AtriCure, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ATRICURE, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Page Financial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 44 Consolidated Balance Sheets 46 Consolidated Statements of Operations and Comprehensive Loss 47 Consolidated Statements of Stockholders’ Equity 48 Consolidated Statements of Cash Flows 49 Notes to Consolidated Financial Statements 50 43 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of AtriCure, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of AtriCure, Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 44 Table of Contents Valuation of Performance Shares - Refer to Note 15 to the financial statements Critical Audit Matter Description Performance share awards and performance share units (collectively, Performance Shares) were granted in 2024 with a grant date fair value of $15,007. The Performance Shares vest based on the achievement of performance conditions and/or market conditions. The number of Performance Shares with a market condition that vest and are issued to the recipient is based upon either: (i) the Company’s total shareholder return (TSR) relative to the TSR of the selected market index or (ii) the Company’s simple moving average of the closing price of the Company’s Common Stock during the sixty calendar days immediately prior to and including the Measurement Period Dates at the end of the defined performance period. A Monte Carlo simulation was performed to estimate the fair value of the awards with a market condition on the date of grant. The number of Performance Shares with a performance condition that vest and are issued to the recipient is measured based on the Company’s revenue compound annual growth rate at the end of the defined performance period as compared to a target threshold. The Company’s share-based compensation expense is recognized over the requisite service period as the employee renders service. The determination of fair value on the grant date is affected by the stock price of the Company and the market index, as defined by the award agreement, at the beginning of the service period and grant date, the expected stock price volatility of the Company and the market index over the performance period, the risk-free interest rate, and/or the correlation coefficient of the daily returns for the Company and the market index over the performance period. Given the level of judgment involved by management to determine the grant date fair value of the Performance Awards, including the use of a specialist for awards with a market condition, audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company's determination of the grant date fair value of the Performance Shares included the following, among others: • We inquired with management regarding the key valuation assumptions and the methodology used in the determination of the grant date fair value of the Performance Shares. • We tested the design and operating effectiveness of the Company's internal controls over the determination of the grant date fair value of the Performance Shares. • We tested the accuracy of the data used in measuring the awards by agreeing the underlying inputs, such as grant date, share price, and vesting conditions, among others, back to source documents, such as compensation committee minutes or Performance Share agreements. • We evaluated management’s valuation of Performance Shares with a performance condition through testing of revenue growth assumptions over the defined performance period by comparing to the Company’s annual plan and external guidance. • With the assistance of our fair value specialists, we evaluated management's valuation of Performance Shares with a market condition by: ▪ Evaluating the Monte Carlo simulation methodology and the reasonableness of the valuation assumptions, including the risk-free interest rate, expected volatility, and the correlation coefficients. ▪ Independently calculating a fair value estimate for the market condition Performance Shares using the underlying agreement and independently calculated valuation inputs. /s/ Deloitte & Touche LLP Cincinnati, Ohio February 14, 2025 We have served as the Company's auditor since 2002. 45 Table of Contents ATRICURE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2024 and 2023 (In Thousands, Except Per Share Amounts) 2024 2023 Assets Current assets: Cash and cash equivalents $ 122,721 $ 84,310 Short-term investments — 52,975 Accounts receivable, less allowance for credit losses of $ 550 and $ 500 60,339 52,501 Inventories 75,335 67,897 Prepaid and other current assets 9,431 8,563 Total current assets 267,826 266,246 Property and equipment, net 41,659 42,435 Operating lease right-of-use assets 5,727 4,324 Intangible assets, net 56,467 63,986 Goodwill 234,781 234,781 Other noncurrent assets 2,868 2,160 Total Assets $ 609,328 $ 613,932 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 25,032 $ 27,354 Accrued liabilities 45,587 44,682 Current lease liabilities 2,805 2,533 Total current liabilities 73,424 74,569 Long-term debt 61,865 60,593 Finance and operating lease liabilities 11,860 11,368 Other noncurrent liabilities 1,210 1,234 Total Liabilities 148,359 147,764 Commitments and contingencies (Note 11) Stockholders’ Equity: Common stock, $ 0.001 par value, 90,000 shares authorized; 48,869 and 47,526 issued and outstanding 49 48 Additional paid-in capital 863,710 824,170 Accumulated other comprehensive loss ( 1,035 ) ( 993 ) Accumulated deficit ( 401,755 ) ( 357,057 ) Total Stockholders’ Equity 460,969 466,168 Total Liabilities and Stockholders’ Equity $ 609,328 $ 613,932 See accompanying notes to consolidated financial statements. 46 Table of Contents ATRICURE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS YEARS ENDED DECEMBER 31, 2024, 2023 and 2022 (In Thousands, Except Per Share Amounts) 2024 2023 2022 Revenue $ 465,307 $ 399,245 $ 330,379 Cost of revenue 117,783 98,875 84,439 Gross profit 347,524 300,370 245,940 Operating expenses: Research and development expenses 96,178 73,915 57,337 Selling, general and administrative expenses 291,359 253,138 231,272 Total operating expenses 387,537 327,053 288,609 Loss from operations ( 40,013 ) ( 26,683 ) ( 42,669 ) Other income (expense): Interest expense ( 6,407 ) ( 6,925 ) ( 4,986 ) Interest income 4,434 3,792 1,994 Loss on debt extinguishment ( 1,362 ) — — Other ( 326 ) ( 31 ) ( 537 ) Loss before income tax expense ( 43,674 ) ( 29,847 ) ( 46,198 ) Income tax expense 1,024 591 268 Net loss $ ( 44,698 ) $ ( 30,438 ) $ ( 46,466 ) Net loss per share: Basic and diluted net loss per share $ ( 0.95 ) $ ( 0.66 ) $ ( 1.02 ) Weighted average shares outstanding - basic and diluted 46,965 46,309 45,740 Comprehensive (loss) income: Unrealized gain (loss) on investments $ 800 $ 2,898 $ ( 2,811 ) Foreign currency translation adjustment ( 842 ) 205 ( 337 ) Other comprehensive (loss) income ( 42 ) 3,103 ( 3,148 ) Net loss ( 44,698 ) ( 30,438 ) ( 46,466 ) Comprehensive loss, net of tax $ ( 44,740 ) $ ( 27,335 ) $ ( 49,614 ) See accompanying notes to consolidated financial statements. 47 Table of Contents ATRICURE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2024, 2023, and 2022 (In Thousands) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive (Loss) Income Total Stockholders’ Equity Shares Amount Balance—December 31, 2021 46,016 $ 46 $ 764,811 $ ( 280,153 ) $ ( 948 ) $ 483,756 Issuance of common stock under equity incentive plans 426 1 ( 10,385 ) — — ( 10,384 ) Issuance of common stock under employee stock purchase plan 121 — 4,225 — — 4,225 Share-based employee compensation expense — — 28,771 — — 28,771 Other comprehensive loss — — — — ( 3,148 ) ( 3,148 ) Net loss — — — ( 46,466 ) — ( 46,466 ) Balance—December 31, 2022 46,563 $ 47 $ 787,422 $ ( 326,619 ) $ ( 4,096 ) $ 456,754 Issuance of common stock under equity incentive plans 811 1 ( 4,241 ) — — ( 4,240 ) Issuance of common stock under employee stock purchase plan 152 — 5,261 — — 5,261 Share-based employee compensation expense — — 35,728 — — 35,728 Other comprehensive income — — — — 3,103 3,103 Net loss — — — ( 30,438 ) — ( 30,438 ) Balance—December 31, 2023 47,526 $ 48 $ 824,170 $ ( 357,057 ) $ ( 993 ) $ 466,168 Issuance of common stock under equity incentive plans 1,080 1 ( 5,929 ) — — ( 5,928 ) Issuance of common stock under employee stock purchase plan 263 — 5,064 — — 5,064 Share-based employee compensation expense — — 40,405 — — 40,405 Other comprehensive loss — — — — ( 42 ) ( 42 ) Net loss — — — ( 44,698 ) — ( 44,698 ) Balance—December 31, 2024 48,869 $ 49 $ 863,710 $ ( 401,755 ) $ ( 1,035 ) $ 460,969 See accompanying notes to consolidated financial statements. 