AtriCure(ATRC) - 2019 Q4 - Annual Report

PART I ITEM 1. BUSINESS AtriCure is a leading innovator in Afib and LAA management, offering surgical and minimally invasive products, with a strategy focused on innovation, clinical science, and market expansion - AtriCure is a market leader in surgical Afib treatment, with its Isolator Synergy System being the only FDA-approved surgical device for persistent and long-standing persistent Afib in concomitant open-heart procedures[6] - The company's business strategy includes new product innovation, investing in clinical trials (e.g., CONVERGE, aMAZE, ICE-AFIB trials), building physician and societal relationships, providing training and education, expanding adoption of minimally invasive products, and evaluating acquisition opportunities[27][28][29] Overview AtriCure innovates Afib and LAA management with surgical and minimally invasive products, including the FDA-approved Isolator Synergy™ Ablation System, sold via direct and distributor channels - AtriCure is a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management, utilizing products in both open-heart and minimally invasive procedures[6] - The Isolator Synergy™ Ablation System is the first and only surgical device approved by the FDA for treating persistent and long-standing persistent Afib in patients undergoing certain open concomitant procedures[6] - Products are sold via a direct sales force in the U.S. and key international markets (Germany, France, UK, Benelux), and through distributors in other international regions[8] Market Overview Afib affects 33 million globally, with increasing diagnoses and Class I recommendations for surgical ablation, while LAA exclusion with AtriClip offers significant growth due to stroke risk - Afib affects approximately 33 million people globally, including six million in the United States, with incidence doubling each decade of adult life[9] - Societal guidelines (STS, HRS, AATS) now provide Class I recommendations for surgical ablation for patients with structural heart disease and Afib, indicating it as a 'recommended' treatment[10] - The AtriClip system for LAA exclusion represents a significant growth opportunity, as 90% of Afib-related stroke clots originate in the LAA, and surgeons are increasingly addressing the LAA[12] The AtriCure Solution and Products AtriCure provides surgical and minimally invasive devices for cardiac ablation and LAA management, including RF, cryoablation, AtriClip, and LARIAT systems, to improve Afib treatment - AtriCure's products aim to safely, rapidly, and reliably create lesions to block abnormal electrical impulses causing Afib, particularly for severe forms or patients who failed catheter ablations[15] - The product lines include devices for cardiac tissue ablation (RF and cryo-thermal energy) and left atrial appendage management[16] Products for open and minimally invasive ablation AtriCure offers Isolator Synergy Clamps, Multifunctional Pens, and Linear Ablation Devices for effective RF ablation and arrhythmia evaluation in open and minimally invasive procedures - Isolator Synergy Clamps are the primary RF ablation product line, generating most of the related revenue, and are single-use disposables with parallel closing jaws for effective tissue compression and ablation[17] - Multifunctional Pens and Linear Ablation Devices are single-use RF products enabling surgeons to evaluate arrhythmias, perform temporary cardiac pacing, sensing, stimulation, and ablate cardiac tissue[17] Products for open ablation The cryoICE Cryoablation System provides linear ablations in open procedures and offers cryo nerve block for temporary pain relief in cardiothoracic surgery - The cryoICE cryoablation system is used in open ablation procedures for linear ablations, and can be used independently or with Isolator Synergy clamps[17] - The cryoSPHERE system and cryoICE CRYO2 probe are cleared for managing pain by temporarily ablating peripheral nerves (cryo nerve block) in cardiothoracic surgery, offering temporary pain relief for up to 90 days[6][17] Products for minimally invasive ablation The EPi-Sense Guided Coagulation System with VisiTrax technology is AtriCure's primary minimally invasive ablation product, using monopolar energy for tissue coagulation and cardiac signal sensing - The EPi-Sense Guided Coagulation System with VisiTrax technology uses monopolar energy for tissue coagulation and can perform intra-operative cardiac signal