Part I [Business](index=4&type=section&id=Item%201.%20Business) AtriCure is a medical device company specializing in treatments for atrial fibrillation (Afib), left atrial appendage (LAA) management, and postoperative pain [Overview](index=4&type=section&id=Overview) AtriCure is a leading innovator in treatments for atrial fibrillation (Afib), left atrial appendage (LAA) management, and postoperative pain, with products used in both open-heart and minimally invasive procedures - AtriCure is a **market leader** in the surgical treatment of Afib, with its Isolator Synergy™ Ablation System approved by the FDA for treating persistent and long-standing persistent Afib during open-heart surgery[14](index=14&type=chunk) - The EPi-Sense system is FDA-approved to treat patients with long-standing persistent Afib, and certain cryoablation probes are cleared for managing pain by temporarily ablating peripheral nerves (Cryo Nerve Block therapy)[14](index=14&type=chunk) - The AtriClip® LAA Exclusion System products are 510(k)-cleared for excluding the LAA in conjunction with other cardiac surgical procedures[14](index=14&type=chunk) - The company utilizes a direct sales force in the United States, Germany, France, the United Kingdom, and the Benelux region, and uses distributors for other international markets[15](index=15&type=chunk) [Market Overview](index=5&type=section&id=Market%20Overview) The global market for atrial fibrillation (Afib) treatment is substantial, driven by an aging population and the significant stroke risk associated with Afib, creating opportunities for LAA management and minimally invasive treatments - Afib affects approximately **33 million** people worldwide, with about **1.2 million** new diagnoses annually in the United States[16](index=16&type=chunk) - The risk of stroke is **five times** higher in people with Afib, and studies suggest **90%** of these stroke-causing clots originate in the Left Atrial Appendage (LAA)[19](index=19&type=chunk) - The company estimates over **250,000** patients undergoing open-heart surgery globally each year are potential candidates for surgical ablation[18](index=18&type=chunk) - The market for post-operative pain management using Cryo Nerve Block is significant, with roughly **140,000** cardiac and thoracic procedures performed annually in the U.S. via thoracotomy access, which often results in significant pain[22](index=22&type=chunk) [AtriCure Solutions and Products](index=6&type=section&id=AtriCure%20Solutions%20and%20Products) AtriCure provides a diverse portfolio of products for cardiac tissue ablation and appendage management, utilizing radio frequency or cryo-thermal energy, alongside enabling surgical technologies - **Open & Minimally Invasive Ablation:** Products include the Isolator Synergy Clamps (primary revenue driver), Multifunctional Pens, and Linear Ablation Devices[25](index=25&type=chunk)[26](index=26&type=chunk) - **Open Ablation & Pain Management:** The cryoICE Cryoablation System and cryoSPHERE probe are used for cardiac ablation and for Cryo Nerve Block to provide temporary post-operative pain relief[27](index=27&type=chunk)[28](index=28&type=chunk) - **Minimally Invasive Ablation:** The EPi-Sense Guided Coagulation System is used in the FDA-approved Convergent procedure (Hybrid AF Therapy) to treat long-standing persistent Afib[29](index=29&type=chunk) - **Appendage Management:** The AtriClip System mechanically excludes the LAA, while the LARIAT System uses a suture-based approach for soft-tissue closure[30](index=30&type=chunk)[31](index=31&type=chunk) [Business Strategy](index=8&type=section&id=Business%20Strategy) AtriCure's strategy focuses on new product innovation, clinical science investment, physician education, and strategic acquisitions to address the global Afib epidemic - Continue new product innovation to extend existing product lines and enter new market opportunities[42](index=42&type=chunk) - Invest in clinical science through landmark trials to validate product results and support expanded regulatory indications[42](index=42&type=chunk) - Build relationships with physicians and medical societies to gain insights and increase awareness of Afib treatment options[43](index=43&type=chunk) - Provide extensive training and education to physicians on the safe and effective use of its products, particularly for newly approved therapies like the EPi-Sense Hybrid AF therapy[44](index=44&type=chunk) - Expand adoption of minimally invasive products, viewing the hybrid Afib procedure as its largest market opportunity[39](index=39&type=chunk)[45](index=45&type=chunk) [Clinical Trials](index=9&type=section&id=Clinical%20Trials) AtriCure is engaged in several pivotal clinical trials to expand product indications and validate efficacy, including CONVERGE, aMAZE, ICE-AFIB, and DEEP AF - **CONVERGE:** Led to PMA approval in April 2021 for the EPi-Sense System to treat long-standing persistent Afib. A Post Approval Study (PAS) is now underway[47](index=47&type=chunk)[48](index=48&type=chunk) - **aMAZE:** Data from this trial for the LARIAT system did not achieve statistical superiority for its primary effectiveness endpoint in July 2021. The company has stopped enrollment in the continued access protocol (CAP) and is analyzing the data[49](index=49&type=chunk) - **ICE-AFIB:** This trial is ongoing, studying the safety and efficacy of the cryoICE system for treating persistent and long-standing persistent Afib during concomitant on-pump cardiac surgery[50](index=50&type=chunk) - **DEEP AF:** This pivotal trial for a staged minimally invasive surgical ablation received FDA approval in July 2021 to enroll the full cohort of **220** patients[51](index=51&type=chunk) [Competition](index=11&type=section&id=Competition) The medical device industry for Afib treatment is highly competitive, with AtriCure differentiating itself through product safety, efficacy, and unique FDA approvals for long-standing persistent Afib - The company's primary competitor in the cardiac surgery market is Medtronic, plc[55](index=55&type=chunk) - AtriCure has the only medical devices approved by the FDA for treating long-standing persistent Afib: the Isolator Synergy Ablation system and the EPi-Sense System[55](index=55&type=chunk) - The company competes by differentiating products based on safety, efficacy, ease of use, and by investing in training and education[56](index=56&type=chunk) [Government Regulation](index=12&type=section&id=Government%20Regulation) AtriCure's products are subject to extensive regulation by the FDA in the U.S. and comparable international authorities, requiring stringent approvals, manufacturing compliance, and promotional adherence - In the U.S., medical devices require either 510(k) clearance or Pre-Market Approval (PMA) from the FDA[63](index=63&type=chunk) - The company is subject to numerous ongoing FDA regulations, including the Quality System Regulation (QSR) for manufacturing, labeling requirements, and rules against promoting products for unapproved (off-label) uses[68](index=68&type=chunk)[67](index=67&type=chunk) - In the European Union, devices must conform to the new Medical Device Regulation (MDR), effective May 26, 2021, which imposes stricter controls and clinical data requirements to affix the CE mark[75](index=75&type=chunk)[179](index=179&type=chunk) [Human Capital Management](index=15&type=section&id=Human%20Capital%20Management) AtriCure prioritizes a strong corporate culture and human capital management, evidenced by its recognition as a top workplace, competitive benefits, and commitment to Diversity, Equity, and Inclusion - The company had approximately **875** employees as of January 31, 2022, with none represented by a labor union[86](index=86&type=chunk) - AtriCure has been voted a Top Workplace **six times** in the past **seven years**, citing its culture as a key asset[86](index=86&type=chunk) - The company has an ongoing commitment to Diversity, Equity, and Inclusion (DE&I) overseen by a dedicated leader and the Chief Human Resources Officer[89](index=89&type=chunk)[90](index=90&type=chunk) - During the COVID-19 pandemic, the company implemented safety protocols, allowed remote work where possible, and did not implement any reductions in headcount or non-executive employee compensation[94](index=94&type=chunk) [Risk Factors](index=17&type=page&id=Item%201A.