What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-22 compared with 2022-02-17 · 301 added, 376 removed, 608 unchanged (53% of the section changed)

6 unchanged sentences

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Income (Loss)

Consolidated Statements of Operations and Comprehensive (Loss) Income

Consolidated Statements of Stockholders’ Equity

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Notes to Consolidated Financial Statements

Financial Statement Schedule:

Schedule II Valuation and Qualifying Accounts

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have audited the accompanying consolidated balance sheets of AtriCure, Inc.

and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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Critical Audit Matter Description

Performance share awards (PSAs) granted in 2021 have two equally weighted performance targets measured at the end of the three-year performance period:

Performance share awards (PSAs) granted in 2022 have two performance targets measured at the end of the three-year performance period:

(i) the Company's revenue compound annual growth rate, a performance condition;

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The performance and market condition payouts are determined independently.

The number of PSAs with a market condition that vest and are issued to the recipient is based upon the Company's TSR relative to the TSR of the selected peer group at the end of the three-year performance period.

The number of PSAs with a market condition that vest and are issued to the recipient is based upon the Company's TSR relative to the TSR of the selected market index at the end of the three-year performance period.

A Monte Carlo simulation was performed to estimate the fair value on the date of grant, with associated share-based compensation expense recognized over the requisite service period as the employee renders service.

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

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

Given the level of judgment involved by management, including the use of a specialist, to determine the grant date fair value of the PSAs with a market condition, audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

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Short-term investments 63,014 75,436

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

Accounts receivable, less allowance for credit losses of $ 230 and $ 1,096

42,693 33,021

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Total current assets 215,214 196,076

Long-term investments 51,509 104,338

Property and equipment, net 38,833 31,409

Operating lease right-of-use assets 3,787 4,761

Long-term investments 104,338 14,178

Intangible assets, net 39,339 42,992

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Operating lease liabilities 3,095 4,068

Contingent consideration and other noncurrent liabilities 1,220 187,424

Other noncurrent liabilities 1,226 1,220

Total Liabilities 128,694 131,556

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Additional paid-in capital 787,422 764,811

Accumulated other comprehensive (loss) income ( 948 ) 312

Accumulated other comprehensive loss ( 4,096 ) ( 948 )

Accumulated deficit ( 326,619 ) ( 280,153 )

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

YEARS ENDED DECEMBER 31, 2022, 2021 and 2020

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Total operating expenses 288,609 150,655 193,542

Income (loss) from operations 55,205 ( 44,233 ) ( 33,122 )

(Loss) income from operations ( 42,669 ) 55,205 ( 44,233 )

Other income (expense):

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Other ( 537 ) ( 366 ) ( 24 )

Income (loss) before income tax expense 50,387 ( 48,041 ) ( 34,995 )

(Loss) income before income tax expense ( 46,198 ) 50,387 ( 48,041 )

Income tax expense 268 188 114

Net income (loss) $ 50,199 $ ( 48,155 ) $ ( 35,194 )

Net income (loss) per share:

Basic net income (loss) per share $ 1.11 $ ( 1.14 ) $ ( 0.94 )

Diluted net income (loss) per share $ 1.09 $ ( 1.14 ) $ ( 0.94 )

Net (loss) income $ ( 46,466 ) $ 50,199 $ ( 48,155 )

Net (loss) income per share:

Basic net (loss) income per share $ ( 1.02 ) $ 1.11 $ ( 1.14 )

Diluted net (loss) income per share $ ( 1.02 ) $ 1.09 $ ( 1.14 )

Weighted average shares outstanding:

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Comprehensive (loss) income:

Unrealized (loss) gain on investments $ ( 941 ) $ ( 46 ) $ 137

Unrealized loss on investments $ ( 2,811 ) $ ( 941 ) $ ( 46 )

Foreign currency translation adjustment ( 337 ) ( 319 ) 516

Other comprehensive (loss) income ( 3,148 ) ( 1,260 ) 470

Net income (loss) 50,199 ( 48,155 ) ( 35,194 )

Comprehensive income (loss), net of tax $ 48,939 $ ( 47,685 ) $ ( 35,153 )

Net (loss) income ( 46,466 ) 50,199 ( 48,155 )

Comprehensive (loss) income, net of tax $ ( 49,614 ) $ 48,939 $ ( 47,685 )

See accompanying notes to consolidated financial statements.

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39,655 $ 40 $ 529,658 $ ( 282,197 ) $ ( 158 ) $ 247,343

Issuance of common stock for SentreHEART acquisition 699 1 20,306 — — 20,307

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

Issuance of common stock under equity incentive plans 1,013 — ( 2,194 ) — — ( 2,194 )

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

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

Issuance of common stock under equity incentive plans 589 1 ( 9,837 ) — — ( 9,836 )

1 unchanged sentence

Share-based employee compensation expense — — 28,078 — — 28,078

Other comprehensive income — — — — 470 470

Net loss — — — ( 48,155 ) — ( 48,155 )

Other comprehensive loss — — — — ( 1,260 ) ( 1,260 )

Net income — — — 50,199 — 50,199

Balance—December 31, 2021

4 unchanged sentences

Other comprehensive loss — — — — ( 3,148 ) ( 3,148 )

Net income — — — 50,199 — 50,199

Net loss — — — ( 46,466 ) — ( 46,466 )

Balance—December 31, 2022

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Cash flows from operating activities:

Net income (loss) $ 50,199 $ ( 48,155 ) $ ( 35,194 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Net (loss) income $ ( 46,466 ) $ 50,199 $ ( 48,155 )

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Share-based compensation expense 28,771 28,078 22,642

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Amortization of deferred financing costs 507 759 509

Amortization (accretion) of investments 2,482 1,236 ( 922 )

Amortization of investments 1,478 2,482 1,236

Change in fair value of contingent consideration — ( 184,800 ) ( 357 )

