What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-07-26 · 45 added, 46 removed, 159 unchanged (36% of the section changed)

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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, Germany, France, the United Kingdom, the Benelux region and Australia.

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

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

Our business is primarily transacted in U.S.

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

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

Recent Developments

In 2023, we realized significant global revenue growth and expanded on our strategic initiatives of product innovation, clinical science and expanding physician awareness and adoption through superior training and education.

Our worldwide revenue for the six months ended June 30, 2023 was $194,412, representing an increase of $35,307, or 22.2%, over the first six months of 2022, driven by growing adoption across key product lines.

In 2023, we realized significant global revenue growth and continued our strategic initiatives of product innovation, clinical science and expanding physician awareness and adoption through superior training and education.

Our worldwide revenue for the nine months ended September 30, 2023 was $292,702, representing an increase of $50,351, or 20.8%, over the first nine months of 2022, driven by growing adoption across key product lines.

Highlights of the strategic and operational advancements include:

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We continue to make significant progress on the submission of our products for clearance under the European Medical Device Regulation (EU MDR).

As of the second quarter 2023, all of our products have been submitted to our Notified Body under EU MDR.

As of the second quarter of 2023, all of our products have been submitted to our Notified Body under EU MDR.

These activities are in addition to several new product development programs currently underway.

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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;

In January 2023, we enrolled our first patient in the trial;

site initiation and enrollment is ongoing.

Recently, results from our CEASE-AF trial were presented at the European Heart Rhythm Association meeting.

During the second quarter of 2023, results from our CEASE-AF trial were presented at the European Heart Rhythm Association meeting.

CEASE-AF is a prospective, multi-center randomized control trial that demonstrated superior freedom from atrial arrhythmias for staged hybrid ablation compared to endocardial catheter ablation.

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During 2023, we launched new training courses for Advanced Practice Providers, pain management in pectus procedures, as well as a best practice course for developing arrhythmia programs, with a primary focus on Hybrid therapies.

Our professional education courses continue to benefit from the use of inanimate models or synthetic cadavers, known as cadets, for our physician training activities.

These trainings allow for collaborative, hands-on engagement with our physician partners and other healthcare professionals.

Additionally, our professional education courses continue to benefit from the use of inanimate models or synthetic cadavers, known as CADets.

These reusable CADets provide a sustainable alternative to the use of animals or cadavers, in addition to reducing spend on training programs.

Results of Operations

Three months ended June 30, 2023 compared to three months ended June 30, 2022

Three months ended September 30, 2023 compared to three months ended September 30, 2022

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

Three Months Ended

September 30,

Revenues Amount % of

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Three Months Ended

June 30, Change

September 30, Change

2023 2022 Amount %

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In the United States, we experienced growth in all key product lines, led by the EnCompass ® clamp in open ablation, cryoSPHERE ® probe for post-operative pain management and AtriClip ® Flex⋅V ® for appendage management.

Additionally, Hybrid AF™ Therapy procedures using the EPi-Sense System drove growth in minimally invasive sales.

International sales increased 20.7% (19.9% on a constant currency basis), across all franchises and major geographic regions, bolstered by strong sales of open ablation and LAAM products in the Asia Pacific market and our direct markets in the United Kingdom and Germany.

International sales increased 23.2% (18.7% on a constant currency basis), across all franchises and major geographic regions, bolstered by strong sales of open ablation and LAAM products in key markets in Europe and ablation products in the Asia Pacific market.

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

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Cost of revenue increased $2,888 primarily reflecting higher sales volumes.

Gross margin increased 130 basis points, driven by favorable production and strategic sourcing efficiencies and offset partially by cost increases and unfavorable geographic and product mix.

Gross margin increased approximately 110 basis points, driven by favorable production efficiencies, partially offset by unfavorable geographic and product mix.

Research and development expenses.

Research and development expenses increased $5,185 or 34.2%.

Clinical trial expenses increased $2,455 due to strong enrollment activity in the LeAAPS clinical trial throughout the quarter.

Expansion of product development, regulatory and clinical teams resulted in $1,320 of increased personnel costs, including variable compensation, travel and share-based compensation.

Clinical trial expenses contributed a further $1,406 increase due to strong enrollment activity in the LeAAPS clinical trial during the quarter.

Product development project spend increased $1,034 as we continue to invest in our product development pipeline, with a corresponding $747 increase in spend for regulatory filings and submissions.

