AtriCure, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollar amounts referenced in this Item 2 are in thousands, except per share amounts.) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and notes thereto contained in Item 1 of Part I of this Form 10-Q and our audited financial statements and notes thereto as of and for the year ended December 31, 2024 included in our Form 10-K filed with the Securities and Exchange Commission (SEC) to provide an understanding of our results of operations, financial condition and cash flows. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under Item 1A “Risk Factors,” the cautionary statement regarding forward-looking statements below and elsewhere in this Form 10-Q. Forward-Looking Statements This Form 10-Q, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, "Quantitative and Qualitative Disclosures about Market Risk" and “Risk Factors,” contains forward-looking statements regarding our future performance. All forward-looking information is inherently uncertain and actual results may differ materially from assumptions, estimates or expectations reflected or contained in the forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this quarterly report on Form 10-Q, and in our annual report on Form 10-K for the year ended December 31, 2024. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. Forward-looking statements often address our expected future business, financial performance, financial condition and results of operations, and often contain words such as “intends,” “estimates,” “anticipates,” “hopes,” “projects,” “plans,” “expects,” “drives,” “seek,” “believes,” “see,” “focus,” “should,” “will,” “would,” “opportunity,” “outlook,” “could,” “can,” “may,” “future,” “predicts,” “target,” “potential,” "forecast," "trend," "might" and similar expressions and the negative versions of those words, and may be identified by the context in which they are used. However, the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements include, without limitation, statements that address activities, events, circumstances or developments that AtriCure expects, believes or anticipates will or may occur in the future, such as earnings estimates (including projections and guidance), other predictions of financial performance, launches by AtriCure of new products, developments with competitors and market acceptance of AtriCure's products. Such statements are based largely upon current expectations of AtriCure. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to different materially from those expressed or implied. Forward-looking statements are based on AtriCure’s expectations, experience and perception of current conditions, trends, expected future developments and other factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond AtriCure’s control. In other words, these statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. With respect to the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise unless required by law. Overview We are a leading innovator in treatments for atrial fibrillation (Afib), left atrial appendage (LAA) management and post-operative pain management. Our ablation and left atrial appendage management (LAAM) products are used by physicians during both open-heart and minimally invasive procedures. In open-heart procedures, the physician is performing heart surgery for other conditions and our products are used in conjunction with (or “concomitant” to) such a procedure. Minimally invasive procedures are performed on a standalone basis, and often include multi-disciplinary or “hybrid” approaches, combining surgical procedures using AtriCure ablation and LAAM products with catheter ablation procedures performed by electrophysiologists. Our pain management devices are used by physicians to freeze nerves during cardiothoracic or thoracic surgical procedures. We anticipate that substantially all of our revenue for the foreseeable future will relate to products we currently sell or are in the process of developing. We sell our products to medical centers through our direct sales force in the United States, Germany, France, the United Kingdom, the Benelux region, Australia and Canada. We also sell our products through distributors who in turn sell our products to medical centers in other markets. Our business is primarily transacted in U.S. Dollars; direct sales transactions outside the United States are transacted in Euros, British Pounds, Australian Dollars or Canadian Dollars. 16 Table of Contents Recent Developments During the first quarter of 2025, we realized strong growth across many of our key franchises and geographies, 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 three months ended March 31, 2025 was $123,620, representing an increase of $14,769, or 13.6% (14.1% on a constant currency basis), over the first three months of 2024, highlighted by accelerated adoption in our open-chest appendage management and pain management product lines, where recent product launches contributed to growth. Historically there have been limited competitors in our key markets. 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 and pursue regulatory approvals to market and sell globally across all franchises. • During the first quarter of 2025, FDA granted 510(k) clearance for the AtriClip ® PRO-Mini ™ LAA Exclusion System. The device is built on the existing AtriClip platform, preloaded with the smallest surgical LAA management implant available in the market. The size reduction provides surgeons with enhanced visualization for precise, secure exclusion of the LAA during minimally invasive procedures. We expect to launch the AtriClip PRO-Mini device later in 2025. • In April 2025, FDA granted 510(k) clearance for the cryoICE ® cryoXT™ probe, a cryoablation device designed specifically for Cryo Nerve Block therapy to alleviate pain in amputation patients. This device temporarily blocks pain by freezing target peripheral nerves, blocking the conduction pathway at the site of amputation. We expect to launch the cryoXT probe later in 2025. CLINICAL SCIENCE . 