48 Table of Contents ATRICURE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2024, 2023 and 2022 (In Thousands) 2024 2023 2022 Cash flows from operating activities: Net loss $ ( 44,698 ) $ ( 30,438 ) $ ( 46,466 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Share-based compensation expense 40,405 35,728 28,771 Depreciation 11,214 9,460 8,057 Amortization of intangible assets 7,519 5,353 3,653 Amortization of deferred financing costs 478 486 507 Amortization of investments 107 632 1,478 Acquired in-process research and development expense 12,000 — — Loss on debt extinguishment 1,362 — — Other non-cash adjustments 2,175 1,503 739 Changes in operating assets and liabilities: Accounts receivable ( 8,301 ) ( 9,872 ) ( 8,989 ) Inventories ( 7,740 ) ( 21,830 ) ( 7,305 ) Other current assets ( 949 ) ( 3,084 ) ( 515 ) Accounts payable ( 1,531 ) 6,177 2,677 Accrued liabilities 1,199 11,562 ( 2,966 ) Other noncurrent assets and liabilities ( 1,036 ) ( 1,193 ) ( 1,782 ) Net cash provided by (used in) operating activities 12,204 4,484 ( 22,141 ) Cash flows from investing activities: Purchases of available-for-sale securities — — ( 24,637 ) Sales and maturities of available-for-sale securities 53,668 63,815 85,524 Purchases of property and equipment ( 11,459 ) ( 11,998 ) ( 16,881 ) Proceeds from sale of property and equipment 25 — — Acquisitions, including in-process research and development ( 12,000 ) ( 30,000 ) — Net cash provided by investing activities 30,234 21,817 44,006 Cash flows from financing activities: Proceeds from revolving credit facility, net of financing costs 61,210 — — Payments on debt and leases ( 62,879 ) ( 992 ) ( 899 ) Payment of financing costs and bank fees ( 1,069 ) ( 60 ) — Proceeds from stock option exercises 1,022 2,316 1,816 Shares repurchased for payment of taxes on stock awards ( 6,951 ) ( 6,557 ) ( 12,201 ) Proceeds from issuance of common stock under employee stock purchase plan 5,064 5,261 4,225 Net cash used in financing activities ( 3,603 ) ( 32 ) ( 7,059 ) Effect of exchange rate changes on cash and cash equivalents ( 424 ) ( 58 ) ( 361 ) Net increase in cash and cash equivalents 38,411 26,211 14,445 Cash and cash equivalents—beginning of period 84,310 58,099 43,654 Cash and cash equivalents—end of period $ 122,721 $ 84,310 $ 58,099 Supplemental cash flow information: Cash paid for interest $ 5,951 $ 6,376 $ 4,270 Cash paid for income taxes, net of refunds 619 395 192 Non-cash investing and financing activities: Accrued purchases of property and equipment 334 1,427 272 See accompanying notes to consolidated financial statements. 49 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business — AtriCure, Inc. (the “Company” or “AtriCure”) is a leading innovator in surgical treatments and therapies for atrial fibrillation, left atrial appendage management and post-operative pain management, and sells its products to medical centers globally through its direct sales force and distributors. Principles of Consolidation— The Consolidated Financial Statements include the accounts of AtriCure, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents— The Company considers highly liquid investments with maturities of three months or less at the date of purchase as cash equivalents. Cash equivalents include demand deposits and money market funds with financial institutions. Investments— The Company invests primarily in government and agency obligations, corporate bonds, commercial paper and asset-backed securities and classifies all investments as available-for-sale. Investments maturing in less than one year are classified as short-term investments. Investments are recorded at fair value, with unrealized gains and losses recorded as accumulated other comprehensive income (loss). Gains and losses are recognized using the specific identification method when securities are sold and are included in interest income. Revenue Recognition — Revenue is generated primarily from the sale of medical devices. Sales of devices are categorized based on the type of product as follows: open ablation, minimally invasive ablation, pain management and appendage management. The Company recognizes revenue when control of promised devices is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those devices. Revenue is recognized at a point in time upon shipment or delivery of products. Shipping and handling activities performed after control transfers to customers are considered activities to fulfill the promise to transfer the products. Revenue includes shipping and handling revenue of $ 2,421 , $ 1,860 and $ 1,496 in the years ended December 31, 2024, 2023 and 2022. Products are sold primarily through a direct sales force and through distributors in certain international markets. Terms of sale are generally consistent for both end-users and distributors, except that payment terms are generally net 30 days for end-users and net 60 days for distributors, with some exceptions. The Company does not maintain any post-shipping obligations to customers; no installation, calibration or testing of products is performed subsequent to shipment in order to render products operational. The Company expects to be entitled to the total consideration for the products ordered as product pricing is fixed, and there are no adjustments for a significant financing component as payment terms fall within one year . The Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price. Costs associated with product sales include commission expense for product sales and royalties paid for sales of certain products. As revenue from product sales are satisfied at a point in time, commission expense and royalties are incurred at that point in time rather than over time. Commissions are included in selling, general and administrative expenses, while royalties are included in cost of revenue. Significant judgments and estimates involved in the Company’s recognition of revenue include the estimation of a provision for returns. In the normal course of business, the Company is not obligated to accept product returns unless a product is defective as manufactured. The Company does not provide customers with the right to a refund. Sales Returns and Allowances — The Company maintains a provision for potential returns of defective or damaged products, and invoice adjustments. The Company adjusts the provision using the expected value method based on historical experience. Increases to the provision reduce revenue, and the provision is included in accrued liabilities. Allowance for Credit Losses on Accounts Receivable —The Company evaluates expected credit losses on accounts receivable, considering historical credit losses, current customer-specific information and other relevant factors when determining the allowance. An increase to the allowance for credit losses results in a corresponding increase in selling, general and administrative expenses. The Company charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs has not been significant. Recoveries are recognized when received as a reduction to the allowance for credit losses by decreasing bad debt expense. The following 50 