%20Risk%20Factors) The company faces various risks, including ongoing COVID-19 impacts, intense competition, clinical trial uncertainties, significant legal and compliance challenges, a history of net losses, and operational dependencies - **COVID-19 Pandemic:** The pandemic has negatively impacted product demand by causing deferrals of non-emergent procedures and may continue to disrupt business operations and clinical trials[104](index=104&type=chunk)[105](index=105&type=chunk) - **Competition:** The company faces intense competition from existing and new products, particularly from larger companies like Medtronic with greater resources[112](index=112&type=chunk) - **Clinical Trials & Regulatory Approval:** Clinical trials are expensive and may not yield positive data or satisfy regulatory requirements, which could slow product adoption. The success of the recently approved EPi-Sense device is critical[113](index=113&type=chunk)[118](index=118&type=chunk) - **Legal & Compliance:** The company is defending a qui tam lawsuit under the False Claims Act related to alleged off-label promotion. An adverse outcome could materially affect the business[163](index=163&type=chunk) - **Financial Performance:** The company has a history of net losses, and future profitability is not guaranteed. As of Dec 31, 2021, the accumulated deficit was **$280.1 million**[181](index=181&type=chunk) - **Operational Dependence:** The company relies on single-source third-party suppliers for key components and conducts its manufacturing at a single location in Ohio, creating vulnerability to supply chain disruptions[128](index=128&type=chunk)[132](index=132&type=chunk) [Unresolved Staff Comments](index=36&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments - None [Properties](index=36&type=section&id=Item%202.%20Properties) AtriCure's principal operations are based at its corporate headquarters campus in Mason, Ohio, with additional facilities in Minnesota, California, and the Netherlands, which are deemed adequate for immediate needs - The main corporate headquarters campus is in Mason, Ohio, and includes three buildings totaling approximately **169,000** square feet for various functions including manufacturing[200](index=200&type=chunk) - Other key locations include a **32,000** sq. ft. office in Minnetonka, MN, a **6,000** sq. ft. facility in Pleasanton, CA, and a **9,000** sq. ft. administrative office in Amsterdam, Netherlands[200](index=200&type=chunk)[201](index=201&type=chunk) [Legal Proceedings](index=36&type=section&id=Item%203.%20Legal%20Proceedings) The company may be involved in legal proceedings that arise in the ordinary course of business, with detailed information available in Note 11 of the Consolidated Financial Statements - The company refers to Note 11 of its Consolidated Financial Statements for details on legal proceedings[202](index=202&type=chunk) [Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=37&type=section&id=Item%205.%20Market%20For%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20And%20Issuer%20Purchases%20Of%20Equity%20Securities) AtriCure's common stock trades on the NASDAQ Global Market under "ATRC", demonstrating strong performance by outperforming key indices from 2016 to 2021 - The company's common stock trades on the NASDAQ Global Market under the symbol "ATRC"[205](index=205&type=chunk) Stock Performance Comparison (2016-2021) | | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | |:---|---:|---:|---:|---:|---:|---:| | AtriCure, Inc. | $100.00 | $93.20 | $156.36 | $166.12 | $284.47 | $355.29 | | NASDAQ Composite | $100.00 | $129.64 | $125.96 | $172.17 | $249.51 | $304.85 | | NASDAQ Medical Equipment | $100.00 | $145.08 | $161.91 | $196.50 | $281.91 | $332.54 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=38&type=section&id=Item%207.%20Management's%20Discussion%20And%20Analysis%20Of%20Financial%20Condition%20And%20Results%20Of%20Operations) In 2021, AtriCure's revenue grew **32.8%** to **$274.3 million**, achieving a net income of **$50.2 million** due to a **$184.8 million** non-cash gain from contingent consideration and an **$82.3 million** impairment charge, while maintaining strong liquidity [Results of Operations (2021 vs. 2020)](index=40&type=section&id=Results%20of%20Operations) For the year ended December 31, 2021, AtriCure's revenue increased by **32.8%** to **$274.3 million**, resulting in a net income of **$50.2 million**, primarily driven by a **$184.8 million** non-cash gain from contingent consideration and offset by an **$82.3 million** intangible asset impairment charge Financial Performance (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (%) | |:---|---:|---:|---:| | Revenue | $274,329 | $206,531 | 32.8% | | Gross Profit | $205,860 | $149,309 | 37.9% | | Gross Margin | 75.0% | 72.3% | +270 bps | | Income (Loss) from Operations | $55,205 | $(44,233) | N/A | | Net Income (Loss) | $50,199 | $(48,155) | N/A | - U.S. revenue increased **35.4%** to **$229.1 million**, with strong growth across all product categories: open ablation (**+24.5%**), minimally invasive ablation (**+53.5%**), and appendage management (**+41.2%**)[219](index=219&type=chunk)[389](index=389&type=chunk) - International revenue grew **21.2%** (**19.1%** on a constant currency basis) to **$45.2 million**[219](index=219&type=chunk)[388](index=388&type=chunk) - A significant credit of **$184.8 million** was recorded due to a change in the fair value of contingent consideration related to the SentreHEART acquisition, as the probability of achieving milestones from the aMAZE trial was deemed remote[216](index=216&type=chunk)[223](index=223&type=chunk) - An intangible asset impairment charge of **$82.3 million** was recorded for the In-Process R&D (IPR&D) asset associated with the aMAZE clinical trial after it did not achieve its primary effectiveness endpoint[216](index=216&type=chunk)[223](index=223&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2021, AtriCure maintained a strong liquidity position with **$223.4 million** in cash and investments, supported by a credit facility providing a **$60 million** term loan and a **$30 million** revolving line of credit Liquidity Position as of Dec 31, 2021 | Metric | Amount (in thousands) | |:---|---:| | Cash, cash equivalents and investments | $223,428 | | Working Capital | $139,631 | | Accumulated Deficit | $(280,153) | | Borrowing Capacity (Revolver) | $28,750 | Historical Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | |:---|---:|---:| | Net cash used in operating activities | $(13,780) | $(19,869) | | Net cash provided by (used in) investing activities | $23,504 | $(156,198) | | Net cash (used in) provided by financing activities | $(7,642) | $189,392 | - The company has a Loan Agreement with SVB for a **$60 million** term loan and a **$30 million** revolving line of credit, expiring in November 2026[226](index=226&type=chunk) [Financial Statements and Supplementary Data](index=45&type=section&id=Item%208.%20Financial%20Statements%20And%20Supplementary%20Data) This section presents AtriCure's audited consolidated financial statements for 2021, including balance sheets, statements of operations, cash flows, and detailed notes on accounting policies, fair value, intangible assets, debt, and revenue segmentation [Consolidated Balance Sheets](index=48&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2021, AtriCure reported total assets of **$615.3 million**, a decrease from **$714.5 million** in 2020, while total liabilities significantly decreased to **$131.6 million** from **$302.1 million**, and total stockholders' equity increased to **$483.8 million** from **$412.4 million** Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | |:---|---:|---:| | **Assets** | | | | Total Current Assets | $196,076 | $306,737 | | Goodwill | $234,781 | $234,781 | | Intangible assets, net | $42,992 | $128,199 | | **Total Assets** | **$615,312** | **$714,539** | | **Liabilities & Equity** | | | | Total Current Liabilities | $56,445 | $49,137 | | Long-term debt | $59,741 | $53,435 | | Contingent consideration | $0 | $187,424 | | **Total Liabilities** | **$131,556** | **$302,145** | | **Total Stockholders' Equity** | **$483,756** | **$412,394** | [Consolidated Statements of Operations](index=49&type=section&id=Consolidated%20Statements%20of%20Operations) For the year ended December 31, 2021, AtriCure reported total revenue of **$274.3 million** and a net income of **$50.2 million**, or **$1.09** per diluted share, a significant improvement from a net loss of **$48.2 million** in 2020, influenced by non-cash adjustments Consolidated Statement of Operations (in thousands, except per share data) | Metric | 2021 | 2020 | 2019 | |:---|---:|---:|---:| | Revenue | $274,329 | $206,531 | $230,807 | | Gross Profit | $205,860 | $149,309 | $170,335 | | Income (Loss) from Operations | $55,205 | $(44,233) | $(33,122) | | Net Income (Loss) | $50,199 | $(48,155) | $(35,194) | | Diluted Net Income (Loss) per Share | $1.09 | $(1.14) | $(0.94) | [Consolidated Statements of Cash Flows](index=51&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the year ended December 31, 2021, net