AtriCure, Inc. 10-Q

Item 1. Financial Statements ATRICURE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Per Share Amounts) (Unaudited) June 30, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 106,035 $ 84,310 Short-term investments 7,985 52,975 Accounts receivable, less allowance for credit losses of $ 400 and $ 500 55,568 52,501 Inventories 73,654 67,897 Prepaid and other current assets 9,610 8,563 Total current assets 252,852 266,246 Property and equipment, net 42,175 42,435 Operating lease right-of-use assets 4,030 4,324 Intangible assets, net 60,238 63,986 Goodwill 234,781 234,781 Other noncurrent assets 3,197 2,160 Total Assets $ 597,273 $ 613,932 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 26,666 $ 27,354 Accrued liabilities 32,018 44,682 Current lease liabilities 2,541 2,533 Total current liabilities 61,225 74,569 Long-term debt 61,865 60,593 Finance and operating lease liabilities 10,910 11,368 Other noncurrent liabilities 1,188 1,234 Total Liabilities 135,188 147,764 Commitments and contingencies (Note 9) Stockholders’ Equity: Common stock, $ 0.001 par value, 90,000 shares authorized and 48,686 and 47,526 issued and outstanding 49 48 Additional paid-in capital 840,939 824,170 Accumulated other comprehensive loss ( 569 ) ( 993 ) Accumulated deficit ( 378,334 ) ( 357,057 ) Total Stockholders’ Equity 462,085 466,168 Total Liabilities and Stockholders’ Equity $ 597,273 $ 613,932 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents ATRICURE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In Thousands, Except Per Share Amounts) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenue $ 116,269 $ 100,918 $ 225,120 $ 194,412 Cost of revenue 29,425 23,841 57,008 47,726 Gross profit 86,844 77,077 168,112 146,686 Operating expenses: Research and development expenses 20,416 17,438 40,261 32,765 Selling, general and administrative expenses 73,596 63,783 145,936 123,847 Total operating expenses 94,012 81,221 186,197 156,612 Loss from operations ( 7,168 ) ( 4,144 ) ( 18,085 ) ( 9,926 ) Other income (expense): Interest expense ( 1,612 ) ( 1,719 ) ( 3,289 ) ( 3,355 ) Interest income 997 961 1,949 1,836 Loss on debt extinguishment — — ( 1,362 ) — Other income (expense) 28 ( 123 ) ( 54 ) 22 Loss before income tax expense ( 7,755 ) ( 5,025 ) ( 20,841 ) ( 11,423 ) Income tax expense 253 93 436 171 Net loss $ ( 8,008 ) $ ( 5,118 ) $ ( 21,277 ) $ ( 11,594 ) Basic and diluted net loss per share $ ( 0.17 ) $ ( 0.11 ) $ ( 0.45 ) $ ( 0.25 ) Weighted average shares outstanding—basic and diluted 46,909 46,266 46,814 46,187 Comprehensive income (loss): Unrealized gain on investments $ 246 $ 427 $ 785 $ 1,468 Foreign currency translation adjustment ( 118 ) 36 ( 361 ) 19 Other comprehensive income 128 463 424 1,487 Net loss ( 8,008 ) ( 5,118 ) ( 21,277 ) ( 11,594 ) Comprehensive loss, net of tax $ ( 7,880 ) $ ( 4,655 ) $ ( 20,853 ) $ ( 10,107 ) See accompanying notes to condensed consolidated financial statements. 4 Table of Contents ATRICURE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In Thousands) (Unaudited) Three-Month Period Ended June 30, 2023 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance—March 31, 2023 47,244 $ 47 $ 790,965 $ ( 333,095 ) $ ( 3,072 ) $ 454,845 Impact of equity compensation plans 108 — 12,232 — — 12,232 Other comprehensive income — — — — 463 463 Net loss — — — ( 5,118 ) — ( 5,118 ) Balance—June 30, 2023 47,352 $ 47 $ 803,197 $ ( 338,213 ) $ ( 2,609 ) $ 462,422 Three-Month Period Ended June 30, 2024 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance—March 31, 2024 48,381 $ 48 $ 827,288 $ ( 370,326 ) $ ( 697 ) $ 456,313 Impact of equity compensation plans 305 1 13,651 — — 13,652 Other comprehensive income — — — — 128 128 Net loss — — — ( 8,008 ) — ( 8,008 ) Balance—June 30, 2024 48,686 $ 49 $ 840,939 $ ( 378,334 ) $ ( 569 ) $ 462,085 Six-Month Period Ended June 30, 2023 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance—December 31, 2022 46,563 $ 47 $ 787,422 $ ( 326,619 ) $ ( 4,096 ) $ 456,754 Impact of equity compensation plans 789 — 15,775 — — 15,775 Other comprehensive income — — — — 1,487 1,487 Net loss — — — ( 11,594 ) — ( 11,594 ) Balance—June 30, 2023 47,352 $ 47 $ 803,197 $ ( 338,213 ) $ ( 2,609 ) $ 462,422 Six-Month Period Ended June 30, 2024 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance—December 