UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-K
_________________________________
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-51470
AtriCure, Inc.
(Exact name of registrant as specified in its charter)
_________________________________
Delaware
State or other jurisdiction of
incorporation or organization
7555 Innovation Way, Mason, OH
(Address of principal executive offices)
34-1940305
(I.R.S. Employer
Identification Number)
45040
(Zip Code)
Registrant’s telephone number including area code: (513) 755-4100
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.001 par value
Trading Symbol(s)
ATRC
Name of each exchange on which registered
NASDAQ
Securities Registered Pursuant to Section 12(g) of the Act:
None
_________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No
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 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 No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer
Smaller Reporting Company Emerging Growth 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the voting Common Stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on
June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter as reported on the NASDAQ Global Market, was $1,960.6 million.
Class
Common Stock, $.001 par value
Outstanding February 24, 2021
45,573,003
_________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K incorporate information by reference from the registrant’s definitive proxy statement to be filed with
the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K.
TABLE OF CONTENTS
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6.
ITEM 7.
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 7A.
ITEM 8.
ITEM 9.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
ITEM 9A.
ITEM 9B.
PART III
FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
ITEM 10.
ITEM 11.
ITEM 12.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
RELATED STOCKHOLDER MATTERS
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
INDEPENDENCE
PART IV
ITEM 15.
ITEM 16.
SIGNATURES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
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This Form 10-K, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, “Risk Factors” and “Quantitative and Qualitative Disclosures about Market Risk” 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 Form 10-K. 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,”
“could,” “can,” “may,” “future,” “predicts,” “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, circumstances 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. 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-K. We undertake no, and hereby disclaim any and
all, obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise
unless required by law.
WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website (www.atricure.com) and our corporate Facebook, YouTube, LinkedIn, and Twitter accounts as channels of
distribution of company information. The information we post through these channels may be deemed material. Accordingly,
investors should monitor these channels, in addition to following our press releases, Securities and Exchange Commission, or SEC,
filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of
this report.
TRADEMARKS
We own or have the rights to use various trademarks referred to in this Annual Report on Form 10-K, including Isolator® clamp,
Synergy TM clamp, Epi-Sense® coagulation device, AtriClip® Flex·V®,, and cryoSPHERE® probe, among others, and their respective
logos. Solely for convenience, we may refer to trademarks in this Annual Report on Form 10-K without the TM and ® symbols. Such
references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted by law, our rights to our
trademarks.
MARKET AND INDUSTRY INFORMATION
Market data used throughout this Annual Report on Form 10-K is based on management’s knowledge of the industry and good faith
estimates of management. All of management’s estimates presented herein are based on industry sources, including analyst reports
and management’s knowledge. We also relied, to the extent available, upon management’s review of independent industry surveys
and publications prepared by a number of sources and other publicly available information. We are responsible for all of the
disclosures in this Annual Report on Form 10-K and while we believe that each of the publications, studies and surveys used
throughout this Annual Report on Form 10-K are prepared by reputable sources, we have not independently verified market and
industry data from third-party sources.
All of the market data used in this Annual Report on Form 10-K involves a number of assumptions and limitations, and you are
cautioned not to give undue weight to such estimates. While we believe the estimated market position, market opportunity and market
size information included in this Annual Report on Form 10-K is generally reliable, such information, which in part is derived from
management’s estimates and beliefs, is inherently uncertain and imprecise and has not been verified by any independent source.
Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are
subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Item 1A. Risk Factors” of Part
I of this Annual Report on Form 10-K and elsewhere in this Annual Report on Form 10-K. These and other factors could cause results
to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.
1
(Dollar and share amounts referenced in this Part I are in thousands.)
PART I
ITEM 1. BUSINESS
Overview
We are a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management. According to
the American Heart Association, Afib affects 1-2% of the population in the United States. It is the most common cardiac arrhythmia,
or irregular heartbeat, encountered in clinical practice and results in high utilization of healthcare services by Afib patients. Symptoms
of Afib may include heart palpitations, dizziness, fatigue and shortness of breath, and these symptoms may be debilitating and life
threatening in some cases. When a patient is in Afib, abnormal electrical impulses cause the atria, or upper chambers of the heart, to
fibrillate, or beat rapidly, irregularly, and in an uncoordinated fashion. As a result, blood in the atria may be in stasis, increasing the
risk that a blood clot will form and cause a stroke or other serious complications. In patients with Afib, a significant percentage of
those clots can form inside of the LAA. Patients often progress from being in Afib intermittently (paroxysmal) to being in Afib
continuously. The continuous Afib patient population includes persistent Afib, which lasts seven days to one year, and long-standing
persistent Afib, which lasts longer than one year. Afib often occurs in conjunction with other cardiovascular diseases, including
hypertension, congestive heart failure, left ventricular dysfunction, coronary artery disease and valvular disease.
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 believe that we are currently the market leader in the surgical treatment of Afib. Our Isolator® Synergy™ Ablation System
is approved by the United States Food and Drug Administration (FDA) for the treatment of persistent and long-standing persistent
Afib concomitant to other open-heart surgical procedures. All of our other ablation devices are cleared for sale in the United States
under FDA 510(k) clearances, including our other radio frequency (RF) and cryoablation products, which are indicated for the
ablation of cardiac tissue and/or the treatment of cardiac arrhythmias. In addition, certain of our cryoablation probes are cleared for
managing pain by temporarily ablating peripheral nerves, or cryo nerve block therapy. In January 2021, we announced 510(k)
clearance of additional labeling claims for cryo nerve block therapy to include the treatment of adolescent patients (12-21 years of
age). Our AtriClip® LAA Exclusion System products are 510(k)-cleared with an indication for the exclusion of the 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 to 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 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 primarily transacted in U.S. Dollars with the exception of
transactions with our European customers, which are transacted primarily in the Euro or the British Pound.
Market Overview
Afib is the most commonly diagnosed sustained cardiac arrhythmia with approximately 1.2 million diagnoses annually in the
United States, and affects approximately 33 million people worldwide. It is estimated that the incidence of Afib doubles with each
decade of an adult’s life. At age 40, remaining lifetime risk for Afib is 26% for men and 23% for women. Afib is an under-diagnosed
condition due in large part to the fact that patients with Afib often have mild or no symptoms, and their Afib is often only diagnosed
when they seek treatment for an associated condition, such as a structural heart disease or stroke. We believe that increasing awareness
of Afib and improved diagnostic screening will result in an increased number of patients diagnosed with Afib over time. Also, since
the prevalence of Afib increases with age, there will likely be an increase in the number of diagnosed Afib patients in the United
States as the population ages. We believe that the same trends in the United States apply globally.
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Afib is a condition that doctors often find difficult to treat and, historically, there has been no widely accepted long-term cure
for Afib. This difficulty is exacerbated with more serious forms of Afib, or persistent and long-standing persistent Afib. Over the past
two decades, technology advancements have made surgical ablation more effective, repeatable and available to cardiac surgeons and
electrophysiologists around the world. Societal guideline changes from the Society of Thoracic Surgeons (STS), Heart Rhythm
Society (HRS), and American Association of Thoracic Surgery (AATS) have Class I recommendations for surgical ablation, meaning
that it is a “recommended” treatment, no longer just “reasonable”, for patients who have structural heart disease and Afib. In addition,
guidelines for the treatment of more serious forms of Afib have also been introduced in the past several years. These societal
guidelines are reflective of the scientific evidence suggesting that surgical ablation is safe and effective for patients who have Afib.
Of the patients undergoing open-heart surgery globally on an annual basis, we estimate that over 250,000 are potential
candidates for surgical ablation using our products. Today, we estimate that approximately 25% to 35% of those candidates are being
treated, but we believe many are not treated properly or fully. Of the population diagnosed with Afib, a large percentage of patients
are symptomatic and do not respond to pharmacological therapy. Additionally, there is a large population of patients who have no
other underlying cardiac disease but who suffer from serious forms of Afib. Many of these patients fail traditional therapies, and thus
we believe could benefit from a minimally invasive or hybrid Afib treatment using our products.
In addition, Afib is thought to be responsible for approximately 15% to 20% of the estimated 800,000 strokes that occur
annually in the United States. According to the American Heart Association, the risk of stroke is five times higher in people with Afib.
Studies have also suggested that 90% of clots that cause strokes in patients who have Afib originate from within the LAA. Afib
accounts for billions of dollars in hospitalization-related and office visit costs in the United States each year. Indirect costs, such as the
management of Afib-related strokes, are believed to be significant. Because of the risk of stroke and the significant cost burden on the
healthcare system, more and more surgeons are routinely addressing the LAA, both in patients who have Afib, but also in those who
do not have Afib but may be at increased risk of developing the disease in the future. We believe that our AtriClip system is safer,
more effective and easier to use than other products and techniques for excluding the LAA during cardiac surgery. Therefore, we
believe that the market for the AtriClip system represents a significant growth opportunity.
Cardiothoracic and thoracic surgery involving an incision through the ribcage, typically referred to as thoracotomy access, can
often times result in post-operative pain and longer hospital recovery times as patients refrain from mobilizing their chest near the
incision site. Most surgeons will employ a multi-modal pain management protocol that includes global and local pain management
techniques, including epidural delivery of medication directly around the spinal cord, intravenous, or oral delivery of opioid and non-
opioid pain medications. More focused, local techniques include syringe injections between vertebrates and cryo nerve block, the use
of cryo-energy to temporarily ablate peripheral nerves. Cryo nerve block can be delivered using our cryoICE cryoSPHERE® probe,
which is specifically designed for cryo nerve block, as well as our cryoICE CRYO2 probe, one of the same probes used to treat
cardiac arrhythmias. Depending on the degree of invasiveness, physicians and their nursing staff will take advantage of multiple
modes of pain management. It is estimated that each year roughly 140,000 cardiac and thoracic procedures are performed in the
United States through thoracotomy access. Hospital recovery times can vary from two to eight days depending on the procedure,
operative complications associated with the procedure, pain management protocol, and other factors. In recent years, opioids have
come under heavy scrutiny due to their potential for long-term dependency, overdose and possible death. The Center for Disease
Control has reported over 49,000 deaths involving opioids in the United States in a single year, and both federal and local
governments in the United States have proposed and implemented new regulations to curb the opioid overdose epidemic. It is also
estimated that one in seven cardiothoracic surgical patients develops an unhealthy post-procedural addiction to prescription narcotics,
making alternative, non-opioid pain management modalities, such as cryo nerve block, increasingly important.
The AtriCure Solution and Products
Our products enable cardiothoracic surgeons to mimic all or portions of the cut and sew Maze procedure with faster, less
invasive and less technically challenging approaches. We have completed, and continue to invest in, clinical studies for the use of our
ablation and left atrial appendage management products to treat Afib. Leading cardiothoracic surgeons and electrophysiologists,
including those who serve or who have served as consultants to us, have published results of pre-clinical and clinical studies utilizing
our devices. The results of these studies have assessed efficacy, ease of use and safety endpoints.
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Products for cardiac tissue ablation include those that heat tissue using radio frequency (RF) energy to create the tissue effects or
those that cool tissue using cryo-thermal heat transfer to create the tissue effects. Our ablation products are part of platforms each
consisting of disposable handpieces which connect to compact RF power generation sources or the cryoICE Box generator that we
generally place with our direct customers and sell to our distributors.
Products for open and minimally invasive ablation:
•
Isolator Synergy Clamps. Our Isolator Synergy System historically represented our primary product line and
currently generates the majority of our ablation-related revenue. All of our clamps are single-use disposable RF
products with jaws that close in a parallel fashion. We sell multiple configurations of our Isolator Synergy clamps
with the primary difference being the form of the clamping jaws. The parallel closure compresses tissue and
evacuates the blood and fluids from the energy pathway in order to make the ablation more effective. The Isolator
Synergy System is currently being evaluated under the DEEP AF IDE pivotal trial and was previously studied under
the ABLATE clinical trial supporting a pre-market approval (PMA) in 2011.
• Multifunctional Pens and Linear Ablation Devices. These devices are single-use disposable RF products that
come in multiple configurations which have different contact lengths. The MAX Pen devices enable surgeons to
evaluate cardiac arrhythmias, perform temporary cardiac pacing, sensing and stimulation and ablate cardiac tissue
with the same device. Surgeons are able to readily toggle back and forth between these functions. The Coolrail
device enables the user to make longer linear lines of ablation. Surgeons generally use one or more of our pen and
linear devices in combination with Isolator Synergy clamps.
Products for open ablation:
•
cryoICE Cryoablation System. The cryoICE cryoablation system is used in open ablation procedures and consists
of the cryoICE Box generator along with a single-use disposable probe. The primary differences between these
cryoablation probes is the form of the distal end. The cryoICE devices enables the user to make linear ablations of
varied lengths. Surgeons may utilize the cryoICE devices in combination with Isolator Synergy clamps or
independently. The ICE-AFIB clinical trial is studying the safety and efficacy of the cryoICE system for persistent
and long-standing persistent Afib treatment during concomitant on-pump cardiac surgery. The cryoSPHERE system
and certain cryoICE devices are used to apply cryo-energy to targeted intercostal peripheral nerves in the ribcage in
order to provide temporary pain relief. This technique, called cryo nerve block, is applied intra-operatively by
cardiothoracic or thoracic surgeons and results in temporary pain relief for up to 90 days after the procedure.
Sensation typically returns to the affected region of the chest after this period. Studies, including the FROST trial,
are ongoing to characterize the effects of cryo nerve block and further refine the procedure.
Products for minimally invasive ablation:
•
EPi-Sense Guided Coagulation System with VisiTrax Technology. The EPi-Sense Guided Coagulation System
with VisiTrax technology utilizes monopolar RF energy for the coagulation of tissue. The Epi-Sense device is a
single-use disposable which is also capable of intra-operative cardiac signal sensing and recording when connected
to an external recording device. The CONVERGE IDE clinical trial evaluated the safety and efficacy of the EPi-
Sense Guided Coagulation System with VisiTrax technology to treat symptomatic persistent and long-standing
persistent Afib patients who are refractory or intolerant to at least one Class I and/or III anti-arrhythmic drug. The
results from the trial have been submitted to the FDA as part of a PMA submission.
Products for appendage management:
•
•
AtriClip System. The AtriClip System includes an implantable device (AtriClip) coupled to a single-use disposable
applier. The AtriClip is designed to exclude the left atrial appendage by mechanically clamping the appendage from
the outside of the heart, eliminating blood flow between the left atrial appendage and the atrium while avoiding
contact with circulating blood. We believe that the AtriClip system is potentially safer, more effective and easier to
use than other available products and techniques for permanently excluding the left atrial appendage. These benefits
compared to other techniques include permanent exclusion and electrical isolation of the appendage. The AtriClip
device comes in a variety of lengths allowing the user to select a configuration specific to the patient and in two
geometries (a rectangular configuration which encircles the targeted tissue and “V” shape which allows lateral
access for improved usability). The appliers come in multiple forms tailored to specific procedural needs and with
different deployment mechanisms. The AtriClip System includes various combinations of AtriClips and appliers.
LARIAT System. The LARIAT System is a suture-based solution for soft-tissue closure and is compatible with a
wide range of anatomical shapes. The product is currently being studied in the aMAZE IDE clinical trial. The Lariat
System includes a suture loop coupled to a single-use disposable applier. The loop is designed to exclude the left
atrial appendage by mechanically cinching the appendage from the outside of the heart, eliminating blood flow
between the left atrial appendage and the atrium while avoiding contact with circulating blood. The objective of the
aMAZE IDE clinical trial is to demonstrate that using the LARIAT System for left atrial appendage exclusion, plus
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a pulmonary vein isolation (PVI) catheter ablation, will lead to a reduced incidence of recurrent Afib compared to
PVI alone, with a favorable safety profile.
In addition to the above product lines we also sell enabling technologies including our Lumitip™ dissectors, COBRA Fusion
Surgical Ablation System, the Fusion Magnetic Retriever System and a line of reusable cardiac surgery (valve) instruments. The
Lumitip dissector is used by surgeons to separate tissues to provide access to key anatomical structures that are targeted for ablation.
Cardiac surgery instruments are used during certain surgical procedures for repair or replacement of heart valves.
Current Afib Treatment Alternatives
Physicians usually begin treating Afib patients with a variety of drugs intended to prevent blood clots, control heart rate or
restore the heart to normal sinus rhythm. If a patient’s Afib cannot be adequately controlled with drug therapy, doctors may perform
one of several open-heart or minimally-invasive procedures that vary depending on the severity of the Afib symptoms and whether or
not the patient suffers from other forms of heart disease. Often, Afib procedures are performed concomitantly with other cardiac
treatments.
Alternative treatments to open-heart and minimally invasive procedures include:
•
•
•
Drug Therapy. Pharmaceutical options called anti-arrhythmics are available to treat Afib. Depending on a patient’s
severity of the disease and heart condition, physicians typically administer these medications in a hospital setting
with continuous monitoring. If the patient goes back into a normal rhythm, the physician will often prescribe a
similar anti-arrhythmic drug to try to prevent a recurrence of Afib. The effectiveness of drug therapy varies based
on the patient population and the drug being prescribed, among other factors. Often, pharmaceuticals to thin the
blood (anti-coagulants) are prescribed due to the increased risk of stroke for patients who also have Afib.
Implantable Devices. Implantable devices, such as defibrillators and pacemakers, can be effective in reducing the
symptoms of Afib episodes, but neither device is intended to treat Afib. Patients may continue to experience the
adverse effects of Afib as well as some of the symptoms and complications, including dizziness, fatigue,
palpitations and stroke because the Afib continues.
Catheter Ablation. Catheter ablation is a procedure that is typically performed by an electrophysiologist. The
ablations are made from the inside of the heart using a flexible catheter. The heart is reached via a blood vessel,
most commonly through the femoral vein. In proportion to the prevalence of Afib, less than 6% of patients receive
catheter-based Afib treatments each year in the United States. The rate of treatment is even lower for long-standing
persistent patients in which less than 1% receive catheter-based Afib treatments.