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the years ended December 31, 2024, 2023 and 2022: Year Ended December 31, 2024 2023 2022 Beginning balance - January 1 $ 500 $ 230 $ 1,096 Provision for expected credit losses 50 270 190 Recovery — — ( 1,056 ) Ending balance - December 31 $ 550 $ 500 $ 230 Concentration Risk — During 2024, 2023 and 2022, 8.9 %, 8.8 % and 9.7 % of the Company’s total revenue was derived from its top ten customers. As of December 31, 2024 and 2023, 10.4 % and 11.3 % of the Company’s total accounts receivable were derived from its top ten customers. No individual customer accounted for more than 10% of the Company’s accounts receivable as of December 31, 2024 and 2023. The Company is dependent on third-party suppliers, in some cases single-source suppliers. Inventories— 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. The Company’s industry is characterized by rapid product development and frequent new product introductions. Uncertain timing of regulatory 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. Inventories are written off against the reserve when they are physically disposed. Property and Equipment— Property and equipment are stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful life. The estimated useful life of leasehold improvements is the shorter of the estimated life or the lease term. The estimated useful lives of buildings is 15 to 20 years, while furniture, fixtures, computers and office equipment are depreciated from three to seven years . The Company’s RF and cryo generators are generally placed with customers that purchase the Company’s disposable products. The estimated useful lives of generators are based on anticipated usage by customers and may change in future periods with changes in usage or introduction of new technology. Depreciation related to generators is recorded in cost of revenue over three years . Maintenance and repair costs are expensed as incurred. The Company assesses the useful lives of property and equipment at least annually and retires assets no longer in use. Contingent Consideration— Contingent consideration arrangements obligate the Company to pay certain amounts if specified future events occur or conditions are met, such as the achievement of certain developmental, commercial or regulatory milestones. Contingent consideration obligations incurred in connection with a business combination are recorded at fair value on acquisition date and periodically measured, with changes in the estimated fair value reflected in operating expense. Contingent consideration arrangements arising from asset acquisitions are recorded within operating expenses at the time milestone results are achieved. Intangible Assets— Technology intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated fifteen year period benefited. Patent intangible assets with determinable useful lives are amortized over the estimated useful life of five years in a pattern reflecting their estimated economic benefit to the Company. Amortization of technology intangible assets is recorded in research and development expense, while amortization of patent intangible assets is recorded in cost of revenue. The Company reviews intangible assets for impairment if impairment indicators are present using its best estimates based on reasonable and supportable assumptions and projections. Goodwill— Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. The Company’s goodwill is accounted for in a single reporting unit representing the Company as a whole. The Company performs impairment testing annually on October 1 or more often if impairment indicators are present. Long-lived Assets— The Company reviews property and equipment and intangible assets, excluding goodwill, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset's carrying value. 51 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) Leases —The Company leases office, manufacturing and warehouse facilities and automobiles under leases that qualify as either financing or operating leases, as determined at the inception of the lease arrangement. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make payments under the lease. Lease assets and liabilities are measured and recorded at the commencement date based on the present value of payments over the lease term. Lease assets and liabilities include lease incentives and options to extend or terminate when it is reasonably certain the Company will exercise that option. The Company uses the implicit rate when readily determinable; however, as most leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate. The Company also applies the short-term lease recognition exemption, recognizing lease payments in profit or loss, for lease terms of 12 months or less at commencement and with no option to extend the lease whose exercise is reasonably certain. The Company accounts for the lease and non-lease components as a single lease component. Additionally, the portfolio approach is applied for operating leases based on the terms of the underlying leases. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities, while finance leases are included in property and equipment and finance lease liabilities. The short-term portions of lease liabilities are included in other current liabilities and current maturities of debt and leases. Operating lease expense is recognized on a straight-line basis over the lease term. See Note 10 – Leases for further discussion. Other Income (Expense)— Other income (expense) consists primarily of foreign currency transaction gains and losses generated by settlements of intercompany balances denominated in Euros and customer invoices transacted in British Pounds, Australian Dollars and Canadian Dollars. Income Taxes —Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases along with operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities from a change in tax rates is recognized in the period that includes the enactment date. The Company’s estimate of the valuation allowance for deferred income tax assets requires significant estimates and judgments about future operating results. Deferred income tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that a deferred income tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. The Company evaluates deferred income tax assets on an annual basis to determine if valuation allowances are required by considering all available evidence. Deferred income tax assets are realized by having sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable. The sources of taxable income that may be available to realize the benefit of deferred income 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. The Company's valuation allowance offsets substantially all net deferred income tax assets as it is more-likely-than-not that the benefit of the deferred income tax assets will not be recognized in future periods. The Company has not reclassified income tax effects of the Tax Cuts and Jobs Act within accumulated other comprehensive (loss) income to retained earnings due to its full valuation allowance. Net Loss Per Share —Basic and diluted net loss per share is computed by dividing the net loss available to common stockholders 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 exclude the effect of 2,583 , 1,668 and 1,292 stock options, restricted stock awards, restricted stock units, performance share awards, and performance share units as of December 31, 2024, 2023 and 2022 because they are anti-dilutive. Therefore, the number of shares calculated for basic net loss per share is also used for the diluted net loss per share calculation. Research and Development Costs — Research and development costs include compensation and other internal and external costs associated with the development and research of new and existing products or concepts, preclinical studies, clinical trials and studies, related regulatory activities, acquired in-process research and development (IPR&D), as well as amortization of technology assets. Research and development costs are expensed as incurred. Clinical trial costs and other 52 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) development costs incurred by third parties are expensed as contracted work is performed or over the expected service period. Acquired IPR&D expenses reflect the costs of externally developed IPR&D projects acquired in an asset acquisition that do not have an alternative future use. Acquired IPR&D is expensed on the acquisition date and future expenses to develop the IPR&D projects are recorded in research and development expense as incurred. Milestone payments made to third parties in connection with asset acquisitions are expensed as incurred up to the point of regulatory approval. Advertising Costs — The Company expenses advertising costs as incurred. Advertising expense was $ 2,817 , $ 1,695 and $ 1,233 during the years ended December 31, 2024, 2023 and 2022. Share-Based Compensation— The Company recognizes share-based compensation expense for all share-based payment awards, including stock options, restricted stock awards, restricted stock units, performance share awards (PSAs), performance share units (PSUs) and stock purchases related to an employee stock purchase plan, based on estimated fair values. The value of the portion of an award that is ultimately expected to vest is recognized as expense over the service period. Prior to January 1, 2023, the Company estimated forfeitures at the time of grant and revised them, as necessary, in subsequent periods as actual forfeitures differ from those estimates. Effective January 1, 2023, the Company's policy was amended to account for forfeitures as they occur rather than estimating at the time of grant, and the effect on income from continuing operations and retained earnings is not significant. The Company estimates the fair value of time-based options on the date of grant using the Black-Scholes option-pricing model (Black-Scholes model). The Company’s determination of the fair value is affected by the Company’s stock price as well as several subjective assumptions, such as the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. The Company estimates the fair value of restricted stock awards and restricted stock units based upon the grant date closing market price of the Company’s common stock. The Company estimates the fair value of PSAs with a performance condition based on the closing stock price on the date of grant assuming the performance target will be achieved and may adjust expense over the performance period based on changes to estimates of performance target achievement. If such targets are not met or service is not rendered for the requisite service period, no compensation cost is recognized, and any recognized compensation cost in prior periods will be reversed. For PSAs and PSUs with a market condition, a Monte Carlo simulation is performed to estimate the fair value on the date of grant, and compensation cost is recognized over the requisite service period as the employee renders service, even if the market condition is not satisfied. The Company’s determination of the fair value is affected by the Company and market index stock performance, as defined by the award agreement, at the beginning of the service period and grant date; the expected volatility of the Company and market index stock performance over the performance period and the correlation coefficient of the daily returns for the Company and market index over the performance period. The Company also has an employee stock purchase plan (ESPP) covering substantially all U.S. employees of the Company. Under the ESPP, shares of the Company’s common stock may be purchased at a discount. The Company estimates the number of shares to be purchased under the ESPP at the beginning of each purchase period based upon the fair value of the stock at the beginning of the purchase period using the Black-Scholes model and records estimated compensation expense during the purchase period. Expense is adjusted at the time of stock purchase. Use of Estimates— The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets, contingent assets and liabilities and the reported amounts of revenue and expense during the reporting period. Estimates are based on historical experience, where applicable, and other assumptions believed to be reasonable by management. Actual results could differ from those estimates. Segments —The Company evaluates reporting segments in accordance with FASB ASC 280, “Segment Reporting”. The chief operating decision maker for the Company is the Chief Executive Officer. The Company has one business activity and operates as one operating segment: the development, manufacture, and sale of devices used by cardiothoracic and thoracic surgeons in surgical procedures, designed primarily for the surgical ablation of cardiac tissue, the exclusion of the left atrial appendage, and to block pain by temporarily ablating peripheral nerves. These devices are developed and marketed to a broad base of medical centers globally. Management considers all such sales to be part of the single operating segment. The Chief Executive Officer is regularly provided with consolidated expenses consistent with the presented consolidated statements of operations, accompanied by information about revenue by product type and 53 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) geographic area, for purposes of allocating resources and evaluating financial performance. Revenue by product type and geographic area is included at Note 12 - Revenue. The Company’s long-lived assets are located in the United States, except for $ 4,021 as of December 31, 2024 and $ 3,432 as of December 31, 2023 located primarily in Europe. Fair Value Disclosures —The Company classifies cash equivalents, investments in U.S. government and agency obligations, accounts receivable, other current assets, and accounts payable as Level 1. The carrying amounts of these assets and liabilities approximate their fair value due to their relatively short-term nature. Investments in corporate bonds, commercial paper and asset-backed securities are classified as Level 2 within the fair value hierarchy. The fair value of fixed term debt is estimated by calculating the net present value of future debt payments at current market interest rates and is classified as Level 2. The book value of the Company’s fixed term debt approximates its fair value because the interest rate varies with market rates. Significant unobservable inputs with respect to the fair value measurements of the Level 3 contingent consideration liabilities are developed using Company data. See Note 2 – Fair Value for further information on fair value measurements. Recent Accounting Pronouncements —In November 2024, the FASB issued Accounting Standards Update (ASU) 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”. This guidance requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and disclosures. 2. FAIR VALUE FASB ASC 820, “Fair Value Measurements and Disclosures”, defines fair value as the exchange price that would be received for an asset or paid to transfer 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 that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment. • 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. The valuation technique for the Company’s Level 2 assets is based on quoted market prices for similar assets from observable pricing sources at the reporting date. • 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. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. 