31, 2023 47,526 $ 48 $ 824,170 $ ( 357,057 ) $ ( 993 ) $ 466,168 Impact of equity compensation plans 1,160 1 16,769 — — 16,770 Other comprehensive income — — — — 424 424 Net loss — — — ( 21,277 ) — ( 21,277 ) Balance—June 30, 2024 48,686 $ 49 $ 840,939 $ ( 378,334 ) $ ( 569 ) $ 462,085 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents ATRICURE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) Six Months Ended June 30, 2024 2023 Cash flows from operating activities: Net loss $ ( 21,277 ) $ ( 11,594 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Share-based compensation expense 19,656 17,755 Depreciation 5,231 4,567 Amortization of intangible assets 3,748 1,956 Amortization of deferred financing costs 239 243 Amortization of investments 107 294 Loss on debt extinguishment 1,362 — Other non-cash adjustments 534 487 Changes in operating assets and liabilities: Accounts receivable ( 3,131 ) ( 5,563 ) Inventories ( 5,887 ) ( 9,377 ) Other current assets ( 1,069 ) ( 1,696 ) Accounts payable ( 10 ) 2,945 Accrued liabilities ( 12,564 ) ( 1,084 ) Other noncurrent assets and liabilities ( 575 ) ( 1 ) Net cash used in operating activities ( 13,636 ) ( 1,068 ) Cash flows from investing activities: Sales and maturities of available-for-sale securities 45,668 48,315 Purchases of property and equipment ( 5,158 ) ( 5,582 ) Proceeds from sale of property and equipment 25 — Acquisition of intellectual property — ( 30,000 ) Net cash provided by investing activities 40,535 12,733 Cash flows from financing activities: Proceeds from revolving credit facility, net of financing costs 61,210 — Payments on debt and leases ( 62,329 ) ( 483 ) Payment of financing costs and bank fees ( 1,002 ) ( 60 ) Proceeds from stock option exercises 3,809 4,058 Shares repurchased for payment of taxes on stock awards ( 6,696 ) ( 6,038 ) Net cash used in financing activities ( 5,008 ) ( 2,523 ) Effect of exchange rate changes on cash and cash equivalents ( 166 ) ( 1 ) Net increase in cash and cash equivalents 21,725 9,141 Cash and cash equivalents—beginning of period 84,310 58,099 Cash and cash equivalents—end of period $ 106,035 $ 67,240 Supplemental cash flow information: Cash paid for interest $ 2,175 $ 3,078 Net cash paid for income taxes 509 159 Non-cash investing and financing activities: Accrued purchases of property and equipment 845 1,046 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business —The “Company” or “AtriCure” consists of AtriCure, Inc. and its wholly-owned subsidiaries. The Company is a leading innovator in surgical treatments and therapies for atrial fibrillation (Afib), left atrial appendage (LAA) management and post-operative pain management, and sells its products to medical centers globally through its direct sales force and distributors. Basis of Presentation —The accompanying interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). All intercompany accounts and transactions have been eliminated in consolidation. The accompanying interim financial statements are unaudited, but in the opinion of the Company’s management, contain all normal, recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America (GAAP) applicable to interim periods. Certain information and footnote disclosures included in annual financial statements prepared in accordance with GAAP have been omitted or condensed. The Company believes the disclosures herein are adequate to make the information presented not misleading. Results of operations are not necessarily indicative of the results expected for the full year or for any future period. The accompanying interim financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC. There have been no changes in the Company's significant accounting policies for the six months ended June 30, 2024 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Use of Estimates —The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including inventories, intangible assets, valuation allowance for deferred income tax assets, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense, including share-based compensation expense. Estimates are based on historical experience, where applicable, and other reasonable assumptions. Actual results could differ from those estimates. Segments —The Company's chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis, accompanied only by revenue information 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. The Company’s long-lived assets are located in the United States, except for $ 3,800 as of June 30, 2024 and $ 3,432 as of December 31, 2023 located primarily in Europe. Earnings Per Share —Basic and diluted net loss per share are computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Since the Company has experienced net losses for all periods presented, net loss per share excludes the effect of 2,675 and 1,839 shares as of June 30, 2024 and 2023 because they are anti-dilutive. Therefore, the number of shares used for basic and diluted net loss per share are the same. 2. FAIR VALUE The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (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 settle 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. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value: • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. 7 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of June 30, 2024: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) Total Assets: Money market funds $ — $ 85,887 $ — $ 85,887 Government and agency obligations 7,985 — — 7,985 Total assets $ 7,985 $ 85,887 $ — $ 93,872 There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three and six months ended June 30, 2024. The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2023: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) Total Assets: Money market funds $ — $ 77,864 $ — $ 77,864 Government and agency obligations 12,711 — — 12,711 Corporate bonds — 38,033 — 38,033 Asset-backed securities — 2,231 — 2,231 Total assets $ 12,711 $ 118,128 $ — $ 130,839 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. The PMA approval milestone expired December 31, 2023, while the achievement period for the reimbursement milestone expires on December 31, 2026. The Company assessed the projected probability of payment during the contractual achievement periods to be remote, resulting in no reported fair value as of June 30, 2024 and December 31, 2023. 8 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) 3. INVESTMENTS Investments as of June 30, 2024 consisted of the following: Cost Basis Unrealized Losses Fair Value Government and agency obligations $ 8,000 $ ( 15 ) $ 7,985 Investments as of December 31, 2023 consisted of the following: Cost Basis Unrealized Losses Fair Value Corporate bonds $ 38,514 $ ( 481 ) $ 38,033 Government and agency obligations 12,998 ( 287 ) 12,711 Asset-backed securities 2,263 ( 32 ) 2,231 Total $ 53,775 $ ( 800 ) $ 52,975 The gross realized gains or losses from sales of available-for-sale investments were not significant in the three and six months ended June 30, 2024 and 2023. The cost and fair value of investments in debt securities, by contractual maturity, as of June 30, 2024 were as follows: Available-for-sale Amortized Cost Fair Value Due in 1 year or less $ 8,000 $ 7,985 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. 4. INVENTORIES Inventories consist of the following: June 30, 2024 December 31, 2023 Raw materials $ 36,860 $ 36,751 Work in process 4,591 3,582 Finished goods 32,203 27,564 Total $ 73,654 $ 67,897 5. INTANGIBLE ASSETS The following table provides a summary of the Company’s intangible assets: June 30, 2024 December 31, 2023 Cost Accumulated Amortization Cost Accumulated Amortization Technology $ 46,470 $ 11,582 $ 46,470 $ 10,084 Patents 30,000 4,650 30,000 2,400 Total $ 76,470 $ 16,232 $ 76,470 $ 12,484 9 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) The following table summarizes the allocation of amortization expense of intangible assets: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Cost of revenues $ 1,125 $ 480 $ 2,250 $ 480 Research and development expenses 760 738 1,498 1,476 Total $ 1,885 $ 1,218 $ 3,748 $ 1,956 Future amortization expense is projected as follows: 2024 (excluding the six months ended June 30, 2024) $ 3,771 2025 8,441 2026 9,535 2027 10,435 2028 6,535 2029 and thereafter 21,521 Total $ 60,238 6. ACCRUED LIABILITIES Accrued liabilities consist of the following: June 30, 2024 December 31, 2023 Accrued compensation and employee-related expenses $ 27,061 $ 39,425 Sales returns and allowances 2,744 2,503 Other accrued liabilities 2,213 2,754 Total $ 32,018 $ 44,682 7. INDEBTEDNESS On January 5, 2024, the Company entered into a credit agreement (Credit Agreement) with JPMorgan Chase Bank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., as bookrunner and lead arranger (JPMCB), and Silicon Valley Bank, a Division of First-Citizens Bank & Trust Company, as Joint Lead Arrangers and Joint Bookrunners, and the lenders party thereto (Lenders). The Credit Agreement provides for an asset based revolving credit facility (ABL Facility) in an amount of up to $ 125,000 . Borrowing availability under the ABL Facility is based on the lesser of $ 125,000 or a borrowing base calculation as defined by the Credit Agreement. The Company may request an increase in the revolving commitment by up to $ 40,000 (not to exceed a total of $ 165,000 ). A portion of the ABL Facility, limited to $ 5,000 , is available for the issuance of letters of credit by JPMCB or other financial institutions. JPMCB in its sole discretion, may create swingline loans by advancing floating rate revolving loans requested. Any such swingline loans will reduce availability under the ABL Facility on a dollar-for-dollar basis. At closing, the Company borrowed $ 61,865 . The proceeds of the ABL Facility were used to terminate the Company’s outstanding indebtedness and final fee under the Loan and Security Agreement with Silicon Valley Bank (SVB Loan Agreement). Certain prepayment and early termination fees under the SVB Loan Agreement were waived at termination. The termination of the SVB Loan Agreement was treated as a debt extinguishment and the resulting loss on debt extinguishment is $ 1,362 . As of June 30, 2024, the Company had borrowings of $ 61,865 and had borrowing capacity of $ 61,885 under the ABL facility. The Credit Agreement has a three-year term, and all outstanding borrowings are due upon maturity of the Credit Agreement on January 5, 2027. Through January 2025, the Company's required minimum utilization of the ABL facility is 40 % of the aggregate revolving commitment or $ 50,000 . Subject to customary exceptions and restrictions, the Company may voluntarily prepay outstanding amounts under the ABL Facility at any time thereafter without premium or penalty. Any voluntary prepayments made will not reduce commitments under the ABL Facility. The Credit Agreement contains mandatory 10 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) prepayment provisions which require prepayment of amounts outstanding under the ABL Facility upon specified events or Availability shortfall. Future maturities of long-term debt are projected as follows: 2024 (excluding the six months ended June 30, 2024) $ — 2025 — 2026 — 2027 61,865 2028 — Total long-term debt, of which $ 61,865 is noncurrent $ 61,865 The ABL Facility is subject to a facility fee of 0.37 % per annum of the daily available revolving commitment and paid on a quarterly basis. Outstanding amounts under the Credit Agreement 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. All swingline loans bear interest at a rate per annum equal to the ABR plus the applicable margin under the Credit Agreement. Alternate base rate is equal to the greater of Prime, the NYFRB Rate plus 0.50 % or Adjusted Term SOFR Rate plus 1.00 %. The applicable margin on borrowings will adjust ranging 1.50 % to 1.75 % per annum for ABR borrowings and from 2.50 % to 2.75 % per annum for SOFR term borrowings determined by the average historical excess availability. Participation and fronting fees are accrued and paid on a quarterly basis. The ABL Facility is secured by the assets of the Company, consisting of personal, tangible or intangible property, including certain outstanding equity interests of the Company’s direct subsidiaries, subject to limitations specified in the Credit Agreement. The Credit Agreement contains customary representations and warranties, events of default and financial, affirmative and negative covenants for facilities of this type, including but not limited to financial covenants relating to a fixed charge coverage ratio, a minimum liquidity requirement and a minimum excess availability requirement, and restrictions on indebtedness, liens, investments and acquisitions, asset dispositions, specified agreements, restricted payments and prepayment of certain indebtedness. 8. LEASES The Company has operating and finance leases for office, manufacturing and warehouse facilities and automobiles. The Company’s leases have remaining lease terms of less than one year to nine years . Options to renew or extend leases beyond their initial term have been excluded from measurement of the right-of-use (ROU) assets and lease liabilities as exercise is not reasonably certain. The weighted average remaining lease term and the discount rate for the reporting periods are as follows: June 30, 2024 December 31, 2023 Operating Leases Weighted average remaining lease term (years) 4.6 4.8 Weighted average discount rate 5.99 % 5.75 % Finance Leases Weighted average remaining lease term (years) 6.2 6.7 Weighted average discount rate 7.07 % 6.93 % A letter of credit for $ 1,250 issued to the lessor of the Company's corporate headquarters building is renewed annually and remains outstanding as of June 30, 2024. 11 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) The components of lease expense are as follows: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Operating lease cost $ 384 $ 325 $ 764 $ 635 Finance lease cost: Amortization of right-of-use assets 268 255 523 510 Interest on lease liabilities 160 170 317 345 Total finance lease cost $ 428 $ 425 $ 840 $ 855 Short-term lease expense was not significant for the three and six months ended June 30, 2024 and 2023. Supplemental cash flow information related to leases is as follows: Six Months Ended June 30, 2024 Six Months Ended June 30, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 453 $ 602 Operating cash flows for finance leases 317 345 Financing cash flows for finance leases 505 483 Right-of-use assets and corresponding lease obligations related to new and modified lease agreements: Operating leases 322 1,068 Finance leases 421 — Supplemental balance sheet information related to leases is as follows: June 30, 2024 December 31, 2023 Operating Leases Operating lease right-of-use assets $ 4,030 $ 4,324 Current lease liabilities 1,412 1,447 Finance and operating lease liabilities 3,022 3,307 Total operating lease liabilities $ 4,434 $ 4,754 Finance Leases Property and equipment, at cost $ 14,765 $ 14,620 Accumulated depreciation ( 8,352 ) ( 8,105 ) Property and equipment, net $ 6,413 $ 6,515 Current lease liabilities $ 1,129 $ 1,086 Finance and operating lease liabilities 7,888 8,061 Total finance lease liabilities $ 9,017 $ 9,147 12 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) Future maturities of lease liabilities as of June 30, 2024 are as follows: Operating Leases Finance Leases 2024 (excluding the six months ended June 30, 2024) $ 1,740 $ 860 2025 1,273 1,742 2026 940 1,774 2027 935 1,808 2028 527 1,842 2029 and thereafter 764 3,158 Total payments $ 6,179 $ 11,184 Less imputed interest ( 1,745 ) ( 2,167 ) Total $ 4,434 $ 9,017 9. COMMITMENTS AND CONTINGENCIES License Agreement. The Company had been a party to a license agreement that required royalty payments of 5 % of specified product sales. In May 2023, the Company entered into an agreement that terminated the license agreement and the Company's obligations to make royalty payments under the license agreement. See Legal section below for additional information. Purchase Agreements. The Company enters into standard purchase agreements with suppliers in the ordinary course of business, generally with terms that allow cancellation. Legal. The Company may, from time to time, become a party to legal proceedings. Such matters are subject to many uncertainties and to outcomes of which the financial impacts are not predictable with assurance and that may not be known for extended periods of time. A liability is established once management determines a loss is probable and an amount can be reasonably estimated. The Company recognizes income from a favorable resolution of legal proceedings when the associated cash or assets are received. The Company received a Civil Investigative Demand (CID) from the U.S. Department of Justice (USDOJ) in December 2017 stating that it is investigating the Company to determine whether the Company has violated the False Claims Act, relating to the promotion of certain medical devices related to the treatment of atrial fibrillation for off-label use and submitted or caused to be submitted false claims to certain federal and state health care programs for medically unnecessary healthcare services related to the treatment of atrial fibrillation. The CID covers the period from January 2010 to December 2017 and required the production of documents and answers to written interrogatories. The Company had no knowledge of the investigation prior to receipt of the CID. The Company maintains rigorous policies and procedures to promote compliance with the False Claims Act and other applicable regulatory requirements. 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 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. During the third quarter of 2022, the relator filed a Fourth Amended Complaint, which dropped allegations of off-label promotion and 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 (“CCF”) 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 alleged that the Company did not include the revenues from sales of certain products in its royalty payments due under the License Agreement, and the Company did not provide related notices required under the License Agreement. The Company filed its Answering Statement and Counterclaims to the allegations in September 2022, denying each 13 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) claim and counterclaiming for breach of contract, correction of inventorship, declaratory judgment, patent prosecution and legal fees. In May 2023, the Company entered into an Assignment and Agreement Regarding IDx and CCF Intellectual property (“Assignment Agreement”) with Clinic and IDx. Pursuant to the Assignment Agreement, during the second quarter of 2023, the Company made a one-time payment of $ 33,400 to Clinic and IDx for the acquisition of patents and other intellectual property. The Assignment Agreement also requires dismissal of the arbitration and release of payment for royalty obligations due to Clinic and IDx under the License Agreement after March 31, 2023. The amount paid, together with transaction costs, was allocated between the acquired intangible asset, the release of payment for royalty obligations and the settlement of the dispute. The intangible asset was assigned a value of $ 30,000 and is being amortized over an estimated useful life of 5 years. The release of the royalty obligations was valued at $ 432 . The remaining $ 3,088 was allocated to the settlement and was included in selling, general and administrative expenses for the three months ended June 30, 2023. During the first quarter of 2023, the Company entered into a legal settlement for $ 7,500 in connection with the settlement of claims filed against a competitor. The Company recorded a $ 3,500 gain for the three months ended June 30, 2023 and $ 7,500 for the six months ended June 30, 2023 for the proceeds received as a reduction to selling, general and administrative expenses. 10. REVENUE The Company develops, manufactures and sells devices designed primarily for surgical ablation of cardiac tissue, exclusion of the left atrial appendage, and temporarily blocking pain by ablating peripheral nerves. These devices are marketed to a broad base of medical centers globally. 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. United States revenue by product type is as follows: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Open ablation $ 30,760 $ 27,002 $ 60,060 $ 52,144 Minimally invasive ablation 11,828 11,370 24,146 21,007 Pain management 15,006 12,590 27,745 23,658 Total ablation $ 57,594 $ 50,962 $ 111,951 $ 96,809 Appendage management 37,945 33,941 73,837 66,283 Total United States $ 95,539 $ 84,903 $ 185,788 $ 163,092 International revenue by product type is as follows: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Open ablation $ 9,170 $ 7,722 $ 17,072 $ 15,008 Minimally invasive ablation 1,764 1,375 3,878 3,242 Pain management 1,241 439 2,178 667 Total ablation $ 12,175 $ 9,536 $ 23,128 $ 18,917 Appendage management 8,555 6,479 16,204 12,403 Total International $ 20,730 $ 16,015 $ 39,332 $ 31,320 14 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) Revenue attributed to customer geographic locations is as follows: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 United States $ 95,539 $ 84,903 $ 185,788 $ 163,092 Europe 12,630 9,457 23,978 18,858 Asia Pacific 6,721 6,125 13,002 11,527 Other International 1,379 433 2,352 935 Total International 20,730 16,015 39,332 31,320 Total Revenue $ 116,269 $ 100,918 $ 225,120 $ 194,412 11. INCOME TAX PROVISION The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company uses the asset and liability method to determine its provision for income taxes. The Company’s provision for income taxes in interim periods is computed by applying the discrete method and is based on financial results through the end of the interim period. The Company determined that using the discrete method is more appropriate than using the annual effective tax rate method. The Company is unable to estimate the annual effective tax rate with sufficient precision to use the effective tax rate method, which requires a full-year projection of income. The effective tax rate for the three months ended June 30, 2024 and 2023 was ( 3.3 %) and ( 1.9 %). The effective tax rate for the six months ended June 30, 2024 and 2023 was ( 2.1 %) and ( 1.5 %). The Company’s worldwide effective tax rate differs from the US statutory rate of 21% primarily due to valuation allowances. The Company's federal, state, local and foreign tax returns are routinely subject to review by various taxing authorities. The Company has not accrued any interest and penalties related to unrecognized income tax benefits as a result of offsetting net operating losses. However, if required, the Company will recognize interest and penalties within income tax expense and within the related tax liability. 12. EQUITY COMPENSATION PLANS The Company has two share-based incentive plans: the 2023 Stock Incentive Plan (2023 Plan) and the 2018 Employee Stock Purchase Plan (ESPP). Stock Incentive Plan Under the 2023 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 2023 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 June 30, 2024, 4,087 shares of common stock have been reserved for issuance under the 2023 Plan, and 2,543 shares were available for future grants. The Company issues registered shares of common stock for stock option exercises, restricted stock grants and performance share award payments. Employee Stock Purchase Plan Under the ESPP, shares of the Company’s common stock may be purchased at a discount ( 15 %) to the lesser of the closing price of the Company’s common stock on the first or last trading day of the offering period. The offering period (currently six months ) and the offering price are subject to change. Participants may not purchase more than $ 25 of the Company’s common stock in a calendar year or more than 3 shares during an offering period. As of June 30, 2024, there were 621 shares available for future issuance under the ESPP. 15 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, except per share amounts) (Unaudited) Share-Based Compensation Expense Information The following table summarizes the allocation of share-based compensation expense: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Cost of revenue $ 628 $ 471 $ 1,158 $ 914 Research and development expenses 1,733 1,540 3,352 2,844 Selling, general and administrative expenses 8,030 6,984 15,146 13,997 Total $ 10,391 $ 8,995 $ 19,656 $ 17,755 13. COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE LOSS In addition to net losses, comprehensive loss includes foreign currency translation adjustments and unrealized gains (losses) on investments. Accumulated other comprehensive loss consisted of the following, net of tax: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Total accumulated other comprehensive loss at beginning of period $ ( 697 ) $ ( 3,072 ) $ ( 993 ) $ ( 4,096 ) Unrealized Gains (Losses) on Investments Balance at beginning of period $ ( 261 ) $ ( 2,657 ) $ ( 800 ) $ ( 3,698 ) Other comprehensive income before reclassifications 246 427 785 1,468 Balance at end of period $ ( 15 ) $ ( 2,230 ) $ ( 15 ) $ ( 2,230 ) Foreign Currency Translation Adjustment Balance at beginning of period $ ( 436 ) $ ( 415 ) $ ( 193 ) $ ( 398 ) Other comprehensive (loss) income before reclassifications ( 125 ) 28 ( 388 ) 153 Amounts reclassified to other income (expense) 7 8 27 ( 134 ) Balance at end of period $ ( 554 ) $ ( 379 ) $ ( 554 ) $ ( 379 ) Total accumulated other comprehensive loss at end of period $ ( 569 ) $ ( 2,609 ) $ ( 569 ) $ ( 2,609 ) 16 Table of Contents