What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-05-02 · 83 added, 36 removed, 127 unchanged (48% of the section changed)

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Forward-looking statements often address our expected future business, financial performance, financial condition and results of operations, and often contain words such as “intends,” “estimates,” “anticipates,” “hopes,” “projects,” “plans,” “expects,” “drives,” “seek,” “believes,” “see,” “focus,” “should,” “will,” “would,” “opportunity,” “outlook,” “could,” “can,” “may,” “future,” “predicts,” “target,” “potential,” "forecast," "trend," "might" and similar expressions and the negative versions of those words, and may be identified by the context in which they are used.

Such statements are based only upon current expectations of AtriCure.

However, the absence of these words does not mean that a statement is not forward-looking.

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Such statements are based largely upon current expectations of AtriCure.

Any forward-looking statement speaks only as of the date made.

Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to different materially from those expressed or implied.

Forward-looking statements are based on AtriCure’s experience and perception of current conditions, trends, expected future developments and other factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond AtriCure’s control.

Forward-looking statements are based on AtriCure’s expectations, experience and perception of current conditions, trends, expected future developments and other factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond AtriCure’s control.

In other words, these statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict.

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Recent Developments

During the first quarter of 2024, we realized strong global revenue growth and continued our strategic initiatives of product innovation, clinical science and physician education and training to expand awareness and adoption.

Our worldwide revenue for the three months ended March 31, 2024 was $108,851, representing an increase of $15,357, or 16.4%, over the first three months of 2023, 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.

In 2024, we realized strong global revenue growth and continued our strategic initiatives of product innovation, clinical science and physician education and training to expand awareness and adoption.

Our worldwide revenue for the six months ended June 30, 2024 was $225,120, representing an increase of $30,708, or 15.8%, over the first six months of 2023, driven by growing adoption across key product lines.

Historically there have been limited competitors in our key markets.

We are seeing new entrants developing competing products, procedures, and/or clinical solutions that may cause variability in our results.

Highlights of the strategic and operational advancements include:

PRODUCT INNOVATION .

In October 2023, FDA granted 510(k) clearance for our next generation cryoSPHERE ® + cryoablation probe for pain management.

During the first quarter of 2024, we completed the initial procedures with the cryoSPHERE+, realizing a 25% reduction in ablation time.

The product is currently in an extended limited launch period in the United States with full launch expected by the end of the second quarter.

In addition, we received several CE mark certifications under the European Medical Device Regulation (EU MDR).

We continue to invest in research and development of new products across our business and pursue approvals to market and sell our products globally.

Activities for the first half of 2024 include:

• Launch of the cryoSPHERE ® + cryoablation probe for pain management in the US in the second quarter of 2024.

The cryoSPHERE ® + device leverages new technology that minimizes thermal loss by focusing energy at the ball tip, allowing for a reduction in freeze time by 25%, which reduces operative time.

• Regulatory approval received from the National Medical Products Administration (NMPA) of China to market and sell several models of our AtriClip ® Left Atrial Appendage Exclusion System.

• FDA granted 510(k) clearance for EPi-Ease™, our Hybrid access device to facilitate guide-wire delivery, vacuum application and endoscope insertion.

• Received several CE Mark certifications under the European Medical Device Regulation (EU MDR).

CLINICAL SCIENCE .

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

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

One of our critical initiatives is the Left Atrial Appendage Exclusion for Prophylactic Stroke Reduction (LeAAPS) IDE clinical trial.

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

The first patient was enrolled in the trial in January 2023, and we ended the first quarter of 2024 with over 2,000 patients enrolled.

The first patient was enrolled in the trial in January 2023, and we ended the second quarter of 2024 with over 2,700 patients enrolled.

Site initiation and enrollment is ongoing.

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Results of Operations

Three months ended March 31, 2024 compared to three months ended March 31, 2023

Three months ended June 30, 2024 compared to three months ended June 30, 2023

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

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Three Months Ended

March 31, Change

June 30, Change

2024 2023 Amount %

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Worldwide revenue increased 15.2% (15.4% on a constant currency basis).

In the United States, we experienced growth in key product lines, including the ENCOMPASS ® clamp in open ablation, Hybrid AF™ Therapy procedures using the EPi-Sense System in minimally invasive ablation, cryoSPHERE ® probe for post-operative pain management and AtriClip ® Flex⋅V ® for appendage management.

