation and the timing of payment, accrued liabilities increased over 2020.

Net cash used in operating activities increased $8,361 in 2022 as compared to 2021, largely reflecting the improvement in operating results after non-cash charges of $5,673 offset by an increase in cash needs for working capital and other assets and liabilities of $14,034.

Working capital fluctuations are primarily due to the $11,237 reduction in accrued liabilities from higher annual variable compensation payments in 2022 due to improved operating performance in 2021 versus 2020, as well as an increase of $3,031 from our investment in inventories.

Cash flows provided by investing activities.

Net cash provided by investing activities increased by $179,702 in 2021 as compared to 2020, reflecting a $184,996 increase in net sales and maturities of available-for-sale securities, offset by an increase of $4,494 for the investment in property and equipment to support our new product introductions and construction costs for the renovation of a recently purchased building to expand our manufacturing capabilities.

Net cash provided by investing activities increased by $20,502 in 2022 compared to 2021, reflecting higher net sales and maturities of available-for-sale securities of $27,630, offset by an increase of $7,128 for the purchase of property and equipment primarily for the expansion of our manufacturing facilities.

Cash flows used in financing activities.

Net cash from financing activities decreased by $197,034 in 2021 as compared to 2020, driven primarily by $188,958 in net proceeds generated from the May 2020 public stock offering.

Net cash used in equity compensation plan activity increased $6,791 primarily due to the increase in shares repurchased for payment of taxes on stock awards and decrease in proceeds from stock option exercises.

The remaining increase in cash used in financing activities was a result of an increase in payment of debt fees.

Inflation has not had a significant impact on our historical operations, and we do not expect it to have a significant impact on our results of operations or financial condition in the foreseeable future.

We have monitored and will continue to monitor the components of cost of revenue and operating expenses for the potential impact of inflation.

Net cash from financing activities decreased by $583 in 2022 compared to 2021, driven by $1,171 reduced debt fee payments, offset by an $505 increase in net cash used in equity compensation plan activity.

Lower stock performance contributed to less proceeds from stock option exercise activity and fewer shares repurchased for payment of taxes for stock awards offset with slight increases in employee stock purchase plan activity.

Inflationary pressures may have an adverse impact on our results of operations or financial condition in the foreseeable future.

Inflation has impacted our operating costs throughout 2022.

Continued increases in our cost of revenue may effect our ability to maintain our gross margin if the selling prices of our products do not increase commensurately, while continued increases in our operating expenses may adversely effect our operating results and the ability to make discretionary investments.

We will continue to monitor the impact of inflation on our cost of revenue and operating expenses.

Critical Accounting Policies and Estimates

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We believe the following critical accounting policies involve a significant level of estimation uncertainty and judgments that are reasonably likely to have a material impact on our Consolidated Financial Statements.

We base our judgments and estimates on historical experience, current conditions and other reasonable factors.

judgments and estimates on historical experience, current conditions and other reasonable factors.

Actual results could differ from those estimates under different assumptions or conditions.

Revenue Recognition— Revenue is generated primarily from the sale of medical devices.

Revenue Recognition— Revenue is generated from the sale of medical devices.

We recognize revenue in an amount that reflects the consideration we expect to be entitled to in exchange for those devices when control of promised devices is transferred to customers.

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

IPR&D Intangible Asset— In Process Research and Development (IPR&D) represents the value of acquired technology which has not yet reached technological feasibility.

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

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

Upon completion of the development project, the IPR&D will be converted to a technology asset and amortized over its estimated useful life.

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

As a result, we identified impairment indicators for the IPR&D asset that represented an estimate of the fair value of the PMA that could result from the aMAZE clinical trial and recorded an impairment charge of $ 82,300 .

Share-Based Employee Compensation— We estimate the fair value of performance share awards with a performance condition based on the closing stock price on the date of grant assuming the performance goal will be achieved.

Share-Based Employee Compensation— We estimate the fair value of performance share awards with a performance condition initially based on the closing stock price on the date of grant assuming the performance goal will be achieved.

Such performance share awards have specified performance targets based on the compound annual growth rate (CAGR) of our revenue over a three-year performance period.

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

Contingent Consideration— Contingent consideration arrangements obligate the Company to pay former shareholders of acquired companies certain amounts if specified future events occur or conditions are met, such as the achievement of certain regulatory or reimbursement milestones.

We measure such liabilities using unobservable inputs by applying the probability-weighted scenario method.

Various key assumptions, such as the probability and timing of achievement of the agreed milestones, are used in the determination of fair value of contingent consideration arrangements

and are not observable in the market.

Subsequent revisions to key assumptions, which impact the estimated fair value of contingent consideration liabilities, are reflected in selling, general and administrative expenses.

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

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

Our estimate of the valuation allowance for deferred tax assets requires us to make significant estimates and judgments about our future operating results.

Our estimate of the valuation allowance for deferred tax assets requires significant estimates and judgments about our future operating results.

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

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

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

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

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

1 unchanged sentence

Recent Accounting Pronouncements

See Note 2 – Recent Accounting Pronouncements to our Consolidated Financial Statements for further information.

See Note 1 – Description of Business and Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8 of Part II for more information regarding recent accounting pronouncements.

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-K

Item 7. Management’s Discussion and Analysis