sensing[18] - The CONVERGE IDE clinical trial is evaluating the safety and efficacy of the EPi-Sense system for symptomatic persistent and long-standing persistent Afib patients refractory to anti-arrhythmic drugs[18] Products for appendage management AtriCure offers the AtriClip System for mechanical LAA exclusion and the LARIAT System, a suture-based solution, currently studied in the aMAZE trial for combined LAA exclusion and PVI - The AtriClip System is designed to mechanically clamp the LAA from outside the heart, permanently excluding it and electrically isolating it, which is believed to be safer and more effective than other techniques[19][20] - The LARIAT System is a suture-based solution for LAA occlusion, currently being studied in the aMAZE clinical trial for its effectiveness when combined with pulmonary vein isolation for persistent and long-standing persistent Afib[21] Current Afib Treatment Alternatives Afib treatments range from drugs and implantable devices to catheter ablation, with AtriCure's products used in open-heart and minimally invasive 'hybrid' procedures - Initial Afib treatments often involve drugs (anti-arrhythmics, anti-coagulants) to prevent clots, control heart rate, or restore normal rhythm[23][24] - Implantable devices (defibrillators, pacemakers) can reduce Afib symptoms but do not treat the condition itself[24] - Catheter ablation is a minimally invasive procedure performed by electrophysiologists from inside the heart, primarily for paroxysmal Afib[24] - AtriCure's products are used in open-heart surgeries for Afib treatment and in 'hybrid' or 'multi-disciplinary' approaches combining minimally invasive epicardial and endocardial ablations, particularly for non-paroxysmal Afib[24][25][26] Business Strategy AtriCure's strategy focuses on expanding Afib treatment through product innovation, clinical science investment, physician engagement, training, and strategic acquisitions - The core strategy is to expand Afib treatment options and reduce stroke risk through technology development and product offering expansion[27] - Key strategic elements include new product innovation, investment in clinical trials (CONVERGE, aMAZE, ICE-AFIB), building physician and societal relationships, providing training and education, expanding adoption of minimally invasive products, and evaluating acquisition opportunities[27][28][29][30][31][32][33] Clinical Trials AtriCure conducts multiple clinical trials, including CONVERGE, aMAZE, and ICE-AFIB, to validate products and expand regulatory indications for Afib and LAA management - CONVERGE IDE clinical trial (EPi-Sense Guided Coagulation System) for symptomatic persistent and long-standing persistent Afib completed enrollment in August 2018, with the final PMA module submitted in late 2019[33] - aMAZE IDE clinical trial (LARIAT Suture Delivery Device for LAA closure adjunctive to PVI) for persistent and long-standing persistent Afib completed enrollment of 600 patients in December 2019[34] - ICE-AFIB clinical trial (cryoICE system) for persistent and long-standing persistent Afib treatment during concomitant on-pump cardiac surgery began enrollment in February 2019 and is ongoing[35] Sales, Marketing and Medical Education AtriCure's global sales and marketing educate physicians on product benefits, adhering to regulatory approvals, utilizing a direct sales force in the U.S. and key international markets, and providing essential training - Global sales and marketing efforts focus on educating physicians about unique technologies and technical benefits, promoting products only for uses described in their regulatory labeling[41] - The U.S. sales team comprises approximately 160 employees across 53 territories, selected for expertise and knowledge in medical devices and cardiac surgery[42] - International sales are conducted through direct sales personnel in markets like Germany, France, UK, and Benelux, and via independent distributors in Asia, South America, and Canada[43] Competition AtriCure faces intense competition from larger medical device companies but differentiates with its FDA-approved Isolator Synergy System for persistent Afib in concomitant surgical settings - The medical device industry is highly competitive, with most competitors possessing greater financial and human resources and more established distribution channels[44] - Medtronic, plc is a primary competitor in the cardiac surgery market, offering similar products for Afib and related conditions[44] - AtriCure's Isolator Synergy System is the only medical device FDA-approved to treat persistent or long-standing persistent Afib in a concomitant surgical setting, providing a key differentiator[44] Third-Party Reimbursement Third-party reimbursement, including Medicare, is crucial for AtriCure, though concomitant Afib/LAA procedures lack incremental hospital payment and surgical LAA management lacks a specific CPT code - Medicare's coding, coverage, and payment policies are significant due to the large percentage of beneficiaries using AtriCure's products and private insurers often following Medicare guidelines[46] - For concomitant open-heart procedures, Medicare hospital reimbursement is based on the primary structural heart surgery, with no incremental payment for additional Afib or LAA exclusion procedures[47] - Physicians report CPT codes for surgical cardiac ablation, but there are no Category I CPT codes for surgical LAA management, sometimes requiring unlisted codes for reimbursement[48] Government Regulation AtriCure's medical devices face extensive regulation by the FDA and global authorities, requiring compliance with 510(k)/PMA pathways, clinical trials, and strict promotion rules, with increasing stringency from EU MDR - AtriCure's products are medical devices subject to extensive regulation by the FDA in the U.S. and comparable authorities in the EU and worldwide[51] - FDA regulations cover the entire product lifecycle, including design, development, testing, clearance/approval (510(k) or PMA), commercialization, and post-market surveillance[51] - In the EU, medical devices require CE mark based on conformity assessment procedures, with the new Medical Device Regulation (MDR) effective May 26, 2020, imposing stricter controls and clinical data expectations[62][63] US Regulation U.S. medical device regulation by the FDA requires 510(k) clearance or PMA, extensive clinical data, and post-market compliance with QSR, labeling, advertising rules, and anti-kickback/false claims statutes - Most medical devices in the U.S. require either 510(k) clearance (demonstrating substantial equivalence to a predicate device) or Premarket Approval (PMA) (requiring extensive data on safety and effectiveness)[51][52][53] - Clinical trials, often required for PMA and sometimes for 510(k), must comply with FDA regulations, including current good clinical practices and Institutional Review Board (IRB) oversight[54] - Post-market, products are subject to FDA's Quality System Regulation (QSR), labeling, advertising, promotion, and safety monitoring, in addition to federal and state laws like the Anti-Kickback Statute and Federal False Claims Act[56][57][58] Regulation Outside of the United States International medical device sales face diverse and stringent regulations, including the EU's new MDR effective May 26, 2020, which mandates stricter controls and clinical data for CE mark compliance - Sales outside the U.S. are subject to foreign governmental regulations, which vary significantly by country and are generally becoming more stringent[60][61] - In the European Union, medical devices must conform to 'essential requirements' and bear the CE Mark, with conformity assessment procedures varying by device classification[62] - The new EU Medical Device Regulation (MDR), effective May 26, 2020, introduces stricter controls, increased clinical data expectations, and more robust vigilance requirements, impacting continued sales and new product introductions in the EU[62][63] Intellectual Property AtriCure protects its intellectual property through patents, copyrights, trademarks, and trade secrets globally, holding numerous patents and using confidentiality agreements to maintain competitive advantage - AtriCure relies on patent, copyright, trademark, and trade secret laws to protect its intellectual property, which is crucial for continued development and commercialization[64] - The company holds numerous issued U.S. and international patents and has multiple pending applications, also licensing patents and technology as needed[65] - Confidentiality agreements with employees and consultants are used to protect unpatentable proprietary information and trade secrets[66] Manufacturing AtriCure manufactures products in Ohio and California, with third-party sterilization, managing supply chain risks through inventory and supplier audits, and is an FDA-registered, ISO 13485:2016, and MDSAP