54 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 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 $ 101,147 $ — $ — $ 101,147 Total assets $ 101,147 $ — $ — $ 101,147 The following table represents the Company’s fair value hierarchy for its financial assets and liabilities 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 The estimated fair value of money market funds transferred from a Level 2 fair value measurement to a Level 1 fair value measurement during the year ended December 31, 2024. There were no changes in the levels or methodology of measurement of financial assets and liabilities during the years ended December 31, 2023. Contingent Consideration-Business Combination. 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 on December 31, 2023, while the achievement period for the reimbursement milestone expires on December 31, 2026. The contingent consideration liability is measured by applying the probability weighted scenario method using unobservable inputs, thus representing a Level 3 measurement within the fair value hierarchy. The Company continues to assess the projected probability of payment during the contractual achievement periods to be remote, resulting in no reported fair value as of December 31, 2024 and 2023. The Company had no Level 3 fair value measurements using significant other unobservable inputs for contingent consideration in the years ended December 31, 2024, 2023 and 2022. 3. ASSET ACQUISITION On October 15, 2024, the Company entered into an exclusive licensing agreement (Cooperation Agreement) to co-develop and commercialize equipment incorporating pulsed field ablation (PFA) technology. The Company paid cash of $ 12,000 for the exclusive license of related intellectual property. The transaction was accounted for as an asset acquisition, 55 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) resulting in acquired in-process research and development (IPR&D). The acquired IPR&D was expensed to research and development expense as we determined there was no alternative future use of the technologies acquired. The Cooperation Agreement also requires the Company to pay additional contingent consideration, settled in cash, with a maximum payout of $ 28,000 if all milestones are achieved successfully within the ten-year term as follows: • Development Milestones - $ 3,000 to $ 15,000 for successful delivery of equipment for defined purposes at multiple dates within the next two years and is reduced for calendar days lapsed from delivery dates at specified rates. • Regulatory Approval Milestone - up to $ 13,000 for First Market Authorization in the United States, as defined in the Cooperation Agreement. The contingent consideration will be expensed when each milestone is paid or becomes payable as a result of achievement. As of December 31, 2024, the milestones were not yet achieved and, therefore, there is no financial impact during the period. The agreement also contains provisions requiring future royalty payments on devices incorporating co-developed technology upon commercialization. 4. INVESTMENTS The Company had no i nvestments as of December 31, 2024. 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 years ended December 31, 2024, 2023 and 2022. 5. INTANGIBLE ASSETS AND GOODWILL The following table provides a summary of the Company’s intangible assets at December 31: 2024 2023 Cost Accumulated Amortization Cost Accumulated Amortization Technology $ 46,470 $ 13,103 $ 46,470 $ 10,084 Patents 30,000 6,900 30,000 2,400 Total $ 76,470 $ 20,003 $ 76,470 $ 12,484 Amortization expense of intangible assets was $ 7,519 , $ 5,353 and $ 3,653 for the years ended December 31, 2024, 2023 and 2022. The following table summarizes the allocation of amortization expense of intangible assets: 2024 2023 2022 Cost of revenue $ 4,500 $ 2,400 $ — Research and development expenses 3,019 2,953 3,653 Total $ 7,519 $ 5,353 $ 3,653 56 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) Future amortization expense is projected as follows: 2025 $ 8,441 2026 9,535 2027 10,435 2028 6,535 2029 2,935 2030 and thereafter 18,586 Total $ 56,467 The following table provides a summary of the Company’s goodwill, which is not amortized, but rather tested annually for impairment: Net carrying amount as of December 31, 2022 $ 234,781 Additions (Impairment) — Net carrying amount as of December 31, 2023 234,781 Additions (Impairment) — Net carrying amount as of December 31, 2024 $ 234,781 6. INVENTORIES Inventories consisted of the following at December 31: 2024 2023 Raw materials $ 37,703 $ 36,751 Work in process 3,604 3,582 Finished goods 34,028 27,564 Inventories $ 75,335 $ 67,897 7. PROPERTY AND EQUIPMENT Property and equipment consisted of the following at December 31: 2024 2023 Buildings and improvements $ 29,309 $ 29,193 Generators 25,687 23,407 Machinery and office equipment 31,321 24,076 Computer equipment and software 11,300 9,845 Construction in progress 4,331 7,332 Land 1,006 1,006 Total 102,954 94,859 Less accumulated depreciation ( 61,295 ) ( 52,424 ) Property and equipment, net $ 41,659 $ 42,435 Depreciation expense was $ 11,214 , $ 9,460 and $ 8,057 for the years ended December 31, 2024, 2023 and 2022. As of December 31, 2024 and 2023, the net carrying value of generators was $ 4,620 and $ 4,912 . 57 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) 8. ACCRUED LIABILITIES Accrued liabilities consisted of the following at December 31: 2024 2023 Accrued compensation and employee-related expenses $ 39,505 $ 39,425 Sales returns and allowances 3,123 2,754 Other accrued liabilities 2,959 2,503 Total $ 45,587 $ 44,682 9. INDEBTEDNESS On January 5, 2024, the Company entered into an asset-based credit agreement (Credit Agreement) among the Borrowers, 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-Citizen 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 . The Company may request an increase in the revolving commitment by up to $ 40,000 (not to exceed a total of $ 165,000 ). 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. 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 its then-existing 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 SVB Loan Agreement terminated on January 5, 2024 and was treated as a debt extinguishment. The resulting loss on debt extinguishment is $ 1,362 . 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 prepayment provisions which require prepayment of amounts outstanding under the ABL Facility upon specified events or Availability shortfall. 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 greatest of Prime, the NYFRB Rate plus 0.50 % and 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. As of December 31, 2024, the effective interest rate on the ABL Facility was 7.33 %. The ABL Facility is secured by the assets of the Company, whether consisting of personal, tangible or intangible property, including specified all of the 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. 58 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) Future maturities of debt are projected as follows: 2025 $ — 2026 — 2027 61,865 2028 — 2029 — Total long-term debt, of which $ 61,865 is noncurrent $ 61,865 10. 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 one to eight years . Options to renew or extend leases beyond their initial term have been excluded from measurement of the 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: As of As of As of December 31, 2024 December 31, 2023 December 31, 2022 Operating Leases Weighted average remaining lease term (years) 4.4 4.8 4.4 Weighted average discount rate 6.9 % 5.8 % 4.6 % Finance Leases Weighted average remaining lease term (years) 5.7 6.7 7.6 Weighted average discount rate 7.0 % 6.9 % 6.9 % A letter of credit for $ 1,250 was issued to the lessor of the Company's corporate headquarters building at inception of the lease and is renewed annually and remains outstanding as of December 31, 2024. The components of lease expense are as follows: Year Ended Year Ended Year Ended December 31, 2024 December 31, 2023 December 31, 2022 Operating lease cost $ 1,614 $ 1,284 $ 1,133 Finance lease cost: Amortization of right-of-use assets 1,047 1,020 1,016 Interest on lease liabilities 626 673 735 Total finance lease cost $ 1,673 $ 1,693 $ 1,751 Short term lease expense was not significant for the twelve months ended December 31, 2024, 2023 and 2022. 