What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-16 compared with 2023-02-22 · 107 added, 92 removed, 131 unchanged (60% of the section changed)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

direct international sales transactions are transacted in Euros, British Pounds, Australian Dollars or Canadian Dollars.

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 revenues for the year ended December 31, 2023 of $399,245 was an increase of 20.8% over the prior year driven by growing adoption across key product lines.

Historically there have been limited competitors in our key markets, but we have begun to see more entrants that may cause variability in 2024 results.

Highlights of the strategic and operational advancements in 2023 include:

PRODUCT INNOVATION.

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

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

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

We received final labeling approval for the next generation EPi-Sense ST device and began a limited launch evaluation in the fourth quarter of 2022, followed by full product launch in the second quarter of 2023.

In October 2023, we received clearance for our next generation cryoSPHERE probe for pain management and expect to launch in the first quarter of 2024.

Additionally, we completed several 510k submissions to FDA for new products in development.

We also continue to make significant progress on European Medical Device Regulation (EU MDR) clearance submissions for our products.

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 research and development programs currently underway.

CLINICAL SCIENCE.

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

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

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

The trial is a

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

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

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

site initiation and enrollment is ongoing.

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

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

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

The Left Atrial Appendage Exclusion for Prophylactic Stroke Reduction (LeAAPS) IDE clinical trial is designed to evaluate the effectiveness of prophylactic LAA exclusion using the AtriClip LAA Exclusion System for the prevention of ischemic stroke or systemic arterial embolism in cardiac surgery patients without pre-operative AF diagnosis who are at risk for these events.

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

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

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

In January 2023, the first patient was enrolled in the trial, and we ended 2023 with nearly 1,400 patients enrolled.

Site initiation and enrollment is ongoing.

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

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

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

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

Trial enrollment was completed in the second quarter of 2023 for the ICE-AFIB clinical trial, which is designed to study the safety and efficacy of our cryoICE ® system for persistent and long-standing persistent Afib treatment during concomitant on-pump cardiac surgery.

The trial provided for enrollment of up to 150 patients at up to 20 sites in the United States.

Patient follow-up for twelve months post ablation required by the study protocol remains ongoing.

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 for persistent and long-standing persistent Afib treatment that demonstrated superior freedom from atrial arrhythmias for staged hybrid ablation compared to endocardial catheter ablation.

During the fourth quarter of 2023, 12-month follow-up results of enrolled patients from our DEEP AF IDE trial were presented at the American Heart Association meeting.

The DEEP AF IDE pivotal trial evaluated the safety and efficacy of the AtriCure Bipolar System when used in a staged approach where a minimally invasive surgical ablation procedure is first performed.

The patient undergoes the endocardial catheter procedure approximately 91-120 days later.

The results from this single arm study for persistent and long-standing persistent Afib treatment demonstrated superior freedom from atrial arrhythmias for staged hybrid ablation compared to a pre-specified performance goal.

Our professional education and marketing teams conduct virtual and in-person training programs for physicians and healthcare professionals.

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

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.

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 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.

SOCIETY GUIDELINES.

In 2023, the American College of Cardiology (ACC), American Heart Association (AHA), American College of Clinical Pharmacy (ACCP), and HRS released Guidelines for Diagnosis and Management of Atrial Fibrillation, and they upgraded Left Atrial Appendage Management to the highest recommendation of Class 1 and now include Hybrid AF™ Therapy as a Class 2 recommendation.

These societal guidelines are reflective of the scientific evidence suggesting that surgical and hybrid ablation is safe and effective for patients who have Afib.

Results of Operations

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Selling, general and administrative expenses 253,138 63.4 231,272 70.0

Change in fair value of contingent consideration — — (184,800) (67.4)

Intangible asset impairment — — 82,300 30.0

Total operating expenses 327,053 81.9 288,609 87.4

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

Loss from operations (26,683) (6.7) (42,669) (12.9)

Other expense, net (3,164) (0.8) (3,529) (1.1)

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

Loss before income tax expense (29,847) (7.5) (46,198) (14.0)

Income tax expense 591 0.1 268 0.1

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

Net loss $ (30,438) (7.6) % $ (46,466) (14.1) %

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:

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Worldwide revenue increased 20.8% (20.6% on a constant currency basis).

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

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

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

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

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

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

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

In the United States, we experienced growth in all key product lines as a result of deepening market penetration and expanding physician adoption.

Key products contributing to the increase in revenue in the United States were:

• the ENCOMPASS ® clamp in open ablation,

• Hybrid AF™ Therapy procedures using the EPi-Sense System in minimally invasive ablation,

• the cryoSPHERE ® probe for post-operative pain management and

• the AtriClip ® Flex⋅V ® for appendage management.