certified manufacturer - The majority of products are assembled, inspected, tested, and packaged at facilities in Ohio and California, with third parties handling sterilization[67] - Supply chain risks are minimized by maintaining inventory levels and sourcing components, generally from single suppliers with available alternatives[67][68] - AtriCure is an FDA-registered medical device manufacturer, certified to ISO 13485:2016, and has successfully participated in the Medical Device Single Audit Program (MDSAP)[69] Consulting Relationships AtriCure collaborates with global scientists and physicians for R&D, clinical, and training programs, ensuring compliance with 'Safe Harbor' regulations and disclosing U.S. physician payments under 'Open Payments' law - AtriCure collaborates with scientists and physicians worldwide to support research, development, clinical, and training programs[70] - Physician consulting agreements comply with 'Safe Harbor' regulations and industry codes, ensuring fair market value for services without requiring product promotion[71] - Payments to U.S. physicians are disclosed in annual reports to CMS under the federal 'Open Payments' law[71] Employees As of January 31, 2020, AtriCure employed approximately 730 full-time individuals, none unionized, reporting positive employee relations and no work stoppages - As of January 31, 2020, AtriCure had approximately 730 full-time employees[72] - None of the employees were represented by a labor union or covered by a collective bargaining agreement[72] Available Information AtriCure files SEC reports (10-K, 10-Q, 8-K) and provides corporate governance documents on the SEC and company websites - AtriCure is subject to SEC reporting requirements, filing Forms 10-K, 10-Q, and 8-K[73] - Reports and information are available on the SEC's website (http://www.sec.gov) and AtriCure's website (http://www.atricure.com)[73](index=73&type=chunk) ITEM 1A. RISK FACTORS AtriCure faces risks from product reliance, intense competition, economic conditions, healthcare reforms, regulatory compliance, litigation, IP challenges, DOJ investigation, financial losses, and operational dependencies - The company's primary revenue sources are ablation and LAA management products; failure to achieve widespread market acceptance for these products would harm operating results[74][75] - AtriCure operates in a highly competitive medical device industry, facing larger competitors and risks from new product introductions, which could lead to reduced market share and revenue[77][78] - The company is subject to extensive and complex government regulations (FDA, EU MDR, anti-kickback, false claims), with non-compliance potentially leading to significant fines, penalties, injunctions, product recalls, or suspension of operations[51][58][62][126][128][134] - AtriCure has a history of net losses, with an accumulated deficit of $282.2 million as of December 31, 2019, and expects to incur substantial expenditures and potential operating losses in the future[107][108] - The company is currently under investigation by the U.S. Department of Justice regarding potential False Claims Act violations related to off-label promotion of medical devices for Afib treatment, which could result in significant penalties[98][99][100] Risks Relating To Our Business and Industry AtriCure faces business risks from market acceptance, competition, economic downturns, healthcare reforms, regulatory changes, product liability, IP infringement, supply chain disruptions, growth management, personnel retention, acquisitions, and the ongoing DOJ investigation - Market acceptance of AtriCure's products in the U.S. is crucial, depending on demonstrated safety, efficacy, long-term clinical performance, cost-effectiveness, and adequate reimbursement[75] - Competition from drugs, catheter-based ablation, implantable devices, and other surgical treatments may decrease market share and revenue[77] - The company is subject to various federal and state laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA) and foreign regulations, with non-compliance potentially leading to substantial penalties[134] - Delays or failures in clinical trials, or negative data, could hinder product adoption and harm the business[93][94][136] - Reliance on single and limited source third-party suppliers for manufacturing and sterilization creates vulnerability to supply problems and price fluctuations[120][121] - The ongoing U.S. Department of Justice investigation into alleged False Claims Act violations related to off-label promotion could result in enforcement actions, fines, or changes to business practices[98][99][100] - Brexit creates significant uncertainty regarding trade, regulations, and costs in European markets, potentially impacting sales and profitability[157] - An epidemic of the coronavirus disease could delay or interrupt business operations[165] Risks Relating To Our Common Stock AtriCure's common stock faces high volatility from financial results, regulatory changes, and competition; future issuances may dilute ownership, anti-takeover provisions exist, and no dividends are anticipated - The market price of AtriCure's common stock is likely to be volatile due to factors such as financial results, regulatory developments, competition, and market conditions[166] - Issuance of additional common stock to former nContact and SentreHEART stockholders for contingent consideration, or for future capital raising, could dilute existing ownership[170][172] - Anti-takeover provisions in the company's certificate of incorporation and bylaws, and under Delaware law, could delay or prevent a change in control or management[173][175] - AtriCure does not anticipate paying cash dividends in the foreseeable future, meaning stockholders must rely on stock appreciation for returns[176] - Failure to meet publicly announced guidance or expectations could cause a decline in stock price[178][179] ITEM 1B. UNRESOLVED STAFF COMMENTS No unresolved staff comments are reported - No unresolved staff comments to report[396] ITEM 2. PROPERTIES AtriCure's main offices are in Mason, Ohio, with other key leased facilities in Minneapolis, Redwood City, and Amsterdam, deemed adequate for current and future needs - Principal executive offices are in Mason, Ohio, also used for warehousing and distribution (approx. 40,000 sq ft)[183] - Other key leased locations include Minneapolis, Minnesota (administrative and product development, approx. 27,500 sq ft) and Redwood City, California (LARIAT System product development, R&D, manufacturing, approx. 19,500 sq ft)[183] - European subsidiaries' administration is located in Amsterdam, Netherlands[183] ITEM 3. LEGAL PROCEEDINGS AtriCure is not currently involved in material litigation but may encounter legal proceedings in the ordinary course of business, with further details in Note 12 - The Company is not party to any material pending or threatened litigation[184] - The Company may become a party to additional legal proceedings in the ordinary course of business[184] ITEM 4. MINE SAFETY DISCLOSURES This disclosure item is not applicable to AtriCure, Inc PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES AtriCure's common stock (ATRC) trades on NASDAQ, with a closing price of $40.70 on February 20, 2020, and no dividends have been paid - AtriCure's common stock is traded on the NASDAQ Global Market under the symbol "ATRC"[186] - As of February 20, 2020, the closing price was $40.70 per share, with 91 stockholders of record[186] - No dividends have been declared or paid on the common stock[187] Common Stock Market Price AtriCure's common stock (ATRC) is listed on NASDAQ, closing at $40.70 per share on February 20, 2020, with 91 stockholders of record - Common stock trades on NASDAQ Global Market (ATRC)[186] - Closing price on Feb 20, 2020: $40.70 per share[186] - Stockholders of record: 91[186] Performance Graph The performance graph compares AtriCure's cumulative total stockholder return against NASDAQ indices, showing its stock grew to $162.88 by December 31, 2019, with no dividends paid Cumulative Total Stockholder Return (Dec 31, 2014 = $100) | Index | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | |:---|:---|:---|:---|:---|:---| | AtriCure, Inc. | $112.42 | $98.05 | $91.38 | $153.31 | $162.88 | | NASDAQ Composite | $106.96 | $116.45 | $150.96 | $146.67 | $200.49 | | NASDAQ Medical Equipment | $111.06 | $116.87 | $166.41 | $187.88 | $227.84 | - AtriCure's stock performance is historical and not indicative of future price performance[187] - No dividends have been declared or paid on AtriCure's common stock[187] ITEM 6. SELECTED FINANCIAL DATA Selected financial data for the past five years highlights AtriCure's consistent revenue growth, ongoing net losses, and impacts from the SentreHEART acquisition and new accounting standards Selected Financial Data (in thousands, except per share amounts) | Operating