cash used in operating activities improved to **$13.8 million**, while investing activities provided **$23.5 million**, leading to a **$1.7 million** increase in cash and cash equivalents Consolidated Statement of Cash Flows (in thousands) | Cash Flow Activity | 2021 | 2020 | |:---|---:|---:| | Net cash used in operating activities | $(13,780) | $(19,869) | | Net cash provided by (used in) investing activities | $23,504 | $(156,198) | | Net cash (used in) provided by financing activities | $(7,642) | $189,392 | | Net increase (decrease) in cash | $1,710 | $13,461 | | Cash and cash equivalents, end of period | $43,654 | $41,944 | [Notes to Consolidated Financial Statements](index=52&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail AtriCure's accounting policies and financial results, including a **$184.8 million** gain from re-measuring contingent consideration to **$0** and an **$82.3 million** impairment charge on the aMAZE IPR&D asset, alongside revenue breakdowns - **Contingent Consideration (Note 3):** Following unfavorable results from the aMAZE clinical trial in July 2021, the fair value of the SentreHEART contingent consideration was remeasured. The probability of achieving milestones was deemed remote, resulting in a **$184.8 million** credit to operating expenses and reducing the liability to **$0**[308](index=308&type=chunk)[310](index=310&type=chunk) - **Intangible Assets (Note 5):** The company recorded an impairment charge of **$82.3 million**, reducing the carrying value of the aMAZE IPR&D asset to **$0**, after the clinical trial did not achieve statistical superiority[317](index=317&type=chunk) - **Legal Proceedings (Note 11):** The company is defending a False Claims Act lawsuit initiated by a relator after the U.S. Department of Justice declined to intervene. The investigation relates to the promotion of devices for off-label use from 2010-2017[343](index=343&type=chunk) Revenue by Product and Geography - 2021 (in thousands) | Product Category | United States | International | Total | |:---|---:|---:|---:| | Open ablation | $93,895 | $23,206 | $117,101 | | Minimally invasive ablation | $39,380 | $6,409 | $45,789 | | Appendage management | $94,568 | $15,534 | $110,102 | | **Total** | **$229,131** | **$45,198** | **$274,329** | [Controls and Procedures](index=73&type=section&id=Item%209A.%20Controls%20And%20Procedures) Management concluded that AtriCure's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, a conclusion affirmed by an unqualified auditor's opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[394](index=394&type=chunk) - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[397](index=397&type=chunk) - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[398](index=398&type=chunk)[400](index=400&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=76&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20And%20Corporate%20Governance) Information regarding the company's directors, executive officers, and corporate governance is incorporated by reference from its 2022 Annual Meeting of Stockholders proxy statement - All information required by this item is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[405](index=405&type=chunk)[406](index=406&type=chunk) [Executive Compensation](index=76&type=section&id=Item%2011.%20Executive%20Compensation) Details on executive and director compensation are incorporated by reference from the 2022 Proxy Statement, supplemented by a new Executive Leadership Severance Policy approved in February 2022 - Most information is incorporated by reference from the 2022 Proxy Statement[407](index=407&type=chunk) - A new Executive Leadership Severance Policy was approved in February 2022, providing **18 months** of base salary continuation for eligible executives terminated due to position elimination or reduction in force (not related to a change in control)[409](index=409&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=77&type=section&id=Item%2012.%20Security%20Ownership%20Of%20Certain%20Beneficial%20Owners%20And%20Management%20And%20Related%20Stockholder%20Matters) This section summarizes securities authorized for issuance under the company's security holder-approved equity compensation plans as of December 31, 2021, with detailed ownership information incorporated by reference from the 2022 Proxy Statement Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Securities remaining available for future issuance (c) | |:---|---:|---:|---:| | Equity compensation plans approved by security holders | 1,507,801 | $26 | 1,504,648 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **1,507,801** | **$26** | **1,504,648** | - Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the 2022 Proxy Statement[414](index=414&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=77&type=section&id=Item%2013.%20Certain%20Relationships%20And%20Related%20Transactions%2C%20And%20Director%20Independence) Information regarding director independence and certain relationships and related transactions is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - All information required by this item is incorporated by reference from the registrant's definitive proxy statement[415](index=415&type=chunk) [Principal Accountant Fees and Services](index=77&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20And%20Services) Information regarding principal accountant fees and services, along with the Audit Committee's pre-approval policies, is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - All information required by this item is incorporated by reference from the registrant's definitive proxy statement[416](index=416&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=78&type=section&id=Item%2015.%20Exhibits%20And%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and various exhibits filed as part of the Form 10-K, including corporate governance documents and material contracts - This section contains a list of all exhibits filed with the Form 10-K, including the company's certificate of incorporation, bylaws, loan agreements, and various equity compensation plan documents[418](index=418&type=chunk)[419](index=419&type=chunk) [Form 10-K Summary](index=79&type=section&id=Item%2016.%20Form%2010-K%20Summary) A Form 10-K summary was not provided in this report - Not provided[422](index=422&type=chunk)

Financial Data and Key Metrics Changes - AtriCure reported Q4 2021 revenue of $73.2 million, reflecting a growth of approximately 27% year-over-year and 4% sequentially [5][17] - Gross margin for Q4 2021 was 75.1%, up 160 basis points from Q4 2020, driven by favorable geographic and product mix [19] - The company experienced an adjusted EBITDA loss of $2.1 million in Q4 2021, compared to a positive adjusted EBITDA of $1.7 million in Q4 2020 [19] - For the full year 2021, worldwide revenue was $274.3 million, an increase of 32.8% on a reported basis [20] - The full year adjusted EBITDA loss was $8.8 million, compared to a loss of $6.3 million in 2020 [22] Business Line Data and Key Metrics Changes - The pain management franchise, particularly the Cryo Nerve Block, has become one of the fastest-growing therapies, with significant expansion in the U.S. market [12][13] - The appendage management franchise, led by the AtriClip product line, grew 39% in 2021, with record sales of AtriClip Flex-V devices [11] - The Hybrid AF therapy franchise saw significant growth, with the company estimating that approximately 45% of diagnosed Afib patients are long-standing persistent, presenting a unique market opportunity [8] Market Data and Key Metrics Changes - U.S. revenue for Q4 2021 was $61.2 million, a 29.1% increase from Q4 2020, reflecting healthy activity across product lines [17] - International revenue totaled $12 million, up 16.3% on a reported basis, with Europe, the Middle East, and Africa accounting for $7.4 million [18] - The company anticipates first quarter 2022 revenue to be down slightly from Q4 2021 due to ongoing staffing challenges and the impact of Omicron [24] Company Strategy and Development Direction - AtriCure is focused on expanding its Hybrid AF therapy and has plans to deepen penetration in the cardiac surgery market with the EnCompass device [10][11] - The company aims to leverage its unique physician relationships and expand into markets complementary to treating complex arrhythmias [14] - AtriCure is committed to ongoing clinical innovation and regulatory developments, including the submission of the LEAPS protocol to the FDA [13][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges from the COVID-19 pandemic, including staffing shortages and capacity constraints impacting procedure volumes [7] - The company remains optimistic about growth in 2022, reaffirming its revenue