Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Amounts referenced in this Item 7A are in thousands, except per share amounts.)
The Company is exposed to various market risks, which include potential losses arising from adverse changes in market rates and prices, such as foreign exchange fluctuations and changes in interest rates.
40
Table of Contents
Credit and Interest Rate Risk
The Company invests its cash primarily in money market accounts, repurchase agreements, U.S. government and agency obligations, corporate bonds, asset-backed securities and commercial paper. Although the Company believes it has invested in a conservative manner, with preservation being the primary investment objective, the value of the securities held will fluctuate with changes in financial markets including, among other things, changes in interest rates, credit quality and general volatility. This risk is managed by investing in high quality investment grade securities to maintain liquidity and preserve principal without significantly increasing risk.
We are subject to interest rate risk as rate fluctuations impact cash payments for our term loan and revolving credit facility. The term loan accrues interest at a variable rate based on the Prime Rate plus 1.25 % and any borrowings under the revolving credit facility bear interest at the Prime Rate.
Financial instruments that potentially subject the Company to credit risk consist of cash equivalents and investments in corporate bonds. Certain of AtriCure’s cash and cash equivalents exceed FDIC insured limits or are invested in money market accounts with investment banks that are not FDIC-insured. The Company places its cash and cash equivalents in what it believes to be credit-worthy financial institutions. As of December 31, 2022, $57,849 of the cash and cash equivalents balance was in excess of FDIC limits.
Foreign Currency Exchange Rate Risk
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; direct sales transactions outside the United States are transacted in Euros, British Pounds or Australian Dollars. Sales to international distributors outside of Europe are under agreements primarily denominated in U.S. dollars. If products are priced in U.S. Dollars and competitors price their products in the local currency, an increase in the relative strength of the U.S. Dollar could result in the Company’s price not being competitive in a market where business is not transacted in U.S. Dollars.
Products sold by AtriCure Europe, B.V. are primarily denominated in Euros or British Pounds. Products sold by AtriCure Europe, B.V. accounted for 9.0% and 9.9% of the Company’s total revenue for 2022 and 2021. Accordingly, the Company is exposed to exchange rate fluctuations between the Euro and the U.S. Dollar and between the British Pound and the Euro. For 2022 and 2021, foreign currency transaction gains of $559 and $387 were recorded primarily in connection with settlements of the intercompany balances and invoices transacted in British Pounds. For revenue denominated in Euros, if there is an increase in the rate at which Euros are exchanged for U.S. Dollars, it will require more Euros to equal a specified amount of U.S. Dollars than before the rate increase. In such cases, the Company will receive less in U.S. Dollars than was received before the rate increase went into effect. The Euro to U.S. Dollar conversion rate fluctuations may impact our reported revenue and expenses.
In December 2022, we entered into a clinical trial management agreement for the LeAAPS clinical trial. The terms of the agreement require we make fixed milestone payments upon achievement of various enrollment and project milestones over the estimated ten year term. Additional variable costs, including pass through costs incurred at clinical trial sites, will be billed to us by the contracted party. Fixed milestone payments are denominated in Canadian Dollars, while variable pass-through fees incurred at clinical trial sites outside the United States may be billed in U.S. Dollars or other local currencies. Fluctuations in the conversation rates of the U.S. Dollar to the Canadian Dollar and local currencies of international trial sites may impact the cash outlay required for future milestone payments and variable pass-through costs under the clinical trial management agreement.
41
Table of Contents