Results | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---| | Revenue | $230,807 | $201,630 | $174,716 | $155,109 | $129,755 | | Gross profit | $170,335 | $147,120 | $126,163 | $111,101 | $92,875 | | Gross margin | 73.8% | 73.0% | 72.2% | 71.6% | 71.6% | | Net loss | $(35,194) | $(21,137) | $(26,892) | $(33,338) | $(27,212) | | Basic and diluted net loss per share | $(0.94) | $(0.62) | $(0.83) | $(1.05) | $(0.97) | | Weighted average shares outstanding | 37,589 | 34,087 | 32,387 | 31,609 | 28,058 | | Financial Position | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---| | Cash, cash equivalents and investments | $94,476 | $124,402 | $34,451 | $47,009 | $42,284 | | Working capital | $93,244 | $134,457 | $50,355 | $56,889 | $43,164 | | Total assets | $557,880 | $356,759 | $267,704 | $276,421 | $273,092 | | Long-term debt and leases | $74,204 | $47,743 | $36,861 | $37,205 | $13,710 | | Stockholders' equity | $247,343 | $249,381 | $161,166 | $168,442 | $186,685 | - Acquired SentreHEART for $208.8 million on August 13, 2019, impacting balance sheets from that date and results of operations from August 14, 2019[191] - Adopted FASB ASC 842 (Leases) on January 1, 2019, recording operating right-of-use assets and liabilities[191] - Adopted FASB ASC 606 (Revenue from Contracts with Customers) on January 1, 2018, with no material impact on revenue recognition[191] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes AtriCure's financial condition and operations, detailing 2019 revenue growth, increased operating expenses, net losses, liquidity, capital resources, critical accounting policies, and recent accounting pronouncements - AtriCure is a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management, with products for both open-heart and minimally invasive procedures[194] - In 2019, the company acquired SentreHEART for approximately $40 million upfront, with up to $260 million in contingent consideration, expanding addressable markets and LAA management portfolio[195] - Net loss for fiscal year 2019 was $35.2 million, compared to $21.1 million in 2018, primarily due to increased operating expenses[196] - Liquidity as of December 31, 2019, included $94.5 million in cash, cash equivalents, and investments, with $60 million in outstanding debt and $8.75 million in unused revolving credit facility capacity[206] Overview AtriCure, a market leader in Afib and LAA management, achieved 14.5% revenue growth to $230.8 million in 2019, but net loss increased to $35.2 million due to higher operating expenses - AtriCure is a leading innovator in Afib and LAA management, with the Isolator Synergy System FDA-approved for persistent and long-standing persistent Afib in concomitant procedures[194] - Annual revenues for 2019 reached $230.8 million, a 14.5% increase over the prior year, and over 200,000 AtriClip devices have been sold to date[196] - The acquisition of SentreHEART in August 2019 expanded addressable markets and LAA management portfolio, with aMAZE trial enrollment completed in December 2019[195] - Net loss for fiscal year 2019 was $35.2 million, up from $21.1 million in 2018, primarily due to increased operating expenses from personnel, clinical trials, and product development[196][197] Results of Operations AtriCure's 2019 operations saw 14.5% revenue growth to $230.8 million and improved gross margin, but net loss increased to $35.2 million due to higher R&D and SG&A expenses Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | 2019 Amount | % of Revenue | 2018 Amount | % of Revenue | |:---|:---|:---|:---|:---|\n| Revenue | $230,807 | 100.0% | $201,630 | 100.0% |\n| Cost of revenue | $60,472 | 26.2% | $54,510 | 27.0% |\n| Gross profit | $170,335 | 73.8% | $147,120 | 73.0% |\n| Research and development expenses | $41,230 | 17.9% | $34,723 | 17.2% |\n| Selling, general and administrative expenses | $162,227 | 70.3% | $129,524 | 64.2% |\n| Total operating expenses | $203,457 | 88.2% | $164,247 | 81.5% |\n| Loss from operations | $(33,122) | (14.4)% | $(17,127) | (8.5)% |\n| Net loss | $(35,194) | (15.2)% | $(21,137) | (10.5)% | - Total revenue increased 14.5% (15.2% on a constant currency basis) in 2019, with U.S. revenue up 14.6% and international revenue up 13.9% (17.6% constant currency)[198] - Open ablation sales increased 11.0% ($7,955 thousand), driven by CryoSPHERE launch and cardiac ablation device volume. Appendage management sales increased 28.9% ($15,275 thousand) due to