guidance of $315 million to $330 million [7][23] - Management highlighted the importance of investments in research and development to drive future growth and profitability [25] Other Important Information - AtriCure published its inaugural ESG report, emphasizing its commitment to operating responsibly and sustainably [16] - The company has expanded its commercial team and training efforts to meet demand from the physician community [9] Q&A Session Summary Question: What is the future penetration outlook for the cryoSPHERE probe? - Management indicated that they anticipate reaching double-digit penetration in the cryoSPHERE market as the year progresses, supported by sales force expansion and procedure volume recovery [27][28] Question: What is the outlook for gross margin improvement? - Management noted that while gross margin is expected to be similar to 2021, there are headwinds from investments in production capacity and inflation pressures [30][31] Question: How is the minimally invasive segment expected to grow? - Management expects the minimally invasive segment, particularly the CONVERGE and EPi-Sense products, to grow above historical rates, driven by increased adoption and demand [34][35] Question: What metrics will indicate productivity from new accounts? - Management will monitor repeat buyers and the establishment of collaborative programs at new sites to gauge productivity, rather than focusing solely on revenue from new accounts [51][53] Question: What is the expected impact of the CE mark for Cryo in Europe? - Management expressed excitement about the CE mark for Cryo but indicated that significant impact in 2022 is unlikely, with expectations for a more substantial rollout in 2023 and 2024 [70]

Market Opportunity - AtriCure addresses a large global Afib market, with over 33 million patients worldwide[12, 60] - The US market opportunity is estimated at over $3 billion annually, while the international market presents a $2 billion+ opportunity[14] - The company estimates that the standalone Afib market includes over 3 million patients, with less than 1% currently treated[21] Financial Performance & Growth - The company's revenue guidance for 2022 is between $315 million and $330 million, representing a year-over-year growth of 15-20%[54] - Historically, AtriCure has demonstrated strong revenue growth, with a 5-year organic revenue CAGR of approximately 15%[54] - U S AtriClip has a 5-Year historical organic revenue CAGR ~32%[54] Product Portfolio & Clinical Evidence - The company's AtriClip device has over 300,000 units sold to date[24, 60] - The CONVERGE trial demonstrated superior outcomes with the hybrid Convergent procedure compared to endocardial catheter ablation alone in patients with drug-refractory long-standing persistent Afib, with a 29% differential improvement[29] - Cryo Nerve Block therapy accounted for approximately 8% of AtriCure's worldwide revenue in 2021, up from approximately 5% in 2020[45]

AtriCure, Inc. (NASDAQ:ATRC) Q3 2021 Earnings Conference Call November 3, 2021 4:30 PM ET Company Participants Marissa Bych - Investor Relations Mike Carrel - President and Chief Executive Officer Angie Wirick - Chief Financial Officer Conference Call Participants Matthew O'Brien – Piper Sandler Danielle Antalffy – SVB Leerink Mike Matson – Needham & Company Marie Thibault – BTIG Suraj Kalia – Oppenheimer & Company Disclaimer*: This transcript is designed to be used alongside the freely available audio reco ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited financial statements, management's discussion and analysis, and disclosures on market risk and internal controls [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the period [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20September%2030%2C%202021%20and%20December%2031%2C%202020) This statement summarizes the company's assets, liabilities, and stockholders' equity at the end of the reporting period Condensed Consolidated Balance Sheet Highlights (In Thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------------- | :----------- | :----------- | | Total Assets | $612,969 | $714,539 | | Total Liabilities | $124,500 | $302,145 | | Total Stockholders' Equity | $488,469 | $412,394 | | Current Assets | $195,707 | $306,737 | | Long-term investments | $105,097 | $14,178 | | Intangible assets, net | $43,963 | $128,199 | | Contingent consideration and other noncurrent liabilities | $2,282 | $187,424 | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)%20for%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202021%20and%202020) This statement details the company's revenues, expenses, and resulting net income or loss over the reporting period Key Financials for Three Months Ended September 30 (In Thousands, Except Per Share Amounts) | Metric | Sep 30, 2021 | Sep 30, 2020 | | :------------------------------------------- | :----------- | :----------- | | Revenue | $70,460 | $54,757 | | Gross profit | $52,226 | $40,334 | | Change in fair value of contingent consideration | $(189,900) | $192 | | Intangible asset impairment | $82,300 | — | | Net income (loss) | $97,108 | $(4,949) | | Basic net income (loss) per share | $2.15 | $(0.11) | | Diluted net income (loss) per share | $2.11 | $(0.11) | Key Financials for Nine Months Ended September 30 (In Thousands, Except Per Share Amounts) | Metric | Sep 30, 2021 | Sep 30, 2020 | | :------------------------------------------- | :----------- | :----------- | | Revenue | $201,111 | $148,806 | | Gross profit | $150,844 | $106,872 | | Change in fair value of contingent consideration | $(184,800) | $(4,854) | | Intangible asset impairment | $82,300 | — | | Net income (loss) | $63,940 | $(29,593) | | Basic net income (loss) per share | $1.42 | $(0.71) | | Diluted net income (loss) per share | $1.39 | $(0.71) | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20for%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202021%20and%202020) This statement outlines the changes in the company's equity accounts over the reporting period Stockholders' Equity Changes (Nine Months Ended September 30, 2021) (In Thousands) | Metric | Amount | | :------------------------------------ | :------- | | Balance—December 31, 2020 | $412,394 | | Impact of equity compensation plans | $12,660 | | Other comprehensive loss | $(525) | | Net income | $63,940 | | Balance—September 30, 2021 | $488,469 | - Accumulated deficit improved from **$(330,352) thousand at December 31, 2020, to $(266,412) thousand at September 30, 2021**, primarily due to net income[7](index=7&type=chunk)[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Nine%20Months%20Ended%20September%2030%2C%202021%20and%202020) This statement reports the cash generated and used by operating, investing, and financing activities during the period Cash Flow Summary (Nine Months Ended September 30) (In Thousands) | Cash Flow Activity | 2021 | 2020 | | :------------------------------------------ | :----------- | :----------- | | Net cash used in operating activities | $(14,081) | $(23,823) | | Net cash provided by (used in) investing activities | $22,427 | $(154,218) | | Net cash (used in) provided by financing activities | $(10,149) | $182,939 | | Net (decrease) increase in cash and cash equivalents | $(2,058) | $4,898 | | Cash and cash equivalents—end of period | $39,886 | $33,381 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures and explanations of the accounting policies and financial data presented [1. Description of Business and Summary of Significant Accounting Policies](index=7&type=section&id=1.%20DESCRIPTION%20OF%20BUSINESS%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the company's business operations and the key accounting principles applied in the financial statements - AtriCure, Inc is a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management, selling products globally through direct sales and distributors[23](index=23&type=chunk) - The company reclassified the change in contingent consideration from selling, general and administrative expenses to a separate line item in the condensed consolidated statement of operations, with **no impact on net income or financial position**[25](index=25&type=chunk) - Inventories are valued at the **lower of cost or net realizable value** using the first-in, first-out (FIFO) method[29](index=29&type=chunk) - Depreciation of generators and related equipment, included in cost of revenue, was **$1,735 thousand** for the nine months ended September 30, 2021, down from $1,898 thousand in the prior year[33](index=33&type=chunk) - Intangible assets include In Process Research and Development (IPR&D), which is treated as an **indefinite-lived asset** until technological feasibility is achieved, after which it is amortized[37](index=37&type=chunk) - The company has established a **full valuation allowance** against substantially all net deferred income tax assets, as it is more-likely-than-not that the benefit will not be recognized[41](index=41&type=chunk) [2. Fair Value](index=11&type=section&id=2.