Selling, general and administrative expenses.

Selling, general and administrative expenses increased $4,337, or 7.6%, driven by a $5,309 increase in personnel costs as a result of growth in headcount and share-based compensation.

This increase was offset by the $1,587 decrease in training costs as a result of growing efficiencies and enhancements to our training programs globally, and a $567 decrease in professional services, information technology, and consulting costs.

The increase in selling, general and administrative expenses was further offset by a net credit to expense of $412 from non-recurring legal settlements, including a $3,500 gain for proceeds received in the second quarter for a matter settled during the first quarter of 2023, partially offset by $3,088 charge for settlement of an intellectual property matter in the second quarter of 2023.

See Note 9 – Commitments and Contingencies for further discussion.

This increase was partially offset by a $1,375 decrease in training costs as a result of growing efficiencies and enhancements to our global training programs.

Other income (expense).

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

Six months ended June 30, 2023 compared to six months ended June 30, 2022

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

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

Six Months Ended

Nine Months Ended

September 30,

Revenues Amount % of

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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:

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

2023 2022 Amount %

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In the United States, growth in all key product lines reflected continuing adoption of our products.

Open ablation revenue increases were driven by the EnCompass clamp, which was launched in April 2022.

Sales of the AtriClip Flex⋅V and cryoSPHERE probe contributed to revenue growth in the appendage management and post-operative pain management franchises.

Increased physician adoption of the Hybrid AF™ Therapy procedure using the EPi-Sense System drove growth in minimally invasive sales.

The EnCompass clamp in open ablation revenue, cryoSPHERE probe in pain management and the AtriClip Flex⋅V within appendage management continue to demonstrate superior product adoption and growth.

The EPi-Sense System drove revenue growth in minimally invasive ablation.

International sales increased 22.7% (22.1% on a constant currency basis) across all franchises and major geographic regions.

Cost of revenue and gross margin.

Cost of revenue increased $7,735 primarily reflecting higher sales volumes, while gross margin increased 60 basis points as realization of increasing production efficiencies more than offset cost pressure from supply chain challenges and geographic and product mix.

Cost of revenue increased $10,623 primarily reflecting higher sales volumes, while gross margin increased approximately 80 basis points as realization of increasing production efficiencies more than offset cost pressure from supply chain challenges and geographic and product mix.

Research and development expenses.

Research and development expenses increased $4,345 or 15.3%, primarily from a $3,130 increase in personnel costs due to additional headcount in our product development, regulatory and clinical teams.

The increase in clinical activity driven by the LeAAPS and HEAL-IST clinical trials also contributed incremental expense of $2,162.

This increase was offset by a $770 decrease in product development and consulting costs as EU MDR compliance efforts diminished in 2023.

Research and development expenses increased $9,530 or 21.9%, primarily due to increased clinical trial activity of $4,617 driven by the LeAAPS trial and $4,463 in personnel costs due to additional headcount in our product development, regulatory and clinical teams.

Research and development expenses were further increased by $1,482 for additional product development activity to expand our product pipeline and regulatory submissions both domestically and internationally.

These increases were partially offset by a $545 decrease in consulting activities for EU MDR submission costs incurred in the prior year.

Selling, general and administrative expenses.

Selling, general and administrative expenses increased $5,343, or 4.5%, largely due to increased personnel costs of $12,003 as a result of growth in headcount, variable compensation and share-based compensation and $1,229 of additional marketing, trade shows, and meeting activities.

Offsetting the increase was a $2,882 decrease in training due to improved efficiencies from our various global training programs, and a $1,182 decrease in legal spend as a result of settlements reached in the first half of 2023.

Selling, general and administrative expenses were also offset by a net gain of $4,466 for non-recurring legal settlements, including a $7,500 gain from proceeds on a matter settled during the first quarter of 2023, partially offset by $3,088 charge for settlement of an intellectual property matter.

Selling, general and administrative expenses increased $9,680, or 5.5%, largely due to increased personnel costs of $17,328 as a result of growth in headcount, variable compensation and share-based compensation.

Offsetting these increases was a $4,257 decrease in training due to improved efficiencies and other enhancements.

Selling, general and administrative expenses were also offset by a net gain of $4,412 for non-recurring legal settlements during the first half of 2023, including a $7,500 gain from proceeds on a legal matter settled during the first quarter of 2023, partially offset by a $3,088 charge for settlement of an intellectual property matter during the second quarter of 2023.

See Note 9 – Commitments and Contingencies for further discussion.

Other income (expense).

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

Other income and expense consists primarily of net interest expense and net foreign currency transaction losses, with the fluctuation between periods primarily driven by a $716 decrease in foreign currency transaction losses in 2023.

Liquidity and Capital Resources

As of June 30, 2023, the Company had cash, cash equivalents and investments of $134,623 and outstanding debt of $60,000.

As of September 30, 2023, the Company had cash, cash equivalents and investments of $133,014 and outstanding debt of $60,000.

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

Our primary banking relationship in the United States was with Silicon Valley Bank.

During the first quarter of 2023 all deposits and loans of Silicon Valley Bank were purchased by First-Citizens Bank & Trust Company, and our banking relationship is now with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company as of March 31, 2023.

Access to our funds, funding sources and other credit arrangements are adequate to finance or capitalize our current and projected future business operations.

We had net working capital of $166,565 and an accumulated deficit of $338,213 as of June 30, 2023.

Six Months Ended June 30,

We had net working capital of $170,181 and an accumulated deficit of $347,268 as of September 30, 2023.

Nine Months Ended September 30,

2023 2022 Change

(dollars in thousands)

Net cash used in operating activities $ (1,068) $ (20,403) $ (19,335)

Net cash provided by (used in) operating activities $ 454 $ (22,187) $ 22,641

Net cash provided by investing activities 24,603 37,004 (12,401)

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Cash flows used in operating activities.

Net cash used in operating activities decreased $19,335 from 2022 to 2023, reflecting the improvement in operating results after non-cash charges of $21,438 driven by higher sales and a net gain from legal settlements.

This improvement was offset by a $2,103 increase in cash used in working capital and other assets and liabilities.

The increase in cash used in working capital was driven by increased inventory, partially offset by increased collections of accounts receivable.

Net cash provided by operating activities increased $22,641 from 2022 to 2023, reflecting the improvement in operating results of $21,647, driven by higher sales, improvements to gross margin and a net gain from legal settlements.

This was partially offset by a $4,375 increase in cash used for working capital and other assets and liabilities, primarily as a result of an increase in inventory.

Cash flows provided by investing activities.

Net cash provided by investing activities decreased by $27,510 in 2023 compared to 2022, reflecting $30,000 in cash paid for acquisition of intellectual property and a reduction in purchases of property and equipment following our 2022 manufacturing facilities expansion.

Net cash provided by investing activities decreased by $12,401 in 2023 compared to 2022, reflecting the $30,000 acquisition of intellectual property, partially offset by a $14,101 increase in net maturities of available-for-sale securities and $3,498 decrease in purchases of property and equipment following our 2022 manufacturing facilities expansion.

Cash flows used in financing activities.

Net cash used in financing activities decreased by $6,113 in 2023, as fewer shares were repurchased for payment of taxes for stock awards.

Net cash used in financing activities decreased by $6,650 in 2023, reflecting savings of $5,663 due to fewer shares repurchased at a lower value for payment of taxes on stock awards and an increase of $1,116 in proceeds from stock option exercise activity and the employee stock purchase plan.

Credit facility.

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The term loan accrues interest at the Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity.

As of June 30, 2023, our outstanding debt was $60,000, of which $13,333 is classified as current and $46,667 and is classified as noncurrent.

As of September 30, 2023, our outstanding debt was $60,000, of which $18,333 is classified as current and $41,667 and is classified as noncurrent.

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

For additional information on the terms and conditions, as well as applicable interest and fee payments, see Note 7 – Indebtedness.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of June 30, 2023.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of September 30, 2023.

Uses of liquidity and capital resources.

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Recent Accounting Pronouncements

As of June 30, 2023, there were no material changes to the information provided regarding recent accounting pronouncements in Note 1, “Description of the Business and Summary of Significant Accounting Policies” in the Company’s Form 10-K for the fiscal year ended December 31, 2022.

As of September 30, 2023, there were no material changes to the information provided regarding recent accounting pronouncements in Note 1, “Description of the Business and Summary of Significant Accounting Policies” in the Company’s Form 10-K for the fiscal year ended December 31, 2022.

Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 2023, there were no material changes to the information provided under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Form 10-K for the year ended December 31, 2022.

As of September 30, 2023, there were no material changes to the information provided under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Form 10-K for the year ended December 31, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis