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AtriCure, Inc. - Quarter Report: 2021 September (Form 10-Q)

Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________________________________
FORM 10-Q
_____________________________________________
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to_____________
Commission File Number 000-51470
_____________________________________________
AtriCure, Inc.
(Exact name of Registrant as specified in its charter)
_____________________________________________
Delaware34-1940305
(State or other jurisdiction of
incorporation)
(IRS Employer
Identification No.)
7555 Innovation Way
Mason, OH 45040
(Address of principal executive offices)
(513) 755-4100
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
_____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.001 par valueATRCNASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerxAccelerated Filer¨Emerging growth company¨
Non-Accelerated Filer¨Smaller reporting company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES ¨ NO x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at November 1, 2021
Common Stock, $.001 par value
45,931,819

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Item 5.

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ATRICURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
(Unaudited)
 September 30,
2021		December 31,
2020
Assets
Current assets:
Cash and cash equivalents $39,886$41,944
Short-term investments 79,860202,274
Accounts receivable, less allowance for credit losses of $1,161 and $1,096
33,49823,146
Inventories 38,58735,026
Prepaid and other current assets 3,8764,347
Total current assets 195,707306,737
Property and equipment, net 29,90128,290
Operating lease right-of-use assets2,4651,914
Long-term investments105,09714,178
Intangible assets, net 43,963128,199
Goodwill 234,781234,781
Other noncurrent assets 1,055440
Total Assets $612,969$714,539
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $17,527$12,736
Accrued liabilities 31,84627,984
Other current liabilities and current maturities of debt and leases4,5818,417
Total current liabilities 53,95449,137
Long-term debt56,35453,435
Finance lease liabilities10,31710,969
Operating lease liabilities1,5931,180
Contingent consideration and other noncurrent liabilities 2,282187,424
Total Liabilities 124,500302,145
Commitments and contingencies (Note 7)
Stockholders’ Equity:
Common stock, $0.001 par value, 90,000 shares authorized and 45,933 and 45,346 issued and outstanding
4645
Additional paid-in capital 755,048742,389
Accumulated other comprehensive (loss) income(213)312
Accumulated deficit (266,412)(330,352)
Total Stockholders’ Equity 488,469412,394
Total Liabilities and Stockholders’ Equity $612,969$714,539
See accompanying notes to condensed consolidated financial statements.
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ATRICURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Revenue $70,460 $54,757 201,111 $148,806 
Cost of revenue 18,234 $14,423 50,267 41,934 
Gross profit 52,226 $40,334 150,844 106,872 
Operating (benefit) expenses:
Research and development expenses 11,284 10,576 34,698 32,199 
Selling, general and administrative expenses49,873 33,557 150,939 106,257 
Change in fair value of contingent consideration (Note 2)(189,900)192 (184,800)(4,854)
Intangible asset impairment (Note 3)82,300 —82,300 —
Total operating (benefit) expenses (46,443)44,325 83,137 133,602 
Income (loss) from operations 98,669 (3,991)67,707 (26,730)
Other income (expense):
Interest expense (1,449)(1,232)(3,835)(3,691)
Interest income 117 246 354 914 
Other (191)24 (151)(70)
Income (loss) before income tax expense 97,146 (4,953)64,075 (29,577)
Income tax expense (benefit)38 (4)135 16 
Net income (loss) $97,108 $(4,949)$63,940 $(29,593)
Net income (loss) per share
Basic net income (loss) per share$2.15 $(0.11)$1.42 $(0.71)
Diluted net income (loss) per share$2.11 $(0.11)$1.39 $(0.71)
Weighted average shares outstanding
Basic45,258 44,012 44,977 41,442
Diluted46,100 44,012 45,996 41,442
Comprehensive income (loss):
Unrealized (loss) gain on investments$(14)$(85)$(177)$26 
Foreign currency translation adjustment (112)238 (348)189 
Other comprehensive (loss) income(126)153 (525)215 
Net income (loss) 97,108 (4,949)63,940 (29,593)
Comprehensive income (loss), net of tax$96,982 $(4,796)$63,415 $(29,378)
See accompanying notes to condensed consolidated financial statements.
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ATRICURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands)
(Unaudited)
Three-Month Period Ended September 30, 2020
Common Stock
 
Additional
Paid-in
Capital
 Accumulated
Deficit 		 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
Shares
 
Amount
    
Balance—June 30, 202044,939 $45 $723,754 $(306,841)$(96)$416,862 
Impact of equity compensation plans82 — 5,466 — — 5,466 
Other comprehensive income— — — — 153 153 
Net loss — — — (4,949)— (4,949)
Balance—September 30, 2020
45,021 $45 $729,220 $(311,790)$57 $417,532 
 Three-Month Period Ended September 30, 2021
 
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
 
Shares
Amount
Balance—June 30, 202145,881 $46 $748,644 $(363,520)$(87)$385,083 
Impact of equity compensation plans52 — 6,404 — — 6,404 
Other comprehensive loss— — — — (126)(126)
Net income — — — 97,108 — 97,108 
Balance—September 30, 2021
45,933 $46 $755,048 $(266,412)$(213)$488,469 
 Nine-Month Period Ended September 30, 2020
 
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
 
Shares
Amount
Balance—December 31, 2019
39,655 $40 $529,658 $(282,197)$(158)$247,343 
Issuance of common stock through public offering4,574 5 188,953 — — 188,958 
Impact of equity compensation plans792 — 10,609 — — 10,609 
Other comprehensive income— — — — 215 215 
Net loss — — — (29,593)— (29,593)
Balance—September 30, 2020
45,021 $45 $729,220 $(311,790)$57 $417,532 
 
 Nine-Month Period Ended September 30, 2021
 
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
 
Shares
Amount
Balance—December 31, 2020
45,346 $45 $742,389 $(330,352)$312 $412,394 
Impact of equity compensation plans587 1 12,659 — — 12,660 
Other comprehensive loss— — — — (525)(525)
Net income — — — 63,940 — 63,940 
Balance—September 30, 2021
45,933 $46 $755,048 $(266,412)$(213)$488,469 
See accompanying notes to condensed consolidated financial statements.
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ATRICURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
20212020
Cash flows from operating activities:  
Net income (loss) $63,940 $(29,593)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Share-based compensation expense 20,53916,126
Depreciation 5,6725,937
Amortization of intangible assets 1,9361,444
Amortization of deferred financing costs 628423
Loss on disposal of property and equipment 6893
Amortization of investments 1,847628
Change in fair value of contingent consideration (184,800)(4,854)
Intangible asset impairment82,300—
Other non-cash adjustments to income896871
Changes in operating assets and liabilities:
Accounts receivable (10,583)2,675
Inventories (3,809)(4,746)
Other current assets 436 481 
Accounts payable 4,527(515)
Accrued liabilities 3,987(13,688)
Other noncurrent assets and liabilities (1,665)895
Net cash used in operating activities (14,081)(23,823)
Cash flows from investing activities:
Purchases of available-for-sale securities (160,577)(200,795)
Sales and maturities of available-for-sale securities 190,04749,984
Purchases of property and equipment (7,043)(4,207)
Proceeds from capital grant—800
Net cash provided by (used in) investing activities 22,427(154,218)
Cash flows from financing activities:
    Proceeds from sale of stock, net of offering costs of $0 and $218
—188,958
Payments on debt and leases (2,269)(468)
Payments of debt fees —(34)
Proceeds from stock option exercises and employee stock purchase plan10,0207,412
Shares repurchased for payment of taxes on stock awards (17,900)(12,929)
Net cash (used in) provided by financing activities (10,149)182,939
Effect of exchange rate changes on cash and cash equivalents (255)— 
Net (decrease) increase in cash and cash equivalents (2,058)4,898
Cash and cash equivalents—beginning of period 41,94428,483
Cash and cash equivalents—end of period $39,886$33,381
Supplemental cash flow information:
Cash paid for interest $3,225$3,286
Cash paid for income taxes, net of refunds 153206
Non-cash investing and financing activities:
Accrued purchases of property and equipment 60688
See accompanying notes to condensed consolidated financial statements.
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)