%20FAIR%20VALUE) This note explains the methodology for measuring financial assets and liabilities at fair value across a three-level hierarchy - Financial assets and liabilities are classified into **Level 1** (quoted prices), **Level 2** (observable inputs), and **Level 3** (unobservable inputs) based on the fair value hierarchy[55](index=55&type=chunk) - Cash, government obligations, accounts receivable, and accounts payable are classified as **Level 1**, while cash equivalents and corporate bonds are classified as **Level 2**[56](index=56&type=chunk) - Contingent consideration liabilities from the SentreHEART acquisition were measured using unobservable (**Level 3**) inputs via the probability-weighted scenario method[61](index=61&type=chunk) - As of September 30, 2021, the fair value of the SentreHEART contingent consideration was re-measured to **$0**, resulting in a **$189,900 thousand credit** to operating expenses due to clinical trial data results[62](index=62&type=chunk)[65](index=65&type=chunk) [3. Intangible Assets](index=14&type=section&id=3.%20INTANGIBLE%20ASSETS) This note provides details on the company's intangible assets, including amortization, impairment, and reclassifications - Following PMA approval of the EPi-Sense System, the related IPR&D asset of **$44,021 thousand** was reclassified to technology assets and is being amortized over a **fifteen-year life**[67](index=67&type=chunk)[38](index=38&type=chunk) - An impairment loss of **$82,300 thousand** was recorded in Q3 2021 for the aMAZE IPR&D asset, reducing its carrying value to **$0** due to clinical trial data results[67](index=67&type=chunk)[38](index=38&type=chunk) Amortization Expense of Intangible Assets (In Thousands) | Period | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Three months ended September 30 | $971 | $467 | | Nine months ended September 30 | $1,936 | $1,444 | Projected Future Amortization Expense (In Thousands) | Year | Amount | | :-------------------------- | :------- | | 2021 (remaining) | $972 | | 2022 | $3,653 | | 2023 | $2,953 | | 2024 | $2,953 | | 2025 | $2,953 | | 2026 and thereafter | $30,479 | | Total | $43,963 | [4. Accrued Liabilities](index=15&type=section&id=4.%20ACCRUED%20LIABILITIES) This note itemizes the components of the company's accrued liabilities at the end of the reporting periods - The significant decrease in accrued legal settlement from **$6,000 thousand to $10 thousand** reflects the substantial payment of a settlement agreement with former nContact stockholders[72](index=72&type=chunk)[93](index=93&type=chunk) Accrued Liabilities (In Thousands) | Category | Sep 30, 2021 | Dec 31, 2020 | | :----------------------------------------- | :----------- | :----------- | | Accrued compensation and employee-related expenses | $26,670 | $17,730 | | Sales returns and allowances | $2,611 | $1,889 | | Accrued taxes and value-added taxes payable | $1,487 | $1,256 | | Accrued royalties | $783 | $703 | | Other accrued liabilities | $285 | $406 | | Accrued legal settlement | $10 | $6,000 | | Total | $31,846 | $27,984 | [5. Indebtedness](index=15&type=section&id=5.%20INDEBTEDNESS) This note describes the terms of the company's loan and security agreements, including credit facilities and debt maturities - The company has a Loan and Security Agreement with Silicon Valley Bank (SVB), including a **$60,000 thousand term loan** and a **$20,000 thousand revolving line of credit**, maturing August 1, 2024[73](index=73&type=chunk)[141](index=141&type=chunk) - Term loan principal payments commenced September 1, 2021, and as of September 30, 2021, there were **no borrowings under the revolving credit facility**[74](index=74&type=chunk)[75](index=75&type=chunk)[141](index=141&type=chunk) - Effective November 1, 2021, the company entered into the Sixth Amendment with SVB, providing a new **$60,000 thousand term loan** and a **$30,000 thousand revolving line of credit**, expiring November 2026[76](index=76&type=chunk)[143](index=143&type=chunk) Projected Future Maturities of Long-Term Debt (Post-Refinancing) (In Thousands) | Year | Amount | | :--- | :------- | | 2021 (remaining) | — | | 2022 | — | | 2023 | $3,333 | | 2024 | $20,000 | | 2025 | $20,000 | | 2026 | $16,667 | | Total long-term debt | $60,000 | [6. Leases](index=16&type=section&id=6.%20LEASES) This note provides information on the company's operating and finance leases, including terms, discount rates, and liabilities Weighted Average Lease Terms and Discount Rates | Lease Type | Sep 30, 2021 | Dec 31, 2020 | | :------------------------------------ | :----------- | :----------- | | Operating Leases - Remaining Lease Term (years) | 3.3 | 3.2 | | Operating Leases - Discount Rate | 5.60% | 5.68% | | Finance Leases - Remaining Lease Term (years) | 8.9 | 9.7 | | Finance Leases - Discount Rate | 6.91% | 6.91% | Total Lease Liabilities (In Thousands) | Lease Type | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Total operating lease liabilities | $2,613 | $2,107 | | Total finance lease liabilities | $11,191 | $11,792 | Maturities of Lease Liabilities as of September 30, 2021 (In Thousands) | Year | Operating Leases | Finance Leases | | :-------------------------- | :--------------- | :--------------- | | 2021 (remaining) | $252 | $406 | | 2022 | $967 | $1,629 | | 2023 | $682 | $1,652 | | 2024 | $609 | $1,674 | | 2025 | $348 | $1,625 | | 2026 and thereafter | — | $8,172 | | Total payments | $2,858 | $15,158 | | Less imputed interest | $(245) | $(3,967) | | Total | $2,613 | $11,191 | [7. Commitments and Contingencies](index=18&type=section&id=7.%20COMMITMENTS%20AND%20CONTINGENCIES) This note discloses the company's contractual commitments, legal proceedings, and other potential liabilities - The company is committed to funding renovation of a recently purchased building for additional manufacturing capacity, with an estimated cost of **$5,500 thousand**[90](index=90&type=chunk) - An ongoing Civil Investigative Demand (CID) from the U.S. Department of Justice (USDOJ) since December 2017 is investigating potential **False Claims Act violations**[91](index=91&type=chunk) - In February 2021, the company entered into a settlement agreement with former nContact stockholders for **$6,000 thousand**, which was substantially paid as of September 30, 2021[93](index=93&type=chunk) Royalty Expense (In Thousands) | Period | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Three months ended September 30 | $792 | $699 | | Nine months ended September 30 | $2,356 | $1,880 | [8. Revenue](index=19&type=section&id=8.%20REVENUE) This note details the company's revenue recognition policies and disaggregates revenue by product category - Revenue is primarily generated from the sale of medical devices and recognized when **control of goods is transferred** to customers, generally upon shipment or delivery[94](index=94&type=chunk)[27](index=27&type=chunk) - Sales are categorized into **open ablation, minimally invasive ablation, appendage management, and valve tools**[94](index=94&type=chunk) - A provision for sales returns and allowances is estimated using the **expected value method** based on historical experience[96](index=96&type=chunk)[27](index=27&type=chunk) - Commissions and royalties associated with product sales are **recognized as expense when incurred**[98](index=98&type=chunk) [9. Income Tax Provision](index=19&type=section&id=9.%20INCOME%20TAX%20PROVISION) This note explains the calculation of the company's income tax provision and the factors affecting its effective tax rate - The company uses the **discrete method** to compute its provision for income taxes in interim periods, as it is unable to reliably estimate the annual effective tax rate[99](index=99&type=chunk) - The worldwide effective tax rate differs from the US statutory rate of 21% primarily due to a **full valuation allowance** against net deferred income tax assets[99](index=99&type=chunk) Effective Tax Rate | Period | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Three months ended September 30 | 0.04% | 0.08% | | Nine months ended September 30 | 0.21% | (0.05)% | [10. Equity Compensation Plans](index=20&type=section&id=10.