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. LeAAPS. The Left Atrial Appendage Exclusion for Prophylactic Stroke Reduction (LeAAPS) IDE clinical trial is designed to evaluate the effectiveness of prophylactic LAA exclusion using the AtriClip LAA Exclusion System for the prevention of ischemic stroke or systemic arterial embolism in cardiac surgery patients without pre-operative AF diagnosis who are at risk for these events. This prospective, multicenter, randomized trial evaluates safety at 30 days post-procedure to demonstrate no increased risk with LAA exclusion during cardiac surgery, and efficacy over a minimum follow-up of five years post procedure. The trial provides for enrollment of up to 6,500 subjects at up to 250 sites worldwide. The first patient was enrolled in the trial in January 2023, and we ended the first quarter of 2025 with over 5,100 patients enrolled. Trial enrollment is expected to be completed in the second half of 2025. BoxX-NoAF. The EnCompass clamp and the AtriClip in Box Lesion and Left Atrial Appendage E X clusion Procedure for the Prevention of N ew O nset of A trial F ibrillation (BoxX-NoAF) IDE trial will evaluate the impact of concomitant ablation and LAA exclusion in non-AF patients for the reduction of post-operative AF (POAF) and Clinical AF. This prospective, multi-center, multi-national randomized trial evaluates safety at 30 days post-procedure for POAF and secondary effectiveness for Clinical AF through three years. The trial provides enrollment of up to 960 subjects. FDA approved the trial protocol during the fourth quarter of 2024, and we expect site initiation to begin later this year. TRAINING . 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 2025, we launched new and innovative training methods for physicians that include virtual proctoring and observerships as well as the ability to review case-in-a-box on a peer-to-peer basis. We have also extended our courses for Advanced Practice Providers, incorporating new content and workshops. We also recently launched our first electronic manual created by physicians for physicians that provides an outline for best practices in developing and growing a Hybrid Ablation Program. These new training events along with our traditional on-demand, local and national training courses allow for collaborative, hands-on engagement with our physician partners and other healthcare professionals. Additionally, our professional education courses continue to be enhanced by the use of simulation models or synthetic cadavers, known as CADets. 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. 17 Table of Contents Results of Operations Three months ended March 31, 2025 compared to three months ended March 31, 2024 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 March 31, 2025 2024 Amount % of Revenues Amount % of Revenues Revenue $ 123,620 100.0 % $ 108,851 100.0 % Cost of revenue 30,992 25.1 27,583 25.3 Gross profit 92,628 74.9 81,268 74.7 Operating expenses: Research and development expenses 22,528 18.2 19,845 18.2 Selling, general and administrative expenses 76,054 61.5 72,340 66.5 Total operating expenses 98,582 79.7 92,185 84.7 Loss from operations (5,954) (4.8) (10,917) (10.0) Other expense, net: (554) (0.4) (2,169) (2.0) Loss before income tax expense (6,508) (5.3) (13,086) (12.0) Income tax expense 239 0.2 183 0.2 Net loss $ (6,747) (5.5) % $ (13,269) (12.2) % Revenue. 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: Three Months Ended March 31, Change 2025 2024 Amount % Open ablation $ 33,308 $ 29,300 $ 4,008 13.7 % Minimally invasive ablation 8,480 12,318 (3,838) (31.2) Pain management 17,270 12,739 4,531 35.6 Appendage management 42,091 35,892 6,199 17.3 Total United States $ 101,149 $ 90,249 $ 10,900 12.1 Total International 22,471 18,602 3,869 20.8 Total revenue $ 123,620 $ 108,851 $ 14,769 13.6 % Worldwide revenue increased 13.6% (14.1% on a constant currency basis). In the United States, sales grew in most product lines with strong contribution from our EnCompass ® clamp in open ablation, AtriClip ® FLEX-Mini™ for appendage management and our cryoSPHERE MAX ™ probe for post-operative pain management. Minimally invasive ablation and minimally invasive appendage management sales declined during the quarter as customers referred fewer patients for Hybrid procedures. International sales increased 20.8% (23.9% on a constant currency basis), with growth in major geographic markets driven by appendage management, open ablation and pain management franchises. Revenue reported on a constant currency basis is a non-GAAP measure calculated by applying previous period foreign currency exchange rates, which are determined by the average daily exchange rate, to each of the comparable periods. Revenue is analyzed on a constant currency basis to better measure the comparability of results between periods. Because changes in foreign currency exchange rates have a non-operating impact on revenue, we believe that evaluating growth in revenue on a constant currency basis provides an additional and meaningful assessment of revenue to both management and investors. Cost of revenue and gross margin. Cost of revenue increased $3,409 primarily reflecting higher sales volumes. Gross margin increased 27 basis points, driven by favorable product mix. 18 Table of Contents Research and development expenses. Research and development expenses increased $2,683 or 13.5%. Clinical trial expenses increased $2,025 driven by LeAAPS clinical trial patient enrollment and follow up activities. Expansion of product development, clinical and regulatory teams resulted in $1,661 increase in personnel costs including share-based compensation. These increases were partially offset by a $692 reduction in regulatory filing and submission costs as a result of the timing of product development initiatives. Selling, general and administrative expenses. Selling, general and administrative expenses increased $3,714, or 5.1%, driven by a $4,238 increase in personnel costs, primarily reflecting headcount growth. These increases were partially offset by a $542 decrease in travel costs. Other income (expense). Other income and expense consists primarily of net interest expense and net foreign currency transaction gains or losses. Liquidity and Capital Resources As of March 31, 2025, we had cash and cash equivalents of $99,885 and outstanding debt of $61,865. We had unused borrowing capacity of $61,885 (see Note 6 – Indebtedness for related discussion). All cash equivalents and most of our operating cash is held in United States financial institutions. A small portion of our cash is held in foreign banks to support our international operations. We had net working capital of $190,263 and an accumulated deficit of $408,502 as of March 31, 2025. Consolidated Cash Flows - For the three months ended March 31, 2025 and 2024 Cash flows used in operating activities. Net cash used in operating activities decreased $9,990 from 2024 to 2025, reflecting the improvement in operating results of $6,522, driven by higher sales and improvements to operating margin. In addition, cash used for working capital and other assets and liabilities decreased $3,691 primarily due to moderating investments in inventory. Cash flows used in investing activities. Net cash used in investing activities increased by $11,325 in 2025 compared to 2024, due a $12,418 decrease in sales and maturities of available-for-sale securities offset by a $500 increase in capital grant proceeds and $593 decrease of purchases of property and equipment. Cash flows used in financing activities. Net cash used in financing activities increased by $2,463 in 2025. This increase was a result a $3,635 increase in shares repurchased for payment of taxes on stock awards, offset by a $1,428 reduction of payments for extinguishment of debt and financing fees from 2024. Credit facility. The Company has a credit agreement (Credit Agreement) with JPMorgan Chase Bank, N.A. as Administrative Agent, JPMorgan Chase Bank, N.A. and Silicon Valley Bank, a division of First-Citizens Bank and Trust Company, as Joint Lead Arrangers and Joint Bookrunners effective January 5, 2024. The Credit Agreement provides for a $125,000 asset-based revolving credit facility (ABL Facility), with an option to increase the revolving commitment by an additional $40,000. A portion of the ABL Facility, limited to $5,000, is available for the issuance of letters of credit. The Credit 19 Table of Contents Agreement has a three-year term and expires January 5, 2027. Amounts available to be drawn from time to time under the ABL Facility are determined by calculating the applicable borrowing base, which is based upon applicable percentages of the values of eligible accounts receivable, eligible inventory, eligible liquid assets, less reserves as determined by the Administrative Agent, all as specified in the Credit Agreement. The borrowings bear interest at a rate per annum equal to, at the Company's election: (i) an alternate base rate (ABR) plus an applicable margin or (ii) an adjusted term secured overnight financing rate (SOFR) plus an applicable margin. As of March 31, 2025, the Company has borrowed $61,865, classified as noncurrent and had unused borrowing availability of $61,885. Our corporate headquarters lease agreement requires a $1,250 letter of credit which we renew annually and remains outstanding as of March 31, 2025. For additional information on the terms and conditions, as well as applicable interest and fee payments, see Note 6 – Indebtedness. Uses of liquidity and capital resources. Our executive officers and Board of Directors review our funding sources and future capital requirements in connection with our annual operating plan and periodic updates to the plan. Our principal cash requirements include costs of operations, capital expenditures, debt service costs and other contractual obligations. Our future capital requirements depend on a number of factors, including, without limitation: market acceptance of our current and future products; costs to develop and support our products, including professional training; costs to expand and support our sales and marketing efforts; operating and filing costs relating to changes in regulatory policies or laws; costs for clinical trials and to secure regulatory approval for new products; costs to prosecute, defend and enforce our intellectual property rights; costs to defend against and/or resolve litigation or claims against us; maintenance and enhancements to our information systems and security; and possible acquisitions and joint ventures, including potential business integration costs. We continue to evaluate additional measures to maintain financial flexibility, and we will continue to closely monitor macroeconomic conditions including, but not limited to, inflationary pressures, rising interest rates, tariffs, and fluctuations in currency exchange rates that may impact our liquidity and access to capital resources. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses and disclosures of contingent assets and liabilities at the date of the financial statements. On a periodic basis, we evaluate our estimates, including those related to sales returns and allowances, inventories, share-based compensation and income taxes. We use authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results could differ from those estimates under different assumptions or conditions. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 includes additional information about the Company, our operations, our financial position and our critical accounting policies and estimates and should be read in conjunction with this Quarterly Report on Form 10-Q. Recent Accounting Pronouncements As of March 31, 2025, 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, 2024. Item 3. Quantitative and Qualitative Disclosures About Market Risk As of March 31, 2025, 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, 2024.