AtriCure(ATRC) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (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 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 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 - 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] Condensed Consolidated Statements of Cash Flows 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 - 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] - 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] - 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] 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 Management discusses Q2 revenue growth, gross margin improvement, increased operating expenses, strong liquidity, and the aMAZE trial's primary endpoint failure 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] - 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] Recent Developments - 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] - Strategic initiatives continue despite the pandemic, focusing on product innovation (ENCOMPASS clamp 510(k) clearance), clinical science (EPi-Sense PMA approval), and training[104][106] - 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] Results of Operations - 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] - 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] - 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] - 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] Liquidity and Capital Resources - 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] - 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][120] - 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] - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - 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] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] - 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] Item 1A. Risk Factors 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][138] - 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][140] - 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][147] Item 6. Exhibits 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] Signatures