1.DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business—The “Company” or “AtriCure” consists of AtriCure, Inc. and its wholly-owned subsidiaries. The Company is a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management and sells its products to medical centers globally through its direct sales force and distributors.
Basis of Presentation—The accompanying interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The accompanying interim financial statements are unaudited, but in the opinion of the Company’s management, contain all normal, recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America (GAAP) applicable to interim periods. Certain information and footnote disclosures included in annual financial statements prepared in accordance with GAAP have been omitted or condensed. The Company believes the disclosures herein are adequate to make the information presented not misleading. Results of operations are not necessarily indicative of the results expected for the full year or for any future period.
The accompanying interim financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassification—In the quarter ended September 30, 2021, the Company changed the presentation of its condensed consolidated statement of operations and comprehensive income (loss) to separately disclose the change in contingent consideration, previously reported in selling, general and administrative expenses. Amounts for comparative prior fiscal periods have been reclassified to conform to the current period presentation. This reclassification had no impact on previously reported net income or financial position.
Cash and Cash Equivalents—The Company considers highly liquid investments with maturities of three months or less at the date of purchase as cash equivalents. Cash equivalents include demand deposits, money market funds and repurchase agreements on deposit with financial institutions.
Investments—The Company invests primarily in government and agency obligations, corporate bonds, commercial paper and asset-backed securities and classifies all investments as available-for-sale. Investments maturing in less than one year are classified as short-term investments. Investments are recorded at fair value, with unrealized gains and losses recorded as accumulated other comprehensive income (loss). Gains and losses are recognized using the specific identification method when securities are sold and are included in interest income.
Revenue Recognition—The Company recognizes revenue when control of promised goods is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. This generally occurs upon shipment of goods to customers. See Note 8 for further discussion on revenue.
Sales Returns and Allowances—The Company maintains a provision for potential returns of defective or damaged products and invoice adjustments. The Company adjusts the provision using the expected value method based on historical experience. Increases to the provision reduce revenue, and the provision is included in accrued liabilities.
Allowance for Credit Losses on Accounts Receivable—The Company evaluates the expected credit losses on accounts receivable, considering historical credit losses, current customer-specific information and other relevant factors when determining the allowance. An increase to the allowance for credit losses results in a corresponding increase in selling, general and administrative expenses. The Company charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs has not been significant.
Inventories—Inventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method (FIFO) and consist of raw materials, work in process and finished goods. The Company’s industry is characterized by rapid product development and frequent new product introductions. Uncertain timing of regulatory approvals, variability in product launch strategies and variation in product use all impact inventory reserves for excess, obsolete and expired products. An increase to inventory reserves results in a corresponding increase in cost of revenue. Inventories are written off against the reserve when they are physically disposed.
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Inventories consist of the following:
September 30,
2021		 December 31,
2020
Raw materials $13,053$11,966
Work in process 3,3572,424
Finished goods 22,17720,636
Inventories $38,587$35,026
Property and Equipment—Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of assets. The estimated useful life by major asset category is the following:
Estimated Useful Life
Generators and related equipment
1 - 3 years
Building and building under finance lease
15 - 20 years
Computers, software and office equipment
3 - 5 years
Machinery and equipment
3 - 7 years
Furniture and fixtures
3 - 7 years
Leasehold improvements
5 - 15 years
Equipment under finance leases
3 - 5 years
The Company assesses the useful lives of property and equipment at least annually and retires assets no longer in use. Maintenance and repair costs are expensed as incurred. The Company reviews property and equipment for impairment at least annually using its best estimates based on reasonable and supportable assumptions and expected future cash flows. Property and equipment impairments have not been significant.
The Company’s radiofrequency (RF) and cryo generators are generally placed with customers that use the Company’s disposable products. The estimated useful lives of generators are based on anticipated usage by customers and may change in future periods with changes in usage or introduction of new technology. Depreciation of generators and related equipment, which is included in cost of revenue, was $532 and $613 for the three months ended September 30, 2021 and 2020 and $1,735 and $1,898 for the nine months ended September 30, 2021 and 2020. As of September 30, 2021 and December 31, 2020, the net carrying value of generators and related equipment included in net property and equipment was $3,609 and $3,410.
Leases— The Company leases office, manufacturing and warehouse facilities and computer equipment under leases that qualify as either financing or operating leases, as determined at the inception of the lease arrangement. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease assets and liabilities are measured and recorded at the commencement date based on the present value of lease payments over the lease term.
Lease assets and liabilities exclude lease incentives and include options to extend or terminate when it is reasonably certain the Company will exercise that option. The Company uses the implicit rate when readily determinable; however, as most leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at measurement. The Company also applies the short-term lease recognition exemption, recognizing lease payments in profit or loss, for leases that have a lease term of 12 months or less at commencement and do not include an option to extend the lease whose exercise is reasonably certain. For real estate and equipment leases, the Company accounts for the lease and non-lease components as a single lease component. Additionally, the portfolio approach is applied for the operating leases based on the terms of the underlying leases.
Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities, while finance leases are included in property and equipment and finance lease liabilities. The short-term portions of both lease liabilities are included in other current liabilities and current maturities of debt and leases. Operating lease expense is recognized on a straight-line basis over the lease term. See Note 6 for further discussion.
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Intangible Assets—Intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated periods benefited. Intangible assets include In Process Research and Development (IPR&D), representing the value of technology acquired in business combinations that has not yet reached technological feasibility. The primary basis for determining technological feasibility is obtaining specific regulatory approvals. IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonment of the IPR&D project. Upon completion of the development project, IPR&D will be amortized over its estimated useful life. Due to the nature of IPR&D projects, the Company may experience future delays or failures to obtain regulatory approvals or market clearances, or may discontinue or abandon the project, all which may impact the estimated fair value of the IPR&D project. As a result, the Company may have a full or partial impairment charge related to the IPR&D, calculated as the excess carrying value of the IPR&D asset over the estimated fair value.
The Company reviews intangible assets at least annually for impairment using its best estimates based on reasonable and supportable assumptions and projections. The Company performs impairment testing annually on October 1 or more often if impairment indicators are present.
Through April 2021, the IPR&D asset included an estimate of the fair value of the pre-market approval (PMA) that could result from the CONVERGE IDE and aMAZE™ IDE clinical trials. The Company received PMA approval for CONVERGE on April 28, 2021 and began amortizing the $44,021 technology asset over an estimated fifteen year life. During the third quarter 2021, the Company identified indicators of impairment for the IPR&D asset that represents an estimate of the fair value of the PMA that could result from the aMAZE clinical trial. As a result of the analysis performed, the Company recorded an impairment loss of $82,300. See Note 3 for further discussion.
Goodwill—Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. The Company’s goodwill is accounted for in a single reporting unit representing the Company as a whole. The Company performs impairment testing annually on October 1 or more often if impairment indicators are present.
Contingent Consideration and Other Noncurrent Liabilities—This balance consists of contingent consideration from business combinations, as well as deferred payroll taxes as a result of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), asset retirement obligations and other contractual obligations. The contingent consideration balance is included in noncurrent liabilities as any settlement is expected to be made primarily in shares of the Company’s common stock pursuant to the SentreHEART, Inc. (SentreHEART) merger agreement. See Note 2 for further discussion.
Other Income (Expense)—Other income (expense) consists primarily of foreign currency transaction gains and losses generated by settlements of intercompany balances denominated in Euros and customer invoices transacted in British Pounds.
Taxes—Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities from a change in tax rates is recognized in the period that includes the enactment date.
The Company’s estimate of the valuation allowance for deferred income tax assets requires significant estimates and judgments about future operating results. Deferred income tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that the deferred income tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. The Company evaluates deferred income tax assets on an annual basis to determine if valuation allowances are required. Deferred income tax assets are realized by having sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable. The sources of taxable income that may be available to realize the benefit of deferred income tax assets are future taxable income, future reversals of existing taxable temporary differences, carryforwards and tax planning strategies that are both prudent and feasible. In evaluating the need for a valuation allowance, the existence of cumulative losses in recent years is significant objectively verifiable negative evidence that must be overcome by objectively verifiable positive evidence to avoid the need for a valuation allowance. 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 of the deferred income tax assets will not be recognized in future periods. The Company has not reclassified income tax effects of the Tax Cuts and Jobs Act within accumulated other comprehensive income (loss) to retained earnings due to its full valuation allowance.
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Earnings Per Share—Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflects net income available to common stockholders divided by the weighted average number of common shares outstanding during the period and any dilutive common share equivalents, including shares issuable upon the vesting of restricted stock awards and restricted stock units, exercise of stock options as well as shares issuable under the Company's employee stock purchase plan (ESPP).
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Net income (loss) available to common stockholders$97,108 $(4,949)$63,940 $(29,593)
Basic weighted average common shares outstanding45,25844,01244,977 41,442 
Effect of dilutive securities842—1,019 — 
Diluted weighted average common shares outstanding46,10044,01245,996 41,442 
Basic net income (loss) per common share$2.15 $(0.11)$1.42 $(0.71)
Diluted net income (loss) per common share$2.11 $(0.11)$1.39 $(0.71)
For the three and nine months ended September 30, 2020, net loss per share excludes the effect of 2,687 shares because the effect would be anti-dilutive. The computation of diluted earnings per share in the three and nine month periods ended September 30, 2021 excludes 491 and 582 shares because the effect would be anti-dilutive.
Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)—In addition to net income (loss), the comprehensive income (loss) includes foreign currency translation adjustments and unrealized gains (losses) on investments.
Accumulated other comprehensive income (loss) consisted of the following, net of tax:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Total accumulated other comprehensive income (loss) at beginning of period$(87)$(96)$312$(158)
Unrealized Gains (Losses) on Investments
Balance at beginning of period$(109)$211$54$100
Other comprehensive (loss) income before reclassifications(14)(85)(177)7
Amounts reclassified from accumulated other comprehensive income (loss) to other income (expense)— ——19
Balance at end of period$(123)$126$(123)$126
Foreign Currency Translation Adjustment
Balance at beginning of period$22 $(307)$258$(258)
Other comprehensive (loss) income before reclassifications(293)290(555)177 
Amounts reclassified from accumulated other comprehensive income (loss) to other income (expense)181(52)20712
Balance at end of period$(90)$(69)$(90)$(69)
Total accumulated other comprehensive income (loss) at end of period$(213)$57 $(213)$57 
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Research and Development Costs—Research and development costs are expensed as incurred. These costs include compensation and other internal and external costs associated with the development and research of new and existing products or concepts, preclinical studies, clinical trials and related regulatory activities, as well as amortization of technology assets.
Advertising Costs—The Company expenses advertising costs as incurred. Advertising costs were not significant during the three and nine months ended September 30, 2021 and 2020.
Share-Based Compensation—The Company records share-based compensation for all share-based payment awards, including stock options, restricted stock awards, restricted stock units, performance shares (PSAs) and stock purchases related to an employee stock purchase plan, based on estimated fair values. The value of the portion of an award that is ultimately expected to vest, net of estimated forfeitures, is recognized as expense over the service period. The Company estimates forfeitures at the time of grant and revises them, as necessary, in subsequent periods as actual forfeitures differ from those estimates. The Company recognized share-based compensation expense of $6,794 and $5,549 for the three months ended September 30, 2021 and 2020 and $20,539 and $16,126 for the nine months ended September 30, 2021 and 2020.
The Company estimates the fair value of time-based options on the date of grant using the Black-Scholes option-pricing model (Black-Scholes model). The Company’s determination of the fair value is affected by the Company’s stock price as well as several subjective assumptions, such as the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. The Company estimates the fair value of restricted stock awards and restricted stock units based upon the grant date closing market price of the Company’s common stock.
The Company estimates the fair value of PSAs with a performance condition based on the closing stock price on the date of grant assuming the performance goal will be achieved and may adjust expense over the performance period based on changes to estimates of performance target achievement. If such goals are not met or service is not rendered for the requisite service period, no compensation cost is recognized, and any recognized compensation cost will be reversed. For PSAs with a market condition, a Monte Carlo simulation is performed to estimate the fair value on the date of grant, and compensation cost is recognized over the requisite service period as the employee renders service, even if the market condition is not satisfied. The Company’s determination of the fair value is affected by the Company and the peer group’s stock price, as defined by the award agreement, at the beginning of the service period and grant date, the expected volatility of the Company and peer group’s stock price over the performance period and the correlation coefficient of the daily returns for the Company and peer group over the performance period.
The Company also has an employee stock purchase plan (ESPP) which is available to all eligible employees as defined by the plan document. Under the ESPP, shares of the Company’s common stock may be purchased at a discount. The Company estimates the number of shares to be purchased under the ESPP at the beginning of each purchase period based upon the fair value of the stock at the beginning of the purchase period using the Black-Scholes model and records estimated compensation expense during the purchase period. Expense is adjusted at the time of stock purchase.
Use of Estimates—The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Estimates are based on historical experience, where applicable, and other assumptions believed to be reasonable by management. Actual results could differ from those estimates.
2.FAIR VALUE
The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 820, “Fair Value Measurements and Disclosures” (ASC 820), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company classifies cash and investments in government and agency obligations, accounts receivable, short-term other assets, accounts payable and accrued liabilities as Level 1 within the fair value hierarchy. The carrying amounts of these assets and liabilities approximate their fair value due to their relatively short-term nature. Cash equivalents and investments in corporate bonds, commercial paper and asset-backed securities are classified as Level 2 within the fair value hierarchy. The fair value of fixed term debt is estimated by calculating the net present value of future debt payments at current market interest rates and is classified as Level 2. The book value of the Company’s fixed term debt approximates its fair value because the interest rate varies with market rates.
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant Other
Unobservable
Inputs (Level 3)		Total
Assets:
Money market funds $—$36,262$—$36,262
Commercial paper —28,968—28,968
Government and agency obligations27,936——27,936
Corporate bonds —98,505—98,505
Asset-backed securities—29,548—29,548
Total assets $27,936$193,283$—$221,219
Liabilities:
Contingent consideration$—$—$—$—
Total liabilities$—$—$—$—
There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three and nine months ended September 30, 2021.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2020:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant Other
Unobservable
Inputs (Level 3)		Total
Assets:
Money market funds $—$38,452$—$38,452
Commercial paper —76,914—76,914
Government and agency obligations45,399——45,399
Corporate bonds —73,730—73,730
Asset-backed securities—20,409—20,409
Total assets $45,399$209,505$—$254,904
Liabilities:
Contingent consideration $—$—$184,800184,800
Total liabilities $—$—$184,800$184,800
Contingent Consideration. The Company’s contingent consideration arrangements arising from the SentreHEART acquisition obligate the Company to pay certain defined amounts to former shareholders of SentreHEART if specified milestones are met related to the aMAZE IDE clinical trial, including PMA approval and reimbursement for the therapy involving SentreHEART’s devices. As of December 31, 2020, the terms of the contingent consideration arrangements under the nContact merger agreement expired.
The Company measures contingent consideration liabilities using unobservable inputs by applying the probability-weighted scenario method, an income approach. Various key assumptions, such as the probability and timing of achievement of the agreed milestones, are significant to the determination of fair value of contingent consideration arrangements and are not observable in the market, thus representing a Level 3 measurement within the fair value hierarchy. Contingent consideration liabilities are periodically measured, with changes in the estimated fair value reflected in operating expenses. Changes in the discount rate, projected time until payment and probability of payment may result in materially different fair value measurements. A decrease in the discount rate would result in a higher fair value measurement, while a decrease in the probability of payment would result in a lower fair value measurement. Movement in the forecasted timing of achievement to later in the milestone periods would cause a decrease in the fair value measurement.
In July 2021, the Company was informed that data from the aMAZE clinical trial did not achieve statistical superiority. Specifically, while the trial met the safety endpoint, the trial did not meet the primary efficacy endpoint. As the contingent consideration arrangements were success-based milestone payments, the fair value of the SentreHEART contingent consideration was remeasured as of September 30, 2021 resulting in a decrease in fair value due to changes in estimates related to both the forecasted timing and probability of achievement of the regulatory and reimbursement milestones. Specifically, the Company assessed the projected probability of payment during the contractual achievement periods to be remote as of September 30, 2021, resulting in no remaining fair value. Accordingly, the Company recorded a credit to operating expenses of $189,900 in the third quarter 2021, reflecting the change in fair value of the contingent consideration during the three months ended September 30, 2021.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration:
Nine Months Ended
September 30, 2021
Twelve Months Ended
December 31, 2020
Beginning Balance$184,800$185,157
Amounts acquired——
Changes in fair value included in earnings (184,800)(357)
Ending Balance$—$184,800
3.INTANGIBLE ASSETS
The following table provides a summary of the Company’s intangible assets:
  September 30, 2021 December 31, 2020
Estimated Useful LifeCost Accumulated
Amortization		CostAccumulated
Amortization
Technology
5 - 15 years
$55,712$11,749$11,691$9,813
IPR&D——126,321—
Total $55,712$11,749$138,012$9,813
Following PMA approval of the EPi-Sense® System in the second quarter 2021, the related IPR&D asset with a value of $44,021 was determined to have a finite useful life. The intangible asset is now included in technology assets and is amortized over an estimated fifteen year life.
As a result of data from the aMAZE clinical trial not achieving statistical superiority, the Company identified indicators of impairment for the IPR&D asset that represents an estimate of the fair value of the PMA that could result from the aMAZE clinical trial. During the third quarter 2021, an impairment test was performed using estimates based on reasonable and supportable assumptions and projections of expected future cash flows, and the Company recorded an impairment charge of $82,300, reducing the carrying value of the aMAZE IPR&D asset to $0 at September 30, 2021. This impairment charge is reflected as a component of operating expenses.
Amortization expense of intangible assets with definite lives, which excludes IPR&D assets, was $971 and $467 for the three months ended September 30, 2021 and 2020 and $1,936 and $1,444 for the nine months ended September 30, 2021 and 2020.
Future amortization expense is projected as follows:
2021 (excluding the nine months ended September 30, 2021)
$972
20223,653
20232,953
20242,953
20252,953
2026 and thereafter
30,479
Total $43,963
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
4.ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
 September 30,
2021		 December 31,
2020
Accrued compensation and employee-related expenses$26,670$17,730
Sales returns and allowances2,6111,889
Accrued taxes and value-added taxes payable1,4871,256
Accrued royalties 783703
Other accrued liabilities 285406
Accrued legal settlement106,000
Total $31,846$27,984
5.INDEBTEDNESS
Credit Facility. The Company has a Loan and Security Agreement (Loan Agreement) with Silicon Valley Bank (SVB), which includes a $60,000 term loan and a $20,000 revolving line of credit. The total combined term loan and revolving line of credit outstanding under the Loan Agreement cannot exceed $70,000 at any time prior to SVB’s consent. The term loan and revolving credit facility both mature or expire, as applicable, on August 1, 2024. On February 8, 2021, the Company and SVB entered into an amendment to the Loan Agreement which modified the covenant reporting requirements and allowed the Company to defer the term loan principal payments until September 2021. The amendment was treated as a debt modification.
Term loan principal payments commenced September 1, 2021. The term loan accrues interest at the greater of the Prime Rate or 5.00%, plus 0.75% and is subject to an additional 3.00% fee on the $60,000 term loan principal payable at maturity or upon acceleration or prepayment of the term loan. The Company is accruing the 3.00% fee over the term of the Loan Agreement, with $1,020 accrued in the current portion of the outstanding loan balance as of September 30, 2021. Additionally, the unamortized original financing costs related to the term loan of $313 are netted against the outstanding loan balance in the Condensed Consolidated Balance Sheets and are amortized ratably over the term of the Loan Agreement.
The revolving line of credit is subject to an annual facility fee of 0.15% of the revolving line of credit, and any borrowings thereunder bear interest at the greater of the Prime Rate or 5.00%. Borrowing availability under the revolving credit facility is based on the lesser of $20,000 or a borrowing base calculation as defined by the Loan Agreement. As of September 30, 2021, the Company had no borrowings under the revolving credit facility and had borrowing availability of approximately $10,000. Financing costs related to the revolving line of credit are included in other assets in the Condensed Consolidated Balance Sheets and amortized ratably over the twelve-month period of the annual fee.
The Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes a minimum liquidity covenant and dividend restrictions, along with other customary terms and conditions. Specified assets have been pledged as collateral.
Effective November 1, 2021, the Company and SVB entered into the Sixth Amendment to the Loan and Security Agreement (Amended Loan and Security Agreement). The agreement provides for a $60,000 term loan, with an option to make available an additional $30,000 in term loan borrowings, and a $30,000 revolving line of credit. The Amended Loan and Security Agreement has a five year term, expiring November 2026. Principal payments are to be made ratably commencing 24 months after the inception of the loan through the loan's maturity date. At the option of the Company, the commencement of term loan principal payments may be extended an additional twelve months. The term loan accrues interest at the Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. The revolving line of credit is subject to an annual facility fee of 0.20%, and any borrowings bear interest at the floating Prime Rate. The Amended Loan and Security Agreement also provides for certain prepayment and early termination fees, as well as establishes a liquidity covenant, along with other customary terms and conditions similar to those in the Company's current agreement with SVB. This refinancing has been treated as a debt modification, with the $1,667 principal repayment made in October 2021 classified as current, while the remaining borrowings of $56,666 have been classified as long-term in the Condensed Consolidated Balance Sheet as of September 30, 2021.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Future maturities of long-term debt, excluding the term loan final fee, and after consideration of the refinancing transaction in November 2021, are projected as follows:
2021 (excluding the nine months ended September 30, 2021)
$—
2022—
20233,333
202420,000
202520,000
202616,667
Total long-term debt$60,000
6.LEASES
The Company has operating and finance leases for offices, manufacturing and warehouse facilities and computer equipment. The Company’s leases have remaining lease terms of one year to ten years. Options to renew or extend leases beyond their initial term have been excluded from measurement of the ROU assets and lease liabilities for the majority of leases as exercise is not reasonably certain.
The weighted average remaining lease term and the discount rate for the reporting periods are as follows:
September 30, 2021December 31, 2020
Operating Leases
Weighted average remaining lease term (years)3.33.2
Weighted average discount rate5.60%5.68%
Finance leases
Weighted average remaining lease term (years)8.99.7
Weighted average discount rate6.91%6.91%
A letter of credit for $1,250 was issued to the lessor of the Company's corporate headquarters building in October 2015, which is renewed annually and remains outstanding as of September 30, 2021.
The components of lease expense are as follows:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
Operating lease cost$234$293$715$986
 
Finance lease cost:
Amortization of right-of-use assets267260765786
Interest on lease liabilities196209599638
Total finance lease cost$463$469$1,364$1,424
Short term lease expense was not significant for the three and nine months ended September 30, 2021 and 2020.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Supplemental cash flow information related to leases was as follows:
Nine Months Ended
September 30, 2021		Nine Months Ended
September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$748$944
Operating cash flows from finance leases597638
Financing cash flows from finance leases599468
Right-of-use assets obtained in exchange for lease obligations:
Operating Leases1,2211,691
Finance Leases——
Early termination of operating lease—2,473
Supplemental balance sheet information related to leases was as follows:
September 30, 2021December 31, 2020
Operating Leases
Operating lease right-of-use assets$2,465$1,914
Other current liabilities and current maturities of debt and leases1,020927
Operating lease liabilities1,5931,180
Total operating lease liabilities$2,613$2,107
Finance Leases
Property and equipment, at cost$14,607$14,659
Accumulated depreciation(5,862)(5,247)
Property and equipment, net $8,745$9,412
Other current liabilities and current maturities of debt and leases$874$823
Finance lease liabilities10,31710,969
Total finance lease liabilities$11,191$11,792
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Maturities of lease liabilities as of September 30, 2021 were as follows:
Operating LeasesFinance Leases
2021 (excluding the nine months ended September 30, 2021)
$252$406
20229671,629
20236821,652
20246091,674
20253481,625
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
Royalty Agreements. The Company has royalty agreements in place with terms that include payment of royalties of 3% to 5% of specified product sales. One royalty agreement remains in effect through 2025, while the other agreement remains in effect until the later of 2023 or expiration of the underlying patents or patent applications. Parties to the royalty agreements have the right at any time to terminate the agreement immediately for cause. Royalty expense of $792 and $699 was recorded for the three months ended September 30, 2021 and 2020 and $2,356 and $1,880 for the nine months ended September 30, 2021 and 2020.
Purchase Agreements. The Company enters into standard purchase agreements with vendors in the ordinary course of business, generally with terms that allow cancellation. The Company is committed to funding renovation of a recently purchased building for additional manufacturing capacity. The Company estimates the cost of the construction project to be approximately $5,500.
Legal. The Company may, from time to time, become a party to legal proceedings. Such matters are subject to many uncertainties and to outcomes of which the financial impacts are not predictable with assurance and that may not be known for extended periods of time. A liability is established once management determines a loss is probable and an amount that can be reasonably estimated.
The Company received a Civil Investigative Demand (CID) from the U.S. Department of Justice (USDOJ) in December 2017 stating that it is investigating the Company to determine whether the Company has violated the False Claims Act, relating to the promotion of certain medical devices related to the treatment of atrial fibrillation for off-label use and submitted or caused to be submitted false claims to certain federal and state health care programs for medically unnecessary healthcare services related to the treatment of atrial fibrillation. The CID covers the period from January 2010 to December 2017 and required the production of documents and answers to written interrogatories. The Company had no knowledge of the investigation prior to receipt of the CID. The Company maintains rigorous policies and procedures to promote compliance with the False Claims Act and other applicable regulatory requirements. The Company provided the USDOJ with documents and answers to the written interrogatories. In March 2021, USDOJ informed the Company that its investigation was based on a lawsuit brought on behalf of the United States and the various state and local governments under the qui tam provisions of federal and certain state and local False Claims Acts. Although the USDOJ and all of the state and local governments declined to intervene, the relator continues to pursue the case. The Company is vigorously contesting the case, however, it is not possible to predict when this matter may be resolved or what impact, if any, the outcome of this matter might have on our consolidated financial position, results of operations, or cash flows.
The Company acquired nContact Surgical, Inc. pursuant to a merger agreement dated October 4, 2015. The merger agreement provided for contingent consideration or “earnout” to be paid upon attaining specified regulatory approvals and clinical and revenue milestones. The merger agreement’s earnout provisions required the Company to deliver periodic earnout reports to a designated representative of former nContact stockholders. In response to the reports delivered in and after February 2018, the Company received letters from representatives purporting to serve as “earnout objection statements” (as that term is defined in the merger agreement) and claim that for purposes of determining the commercial milestone payment, the
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Company should be including revenues of certain additional items and products that the Company has not included in its earnout statements. During February 2021, the Company entered into a settlement agreement with the former nContact stockholders requiring payment of $6,000. The Company recorded the $6,000 settlement as a component of current liabilities as of December 31, 2020 as the underlying cause occurred prior to December 31, 2020, and has made substantially all of the settlement payment as of September 30, 2021.
8.REVENUE
Revenue is generated primarily from the sale of medical devices. The Company recognizes revenue in an amount that reflects the consideration the Company expects to be entitled to in exchange for those devices when control of promised devices is transferred to customers. At contract inception, the Company assesses the products promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a product that is distinct. The Company’s devices are distinct and represent performance obligations. These performance obligations are satisfied, and revenue is recognized at a point in time upon shipment or delivery of products. Sales of devices are categorized as follows: open ablation, minimally invasive ablation, appendage management and valve tools. Shipping and handling activities performed after control over products transfers to customers are considered activities to fulfill the promise to transfer the products rather than as separate promises to customers.
Products are sold primarily through a direct sales force and through distributors in certain international markets. Terms of sale are generally consistent for both end-users and distributors except that payment terms are generally net 30 days for end-users and net 60 days for distributors, with some exceptions. The Company does not maintain any post-shipping obligations to customers. No installation, calibration or testing of products is performed by the Company subsequent to shipment in order to render products operational.
Significant judgments and estimates involved in the Company’s recognition of revenue include the estimation of a provision for returns. The Company estimates the provision for sales returns and allowances using the expected value method based on historical experience and other factors that we believe could impact our expected returns, including defective or damaged products and invoice adjustments. In the normal course of business, the Company generally does not accept product returns unless a product is defective as manufactured. The Company does not provide customers with the right to a refund.
The Company expects to be entitled to the total consideration for the products ordered by customers as product pricing is fixed according to the terms of customer contracts and payment terms are short. Payment terms fall within the one-year guidance for the practical expedient which allows the Company to forgo adjustment of the promised amount of consideration for the effects of a significant financing component. The Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price.
Costs associated with product sales include commissions and royalties. Considering that product sales are performance obligations in contracts that are satisfied at a point in time, commission expense associated with product sales and royalties paid based on sales of certain products is incurred at that point in time rather than over time. Therefore, the Company applies the practical expedient and recognizes commissions and royalties as expense when incurred because the expense is incurred at a point in time and the amortization period is less than one year. Commissions are included in selling expense while royalties are included in cost of revenue.
See Note 11 for disaggregated revenue by geographic area and by product category.
9.INCOME TAX PROVISION
The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company uses the asset and liability method to determine its provision for income taxes. The Company’s provision for income taxes in interim periods is computed by applying the discrete method and is based on financial results through the end of the interim period. The Company determined that using the discrete method is more appropriate than using the annual effective tax rate method. The Company is unable to estimate the annual effective tax rate with sufficient precision to use the effective tax rate method, which requires a full-year projection of income. The effective tax rate for the three months ended September 30, 2021 and 2020 was 0.04% and 0.08%. The effective tax rate for the nine months ended September 30, 2021 and 2020 was 0.21% and (0.05%) The Company’s worldwide effective tax rate differs from the US statutory rate of 21% primarily due to the Company’s valuation allowance in the United States and Netherlands.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Federal, state and local returns of the Company are routinely subject to review by various taxing authorities. The Company has not accrued any interest and penalties related to unrecognized income tax benefits as a result of offsetting of net operating losses. However, if required, the Company will recognize interest and penalties within income tax expense and within the related tax liability.
10.EQUITY COMPENSATION PLANS
The Company has two share-based incentive plans: the 2014 Stock Incentive Plan (2014 Plan) and the 2018 Employee Stock Purchase Plan (ESPP).
Stock Incentive Plan
Under the 2014 Plan, the Board of Directors may grant incentive stock options to Company employees and may grant restricted stock awards or restricted stock units (collectively RSAs), nonstatutory stock options, performance share awards (PSAs) or stock appreciation rights to Company employees, directors and consultants. The Compensation Committee of the Board of Directors, as the administrator of the 2014 Plan, has the authority to determine the terms of any awards, including the number of shares subject to each award, the exercisability of the awards and the form of consideration. As of September 30, 2021, 12,899 shares of common stock had been reserved for issuance under the 2014 Plan, and 1,471 shares were available for future grants.