We do not promote our products specifically for Afib treatment in the United States, except for the Isolator Synergy System,
which may be promoted according to its FDA-approved indication for patients with persistent and long-standing persistent Afib
undergoing certain open concomitant procedures. During elective open-heart surgical procedures, such as bypass or valve surgery,
cardiothoracic surgeons use our ablation systems to treat patients with a pre-existing history of Afib. Surgeons use our products to
perform cardiac procedures that may vary depending on the length of time a patient has been diagnosed with Afib and whether the
patient’s Afib is intermittent (paroxysmal), or continuous (non-paroxysmal), which is typically further classified as persistent or long-
standing persistent. Patients who have been diagnosed with Afib for a longer duration and have persistent or long-standing persistent
forms of Afib generally receive more extensive ablation procedures than patients who have been diagnosed with Afib for a shorter
duration or who have paroxysmal Afib. Additionally, during an open-heart procedure, physicians may use our AtriClip system to
exclude the LAA.
For those patients with Afib who do not require a concomitant open-heart surgical procedure, surgeons have used our products
for minimally invasive Afib treatment procedures. These procedures have generally been performed through small incisions without
the need to place patients on a heart-lung bypass machine. We do not currently have any products with FDA-approved indications for
the standalone treatment of Afib, but we have two IDE trials underway at various stages of completion. Additionally, during a
minimally invasive surgical procedure, physicians may use our AtriClip system to exclude the LAA.
Certain physicians are combining various minimally invasive stand-alone epicardial ablation procedures (surgical ablation on
the outside of the heart) with endocardial ablation and mapping techniques (catheter ablation from the inside of the heart). The
combination of procedures are often referred to as “hybrid” or “multi-disciplinary” approaches, in that both surgical ablation and
catheter ablations are performed. Sometimes, both procedures are performed on the same day or in the same hospital stay, where other
times they are performed weeks or months apart. Patient health condition, physician preference, hospital logistics and procedural room
availability influence the decision whether to perform hybrid ablations in a single or a staged setting. Physicians are reporting that they
are performing these procedures utilizing certain of our products to primarily treat patients who have non-paroxysmal forms of Afib.
Business Strategy
We are passionately focused on reducing the global Afib epidemic and healing the lives of those affected. Our strategy is
to expand the treatment options for patients who suffer from Afib or have a high risk of stroke through the continued development of
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our technologies and expansion of our product offerings, global commercial expansion and clinical science investments. The key
elements of our strategy include:
New Product Innovation. Our product development pipeline includes projects which extend and improve our existing products,
as well as research and development projects for new technologies. We plan to continue to develop new and innovative products,
including those that allow us to enter new market opportunities or expand our growth in existing markets.
Invest in Clinical Science. We continue to invest in landmark clinical trials, including the CONVERGE, aMAZE IDE and ICE-
AFIB IDE trials, to validate the long-term results of procedures using our products and to support applications to regulatory agencies
for expanded indications. We also make clinical research grants to support our product development efforts and expand the body of
clinical evidence.
Build Physician and Societal Relationships. We have formed consulting relationships with cardiothoracic surgeons,
cardiologists, electrophysiologists and thoracic surgeons who work with us to develop and evaluate our products. Additionally, we
have formed advisory boards made up of key opinion leaders in multiple specialties to oversee our training and clinical programs. We
are building these relationships to provide insight regarding treatment trends, input on future product direction and education for
providers involved in treating the disease.
We are partnering with leading surgical and cardiology societies to increase the awareness of Afib treatment options. In the past
three years, both the Society for Thoracic Surgeons and the Heart Rhythm Society have released new guidelines on the surgical
treatment of Afib in both open-heart and minimally-invasive settings.
Provide Training and Education. We have recruited and trained sales and physician education professionals to effectively
communicate to our customers the unique features and benefits of our technologies as they relate to their indications for use. Our
highly trained professionals meet with physicians at institutions around the world to provide education and technical training on the
features, benefits and safe-and-effective use of our products. With the approval of our Isolator Synergy System, we instituted a
program to train providers on the use of the Isolator Synergy System to treat persistent and long-standing persistent Afib in patients
undergoing open-heart surgery. We believe this training and education program has increased awareness about the surgical treatment
of Afib during open-heart procedures, and we will continue to make investments to serve our physician customers. As a result of the
educational process, we believe that awareness of our technologies is growing and will result in the increased use of our products.
Expand Adoption of Our Minimally Invasive Products. We believe that the catalysts for expanded adoption of our minimally
invasive products include completing clinical trials, including the CONVERGE, aMAZE IDE and DEEP AF IDE clinical trials,
procedural advancements, such as the hybrid or multi-disciplinary procedure, continued innovation and product development, and the
publication of additional scientific evidence supporting the safety and efficacy of hybrid treatments for persistent and long-standing
persistent Afib. We believe these efforts will help validate the successful, long-term use of our products for patients with persistent
and long-standing persistent Afib. We believe that ongoing research activities, including prospective clinical trials, new procedural
techniques and anticipated presentations and publications will create an increased demand for our minimally invasive products.
Evaluate Acquisition Opportunities. We expect to continue to be opportunistic with respect to acquisitions. We evaluate
acquisition opportunities on a variety of factors, including investment in clinical science, product innovation and strategic and
financial considerations.
Clinical Trials
In the United States, a significant risk device requires the prior submission of an application for an Investigational Device
Exemption (IDE) to FDA for approval before initiating a clinical trial. Clinical trials are required to support a pre-market approval
(PMA) and are sometimes required for 510(k) clearance. Some trials require a feasibility study followed by a pivotal trial. We are
conducting several clinical trials to validate the long-term results of procedures using our products and to support applications to
regulatory agencies for expanded indications. In addition, we also conduct various studies to gather clinical data regarding our
products. Key trials and studies are:
CONVERGE. We are conducting the CONVERGE IDE clinical trial to evaluate the safety and efficacy of the EPi-Sense
Guided Coagulation System with VisiTrax technology to treat symptomatic persistent and long-standing persistent Afib patients who
are refractory or intolerant to at least one Class I and/or III anti-arrhythmic drug. The trial provides for enrollment of up to 153
patients at 27 domestic medical centers and three international medical centers. Enrollment began in 2014 and was completed in
August 2018. The study protocol requires patient follow-up for twelve months post procedure for the primary effectiveness endpoint
assessment and long-term follow-up through five years. The last PMA module was submitted in December 2019. Throughout 2020,
we have conducted several meetings with FDA as they review our PMA submission, and we continue to actively work with FDA to
complete the regulatory process. In November 2020, we submitted our responses to FDA, seeking PMA approval of the EPi-Sense
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system for an indication for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented
with an endocardial ablation catheter. We are currently waiting for feedback from FDA.
aMAZE. In connection with our acquisition of SentreHEART in August 2019, we are conducting the aMAZE IDE clinical trial.
aMAZE is an FDA-approved, prospective, multicenter, randomized controlled trial evaluating the LARIAT system for LAA exclusion
adjunctive to PVI catheter ablation for the treatment of persistent and long-standing persistent Afib. The objective of the aMAZE IDE
trial is to demonstrate that using the LARIAT system for LAA exclusion, plus a PVI catheter ablation, will lead to a reduced incidence
of recurrent Afib compared to PVI alone, with a favorable safety profile. The aMAZE IDE trial provides enrollment of up to 600
patients at 65 sites with one-year follow up. Enrollment was completed in December 2019, and patient follow-up for twelve months
post PVI catheter ablation required by the study protocol remains ongoing. At this time, we have not experienced a significant delay in
patient follow-up. However, we are unable to predict the occurrence of future delays as a result of the COVID-19 pandemic. In
January 2020, we received approval for a CAP for the aMAZE IDE trial. The aMAZE CAP provides for additional patient enrollment
of up to 85 patients at existing aMAZE IDE trial sites, with the opportunity to further expand to 250 patients while the pre-market
application is under review. Enrollment in the aMAZE CAP is active and remains ongoing.
ICE-AFIB. The ICE-AFIB clinical trial is designed to study the safety and efficacy of the cryoICE® system for persistent and
long-standing persistent Afib treatment during concomitant on-pump cardiac surgery. The trial provides for enrollment of up to 150
patients at up to 20 sites in the United States. Enrollment began in January 2019 and remains ongoing.
ATLAS. The ATLAS study is a non-IDE randomized pilot study evaluating outcomes of patients with risk factors for
developing postoperative Afib as well as risk of bleeding on oral anticoagulation. There are two types of patients subject to this study:
those with a postoperative Afib diagnosis and receiving prophylactic exclusion of the left atrial appendage with the AtriClip device
concomitant to cardiac surgery and those with a postoperative Afib diagnosis who are medically managed. Enrollment began in
February 2016 and ended in March 2018. Preliminary data was presented at the Heart Rhythm Society meeting in May 2019, and a
manuscript will be drafted after event adjudication is complete and data is analyzed.
FROST. We have conducted a cryo nerve block study, which was a non-IDE randomized pilot study evaluating intraoperative
intercostal cryoanalgesia. The study involves treatment arm patients who received intercostal cryoanalgesia in conjunction with
standard post-operative pain management and control arm patients who receive standard post-operative pain management only. The
study provided for enrollment of up to 100 patients at five medical centers. Enrollment began in June 2016 and an interim data
analysis was completed when a total of 80 patients were enrolled in 2019. Enrollment was stopped following the interim analysis due
to early achievement of statistical significance. Results from the trial were presented at the Society of Thoracic Surgeons podium in
January 2020.
DEEP AF Pivotal Study. The DEEP AF IDE pivotal trial evaluates the safety and efficacy of the AtriCure Bipolar System
when used in a staged approach where a minimally invasive surgical ablation procedure is first performed. The patient undergoes the
endocardial catheter procedure approximately 91-120 days later. The study began in 2014 and was paused during 2016-2017 due to
our work to mitigate the risk related to esophageal injury during the procedure. We are committed to patient safety, and we worked
collaboratively with FDA and obtained approval to resume enrollment in the trial in 2018 starting with 40 patients. All 40 patients
have been enrolled and treated. A report of the safety data has been submitted to FDA, and we are awaiting their response. We plan to
seek approval to enroll the full cohort of 220 patients, pending FDA’s review of additional safety data.
CEASE AF. We are also pursuing a non-IDE trial in Europe to compare staged hybrid ablation treatment (minimally invasive
surgical ablation procedure is first performed and the patient undergoes the intracardiac catheter procedure approximately 91-180 days
later) versus catheter ablation alone. Enrollment began in November 2015 and remains ongoing.
Sales, Marketing and Medical Education
Our global sales and marketing efforts focus on educating physicians about our unique technologies and their technical benefits.
We only promote our products for uses described in their labeling as cleared or approved by the relevant regulatory agencies. We train
our sales force on the use of our products to the extent the products are cleared or approved.
Our sales team in the United States has approximately 180 employees supporting approximately 54 sales territories. We select
our sales personnel based on their expertise, sales experience and reputation in the medical device industry, and their knowledge of
cardiac surgery procedures and technologies.
We market and sell our products in selected countries outside of the United States through a combination of independent
distributors and direct sales personnel. Our international sales team includes sales representatives focused on our direct markets, such
as Germany, France, the United Kingdom and the Benelux region. We also maintain a network of distributors in Asia, South America
and Canada, as well as certain countries in Europe, who market and sell our products. We continue to evaluate opportunities for
further expansion into markets outside of the United States.
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Competition
Our industry is competitive, subject to change and significantly affected by new product introductions and other activities of
industry participants. Most of our competitors have greater financial and human resources than we do and have relationships with our
target customers, as well as worldwide distribution channels that are more established and developed than ours. Our primary
competitor in the cardiac surgery market is Medtronic, plc, who provides similar products to ours that have been adopted by
physicians for the treatment of Afib and related conditions. AtriCure’s Isolator Synergy System is the only medical device that is FDA
approved to treat Afib in a surgical setting, and the only medical device approved to treat persistent or long-standing persistent Afib in
a concomitant setting. Several other companies offer intracardiac catheter devices that are commonly used by electrophysiologists to
treat Afib. These catheter devices are FDA-approved to treat the paroxysmal and persistent forms of Afib, but they are not FDA
indicated to treat long-standing persistent Afib. AtriCure is monitoring other companies who are conducting clinical trials that may
support FDA approval of their devices to treat persistent and long-standing persistent Afib. We believe that our products compare
favorably against competing products during both open-heart and minimally invasive procedures, and that our products improve
treatment outcomes for patients with non-paroxysmal forms of Afib when combined with intracardiac catheter devices.
To compete effectively, we strive to demonstrate that our products are an attractive alternative or addition to other treatments by
differentiating our products on the basis of safety, efficacy, performance, ease of use, reputation, service and price. In addition, we
invest heavily in training and education to ensure that our customers understand available devices, techniques, and approaches for
optimal treatment. We have encountered and expect to continue to encounter potential customers who prefer products offered by our
competitors.
Third-Party Reimbursement
Payment for patient care in the United States is generally made by third-party payors. These payors include private insurers and
government insurance programs, such as Medicare and Medicaid. The Medicare program, the largest single payor in the United States,
is a federal health benefit program administered by the Centers for Medicare and Medicaid Services (CMS) and covers certain medical
care items and services for eligible beneficiaries, such as individuals over 65 years old, as well as chronically disabled individuals.
Because Medicare beneficiaries comprise a large percentage of the populations for which our products are used, and private insurers
may follow the coverage and payment policies for Medicare, Medicare’s coding, coverage and payment policies for cardiothoracic
surgical procedures are significant to our business.
Medicare’s Part A program pays hospitals for inpatient services, such as cardiothoracic surgery, under the Inpatient Prospective
Payment System, which provides a predetermined payment based on the patient’s discharge diagnoses and surgical procedure(s).
Discharge diagnoses are grouped into Medicare Severity Diagnosis Related Groupings (MS-DRG). There are several cardiac surgery
MS-DRGs associated with the surgical treatment of Afib, with and without a concomitant open-heart procedure. When an ablation
device and/or LAA exclusion device (LAAM) is used during a concomitant open-heart procedure, Medicare’s hospital reimbursement
is based upon the patient’s primary structural heart surgical procedure. Therefore, any additional procedure concomitant to the primary
procedure would not receive incremental hospital payment. In contrast, sole therapy minimally invasive ablation or surgical LAAM
procedures typically are reimbursed under a general cardiac surgery MS-DRG. We believe hospital reimbursement rates for sole
therapy and concomitant therapy cardiac surgical ablation or LAAM are adequate to cover the cost of our products even when
multiple procedures are performed.
Physicians are reimbursed for their services separately under the Medicare Part B physician fee schedule. When performing a
surgical cardiac ablation with and without a concomitant open-heart procedure, surgeons report Current Procedural Terminology
(CPT) codes to receive a professional fee payment. Multiple CPT codes may be reported by a physician during a procedure if multiple
procedures are performed. There are category one CPT codes for both concomitant and standalone surgical Afib treatment. At this
time, there are no category one CPT codes for the physician to report surgical LAAM. However, some providers utilize unlisted CPT
codes to obtain reimbursement in these situations.
In addition to the Medicare program, many private payors look to CMS policies as a guideline in setting their coverage policies
and payment amounts. The current coverage policies of these private payors may differ from the Medicare program, and payment
rates may be higher, lower, or the same as the Medicare program. In some cases, certain private payors adopt negative coverage
policies with respect to therapies involving our products. We engage third-party reimbursement consultants that provide support to our
customers in the event of a coverage denial.
Outside of the United States, third-party reimbursement varies widely by geography and by the type of therapy in which our
devices are used. For example, even though a new medical device may have been approved for commercial distribution, we may find
limited demand for the device until coverage and sufficient reimbursement levels have been obtained from governmental and private
third-party payors. In addition, some private third-party payors require that certain procedures or the use of certain products be
authorized in advance as a condition of reimbursement. In some countries, cost containment initiatives and health care reforms include
initiatives like governmental reviews of reimbursement rate benchmarks, which may significantly reduce reimbursement for
procedures using our medical devices or deny coverage for those procedures altogether. We are actively working to pursue market
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access in certain geographies, which includes applying for new reimbursement for therapies in which our devices are being used or
pursuing specific reimbursement for utilization of our devices.
Government Regulation
Our products are medical devices and are subject to regulation in the United States by FDA and other federal agencies, and by
comparable authorities in the European Union (EU) and other countries worldwide.
US Regulation:
FDA regulations govern nearly all of the activities that we perform, or that are performed on our behalf, to ensure that medical
products distributed domestically or exported internationally are safe and effective for their intended uses. FDA regulates the total
product lifecycle from early design, development and testing, to manufacturing and commercialization activities, as well as post-
market surveillance and reporting, including corrective actions, removals and recalls. Unless an exemption applies, most medical
devices distributed in the United States require either 510(k) clearance or PMA from FDA.
510(k) Clearance Pathway. To obtain 510(k) clearance, we must submit a notification to FDA demonstrating that our proposed
device is substantially equivalent to a predicate device, i.e., a previously cleared and legally marketed 510(k) device or a device that
was in commercial distribution before May 28, 1976, for which FDA has not yet called for the submission of a PMA. Any
modification to a 510(k)-cleared device that would constitute a major change in its intended use, or a change in its design or
manufacture that could significantly affect the safety or effectiveness of the device, requires a new 510(k) clearance.
Premarket Approval Pathway. A PMA must be submitted to FDA if the device cannot be cleared through the 510(k) process
and is not otherwise exempt. A PMA must be supported by extensive data, including but not limited to technical, preclinical, clinical,
manufacturing and labeling, to demonstrate the safety and effectiveness of the device for its intended use. A PMA supplement is
required for changes affecting the safety or effectiveness of a PMA-approved device, including but not limited to new indications for
use, a different manufacturing facility, or changes in the manufacturing process, labeling, or design specifications or components of
the device.
Clinical Trials. Clinical trials are required to support a PMA and are sometimes required for 510(k) clearance. Clinical trials are
subject to extensive recordkeeping and reporting requirements. Our clinical trials must be conducted under the oversight of an
Institutional Review Board (IRB) for the relevant clinical trial sites and must comply with FDA regulations, including, but not limited
to, those relating to current good clinical practices. We are also required to obtain the written informed consent of patients in form and
substance that complies with both FDA requirements and other human subject protection regulations established by FDA. We must
conduct our clinical studies in compliance with state and federal privacy laws, including the Health Insurance Portability and
Accountability Act (HIPAA).
Educational Grants. FDA regulates the promotion of medical devices by manufacturers and prohibits the promotion of uses
that are not on the approved or cleared labeling of the device. FDA does not regulate the practice of medicine or the conduct or
content of medical education conducted by third parties, which may include uses that are not on approved or cleared device labeling,
referred to as “off-label” uses. Manufacturers may provide unrestricted financial support for independent third-party medical
education programs in the form of educational grants intended to offset the cost of such programs. If the manufacturer controls or
unduly influences the content of such programs, FDA considers those programs to be promotional activities by the manufacturer and
thus subject to FDA regulation including promotional restrictions. We seek to ensure that our educational grants program is conducted
in accordance with FDA criteria for independent educational activities. However, we cannot provide an assurance that FDA or other
government authorities would view the third-party programs we have supported as being independent.
Pervasive and Continuing Regulation. There are numerous regulatory requirements that apply after a product is cleared or
approved by FDA, including, but not limited to: annual establishment registration and product listing; current good manufacturing
practice for devices, referred to as the Quality System Regulation (QSR); labeling requirements, and advertising and promotion
guidelines, assessing the significance of any changes to a device, monitoring and reporting serious and adverse events and certain
device malfunctions, and reporting certain device corrections and removals. Our manufacturing facilities and processes are also
subject to FDA inspections to ensure compliance with QSR.
In addition to FDA regulation, the advertising and promotion of certain medical devices are also regulated by the Federal Trade
Commission and by state regulatory and enforcement authorities. On occasion, promotional activities for FDA-regulated products can
be the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes. In addition,
under the Federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims.
Fraud, Abuse and False Claims. We are directly and indirectly subject to various federal and state laws governing our
relationship with healthcare providers. In particular, the Anti-Kickback Statute is a federal criminal law that applies broadly and
prohibits the knowing and willful offer or payment of remuneration to induce or reward patient referrals or the generation of business
involving any item or service payable by a federal health care program. The federal False Claims Act (FCA) imposes civil liability on
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any person or entity that submits, or causes the submission of, a false or fraudulent claim to the United States government. Damages
under the FCA consist of the imposition of fines and penalties and can be significant. The FCA also allows a private individual or
entity with knowledge of past or present fraud against the federal government to sue on behalf of the government to recover the civil
penalties and treble damages.
AtriCure is a member of the Advanced Medical Technology Association (AdvaMed), a voluntary United States trade
association for medical device manufacturers. This association has established guidelines and protocols for medical device
manufacturers in their relationships with healthcare professionals on matters including research and development, product training and
education, grants and charitable contributions, support of third-party educational conferences and consulting arrangements. Adoption
of the AdvaMed Code of Ethics for Interactions with Healthcare Professionals (the “AdvaMed Code”) by a medical device
manufacturer is voluntary, and while the Office of the Inspector General and other federal and state healthcare regulatory agencies
encourage its adoption and may look to the AdvaMed Code, they do not view adoption of the AdvaMed Code as proof of compliance
with applicable laws. We have adopted the AdvaMed Code and incorporated its principles in our standard operating procedures,
employee training programs, and relationships with medical professionals.
Regulation Outside of the United States:
Sales of medical devices outside of the United States are subject to foreign governmental regulations which vary substantially
from country to country. The time required to obtain certification or approval by a foreign country may be longer or shorter than that
required for FDA clearance or approval and the requirements may be different, but the general trend is toward increasing regulation
and greater requirements for the manufacturer to provide more bench testing and clinical evidence.
While some harmonization of global regulations has occurred, requirements continue to differ significantly. In China, for
example, the product must first have approval in the country of origin. In China, successful results from local product safety testing
precedes submission of documentation to obtain approval. In addition, regulatory agencies and authorities can halt distribution within
the country or otherwise take action in accordance with local laws.
Conformity Assessment Pathway. In the European Union, various directives regulate the design, manufacture and labeling of
medical devices, and more stringent conformity assessment requirements have been put in place with the 2017 Medical Device
Regulation, effective May 26, 2021. The method for assessing conformity varies depending on the type and class of the product, but
typically involves a combination of quality system assessment and product conformity assessment by a third-party notified body, an
independent and neutral institution appointed by a country to conduct the conformity assessment. This third-party assessment includes
a review of documentation related to the device that may be as extensive as the documentation requirements that the United States
FDA requires for higher risk products. The notified body also audits the manufacturer’s quality system and performs a detailed review
of the testing of the manufacturer’s device. Successful completion of a conformity assessment procedure allows a manufacturer to
issue a declaration of conformity with the requirements of the relevant directive and affix the CE mark to the device. Devices that bear
the CE mark may be commercially distributed throughout the member states of the European Union and other countries that comply
with or mirror the medical device directives or medical device regulations.
Pervasive and Continuing Regulation. There are numerous regulatory requirements that apply after a product has been
approved by the notified body for CE marking, including, but not limited to: labeling, advertising and promotion, reporting of device
modifications, monitoring the safety of the product and performing corrections and removals when necessary, maintaining “state of
the art” requirements for the devices through compliance with standards, and obtaining recertification of the quality system and
individual device certificates on a periodic basis.
Intellectual Property
Protection of our intellectual property is a priority for our business, and we rely on a combination of patent, copyright,
trademark and trade secret laws to protect our interests. Our ability to protect and use our intellectual property rights in the continued
development and commercialization of our technologies and products, operate without infringing the proprietary rights of others, and
prevent others from infringing our proprietary rights is important to our continued success. We will be able to protect our products and
technologies from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents,
trademarks or copyrights, or are effectively maintained as trade secrets, know-how or other proprietary information.
We hold numerous issued United States and international patents. We also have multiple pending United States and
international patent applications. We seek patent protection relating to technologies and products we develop in both the United States
and in selected foreign countries. While we own much of our intellectual property, including patents, patent applications, trademarks,
trade secrets, know-how and proprietary information, we also license patents and related technology of importance to the
commercialization of our products. To continue developing and commercializing our current and future products, we may license
intellectual property from commercial or academic entities to obtain the rights to technology that is required for our research,
development and commercialization activities.
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All of our employees and technical consultants are required to execute confidentiality agreements in connection with their
employment and consulting relationships with us. We also generally require them to agree to disclose and assign to us all inventions
conceived in connection with their relationship with us. We devote significant resources to obtaining patents and other intellectual
property and protecting our other proprietary information. If valid and enforceable, these patents may give us a means of blocking
competitors from using infringing technology to compete directly with our products. We also have proprietary information that may
not be patentable. With respect to proprietary information that is not patentable, we have chosen to rely on trade secret protection and
confidentiality agreements to protect our interests.
Manufacturing
We assemble, inspect, test and package the majority of our products at our facilities in Ohio and California, and our products are
sterilized by third parties. Purchased components are generally sourced from a single supplier, but alternatives to these suppliers are
available in the event this would be needed.
To minimize supply chain risks, we maintain inventory levels of components and raw materials specific to the respective part or
device. We assess tooling and equipment on an ongoing basis. Order quantities and lead times for components purchased from outside
suppliers are based on our forecasts derived from historical demand and anticipated future demand. Lead times may vary significantly
depending on the size of the order, time required to fabricate and test the components, specific supplier requirements and current
market demand for the components and subassemblies. To date, we have not experienced significant delays in obtaining any of our
components.
We regularly audit our suppliers for compliance with our quality system requirements, the QSR and/or applicable ISO
standards. We are an FDA-registered medical device manufacturer and certified to ISO 13485:2016. In addition, we have successfully
participated in the Medical Device Single Audit Program (MDSAP) and have been certified accordingly. The MDSAP program is
recognized in Australia, Brazil, Canada, Europe, Japan and the United States.
We are subject to numerous federal, state and local laws relating to such matters as laboratory practices, the experimental use of
animals, the use and disposal of hazardous or potentially hazardous substances, safe working conditions, manufacturing practices,
environmental protection and fire hazard control.
Consulting Relationships
We have developed consulting relationships with scientists and physicians throughout the world to support our research and
development, clinical and training and education programs. We work closely with these thought leaders to understand unmet needs
and emerging applications for the treatment of Afib.
Our physician consulting agreements are intended to satisfy the requirements of the personal services “Safe Harbor” regulation
as well as the AdvaMed Code and the MedTech Europe Code of Ethical Business Practice. As such, they provide for payment of a fair
market value fee only for legitimate services rendered to us. We do not expect or require the consultant to utilize or promote our
products, and consultants are required to disclose their relationship with us as appropriate, such as when publishing an article in which
one of our products is discussed. Amounts paid to physicians in the United States are disclosed by us in annual reports submitted to
CMS under the federal “Open Payments” law. Amounts paid to physicians in certain other countries are also disclosed by us in reports
submitted to various governmental agencies in those countries, in accordance with the laws of the jurisdictions where those physicians
reside or practice, or where the payments are made.
Human Capital Management
Successful execution of our strategy is dependent on attracting, developing and retaining key employees and members of our
management team. The skills, experience, and industry knowledge of our employees significantly benefit our operations and
performance. We continuously evaluate, modify, and enhance our internal processes to increase employee engagement, productivity,
and efficiency.
We had approximately 750 employees as of January 31, 2021. None of the employees were represented by a labor union or
covered by a collective bargaining agreement. We have never experienced any employment-related work stoppages and consider our
employee relations to be in good standing. At AtriCure, the employee experience is crucial to the ongoing success of the company. We
work to provide a culture that augments the intrinsic rewards of our mission – one where employees feel valued and supported every
day. We strive to communicate with transparency, engage at every level, and share in personal milestones. Our culture provides
opportunities for employees to feel a part of a community through paid leave for volunteering and individual recognition with “Heart
of AtriCure” awards. Our employees have voted us as a Top Workplace five times, and our culture is regularly cited in our internal
engagement surveys as a leading positive attribute of the company. Our culture is a central asset to our company.
Employee Compensation and Benefits
Competitive compensation and benefits are an integral part of attracting world-class talent to our organization. We are
committed to regularly analyzing and evaluating the effectiveness of our compensation and benefit programs and benchmarking our
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programs against the market and our industry peers. Annual pay increases and incentive compensation are based on performance,
which is communicated to employees and documented through our annual talent review and management process, as well as upon
internal transfer and/or promotion.
All U.S.-based employees are eligible for medical, dental, and vision insurance, paid leave for both vacation and illness, a
401(k) plan that includes a discretionary company matching contribution, a stock purchase plan enabling employees to purchase
AtriCure stock at a reduced price, life and AD&D insurance, and short- and long-term disability coverage. We also offer a variety of
ancillary benefits as enhancements, such as critical illness and accident coverage, telemedicine, adoption assistance, paid time off to
volunteer, tuition reimbursement, and a wellness program. International benefits are aligned with local market offerings.
Diversity, Equity, and Inclusion
We have an ongoing commitment to advancing Diversity, Equity, and Inclusion (DE&I) throughout our workplace and the
communities in which we operate. By honoring the dignity of each person, we foster a culture of inclusion where everyone is
welcome. We do this by embracing diverse voices and experiences, supporting programs and resources that build an authentic and
respectful workplace, and providing fair and equitable opportunities for each person to contribute meaningfully in both their work and
their personal lives. We believe that everyone should feel confident in bringing their authentic selves to work and contribute to our
mission.
We believe our workforce needs to be diverse, and leverage the skills and perspectives of a variety of backgrounds and
experiences. To attract a global workforce, we strive to embed a culture where employees can bring their whole selves to work. In
addition to established and ongoing workplace harassment training, we recently have expanded our DE&I training company-wide, as
well as into new hire orientation, established DE&I committees with employee volunteers, and expanded recruitment outreach to
include more organizations, societies, and sources that serve minority communities. In 2020, we provided a paid half-day holiday to
all U.S. employees on election day, to offer ample opportunity for voting, and for 2021, we added Martin Luther King Jr. Day as a
designated AtriCure U.S. holiday. We have also recently hired a Diversity, Equity, and Inclusion leader to further advance our
commitment and programs.
Training and Development
Employee training and development is a priority at AtriCure. We strive to create an environment where employees can realize
their potential. We provide a range of training courses and online resources, as well as developmental coaching and mentoring. We
have a regular monthly schedule of opportunities that allows employees to access both instructor-led classrooms and self-directed
web-based courses. We are committed to identifying and developing the talents of our next-generation leaders. On an annual basis, we
conduct a 9-Box Leadership Review, a process in which our Executive Leadership Team and Vice Presidents are closely involved. In
that process, we review existing leaders and prospective leaders throughout the organization and determine next best steps for their
future development. Developmental plans for employees can range from leadership support to technical skill-building.
We also work to ensure all employees have access to training that is consistent with the competencies that are measured as part
of performance management: Delivering Results with Accountability, Initiative and Involvement, Teamwork and Support, and for
those who manage people, Develop and Maintain High Performance Teams and Communication.
Safety for All Employees
We are committed to maintaining a safe workplace and promoting the well-being of all of our employees. We have
implemented multiple safety programs and regularly perform safety hazard evaluations within our facilities. Programs include our
Emergency Site Action Plan for emergencies such as fire response, severe weather threats and shelter in place incidents, as well as our
Certified First Responders safety program that include Red Cross training of employees in CPR, AED Usage and First Aid practices.
We recognize that the use of tobacco is linked to many adverse health effects, including those that impact the heart, and we offer our
employees tobacco cessation programs. Effective January 1, 2021, our Ohio office locations are entirely tobacco- and nicotine-free,
and to the extent permitted in the states of our other offices, those locations are also entirely tobacco- and nicotine-free.
Throughout the COVID-19 pandemic, our employees have been our first and foremost focus. We have implemented a number
of measures to provide a safe work environment for our employees. Most of our office-based employees began working remotely in
March 2020, while field-based sales and clinical employees continue to support cases, utilizing technology to engage with customers
in virtual settings when physical access is prohibited. We have modified our manufacturing operations in order to adhere to social
distancing requirements dictated by local law and have taken measures to help ensure safety, including requiring temperature checks
for employees entering our facilities, wearing face coverings, and other best practices surrounding hygiene to mitigate the spread of
viruses by our employees. We have not implemented any temporary or permanent reductions in headcount or to non-executive
employee compensation. AtriCure has provided regular, mandatory training for all employees on COVID-19 protocols that are
consistent with Center for Disease Control recommendations and state and country-specific guidelines. Such protocols and guidance is
continually updated and made available to employees. We have also established decision-making protocols for contact tracing, return
to work, and sanitization.
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Available Information
Our principal executive offices are located at 7555 Innovation Way, Mason, Ohio and our telephone number is 513-755-4100.
We are subject to the reporting requirements under the Securities Exchange Act of 1934. Consequently, we are required to file reports
and information with the Securities and Exchange Commission (SEC) including reports on the following forms: Form 10-K, Form 10-
Q, Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934. These reports and other information concerning us may be accessed through the SEC’s website at http://www.sec.gov. You may
also find, free of charge, on our website at http://www.atricure.com, electronic copies of our Form 10-Ks, Form 10-Qs, Form 8-Ks,
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Such
filings are placed on our website as soon as reasonably practicable after they are filed or furnished, as the case may be, with the SEC.
Our charters for our Audit, Compensation, Nominating and Corporate Governance, Strategy and Compliance, Quality and Risk
Committees and our Code of Conduct are available on our website. In the event that we grant a waiver under our Code of Conduct to
any of our officers or directors or make any material amendments to the Code of Conduct, we will publish it on our website within
four business days. Information on our website is not deemed to be a part of this Form 10-K.
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ITEM 1A. RISK FACTORS
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to
understanding other statements in this report. The following information should be carefully considered in addition to the other
information set forth in this report, including the Management’s Discussion and Analysis of Financial Conditions and Results of
Operations section and consolidated financial statements and accompanying notes. If any of the risks or uncertainties described below
actually occur or continue to occur, our business, financial condition, results of operations and stock price could be materially and
adversely affected. The risks below are not the only risks we face and additional risks not currently known to us or that we presently
deem immaterial may emerge or become material at any time and may negatively impact our business, reputation, financial condition,
results of operations or stock price. The order in which these factors appear should not be construed to indicate their relative
importance or priority.
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations, financial results and stock price.
COVID-19 Pandemic Risks
• COVID-19 pandemic may continue to affect the demand for our products, adversely impact our clinical trials and limit our ability
to execute our business strategy.
Commercial Execution and Product Performance Risks
• Failure to achieve widespread market acceptance domestically may harm operating results.
• Competition from existing and new products and procedures may decrease our market share.
• Clinical data may be negative, or our trials may not satisfy requirements of regulatory authorities, slowing rate of adoption for our
products by the medical community.
• We may not achieve Pre-Market Approval for the EPi-Sense device.
• We may be unable to promptly train sufficient numbers of physicians in the use of our products, resulting in slower market
acceptance.
• Reliance on independent distributors to sell our products in some international markets could adversely impact our sales.
Industry Condition Risks
• Rising healthcare costs may result in efforts by government and private payors to contain or reduce healthcare spending, including
for procedures that utilize our products.
• Adverse changes in payors’ policies toward coverage and reimbursement for surgical procedures would harm our ability to
promote and sell our products.
•
International sales may decrease if coverage and adequate levels of reimbursement from governmental and third-party payors
outside of the United States are not obtained and maintained.
Operational Risks
• Unfavorable publicity relating to our business and industry could negatively impact our operations.
• Reliance upon single and limited source third-party suppliers and logistics providers could harm our business if such third parties
cannot provide materials or products or perform services for us in a timely manner.
• Our manufacturing operations are highly centralized and any disruption at our manufacturing facility could harm our business.
• Our business could be negatively impacted if we fail to successfully integrate acquisitions.
•
•
• Disruptions of critical information systems or material breaches in the security of our systems could harm our business, customer
If we cannot retain our skilled employees or recruit additional qualified personnel, our business may suffer.
If we fail to properly manage our anticipated growth, our business could suffer.
relations and financial condition.
• Our insurance may not cover our indemnification obligations and other liabilities associated with our operations.
Legal & Compliance Risks
• We could face substantial penalties if we are unable to fully comply with federal, state and foreign regulations.
• We may be subject to fines, injunctions and penalties if we fail to comply with extensive FDA regulations.
• Unless and until we obtain additional FDA approval for our products, we will not be able to promote most of them to treat Afib or
prevent stroke.
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• We may be subject to fines, injunctions and penalties if we are found to be promoting our products for unapproved or off-label
uses.
• Modifications to our products may require new approvals by the FDA; failure to obtain such approvals could result in a recall of
the modified products and limitation on future sales until approved.
•
If we or our third-party vendors fail to comply with extensive FDA regulations relating to the manufacturing of our products we
may be subject to fines, injunctions and penalties.
• Any adverse finding, allegation, or exercise of enforcement or regulatory discretion against us as a result of the current
investigation by the United States Department of Justice could negatively affect our business.
• The use of products we sell may result in injuries or other adverse events that lead to product liability claims.
• Our ability to compete in the marketplace could be affected if our intellectual property rights fail to provide meaningful
commercial protection for our products.
• Litigation and administrative proceedings over patent and other intellectual property rights are common in our industry, and any
litigation or claim against us may cause us to incur substantial costs.
• We are subject to various regulatory and other risks related to selling our products internationally which could harm our revenue.
• Any allegation or determination of wrongdoing under the Foreign Corrupt Practices Act or other anti-corruption laws could have
a material adverse effect on our business.
• Compliance with new European Union medical device regulation may limit our ability to sell our product in European markets.
• The United Kingdom’s withdrawal from the European Union may have a negative impact on global economic conditions and our
international sales.
Financial Risks
• Our quarterly financial results are likely to fluctuate significantly.
• We have a history of net losses, and we may never become profitable.
• Our income tax expense could increase and adversely impact cash flows if our federal tax net operating loss and general business
credit carryforwards expire or are limited.
• Fluctuations in our effective income tax rate could adversely affect our operations, earnings, and earnings per share.
• Regulatory questions of our intercompany transfer pricing policies or changes in transfer pricing laws could increase our effective
tax rate.
• Our goodwill or other intangibles assets may become impaired which could adversely affect our financial performance.
• We may take inventory-related charges as a result of inaccurate forecasting or estimates of product life cycles which would
negatively affect our gross margins and results of operations.
• We are subject to credit risk from our accounts receivable related to our sales.
• We may be unable to comply with the covenants of our Loan Agreement.
Common Stock Risks
• We may fail to achieve our publicly announced guidance about our business which could cause a decline in our stock price.
• Securities analysts may discontinue coverage for our common stock or issue negative reports which could have a negative impact
on the market price of our common stock.
• Our common stock may experience extreme fluctuations in the price and trading volume causing our stockholders to lose some or
all of their investment.
• The sale of material amounts of common stock could encourage short sales by third parties and depress the price of our common
stock causing our stockholders to lose part or all of their investment.
• Our stock ownership will be diluted if we are required to issue additional shares of our common stock to the former stockholders
of SentreHEART as certain milestones in the merger agreement are met.
• Stockholder ownership of our common stock may be diluted if we sell common stock in a capital raising transaction or issue
shares in a future acquisition.
• Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under
Delaware law could inhibit a change in control or a change in management that stockholders consider favorable.
• Our stockholders must rely on stock appreciation for any return on investment as we do not expect to pay dividends in the
foreseeable future.
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COVID-19 Pandemic Risks
The outbreak of coronavirus (COVID-19) is materially and adversely affecting demand for our products and with
prolonged delays, could continue to affect the demand for our products and impact our clinical trials, causing disruption to
our business and negatively impacting our results of operations and financial condition.
We are subject to risks related to public health crises such as the global pandemic associated with COVID-19. On January 30,
2020, the World Health Organization declared that the recent coronavirus COVID-19 outbreak was a global health emergency, and on
March 11, 2020, declared it to be a pandemic. The COVID-19 outbreak has negatively impacted and is expected to continue to
negatively impact our operations and revenues and overall financial condition by significantly decreasing the number of procedures
performed with our products. The number of procedures performed has significantly decreased as health care organizations globally
have deferred non-emergent procedures to preserve resources and prioritized the treatment of patients with COVID-19 and protect
patients from potential exposure to COVID-19. For example, in the United States, governmental authorities have recommended, and
in certain cases required, that elective, specialty and other procedures and appointments, be suspended or canceled to avoid non-
essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and
personnel on the treatment of COVID-19. These measures and challenges will likely continue for the duration of the pandemic, which
is uncertain, and will significantly reduce our revenue while the pandemic continues.
Numerous state and local jurisdictions have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines,
executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders or
restrictions have resulted in slowdowns and delays, travel restrictions and cancellation of events, among other effects. Other
disruptions or potential disruptions include restrictions on our personnel and partners to travel and access customers for training and
case support; delays in approvals by regulatory bodies; delays in product development efforts; and additional government
requirements or other incremental mitigation efforts that may further impact our or our suppliers’ capacity to manufacture, sell and
support the use of our products.
We may experience diversion of healthcare resources away from the conduct of clinical trials, including the diversion of
hospitals serving as our clinical trial sites. Key clinical trial activities, such as clinical trial site monitoring, subject visits and study
procedures, may be interrupted due to limitations imposed or recommended by federal or state governments, trial sites, employers or
others. We may also encounter interruption or delays in the operations of FDA or other regulatory authorities, which may impact
review and approval timelines.
In addition, the COVID-19 pandemic may impact the trading price of shares of our common stock and could impact our
ability to raise additional capital on a timely basis or at all.
The COVID-19 pandemic continues to rapidly evolve. The extent to which COVID-19 may impact our business, including
our nonclinical activities, clinical trials and financial condition, will depend on future developments, which are highly uncertain, such
as the geographic spread of the disease, the duration of the pandemic, travel restrictions, business closures or business disruptions and
the effectiveness of actions taken to contain and treat the disease. To the extent the COVID-19 pandemic adversely affects our
business and financial results, it may also have the effect of heightening many of the other risks set forth in this “Risk Factors”
section.
Commercial Execution and Product Performance Risks
If our products do not achieve widespread market acceptance in the United States, our operating results will be harmed, and
we may not achieve or sustain profitability.
Our success depends in large part on the medical community’s acceptance of our products in the United States, which is the
largest revenue market in the world for medical devices. Our ablation and our LAA management product sales in the United States
generate the majority of our revenue. We expect that sales of these products will continue to account for a majority of our revenue for
the foreseeable future and that our future revenue will depend on the increasing acceptance by the medical community of our products
as standard of care for treating Afib and managing the LAA. The U.S. medical community’s acceptance of our products will depend
upon our ability to demonstrate the safety and efficacy, advantages, long-term clinical performance and cost-effectiveness of our
products. In addition, acceptance of products for the treatment of Afib is dependent upon, among other factors, the level of awareness
and education of the medical community about the surgical treatment of Afib and the existence, effectiveness and safety of our
products. Market acceptance and adoption of our products for the treatment of Afib also depends on the level of health insurer
(including Medicare) reimbursement to physicians and hospitals for procedures using our products. Negative publicity resulting from
incidents involving our products, or similar products could have a significant adverse effect on the overall acceptance of our products.
If we encounter difficulties growing the market for our products in the U.S., we may not be able to increase our revenue enough to
achieve or sustain profitability, and our business and operating results will be seriously harmed.
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Competition from existing and new products and procedures may decrease our market share and may cause our revenue to
decline, and could adversely affect our operating results.
The medical device industry, including the market for the treatment of Afib, is highly competitive, is subject to rapid
technological change and can be significantly affected by new product introductions and promotional activities. There is no assurance
that our products will compete effectively against drugs, catheter-based ablation, implantable devices, other surgical ablation devices,
or other products or techniques to occlude the left atrial appendage. Our products may become obsolete prior to the end of their
anticipated useful lives, or we may introduce new products or next-generation products prior to the end of the useful life of our current
products, either of which may require us to dispose of existing inventory and related capital equipment and/or write off their value or
accelerate their depreciation. In addition, other products may be sold at lower prices. Due to the size of the Afib and LAA
management markets, we anticipate that new or existing competitors may develop competing products, procedures and/or clinical
solutions. There are few barriers to prevent new entrants or existing competitors from developing products to compete directly with
ours. Companies also compete with us to attract qualified scientific and technical personnel as well as funding. Most of our
competitors and potential competitors have greater financial, manufacturing, marketing and research and development capabilities
than we have, and may obtain FDA approval or clearance for their products before we do. The introduction of new products,
procedures or clinical solutions, or our competitors obtaining FDA approvals or clearances, may result in price reductions, reduced
margins, loss of market share, or may render our products obsolete, which could adversely affect our revenue and future profitability.
Any clinical data that is generated regarding our products may not be positive, and our current and planned clinical trials
may not satisfy the requirements of the FDA or other regulatory authorities.
Our clinical trials are expensive to conduct, typically taking many years to complete, and have uncertain outcomes. Delays in
patient enrollment or failure of patients to consent or continue to participate in a clinical trial may cause an increase in costs and
delays in the approval and attempted commercialization of our products or result in the failure of the clinical trial. Conducting
successful clinical studies may require the enrollment of large numbers of clinical sites and patients, and suitable patients may be
difficult to identify and recruit. Patient enrollment in clinical trials and completion of patient participation and follow-up depends on
many factors, including the size of the patient population; the nature of the trial protocol; the attractiveness of, or the discomforts and
risks associated with, the treatments received by enrolled subjects; the availability of appropriate clinical trial investigators, support
staff, and proximity of patients to clinical sites; and the ability to comply with the eligibility and exclusion criteria for participation in
the clinical trial and patient compliance.
Our products will be measured on their efficacy which is dependent on the number of patients that experience Afib or stroke
following treatment with our products and the number of patients that have serious complications resulting from ablations or LAA
exclusion using our products. We cannot provide any assurance that the data collected during our clinical trials will be compelling to
the medical community because it may not be scientifically meaningful, may identify unexpected safety concerns, and may not
demonstrate that procedures utilizing our products are an attractive option when compared against data from alternative procedures
and products. Negative data would affect the use of our products and harm our business and prospects.
Conversely, positive results from clinical trial experience should not be relied upon as evidence that any of our clinical trials
will succeed or that they will satisfy regulatory requirements for product approval. There can be no assurance that the results of studies
conducted by collaborators or other third parties will be viewed favorably or are indicative of our own future study results. We may be
required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are either (i) safe
and effective for use in a diverse population for their intended uses or (ii) are substantially equivalent to predicate devices under
section 510(k) of the Food, Drug and Cosmetic Act. Success in early clinical trials does not mean that future clinical trials will be
successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the
satisfaction of the FDA and other regulatory authorities despite having progressed through initial clinical trials.
Our devices and products may not be approved or cleared even though clinical or other data, in our view, are adequate to
support an approval or clearance. The FDA or other regulatory authorities may:
•
•
disagree with our trial design and our interpretation of data from pre-clinical studies and clinical trials;
change requirements for the approval or clearance of a product candidate even after reviewing and providing comment on a
protocol for a pivotal clinical trial;
•
•
•
approve or clear a product candidate for fewer or more limited indications or uses than we request;
grant approval or clearance contingent on the performance of costly post-marketing clinical trials; or
not approve the labeling claims necessary or desirable for the successful commercialization of our product candidates.
These factors would affect the rate at which our products are adopted in the medical community.
Our success depends, in part, on our ability to achieve FDA pre-market approval of the EPi-Sense device for the treatment of
Afib and the commercial success of this product.
On May 8, 2020, we announced the results from the CONVERGE IDE clinical trial. The CONVERGE trial achieved its
primary efficacy endpoint with an approximately 18% difference in favor of the hybrid Convergent procedure as compared to
standalone endocardial catheter ablation.
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The CONVERGE trial primary efficacy endpoint is freedom from Afib, atrial tachycardia (AT), and atrial flutter (AFL),
absent class I and III anti-arrhythmic drugs (AADs) except for a previously failed or demonstrated intolerance to class I or III AADs,
with no increase in dosage following the 3-month blanking period through the 12 months post procedure follow-up visit. The primary
safety endpoint is the incidence of major adverse events (MAEs) specified in the protocol for subjects undergoing the Convergent
procedure from the time of the intervention through 30-days post intervention. There were no deaths, cardiac perforations, or atrio-
esophageal fistulas reported in the CONVERGE trial, and the MAE rate of 7.8% in the treatment arm is lower than the protocol pre-
specified performance goal of 12%. However, there can be no assurance that the FDA will grant pre-market approval of the EPi-Sense
device based on this data.
Although our CONVERGE IDE device is currently cleared under section 510(k), we are also pursuing a PMA from the FDA.
The process for obtaining marketing approval from the FDA or similar foreign governmental agencies is both time-consuming and
costly, with no certainty of a successful outcome. The last module of the PMA application was submitted to FDA in December 2019.
Throughout 2020, we have conducted several meetings with FDA as they review our PMA submission to complete the regulatory
process. In November 2020, we submitted our responses to questions posed by FDA, seeking PMA approval of the EPi-Sense system
for an indication for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with an
endocardial ablation catheter. There can be no assurance that we will obtain a pre-market approval for the EPi-Sense device on a
timely basis, or at all. If we are unable to achieve pre-market approval for the EPi-Sense device, our business will be significantly
adversely impacted, which could have a materially adverse effect on our business, financial condition and results of operations.
Our success is dependent on our ability to train surgeons in the safe and effective use of our products. Restrictions on our
ability to train surgeons, or unwillingness of surgeons to participate in such training, could reduce the market acceptance of
our products.
Our research and development efforts and our marketing strategy depend heavily on obtaining support, physician training
assistance and collaboration from experienced physicians at leading commercial and research hospitals, particularly in the U.S. and
Europe. We deliver training on the safe and effective use of our products consistent with their FDA (or equivalent regulatory body)
approved or cleared indications. While we train providers in the safe and effective use of our products, we do not train them to use any
of our products specifically to treat Afib unless the product is FDA-approved specifically for the treatment of Afib. In order for
surgeons to learn to use our products, they must attend training sessions to familiarize themselves with the products, and they must be
committed to learning the technology. Further, surgeons must utilize the technology on a regular basis to ensure they maintain the skill
set necessary to use the products. Continued market acceptance could be delayed by lack of surgeon willingness to attend training
sessions, by the time required to complete this training or by state or institutional restrictions on our ability to provide training. If we
are unable to gain and/or maintain such support, training services and collaboration, our ability to market our products and, as a result,
our financial condition, results of operations and cash flow, could be materially and adversely affected.
We rely on independent distributors to market and sell our products in certain markets outside of the United States, and a
failure of our independent distributors to successfully market our products or any disruption in their ability to do so may
adversely impact our sales.
We depend on independent third-party distributors to sell our products in certain markets outside of the United States, and if
these distributors do not perform, we may be unable to maintain or increase international revenue. We intend to grow our business
outside of the United States, and to do so, we will need to attract additional distributors or hire direct sales personnel to expand the
territories in which we sell our products. Independent distributors may terminate their relationship with us or devote insufficient sales
efforts to our products. We are not able to control our independent distributors, and they may not be successful in marketing our
products. In addition, many of our independent distributors outside of the United States initially obtain and maintain foreign regulatory
approval for sale of our products in their respective countries. Our failure to maintain our relationships with our independent
distributors outside of the United States, or our failure to recruit and retain additional skilled independent distributors in these
locations, could have an adverse effect on our operations. Turnover among our independent distributors, even if replaced, may
adversely affect our short-term financial results while we transition to new independent distributors or direct sales personnel. The
ability of these independent distributors to market and sell our products could also be adversely affected by unexpected events,
including, but not limited to, power failures, nuclear events, natural or other disasters and war or terrorist activities. In addition, the
ability of our independent distributors to borrow money from their existing lenders or to obtain credit from other sources to purchase
our products may be impaired or our independent distributors could experience a significant change in their liquidity or financial
condition, all of which could impair their ability to distribute our products and eventually lead to distributor turnover, and may
adversely impact our sales.
Industry Conditions Risks
Healthcare costs have risen significantly over the past decade. There have been and may continue to be proposals by
legislators, regulators and third-party payors to keep, contain or reduce healthcare costs.
The continuing efforts of governments, insurance companies and other payors of healthcare costs to contain or reduce these
costs, combined with closer scrutiny of such costs, could lead to patients being unable to obtain approval for payment from these
third-party payors. The cost containment measures that healthcare providers are instituting both in the U.S. and internationally could
harm our business. Some healthcare providers in the U.S. have adopted or are considering a managed care system in which the
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providers contract to provide comprehensive healthcare for a fixed cost per person. Healthcare providers may attempt to control costs
by authorizing fewer elective surgical procedures or by requiring the use of the least expensive devices possible, which could
adversely affect the demand for our products or the price at which we can sell our products. Some healthcare providers have sought to
consolidate and create new companies with greater market power, including hospitals. As the healthcare industry consolidates,
competition to provide products and services has become and will continue to become more intense. This has resulted and likely will
continue to result in greater pricing pressures and the exclusion of certain suppliers from important marketing segments.
Adverse changes in payors’ policies toward coverage and reimbursement for surgical procedures would harm our ability to
promote and sell our products.
Third-party payors are increasingly exerting pressure on medical device companies to reduce their prices. Even to the extent that
the use of our products is reimbursed by private payors and governmental payors, adverse changes in payors’ policies toward coverage
and reimbursement for surgical procedures would also harm our ability to promote and sell our products. Payors continue to review
their policies and can, without notice, deny coverage for treatments that include the use of our products. Because each third-party
payor individually approves coverage and reimbursement, obtaining these approvals may be time-consuming and costly. In addition,
third-party payors may require us to provide scientific and clinical support for the use of our products. Adverse changes in coverage
and reimbursement for surgical procedures could harm our business and reduce our revenue.
FDA does not regulate the practice of medicine. Physicians may use our products in circumstances where they deem it
medically appropriate, such as for the treatment of Afib or the reduction in stroke risk, even though FDA may not have approved or
cleared our products to be marketed specifically for those indications. Some payors may deny coverage or payment for the use of our
products for indications not specifically approved or cleared by FDA. Often, these denials can be overcome through an appeals
process, but there is no guarantee of success in these cases.
If coverage and adequate levels of reimbursement from governmental and third-party payors outside of the United States are
not obtained and maintained, sales of our products outside of the United States may decrease, and we may fail to achieve or
maintain significant sales outside of the United States.