%20EQUITY%20COMPENSATION%20PLANS) This note describes the company's stock-based compensation plans and the associated expenses recognized - The 2014 Stock Incentive Plan allows for grants of **stock options, restricted stock awards/units (RSAs), performance share awards (PSAs), and stock appreciation rights**[102](index=102&type=chunk) - PSAs granted in 2021 have two equally weighted performance targets: the company's **revenue compound annual growth rate (CAGR)** and **relative total shareholder return (TSR)**[104](index=104&type=chunk) - The 2018 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase common stock at a **15% discount**[105](index=105&type=chunk) Share-Based Compensation Expense (In Thousands) | Period | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Three months ended September 30 | $6,794 | $5,549 | | Nine months ended September 30 | $20,539 | $16,126 | [11. Segment and Geographic Information](index=21&type=section&id=11.%20SEGMENT%20AND%20GEOGRAPHIC%20INFORMATION) This note provides a breakdown of the company's revenue by geographic location and product type - The company operates as a **single operating segment**, developing, manufacturing, and selling devices for cardiac tissue ablation and related procedures[110](index=110&type=chunk) Total Revenue by Geographic Location (Nine Months Ended September 30) (In Thousands) | Region | 2021 | 2020 | | :------------------ | :----------- | :----------- | | United States | $167,916 | $121,838 | | Europe | $20,551 | $16,775 | | Asia | $11,695 | $9,367 | | Other international | $949 | $826 | | Total international | $33,195 | $26,968 | | Total revenue | $201,111 | $148,806 | United States Revenue by Product Type (Nine Months Ended September 30) (In Thousands) | Product Type | 2021 | 2020 | | :-------------------------------------- | :----------- | :----------- | | Open ablation | $69,693 | $54,679 | | Minimally invasive ablation | $28,077 | $18,295 | | Appendage management | $69,144 | $47,870 | | Total ablation and appendage management | $166,914 | $120,844 | | Valve tools | $1,002 | $994 | | Total United States | $167,916 | $121,838 | International Revenue by Product Type (Nine Months Ended September 30) (In Thousands) | Product Type | 2021 | 2020 | | :-------------------------------------- | :----------- | :----------- | | Open ablation | $16,629 | $13,766 | | Minimally invasive ablation | $4,698 | $4,346 | | Appendage management | $11,825 | $8,778 | | Total ablation and appendage management | $33,152 | $26,890 | | Valve tools | $43 | $78 | | Total international | $33,195 | $26,968 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, liquidity, and critical accounting policies [Overview](index=23&type=section&id=Overview) This section provides a high-level summary of the company's business, products, and market focus - AtriCure is a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management, with products used in **open-heart and minimally invasive procedures**[119](index=119&type=chunk) - Key products include the FDA-approved **Isolator Synergy™ Ablation System**, the **EPi-Sense system**, and **AtriClip® products** for LAA exclusion[120](index=120&type=chunk) - The company anticipates that **substantially all future revenue** will come from its currently sold or developing products[121](index=121&type=chunk) [Recent Developments](index=24&type=section&id=Recent%20Developments) This section highlights significant recent events, including product approvals, clinical trial results, and market conditions - The company experienced a significant decrease in demand in 2020 and early 2021 due to COVID-19, but has observed **stabilization and improvements** in cardiac surgery procedure volumes[122](index=122&type=chunk) - In July 2021, the company received 510(k) clearance for the new **ENCOMPASS clamp**, initiating a limited product launch to drive deeper market penetration[124](index=124&type=chunk) - **PMA approval for the EPi-Sense system** in April 2021 has enabled education and training on Hybrid AF™ therapy for long-standing persistent atrial fibrillation[125](index=125&type=chunk) - Data from the aMAZE clinical trial in July 2021 **did not achieve statistical superiority**, leading to a pause in enrollment for the Continued Access Protocol (CAP)[126](index=126&type=chunk) - The company maintains a strong liquidity position with **$224,843 thousand in cash and investments** as of September 30, 2021[124](index=124&type=chunk) [Results of Operations (Three Months Ended September 30, 2021 vs. 2020)](index=25&type=section&id=Results%20of%20Operations%20(Three%20months%20ended%20September%2030%2C%202021%20compared%20to%20three%20months%20ended%20September%2030%2C%202020)) This section analyzes the company's financial performance for the third quarter of 2021 compared to the same period in 2020 - Revenue increased by **28.7%** (28.6% on a constant currency basis) due to an upturn in cardiac surgery procedure volumes and increased product adoption[128](index=128&type=chunk) - U.S. sales growth: open ablation increased **19.4%**, minimally invasive (MIS) ablation increased **43.1%**, and appendage management sales rose **34.3%**[128](index=128&type=chunk) - Gross margin improved by approximately **40 basis points**, reflecting a favorable product mix partially offset by inventory charges and unfavorable geographic mix[129](index=129&type=chunk) - Selling, general and administrative expenses increased by **$16,316 thousand or 48.6%**, primarily due to higher personnel costs, training, and marketing activities[130](index=130&type=chunk) Key Financial Performance (Three Months Ended September 30) (In Thousands, Except Percentages) | Metric | 2021 Amount | 2021 % of Revenues | 2020 Amount | 2020 % of Revenues | | :------------------------------------------- | :---------- | :----------------- | :---------- | :----------------- | | Revenue | $70,460 | 100.0% | $54,757 | 100.0% | | Gross profit | $52,226 | 74.1% | $40,334 | 73.7% | | Research and development expenses | $11,284 | 16.0% | $10,576 | 19.3% | | Selling, general and administrative expenses | $49,873 | 70.8% | $33,557 | 61.3% | | Change in fair value of contingent consideration | $(189,900) | (269.5)% | $192 | 0.4% | | Intangible asset impairment | $82,300 | 116.8% | — | 0.0% | | Income (loss) from operations | $98,669 | 140.0% | $(3,991) | (7.3)% | | Net income (loss) | $97,108 | 137.8% | $(4,949) | (9.0)% | [Results of Operations (Nine Months Ended September 30, 2021 vs. 2020)](index=26&type=section&id=Results%20of%20Operations%20(Nine%20months%20ended%20September%2030%2C%202021%20compared%20to%20nine%20months%20ended%20September%2030%2C%202020)) This section analyzes the company's financial performance for the first nine months of 2021 compared to the same period in 2020 - Revenue increased by **35.1%** (34.4% on a constant currency basis), with U.S. sales growing across all product lines: MIS ablation **+53.5%**, appendage management **+44.4%**, and open ablation **+27.5%**[134](index=134&type=chunk) - Gross margin increased by over **300 basis points**, driven by a return to normal production activity, leverage from higher revenue, and favorable mix[135](index=135&type=chunk) - Selling, general and administrative expenses increased by **$44,682 thousand or 42.1%**, primarily due to additional headcount, variable compensation, and marketing activities[136](index=136&type=chunk) Key Financial Performance (Nine Months Ended September 30) (In Thousands, Except Percentages) | Metric | 2021 Amount | 2021 % of Revenues | 2020 Amount | 2020 % of Revenues | | :------------------------------------------- | :---------- | :----------------- | :---------- | :----------------- | | Revenue | $201,111 | 100.0% | $148,806 | 100.0% | | Cost of revenue | $50,267 | 25.0% | $41,934 | 28.2% | | Gross profit | $150,844 | 75.0% | $106,872 | 71.8% | | Research and development expenses | $34,698 | 17.3% | $32,199 | 21.6% | | Selling, general and administrative expenses | $150,939 | 75.1% | $106,257 | 71.4% | | Change in fair value of contingent consideration | $(184,800) | (91.9)% | $(4,854) | (3.3)% | | Intangible asset impairment | $82,300 | 40.9% | — | 0.0% | | Income (loss) from operations | $67,707 | 33.7% | $(26,730) | (18.0)% | | Net income (loss) | $63,940 | 31.8% | $(29,593) | (19.9)% | [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, sources and uses of cash, and ability to fund future operations - As of September 30, 2021, the company had cash, cash equivalents, and investments totaling **$224,843 thousand**, with outstanding debt of **$58,333 thousand**[138](index=138&type=chunk) - Net cash used in operating activities reflects net income offset by **non-cash adjustments** (e.g., contingent consideration revaluation and intangible asset impairment)[139](index=139&type=chunk) - Effective November 1, 2021, the company secured an Amended Loan and Security Agreement with SVB, providing a **$60,000 thousand term loan** and a **$30,000 thousand revolving line of credit**[143](index=143&type=chunk) - Management believes current cash, investments, and