59 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) Supplemental cash flow information related to leases was as follows: Year Ended Year Ended Year Ended December 31, 2024 December 31, 2023 December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 1,486 $ 1,235 $ 845 Operating cash flows for finance leases 626 673 735 Financing cash flows for finance leases 1,056 992 899 Right-of-use assets obtained in exchange for lease obligations: Operating Leases 2,765 1,509 — Finance Leases 421 — 62 Supplemental balance sheet information related to leases was as follows: As of December 31, 2024 As of December 31, 2023 Operating Leases Operating lease right-of-use assets $ 5,727 $ 4,324 Current lease liabilities 1,619 1,447 Operating lease liabilities 4,579 3,307 Total operating lease liabilities $ 6,198 $ 4,754 Finance Leases Property and equipment, at cost $ 14,765 $ 14,620 Accumulated depreciation ( 8,875 ) ( 8,105 ) Property and equipment, net $ 5,890 $ 6,515 Current lease liabilities $ 1,186 $ 1,086 Finance lease liabilities 7,281 8,061 Total finance lease liabilities $ 8,467 $ 9,147 Maturities of lease liabilities as of December 31, 2024 were as follows: Operating Leases Finance Leases 2025 $ 1,792 $ 1,743 2026 1,591 1,775 2027 1,560 1,808 2028 961 1,842 2029 622 1,818 2030 and thereafter 746 1,339 Total payments $ 7,272 $ 10,325 Less imputed interest ( 1,074 ) ( 1,858 ) Total lease liabilities $ 6,198 $ 8,467 60 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) 11. COMMITMENTS AND CONTINGENCIES License Agreements. In 2024, we entered into an exclusive licensing agreement (Cooperation Agreement) to co-develop and commercialize equipment incorporating pulsed field ablation (PFA) technology. The Company paid cash of $ 12,000 for the exclusive license of related intellectual property. The Cooperation Agreement also requires the Company to pay additional contingent consideration, settled in cash, with a maximum payout of $ 28,000 if all milestones are achieved successfully within the ten-year term. The agreement also contains provisions requiring future royalty payments on devices incorporating co-developed technology upon commercialization. See Note 3 - Asset Acquisition for further information. The Company had been party to a license agreement that required 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. See Legal section below for additional information. There was no royalty expense for the year ended December 31, 2024. Royalty expense was $ 1,333 and $ 3,264 for the years ended December 31, 2023 and 2022. Purchase Commitments. The Company enters into various purchase arrangements related to its manufacturing and research and development activities. In the ordinary course of business, these agreements generally include terms that allow cancellation. In 2022, the Company entered into a clinical trial management agreement for the LeAAPS clinical trial. The terms of the agreement require 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 incur additional variable costs, including pass through costs from clinical trial sites. Payments made under this agreement were $ 12,471 , $ 5,636 , and $ 1,539 for the years ended December 31, 2024, 2023, and 2022. Legal. The Company may, from time to time, become a party to legal proceedings which are subject to many uncertainties. Litigation and administrative proceedings over patent and other intellectual property rights are common in our industry, as are requests for information related to interactions with medical professionals. Accordingly, the financial impact of ultimate resolutions from legal proceedings may not be known for extended periods of time and are not predictable with assurance. 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. On February 7, 2025, representatives for former securityholders of SentreHEART, Inc. filed a complaint in the Delaware Court of Chancery naming the Company as a defendant. The Company acquired SentreHEART, Inc. pursuant to a merger agreement dated August 11, 2019. The merger agreement provides for contingent consideration to be paid upon achievement of specified PMA and CPT reimbursement milestones by specified dates. The complaint alleges breach of contract and a related claim for breach of the implied covenant of good faith and fair dealing resulting from the Company's alleged failure to use commercially reasonable efforts to obtain premarket approval from FDA for the LARIAT System. The complaint seeks damages in the amount of the original PMA and CPT reimbursement milestones of up to $ 260,000 plus interest. The Company intends to vigorously defend this claim. A liability has not been recognized related to this matter because any potential loss is not currently probable or reasonably estimable. 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. 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 continued to pursue the case. During the third quarter of 2022, the relator filed a Fourth Amended Complaint, which alleged that the Company paid illegal kickbacks. In September 2024, the District Court granted the Company's motion to dismiss the Fourth Amended Complaint and denied the relator's request for leave to further amend the complaint. On August 23, 2022, the Cleveland Clinic Foundation (Clinic) 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 2003 License Agreement, 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 claim. In 61 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) 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 required 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 is included in selling, general and administrative expenses for the twelve months ended December 31, 2023. During the first quarter of 2023, the Company entered into a legal settlement of $ 7,500 in connection with the settlement of claims filed against a competitor. The Company recorded a $ 7,500 gain for the twelve months ended December 31, 2023 for the proceeds received as a reduction to selling, general and administrative expenses. 12. 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 and primarily used by cardiothoracic and thoracic surgeons. 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: 2024 2023 2022 Open ablation $ 123,647 $ 105,287 $ 86,119 Minimally invasive ablation 45,737 44,577 38,553 Pain management 61,844 49,199 39,974 Appendage management 151,588 134,481 112,555 Total United States $ 382,816 $ 333,544 $ 277,201 International revenue by product type is as follows: 2024 2023 2022 Open ablation $ 34,693 $ 31,483 $ 26,809 Minimally invasive ablation 8,104 6,670 5,986 Pain management 5,624 2,013 558 Appendage management 34,070 25,535 19,825 Total International $ 82,491 $ 65,701 $ 53,178 Revenue attributed to customer geographic locations is as follows: 2024 2023 2022 United States $ 382,816 $ 333,544 $ 277,201 Europe 49,874 38,469 30,428 Asia-Pacific 27,379 24,526 20,734 Other International 5,238 2,706 2,016 Total International 82,491 65,701 53,178 Total Revenue $ 465,307 $ 399,245 $ 330,379 62 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) 13. INCOME TAXES 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 in accordance with FASB ASC 740, “Income Taxes”, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax laws. A valuation allowance against deferred tax assets is recorded when it is more likely than not that such assets will not be fully realized. The Company's valuation allowance offsets substantially all its net deferred tax assets as it is more likely than not that the benefit of the deferred tax assets will not be recognized in future periods. The Company’s provision for income taxes for each of the years ended December 31 is