Our revenue generated from sales outside of the United States is also dependent upon coverage and reimbursement within
prevailing foreign healthcare payment systems. Foreign healthcare payors generally do not provide the same level of reimbursement
for sole-therapy minimally invasive procedures utilizing ablation devices and related products as payors in the United States. In
addition, healthcare cost containment efforts similar to those we face in the United States are prevalent in many of the other countries
in which we sell our products, and these efforts are expected to continue. To the extent that the use of our devices has historically
received reimbursement under a foreign healthcare payment system, such reimbursement, if any, has typically been significantly less
than the reimbursement provided in the United States. If coverage and adequate levels of reimbursement from governmental and third-
party payors outside of the United States are not obtained and maintained, sales of our products outside of the United States may
decrease, and we may fail to achieve or maintain significant sales outside of the United States.
Operational Risks
We may experience unfavorable publicity relating to our business and our industry. This publicity could have a negative
impact on our ability to attract and retain customers, our sales, clinical studies involving our products, our reputation and our
stock price.
We may experience a negative impact on our business from newspaper articles or other media reports relating to, among other
things, our compliance with FDA regulations for medical device reporting, adverse patient and clinical outcomes and concerns over
disclosure of financial relationships between us and our consultants. We believe that such publicity would potentially have a negative
impact on our clinical studies, business, results of operations and financial condition or cause other adverse effects, including a decline
in the price of our stock.
We rely upon single and limited source third-party suppliers and third-party logistics providers, making us vulnerable to
supply problems and price fluctuations which could harm our business.
We rely on single and limited source third-party vendors for the manufacture and sterilization of components used in our
products. For example, we rely on one vendor to manufacture several of our RF generators, as well as separate vendors to manufacture
our EPi-Sense Guided Coagulation System with VisiTrax technology and related RF generator. It would be a time consuming and
lengthy process to secure these products from an alternative supplier. We have significant concentrations with a limited number of
vendors. We also rely on a third party to handle our warehousing and logistics functions for European and Middle Eastern markets on
our behalf.
Our reliance on outside manufacturers, sterilizers and suppliers also subjects us to risks that could harm our business, including:
• we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms;
• we may have difficulty timely locating and qualifying alternative suppliers;
•
switching components may require product redesign and new submissions to FDA which could significantly delay production or,
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if FDA refuses to approve the changes, completely eliminate our ability to sell our products;
•
•
our suppliers manufacture products for a range of customers, and fluctuations in demand for the products those suppliers
manufacture for others may affect their ability to deliver components to us in a timely manner; and
our suppliers may encounter financial hardships unrelated to our demand for components, which could inhibit their ability to
fulfill our orders and meet our requirements.
Identifying and qualifying additional or replacement suppliers for any of the components used in our products or a replacement
warehousing and logistics provider, if required, may not be accomplished quickly and could involve significant additional costs. Any
interruption or delay in the supply of components, materials or warehousing and logistics, or our inability to obtain components or
materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers
and cause them to cancel orders or switch to competitive products and could therefore have a material adverse effect on our business,
financial condition and results of operations.
Our manufacturing operations are primarily conducted at a single location, and any disruption at our manufacturing facility
could increase our expenses and decrease our revenue.
Our manufacturing operations are primarily conducted at a single location in Ohio, with select products manufactured in
California. While we take precautions at the Ohio location, we do not maintain a backup manufacturing facility, making us dependent
on the current facility and production workers for the continued operation of our business. A natural or other disaster could damage or
destroy our manufacturing equipment and cause substantial delays in our manufacturing operations, which could lead to additional
expense and decreased revenue due to lack of supply. The insurance we maintain may not be adequate to cover our losses. With or
without insurance, damage to our facility or our other property due to a natural disaster or casualty event could have a material adverse
effect on our business, financial condition and results of operations.
Our business growth strategy involves the potential for significant acquisitions. Acquisitions have inherent uncertainties and
involve risks and difficulties in integrating that may adversely affect our business, results of operations and financial
condition.
All acquisitions involve inherent uncertainties, which may include, among other things, our ability to:
•
•
•
•
•
successfully identify targets for acquisition;
negotiate reasonable terms;
properly perform due diligence and determine significant risks associated with a particular acquisition;
properly evaluate target company management capabilities; and
successfully transition and integrate the acquired company into our business and achieve the desired performance.
We may acquire businesses with unknown liabilities, contingent liabilities or internal control deficiencies. We have plans and
procedures in place to conduct reviews of potential acquisition candidates for compliance with applicable regulations and laws prior to
acquisition. Despite these efforts, realization of any of these liabilities or deficiencies may increase our expenses, adversely affect our
financial position through the initiation, pendency or outcome of litigation or otherwise, or cause us to fail to meet our public financial
reporting obligations.
We have consummated three significant acquisitions since 2013 and in the future may continue to invest a substantial amount of
capital in acquisitions. We continue to evaluate potential acquisition opportunities to support, strengthen and grow our business. There
can be no assurance that we will be able to locate suitable acquisition candidates, acquire possible acquisition candidates, acquire such
candidates on commercially reasonable terms, or integrate acquired businesses successfully in the future. In addition, any
governmental review or investigation of our proposed acquisitions, such as by the Federal Trade Commission, may impede, limit or
prevent us from proceeding with an acquisition. Future acquisitions may require us to incur additional debt and contingent liabilities,
which may adversely affect our business, results of operations and financial condition. The process of integrating acquired businesses
into our existing operations may result in operating, contract and supply chain difficulties, such as the failure to retain customers or
management personnel. Such difficulties may divert significant financial, operational and managerial resources from our existing
operations and make it more difficult to achieve our operating and strategic objectives.
If we fail to properly manage our anticipated growth, our business could suffer.
We may experience periods of rapid growth and expansion, which could place a significant strain on our personnel, information
technology systems and other resources. In particular, the increase in our direct sales force requires significant management and other
supporting resources. Any failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our
development and commercialization goals.
To achieve our revenue goals, we must successfully increase production output as required by customer demand. In the future,
we may experience difficulties in increasing production, including problems with production yields and quality control, component
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supply and shortages of qualified personnel. These problems could result in delays in product availability and increases in expenses.
Any such delay or increased expense could adversely affect our ability to generate revenues.
Future growth will also impose significant added responsibilities on management, including the need to identify, recruit, train
and integrate additional employees. In addition, rapid and significant growth will place a strain on our administrative and operational
infrastructure. In order to manage our operations and growth, we will need to continue to improve our operational and management
controls, reporting and information technology systems and financial internal control procedures. If we are unable to manage our
growth effectively, it may be difficult for us to execute our business strategy and our operating results and business could suffer.
We depend on our officers and other skilled and experienced personnel to operate our business effectively. If we are not able
to retain our current employees or recruit additional qualified personnel, our business will suffer and our future revenue and
profitability will be impaired.
We are highly dependent on the skills and experience of our President and Chief Executive Officer, Michael H. Carrel, and
certain other officers and key employees. We do not have any insurance in the event of the death or disability of key personnel. Our
officers and key employees, with the exception of our President and Chief Executive Officer, do not have employment agreements,
and they may terminate their employment and work elsewhere without notice and without cause or good reason. Currently we have
non-compete agreements with our officers and other employees. Due to the specialized knowledge of each of our officers with respect
to our products and our operations and the limited pool of people with relevant experience in the medical device field, the loss of
service of one or more of these individuals could significantly affect our ability to operate and manage our business. The
announcement of the loss of one or more of our key personnel could negatively affect our stock price.
We depend on our scientific and technical personnel for successful product development and innovation, which are critical to
the success of our business. In addition, to succeed in the implementation of our business strategy, our management team must rapidly
execute our sales strategy, obtain expanded FDA clearances and approvals, achieve market acceptance for our products and further
develop products, while managing anticipated growth by implementing effective planning, manufacturing and operating processes.
Managing this growth will require us to attract and retain additional management and technical personnel. We rely primarily on direct
sales employees to sell our products in the United States and failure to adequately train them in the use and benefits of our products
will prevent us from achieving our market share and revenue growth goals. We have key relationships with physicians that involve
procedure, product, market and clinical development. If any of these physicians end their relationship with us, our business could be
negatively impacted. We cannot assure you that we will be able to attract and retain the personnel and physician relationships
necessary to grow and expand our business and operations. If we fail to identify, attract, retain and motivate these highly skilled
personnel and physicians, we may be unable to continue our development and sales activities.
Disruptions of critical information systems or material breaches in the security of our systems could harm our business,
customer relations and financial condition.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary
business information and that of our customers, suppliers and business partners, and personally identifiable information of our
customers and employees in our data centers and on our networks. The secure processing, maintenance and transmission of this
information is critical to our operations and business strategy. Despite our security measures, our information technology and
infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such
breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any
such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the
privacy of personal information, regulatory penalties, disrupt our operations and the services we provide to customers, and damage our
reputation and cause a loss of confidence in our products and services, which could adversely affect our business, operating margins,
revenues and competitive position.
We also rely in part on information technology to store information, interface with customers, maintain financial accuracy,
secure our data and accurately produce our financial statements. If our information technology systems do not effectively and securely
collect, store, process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints,
software deficiencies, human error or cyber incident, our ability to effectively plan, forecast and execute our business plan and comply
with applicable laws and regulations would be materially impaired. Any such impairment could have a material adverse effect on our
results of operations, financial condition and the timeliness with which we report our operating results.
Our insurance may not cover our indemnification obligations and other liabilities associated with our operations.
We maintain insurance designed to provide coverage for ordinary risks associated with our operations and our ordinary
indemnification obligations, which we believe to be customary for our industry. The coverage provided by such insurance may not be
adequate for claims we may make or may be contested by our insurance carriers. If our insurance is not adequate or available to pay
liabilities associated with our operations, or if we are unable to purchase adequate insurance at reasonable rates in the future, our
business, financial condition, results of operations or cash flows may be materially adversely impacted.
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Legal & Compliance Risks
We spend considerable time and money complying with federal, state and foreign regulations in addition to FDA regulations,
and, if we are unable to fully comply with such regulations, we could face substantial penalties.
We are subject to extensive regulation by the federal government and foreign countries in which we conduct business. The laws
that affect our ability to operate our business in addition to the FDCA and FDA regulations include, but are not limited to, the
following:
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the Federal Anti-Kickback Statute, which prohibits persons from knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual, or furnishing or
arranging for a good or service, for which payment may be made under federal healthcare programs such as the Medicare and
Medicaid Programs;
•
the Federal False Claims Act, which prohibits submitting a false claim or causing the submission of a false claim to the
government;
• Medicare laws and regulations that prescribe the requirements for coverage and payment, including the amount of such payment,
and laws prohibiting false claims for reimbursement under Medicare and Medicaid;
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state consumer protection, fraud and business practice laws, including the California Consumer Privacy Act (“CCPA”), which
became effective on January 1, 2020, which among other things, requires new disclosures to California consumers and provides
consumers new abilities to opt out of certain sales of personal information;
state laws that prohibit the practice of medicine by non-doctors and by doctors not licensed in a particular state, and fee-splitting
arrangements between doctors and non-doctors, as well as state law equivalents to the Anti-Kickback Statute and the Stark Law,
which may not be limited to government-reimbursed items;
federal and state healthcare fraud and abuse laws or laws protecting the privacy of patient medical information, including the
Health Insurance Portability and Accountability Act (HIPAA) which protects medical records and other personal health
information by limiting their use and disclosure, giving individuals the right to access, amend and seek accounting reasonably
necessary to accomplish the intended purpose;
laws and regulations with respect to the collection, use, disclosure, transfer, and storage of personal data that we may collect from
our employees, consultants or in conjunction with clinical trials such as the General Data Protection Regulation in the European
Union;
the Federal Trade Commission Act and similar laws regulating advertising and consumer protection; and
similar and other regulations outside the United States.
Healthcare fraud and abuse regulations are complex, and even minor, inadvertent irregularities can potentially give rise to
claims that a law has been violated. Any violations of these laws could result in a material adverse effect on our business, financial
condition and results of operations. If there is a change in law, regulation or administrative or judicial interpretations, we may have to
change our business practices or our existing business practices could be challenged as unlawful, which could have a material adverse
effect on our business, financial condition and results of operations.
Our manufacturing operations and research and development activities involve the use of biological materials and hazardous
substances and are subject to a variety of federal, state and local environmental laws and regulations relating to the storage, use,
discharge, disposal, remediation of and human exposure to hazardous substances. Our research and development and manufacturing
operations may produce biological waste materials, such as animal tissues and certain chemical waste. These operations are permitted
by regulatory authorities, and the resultant waste materials are disposed of in compliance with environmental laws and regulations.
Compliance with these laws and regulations may be expensive, and non-compliance could result in substantial liabilities. In addition,
we cannot eliminate the risk of accidental contamination or injury to third parties from the use, storage, handling or disposal of these
materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed
any applicable insurance coverage we may have. Our manufacturing operations may result in the release, discharge, emission or
disposal of hazardous substances that could cause us to incur substantial liabilities, including costs for investigation and remediation.
If our past or present operations are found to be in violation of any of the laws described above or the other governmental
regulations to which we, our distributors or our customers are subject, we may be subject to the applicable penalty associated with the
violation, including civil and criminal penalties, damages, fines, exclusion from Medicare, Medicaid and other government programs
and the curtailment or restructuring of our operations. If we are required to obtain permits or licensure under these laws that we do not
already possess, we may become subject to substantial additional regulation or incur significant expense. Any penalties, damages,
fines, curtailment or restructuring of our operations would adversely affect our ability to operate our business and our financial results.
The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully or clearly
interpreted by the regulatory authorities or the courts, and their provisions are subject to a variety of interpretations and additional
legal or regulatory change. Any action against us for violation of these laws, even if we successfully defend against it, could cause us
to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation.
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If we fail to comply with the extensive FDA regulations relating to our business, we may be subject to fines, injunctions and
penalties, and our ability to commercially distribute and promote our products may be hurt.
Our products are classified by FDA as medical devices and, as such, are subject to extensive regulation by FDA and numerous
other federal, state and foreign governmental authorities. FDA regulations, guidance, notices and other issuances specific to medical
devices are broad and regulate numerous aspects of our business. Compliance with FDA, state and other regulations can be complex,
expensive and time-consuming. FDA and other authorities have broad enforcement powers. Furthermore, changes in the applicable
governmental regulations could prevent further commercialization of our products and technologies and could materially harm our
business.
If a serious failure to comply with applicable regulatory requirements was determined, it could result in enforcement action by
repair, replacement, refunds, recall or seizure of our products;
operating restrictions, partial suspension or total shutdown of production;
FDA or other state or federal agencies, including the DOJ, which may include any of the following sanctions, among others:
• warning letters, fines, injunctions, consent decrees and civil penalties;
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• withdrawing 510(k) clearance or PMAs that have already been granted; and
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suspension or termination of our clinical trials;
criminal prosecution.
refusing or delaying our pending requests for 510(k) clearance or PMAs, new intended uses or modifications to existing products;
If any of these events were to occur, we could lose customers and our production, product sales, business, results of operations
and financial condition would be harmed.
We are also subject to medical device reporting regulations that require us to file reports with FDA if our products may have
caused or contributed to a death or serious injury or, in the event of product malfunction, that if such malfunction were to recur, would
likely cause or contribute to a death or serious injury. There have been incidents, including patient deaths, which have occurred during
or following procedures using our products that we have not reported to FDA because we determined that our products did not
malfunction and did not cause or contribute to the outcomes in these incidents. If FDA disagrees with us, however, and determines
that we should have submitted reports for these adverse events, we could be subject to significant regulatory fines or other penalties.
In addition, the number of medical device reports we make, or the magnitude of the problems reported, could cause us or FDA to
terminate or modify our clinical trials or recall or cease the sale of our products, and could hurt commercial acceptance of our products
and harm our reputation with customers.
Unless and until we obtain additional FDA approval for our products, we will not be able to promote most of them to treat
Afib or to prevent stroke, and our ability to maintain and grow our business could be harmed. We may be subject to fines,
penalties, injunctions and other sanctions if we are deemed to be promoting the use of our products for unapproved, or off-
label, uses.
Our business and future growth depend on the continued use of our products for the treatment of Afib or prevention of stroke.
Unless the products are approved or cleared by FDA specifically for the treatment of Afib or prevention of stroke, we may not make
claims about the safety or effectiveness of our products for such uses. In order to obtain additional FDA approvals to promote our
products for the treatment of Afib or reduction in stroke risk, we will need to demonstrate in clinical trials that our products are safe
and effective for such use. Development of sufficient and appropriate clinical protocols to demonstrate quality, safety and efficacy
may be required and we may not adequately develop such protocols to support approval. We cannot assure you that any of our clinical
trials will be completed in a timely manner or successfully or that the results obtained will be acceptable to FDA. We, FDA or the IRB
may suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated
benefits.
These limitations present a material risk that FDA or other federal or state law enforcement authorities could determine that the
nature and scope of our sales, marketing and/or support activities, though designed to comply with all FDA requirements, constitute
the promotion of our products for an unapproved use in violation of the FDCA. We also face the risk that FDA or other governmental
authorities might pursue enforcement based on past activities that we have discontinued or changed, including sales activities,
arrangements with institutions and doctors, educational and training programs and other activities. Investigations concerning the
promotion of unapproved uses and related issues, are typically expensive, disruptive and burdensome and generate negative publicity.
If our promotional activities are found to be in violation of the law, we may face significant fines and penalties and may be required to
substantially change our sales, promotion, grant and educational activities. There is also a possibility that we could be enjoined from
selling some or all of our products for any unapproved use.
Although our Isolator Synergy System received FDA approval for the treatment of some forms of Afib in certain procedures, we
have not received FDA clearance or approval to promote our other products for the treatment of Afib or the prevention of stroke.
Unless and until we obtain FDA clearance or approval for the use of our other products to treat Afib or prevent stroke, we, and others
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acting on our behalf, may not claim in the U.S. that such products are safe and effective for such uses or otherwise promote them for
such uses. Similar restrictions exist outside of the U.S. There is no assurance that future clearances or approvals of our products will
be granted or that current or future clearances or approvals will not be withdrawn. Failure to obtain a clearance or approval or loss of
an existing clearance or approval, could hurt our ability to maintain and grow our business.
Modifications to our products may require new clearances or approvals or may require us to cease promoting or to recall the
modified products until such clearances or approvals are obtained and FDA may not agree with our conclusions regarding
whether new clearances or approvals were required.