Stock options, restricted stock awards and restricted stock units granted generally vest at a rate of 33.3% on the first, second and third anniversaries of the grant date. Stock options generally expire ten years from the date of grant.
The award agreements for the PSAs provide that each PSA that vests represents the right to receive one share of the Company’s common stock at the end of the performance period. With respect to the PSAs, the number of shares that vest and are issued to the recipient is based upon the Company’s performance with respect to specified targets at the end of the three year performance period. Payout opportunities range from 0% to 100% of the target amount for awards granted prior to 2021, while awards granted in 2021 have payout opportunities ranging from 0% to 200% of the target amount. These ranges are used to calculate the number of shares that will be issuable when the award vests. All or a portion of the PSAs may vest following a change of control or a termination of service by reason of death or disability. PSAs granted prior to 2021 have performance targets based on the Company’s revenue compound annual growth rate (CAGR) over the three year performance period. PSAs granted in 2021 have two equally weighted performance targets measured at the end of the three year performance period: (i) the Company’s revenue CAGR; and (ii) relative total shareholder return (TSR). TSR is measured against the Nasdaq Health Care Index constituents and the 20-trading-day average stock price prior to the end of the performance period over the 20- trading-day average stock price prior to the beginning of the performance period. The performance and market condition payouts will be determined independently and accumulated to determine the total payout for the three year performance period, subject to the maximum payout defined in the PSA agreements.
Employee Stock Purchase Plan
Under the ESPP, shares of the Company’s common stock may be purchased at a discount (15%) of the lesser of the closing price of the Company’s common stock on the first trading day or the last trading day of the offering period. The offering period (currently six months) and the offering price are subject to change. Participants may not purchase a value of more than $25 of the Company’s common stock in a calendar year and may not purchase a value of more than 3 shares during an offering period. As of September 30, 2021, there were 338 shares available for future issuance under the ESPP.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
Expense Information Under FASB ASC 718
The following table summarizes the allocation of share-based compensation expense:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Cost of revenue $622 $366$1,639$1,004
Research and development expenses 1,077 8593,0972,531
Selling, general and administrative expenses 5,095 4,32415,80312,591
Total $6,794 $5,549 $20,539 $16,126 
11.SEGMENT AND GEOGRAPHIC INFORMATION
The Company develops, manufactures, and sells devices designed primarily for the surgical ablation of cardiac tissue, systems designed for the exclusion of the left atrial appendage, and devices designed to block pain by temporarily ablating peripheral nerves. These devices are developed and marketed to a broad base of medical centers globally. Management considers all such sales to be part of a single operating segment. Revenue attributed to customer geographic locations is as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
United States $57,537$44,701$167,916$121,838
Europe 7,7706,51420,55116,775
Asia 4,7343,19611,6959,367
Other international 419346949826
Total international 12,92310,05633,19526,968
Total revenue $70,460$54,757$201,111$148,806
United States revenue by product type is as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Open ablation $23,779$19,911$69,693$54,679
Minimally invasive ablation 9,9906,97928,07718,295
Appendage management23,40117,43069,14447,870
Total ablation and appendage management57,17044,320166,914120,844
Valve tools 3673811,002994
Total United States$57,537$44,701$167,916$121,838
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
International revenue by product type is as follows:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
Open ablation $6,699$4,907$16,629$13,766
Minimally invasive ablation 1,8491,6924,6984,346
Appendage management4,3733,44511,8258,778
Total ablation and appendage management12,92110,04433,15226,890
Valve tools 2124378
Total international $12,923$10,056$33,195$26,968
The Company’s long-lived assets are located primarily in the United States, except for $1,415 as of September 30, 2021 and $1,693 as of December 31, 2020 located primarily in Europe.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollar amounts referenced in this Item 2 are in thousands, except per share amounts.)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and notes thereto contained in Item 1 of Part I of this Form 10-Q and our audited financial statements and notes thereto as of and for the year ended December 31, 2020 included in our Form 10-K filed with the Securities and Exchange Commission (SEC) to provide an understanding of our results of operations, financial condition and cash flows.
Forward-Looking Statements
This Form 10-Q, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” contains forward-looking statements regarding our future performance. All forward-looking information is inherently uncertain and actual results may differ materially from assumptions, estimates or expectations reflected or contained in the forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this quarterly report on Form 10-Q, and in our annual report on Form 10-K for the year ended December 31, 2020. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. Forward-looking statements address our expected future business, financial performance, financial condition and results of operations, and often contain words such as “intends,” “estimates,” “anticipates,” “hopes,” “projects,” “plans,” “expects,” “seek,” “believes,” “see,” “should,” “will,” “would,” “target,” and similar expressions and the negative versions thereof. Such statements are based only upon current expectations of AtriCure. Any forward-looking statement speaks only as of the date made. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to differ materially from those expressed or implied. Forward-looking statements include statements that address activities, events or developments that AtriCure expects, believes or anticipates will or may occur in the future. Forward-looking statements are based on AtriCure’s experience and perception of current conditions, trends, expected future developments and other factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond AtriCure’s control including developments related to the COVID-19 pandemic, as discussed herein. With respect to the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise unless required by law.
Overview
We are a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management. Our ablation and left atrial appendage management (LAAM) products are used by physicians during both open-heart and minimally invasive procedures. In open-heart procedures, the physician is performing heart surgery for other conditions and our products are used in conjunction with (“concomitant” to) such a procedure. Minimally invasive procedures are performed on a standalone basis, and often include multi-disciplinary or “hybrid” approaches, combining both surgical procedures using AtriCure ablation and LAAM products and catheter ablation.
We have several product lines for the ablation of cardiac tissue, including our Isolator® Synergy™ Ablation System approved by the United States Food and Drug Administration (FDA) for the treatment of persistent and long-standing persistent forms of Afib concomitant to other open-heart surgical procedures. The EPi-Sense® system is approved by FDA to treat patients with long-standing persistent Afib. All of our other ablation devices are approved for sale in the United States under FDA 510(k) clearances, including our other RF and cryoablation products, which are indicated for the ablation of cardiac tissue and/or treatment of cardiac arrhythmias. In addition, certain of our cryoablation probes are cleared for managing pain by temporarily ablating peripheral nerves. Our AtriClip® products are 510(k)-cleared with an indication for the exclusion of the heart’s LAA, performed under direct visualization and in conjunction with other cardiac surgical procedures. Direct visualization, in this context, requires that the surgeon is able to see the heart directly, with or without assistance from a camera, endoscope or other appropriate viewing technologies. The LARIAT® system is cleared for soft tissue ligation. Several of our products are currently being studied to expand labeling claims or support indications specifically for the treatment of Afib. Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail® linear pen, cryoablation devices, certain products of the AtriClip LAA Exclusion System, COBRA Fusion® Ablation System, the EPi-Sense® Guided Coagulation System with VisiTrax® technology, and LARIAT Suture Delivery Device bear the CE mark and may be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror the Medical Device Directive. Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail linear pen, cryoablation devices and certain products of the AtriClip
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LAA Exclusion System are available in select Asia-Pacific countries. We anticipate that substantially all of our revenue for the foreseeable future will relate to products we currently sell or are in the process of developing.
We sell our products to medical centers through our direct sales force in the United States and in certain international markets, such as Germany, France, the United Kingdom and the Benelux region. We also sell our products to distributors who in turn sell our products to medical centers in other international markets. Our business is transacted in U.S. Dollars with the exception of transactions with our European subsidiaries, which are transacted in the Euro or British Pounds.
Recent Developments
Throughout 2020 and the beginning of the first quarter of 2021, we experienced a significant decrease in demand for our products as non-emergent procedures were being indeterminately deferred in order to preserve resources for COVID-19 patients and caregivers and to protect patients from potential exposure to COVID-19. While we have seen many regions begin to stabilize with improvements in procedure volumes, there continues to be variability throughout our markets and uncertainty as variants of the virus emerge. We can make no assurance regarding any future level of demand for our products, and COVID-19 may adversely impact our results of operations and financial condition.
We are continuing to serve our customers while taking every precaution to provide a safe work environment for our employees and customers. Field-based sales and clinical employees continue to support cases, using technology to engage with customers in virtual settings when physical access is prohibited. We are maintaining manufacturing and fulfillment operations to continue providing products to our customers. We continue to modify our remote working protocols and evaluate hybrid work models for our office-based employees, and we will take further actions in the best interests of our employees or as required by law.
Despite the challenging environment resulting from the pandemic, we continue to build on our strategic initiatives of product innovation, investing in clinical science and providing superior training and education. We remain confident in our liquidity position, which includes cash and investments of $224,843 as of September 30, 2021, and access to additional funding through our credit facility.
PRODUCT INNOVATION. In July 2021, we received 510(k) clearance for the new ENCOMPASS® clamp, and we have initiated a limited product launch. The ENCOMPASS clamp marks innovation in our core open ablation market, and is expected to drive deeper penetration of cardiac surgery procedures.
TRAINING. Our professional education and marketing teams have adapted to the pandemic by conducting online and mobile trainings for physicians and our sales team. These adaptations expanded our training methods and ensured invaluable access to continuing education and awareness of our products and related procedures. The recent FDA approval of the EPi-Sense system has enabled us to educate and train physicians on the benefits of Hybrid AF™ therapy in treating long-standing persistent Afib patients. The first of several training courses planned for 2021 was held in June.
CLINICAL SCIENCE. We continue to invest in studies to expand labeling claims or support indications for the treatment of Afib, and we also conduct various studies to gather clinical data regarding our products. In April 2021, we announced the PMA approval of the EPi-Sense system for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with an endocardial ablation catheter. We believe the Convergent procedure, or Hybrid AF therapy, provides the only compelling treatment option for a large and vastly underpenetrated patient population. The CONVERGE™ trial demonstrated superiority in the hybrid therapy arm compared to endocardial catheter ablation alone. In patients diagnosed with long-standing persistent Afib, the hybrid therapy arm showed a 29% absolute difference in efficacy at 12 months (78% relative improvement) and an absolute difference of 35% at 18 months (110% relative improvement). There was also a 33% absolute difference in Afib burden reduction in favor of the hybrid AF therapy at 12 months, which increased to 37% at 18 months.
aMAZE. Enrollment was completed in December 2019. Patient follow-up for twelve months post pulmonary vein isolation catheter ablation is required by the study protocol and was completed in April 2021. In January 2020, we received approval for a Continued Access Protocol (CAP) for the aMAZE study. The aMAZE CAP provides for additional enrollment of up to 85 patients at existing aMAZE trial sites, with the opportunity to further expand to 250 patients while the PMA application is under review. In July 2021, the Company was informed that data from the aMAZE clinical trial did not achieve statistical superiority. Specifically, while the trial met the safety endpoint, the trial did not meet the primary efficacy endpoint. The Company has paused enrollment in the aMAZE CAP, and is in the process of further analyzing aMAZE trial data and determining next steps for the trial, PMA application and any related future development activities.
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Results of Operations
Three months ended September 30, 2021 compared to three months ended September 30, 2020
The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of revenue:
Three Months Ended
September 30,
20212020
Amount % of
Revenues		Amount % of
Revenues
Revenue $70,460 100.0 %$54,757 100.0 %
Cost of revenue 18,234 25.9  %14,423 26.3  %
Gross profit 52,226 74.1  %40,334 73.7  %
Operating (benefit) expenses:
Research and development expenses11,284 16.0  %10,576 19.3  %
Selling, general and administrative expenses49,873 70.8  %33,557 61.3  %
Change in fair value of contingent consideration(189,900)(269.5) %192 0.4  %
Intangible asset impairment82,300 116.8  %— 0.0  %
Total operating (benefit) expenses (46,443)(65.9) %44,325 80.9  %
Income (loss) from operations 98,669 140.0  %(3,991)(7.3) %
Other income (expense)(1,523)(2.2) %(962)(1.8) %
Income (loss) before income tax expense 97,146 137.9  %(4,953)(9.0) %
Income tax expense (benefit)38 0.1  %(4) 0.0  %
Net income (loss)$97,108 137.8  %$(4,949)(9.0) %
Revenue. Revenue increased 28.7% (28.6% on a constant currency basis) reflecting an upturn in activity within each franchise and across our key markets globally from an improvement in cardiac surgery procedure volumes over 2020 as well as increasing adoption of our products. Revenue from customers in the United States increased $12,836, or 28.7% while revenue from international customers increased $2,867 or 28.5% (27.9% on a constant currency basis). In the United States, open ablation sales increased $3,868 (19.4%) primarily from growth in Cryo Nerve Block therapy. Minimally invasive (MIS) ablation sales increased $3,011 (43.1%) driven by Hybrid AF therapy procedure growth from the PMA approval of the EPi-Sense system in late April 2021. Appendage management sales rose $5,971 (34.3%) as a result of continued volume growth of the AtriClip® Flex·V® and AtriClip Pro·VTM devices and other appendage management product lines. Similar to the results in the United States, international revenue increased in most major markets and across product lines.
Revenue reported on a constant currency basis is a non-GAAP measure and is calculated by applying previous period foreign currency (Euro) exchange rates, which are determined by the average daily Euro to Dollar exchange rate, to each of the comparable periods. Revenue is analyzed on a constant currency basis to better measure the comparability of results between periods. Because changes in foreign currency exchange rates have a non-operating impact on revenue, we believe that evaluating revenue growth on a constant currency basis provides additional and meaningful assessment of revenue to both management and our investors.
Cost of revenue and gross margin. Cost of revenue increased $3,811 reflecting revenue growth, while gross margin improved approximately 40 basis points. The improvement in gross margin reflects favorable product mix , largely offset by inventory management charges related to the Lariat system and unfavorable geographic mix.
Research and development expenses. Research and development expenses increased $708 or 6.7% as a result of a $1,571 rise in personnel costs due to an increase in headcount and variable compensation. This increase in research and development expense was offset by a $1,377 decrease in product development project costs.
Selling, general and administrative expenses. Selling, general and administrative expenses increased $16,316 or 48.6% as a result of a $10,678 increase in personnel costs, primarily driven by increases in headcount, variable compensation and travel. Other increases in selling, general and administrative expenses included $1,008 additional training costs and $1,127 of incremental tradeshow and marketing activities, as well as legal, professional and consulting fees of $1,645 and share-based
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compensation of $772. The remaining fluctuation in selling, general and administrative expenses relates to other corporate costs, such as IT software and payment processing fees.
Change in fair value of contingent consideration. The credit to operating expenses during the three months ended September 30, 2021 reflects a change in the forecasted timing and probability of achievement of the regulatory and reimbursement milestones related to the aMAZE clinical trial. See Note 2 of the condensed consolidated financial statements for further discussion.
Impairment of intangible assets. During the three months ended September 30, 2021, the Company recorded an impairment charge for the IPR&D asset associated with the aMAZE PMA. See Note 3 of the condensed consolidated financial statements for further discussion.
Other income (expense). Other income and expense consists primarily of net interest expense and foreign currency transaction gains and losses. Net interest expense increased $346 driven by lower interest income from a decline in investment yields.
Nine months ended September 30, 2021 compared to nine months ended September 30, 2020
The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of revenue:
Nine Months Ended
September 30,
20212020
Amount % of
Revenues		Amount % 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  %
Operating (benefit) expenses:
Research and development expenses34,698 17.3  %32,199 21.6  %
Selling, general and administrative expenses150,939 75.1  %106,257 71.4  %
Change in fair value of contingent consideration(184,800)(91.9) %(4,854)(3.3) %
Intangible asset impairment82,300 40.9  %— 0.0  %
Total operating (benefit) expenses 83,137 41.3  %133,602 89.8  %
Income (loss) from operations 67,707 33.7  %(26,730)(18.0) %
Other income (expense):(3,632)(1.8) %(2,847)(1.9) %
Income (loss) before income tax expense 64,075 31.9  %(29,577)(19.9) %
Income tax expense 135 0.1  %16 0.0  %
Net income (loss )$63,940 31.8  %$(29,593)(19.9) %
Revenue. Revenue increased 35.1% (34.4% on a constant currency basis). Revenue from customers in the United States increased $46,078, or 37.8%, while revenue from international customers increased $6,227, or 23.1% (19.0% on a constant currency basis). Sales in the United States grew across all product lines with MIS ablation sales increasing $9,782 (53.5%), appendage management sales increasing $21,274 (44.4%), and open ablation sales increasing $15,014 (27.5%). International sales rose across all major franchises driven primarily by Germany and Asian markets.
Cost of revenue and gross margin. Cost of revenue increased $8,333, reflecting higher sales volumes, while gross margin increased more than 300 basis points. The overall increase in gross margin was driven largely by a return to normal production activity in 2021, leverage from higher revenue, and favorable geographic and product mix.
Research and development expenses. Research and development expenses increased $2,499 or 7.8%. Personnel costs grew $3,979 driven by additional variable compensation and headcount as we continue to build our product development, regulatory, and clinical teams. This increase is offset by a $1,428 decrease in product development project costs.
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Selling, general and administrative expenses. Selling, general and administrative expenses increased $44,682, or 42.1%. Additional headcount, variable compensation, and travel expenses totaling $32,646 was the largest driver of the increase in expenses. In addition, as quarantine and travel restrictions have lifted from 2020, there has been an increase in live events. As a result, training expenses increased $3,975, while tradeshow and marketing activities increased $1,189 as compared to the prior year. Other changes included a $3,212 increase in share-based compensation and a $2,605 increase in legal, professional and consulting expenses.
Change in fair value of contingent consideration. The credit to operating expenses during the nine months ended September 30, 2021 reflects a change in the forecasted timing and probability of achievement of the regulatory and reimbursement milestones related to the aMAZE clinical trial. See Note 2 of the condensed consolidated financial statements for further discussion.
Impairment of intangible assets. During the nine months ended September 30, 2021, the Company recorded an impairment charge for the IPR&D asset associated with the aMAZE PMA. See Note 3 of the condensed consolidated financial statements for further discussion.
Other income (expense). Other income and expense consists primarily of net interest expense and foreign currency transaction gains and losses. Net interest expense increased $704 driven by lower interest income from a decline in investment yields.
Liquidity and Capital Resources
As of September 30, 2021, the Company had cash, cash equivalents and investments of $224,843 and outstanding debt of $58,333. We had unused borrowing capacity of approximately $10,000 under our revolving credit facility. Most of our operating cash and all cash equivalents and investments are held by United States financial institutions. We had net working capital of $141,753 and an accumulated deficit of $266,412 as of September 30, 2021.
Cash flows used in operating activities. We used $14,081 of net cash in operating activities during the nine months ended September 30, 2021. The net cash outflow from operating activities reflects our net income of $63,940, offset by $70,914 of non-cash adjustments, as well as $7,107 net cash used for operating assets and liabilities. Non-cash adjustments reflect the impact of the aMAZE trial results contributing to a $184,800 change in value of the contingent consideration liability, offset by an $82,300 impairment charge on the aMAZE IPR&D asset. Other non-cash expenses included $20,539 share-based compensation, as well as $7,608 of depreciation and amortization. Net cash used for operating assets and liabilities was driven by higher customer receivables in the first nine months of 2021 due to the increase in revenue and continued investment in inventories, offset by increases to both accounts payable and accrued liabilities balances, reflecting the increase in inventories, operating expenses and variable compensation as of September 30, 2021.
Cash flows provided by investing activities. We generated $22,427 of net cash from investing activities during the nine months ended September 30, 2021, reflecting $29,470 of net sales and maturities of available-for-sale securities, partially offset by $7,043 of purchases of property and equipment.
Cash flows used in financing activities. We used $10,149 of net cash in financing activities during the nine months ended September 30, 2021. Activity included $17,900 for shares repurchased for payment of taxes on stock awards and $2,269 repayment of debt and lease obligations, partially offset by $10,020 of proceeds from stock option exercises and ESPP purchases.
Credit facility. Our Loan and Security Agreement with Silicon Valley Bank (SVB), as amended, (Loan Agreement), provides for a $60,000 term loan and a $20,000 revolving line of credit. The term loan and revolving credit facility both mature or expire, as applicable, on August 1, 2024. The term loan accrues interest at the greater of the Prime Rate or 5.00%, plus 0.75% and is subject to an additional 3.00% fee on the $60,000 term loan principal amount, payable at maturity or upon acceleration or prepayment of the term loan. Our borrowing availability under the revolving credit facility is based on the lesser of $20,000 or a borrowing base calculation as defined by the Loan Agreement. Borrowing availability under the revolving credit facility is further limited by a cap on total debt outstanding under the Loan Agreement, including outstanding letters of credit, of $70,000. As of September 30, 2021 we had no borrowings under the revolving credit facility, and we had borrowing availability approximately of $10,000. The Loan Agreement also provides for certain prepayment and early termination fees if the term loan is repaid before maturity and establishes a minimum liquidity ratio and dividend restrictions, along with other customary terms and conditions. Specified assets have been pledged as collateral. Principal payments on the term loan commenced September 1, 2021 and were made through October 2021.
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Effective November 1, 2021, the Company and SVB entered into the Sixth Amendment to the Loan and Security Agreement (Amended Loan and Security Agreement). This amendment provides for a $60,000 term loan, with an option to make available an additional $30,000 in term loan borrowings, and a $30,000 revolving line of credit. The Amended Loan and Security Agreement has a five year term, expiring November 2026. Principal payments are to be made ratably commencing 24 months after the inception of the loan through the loan's maturity date. At the option of the Company, the commencement of term loan principal payments may be extended an additional twelve months. The term loan accrues interest at the Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. The revolving line of credit is subject to an annual facility fee of 0.20% of the revolving line of credit fully earned at close, and any borrowings bear interest at the floating Prime Rate. The Amended Loan and Security Agreement also provides for certain prepayment and early termination fees, as well as establishes a liquidity covenant, along with other customary terms and conditions similar to those in the Company's current agreement with SVB. This refinancing has been treated as a debt modification, with the $1,667 principal repayment made in October 2021 classified as current, while the remaining borrowings of $56,666 have been classified as long-term in the Condensed Consolidated Balance Sheet as of September 30, 2021.
Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of September 30, 2021.
Uses of liquidity and capital resources. Our future capital requirements depend on a number of factors, including market acceptance of our current and future products; the resources we devote to developing and supporting our products, including professional training costs; future expenses to support and expand our sales and marketing efforts; costs relating to changes in regulatory policies or laws that affect our operations and cost of filings; costs associated with clinical trials and securing regulatory approval for new products; costs associated with acquiring and integrating businesses; costs associated with prosecuting, defending and enforcing our intellectual property rights; and possible acquisitions and joint ventures. We continue to evaluate additional measures to maintain financial flexibility, and we will continue to closely monitor our liquidity and capital resources through recovery from, and any further disruptions caused by, COVID-19.
We have on file with the SEC a shelf registration statement which allows us to sell any combination of senior or subordinated debt securities, common stock, preferred stock, warrants, depository shares and units in one or more offerings should we choose to do so in the future. We expect to maintain the effectiveness of this shelf registration statement for the foreseeable future.
We believe that our current cash, cash equivalents and investments, along with the cash we expect to generate or use for operations or access via our credit facility agreement with SVB, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. The SentreHEART acquisition provides for contingent consideration to be paid upon PMA approval before December 2023 and CPT reimbursement before December 2026. Subject to the terms and conditions of the SentreHEART merger agreement, such contingent consideration must be paid primarily in AtriCure common stock, up to a specified maximum number of shares. We do not expect our cash requirements to include significant cash payments for contingent consideration based on likelihood and progress towards achievement of the related success-based milestones and terms of the acquisition agreement over the next twelve months.
If our sources of cash are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain a revised or additional credit facility. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations. Finally, our term loan agreement and revolving line of credit require compliance with certain financial and other covenants. If we are unable to maintain these financing arrangements, we may be required to reduce the scope of our planned research and development, clinical activities and selling, training, education and marketing efforts.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses and disclosures of contingent assets and liabilities at the date of the financial statements. On a periodic basis, we evaluate our estimates, including those related to sales returns and allowances, accounts receivable, inventories, intangible assets including goodwill, contingent liabilities and share-based compensation. We use authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results could differ from those estimates under different assumptions or conditions. Our Annual Report on Form 10-K for the fiscal
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year ended December 31, 2020 includes additional information about the Company, our operations, our financial position and our critical accounting policies and estimates and should be read in conjunction with this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
As of September 30, 2021, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2021 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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the President and Chief Executive Officer (the Principal Executive Officer) and Chief Financial Officer (the Principal Accounting and Financial Officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13(a)-15(e) and 15(d) -15(e) of the Securities Exchange Act of 1934 as amended (Exchange Act), as of the end of the period covered by this report. Based on this evaluation, we concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s forms and rules, and the material information relating to the Company is accumulated and communicated to management, including the President and Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that control objectives are met. Because of inherent limitations in all control systems, no evaluation of controls can provide assurance that all control issues and instances of fraud, if any, within a company will be detected. Additionally, controls can be circumvented by individuals, by collusion of two or more people or by management override. Over time, controls can become inadequate because of changes in conditions or the degree of compliance may deteriorate. Further, the design of any system of controls is based in part upon assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Because of the inherent limitations in any cost-effective control system, misstatements due to errors or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting
In the ordinary course of business, we routinely enhance our information systems by either upgrading current systems or implementing new ones. There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to legal proceedings can be found under the heading “Legal” in Note 7 – Commitments and Contingencies to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Item 1A, “Risk Factors” in our Form 10-K for the year ended December 31, 2020, as amended by our Form 10-Q for the quarter ended June 30, 2021, all of which could materially affect our business, financial condition or future results. The risks described therein are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may adversely affect our business, financial condition and/or operating results. There have been no material changes with respect to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, as amended by risk factors provided in our Form 10-Q for the quarter ended June 30, 2021 which are incorporated herein by reference.

Item 5. Other Information
Effective November 1, 2021, the Company and SVB entered into the Sixth Amendment to the Loan and Security Agreement (Amended Loan and Security Agreement). This amendment provides for a $60,000 term loan, with an option to make available an additional $30,000 in term loan borrowings, and a $30,000 revolving line of credit. The Amended Loan and Security Agreement has a five year term, expiring November 2026. Principal payments are to be made ratably commencing 24 months after the inception of the loan through the loan's maturity date. At the option of the Company, the commencement of term loan principal payments may be extended an additional twelve months. The term loan accrues interest at Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. The revolving line of credit is subject to an annual facility fee of 0.20% of the revolving line of credit fully earned at close, and any borrowings bear interest at the floating Prime Rate. The Amended Loan and Security Agreement also provides for certain prepayment and early termination fees, as well as establishes a liquidity covenant, along with other customary terms and conditions similar to those in the Company's current agreement with SVB.
The foregoing description of the Amended Loan and Security Agreement does not purport to be complete. The Amended Loan and Security Agreement is attached to this report as Exhibit 10.2 and is incorporated by reference into this Item 5 in its entirety.
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Item 6. Exhibits
Exhibit No.Description
10.1#
10.2
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
____________________________
#    Compensatory plan or arrangement.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AtriCure, Inc.
(REGISTRANT)
Date: November 4, 2021
/s/ Michael H. Carrel
Michael H. Carrel
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 4, 2021
/s/ Angela L. Wirick
Angela L. Wirick
Chief Financial Officer
(Principal Accounting and Financial Officer)
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