Intangible asset impairment — 82,300 —

Other adjustments to income 1,607 1,347 2,118

Changes in operating assets and liabilities, net of amounts acquired:

Other non-cash adjustments 739 1,607 1,347

Changes in operating assets and liabilities:

Accounts receivable ( 8,989 ) ( 10,087 ) 5,087

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Purchases of property and equipment ( 16,881 ) ( 9,753 ) ( 5,259 )

Proceeds from sale of property and equipment — — 39

Proceeds from capital grant — — 800

Cash paid for SentreHEART business combination — — ( 17,240 )

Net cash provided by (used in) investing activities 44,006 23,504 ( 156,198 )

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Proceeds from issuance of common stock under employee stock purchase plan 4,225 4,181 3,330

Proceeds from economic incentive loan — — 500

Net cash (used in) provided by financing activities ( 7,059 ) ( 7,642 ) 189,392

Effect of exchange rate changes on cash and cash equivalents ( 361 ) ( 372 ) 136

Net increase (decrease) in cash and cash equivalents 1,710 13,461 ( 3,748 )

Net increase in cash and cash equivalents 14,445 1,710 13,461

Cash and cash equivalents—beginning of period 43,654 41,944 28,483

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Non-cash investing and financing activities:

Contingent consideration in business combinations — — 171,300

Stock issuance in business combinations — — 20,307

Accrued purchases of property and equipment 272 1,552 298

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All intercompany accounts and transactions have been eliminated in consolidation.

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

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

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

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

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

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

This generally occurs upon shipment of goods to customers.

See Note 12 for further discussion on revenue.

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

Sales of devices are categorized based on the type of product as follows:

open ablation, minimally invasive ablation, pain management and appendage management.

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

Revenue is recognized at a point in time upon shipment or delivery of products.

Shipping and handling activities performed after control transfers to customers are considered activities to fulfill the promise to transfer the products.

Revenue includes shipping and handling revenue of $ 1,496 , $ 1,354 and $ 1,192 in the years ended December 31, 2022, 2021 and 2020.

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

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

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

no installation, calibration or testing of products is performed subsequent to shipment in order to render products operational.

The Company expects to be entitled to the total consideration for the products ordered as product pricing is fixed and payment terms fall within one year to forgo adjustment for the effects of a significant financing component.

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

Costs associated with product sales include commission expense for product sales and royalties paid for sales of certain products.

As revenue from product sales are satisfied at a point in time, commission expense and royalties are incurred at that point in time rather than over time.

Commissions are included in selling, general and administrative expenses, while royalties are included in cost of revenue.

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

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

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

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

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

Recoveries are recognized when received as a reduction to the allowance for credit losses by decreasing bad debt expense.

The following

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the years ended December 31, 2022, 2021 and 2020:

Year Ended December 31,

2022 2021 2020

Beginning balance - January 1 $ 1,096 $ 1,096 $ 1,124

Adoption of ASU 2016-13 — — ( 28 )

Provision for expected credit losses 190 65 —

Recovery ( 1,056 ) ( 65 ) —

Ending balance - December 31 $ 230 $ 1,096 $ 1,096

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

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

Depreciation is determined using the straight-line method over the estimated useful lives of assets (see Note 7).

Depreciation is determined using the straight-line method over the estimated useful life.

The estimated useful life of leasehold improvements is the shorter of the estimated life or the lease term.

The estimated useful lives of buildings is 15 to 20 years, while furniture, fixtures, computers and office equipment are depreciated from three to seven years .

The Company’s radiofrequency and cryothermic generators are generally placed with customers that use the Company’s disposable products.

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

Depreciation related to generators is recorded in cost of revenue over three years .

Maintenance and repair costs are expensed as incurred.

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

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

Property and equipment impairment has not been significant.

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

The estimated useful lives of generators are based on anticipated usage by customers and may change

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

in future periods with changes in usage or introduction of new technology.

Depreciation related to generators and other capital equipment is recorded in cost of revenue.

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

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

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

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

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

Long-lived Assets— The Company reviews property and equipment and intangible assets, excluding goodwill, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset's carrying value.

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

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The Company uses the implicit rate when readily determinable;

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

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

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

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

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

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

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

See Note 10 for further discussion.

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

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

The primary basis for determining 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, IPR&D will be converted to a technology asset and amortized over its estimated useful life.

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

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

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

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

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

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

During the year ended December 31, 2021, the Company identified indicators of impairment for the IPR&D asset that represented an estimate of the fair value of the PMA that could result from the aMAZE clinical trial.

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

See Note 3 for further discussion.

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

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

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

Contingent Consideration and Other Noncurrent Liabilities— This balance consists of asset retirement obligations and other contractual obligations.

The balance in prior periods also includes contingent consideration from business combinations, as well as deferred payroll taxes as a result of the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

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

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

however, as most leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate.

The Company also applies the short-term lease recognition exemption, recognizing lease payments in profit or loss, for lease terms of 12 months or less at commencement and with no option to extend the lease whose exercise is reasonably certain.

The Company accounts for the lease and non-lease components as a single lease component.

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

ATRICURE, INC.

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(In Thousands, Except Per Share Amounts)

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

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

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

See Note 9 for further discussion.

Other Noncurrent Liabilities— This balance consists of contractual obligations, including asset retirement obligations.

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 assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

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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 income 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 income 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.

The Company's valuation allowance offsets substantially all net deferred income tax assets as it is more-likely-than-not that the benefit of the deferred income tax assets will not be recognized in future periods.