Any modification to a 510(k)-cleared device that would constitute a change in its intended use, design or manufacture could
require a new or supplemental 510(k) clearance or, possibly, submission and FDA approval of a PMA application. FDA requires every
medical device company to make the determination as to whether a 510(k) must be filed, but FDA may review any medical device
company’s decision. We have made modifications to our products and concluded that such modifications did not require us to submit
a new or supplemental 510(k). FDA may not agree with our decisions regarding whether submissions were required.
If FDA were to disagree with us and require us to submit a 510(k), PMA or a PMA supplement for then-existing modifications,
we could be required to cease promoting or to recall the modified product until we obtain clearance or approval. In addition, we could
be subject to significant regulatory fines or other penalties. Furthermore, our products could be subject to recall if FDA determines, for
any reason, that our products are not safe or effective or that appropriate regulatory submissions were not made. Delays in receipt or
failure to receive clearances or approvals, the loss of previously received clearances or approvals or the failure to comply with existing
or future regulatory requirements could reduce our sales, profitability and future growth prospects.
If we or our third-party vendors fail to comply with extensive FDA regulations relating to the manufacturing of our products
or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and
sell our products may be hurt.
Our manufacturing facilities and the manufacturing facilities of any of our third-party component manufacturers, critical
suppliers or third-party sterilization facility are required to comply with FDA’s QSR, which sets forth minimum standards for the
procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging,
sterilization, storage and shipping of the products we sell. FDA may evaluate our compliance with the QSR, among other ways,
through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in
conducting an inspection of our manufacturing facilities or the manufacturing facilities of any of our third-party component
manufacturers, critical suppliers or third-party sterilization facilities, an FDA investigator observes conditions or practices believed to
violate the QSR, the investigator may document their observations on a Form FDA-483 that is issued at the conclusion of the
inspection. A manufacturer that receives an FDA-483 may respond in writing and explain any corrective actions taken in response to
the inspectional observations. FDA will typically review the facility’s written response and may re-inspect to determine the facility’s
compliance with the QSR and other applicable regulatory requirements. Failure to take adequate and timely corrective actions to
remedy objectionable conditions listed on an FDA-483 could result in FDA taking administrative or enforcement actions. Among
these may be FDA’s issuance of a Warning Letter to a manufacturer, which informs the manufacturer that FDA considers the
observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action. FDA
enforcement actions, which include seizure, injunction and criminal prosecution, could result in total or partial suspension of a
facility’s production and/or distribution, product recalls, fines, suspension of FDA’s review of product applications and FDA’s
issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations or a recall of our
products. Adverse inspections could also delay FDA approval of our products and could have an adverse effect on our production,
sales and financial condition.
We and any of our third-party vendors may also encounter other problems during manufacturing including failure to follow
specific protocols and procedures, equipment malfunction and environmental factors, any of which could delay or impede our ability
to meet demand. The manufacture of our product also subjects us to risks that could harm our business, including problems relating to
the sterilization of our products or facilities and errors in manufacturing components that could negatively affect the efficacy or safety
of our products or cause delays in shipment of our products. Any interruption or delay in the manufacture of the product or any of its
components could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive
products and could, therefore, have a material adverse effect on our business, financial condition and results of operations.
We are currently under investigation by the United States Department of Justice, and any adverse finding, allegation, or
exercise of enforcement or regulatory discretion by the DOJ could materially and adversely affect our business, financial
condition or results of operations.
As previously disclosed, on December 11, 2017, the Company received a Civil Investigative Demand (CID) from the U.S.
Department of Justice (DOJ) 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 Afib. The CID covers the period from January 2010 to December 2017 and requires the production
of documents and answers to written interrogatories. The Company had no knowledge of the investigation prior to receipt of the CID.
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The Company maintains rigorous policies and procedures to promote compliance with the False Claims Act and other applicable
regulatory requirements. The Company provided the DOJ with documents and answers to the written interrogatories and is
cooperating with the investigation. However, the Company cannot predict when the investigation will be resolved, the outcome of the
investigation or its potential impact on the Company. While the Company believes its practices are lawful, there can be no assurance
that the DOJ’s ongoing investigation or future exercise of its enforcement, regulatory, discretionary or other powers will not result in
findings or alleged violations of federal laws that could lead to enforcement actions, proceedings or litigation and the imposition of
damages, fines, penalties, restitution, other monetary liabilities, sanctions, settlements or changes to the Company’s business practices
or operations that could have a material adverse effect on the Company’s business, financial condition or results of operations or
eliminate altogether the Company’s ability to operate its business or on terms substantially similar to those on which it currently
operates.
The use of products we sell may result in injuries or other adverse events that lead to product liability suits, which could be
costly to our business or our customers’ businesses.
The use of our products may result in a variety of serious complications, including damage to the heart, internal bleeding, death
or other adverse events. Serious complications are commonly encountered in connection with surgical procedures. If products we sell
are defectively designed, manufactured or labeled, contain inadequate warnings, contain defective components, are misused or are
associated with serious injuries or deaths, we may become subject to costly litigation by our customers or their patients. We carry
product liability insurance that is limited in scope and amount and may not be adequate to fully protect us against product liability
claims. We could be required to pay damages that exceed our insurance coverage, and such amounts could be significant. Any product
liability claim, with or without merit, could also result in an increase in our insurance rates or our inability to secure coverage on
reasonable terms, if at all. Even in the absence of a claim, our insurance rates may rise in the future. Any product liability claim, even
a meritless or unsuccessful one, would be time-consuming and expensive to defend and could result in the diversion of our
management’s attention from our business and result in adverse publicity, withdrawal of clinical trial participants, injury to our
reputation and loss of revenue. Any of these events could negatively affect our financial condition.
Our intellectual property rights may not provide meaningful commercial protection for our products, which could enable
third parties to use our technology or methods, or very similar technology or methods, and could reduce our ability to
compete.
Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We
rely on patent protection, as well as a combination of copyright, trade secret and trademark laws and nondisclosure, confidentiality and
other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may
not adequately protect our rights or permit us to gain or keep any competitive advantage. Our patent applications may not issue as
patents at all or in a form that will be advantageous to us. Our issued patents and those that may be issued in the future may be
challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products.
Although we have taken steps to protect our intellectual property and proprietary technology, we cannot assure you that third
parties will not be able to design around our patents or, if they do infringe upon our technology, that we will be successful in or will
have sufficient resources to pursue a claim of infringement against those third parties. We believe that third parties may have
developed or are developing products that could infringe upon our patent rights. Any pursuit of an infringement claim by us may
involve substantial expense or diversion of management attention. In addition, although we have generally entered into confidentiality
agreements and intellectual property assignment agreements with our employees, consultants, investigators and advisors, such
agreements may be breached, may not be enforceable or may not provide meaningful protection for our trade secrets or other
proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements. Additionally, as is common
in the medical device industry, some of these individuals were previously employed at other medical equipment or biotechnology
companies, including our competitors. Although no claims are currently pending against us, we may be subject to claims that these
individuals have used or disclosed trade secrets or other proprietary information of their former employers.
The laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States.
Foreign countries generally do not allow patents to cover methods for performing surgical procedures. If our intellectual property does
not provide significant protection against foreign or domestic competition, our competitors could compete more directly with us,
which could result in a decrease in our revenue and market share. All of these factors may harm our competitive position.
The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other
intellectual property rights and any litigation or claim against us may cause us to incur substantial costs, could place a
significant strain on our financial resources, divert the attention of management from our business and harm our reputation.
Despite measures taken to protect our intellectual property, unauthorized parties might copy aspects of our products or obtain
and use information that we regard as proprietary. Whether a product infringes a patent involves complex legal and factual issues, the
determination of which is often uncertain. Any patent dispute, even one without merit or an unsuccessful one, would be time-
consuming and expensive to defend and could result in the diversion of our management’s attention from our business and result in
adverse publicity, the disruption of development and marketing efforts, injury to our reputation and loss of revenue. Litigation also
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puts our patent applications at risk of being rejected and our patents at risk of being invalidated or interpreted narrowly and may
provoke third parties to assert claims against us. Any of these events could negatively affect our financial condition.
In the event of a patent dispute, if a third party’s patents were upheld as valid and enforceable and we were found to be
infringing, or found to be inducing infringement by others, we could be prevented from selling our products unless we were able to
obtain a license to use technology or ideas covered by such patent or are able to redesign our system to avoid infringement, or we may
be ordered to pay substantial damages to the patent holders. A license may not be available at all or on terms acceptable to us, and we
may not be able to redesign our products to avoid any infringement. Modification of our products or development of new products
could require us to conduct additional clinical trials and to revise our filings with FDA and other regulatory bodies, which would be
time-consuming and expensive. If we are not successful in obtaining a license or redesigning our products, we may be unable to sell
our products and our business could suffer.
We sell our products outside of the United States, and we are subject to various regulatory and other risks relating to
international operations, which could harm our revenue and profitability.
Doing business outside of the United States exposes us to risks distinct from those we face in our domestic operations. For
example, our operations outside of the United States are subject to different regulatory requirements in each jurisdiction where we
operate or have sales. Our failure, or the failure of our distributors, to comply with current or future foreign regulatory requirements,
or the assertion by foreign authorities that we or our distributors have failed to comply, could result in adverse consequences,
including enforcement actions, fines and penalties, recalls, cessation of sales, civil and criminal prosecution, and the consequences
could be disproportionate to the relative contribution of our international operations to our results of operations. Moreover, if political
or economic conditions deteriorate in these countries, or if any of these countries are affected by a natural disaster or other
catastrophe, our ability to conduct our international operations or collect on international accounts receivable could be limited and our
costs could be increased, which could negatively affect our operating results. Engaging in business outside of the United States
inherently involves a number of other difficulties and risks, including, but not limited to:
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consequences arising from natural disasters and other similar catastrophes, such as hurricanes, tornados, earthquakes, floods and
tsunamis;
difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
pricing pressure that we may experience internationally;
export restrictions and controls relating to technology;
political and economic instability;
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potentially adverse tax consequences, tariffs and other trade barriers;
the need to hire additional personnel to promote our products outside of the United States;
international terrorism and anti-American sentiment;
fluctuations in exchange rates for future sales denominated in foreign currency, which represent a portion of our sales outside of
the United States; and
difficulty in obtaining and enforcing intellectual property rights.
Our exposure to each of these risks may increase our costs and require significant management attention. We cannot assure you
that one or more of these factors will not harm our business.
Due to the global nature of our business, we may be exposed to liabilities under the Foreign Corrupt Practices Act and various
other anti-corruption laws, and any allegation or determination that we violated these laws could have a material adverse
effect on our business.
Our business practices in foreign countries must comply with anti-corruption laws, including the Foreign Corrupt Practices Act
(FCPA), the UK Anti-Bribery Act of 2010 and other U.S. and foreign anti-corruption laws, which prohibit companies from engaging
in bribery including corruptly or improperly offering, promising, or providing money or anything else of value to foreign officials and
certain other recipients. In addition, the FCPA imposes certain books, records and accounting control obligations on public companies
and other issuers. We operate in parts of the world in which corruption can be common and compliance with anti-bribery laws may
conflict with local customs and practices. Our global operations face the risk of unauthorized payments or offers being made by
employees, consultants, sales agents and other business partners outside of our control or without our authorization.
We have a compliance program in place designed to reduce the likelihood of potential violations of the FCPA and other U.S.
and foreign anti-bribery and anti-corruption laws. It is our policy to implement safeguards (including mandatory training) to prohibit
these practices by our employees and business partners with respect to our operations. However, irrespective of these safeguards, or as
a result of monitoring compliance with such safeguards, it is possible that we or certain other parties may discover or receive
information at some point that certain employees, consultants, sales agents, or other business partners may have engaged in corrupt
conduct for which we might be held responsible.
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Violations of the FCPA or other foreign anti-corruption laws may result in restatements of, or irregularities in, our financial
statements as well as severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our
business, operating results and financial condition. In some cases, companies that violate the FCPA may be debarred by the U.S.
government and/or lose their U.S. export privileges. Changes in anti-corruption laws or enforcement priorities could also result in
increased compliance requirements and related costs which could adversely affect our business, financial condition and results of
operations. In addition, the U.S. or other governments may seek to hold us liable for successor liability FCPA violations or violations
of other anti-corruption laws committed by companies in which we invest or that we acquired or will acquire.
Compliance with developing European Union medical device regulations may limit our ability to maintain sales of our
products in European markets or to introduce new products into European markets.
Many foreign countries where we market or may market our products have regulatory bodies and restrictions similar to those of
FDA. International sales are subject to foreign government regulation, the requirements of which vary substantially from country to
country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance and
the requirements may differ. In particular, marketing of medical devices in the EU is subject to compliance with the Medical Device
Directive 93/92/EEC (MDD). A medical device may be placed on the market within the EU only if it conforms to certain “essential
requirements” and bears the CE Mark. The most fundamental and essential requirement is that a medical device must be designed and
manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users
and others. In addition, the device must achieve the essential performance intended by the manufacturer and be designed,
manufactured and packaged in a suitable manner.
In May 2017, the EU adopted a new Medical Device Regulation (EU) 2017/745 (MDR), which will repeal and replace the MDD
effective May 26, 2021. The MDR clearly envisages, among other things, stricter controls of medical devices, including strengthening
of the conformity assessment procedures, increased expectations with respect to clinical data for devices and pre-market regulatory
review of high-risk devices. The MDR also envisages greater control over notified bodies and their standards, increased transparency,
more robust device vigilance requirements and clarification of the rules for clinical investigations. Under transitional provisions,
medical devices with notified body certificates issued under the MDD prior to May 26, 2021 may continue to be placed on the market
for the remaining validity of the certificate, until May 26, 2024 at the latest. After the expiry of any applicable transitional period, only
devices that have been CE marked under the MDR may be placed on the market in the EU. If we fail to comply with the new MDR,
we may not be able to continue to sell existing products in the EU or introduce new products for sale in the EU, either of which could
materially harm our results of operations and financial condition.
The United Kingdom’s withdrawal from the European Union (EU) may have a negative effect on global economic conditions,
financial markets and our business.
The United Kingdom (U.K.) left the EU on January 31, 2020. The withdrawal (known as “Brexit”) has created significant
uncertainty about the future relationship between the United Kingdom and the EU, including with respect to the laws and regulations
that will apply as the United Kingdom determines which EU laws to replace or replicate to facilitate the withdrawal. From a regulatory
perspective, the United Kingdom’s withdrawal gives rise to significant complexity and risks. Since the medical device regulatory
framework in the United Kingdom is derived from the EU Medical Devices Directive, the United Kingdom’s withdrawal could
materially impact the continued marketing of EU medical devices in the United Kingdom.
The U.K. and the EU reached a free trade agreement on December 24, 2020, which included regulatory and customs
cooperation mechanisms, as well as provisions supporting open and fair competition. Under the trade agreement, the U.K. is free to set
its own trade policy and can negotiate with other countries that do not currently have free trade deals with the EU. Although the full
impact of the trade agreement is uncertain, it is possible that the recent changes to the trading relationship between the U.K. and the
EU due to the trade agreement could result in increased cost of goods imported into and exported from the U.K., which may decrease
the profitability of our operations. Additional currency volatility could drive a weaker British pound, which could increase the cost of
goods imported into the U.K. and may decrease the profitability of our operations. A weaker British pound versus the U.S. dollar may
also cause local currency results of our operations to be translated into fewer U.S. dollars during a reporting period.
The U.K.’s withdrawal from the EU has resulted in significant changes to the movement of goods and personnel between the
United Kingdom and the remaining member states of the EU. Products will be subject to additional inspections and documentation
checks, leading to possible delays at ports of entry and departure. The withdrawal could also adversely impact the operations of our
vendors and of our other partners. Additionally, we face new regulations regarding trade, aviation, tax, security and employees, among
others, in the United Kingdom. Compliance with such regulations could be costly, negatively impacting our business, results of
operations and financial condition. Brexit could also adversely affect European and worldwide economic and market conditions and
could contribute to instability in global financial markets.
Given the lack of precedent, it is unclear what financial, trade, regulatory and legal implications the trade agreement will have
on our business; however, Brexit and its related effects could potentially have an adverse impact on our financial position and results
of operations. Our management team has evaluated a range of possible outcomes, identified areas of concerns, and implemented
strategies to help mitigate these concerns. It is possible that these strategies may not be adequate to mitigate any adverse impacts of
Brexit, and that these impacts could further adversely affect our business and results of operations.
27
Financial Risks
Our quarterly financial results are likely to fluctuate significantly because our sales prospects are uncertain.
Due to current worldwide economic conditions, natural disasters and other factors discussed in this “Risk Factors” section which
may impact our sales results, our quarterly operating results are difficult to predict and may fluctuate significantly from quarter to
quarter or from prior year to current year periods. These fluctuations may also affect our annual operating results and may cause those
results to fluctuate unexpectedly from year to year.
We have a history of net losses, and we may never become profitable.
We have incurred net losses each year since our inception, including, most recently, net losses of $48,155 in 2020, $35,194 in
2019 and $21,137 in 2018. As of December 31, 2020, we had an accumulated deficit of $330,352.
Our net losses have resulted principally from costs and expenses relating to sales, training and promotional efforts, research and
development, clinical trials, seeking regulatory clearances and approvals and general operating expenses. We expect to continue to
incur substantial expenditures and to potentially incur additional operating losses in the future as we further develop and
commercialize our products. If sales of our products do not continue to grow as we anticipate, we will not be able to achieve
profitability. Our expansion efforts may prove to be more expensive than we currently anticipate, and we may not succeed in
increasing our revenue sufficiently to offset these higher expenses. Our losses have had, and are expected to continue to have, an
adverse impact on our working capital, total assets and accumulated deficit.
Our federal tax net operating loss (NOL) and general business credit carryforwards generated or acquired may expire or will
be limited because we experienced an ownership change of more than 50 percent, which could result in greater future income
tax expense and adversely impact future cash flows.
On June 30, 2001, we experienced an ownership change as defined by Section 382 of the Internal Revenue Code of 1986.