access to the credit facility will be **sufficient to meet anticipated cash needs** for at least the next twelve months[147](index=147&type=chunk) Cash Flow Summary (Nine Months Ended September 30, 2021) (In Thousands) | Cash Flow Activity | Amount | | :------------------------------------------ | :----------- | | Net cash used in operating activities | $(14,081) | | Net cash provided by investing activities | $22,427 | | Net cash used in financing activities | $(10,149) | [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section identifies the accounting policies that are most critical to the portrayal of the company's financial condition - The financial statements are prepared in accordance with GAAP, requiring management to make **estimates and judgments** that affect reported amounts[149](index=149&type=chunk) - Key areas requiring significant estimates include **sales returns, accounts receivable, inventories, intangible assets, contingent liabilities, and share-based compensation**[149](index=149&type=chunk) [Recent Accounting Pronouncements](index=29&type=section&id=Recent%20Accounting%20Pronouncements) This section discloses any recently issued accounting standards that could materially impact the company's financial statements - There were **no material changes** to the information provided in Note 2, 'Recent Accounting Pronouncements' in the Company's Form 10-K for the fiscal year ended December 31, 2020[151](index=151&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states there have been no material changes to the company's market risk disclosures since its last annual report - 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, 2020[152](index=152&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and reports on changes in internal financial reporting controls [Evaluation of Disclosure Controls and Procedures](index=29&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective as of September 30, 2021**[153](index=153&type=chunk) - Control systems, by their inherent limitations, can only provide **reasonable, not absolute, assurance** and can be circumvented[154](index=154&type=chunk) [Changes in Internal Control Over Financial Reporting](index=29&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports on any significant changes to the company's internal controls over financial reporting during the quarter - **No material changes** in internal control over financial reporting occurred during the three months ended September 30, 2021[155](index=155&type=chunk) - The company **routinely enhances its information systems** through upgrades or new implementations[155](index=155&type=chunk) [PART II. OTHER INFORMATION](index=30&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part contains information on legal proceedings, risk factors, other corporate actions, and filed exhibits [Item 1. Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the financial statement notes for detailed information regarding the company's legal proceedings - Information regarding legal proceedings is incorporated by reference from **Note 7 – Commitments and Contingencies** in Part I, Item 1 of this report[157](index=157&type=chunk) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to previous SEC filings for a comprehensive discussion of risk factors - **No material changes** have occurred with respect to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[158](index=158&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) This section provides details on the Sixth Amendment to the Loan and Security Agreement with Silicon Valley Bank - Effective November 1, 2021, the company and SVB entered into the Sixth Amendment to the Loan and Security Agreement, providing a **$60,000 thousand term loan** and a **$30,000 thousand revolving line of credit**[159](index=159&type=chunk) - The Amended Loan and Security Agreement has a **five-year term, expiring November 2026**, with principal payments commencing 24 months after inception[159](index=159&type=chunk) - The term loan accrues interest at the **Prime Rate plus 1.25%** and the revolving line of credit bears interest at the **floating Prime Rate**[159](index=159&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including agreements, certifications, and XBRL documents - Exhibit 10.1 is the AtriCure, Inc **2018 Employee Stock Purchase Plan** (Amended and Restated effective January 1, 2022)[162](index=162&type=chunk) - Exhibit 10.2 is the **Sixth Amendment to Loan and Security Agreement** dated November 1, 2021, among AtriCure, Inc and Silicon Valley Bank[162](index=162&type=chunk) - Includes **Rule 13a-14(a) Certifications** of Principal Executive Officer and Principal Accounting and Financial Officer, as well as XBRL documents[162](index=162&type=chunk)

AtriCure, Inc. (NASDAQ:ATRC) Q2 2021 Earnings Conference Call August 4, 2021 4:30 PM ET Company Participants Lynn Lewis – Investor Relations Mike Carrel – President and Chief Executive Officer Angie Wirick – Chief Financial Officer Conference Call Participants Rick Wise – Stifel Matthew O'Brien – Piper Sandler Mike Matson – Needham & Company Bill Plovanic – Canaccord Marie Thibault – BTIG Suraj Kalia – Oppenheimer & Company Danielle Antalffy – SVB Leerink Operator Good afternoon, and welcome to AtriCure's S ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited financials show assets at **$701.1M**, revenue at **$130.7M**, net loss at **$33.2M**, with aMAZE trial failure risking IPR&D impairment [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Summary (in thousands) | Account | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$701,075** | **$714,539** | | Cash and investments | $229,635 | $258,396 | | Goodwill & Intangibles, net | $362,015 | $362,980 | | **Total Liabilities** | **$315,992** | **$302,145** | | Contingent consideration | $192,517 | $187,424 | | Long-term debt | $43,669 | $53,435 | | **Total Stockholders' Equity** | **$385,083** | **$412,394** | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Q2 2021 vs Q2 2020 Performance (in thousands, except per share) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Revenue | $71,376 | $40,824 | | Gross Profit | $54,078 | $27,654 | | Gross Margin | 75.8% | 67.7% | | Loss from Operations | $(15,077) | $(7,285) | | Net Loss | $(16,251) | $(8,236) | | Net Loss Per Share | $(0.36) | $(0.20) | H1 2021 vs H1 2020 Performance (in thousands, except per share) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Revenue | $130,651 | $94,049 | | Gross Profit | $98,618 | $66,538 | | Gross Margin | 75.5% | 70.7% | | Loss from Operations | $(30,962) | $(22,739) | | Net Loss | $(33,168) | $(24,644) | | Net Loss Per Share | $(0.74) | $(0.61) | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) - Total Stockholders' Equity decreased from **$412.4 million** at the end of 2020 to **$385.1 million** as of June 30, 2021, primarily due to a **net loss of $33.2 million** for the six-month period, partially offset by equity compensation plans[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(13,849) | $(27,635) | | Net cash provided by (used in) investing activities | $47,528 | $(95,481) | | Net cash (used in) provided by financing activities | $(7,889) | $183,240 | | **Net increase in cash and cash equivalents** | **$25,675** | **$60,039** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The company is an innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management, selling products globally through a direct sales force and distributors[19](index=19&type=chunk) - Following PMA approval for the EPi-Sense System in Q2 2021, the related In-Process Research and Development (IPR&D) asset of **$44.0 million** was reclassified to a technology asset and is now being amortized over an estimated fifteen-year life[56](index=56&type=chunk) - In July 2021, the company was informed that the aMAZE clinical trial did not meet its primary efficacy endpoint, which may lead to a material impairment of the related IPR&D asset and adjustments to the SentreHEART contingent consideration liability in the second half of 2021[95](index=95&type=chunk) Revenue by Geography for Six Months Ended June 30 (in thousands) | Region | 2021 | 2020 | | :--- | :--- | :--- | | United States | $110,379 | $77,137 | | International | $20,272 | $16,912 | | **Total Revenue** | **$130,651** | **$94,049** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 revenue growth, gross margin improvement, increased operating expenses, strong liquidity, and the aMAZE trial's primary endpoint failure [Overview](index=20&type=section&id=Overview) - AtriCure is a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management, with products used in both open-heart and minimally invasive procedures[99](index=99&type=chunk) - The