as follows: 2024 2023 2022 Current tax expense Federal $ — $ — $ — State 450 389 142 Foreign 568 217 118 Total current tax expense 1,018 606 260 Deferred tax expense Federal $ ( 4,985 ) $ ( 2,972 ) $ ( 8,351 ) State ( 1,087 ) ( 928 ) ( 459 ) Foreign ( 1,379 ) ( 3,671 ) ( 1,636 ) Change in valuation allowance 7,457 7,556 10,454 Total deferred tax expense 6 ( 15 ) 8 Total tax expense $ 1,024 $ 591 $ 268 The detail of deferred tax assets and liabilities at December 31 is as follows: 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 116,679 $ 129,744 Research and development credit carryforwards 18,181 15,171 Research and experimental expenditures 31,106 20,193 Equity compensation 11,738 10,599 Finance and operating lease liabilities 2,494 3,083 Inventories 3,325 2,822 Accruals and reserves 1,478 1,131 Property and equipment 1,052 219 Total deferred tax assets 186,053 182,962 Deferred tax liabilities: Intangible assets ( 5,005 ) ( 8,568 ) Right-of-use assets ( 1,749 ) ( 2,160 ) Other ( 254 ) ( 444 ) Total deferred tax liabilities ( 7,008 ) ( 11,172 ) Valuation allowance ( 179,027 ) ( 171,766 ) Net deferred tax assets $ 18 $ 24 Provisions enacted in the Tax Cut and Jobs Act of 2017 related to the capitalization of research and experimental expenditures for tax purposes became effective on January 1, 2022. These provisions require the Company to capitalize and 63 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) amortize research and experimental expenditures for tax purposes over five or fifteen years , depending on where research is conducted. The Company has federal net operating loss carryforwards of $ 216,156 which expire between 2025 and 2037 and $ 175,758 which have no expiration. The Company has state and local net operating loss carryforwards of $ 251,677 which expire between 2025 to 2044. A portion of the Company’s federal and state net operating loss carryforwards are subject to certain limitations under Internal Revenue Code Sections 382 and 383. The Company has federal research and development credit carryforwards of $ 18,181 which expire between 2025 and 2044. Additionally, the Company has foreign net operating loss carryforwards of approximately $ 79,662 which have no expiration. The Company’s 2024, 2023 and 2022 effective income tax rates differ from the federal statutory rate as follows: 2024 2023 2022 Federal tax at statutory rate 21.0 % $ ( 9,171 ) 21.0 % $ ( 6,268 ) 21.0 % $ ( 9,701 ) Permanent differences ( 6.7 ) 2,942 ( 10.4 ) 3,092 ( 1.9 ) 876 Valuation allowance ( 17.1 ) 7,457 ( 25.3 ) 7,556 ( 22.6 ) 10,454 State income taxes 1.7 ( 742 ) 1.8 ( 539 ) 0.7 ( 317 ) Federal R&D credit 6.9 ( 3,010 ) 6.6 ( 1,966 ) 4.2 ( 1,936 ) Foreign income taxes ( 1.3 ) 567 3.4 ( 1,012 ) ( 0.5 ) 215 Federal deferred adjustments ( 6.8 ) 2,981 0.9 ( 272 ) ( 1.5 ) 677 Effective tax rate ( 2.3 ) % $ 1,024 ( 2.0 ) % $ 591 ( 0.6 ) % $ 268 The Company’s pre-tax book loss for domestic and international operations was $ 36,983 and $ 6,691 for 2024, $ 17,822 and $ 12,025 for 2023, and $ 38,008 and $ 8,190 for 2022. The Company had undistributed earnings of foreign subsidiaries of approximately $ 609 at December 31, 2024. The Company does not consider these earnings as permanently reinvested and has determined that no current and deferred taxes are required on such amounts. The Company's federal, state, local and foreign tax returns are routinely subject to review by various taxing authorities. Federal income tax returns for periods beginning in 2021 are open for examination. Generally, state and foreign income tax returns for periods beginning in 2020 are open for examination. However, taxing authorities have the ability to audit net operating loss and tax credit carryforwards from years prior to these periods. The Company has not recognized certain tax benefits because of the uncertainty of realizing the entire value of the tax position taken on income tax returns upon review by the 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. A reconciliation of the change in federal and state unrecognized tax benefits for 2024, 2023 and 2022 is presented below: 2024 2023 2022 Balance at the beginning of the year $ 1,672 $ 1,762 $ 1,798 Increases (decreases) for prior year tax positions ( 158 ) ( 90 ) ( 36 ) Increases (decreases) for current year tax positions — — — Increases (decreases) related to settlements — — — Decreases related to statute lapse — — — Balance at the end of the year $ 1,514 $ 1,672 $ 1,762 The balance of unrecognized tax benefits at December 31, 2024, 2023 and 2022 includes $ 1,514 , $ 1,672 and $ 1,762 of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes and valuation allowance. The Company does not expect that its unrecognized tax benefits for research credits will significantly change within twelve months of December 31, 2024. 64 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) 14. EMPLOYEE BENEFIT PLANS The Company sponsors the AtriCure, Inc. 401(k) Plan (401(k) Plan), a defined contribution plan covering substantially all U.S. employees of the Company. Eligible employees may contribute pre- or post-tax annual compensation up to specified maximums under the Internal Revenue Code. During the years ended December 31, 2024, 2023 and 2022, the Company matching contribution was 50 % on the first 8 % of employee contributions to the 401(k) Plan. The Company’s matching contributions in 2024, 2023 and 2022 were $ 5,477 , $ 4,949 and $ 4,447 . Additional amounts may be contributed to the 401(k) Plan at the discretion of the Company’s Board of Directors; however, no such discretionary contributions were made in 2024, 2023 or 2022. The Company also provides retirement benefits for employees of its foreign subsidiaries. Total contributions to foreign retirement plans were $ 702 , $ 503 and $ 446 in 2024, 2023 and 2022. 15. 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, performance share units 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 December 31, 2024, 4,087 shares of common stock had been reserved for issuance under the 2023 Plan and 2,480 shares were available for future grants. The Company issues registered shares of common stock for stock option exercises, restricted stock grants and performance award grants. The following table summarizes total share-based compensation expense related to employees, directors and consultants for 2024, 2023 and 2022. The expense was allocated as follows: 2024 2023 2022 Cost of revenue $ 2,323 $ 1,817 $ 1,868 Research and development expenses 6,951 5,802 4,544 Selling, general and administrative expenses 31,131 28,109 22,359 Total $ 40,405 $ 35,728 $ 28,771 Performance Share Awards and Units. The award agreements for the performance share awards (PSAs) provide that each PSA that vests represents the right to receive one share of the Company’s common stock at the end of the performance period. The number of shares that vest and are issued to the recipient is based upon the Company’s performance with respect to specified targets at the end of the three-year performance period. PSAs have two weighted performance targets: (i) the Company’s compound annual revenue growth rate (CAGR), a performance condition and (ii) relative total shareholder return (TSR), a market condition, both measured over the three-year performance period. TSR is measured against the NASDAQ Health Care Index constituents and the 20 -trading-day average stock price prior to the start and end of the performance period. PSAs outstanding as of December 31, 2024 have payout opportunities ranging from 0 % to 300 % of the target amount. PSAs granted in 2022 are weighted 60 % on the CAGR performance target and 40 % on the TSR performance target. PSAs granted since 2023 are weighted 75 % on the CAGR performance target and 25 % on the TSR performance target. These ranges are used to determine the number of shares that will be issuable when the award vests. The performance and market condition payouts will be determined independently and accumulated to determine the total payout for the three-year performance period, subject to the maximum payout defined in the PSA agreements. All or a portion of the PSAs may vest following a change of control or a termination of service by reason of death or disability. During 2024, the Compensation Committee approved the grant of Performance Share Units (PSUs) to the Company's President and Chief Executive Officer. The award agreement for the PSUs provides that each PSU that vests represents the right to receive one share of the Company's common stock at the end of the measurement periods. The number of shares that vest and are issued are based on the attainment of specified stock prices over three measurement periods over a four year period. PSUs vest in defined tranches on the last day of the measurement period, subject to a market vesting condition upon the simple moving average of the closing share price during the 60 consecutive calendar days immediately prior to 65 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) and including the measurement period date. PSUs that do not vest on the last day of the measurement period are forfeited. PSUs may vest following termination of service by reason of death or disability or change in control based on the performance criteria achieved as of the termination date or in connection with the change in control as specified in the award agreement. Performance share activity at target attainment under the plans during 2024 was as follows: Performance Share Awards and Units Number of Shares Outstanding Weighted Average Grant Date Fair Value Outstanding at January 1, 2024 353 $ 61.09 Awarded 452 33.19 Vested ( 113 ) 92.00 Forfeited ( 4 ) 65.70 Outstanding at December 31, 2024 688 $ 37.63 The total fair value of performance share awards vested during 2024, 2023 and 2022 was $ 3,459 , $ 4,955 and $ 5,185 . In determining compensation expense, the fair value of performance share awards with a performance condition is based on the market value of the Company’s stock on the grant date of the awards. The fair value of performance share awards and performance share units with a market condition is estimated on the grant date using a Monte Carlo simulation and includes the following assumptions: 2024 2023 2022 Stock price $ 36.28 $ 38.81 $ 39.94 - $ 69.59 Expected term (years) 2.8 to 4.0 2.8 2.6 to 2.8 Company volatility 45.0 % 44.8 % 43.5 - 46.9 % Market index average volatility † 92.7 % 91.0 % 90.3 - 92.0 % Market index average correlation † 30.1 % 32.2 % 33.5 - 35.4 % Risk-free interest rate 4.2 - 4.3 % 4.6 % 1.4 - 2.7 % Dividend yield 0.0 % 0.0 % 0.0 % † Not applicable to valuation of performance share units. The expected term is estimated as the remaining performance period at the grant date. Expected volatility is estimated based on the Company and daily trading prices of the market index, adjusted for dividends and stock splits over the remaining performance period. The risk-free interest rate is based upon the United States Constant Maturity yield curve at the time of grant for the expected term of the performance share awards. Based on the assumptions above, the weighted average estimated grant date fair value per share and expense was as follows: 2024 2023 2022 Weighted average estimated grant date fair value $ 33.19 $ 46.16 $ 91.05 Expense 11,356 11,417 8,731 As of December 31, 2024, $ 14,230 of unrecognized compensation costs related to non-vested performance share awards and performance share units are expected to be recognized over a weighted-average period of 1.8 years. 66 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) Restricted Stock Awards and Units. Restricted stock awards and restricted stock units granted generally vest at a rate of 33.3 % on the first, second and third anniversaries of the grant date. Activity under the plans during 2024 was as follows: Restricted Stock Awards RSA Shares Outstanding Weighted Average Grant Date Fair Value Outstanding at January 1, 2024 982 $ 46.43 Awarded 1,119 33.47 Released ( 429 ) 50.18 Forfeited ( 39 ) 41.37 Outstanding at December 31, 2024 1,633 $ 36.69 The total fair value of restricted stock vested during 2024, 2023 and 2022 was $ 14,732 , $ 13,824 and $ 23,242 . In determining compensation expense, the fair value of restricted stock awards and restricted stock units is based on the market value of the Company’s stock on the grant date of the awards. The weighted average estimated grant date fair value per share and expense was as follows: 2024 2023 2022 Weighted average estimated grant date fair value $ 33.47 $ 39.21 $ 63.14 Expense 26,975 21,797 17,621 As of December 31, 2024, $ 37,067 of unrecognized compensation costs related to non-vested restricted stock awards and restricted stock units are expected to be recognized over a weighted-average period of 1.8 years. Stock Options. Stock options granted generally vest at a rate of 33.3 % on the first, second and third anniversaries of the grant date and expire ten years from the date of grant. Activity under the plans during 2024 was as follows: Time-Based Stock Options Number of Shares Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2024 332 $ 33.20 Granted — — Exercised ( 57 ) 17.93 Forfeited ( 13 ) 49.05 Outstanding at December 31, 2024 262 $ 35.71 3.3 $ 1,693 Vested and expected to vest 262 $ 35.71 3.3 $ 1,693 Exercisable at December 31, 2024 262 $ 35.71 3.3 $ 1,693 The total intrinsic value of options exercised during the years ended December 31, 2024, 2023 and 2022 was $ 711 , $ 2,982 and $ 5,565 . As a result of the Company’s full valuation allowance on its net deferred tax assets, no tax benefit was recognized related to the stock option exercises. The exercise price per share of each option is equal to the fair market value of the underlying share on the date of grant. For 2024, 2023 and 2022, $ 1,022 , $ 2,316 and $ 1,816 in cash proceeds from the exercise of stock options were included in the Consolidated Statements of Cash Flows. No options were granted in 2024, 2023, or 2022. Option expense was $ 328 , $ 765 , and $ 1,012 for the years ended December 31, 2024, 2023 and 2022. As of December 31, 2024 there is no unrecognized compensation costs related to non-vested stock options. 67 Table of Contents ATRICURE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In Thousands, Except Per Share Amounts) 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 and may not purchase a value of more than 3 shares during an offering period. As of December 31, 2024, 519 shares are available for future issuance under the ESPP. ESPP expense was $ 1,746 , $ 1,749 and $ 1,407 for the years ended December 31, 2024, 2023 and 2022. 16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) In addition to net losses, comprehensive loss includes foreign currency translation adjustments and unrealized losses on investments. Accumulated other comprehensive loss consisted of the following, net of tax: 2024 2023 2022 Total accumulated other comprehensive loss at beginning of period $ ( 993 ) $ ( 4,096 ) $ ( 948 ) Unrealized (losses) gains on investments Balance at beginning of period $ ( 800 ) $ ( 3,698 ) $ ( 887 ) Other comprehensive income (loss) before reclassifications 800 2,898 ( 2,739 ) Amounts reclassified from accumulated other comprehensive loss to interest income — — ( 72 ) Balance at end of period $ — $ ( 800 ) $ ( 3,698 ) Foreign currency translation adjustment Balance at beginning of period $ ( 193 ) $ ( 398 ) $ ( 61 ) Other comprehensive income (loss) before reclassifications ( 951 ) 154 ( 774 ) Amounts reclassified from accumulated other comprehensive loss to other income (expense) 109 51 437 Balance at end of period $ ( 1,035 ) $ ( 193 ) $ ( 398 ) Total accumulated other comprehensive loss at end of period $ ( 1,035 ) $ ( 993 ) $ ( 4,096 ) 68 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.