Section 382 imposes limitations (Section 382 limitation) on a company’s ability to use net operating loss and general business credit
carryforwards if a company experiences a more-than-50-percent ownership change over a three-year testing period. Additionally, in
connection with acquisitions, certain acquired NOLs are also subject to Section 382 limitation. The Section 382 limitations could limit
the availability of our net operating loss and general business credit carryforwards to offset any future taxable income, which may
increase our future income tax expense and adversely impact future cash flows. Net operating losses generated prior to 2018 are also
subject to expiration under current IRS regulations. We have total federal income tax net operating loss carryforwards that have begun
to expire in 2020 and research and development credit carryforwards that will begin to expire in 2022. We have available net
operating loss and research and development credit carryforwards, subject to expiration of $339,699 and $9,365 as of December 31,
2020.
Our effective income tax rate may fluctuate, which may adversely affect our operations, earnings and earnings per share.
Our effective income tax rate is influenced by our projected profitability in the various taxing jurisdictions in which we operate.
The global nature of our business increases our tax risks. In addition, revenue authorities in many of the jurisdictions in which we
operate are known to have become more active in their tax collection activities. Changes in the distribution of profits and losses
among taxing jurisdictions may have a significant impact on our effective income tax rate, which in turn could have an adverse effect
on our net income and earnings per share. The application of tax laws in various taxing jurisdictions, including the United States, is
subject to interpretation, and tax authorities in various jurisdictions may have diverging and sometimes conflicting interpretations of
the application of tax laws. Changes in tax laws or tax rulings, in the United States or other tax jurisdictions in which we operate,
could materially impact our effective tax rate.
•
•
•
•
•
•
Factors that may affect our effective income tax rate include, but are not limited to:
the requirement to exclude from our quarterly worldwide effective income tax calculations losses in jurisdictions where no
income tax benefit can be recognized;
actual and projected full year pre-tax income, including differences between actual and anticipated income before taxes in various
jurisdictions;
changes in tax laws, or in the interpretation or application of tax laws, in various taxing jurisdictions;
changes in the relative mix and staffing levels in various tax jurisdictions;
audits or other challenges by taxing authorities; and
the establishment of valuation allowances against a portion or all of certain deferred income tax assets if we determined that it is
more likely than not that future income tax benefits will not be realized.
These changes may cause fluctuations in our effective income tax rate that could adversely affect our results of operations and
cause fluctuations in our earnings and earnings per share.
28
Governmental authorities may question our intercompany transfer pricing policies or change their laws in a manner that
could increase our effective tax rate or otherwise harm our business.
As a U.S. company doing business in international markets through subsidiaries, we are subject to foreign tax and intercompany
pricing laws, including those relating to the flow of funds between the parent and subsidiaries. Tax authorities in the United States and
in foreign markets closely monitor our corporate structure and how we account for intercompany fund transfers. If tax authorities
challenge our corporate structure, transfer pricing mechanisms or intercompany transfers, our operations may be negatively impacted
and our effective tax rate may increase. Tax rates vary from country to country and if regulators determine that our profits in one
jurisdiction should be increased, we might not be able to fully offset any associated increase in tax expense in the other jurisdiction,
which would increase our effective tax rate. Additionally, the Organization for Economic Cooperation and Development, or OECD,
has issued certain proposed guidelines regarding base erosion and profit sharing. As these guidelines are formally adopted by the
OECD, it is possible that separate taxing jurisdictions may also adopt some form of these guidelines. In such case, we may need to
change our approach to intercompany transfer pricing in order to maintain compliance under the new rules. Our effective tax rate may
increase or decrease depending on the current location of global operations at the time of the change. Finally, we might not always be
in compliance with all applicable customs, exchange control, Value Added Tax and transfer pricing laws despite our efforts to be
aware of and to comply with such laws. In such case, we may need to adjust our operating procedures and our business could be
adversely affected.
If our goodwill or other intangible assets become impaired, it could materially reduce the value of our assets and reduce our
net income or increase our net loss for the year in which the impairment occurs.
As of December 31, 2020, we had $234,781 in goodwill related to acquisitions, which represents the purchase price we paid in
excess of the fair value of the net assets we acquired. The Financial Accounting Standards Board’s (FASB) Accounting Standards
Codification (ASC) 350, “Goodwill and Other Intangible Assets” requires that goodwill be tested for impairment at least annually
(absent any impairment indicators). The testing includes comparing the fair value of each reporting unit with its carrying value. We
may have future impairment adjustments to our recorded goodwill. Any finding that the value of our goodwill has been impaired
would require us to record an impairment charge which could materially reduce the value of our assets and reduce our net income or
increase our net loss for the year in which the impairment charge occurs and increase our accumulated deficit.
In Process Research and Development (IPR&D) valued at $126,321 was recorded as an intangible asset in connection with the
nContact and SentreHEART acquisitions. If we do not obtain the regulatory approvals that would confirm the technological feasibility
of the respective IPR&D projects, or if the IPR&D projects are abandoned for any other reason, we could have an impairment
adjustment of this asset that could require us to write off a portion or all of the recorded asset value. Additionally, and similar to
goodwill, if the IPR&D asset is deemed to be impaired as a result of the estimated fair value being less than carrying value, we would
be required to write off the impaired portion of the IPR&D asset. This would materially reduce the value of our assets and reduce our
net income or increase our net loss for the year in which the write off occurs and increase our accumulated deficit.
An inability to forecast future revenue or estimate life cycles of products may result in inventory-related charges that would
negatively affect our gross margins and results of operations.
To mitigate the risk of supply interruptions, we may choose to maintain additional inventory of our products or component
parts. Managing our inventory levels is important to our cash position and results of operations and is challenging in the current
economic environment. As we grow and expand our product offerings, managing our inventory levels becomes more difficult,
particularly as we expand into new product areas and bring product enhancements to market. While we rely on our personnel and
information technology systems for inventory management, our personnel and information technology systems may fail to adequately
perform these functions or may experience an interruption. An excessive amount of inventory reduces our cash available for
operations and may result in excess or obsolete materials. Conversely, inadequate inventory levels may make it difficult for us to meet
customer product demand, resulting in decreased revenue. An inability to forecast future revenue or estimated life cycles of products
may result in inventory-related charges that would negatively affect our gross margins and results of operations and increase our
accumulated deficit.
We are subject to credit risk from our accounts receivable related to our sales, which include sales to countries outside the
United States that may experience economic turmoil.
The majority of our accounts receivable arise from sales in the United States. However, we also have significant receivable
balances from customers within the European Union and Asia. Our accounts receivable in the United States are primarily due from
public and private hospitals. Our accounts receivable outside the United States are primarily due from public and private hospitals and
from independent distributors. Our historical write-offs of accounts receivable have not been significant. We monitor the financial
performance and credit worthiness of our customers so that we can properly assess and respond to changes in their credit profile. Our
independent distributors operate in certain countries where economic conditions continue to present challenges to their businesses,
and, thus, could place the amounts due to us at risk. These distributors are owed amounts from public hospitals that are funded by their
governments. Adverse financial conditions in these countries may negatively affect the length of time that it will take us to collect
associated accounts receivable or impact the likelihood of ultimate collection.
29
We may be unable to comply with the covenants of our Loan Agreement.
Our Loan Agreement with Silicon Valley Bank (“SVB”) contains a minimum liquidity covenant and other customary terms and
conditions. The occurrence of an event of default could result in an increase to the applicable interest rate by 3.0%, an acceleration of
all obligations, an obligation to repay all obligations in full and a right by SVB to exercise all remedies available to them. If we are
unable to pay those amounts, SVB could proceed against the collateral granted to it pursuant to the Loan Agreement, and we may in
turn lose access to our current source of borrowing availability.
Common Stock Risks
We may fail to meet our publicly announced guidance or other expectations about our business and future operating results,
which could cause a decline in our stock price.
We provide financial guidance about our business and future operating results. In developing this guidance, our management
makes certain assumptions and judgments about our future operating performance, including projected hiring of sales professionals,
continued increase of our market share, and continued stability of the macro-economic environment in our key markets. Furthermore,
analysts and investors may develop and publish their own projections of our business, which may form a consensus about our future
performance. Our business results may vary significantly from such guidance or that consensus due to a number of factors, many of
which are outside of our control, and which could adversely affect our operations and operating results. Furthermore, if we make
downward revisions of our previously announced guidance, or if our publicly announced guidance of future operating results fails to
meet expectations of securities analysts, investors, or other interested parties, the market price of our common stock could decline.
Securities analysts may not continue, or additional securities analysts may not initiate, coverage for our common stock or may
issue negative reports. This may have a negative impact on the market price of our common stock.
Several securities analysts provide research coverage of our common stock. Some analysts have already published statements
that do not portray our technology, products or procedures using our products in a positive light and others may do so in the future. If
we are unable to educate those who publicize such reports about the benefits we believe our business provides, or if one or more of the
analysts who elects to cover us downgrades our stock, our stock price would likely decline rapidly. If one or more of these analysts
ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline. The
trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish
about us or our business. If sufficient securities analysts do not cover our common stock, the lack of research coverage may adversely
affect the market price of our common stock. It may be difficult for companies such as ours, with smaller market capitalizations, to
attract and maintain sufficient independent financial analysts that will cover our common stock. This could have a negative effect on
the market price of our stock.
The price and trading volume of our common stock may experience extreme fluctuations and our stockholders could lose some
or all of their investment.
Because we operate within the medical device segment of the healthcare industry, our stock price is likely to be volatile. The
market price of our common stock may have and has had a history of substantial fluctuation due to a variety of factors, including, but
not limited to those risk factors described in the “Risk Factors” section herein. These factors, some of which are not within our
control, may cause the price of our stock to fluctuate substantially. We believe the quarterly and annual comparisons of our financial
results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
The market prices of the securities of medical device companies, particularly companies like ours without consistent revenue
and earnings, have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to
the operating performance of these particular companies. In the past, companies that experience volatility in the market price of their
securities have often faced securities class action litigation. Whether or not meritorious, litigation brought against us could result in
substantial costs, divert our management’s attention and resources and harm our ability to grow our business.
The sale of material amounts of common stock could encourage short sales by third parties and depress the price of our
common stock. As a result, our stockholders may lose all or part of their investment.
The downward pressure on our stock price caused by the sale of a significant number of shares of our common stock or the
perception that such sales could occur by any of our significant stockholders could cause our stock price to decline, thus allowing
short sellers of our stock an opportunity to take advantage of any decrease in the value of our stock. The presence of short sellers in
our common stock may further depress the price of our common stock. Some of our directors and executive officers have entered into,
or may enter into, Rule 10b5-1 trading plans pursuant to which they may sell shares of our stock from time to time in the future.
Actual or potential sales by these insiders, including those under a pre-arranged Rule 10b5-1 trading plan, could be interpreted by the
market as an indication that the insider has lost confidence in our stock and adversely impact the market price of our stock.
We may be obligated to issue additional shares of our common stock to the former stockholders of SentreHEART as a result
of our satisfaction of certain milestones set forth in the merger agreement, resulting in dilution of our current stock ownership.
Under the terms the SentreHEART merger agreement, we could issue additional shares of our common stock, or make payments
in cash, to the former stockholders of SentreHEART as contingent consideration upon our satisfaction of milestones described in the
30
merger agreements. The SentreHEART merger agreement limits the total number of shares of AtriCure common stock issued in
connection with the acquisition to 7,021, of which 699 shares were issued at the closing of the SentreHEART acquisition on
August 13, 2019. Issuing additional shares of our common stock in satisfaction of contingent consideration dilutes the ownership
interests of holders of our common stock on the dates of such issuances. If we are unable to realize the strategic, operational and
financial benefits anticipated from our acquisition of SentreHEART, our stockholders may experience dilution of their ownership
interests in our company upon any such future issuances of shares of our common stock without receiving any commensurate benefit.
Sales of common stock by us in a capital raising transaction or our issuances of shares in an acquisition may dilute stockholder
ownership of common stock and cause a decline in the market price of our common stock.
We may need to raise capital in the future to fund our operations or new initiatives or reduce or pay in full our indebtedness. If
we raise funds by issuing equity securities, our stock price may decline and our existing stockholders may experience significant
dilution. Furthermore, we may enter into capital raising transactions or issue shares in acquisitions at prices that represent a substantial
discount to market price. A negative reaction by investors and securities analysts to any sale of our equity securities could result in a
decline in the trading price of our common stock.
Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws and
under Delaware law could inhibit a change in control or a change in management that stockholders consider favorable.
Provisions in our certificate of incorporation and bylaws could delay or prevent a change of control or change in management
that would provide a premium to the market price of common stock. These provisions include those:
•
authorizing the issuance without further approval of “blank check” preferred stock that could be issued by our board of directors
to increase the number of outstanding shares and thwart a takeover attempt;
•
•
•
•
prohibiting cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to
elect director candidates;
limiting the ability of stockholders to call special meetings of stockholders;
prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of
stockholders; and
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law limits business combination transactions with 15%
stockholders that have not been approved by our board of directors. These provisions and others could make it difficult for a third
party to acquire us, or for members of our board of directors to be replaced, even if doing so would be beneficial to our stockholders.
Because our board of directors is responsible for appointing the members of our management team, these provisions could, in turn,
affect any attempt to replace the current management team. If a change of control or change in management is delayed or prevented,
stockholders may lose an opportunity to realize a premium on shares of common stock or the market price of our common stock could
decline.
We do not expect to pay dividends in the foreseeable future. As a result, stockholders must rely on stock appreciation for any
return on investment.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will
also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our
board of directors. Accordingly, stockholders will have to rely on capital appreciation, if any, to earn a return on investment in our
common stock. Furthermore, pursuant to our credit facility, we are currently subject to restrictions on our ability to pay dividends and
we may in the future become subject to other contractual restrictions on, or prohibitions against, the payment of dividends.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company maintains its headquarters in Mason, Ohio in a leased facility totaling approximately 92,000 square feet. The
facility contains the Company’s administrative, regulatory, engineering, product development, distribution and manufacturing
functions. The Company also leases the following principal locations:
• Mason, Ohio – This secondary location in Mason, Ohio is primarily used for warehousing and distribution activities. The facility
is approximately 40,000 square feet.
31
• Minnetonka, Minnesota – This location includes both administrative and product development space. The office is approximately
27,500 square feet.
• Redwood City, California – This location is primarily used for product development and manufacturing activities for the LARIAT
System and is approximately 10,000 square feet.
• Amsterdam, Netherlands – This location is primarily for the administration of our European subsidiaries and is approximately
9,000 square feet.
The Company believes that its existing facilities are adequate to meet its immediate needs and that suitable additional space will
be available in the future on commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material pending or threatened litigation. We may from time to time become a party to
additional legal proceedings that arise in the ordinary course of business. See Note 12 – Commitments and Contingencies to our
Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
32
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Common Stock Market Price
Our common stock is traded on the NASDAQ Global Market under the symbol “ATRC”. As of February 24, 2021, the closing
price of our common stock on the NASDAQ Global Market was $62.41 per share, and the number of stockholders of record was 82.
Performance Graph
The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return of
the NASDAQ Composite and the NASDAQ Medical Equipment Index for the period beginning on December 31, 2015 and ending on
December 31, 2020.
This graph assumes that $100.00 was invested on December 31, 2015 in our common stock, the NASDAQ Composite Index
and the NASDAQ Medical Equipment Index, and that all dividends are reinvested. No dividends have been declared or paid on our
common stock. Stock performance shown in the above chart for our common stock is historical and should not be considered
indicative of future price performance.
AtriCure, Inc.
NASDAQ Composite
NASDAQ Medical Equipment
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
$
$
$
87.21 $
108.87 $
106.07 $
81.28 $
141.13 $
153.41 $
136.36 $
137.12 $
171.99 $
144.88 $
187.44 $
209.03 $
248.08
271.64
300.10
33
ITEM 6. SELECTED FINANCIAL DATA
The following table reflects selected financial data derived from our Consolidated Financial Statements for each of the last five
years. The operating results data for the years ended December 31, 2020, 2019 and 2018 and the financial position data as of
December 31, 2020 and 2019 are derived from our audited financial statements included in this Form 10-K. The operating results data
for the years ended December 31, 2017 and 2016 and the financial position data as of December 31, 2018, 2017 and 2016 are derived
from our audited financial statements not included in this Form 10-K. Historical results are not necessarily indicative of future results.
The selected financial data set forth below should be read in conjunction with our financial statements, the related notes and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.
2020 (1)
2019 (2)
Year Ended December 31,
2018 (3)
(in thousands, except per share data)
2017
2016
Operating Results:
Revenue
Gross profit
Gross margin
Net loss
Basic and diluted net loss per share
Weighted average shares outstanding
Financial Position:
Cash, cash equivalents and investments
Working capital
Total assets
Long-term debt and leases
Stockholders’ equity
_________________________
$
$
$
$
$
206,531 $
149,309 $
72.3%
(48,155) $
(1.14) $
42,125
230,807 $
170,335 $
73.8%
(35,194) $
(0.94) $
37,589
201,630 $
147,120 $
73.0%
(21,137) $
(0.62) $
34,087
174,716 $
126,163 $
72.2%
(26,892) $
(0.83) $
32,387
155,109
111,101
71.6%
(33,338)
(1.05)
31,609
258,396 $
257,600
714,539
65,584
412,394
94,476 $
93,244
557,880
74,204
247,343
124,402 $
134,457
356,759
47,743
249,381
34,451 $
50,355
267,704
36,861
161,166
47,009
56,889
276,421
37,205
168,442
(1) The challenging environment resulting from the COVID-19 pandemic adversely impacted our 2020 results of operations and
financial condition. In May 2020, we strengthened our liquidity position through a public offering of 4,574 shares of common
stock and received net proceeds of $188,958.
(2) We acquired SentreHEART on August 13, 2019. Total consideration paid at the acquisition date was $18,008 in cash and 699
shares of AtriCure common stock valued at approximately $20,307. The purchase price also included $171,300 of contingent
consideration liabilities.
We adopted FASB ASC 842, “Leases” using the transition method provided by Accounting Standard Update (ASU) 2018-11,
“Leases (Topic 842): Targeted Improvements” on January 1, 2019. Under this method, we applied the new requirements to
leases that existed as of January 1, 2019. As a result of the adoption, the Company recorded operating right-of-use assets and
operating lease liabilities of approximately $1,884 and $2,189 as of January 1, 2019.
(3)
In October 2018, we raised $82,870 in net proceeds in a public offering of 2,875 shares of common stock.
We adopted FASB ASC 606, “Revenue from Contracts with Customers” using the modified retrospective method effective
January 1, 2018. The adoption of ASC 606 did not have a material impact on the amount and timing of revenue recognized in
the Consolidated Financial Statements.