AtriClip Flex·V and LARIAT System growth[198] - Research and development expenses increased $6,507 thousand (18.7%) due to personnel costs ($2,015 thousand), aMAZE clinical trial expenses ($1,059 thousand), and other development costs[201] - Selling, general and administrative expenses increased $32,703 thousand (25.2%) due to higher personnel expense ($14,902 thousand), acquisition-related expenses ($3,978 thousand), and lower contingent consideration liability reduction ($5,909 thousand)[202] Year Ended December 31, 2019 compared to December 31, 2018 In 2019, AtriCure's revenue grew 14.5% to $230.8 million, but net loss widened to $35.2 million due to increased R&D (18.7%) and SG&A (25.2%) expenses, despite lower net interest expense Key Financial Performance (2019 vs. 2018) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change ($) | Change (%) | |:---|:---|:---|:---|:---|\n| Revenue | $230,807 | $201,630 | $29,177 | 14.5% |\n| Gross profit | $170,335 | $147,120 | $23,215 | 15.8% |\n| Gross margin | 73.8% | 73.0% | 0.8% pts | - |\n| Net loss | $(35,194) | $(21,137) | $(14,057) | 66.5% |\n| R&D expenses | $41,230 | $34,723 | $6,507 | 18.7% |\n| SG&A expenses | $162,227 | $129,524 | $32,703 | 25.2% |\n| Net interest expense | $1,713 | $3,601 | $(1,888) | (52.4)% | - U.S. open ablation sales increased by $7,955 thousand (11.0%), driven by the CryoSPHERE device launch and increased cardiac ablation device volumes[198] - Appendage management sales increased by $15,275 thousand (28.9%), attributed to the AtriClip Flex·V LAA Exclusion System and LARIAT System sales[198] - R&D expense increase included $2,015 thousand in personnel costs and $1,059 thousand in clinical trial expenses, primarily for the aMAZE trial[201] - SG&A expense increase included $14,902 thousand in personnel costs, $3,978 thousand in acquisition-related expenses, and a $5,909 thousand lower reduction from contingent consideration liability compared to the prior year[202] Year Ended December 31, 2018 compared to December 31, 2017 Detailed financial comparison for 2018 versus 2017 is available in the company's Form 10-K for the fiscal year ended December 31, 2018 - Comparison of 2018 to 2017 results is available in the annual report on Form 10-K for the fiscal year ended December 31, 2018[205] Liquidity and Capital Resources As of December 31, 2019, AtriCure held $94.5 million in cash and investments, with $60 million debt, and used $15.8 million in operating cash, believing current resources are sufficient for 12 months but future capital needs are uncertain Liquidity and Capital Resources (as of December 31, 2019, in thousands) | Metric | Amount | |:---|:---|\n| Cash, cash equivalents and investments | $94,476 |\n| Outstanding debt | $60,000 |\n| Unused revolving credit facility | $8,750 |\n| Net working capital | $93,244 |\n| Accumulated deficit | $282,197 | - Net cash used in operating activities was $15,811 thousand in 2019, driven by net loss ($35,194 thousand) and changes in operating assets and liabilities, partially offset by non-cash expenses[207] - Net cash used in investing activities was $2,147 thousand in 2019, primarily for the SentreHEART acquisition ($17,240 thousand) and property/equipment purchases ($12,182 thousand), offset by net sales/maturities of available-for-sale securities ($27,236 thousand)[207] - Net cash provided by financing activities was $14,373 thousand in 2019, mainly from debt borrowings ($20,000 thousand) and stock issuances, partially offset by share repurchases for taxes[208] - The company's Loan and Security Agreement with Silicon Valley Bank provides a $60,000 thousand term loan and a $20,000 thousand revolving line of credit, maturing August 1, 2024, with compliance to covenants as of December 31, 2019[209][210] - Future capital requirements are uncertain and depend on market acceptance, R&D, sales expansion, regulatory costs, acquisitions, and intellectual property enforcement[212] Contractual Obligations and Commitments As of December 31, 2019, AtriCure's contractual obligations totaled $86.2 million, including $60.0 million in long-term debt and significant contingent consideration from acquisitions, with nContact's expiring by December 31, 2020 Contractual Obligations and Commitments (as of December 31, 2019, in thousands) | Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |:---|:---|:---|:---|:---|:---|\n| Long-term debt | $60,000 | $0 | $32,195 | $27,805 | $0 |\n| Finance leases | $17,937 | $1,597 | $3,225 | $3,316 | $9,799 |\n| Operating leases | $4,688 | $1,465 | $2,515 | $708 | $0 |\n| Royalty obligations | $2,895 | $2,895 | $0 | $0 | $0 |\n| Restricted grants | $726 | $726 | $0 | $0 | $0 |\n| Total contractual obligations | $86,246 | $6,683 | $37,935 | $31,829 | $9,799 | - Contingent consideration payments related to nContact and SentreHEART acquisitions are payable in common stock and cash, with nContact's expiring December 31, 2020, and SentreHEART's by December 31, 2026[216] Off-Balance-Sheet Arrangements AtriCure has no off-balance-sheet arrangements with a material current or future effect on its financial condition, operations, liquidity, or capital resources - The company has no off-balance-sheet arrangements with a material effect on its financial condition or results[217] Inflation Inflation has not significantly impacted AtriCure's historical operations and is not expected to materially affect future results or financial condition - Inflation has not had a significant impact on historical operations and is not expected to in the foreseeable future[218] Critical Accounting Policies and Estimates AtriCure's financial statements rely on critical accounting policies and estimates, including revenue recognition, inventory valuation, IPR&D, goodwill, share-based compensation, contingent consideration, and income taxes, all requiring significant management judgment - Revenue recognition involves significant judgments on timing of control transfer and estimation of sales returns[221][224][225] - Inventories are stated at the lower of cost or net realizable value, with reserves for excess, expired, and obsolete inventory impacted by product development and regulatory approvals[227] - IPR&D (In Process Research and Development) is an indefinite-lived intangible asset, valued based on technological feasibility (regulatory approvals) and tested for impairment annually[229] - Acquisition-related contingent consideration liabilities are measured at fair value using unobservable inputs and the probability-weighted scenario method, with key assumptions including probability and timing of milestone achievement[235] - Income taxes involve deferred tax assets and liabilities, with a full valuation allowance recorded against substantially all net deferred tax assets due to uncertainty of realization[236][237] Recent Accounting Pronouncements AtriCure has adopted or will adopt several new accounting standards, including ASU 2016-13 (Credit Losses) and ASU 2017-04 (Goodwill Impairment) in 2020, with no material financial statement impact expected - ASU 2016-13 (Credit Losses) is effective in 2020, expected to increase disclosures but not materially impact financial statements[297] - ASU 2017-04 (Goodwill Impairment) is effective in 2020, simplifying impairment measurement with no expected material impact[298] - ASU 2018-13 (Fair Value Measurement Disclosures) was early adopted as of December 31, 2019[299] - ASU 2018-15 (Cloud Computing Implementation Costs) was adopted prospectively in 2019, deferring eligible costs[300] - ASU 2019-12 (Income Taxes) was early adopted in 2019 with no impact on prior periods[301] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AtriCure faces market risks from foreign exchange fluctuations (Euro, British Pound) and variable interest rates, with unhedged currency exposure and credit risk from cash balances exceeding FDIC limits - AtriCure is exposed to market risks from foreign exchange fluctuations (primarily Euro and British Pound) and changes in interest rates[241][242] - Products sold by AtriCure Europe, B.V. accounted for 11.7% of total revenue in 2019, exposing the company to exchange rate volatility[242] - The company does not currently hedge its exposure to foreign currency fluctuations[242] - Interest on the term loan and revolving credit facility accrues at a variable rate based on the Prime Rate[241] - Cash and cash equivalents balances exceeding FDIC insured limits ($28,096 thousand as of December 31, 2019) expose the company to credit risk[244] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section provides AtriCure's audited consolidated financial statements for 2017-2019, including the independent auditor's report and critical audit matters regarding contingent consideration and IPR&D valuation from the SentreHEART merger - Includes audited consolidated financial statements: Balance Sheets, Statements of Operations and Comprehensive Loss