International revenue increased 23.5% (22.1% on a constant currency basis), across all franchises and major geographic regions.

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.

Revenue is analyzed on a constant currency basis to better measure the comparability of results between periods.

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Cost of revenue and gross margin.

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

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

Cost of revenue increased $14,436 primarily reflecting higher sales volumes.

The gross margin increase of 80 basis points was driven by favorable production efficiencies, partially offset by less favorable geographic and product mix.

Research and development expenses.

Research and development expenses increased $16,578, or 28.9%.

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

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

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

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

Expansion of product development, regulatory and clinical teams resulted in $7,413 of additional personnel costs, including variable compensation and share-based compensation.

Clinical trial expenses increased $6,667 due to strong enrollment activity in the LeAAPS clinical trial throughout the year.

Additionally, our expanding product pipeline and domestic and international regulatory submissions drove a $2,389 increase in spending.

Selling, general and administrative expenses.

Selling, general and administrative expenses increased $21,866, or 9.5%.

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

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

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

Change in fair value of contingent consideration.

The credit to operating expenses during the year ended December 31, 2021 reflects a change in the forecasted timing and probability of achievement of the regulatory and reimbursement milestones related to the aMAZE clinical trial.

See Note 2 of the Consolidated Financial Statements for further discussion.

Impairment of intangible assets.

During the year ended December 31, 2021, the Company recorded an impairment charge for the IPR&D asset associated with the aMAZE PMA.

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

Personnel costs increased $26,971 as a result of growth in headcount, variable compensation and share-based compensation.

Trade shows and marketing activities increased $1,538 and other administrative and operating expenses increased $2,274 as compared to the prior year.

This increase was offset by a $4,019 decrease in training costs as a result of growing efficiencies and enhancements to our global training programs and a net gain of $4,412 from non-recurring legal settlements during the first half of 2023.

Legal settlement activity included 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 10 – Commitments and Contingencies for further information.

Other income and expense.

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

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

Net interest expense was $3,133 for 2023 and $2,992 for 2022.

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

Liquidity and Capital Resources

As of December 31, 2022, we had cash, cash equivalents and investments of $172,622 and borrowing capacity of approximately $28,750.

As of December 31, 2023, we had cash, cash equivalents and investments of $137,285 and borrowing capacity of approximately $28,750 under the SVB Credit Facility.

As a result of the new asset-based credit agreement with JPMorgan Chase Bank, N.A.

entered into on January 5, 2024, unused borrowing availability increased to approximately $61,885 (see Note 8 – Indebtedness for related discussion).

All cash equivalents and investments and most of our operating cash are held in United States financial institutions.

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

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

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

market acceptance of our current and future products;

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

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

investments in working capital;

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

costs to expand and support our sales and marketing efforts;

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

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

legal defense costs;

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

maintenance and enhancements to our information systems and security;

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

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

We continue to evaluate additional measures to maintain financial flexibility, and we will continue to closely monitor macroeconomic conditions including, but not limited to, inflationary pressures, rising interest rates, and fluctuations in currency exchange rates that may impact our liquidity and access to capital resources.

Credit facility.

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

As of December 31, 2023, we had a Loan and Security Agreement with Silicon Valley Bank (SVB), (SVB Loan Agreement).

The SVB Loan Agreement provides for a $60,000 term loan, with an option to make available an additional $30,000 in term loan borrowings, and a $30,000 revolving line of credit.

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

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

Principal payments are to be made ratably commencing 24 months after the inception of the loan through the loan's maturity date.

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

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

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

For additional information on the terms and conditions, as well as applicable interest and fee payments, see Note 8 - Indebtedness.

As of January 5, 2024, we entered into an asset-based credit agreement with JPMorgan Chase Bank, N.A.

as Administrative Agent, JPMorgan Chase Bank, N.A.

and Silicon Valley Bank, a division of First-Citizen Bank and Trust Company, as Joint Lead Arrangers and Joint Bookrunners (Credit Agreement) that provides for a $125,000 asset-based revolving credit facility (ABL Facility), with an option to increase the revolving commitment by an additional $40,000.

A portion of the ABL facility, limited to $5,000, is available for the issuance of letters of credit.

The Credit Agreement has a three-year term and expires January 5, 2027.

Amounts available to be drawn from time to time under the ABL Facility are determined by calculating the applicable borrowing base, which is based upon applicable percentages of the values of eligible accounts receivable, eligible inventory, eligible liquid assets, less reserves as determined by the Administrative Agent, all as specified in the Credit Agreement.