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

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

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

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

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

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2022 2021 2020

Net income (loss) available to common stockholders $ 50,199 $ ( 48,155 ) $ ( 35,194 )

Net (loss) income available to common stockholders $ ( 46,466 ) $ 50,199 $ ( 48,155 )

Basic weighted average common shares outstanding 45,740 45,066 42,125

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Diluted weighted average common shares outstanding 45,740 46,039 42,125

Basic net income (loss) per common share $ 1.11 $ ( 1.14 ) $ ( 0.94 )

Diluted net income (loss) per common share $ 1.09 $ ( 1.14 ) $ ( 0.94 )

The computation of diluted earnings per share in the year ended December 31, 2021 excludes 404 shares because the effect would be anti-dilutive.

For the years ended December 31, 2020 and 2019, the number of shares calculated for basic net loss per share is also used for the diluted net loss per share calculation, and net loss per share excludes the effect of 2,301 and 3,623 shares because the effect would be anti-dilutive.

Basic net (loss) income per common share $ ( 1.02 ) $ 1.11 $ ( 1.14 )

Diluted net (loss) income per common share $ ( 1.02 ) $ 1.09 $ ( 1.14 )

For the years ended December 31, 2022 and 2020, the number of shares calculated for basic net loss per share is also used for the diluted net loss per share calculation, and net loss per share excludes the effect of 1,292 and 2,301 shares

ATRICURE, INC.

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(In Thousands, Except Per Share Amounts)

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

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

2021 2020 2019

Total accumulated other comprehensive income (loss) at beginning of period $ 312 $ ( 158 ) $ ( 199 )

Unrealized gains (losses) on investments

Balance at beginning of period $ 54 $ 100 $ ( 37 )

Other comprehensive (loss) income before reclassifications ( 941 ) ( 70 ) 137

Amounts reclassified from accumulated other comprehensive income (loss) to interest income — 24 —

Balance at end of period $ ( 887 ) $ 54 $ 100

Foreign currency translation adjustment

Balance at beginning of period $ 258 $ ( 258 ) $ ( 162 )

Other comprehensive (loss) income before reclassifications ( 768 ) 555 ( 277 )

Amounts reclassified from accumulated other comprehensive income (loss) to other income (expense) 449 ( 39 ) 181

Balance at end of period $ ( 61 ) $ 258 $ ( 258 )

Total accumulated other comprehensive (loss) income at end of period $ ( 948 ) $ 312 $ ( 158 )

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

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

because the effect would be anti-dilutive.

The computation of diluted earnings per share in the year ended December 31, 2021 excludes 404 shares because the effect would be anti-dilutive.

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

Research and development costs are expensed as incurred.

Clinical trial costs and other development costs incurred by third parties are expensed as contracted work is performed.

Advertising Costs — The Company expenses advertising costs as incurred.

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

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

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

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

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

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

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The Company’s determination of the fair value is affected by the Company and market index stock performance, as defined by the award agreement, at the beginning of the service period and grant date;

the expected volatility of the Company and market index stock performance over the performance period and the correlation coefficient of the daily returns for the Company and market index over the performance period.

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

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Expense is adjusted at the time of stock purchase.

Use of Estimates— The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets, contingent assets and liabilities and the reported amounts of revenue and expense during the reporting period.

Use of Estimates— The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets, contingent assets and liabilities 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 Company evaluates reporting segments in accordance with FASB ASC 280, “Segment Reporting”.

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

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

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

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.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The Company’s long-lived assets are located in the United States, except for $ 1,616 as of December 31, 2022 and $ 1,399 as of December 31, 2021 located primarily in Europe.

Fair Value Disclosures —The Company classifies cash investments in U.S.

government and agency obligations, accounts receivable, short-term other assets, accounts payable and accrued liabilities as Level 1.

government and agency obligations, accounts receivable, other current assets, and accounts payable as Level 1.

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

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See Note 2 – Fair Value for further information on fair value measurements.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2021, the FASB issued Accounting Standard Update (ASU) 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance” (ASU 2021-10).

This guidance requires business entities to provide certain disclosures when they have received government assistance and use a grant or contribution accounting model by analogy to other accounting guidance.

The guidance becomes effective for annual reporting periods beginning after December 15, 2021.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures.

FASB 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.

Recent Accounting Pronouncements —The Company has considered all recent accounting pronouncements and has concluded that there are no recent accounting pronouncements which are expected to have a material effect on the Company's financial statements.

The Company continues to monitor and evaluate recently issued accounting guidance upon issuance for any potential impact.

FASB ASC 820, “Fair Value Measurements and Disclosures”, 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.

24 unchanged sentences

Total assets $ 32,637 $ 136,300 $ — $ 168,937

Contingent consideration $ — $ — $ — $ —

Total liabilities $ — $ — $ — $ —

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the years ended December 31, 2022 and 2021.

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2021:

10 unchanged sentences

Contingent Consideration.

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

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the years ended December 31, 2021 and 2020.

Contingent Consideration.

The Company's contingent consideration arrangements arising from the SentreHEART acquisition obligate the Company to pay certain defined amounts to former shareholders of SentreHEART if specified milestones are met related to the aMAZE IDE clinical trial, including PMA approval and reimbursement for the therapy involving SentreHEART's devices, as follows:

• PMA Milestone – up to $ 140,000 upon receiving PMA from FDA for the LARIAT system with an approved indication allowing commercial distribution in the United States for the exclusion of the LAA for treatment of atrial fibrillation.

The full contingent consideration amount is only received if PMA approval is received on or before December 31, 2022.

The potential contingent consideration is reduced by 4.17 % (or one-twenty-fourth) each month following December 2022 and is reduced to zero if the milestone is achieved after December 31, 2023.

Payment of $ 25,000 of

The achievement periods for the PMA approval and reimbursement milestones expire on December 31, 2023 and December 31, 2026, respectively.

The contingent consideration liabilities are measured by applying the probability weighted scenario method using unobservable inputs, thus representing a Level 3 measurement within the fair value hierarchy.

During 2021, the Company was informed that data from the aMAZE clinical trial did not achieve statistical superiority, and the Company assessed the projected probability of payment to be remote.