company's Isolator Synergy™ Ablation System is FDA-approved for treating persistent Afib, and the EPi-Sense system is approved for long-standing persistent Afib, while other products like AtriClip are 510(k) cleared[100](index=100&type=chunk) [Recent Developments](index=21&type=section&id=Recent%20Developments) - The business experienced a significant decrease in demand in 2020 due to COVID-19 deferring non-emergent procedures, but has seen regions begin to stabilize with improved procedure volumes in 2021[102](index=102&type=chunk) - Strategic initiatives continue despite the pandemic, focusing on product innovation (ENCOMPASS clamp 510(k) clearance), clinical science (EPi-Sense PMA approval), and training[104](index=104&type=chunk)[106](index=106&type=chunk) - In July 2021, the aMAZE clinical trial met its safety endpoint but did not achieve statistical superiority on its primary efficacy endpoint, with the company currently analyzing data to determine next steps[107](index=107&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) - Q2 2021 revenue increased **74.8%** year-over-year, driven by recovery from COVID-19 impacts, with U.S. revenue growing **78.4%** and international revenue growing **57.9%**[110](index=110&type=chunk) - Q2 2021 gross margin increased to **75.8%** from **67.7%** in Q2 2020, benefiting from higher revenue and normal production activity compared to the prior year's pandemic-related fixed cost burden[112](index=112&type=chunk) - Selling, general and administrative (SG&A) expenses for Q2 2021 increased **128.7%** year-over-year, primarily due to a **$16.6 million** increase in personnel expenses and a **$10.1 million** fluctuation in the contingent consideration liability[113](index=113&type=chunk) - For the first six months of 2021, revenue increased **38.9%** year-over-year, with U.S. sales up **43.1%** and international sales up **19.9%**[116](index=116&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) - As of June 30, 2021, the company had **$229.6 million** in cash, cash equivalents, and investments, with **$60.0 million** in outstanding debt[119](index=119&type=chunk) - Net cash used in operating activities for the first six months of 2021 was **$13.8 million**, an improvement from the **$27.6 million** used in the same period of 2020[16](index=16&type=chunk)[120](index=120&type=chunk) - The company has a Loan and Security Agreement with Silicon Valley Bank providing for a **$60.0 million** term loan and a **$20.0 million** revolving line of credit, with **$8.75 million** available under the revolver as of June 30, 2021[122](index=122&type=chunk) - Management believes current cash, investments, and expected cash flows will be sufficient to meet anticipated cash needs for at least the next twelve months[126](index=126&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes to the market risk disclosures from its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - There were no material changes to the market risk disclosures from the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020[131](index=131&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the company's management concluded that disclosure controls and procedures were effective[132](index=132&type=chunk) - No changes occurred in the company's internal control over financial reporting during the three months ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, these controls[134](index=134&type=chunk) [PART II. OTHER INFORMATION](index=25&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) USDOJ declined intervention in a False Claims Act lawsuit, now unsealed, and the company settled an earnout dispute for **$6.0 million** - In March 2021, the USDOJ informed the company it was electing not to intervene in a False Claims Act lawsuit related to off-label promotion, which has been unsealed, with its ultimate impact not yet predictable[75](index=75&type=chunk) - In February 2021, the company settled a dispute with former nContact stockholders over contingent consideration for **$6.0 million**, with the majority of this settlement paid by June 30, 2021[76](index=76&type=chunk) [Item 1A. Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors include EPi-Sense commercial success, ongoing COVID-19 impacts, and potential harm from information system disruptions or security breaches - A new risk factor emphasizes that the company's success depends in part on the commercial acceptance of the EPi-Sense® System, which received FDA approval in April 2021 for treating long-standing persistent Afib[137](index=137&type=chunk)[138](index=138&type=chunk) - The COVID-19 pandemic, including new variants, continues to pose a significant risk by potentially reducing the number of elective procedures, disrupting clinical trials, and negatively impacting financial results[139](index=139&type=chunk)[140](index=140&type=chunk) - The company identifies disruptions of critical information systems and material security breaches as a key risk, acknowledging that cyber-attacks are becoming more sophisticated and could harm business, customer relations, and financial condition[146](index=146&type=chunk)[147](index=147&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including Sarbanes-Oxley Act certifications from the Principal Executive Officer and Principal Accounting and Financial Officer, as well as XBRL data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, and various XBRL documents[150](index=150&type=chunk) [Signatures](index=29&type=section&id=Signatures)

AtriCure, Inc. (NASDAQ:ATRC) Q1 2021 Earnings Conference Call April 27, 2021 4:30 PM ET Company Participants Lynn Lewis - Investor Relations, Gilmartin Group Mike Carrel - President and Chief Executive Officer Angie Wirick - Chief Financial Officer Conference Call Participants Rick Wise - Stifel David Saxon - Needham Danielle Antalffy - SVB Leerink Matthew O'Brien - Piper Sandler Bill Plovanic - Canaccord Suraj Kalia - Oppenheimer and Company Marie Thibault - BTIG Operator Good afternoon and welcome to Atri ...

Financial Performance - Revenue for Q1 2021 was $59,275, an increase of 11.4% compared to $53,225 in Q1 2020, with U.S. revenue increasing by 15.7%[103] - Gross profit for Q1 2021 was $44,540, representing a gross margin of 75.1%, up from 73.1% in Q1 2020[103] - The net loss for Q1 2021 was $16,917, compared to a net loss of $16,408 in Q1 2020[103] - International revenue decreased by 8.1% due to local COVID restrictions, impacting open and minimally invasive ablation product sales[103] Expenses - Research and development expenses decreased by 3.2% to $11,217, primarily due to reduced clinical trial activities[105] - Selling, general and administrative expenses increased by 15.1% to $49,208, driven by higher personnel costs and share-based compensation[105] Cash Flow and Liquidity - Cash, cash equivalents, and investments totaled $236,332 as of March 31, 2021, with outstanding debt of $60,000[107] - The company experienced a net cash outflow of $9,316 from operating activities in Q1 2021, reflecting the net loss and changes in working capital[108] - Generated $63,587 of net cash from investing activities during Q1 2021, reflecting $64,913 from sales and maturities of available-for-sale securities[109] - Used $10,707 of net cash in financing activities during Q1 2021, primarily for share repurchases totaling $15,097[109] - The company expects current cash and cash equivalents to meet anticipated cash needs for at least the next twelve months[114] - The company is closely monitoring liquidity and capital resources due to potential impacts from the COVID-19 pandemic[112] Debt and Financing - Loan and Security Agreement with Silicon Valley Bank includes a $60,000 term loan and a $20,000 revolving line of credit, maturing on August 1, 2024[110] - As of March 31, 2021, the company had no borrowings under the revolving credit facility and $8,750 of borrowing availability[110] - The term loan accrues interest at the greater of the Prime Rate or 5.00%, plus 0.75%[110] - The company may seek to sell additional equity or debt securities if cash sources are insufficient, which could result in dilution to stockholders[115] - The company has a shelf registration statement on file with the SEC for future offerings of various securities[113] Product Development - The ENCOMPASS clamp is progressing towards 510(k) clearance, expected to enhance penetration in cardiac surgery procedures[99] - The company is awaiting FDA feedback on the PMA approval for the EPi-Sense system, which targets a significant patient population with long-standing persistent atrial fibrillation[100] Acquisition - The SentreHEART acquisition includes contingent consideration to be paid upon PMA approval before December 2023[114]