International sales increased 21.5% (21.1% on a constant currency basis), across franchises and major geographic regions, bolstered by strong sales of appendage management and post-operative pain management products.

In the United States, we experienced growth in several key product lines, including our ENCOMPASS ® clamp in open ablation and the AtriClip ® Flex⋅V ® for appendage management in open-chest procedures.

In addition, the full launch of the cryoSPHERE ® + probe in the second quarter augmented strong growth in post-operative pain management sales.

Growth in minimally invasive ablation was driven by our Epi-Sense ® System devices for Hybrid AF™ Therapy.

International sales increased 29.4% (30.4% on a constant currency basis), with strength across all franchises and most of our major markets.

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 $5,584 primarily reflecting higher sales volumes.

Gross margin increased 21 basis points, driven by product and geographic mix.

Gross margin decreased 168 basis points, driven primarily by unfavorable geographic and product mix, as well as increased product costs.

Research and development expenses.

Research and development expenses increased $2,978 or 17.1%.

Expansion of product development, clinical and regulatory teams resulted in $1,964 of increased personnel costs, including travel and share-based compensation.

Clinical trial expenses increased $1,455 from increased enrollment activity in the LeAAPS clinical trial throughout the quarter.

Product development project spend increased $1,001 reflecting continued investment in our product pipeline.

Expansion of product development, clinical and regulatory teams resulted in $1,525 increase in personnel costs including travel and share-based compensation.

Clinical trial expenses increased $1,331 primarily from higher patient enrollment and follow-up activity in the LeAAPS clinical trial throughout the quarter.

Selling, general and administrative expenses.

Selling, general and administrative expenses increased $12,276, or 20.4%, driven by a $6,429 increase in personnel costs as a result of growth in headcount and travel expenses.

The increase was further driven by the $4,000 gain on proceeds from a legal settlement during the first quarter of 2023.

During the first quarter of 2024, fees for professional services, legal and IT increased $930 and marketing activities also increased $654.

Selling, general and administrative expenses increased $9,813, or 15.4%, driven by a $6,997 increase in personnel costs including travel and share-based compensation, primarily reflecting headcount growth.

Marketing, training, and meeting costs increased $725 and legal and professional services, IT and other corporate costs grew $848.

Fluctuation was also driven by legal settlements in the prior year, resulting in a $412 non-recurring net gain recorded in 2023.

Other income (expense).

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

Six months ended June 30, 2024 compared to six months ended June 30, 2024

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

Revenues Amount % of

Revenue $ 225,120 100.0 % $ 194,412 100.0 %

Cost of revenue 57,008 25.3 47,726 24.5

Gross profit 168,112 74.7 146,686 75.5

Operating expenses:

Research and development expenses 40,261 17.9 32,765 16.9

Selling, general and administrative expenses 145,936 64.8 123,847 63.7

Total operating expenses 186,197 82.7 156,612 80.6

Loss from operations (18,085) (8.0) (9,926) (5.1)

Other expense, net:

(2,756) (1.2) (1,497) (0.8)

Loss before income tax expense (20,841) (9.3) (11,423) (5.9)

Income tax expense 436 0.2 171 0.1

Net loss $ (21,277) (9.5) % $ (11,594) (6.0) %

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

2024 2023 Amount %

Open ablation $ 60,060 $ 52,144 $ 7,916 15.2 %

Minimally invasive ablation 24,146 21,007 3,139 14.9

Pain management 27,745 23,658 4,087 17.3

Appendage management 73,837 66,283 7,554 11.4

Total United States $ 185,788 $ 163,092 $ 22,696 13.9

Total International 39,332 31,320 8,012 25.6

Total revenue $ 225,120 $ 194,412 $ 30,708 15.8 %

Worldwide revenue increased 15.8% (15.8% on a constant currency basis).

In the United States, growth in key product lines reflected continuing adoption of our products, including the ENCOMPASS ® clamp in open ablation, Hybrid AF™ Therapy procedures using the EPi-Sense System in minimally invasive ablation, cryoSPHERE ® probe for post-operative pain

management and AtriClip ® Flex⋅V ® for appendage management in open-chest procedures.

International sales increased 25.6% (25.8% on a constant currency basis), across all franchises and most major geographic regions.

Cost of revenue and gross margin.

Cost of revenue increased $9,282, reflecting higher sales volumes, while gross margin decreased 77 basis points, primarily driven by unfavorable geographic and product mix, as well as an increase in product costs.

Research and development expenses.

Research and development expenses increased $7,496 or 22.9%, primarily from a $3,489 increase in personnel costs as a result of additional headcount in our product development, regulatory, and clinical teams.

Clinical trial expenses increased $2,786 due to increased clinical activity primarily driven by the LeAAPS trial.

Product development project spend and consulting costs also contributed incremental expense of $1,141, reflecting continued investment in our product pipeline.

Selling, general and administrative expenses.

Selling, general and administrative expenses increased $22,089, or 17.8%, due to a $13,426 increase in personnel costs, including travel and share-based compensation, as a result of growth in headcount.

Selling, general and administrative expenses were also increased by $1,569 in marketing, training and meeting activities, and $1,433 in legal and professional services, IT and corporate costs reflecting operational growth.

The increase was further driven by a $4,466 non-recurring net gain during 2023 related to legal settlements.

Other income (expense).

During the first quarter of 2024, the Company recognized a loss on debt extinguishment of $1,362;

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Liquidity and Capital Resources

As of March 31, 2024, the Company had cash, cash equivalents and investments of $105,957 and outstanding debt of $61,865.

As of June 30, 2024, the Company had cash, cash equivalents and investments of $114,020 and outstanding debt of $61,865.

We had unused borrowing capacity of $61,885 (see Note 7 - Indebtedness for related discussion).

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A small portion of our cash is held in foreign banks to support our international operations.

We had net working capital of $183,973 and an accumulated deficit of $370,326 as of March 31, 2024.

Three Months Ended March 31,

We had net working capital of $191,627 and an accumulated deficit of $378,334 as of June 30, 2024.

Six Months Ended June 30,

2024 2023 Change

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Cash flows used in operating activities.

Net cash used in operating activities increased $16,937 from 2023 to 2024.

Cash used for working capital and other assets and liabilities increased $13,543 on higher annual variable compensation payments due to improved operating performance, as well as continued investment in inventory to support future growth.

The remaining change is largely attributable to decrease in operating margin due to a one-time gain on legal settlement recorded in 2023 of $4,000.

Net cash used in operating activities increased $12,568 from 2023 to 2024, driven by a decrease in operating results of $9,683, primarily due to a prior year $4,466 nonrecurring net gain for legal settlements, partially offset by a current period increase in non-cash charges of $5,575.

Cash used for working capital and other assets and liabilities increased $8,460 on higher annual variable compensation payments due to improved operating performance, partially offset by increased collections of receivables and fewer purchases of inventory.

Cash flows provided by investing activities.

Net cash provided by investing activities decreased by $19,169 in 2024 compared to 2023, driven by a $18,897 decrease in sales and maturities of available-for-sale securities.

Net cash provided by investing activities increased by $27,802 in 2024 compared to 2023, due to the $30,000 in cash paid for acquisition of intellectual property in the prior year, offset by a $2,647 decrease in sales and maturities of available-for-sale securities and $424 decrease in purchases of property and equipment.

Cash flows used in financing activities.

Net cash used in financing activities increased by $2,485 in 2024.

This increase was a result of $1,451 payment for extinguishment of debt and financing fees, net of borrowings, and a $798 increase in shares repurchased for payment of taxes on stock awards.

This increase was a result of a $1,556 payment for extinguishment of debt and financing fees, net of borrowings, and a $658 increase in shares repurchased for payment of taxes on stock awards.

Credit facility.

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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.

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.

As of March 31, 2024, the Company has borrowed $61,865, classified as noncurrent and had unused borrowing availability of $61,885.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which we renew annually and remains outstanding as of March 31, 2024.

As of June 30, 2024, the Company has borrowed $61,865, classified as noncurrent and had unused borrowing availability of $61,885.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which we renew annually and remains outstanding as of June 30, 2024.

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

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Recent Accounting Pronouncements

As of March 31, 2024, 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, 2023.

As of June 30, 2024, 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, 2023.

Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2024, 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, 2023.

As of June 30, 2024, 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, 2023.

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