The Company recorded a credit to operating expenses of $ 184,800 reflecting the change in fair value of the contingent consideration.

The Company has assessed the projected probability of payment during the contractual achievement periods to be remote, resulting in no fair value as of December 31, 2022 and 2021.

ATRICURE, INC.

2 unchanged sentences

(In Thousands, Except Per Share Amounts)

the PMA milestone may be accelerated upon achievement of an Interim Success Milestone as defined by the merger agreement.

• CPT Reimbursement Milestone – up to $ 120,000 upon American Medical Association approval of a Medicare Category 1 Current Procedural Terminology (CPT) Code.

The full contingent consideration amount is only received if approval of the CPT Code is received on or before December 31, 2025.

The potential contingent consideration is reduced by 4.17 % (or one-twenty-fourth) each month following December 2025 and is reduced to zero if the milestone is achieved after December 31, 2026.

Subject to the terms and conditions of the SentreHEART merger agreement, all contingent consideration would be paid in cash and stock at the discretion of the Company, subject to certain minimums and limitations, with the maximum number of shares that may be issued after closing limited to 6,322 , representing total shares that may be issued in connection with the merger of 7,021 less 699 shares paid at closing.

The maximum contingent consideration payable by AtriCure will not exceed $ 260,000 .

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

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

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

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

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

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

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

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

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

Accordingly, the Company recorded a credit to operating expenses of $ 184,800 reflecting the change in fair value of the contingent consideration.

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 December 31, 2021.

The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration for each of the years ended December 31:

5 unchanged sentences

$ — $ — $ 184,800

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

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

Investments as of December 31, 2022 consisted of the following:

14 unchanged sentences

Total $ 180,661 $ ( 887 ) $ 179,774

The Company has not experienced any significant realized gains or losses on its investments in the years ended December 31, 2021, 2020 and 2019.

INTANGIBLE ASSETS AND GOODWILL

The following table provides a summary of the Company’s intangible assets at December 31:

Cost Accumulated Amortization Cost Accumulated Amortization

Technology 5 - 15 years

The gross realized gains or losses from sales of available-for-sale investments were not material in the years ended December 31, 2022, 2021 and 2020.

The cost and fair value of investments in debt securities, by contractual maturity, as of December 31, 2022 were as follows:

Available-for-sale

Amortized Cost Fair Value

Due in 1 year or less

$ 63,596 $ 62,840

IPR&D — — 126,321 —

Due after 1 year through 5 years

52,142 49,330

Due after 5 years through 10 years

Instruments not due at a single maturity date 2,483 2,353

Total $ 118,221 $ 114,523

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

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

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

During the third quarter 2021, an impairment test was performed using estimates based on reasonable and supportable assumptions and projections of expected future cash flows, and the Company recorded an impairment charge of $ 82,300 , reducing the carrying value of the aMAZE IPR&D asset to $ 0 as of December 31, 2021.

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

Amortization expense of intangible assets with definite lives, which excludes IPR&D assets, was $ 2,907 , $ 1,682 and $ 1,943 for the years ended December 31, 2021, 2020 and 2019.

Instruments not due at a single maturity date consist of asset-backed securities.

Actual maturities may differ from the contractual maturities due to call or prepayment rights.

ATRICURE, INC.

2 unchanged sentences

(In Thousands, Except Per Share Amounts)

INTANGIBLE ASSETS AND GOODWILL

The following table provides a summary of the Company’s intangible assets at December 31:

Cost Accumulated Amortization Cost Accumulated Amortization

Technology $ 46,470 $ 7,131 $ 55,712 $ 12,720

During 2021, the Company recorded an impairment charge of $ 82,300 to reduce the carrying value of the aMAZE IPR&D asset to $ 0 as of December 31, 2022 as a result of data from the aMAZE clinical trial not achieving statistical superiority.

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

The $ 9,242 reduction in technology cost and accumulated amortization during 2022 is a result of a write-off fully-amortized asset no longer in use.

Amortization expense of intangible assets was $ 3,653 , $ 2,907 and $ 1,682 for the years ended December 31, 2022, 2021 and 2020.

Future amortization expense is projected as follows:

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Inventories $ 45,931 $ 38,964

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31:

Estimated Useful Life 2021 2020

Generators and related equipment 1 - 3 years

$ 20,175 $ 18,669

Building under finance lease 15 years

14,250 14,250

Computer, software and office equipment 3 - 5 years

Machinery and equipment 3 - 7 years

Furniture and fixtures 3 - 7 years

Leasehold improvements 5 - 15 years

Construction in progress N/A 5,999 2,067

Land N/A 1,006 502

Equipment under finance leases 3 - 5 years

Buildings and improvements $ 28,947 $ 22,977

Generators 21,354 20,175

Machinery and office equipment 20,184 14,758

Computer equipment and software 10,251 7,762

Construction in progress 3,909 5,999

Land 1,006 1,006

Total 85,651 72,677

2 unchanged sentences

Property and equipment depreciation expense was $ 8,057 , $ 7,534 and $ 7,866 for the years ended December 31, 2022, 2021 and 2020.

Depreciation related to generators and other capital equipment was $ 2,327 , $ 2,503 and $ 2,910 for

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

fiscal years 2021, 2020 and 2019.

As of December 31, 2022 and 2021, the net carrying value of generators and other capital equipment was $ 4,447 and $ 3,637 .

2 unchanged sentences

Accrued compensation and employee-related expenses $ 26,924 $ 30,990

Sales returns and allowances 2,416 1,889

Accrued taxes and value-added taxes payable 1,452 1,256

Accrued royalties 754 703

Other accrued liabilities 3,301 2,686

Accrued legal settlement 10 6,000

Sales returns and allowances 2,797 2,416

Total $ 33,022 $ 36,092

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The Company is accruing the 3.00 % fee over the term of the Loan Agreement, with $ 420 included in the outstanding loan balance as of December 31, 2022.

Additionally, the unamortized original financing costs related to the term loan of $ 319 are netted against the outstanding loan balance in the Consolidated Balance Sheets and are amortized ratably over the term of the Loan Agreement.

Additionally, the unamortized financing costs related to the term loan of $ 253 are netted against the outstanding loan balance in the Consolidated Balance Sheets and are amortized ratably over the term of the Loan Agreement.

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

2 unchanged sentences

Financing costs related to the revolving line of credit are included in other assets in the Consolidated Balance Sheets and amortized ratably over the twelve-month period of the annual fee.

The Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes a minimum liquidity covenant and dividend restrictions, along with other customary terms and conditions.

Specified assets have been pledged as collateral.

Future maturities of long-term debt, excluding the term loan final fee, are projected as follows:

Total long-term debt, of which $ 60,000 is noncurrent

The Company has operating and finance leases for offices, manufacturing and warehouse facilities and computer equipment.

The Company’s leases have remaining lease terms of one to nine years .

Options to renew or extend leases

ATRICURE, INC.

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(In Thousands, Except Per Share Amounts)

beyond their initial term have been excluded from measurement of the ROU assets and lease liabilities for the majority of leases as exercise is not reasonably certain.

Specified assets have been pledged as collateral.

Future maturities of long-term debt, excluding the term loan final fee, are projected as follows:

Total long-term debt, of which $ 3,333 is current and $ 56,667 is noncurrent

The Company has operating and finance leases for offices, manufacturing and warehouse facilities and computer equipment.

The Company’s leases have remaining lease terms of one to eight years .

Options to renew or extend leases beyond their initial term have been excluded from measurement of the ROU assets and lease liabilities for the majority of leases as exercise is not reasonably certain.

The weighted average remaining lease term and the discount rate for the reporting periods are as follows:

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Weighted average discount rate 6.92 % 6.91 % 6.91 %

A letter of credit for $ 1,250 was issued to the lessor of the Company's corporate headquarters building in October 2015, which is renewed annually and remains outstanding as of December 31, 2021.

A letter of credit for $ 1,250 was issued to the lessor of the Company's corporate headquarters building in October 2015, and is renewed annually and remains outstanding as of December 31, 2022.

The components of lease expense are as follows:

7 unchanged sentences

Short term lease expense was not significant for the twelve months ended December 31, 2022, 2021 and 2020.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

Supplemental cash flow information related to leases was as follows:

8 unchanged sentences

Finance Leases 62 — 22

Operating lease right-of-use asset obtained in business combination — — 2,929

Early termination of operating lease — — 2,743

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

Supplemental balance sheet information related to leases was as follows:

23 unchanged sentences

Less imputed interest ( 462 ) ( 3,051 )

Total $ 4,929 $ 10,977

Total lease liabilities $ 4,242 $ 10,139

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

COMMITMENTS AND CONTINGENCIES

Royalty Agreements.

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

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

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

Royalty expense of $ 3,124 , $ 2,596 and $ 2,892 was recorded for the years ended December 31, 2021, 2020 and 2019.

License Agreements.

The Company has a license agreement that requires payments of 5 % of specified product sales.

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

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

Royalty expense was $ 3,264 , $ 3,124 and $ 2,596 for the years ended December 31, 2022, 2021 and 2020.

Purchase Agreements.

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

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

Approximately $ 3,800 of construction costs remain committed and outstanding.

The Company may, from time to time, become a party to legal proceedings.

1 unchanged sentence

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

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

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

4 unchanged sentences

The Company provided the USDOJ with documents and answers to the written interrogatories.

In March 2021, USDOJ informed the Company that its investigation was based on a lawsuit brought on behalf of the United States and the various state and local government under the qui tam provisions of federal and certain state and local False Claims Acts.

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

The Company is vigorously contesting the case, however, it is not possible to predict when this matter may be resolved or what impact, if any, the outcome of this matter might have on our consolidated financial position, results of operations or cash flows.

The Company acquired nContact Surgical, Inc.

pursuant to a merger agreement dated October 4, 2015.

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

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

In response to the reports delivered in and after February 2018, the Company received letters from representatives purporting to serve as “earnout objection statements” (as that term is defined in the merger agreement) and claim that for purposes of determining the commercial milestone payment, the Company should be including revenues of certain additional items and products that the Company has not included in its earnout statements.

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

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

Revenue is generated primarily from the sale of medical devices.

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

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

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

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

Sales of devices are categorized as follows:

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

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

Revenue includes shipping and handling revenue of $ 1,354 , $ 1,192 and $ 1,485 in the years ended December 31, 2021, 2020 and 2019.

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

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

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

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

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

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

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

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

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

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

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

During the third quarter of 2022, the relator filed a Fourth Amended Complaint, which dropped allegations of off-label promotion and now alleges that the Company paid illegal kickbacks to healthcare providers in exchange for using or referring the Company’s products, in violation of the federal Anti-Kickback Statute and various comparable state and local laws.

While the Company is 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.

On August 23, 2022, the Cleveland Clinic Foundation (“Clinic”) and IDx Medical, Ltd.

(“IDX”) filed a Demand for Arbitration against the Company with the American Arbitration Association (“AAA”), alleging that the Company breached certain provisions of the License Agreement dated December 9, 2003 among the Company, Clinic and IDX (“License Agreement”).

Clinic and IDX allege the Company did not include the revenues from sales of certain products in its calculation of royalty payments due under the License Agreement.

Clinic and IDX also allege that the Company did not provide related notices required under the License Agreement.

The Demand for Arbitration requests a declaration that the termination of the License Agreement shall not occur until the expiration of certain patents and that the Company violated the License Agreement’s non-competition provisions.