The borrowings bear interest at a rate per annum equal to, at the Company's election:

(i) an alternate base rate (ABR) plus an applicable margin or (ii) an adjusted term secured overnight financing rate (SOFR) plus an applicable margin.

At the time of closing, the Company borrowed $61,865 and had unused borrowing availability of approximately $61,885.

The proceeds of the ABL Facility were used to terminate the Company’s indebtedness under the SVB Loan Agreement.

As a result of the new Credit Agreement, the $60,000 borrowings outstanding under the SVB Loan Agreement as of December 31, 2023 are classified as noncurrent in the Consolidated Balance Sheet.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of December 31, 2023.

For additional information on the terms and conditions, as well as applicable interest and fee payments, see Note 8 – Indebtedness.

Capital Expenditures.

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

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

Throughout 2021 through 2023, we continued expansion and renovation of our manufacturing and engineering facilities in our Mason, Ohio campus.

Other Contractual Obligations.

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

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

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

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

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

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

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

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

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

We expect to disburse between $14,000 and $17,000 of fixed and

variable costs based on estimated achievement of milestone payments, site initiation and trial enrollment within the next twelve months.

We have operating and finance leases primarily for our corporate offices, manufacturing and warehouse facilities and automobiles.

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

As of December 31, 2023, we have current finance lease obligations of $1,086 and long-term obligations of $8,061.

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For additional information, see Note 9 – Leases.

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

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

We have contractual obligations for contingent consideration payments related to the SentreHEART acquisition.

Subject to the terms and conditions of the SentreHEART merger agreement, such contingent consideration would be paid in AtriCure common stock and cash, up to a specified maximum number of shares.

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

As of December 31, 2023, we believe the likelihood of payment is remote, and the estimated fair value of the contingent consideration is $0.

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Sources of liquidity.

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

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

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

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If additional funds are raised through the issuance of debt securities, these securities would have rights senior to those associated with our common stock and could contain covenants that would restrict our operations.

Finally, our term loan agreement and revolving line of credit require compliance with certain financial and other covenants.

Finally, our Credit Agreement requires compliance with certain financial and other covenants.

If we are unable to maintain these financing arrangements, we may be required to reduce the scope of our planned research and development, clinical activities and selling, training, education and marketing efforts.

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2023 2022 Change

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

Net cash provided by (used in) operating activities

$ 4,484 $ (22,141) $ 26,625

Net cash provided by investing activities 21,817 44,006 (22,189)

Net cash used in financing activities

Cash flows used in operating activities.

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

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

(32) (7,059) 7,027

Cash flows provided by (used in) operating activities.

Net cash provided by operating activities increased $26,625 in 2023 as compared to 2022, largely reflecting the improvement in operating results of $16,028 driven by higher sales, improvements to gross and operating margin and a net gain from legal settlements.

Cash used for working capital remained relatively flat year over year, with increased investment in inventories largely offset by increased accruals for annual variable compensation payments due to improved operating performance.

Cash flows provided by investing activities.

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

Net cash provided by investing activities decreased by $22,189 in 2023 compared to 2022, reflecting the $30,000 acquisition of intellectual property, partially offset by a $4,883 decrease in purchases of property and equipment following our 2022 manufacturing facilities expansion and $2,928 increase in net maturities of available-for-sale securities.

Cash flows used in financing activities.

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

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

Net cash from financing activities increased by $7,027 in 2023 compared to 2022, reflecting savings of $5,644 due to fewer shares repurchased at a lower value for payment of taxes on stock awards and an increase of $1,536 of proceeds from the employee stock purchase plan and stock option exercise activity.

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

Inflation has impacted our operating costs throughout 2022.

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

Inflation has impacted our operating costs throughout 2023 and 2022.

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

ability to make discretionary investments.

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

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

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

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

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

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We estimate the provision for sales returns and allowances using the expected value method based on historical experience and other factors that we believe could impact our expected returns, including defective or damaged products and invoice adjustments.

In the normal course of business, we generally do not accept product returns unless a product is defective as manufactured, and we do not provide customers with the right to a refund.

In the normal course of business, we are not obligated to accept product returns unless a product is defective as manufactured, and we do not provide customers with the right to a refund.

Inventories —Our 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.

Our industry is characterized by rapid product development and frequent new product introductions.

Uncertain timing of product approvals, variability in product launch strategies and variation in product use all impact inventory reserves for excess, obsolete and expired products.

Uncertain timing of product approvals, variability in product launch strategies and variation in product sales all impact inventory reserves for excess, obsolete and expired products.

An increase to inventory reserves results in a corresponding increase in cost of revenue.

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

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

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.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis