What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-30 compared with 2024-07-31 · 66 added, 55 removed, 155 unchanged (44% of the section changed)

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Recent Developments

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.

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

Our worldwide revenue for the nine months ended September 30, 2024 was $341,030, representing an increase of $48,328, or 16.5%, over the first nine months of 2023, driven by growing adoption across key product lines as well as new product launches.

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.

However, new entrants are 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 .

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).

We continue to invest in research and development of new products and pursue regulatory approvals to market and sell globally across all franchises.

Throughout 2024, we received several additional CE Mark certifications under the European Medical Device Regulation (EU MDR).

During the third quarter 2024, we received regulatory approval to sell the ENCOMPASS ® clamp in CE-marked countries in the European Union, representing a significant expansion of our open ablation franchise products in Europe.

• Minimally invasive .

In the first half of 2024, FDA granted 510(k) clearance for EPi-Ease™, our Hybrid access device to facilitate guide-wire delivery, vacuum application and endoscope insertion.

During the third quarter, FDA granted 510(k) clearance for our EnCapture clamp, the newest in our line of Isolator ® Synergy™ Ablation System clamps, with enhanced geometry and features to facilitate engagement with intended cardiac tissue.

• Pain management .

During the second quarter of 2024, we launched the cryoSPHERE ® + cryoablation probe for pain management in the US.

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%.

Further, the cryoSPHERE MAX™ probe, recently launched in October 2024, features a larger ball tip designed to optimize Cryo Nerve Block therapy.

This new probe reduces freeze times by 50% when compared to the first generation cryoSPHERE ® cryoablation probe, and over 30% when compared to the cryoSPHERE ® + probe.

• Appendage management .

The first patient was treated and we launched the AtriClip ® FLEX-Mini™ device in the US during the third quarter of 2024.

The AtriClip FLEX-Mini sets a new standard as the smallest profile for surgical LAA device on the market and builds upon the proven technology of our AtriClip platform, with ease of use and design simplicity that offers enhanced access and increased visibility for physicians.

We also obtained additional international regulatory approvals for our AtriClip platform during the third quarter.

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

In CE-marked countries in Europe, we received expanded indication for the AtriClip for use in patients at high risk of thromboembolism for whom left atrial appendage exclusion is warranted.

CLINICAL SCIENCE .

We invest in studies to expand labeling claims, support various indications for our products and gather and publish 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 for therapies and procedures involving 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 second quarter of 2024 with over 2,700 patients enrolled.

The first patient was enrolled in the trial in January 2023, and we ended the third quarter of 2024 with over 3,400 patients enrolled.

Site initiation and enrollment is ongoing.

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

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

Our professional education team conducts a variety of in-person and virtual training programs for physicians and other healthcare professionals.

These training methods ensure 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.

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These reusable CADets provide a sustainable alternative to the use of cadaver specimens, in addition to increasing the efficiencies of education and more cost effective training alternatives.

In 2024, we continue to innovate physician training to improve accessibility and efficiency for our physician partners.

We are currently piloting the use of live streaming to enable remote proctoring and case observation.

Results of Operations

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

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

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

Three Months Ended

September 30,

Revenues Amount % of

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Three Months Ended

June 30, Change

September 30, Change

2024 2023 Amount %

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Worldwide revenue increased 17.9% (17.8% on a constant currency basis).

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.

In the United States, sales grew in key product lines, including our ENCOMPASS ® clamp in open ablation, AtriClip ® Flex⋅V ® for appendage management and our cryoSPHERE ® probes for post-operative pain management.

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.

International sales increased 23.3% (22.4% on a constant currency basis), with strength across all franchises in Europe and most of our other 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 $4,696 primarily reflecting higher sales volumes.

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

Gross margin decreased 27 basis points, driven primarily by less favorable geographic and product mix.

Research and development expenses.

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Expansion of product development, clinical and regulatory teams resulted in $1,815 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.

Clinical trial expenses increased $739 from increased clinical activity and consulting costs, driven by LeAAPS clinical trial patient enrollment and follow up activities.

These increases were partially offset by a $2,179 decrease in product development project spend and regulatory filings and submission costs incurred in 2023 related to several products brought to market in 2024, including cryoSPHERE+ and AtriClip FLEX-Mini.

Selling, general and administrative expenses.

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.

Selling, general and administrative expenses increased $11,634, or 18.9%, driven by $9,337 increase in personnel costs including travel and share-based compensation, primarily reflecting headcount growth and variable compensation.

Consulting fees increased $1,274, while marketing and meeting costs increased $725.

Professional services, IT and other corporate costs grew $444, offset by a $401 decrease in training costs.

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

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

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

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

Six Months Ended

Nine Months Ended

September 30,

Revenues Amount % of

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The following table sets forth, for the periods indicated, our revenue by product type and geography expressed as dollar amounts and the corresponding change in such revenues between periods, in both dollars and percentages:

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

2024 2023 Amount %

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Worldwide revenue increased 16.5% (16.5% 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

In the United States, growth in all 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 probes 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.

International sales increased 24.8% (24.6% on a constant currency basis), across all franchises and 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.

Cost of revenue increased $13,978, reflecting higher sales volumes, while gross margin decreased 61 basis points, primarily driven by less favorable geographic and product mix, as well as an increase in product costs.

Research and development expenses.

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Clinical trial expenses increased $3,448 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.

These were partially offset by a $574 decrease due to higher regulatory approval costs in 2023.

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.

Selling, general and administrative expenses increased $33,723, or 18.2%, due to a $22,763 increase in personnel costs, including travel and share-based compensation, as a result of growth in headcount and variable compensation.

Selling, general and administrative expenses also increased $1,877 for professional services, IT and corporate costs reflecting operational growth, a $1,892 increase in marketing, training and meeting activities and an increase of $901 in consulting fees.

The increase was further driven by a $4,412 non-recurring net gain during 2023 related to legal settlements;

see Note 9 - Commitments and Contingencies for related discussion.

Other income (expense).

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see Note 7 - Indebtedness for related discussion.

The remaining activity consists primarily of net interest expense and net foreign currency transaction losses.

The remaining activity consists primarily of net interest expense and net foreign currency transaction gains or losses.

Liquidity and Capital Resources

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

As of September 30, 2024, we had cash, cash equivalents and investments of $130,335 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 $191,627 and an accumulated deficit of $378,334 as of June 30, 2024.

Six Months Ended June 30,

2024 2023 Change

(dollars in thousands)

Net cash used in operating activities $ (13,636) $ (1,068) $ 12,568

Net cash provided by investing activities 40,535 12,733 27,802

Net cash used in financing activities (5,008) (2,523) 2,485

Cash flows used in operating activities.

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.

We had net working capital of $194,855 and an accumulated deficit of $386,187 as of September 30, 2024.

Consolidated Cash Flows - For the nine months ended September 30, 2024 and 2023

Cash flows provided by operating activities.

Net cash provided by operating activities increased $5,914 from 2023 to 2024.

Operating results declined $8,481, primarily due to a $4,412 nonrecurring net gain for legal settlements recorded in 2023.

In addition, non-cash charges increased $7,633 in 2024.

Cash used for working capital and other assets and liabilities decreased $6,762 due to collection of accounts receivable and moderating investments in inventory in 2024, partially offset by higher annual variable compensation payments due to improved operating performance.

Cash flows provided by investing activities.

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.

Net cash provided by investing activities increased by $20,324 in 2024 compared to 2023, due to the cash paid for acquisition of intellectual property in the prior year of $30,000, offset by a $10,147 decrease in sales and maturities of available-for-sale securities.

Cash flows used in financing activities.

Net cash used in financing activities increased by $2,950 in 2024.

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.

This increase was a result of a $1,623 payment for extinguishment of debt and financing fees, net of borrowings, and a $998 decrease in proceeds from stock option exercises and the employee stock purchase plan.

Credit facility.

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

receivable, eligible inventory, eligible liquid assets, less reserves as determined by the Administrative Agent, all as specified in the Credit Agreement.

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.

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.

As of September 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 September 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 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.

As of September 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 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.

As of September 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