Clinic and IDX claim they are entitled to no less than $ 6 million plus interest and costs, fees and expenses associated with their claims and future royalties.

The Company denies the allegations of Clinic and IDX.

The Company filed its Answering Statement and Counterclaims to the allegations in September 2022, denying each claim and counterclaiming for breach of contract, correction of inventorship, declaratory judgment, patent prosecution and legal fees.

This arbitration has been scheduled for May 2023.

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 marketed to a broad base of medical centers globally.

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

Specifically, pain management revenue, representing

ATRICURE, INC.

2 unchanged sentences

(In Thousands, Except Per Share Amounts)

Costs associated with product sales include commissions and royalties.

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

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

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

See Note 17 for disaggregated revenue by geographic area and by product category.

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

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

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

United States revenue by product type is as follows:

2022 2021 2020

Open ablation $ 86,119 $ 72,396 $ 65,301

Minimally invasive ablation 38,553 39,380 25,647

Pain management 39,974 22,787 11,315

Total ablation $ 164,646 $ 134,563 $ 102,263

Appendage management 112,555 94,568 66,981

Total United States $ 277,201 $ 229,131 $ 169,244

International revenue by product type is as follows:

2022 2021 2020

Open ablation $ 26,809 $ 23,194 $ 18,760

Minimally invasive ablation 5,986 6,409 6,171

Pain management 558 61 3

Total ablation $ 33,353 $ 29,664 $ 24,934

Appendage management 19,825 15,534 12,353

Total International $ 53,178 $ 45,198 $ 37,287

Revenue attributed to customer geographic locations is as follows:

2022 2021 2020

United States $ 277,201 $ 229,131 $ 169,244

Europe 30,428 27,931 23,217

Asia 20,734 16,077 13,118

Other International 2,016 1,190 952

Total International 53,178 45,198 37,287

Total Revenue $ 330,379 $ 274,329 $ 206,531

The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations.

3 unchanged sentences

The Company's valuation allowance offsets substantially all its net deferred tax assets as it is more likely than not that the benefit of the deferred tax assets will not be recognized in future periods.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The Company’s provision for income taxes for each of the years ended December 31 is as follows:

12 unchanged sentences

Total tax expense $ 268 $ 188 $ 114

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The detail of deferred tax assets and liabilities at December 31 is as follows:

Deferred tax assets (liabilities):

Deferred tax assets:

Net operating loss carryforwards $ 138,263 $ 137,920

Research and development credit carryforwards 13,205 11,269

Intangible assets ( 9,993 ) ( 30,773 )

Research and experimental expenditures 10,104 —

Equity compensation 8,287 7,974

Finance and operating lease liabilities 3,395 3,700

Right-of-use assets ( 3,037 ) ( 2,547 )

Deferred interest 2,411 2,469

1 unchanged sentence

Accruals and reserves 1,332 1,755

Property and equipment ( 1,264 ) ( 1,315 )

Other 506 587

Subtotal 153,814 117,063

Less valuation allowance ( 153,798 ) ( 117,025 )

Total $ 16 $ 38

The Company has federal net operating loss carryforwards of $ 336,792 which expire between 2022 and 2037 and $ 175,883 which has no expiration.

Total deferred tax assets 179,399 168,108

Deferred tax liabilities:

Intangible assets ( 9,278 ) ( 9,993 )

Right-of-use assets ( 2,626 ) ( 3,037 )

Property and equipment ( 2,568 ) ( 1,264 )

Total deferred tax liabilities ( 14,472 ) ( 14,294 )

Valuation allowance ( 164,918 ) ( 153,798 )

Net deferred tax assets $ 9 $ 16

Provisions enacted in the Tax Cut and Jobs Act of 2017 related to the capitalization of research and experimental expenditures for tax purposes became effective on January 1, 2022.

These provisions require us to capitalize and amortize research and experimental expenditures for tax purposes over five or fifteen years , depending on where research is conducted.

The Company has federal net operating loss carryforwards of $ 331,169 which expire between 2023 and 2037 and $ 175,758 which have no expiration.

The Company has state and local net operating loss carryforwards of $ 322,819 which expire between 2023 to 2042.

1 unchanged sentence

The Company has federal research and development credit carryforwards of $ 13,205 which expire between 2023 and 2042.

Additionally, the Company has foreign net operating loss carryforwards of approximately $ 50,817 which expire between 2022 and 2027 .

Additionally, the Company has foreign net operating loss carryforwards of approximately $ 60,381 which have no expiration.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The Company’s 2022, 2021 and 2020 effective income tax rates differ from the federal statutory rate as follows:

8 unchanged sentences

Effective tax rate ( 0.6 ) % $ 268 0.4 % $ 188 ( 0.2 ) % $ 114

The Company’s pre-tax book loss for domestic and international operations was $ 55,666 and $( 5,279 ) for 2021, $( 43,218 ) and $( 4,823 ) for 2020 and $( 28,002 ) and $( 6,993 ) for 2019.

The Company’s pre-tax book (loss) income for domestic and international operations was $( 38,008 ) and $( 8,190 ) for 2022, $ 55,666 and $( 5,279 ) for 2021 and $( 43,218 ) and $( 4,823 ) for 2020.

The Company had undistributed earnings of foreign subsidiaries of approximately $ 379 at December 31, 2022.

5 unchanged sentences

The Company has not recognized certain tax benefits because of the uncertainty of realizing the entire value of the tax position taken on income tax returns upon review by the taxing authorities.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

A reconciliation of the change in federal and state unrecognized tax benefits for 2022, 2021 and 2020 is presented below:

6 unchanged sentences

Balance at the end of the year $ 1,762 $ 1,798 $ 1,798

The increase in unrecognized tax benefits in 2019 relates to uncertain income tax benefits assumed pursuant to the SentreHEART acquisition.

Historically, the Company has not incurred any significant interest and penalties for unrecognized income tax benefits as a result of offsetting net operating losses.

Interest and penalties associated with uncertain income tax benefits assumed pursuant to the SentreHEART acquisition were recognized as part of purchase accounting.

The amount is not significant.

The balance of unrecognized tax benefits at December 31, 2022, 2021 and 2020 includes $ 1,762 , $ 1,798 and 1,798 of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes and valuation allowance.

5 unchanged sentences

No individual customer accounted for more than 10% of the Company’s accounts receivable as of December 31, 2022 and 2021.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The Company maintains cash and cash equivalents balances at financial institutions which at times exceed FDIC limits.

5 unchanged sentences

Eligible employees may contribute pre-tax annual compensation up to specified maximums under the Internal Revenue Code.

During the year ended December 31, 2022, the Company made matching contributions of 50 % on the first 8 % of employee contributions to the 401(k) Plan.

During the year ended December 31, 2021 and 2020, the Company made matching contributions of 50 % on the first 6 % of employee contributions to the 401(k) Plan.

1 unchanged sentence

Additional amounts may be contributed to the 401(k) Plan at the discretion of the Company’s Board of Directors, however, no such discretionary contributions were made in 2022, 2021 or 2020.

The Company also provides retirement benefits for employees of AtriCure Europe B.V.

and other foreign subsidiaries.

Total contributions to retirement plans for these employees were $ 349 , $ 244 and $ 248 in 2021, 2020 and 2019.

The Company also provides retirement benefits for employees of its foreign subsidiaries.

Total contributions to foreign retirement plans were $ 446 , $ 349 and $ 244 in 2022, 2021 and 2020.

EQUITY COMPENSATION PLANS

2 unchanged sentences

Stock Incentive Plan

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

The Compensation

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

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.

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

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 December 31, 2022, 13,999 shares of common stock had been reserved for issuance under the 2014 Plan and 2,183 shares were available for future grants.

1 unchanged sentence

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

Performance options expire ten years from the date of grant and vest in increments of 25 shares when the volume adjusted weighted average closing price of the common stock of the Company as reported by NASDAQ (or any other exchange on which the common stock of the Company is listed) for 30 consecutive days equals or exceeds specified amounts.

A Monte Carlo simulation was performed to estimate the fair values, vesting terms and vesting probabilities for each tranche of options.

Expense calculated using these estimates was recognized over the estimated vesting terms.

As of December 31, 2017, compensation costs related to non-vested performance options were fully recognized.

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

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

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

PSAs granted in 2020 have performance targets based on the Company’s compound annual revenue growth rate (CAGR) over the three year performance period, and payout opportunities range from 0 % to 100 % of the target amount.

PSAs awarded subsequent to 2020 have two weighted performance targets:

(i) the Company’s CAGR and (ii) relative total shareholder return (TSR).

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

PSAs granted in 2021 have payout opportunities ranging from 0 % to 200 % of the target amount, based on equally weighting of the performance targets.

Awards granted in 2022 have payout opportunities ranging from 0 % to 300 % of the target amount and are weighted 60 % on the CAGR performance target and 40 % on the TSR performance target.

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

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

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

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

(i) the Company’s revenue CAGR;

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

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

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

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

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

Activity under the plans during 2022 was as follows:

5 unchanged sentences

Outstanding at January 1, 2022 653 $ 25.53

Granted 100 70.00

Exercised ( 159 ) 11.45

Cancelled ( 18 ) 46.76

Forfeited ( 13 ) 55.33

Outstanding at December 31, 2022 481 $ 29.34 4.2 $ 9,437

1 unchanged sentence

Exercisable at December 31, 2022 411 $ 23.46 3.5 $ 9,352

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $ 5,565 , $ 27,318 and $ 29,594 .

As a result of the Company’s full valuation allowance on its net deferred tax assets, no tax benefit was recognized related to the stock option exercises.

The exercise price per share of each option is equal to the fair market value of the underlying share on the date of grant.

For 2022, 2021 and 2020, $ 1,816 , $ 8,175 and $ 10,835 in cash proceeds from the exercise of stock options were included in the Consolidated Statements of Cash Flows.

Shares Grant Date

7 unchanged sentences

Outstanding at December 31, 2022 598 $ 60.00 213 $ 90.70

Number of Average

Remaining Aggregate

Shares Exercise

Contractual Intrinsic

Performance Stock Options Outstanding Price

Outstanding at January 1, 2021 175 21.04

Exercised ( 175 ) 21.04

Cancelled — —

Outstanding at December 31, 2021 — $ — 0 $ —

Exercisable at December 31, 2021 — $ — 0 $ —

The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was $ 27,318 , $ 29,594 and $ 1,985 .

As a result of the Company’s full valuation allowance on its net deferred tax assets, no tax benefit was recognized related to the stock option exercises.

The exercise price per share of each option is equal to the fair market value of the underlying share on the date of grant.

For 2021, 2020 and 2019, $ 8,175 , $ 10,835 and $ 1,202 in cash proceeds from the exercise of stock options were included in the Consolidated Statements of Cash Flows.

The total fair value of restricted stock vested during 2022, 2021 and 2020 was $ 23,242 , $ 40,510 and $ 34,200 .

6 unchanged sentences

As of December 31, 2022, there were 184 shares available for future issuance under the ESPP.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

Valuation and Expense Information Under FASB ASC 718

The following table summarizes share-based compensation expense related to employees, directors and consultants for 2021, 2020 and 2019.

The following table summarizes total share-based compensation expense related to employees, directors and consultants for 2022, 2021 and 2020.

The expense was allocated as follows:

4 unchanged sentences

Total $ 28,771 $ 28,078 $ 22,642

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The expense by award type was allocated as follows:

10 unchanged sentences

In determining compensation expense, the fair value of restricted stock awards, restricted stock units and performance share awards with a performance condition is based on the market value of the Company’s stock on the grant date of the awards or subsequent modification (as applicable).

The fair value of options is estimated on the grant date using the Black-Scholes model and includes the following assumptions:

2021 2020 2019

The fair value of options is estimated on the grant date using the Black-Scholes model.

No options were granted during 2022.

Options granted in prior years included the following assumptions:

Range of risk-free interest rate 0.43 - 1.22 %

0.30 - 1.73 %

1.43 - 2.64 %

Range of expected life of stock options (years) 5.3 to 5.7

1 unchanged sentence

40.00 - 43.00 %

40.00 - 42.00 %

Weighted-average volatility 41.84 % 41.54 %

Dividend yield 0.00 % 0.00 %

The Company’s estimate of volatility is based solely on the Company’s trading history over the expected option life.

The Company’s estimate of volatility is based solely on the Company’s stock price over the expected option life.

The risk-free interest rate assumption is based upon the U.S.

1 unchanged sentence

The Company estimates the expected terms of options using historical employee exercise behavior.

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The fair value of performance share awards with a market condition is estimated on the grant date using a Monte Carlo simulation and includes the following assumptions:

Stock price $ 39.94 - $ 69.59

Expected term (years) 2.8

Expected term (years) 2.6 to 2.8

Company volatility 43.50 - 46.90 %

Peer group average volatility 91.00 %

Peer group average correlation 31.50 %

Market index average volatility 90.30 - 92.00 %

Market index average correlation 33.50 - 35.40 %

Risk-free interest rate 1.40 - 2.70 %

1 unchanged sentence

The expected term is estimated as the remaining performance period at the grant date.

Expected volatility is estimated based on the Company and peer group's daily trading prices, adjusted for dividends and stock splits over the

ATRICURE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

remaining performance period.

Expected volatility is estimated based on the Company and daily trading prices of the market index, adjusted for dividends and stock splits over the remaining performance period.

The risk-free interest rate is based upon the US Constant Maturity yield curve at the time of grant for the expected term of the performance share awards.

4 unchanged sentences

Performance share awards 91.05 89.36 38.42

SEGMENT AND GEOGRAPHIC INFORMATION

The Company evaluates reporting segments in accordance with FASB ASC 280, “Segment Reporting”.

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

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

Revenue attributed to customer geographic locations is as follows:

2021 2020 2019

United States $ 229,131 $ 169,244 $ 185,829

Europe 27,931 23,217 27,929

Asia 16,077 13,118 15,976

Other international 1,190 952 1,073

Total international 45,198 37,287 44,978

Total revenue $ 274,329 $ 206,531 $ 230,807

United States revenue by product type is as follows:

2021 2020 2019

Open ablation $ 93,895 $ 75,399 $ 80,205

Minimally invasive ablation 39,380 25,647 34,842

Appendage management 94,568 66,981 68,166

Total ablation and appendage management 227,843 168,027 183,213

Valve tools 1,288 1,217 2,616

Total United States $ 229,131 $ 169,244 $ 185,829

International revenue by product type is as follows:

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

In addition to net (loss) income, comprehensive (loss) income includes foreign currency translation adjustments and unrealized losses on investments.

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

2022 2021 2020

Open ablation $ 23,206 $ 18,655 $ 24,945

Minimally invasive ablation 6,409 6,171 8,349

Appendage management 15,534 12,353 11,476

Total ablation and appendage management 45,149 37,179 44,770

Valve tools 49 108 208

Total international $ 45,198 $ 37,287 $ 44,978

The Company’s long-lived assets are located in the United States, except for $ 1,399 as of December 31, 2021 and $ 1,693 as of December 31, 2020 located primarily in Europe.

VALUATION AND QUALIFYING ACCOUNTS

Balance Costs and Expenses Other (1) Deductions Ending

Reserve for sales returns and allowances

Year ended December 31, 2021 $ 1,889 $ 1,226 $ — $ 699 $ 2,416

Year ended December 31, 2020 3,979 66 — 2,156 1,889

Year ended December 31, 2019 1,410 369 2,240 40 3,979

Allowance for inventory valuation

Year ended December 31, 2021 $ 1,779 $ 3,251 $ — $ 390 $ 4,640

Year ended December 31, 2020 1,517 801 — 539 1,779

Year ended December 31, 2019 1,029 848 — 360 1,517

Valuation allowance for deferred tax assets

Year ended December 31, 2021 $ 117,025 $ 36,773 $ — $ — $ 153,798

Year ended December 31, 2020 101,178 15,847 — — 117,025

Year ended December 31, 2019 69,849 10,739 20,590 — 101,178

(1) In connection with the acquisition of SentreHEART, the Company recognized an allowance for sales returns and refunds for transition to ASC 606 to reflect SentreHEART’s historical refund practices and recorded a valuation allowance to offset the acquired net deferred tax assets.

Total accumulated other comprehensive (loss) income at beginning of period $ ( 948 ) $ 312 $ ( 158 )

Unrealized (losses) gains on investments

Balance at beginning of period $ ( 887 ) $ 54 $ 100

Other comprehensive (loss) income before reclassifications ( 2,739 ) ( 941 ) ( 70 )

Amounts reclassified from accumulated other comprehensive (loss) income to interest income ( 72 ) — 24

Balance at end of period $ ( 3,698 ) $ ( 887 ) $ 54

Foreign currency translation adjustment

Balance at beginning of period $ ( 61 ) $ 258 $ ( 258 )

Other comprehensive (loss) income before reclassifications ( 774 ) ( 768 ) 555

Amounts reclassified from accumulated other comprehensive (loss) income to other (expense) income 437 449 ( 39 )

Balance at end of period $ ( 398 ) $ ( 61 ) $ 258

Total accumulated other comprehensive (loss) income at end of period $ ( 4,096 ) $ ( 948 ) $ 312

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data