AtriCure, Inc. (NASDAQ:ATRC) Q2 2022 Earnings Conference Call August 2, 2022 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 Robbie Marcus - JPMorgan John McAulay - Stifel Marie Thibault - BTIG William Plovanic - Canaccord David Saxon - Needham Suraj Kalia - Oppenheimer Matthew O’Brien - PSC Operator Good afternoon and welcome to the AtriCure Second Quarter 2022 Earnings ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents AtriCure's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents AtriCure's unaudited condensed consolidated financial statements for Q2 and H1 2022 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$587.4 million** by June 30, 2022, from **$615.3 million** at year-end 2021 Condensed Consolidated Balance Sheet Highlights (In Thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $54,556 | $43,654 | | Total current assets | $206,166 | $196,076 | | Total Assets | $587,389 | $615,312 | | Total current liabilities | $56,316 | $56,445 | | Total Liabilities | $130,679 | $131,556 | | Total Stockholders' Equity | $456,710 | $483,756 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Q2 2022 revenue grew to **$84.5 million** with net loss narrowing, while H1 revenue reached **$159.1 million** Statement of Operations Highlights (In Thousands, Except Per Share Amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $84,529 | $71,376 | $159,105 | $130,651 | | Gross Profit | $63,519 | $54,078 | $119,114 | $98,618 | | Loss from operations | $(13,660) | $(15,077) | $(27,810) | $(30,962) | | Net loss | $(14,841) | $(16,251) | $(30,024) | $(33,168) | | Basic and diluted net loss per share | $(0.32) | $(0.36) | $(0.66) | $(0.74) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased to **$20.4 million** in H1 2022, with cash and equivalents at **$54.6 million** Cash Flow Summary (In Thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(20,403) | $(13,849) | | Net cash provided by investing activities | $40,243 | $47,528 | | Net cash used in financing activities | $(8,636) | $(7,889) | | Net increase in cash and cash equivalents | $10,902 | $25,675 | | Cash and cash equivalents—end of period | $54,556 | $67,619 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes cover accounting policies, revenue breakdown, credit facility terms, and ongoing legal proceedings - The company operates as a single operating segment, developing and selling products for atrial fibrillation (Afib), left atrial appendage (LAA) management, and post-operative pain management globally[18](index=18&type=chunk)[22](index=22&type=chunk) U.S. Revenue by Product Type (In Thousands) | Product Type | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Open ablation | $22,070 | $41,044 | | Minimally invasive ablation | $10,154 | $18,769 | | Pain management | $10,210 | $18,224 | | Appendage management | $28,831 | $55,500 | | **Total United States** | **$71,265** | **$133,537** | Revenue by Geography (In Thousands) | Geography | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | United States | $71,265 | $133,537 | | Europe | $7,783 | $15,020 | | Asia | $4,933 | $9,490 | | Other International | $548 | $1,058 | | **Total Revenue** | **$84,529** | **$159,105** | - The company has a Loan Agreement with Silicon Valley Bank including a **$60 million term loan** and a **$30 million revolving line of credit**, expiring in November 2026[36](index=36&type=chunk)[38](index=38&type=chunk) - The company is involved in a legal proceeding initiated by a Civil Investigative Demand from the U.S. Department of Justice in 2017 concerning potential violations of the False Claims Act[52](index=52&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, including **21.8% revenue growth** for H1 2022, liquidity, and strategic initiatives - Despite pandemic-related variability, worldwide revenue for the first six months of 2022 increased by **21.8% to $159.1 million**, driven by growing adoption across key product lines[77](index=77&type=chunk) - Strategic initiatives include product innovation with the launch of the ENCOMPASS clamp, and continued investment in clinical science with FDA approval for the HEAL-IST and LeAAPS clinical trial protocols[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) Q2 2022 revenue grew **18.4% to $84.5 million**, driven by key product lines, with H1 revenue up **21.8%** Revenue Growth by Product (Three Months Ended June 30, 2022 vs 2021) | Product Line | 2022 Revenue (in thousands) | 2021 Revenue (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Pain management | $10,210 | $5,709 | 78.8% | | Appendage management | $28,831 | $25,156 | 14.6% | | Open ablation | $22,070 | $19,503 | 13.2% | | **Total revenue** | **$84,529** | **$71,376** | **18.4%** | - For Q2 2022, gross margin decreased by approximately **70 basis points** due to changes in U.S. product mix and cost increases from inflation and supply chain pressures[86](index=86&type=chunk) - R&D expenses for Q2 2022 increased **21.3% to $14.8 million**, driven by higher personnel costs and EU Medical Device Regulation (EU MDR) compliance expenses[87](index=87&type=chunk) - SG&A expenses for Q2 2022 increased **9.5% to $62.4 million**, primarily due to increased headcount, travel, marketing, and training activities[88](index=88&type=chunk) Revenue Growth by Product (Six Months Ended June 30, 2022 vs 2021) | Product Line | 2022 Revenue (in thousands) | 2021 Revenue (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Pain management | $18,224 | $9,607 | 89.7% | | Appendage management | $55,500 | $45,743 | 21.3% | | Open ablation | $41,044 | $36,942 | 11.1% | | **Total revenue** | **$159,105** | **$130,651** | **21.8%** | [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, the company held **$182.7 million** in cash and investments, with **$60 million** debt outstanding - The company has a **$60 million term loan** and a **$30 million revolving line of credit**, with **$28.75 million** of unused borrowing capacity as of June 30, 2022[96](index=96&type=chunk)[100](index=100&type=chunk) - Net cash used in operating activities increased by **$6.6 million** in H1 2022 compared to H1 2021, driven by a **$9.7 million reduction** in accrued liabilities[97](index=97&type=chunk)[98](index=98&type=chunk) - Net cash provided by investing activities decreased by **$7.3 million**, reflecting lower net sales of securities and increased purchases of property and equipment[98](index=98&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes occurred in quantitative and qualitative market risk disclosures from the prior year's Form 10-K - As of June 30, 2022, there were no material changes to the market risk disclosures previously reported in the Company's Form 10-K for the year ended December 31, 2021[105](index=105&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of June 30, 2022, with no material changes in internal control - Based on an evaluation as of the end of the period, the company's management concluded that disclosure controls and procedures were effective in providing reasonable assurance that required information is recorded, processed, and reported in a timely manner[106](index=106&type=chunk) - No changes occurred in the company's internal control over financial reporting during the three months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, these controls[108](index=108&type=chunk) [PART II. OTHER INFORMATION](index=22&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes information on legal proceedings, risk factors, and exhibits filed with the report [Item 1. Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) Information on legal proceedings, including a False Claims Act lawsuit, is detailed in Note 8 to the financial statements - Information regarding legal proceedings is detailed in Note 8 to the Condensed Consolidated Financial Statements[109](index=109&type=chunk) [Item 1A. Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes with respect to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[110](index=110&type=chunk) [Item 6. Exhibits](index=23&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL data files[112](index=112&type=chunk)

AtriCure Inc. (NASDAQ:ATRC) Q1 2022 Results Conference Call May 3, 2022 4:30 PM ET Company Participants Marissa Bych - Gilmartin Group Michael Carrel - President, CEO Angela Wirick - CFO Conference Call Participants Robbie Marcus - JPMorgan Danielle Antalffy - SVB Leerink John McAulay - Stifel Sam Eiber - BTIG David Saxon - Needham Matthew O'Brien - Piper Sandler Suraj Kalia - Oppenheimer Operator Good afternoon, and welcome to AtriCure's First Quarter 2022 Earnings Conference Call. My name is Jeff and I wi ...

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 ...