34
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollar and share amounts referenced in this Item 7 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 consolidated financial statements and notes thereto contained in Item 8, “Financial Statements and Supplementary
Data,” to provide an understanding of our results of operations, financial condition and cash flows. This section of this Form 10-K
generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ from those anticipated in
these forward-looking statements as a result of many factors, including but not limited to those set forth under Item 1A “Risk Factors,”
the cautionary statement regarding forward-looking statements at the beginning of Part I and elsewhere in this Form 10-K.
Year Ended December 31, 2019 compared to December 31, 2018
For a comparison of our results of operations for the fiscal years ended December 31, 2019 and December 31, 2018, see “Part II,
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K
for the fiscal year ended December 31, 2019, filed with the SEC on February 24, 2020.
Overview
We are a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management. We believe
that we are currently the market leader in the surgical treatment of Afib. Our Isolator Synergy System is approved by FDA for the
treatment of persistent and long-standing persistent Afib concomitant to other open-heart surgical procedures. All of our other ablation
devices are cleared for sale in the United States under FDA 510(k) clearances, including our other radio frequency (RF) and
cryoablation products, which are indicated for the ablation of cardiac tissue and/or the 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 LAA, performed under direct visualization and in conjunction with other
cardiac surgical procedures. The LARIAT® system is cleared for soft tissue ligation. Several of our products are currently being
studied to expand labeling claims or to support indications specifically for the treatment of Afib. Many of our products 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. Certain products are also 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 primarily transacted in U.S. Dollars with the exception of
transactions with our European customers, which are transacted primarily in the Euro or the British Pound.
The challenging environment resulting from the COVID-19 pandemic adversely impacted our 2020 results of operations and
financial condition. We experienced a significant decrease in demand for our products as non-emergent procedures are being
indeterminately deferred in order to preserve resources for COVID-19 patients and caregivers and to protect patients from potential
exposure to COVID-19. In the second half of 2020, we began to see some hospitals resuming elective procedures although do not
believe that most hospitals were operating at the same levels as they had historically. We continue to be impacted by the COVID-19
pandemic and believe the effect on the Company’s business differs by geography and procedure type.
We adjusted our operating plan and expect to continuously evaluate and as may be necessary, amend our operating plan as a
result of the COVID-19 pandemic. We have elected to delay certain capital investments, and implemented other expense-reduction
measures, including ceasing non-essential travel and conference activity, and suspending work on certain research and development
projects. Adjustments to the operating plan did not include temporary or permanent reductions in headcount or to non-executive
employee compensation. However, we are unable to ensure the operating plan adjustments we have made will be sufficient or
sustained due to the inherent uncertainty of the unprecedented and rapidly evolving situation. We strengthened our liquidity position
through a public offering and sale of our common stock. In May 2020, we completed an underwritten public offering of 4,574 shares
of common stock and received net proceeds of $188,958.
Despite the challenging environment of the COVID-19 pandemic, we continued to build on our strategic initiatives of product
innovation, investing in clinical science and providing training and education. Throughout 2020, we conducted several meetings with
FDA as they review our PMA submission for the EPi-Sense system, and we continue to actively work with FDA to complete the
regulatory process. In November 2020, we submitted our responses to FDA, seeking PMA approval of the EPi-Sense system for an
indication for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with an
endocardial ablation catheter. AtriCure is currently waiting for feedback from FDA. We also made meaningful progress on the
aMAZE IDE trial, continuing twelve-month post treatment follow-up with patients. We have not yet experienced a significant delay in
patient follow-up. In addition to the progress in clinical science initiatives, we are also progressing towards 510(k) clearance of the
35
new ENCOMPASS® clamp and preparing for subsequent market launch. Our professional education and marketing teams have
adapted to the pandemic by offering online and mobile trainings for physicians.
For the year ended December 31, 2020 we reported annual revenues of $206,531, a decrease of 10.5% when compared to our
prior year. Our net loss for fiscal year 2020 was $48,155 as compared to $35,194 for fiscal year 2019, primarily as a result of our
decrease in revenues as a result of the COVID-19 pandemic. See the “Results of Operations” section below for additional analysis of
our 2020 results.
Results of Operations
Year Ended December 31, 2020 compared to December 31, 2019
The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages
of total revenue:
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development expenses
Selling, general and administrative expenses
Total operating expenses
Loss from operations
Other income (expense)
Loss before income tax expense
Income tax expense
Net loss
Year Ended December 31,
2020
% of
Revenue
Amount
2019
% of
Revenue
Amount
$
$
206,531
57,222
149,309
43,070
150,472
193,542
(44,233)
(3,808)
(48,041)
114
(48,155)
(dollars in thousands)
100.0 % $
27.7
72.3
230,807
60,472
170,335
20.9
72.9
93.7
(21.4)
(1.8)
(23.3)
0.1
(23.3) % $
41,230
162,227
203,457
(33,122)
(1,873)
(34,995)
199
(35,194)
100.0 %
26.2
73.8
17.9
70.3
88.2
(14.4)
(0.8)
(15.2)
0.1
(15.2) %
Revenue. Total revenue decreased 10.5% (10.7% on a constant currency basis) due to the deferral of non-emergent procedures
as a result of the COVID-19 pandemic. Revenue from customers in the United States decreased $16,585, or 8.9%, and revenue from
international customers decreased $7,691, or 17.1% (18.3% on a constant currency basis). Sales in the United States declined across
all product categories. Open ablation sales decreased $4,806, or 6.0% minimally invasive (MIS) ablation sales decreased $9,195, or
26.4% and appendage management sales decreased $1,185, or 1.7%. The more severe decline in MIS ablation sales reflects the
typically non-emergent nature of these procedures. However, both the AtriClip Flex·V® LAA Exclusion System (included in
appendage management sales) and cryoSPHERE probe (included in open ablation sales) continued to grow in volume in 2020 despite
the continued pressure of the COVID-19 pandemic. International revenue declined in both open ablation and MIS ablation products
throughout our major European and Asia markets as a result of the global pandemic, offset by increases in the appendage management
product line driven from increased volume of the AtriClip line.
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 growth in revenue on
a constant currency basis provides an additional and meaningful assessment of revenue to both management and investors.
Cost of revenue and gross margin. Cost of revenue decreased $3,250 driven primarily by reductions in sales. Partially
offsetting the decline in cost of revenue from reduced sales are charges during the second quarter as a result of production volumes
below normal operating levels and continued absorption of SentreHEART operations acquired in August 2019.
Research and development expenses. Research and development expenses increased $1,840, or 4.5%. The increase in research
and development expenses is a result of $1,156 increase in share-based compensation and $777 increase in clinical activity primarily
driven by the aMAZE IDE clinical trial. Increases in product development project costs offset declines in regulatory submissions and
filing fees.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased $11,755, or 7.2%.
Personnel costs decreased $14,726 due to a decline in variable compensation and travel as a result of decreased sales and travel
restrictions. Trade show, marketing and meeting costs decreased $4,384 as activities moved to remote platforms. Other decreases in
expenses included $3,840 of acquisition-related expenses, $1,179 of professional services fees, $533 in bad debt expense and $322 of
36
recruiting fees. These decreases were offset by $6,000 expense recorded for the accrual of the value of the legal settlement with the
former nContact stockholders, increase of $3,001 in share-based compensation and $4,559 fluctuation in the contingent consideration
liability adjustment. See Note 12 – Commitments and Contingencies in the Consolidated Financial Statements for further discussion of
the nContact legal settlement. See Note 3 – Fair Value in the Consolidated Financial Statements for further discussion of contingent
consideration liabilities.
Other income and expense. Other income and expense consists primarily of net interest expense and foreign currency
transaction gains and losses. Net interest expense was $3,784 for 2020 and $1,713 for 2019. Interest expense relates to our term loan
and finance lease obligations, as well as the amortization of financing costs. Interest income reflects returns on our investments,
including gains and losses on investments sold during the period. The increase in net interest expense was driven by $1,297 lower
interest income from lower investment yields and $774 increase in interest expense reflecting higher borrowings on the term loan due
to the August 2019 amendment for the SentreHEART acquisition.
Liquidity and Capital Resources
As of December 31, 2020, we had cash, cash equivalents and investments of $258,396. All cash equivalents and investments
and most of our operating cash are held in United States financial institutions. A minor portion of our cash is held in foreign banks for
the operation of our international subsidiaries. Our outstanding debt was $60,000 and we had unused borrowing capacity of $8,750
under our revolving credit facility. We had net working capital of $257,600 and an accumulated deficit of $330,352 as of
December 31, 2020.
Cash flows used in operating activities. We used $19,869 of net cash in operating activities during 2020, reflecting our net
loss of $48,155 offset by $34,925 of non-cash expenses and a net decrease in cash used related to changes in operating assets and
liabilities of $6,639. Non-cash expenses primarily included $22,642 in share-based compensation and $9,548 of depreciation and
amortization. The net decrease in cash used related to changes in operating assets and liabilities was driven by the impact of COVID-
19, including lower customer receivables from reduced sales volumes; increased investment in inventories to protect against potential
future production disruptions; and lower payables and accrued liabilities from lower variable compensation and reduced operating
activities.
Cash flows used in investing activities. We used $156,198 of net cash in investing activities during 2020, reflecting $151,739
investment activity in available-for-sale securities largely stemming from the proceeds of our May 2020 equity offering and
investment of $5,259 in property and equipment to support our new product introductions and maintenance and expansion of our
existing manufacturing and distribution facilities.
Cash flows provided by financing activities. We generated $189,392 of net cash from financing activities during 2020. This
was primarily a result of the $188,958 net proceeds from the May 2020 public stock offering. Equity compensation plan activity
included $10,835 proceeds from stock option exercises and $3,330 proceeds for the issuance of common stock under our employee
stock purchase plan, offset by $13,029 shares repurchased for payment of taxes on stock awards.
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. Principal payments on the term loan are to be made ratably commencing March 1, 2021 through the
loan’s maturity date. If the Company meets certain conditions, as specified in the Loan Agreement, the commencement of the term
loan principal payments may be deferred by an additional six months. Our 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 December 31, 2020, we had no borrowings under the revolving credit facility, and we had borrowing availability of
$8,750. The Loan Agreement also provides for certain prepayment and early termination fees only if the term loan is repaid before
August 2024 and establishes a minimum liquidity ratio and dividend restrictions, along with other customary terms and conditions.
Specified assets have been pledged as collateral. We are in compliance with the covenants of the Loan Agreement as of December 31,
2020.
On February 8, 2021, the Company and SVB entered into an amendment to the Loan Agreement which modified conditions
which allow the Company to request to defer the term loan principal payments an additional six months, commencing in September
2021, if such conditions are so satisfied. Subsequent to the amendment, the conditions were satisfied by the Company and the
Company requested such deferral. As a result, borrowings outstanding under the existing term loan agreement have been classified to
reflect the deferral of principal payments in the Consolidated Balance Sheet as of December 31, 2020.
Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as
of December 31, 2020.
37
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; future expenses to
expand and support 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. Global economic turmoil, including the impact of the COVID-19 pandemic, has evolved
rapidly over the past year and may continue to adversely impact our revenue, thus having an adverse impact on our operating results
and financial condition. We continue to evaluate additional measures to maintain financial flexibility, and we will continue to closely
monitor our liquidity and capital resources through the disruption 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. In May 2020,
we completed a public offering of 4,574 shares of our common stock, and received net proceeds of $188,958 after underwriting
discounts and commissions and offering costs.
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 term loan and revolving line of credit, 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 will be paid in AtriCure common stock
and cash, up to a specified maximum number of shares. Over the next twelve months, we do not expect our cash requirements to
include significant payments of contingent consideration based on terms of the acquisition agreement and progress towards
achievement of the related milestones.
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.
38
Contractual Obligations and Commitments
The following table sets forth our approximate aggregate obligations at December 31, 2020 for future payments under contracts
and other contingent commitments:
Contractual Obligations
Long-term debt(1)
Finance leases(2)
Operating leases(3)
Royalty obligations(4)
Restricted grants
Total contractual obligations
_________________________
Total
60,000 $
16,360
2,302
2,599
656
81,917 $
$
$
Less than
1 year
1-3 years
3-5 years
More than
5 years
6,667 $
1,608
927
2,599
656
12,457 $
40,000 $
3,281
876
—
—
44,157 $
13,333 $
3,299
499
—
—
17,131 $
—
8,172
—
—
—
8,172
(1)
(2)
Long-term debt represents principal repayments related to our term loan. See Note 10 – Indebtedness regarding applicable
interest and fee payments.
Finance leases consist of principal and interest payments related to our Mason, Ohio headquarters and computer equipment. See
Note 11 – Leases.
(3) Represents lease commitments under various operating leases, primarily for office and warehouse space. See Note 11 – Leases.
(4) Represents obligations for royalty agreements ranging from 3% to 5% of specified product sales estimated using 2020 sales.
Royalty obligations beyond one year have not been included as payments are based on specified product sales and not estimable
at this time. See Note 12 – Commitments and Contingencies to our Consolidated Financial Statements.
We have contractual obligations for contingent consideration payments related to the SentreHEART acquisition. Subject to the
terms and conditions of the SentreHEART merger agreement, such contingent consideration will be paid in AtriCure common stock
and cash, up to a specified maximum number of shares. The SentreHEART milestones expire on December 31, 2023 and
December 31, 2026. See Note 3 – Fair Value.
Off-Balance-Sheet Arrangements
We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material
effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures
or capital resources.
Inflation
Inflation has not had a significant impact on our historical operations, and we do not expect it to have a significant impact on our
results of operations or financial condition in the foreseeable future.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of consolidated 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, using 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. We have described our significant accounting policies in Note 1 – Description of Business and Summary of Significant
Accounting Policies to our consolidated financial statements included in this Form 10-K.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenue Recognition— Revenue is generated primarily from the sale of medical devices. We recognize revenue in an amount
that reflects the consideration we expect to be entitled to in exchange for those devices when control of promised devices is transferred
to customers. At contract inception, we assess the products promised in contracts with customers and identify a performance
obligation for each promise to transfer to the customer a product that is distinct. Our 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 our direct sales
39
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 limited
exceptions. We do 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.
We account for revenue in accordance with FASB ASC 606, “Revenue from Contracts with Customers”. Significant judgments
and estimates involved in the Company’s recognition of revenue include the estimation of a provision for returns. We estimate 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, we generally do not accept product returns unless a product is defective as manufactured, and we do not provide customers
with the right to a refund.
Allowance for Credit Losses on Accounts Receivable—We evaluate the expected credit losses of 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. We
charge off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. Our history of write-
offs has not been significant.
Inventories—Our 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. Our industry is characterized by rapid product development
and frequent new product introductions. Uncertain timing of product 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.
Property and Equipment—We state property and equipment at cost less accumulated depreciation. Depreciation is computed
using the straight-line method and applied over the estimated useful lives of the assets. Included in property and equipment are
generators and other capital equipment (such as our RF and cryo generators) that are placed with direct customers that use our
disposable products. These generators and other capital equipment are depreciated over a period of one to three years, which
approximates their useful lives, and such depreciation is included in cost of revenue. We estimate the useful lives of this equipment
based on anticipated usage by our customers and the timing and impact of our expected new technology rollouts. To the extent we
experience changes in the usage of this equipment or the introductions of new technologies, the estimated useful lives of this
equipment may change in a future period.
IPR&D Intangible Asset—In Process Research and Development (IPR&D) represents the value of acquired technology which
has not yet reached technological feasibility. The primary basis for determining the 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, the IPR&D will be amortized over its estimated useful life. The IPR&D asset
represents an estimate of the fair value of the PMA that may result from the CONVERGE IDE and aMAZE IDE clinical trials. We
review intangible assets for impairment annually on October 1, or more often if impairment indicators are present, using our best
estimates based on reasonable and supportable assumptions and projections of expected future cash flows. If the IPR&D project is
abandoned or regulatory approvals are not obtained, we may have a full or partial impairment charge related to the IPR&D, calculated
as the excess carrying value of the IPR&D assets over the estimated fair value.
Goodwill— Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business
combinations. Our goodwill is accounted for in a single reporting unit representing the Company as a whole. We test goodwill for
impairment annually on October 1 or more often if impairment indicators are present. The impairment test requires a comparison of
the estimated fair value of the reporting unit to the carrying value of the assets and liabilities of that reporting unit. If the carrying
value of the reporting unit exceeds the fair value of the reporting unit, the carrying value of the reporting unit’s goodwill is reduced to
its fair value through an impairment charge to adjust the goodwill balance. The estimates of fair value and the determination of
reporting units requires management judgment.
Share-Based Employee Compensation—We account for share-based compensation for all share-based payment awards,
including stock options, restricted stock awards, restricted stock units, performance share awards, and stock purchases related to an
employee stock purchase plan, based on their estimated fair values. We estimate the fair value of time-based options on the date of
grant using the Black-Scholes option pricing model (Black-Scholes model). Our determination of fair value of share-based payment
awards is affected by our stock price, as well as assumptions regarding a number of subjective variables. These variables include but
are not limited to our expected stock price volatility over the term of the awards and actual and projected employee stock option
exercise behaviors. The value of the portion of the awards that is ultimately expected to vest is recognized as expense over the
requisite service periods in our Consolidated Statements of Operations and Comprehensive Loss.
40
We estimate the fair value of restricted stock awards, restricted stock units and performance share awards based upon the grant
date closing market price of our common stock. The estimated fair value of the performance share awards may be adjusted over the
performance period based on estimates of performance target achievement.
We also have an employee stock purchase plan (ESPP) which is available to all eligible employees as defined by the plan
document. Under the ESPP, shares of our common stock may be purchased at a discount. We estimate the number of shares to be
purchased under the ESPP at the beginning of the purchase period and calculate estimated compensation expense using the Black-
Scholes model based upon the fair value of the stock at the beginning of the purchase period. Compensation expense is recognized
over each purchase period, and expense is adjusted at the time of stock purchase.
Contingent Consideration—Contingent consideration arrangements obligate the Company to pay former shareholders of
acquired companies certain amounts if specified future events occur or conditions are met, such as the achievement of certain
regulatory milestones or reimbursement milestones. We measure such liabilities using unobservable inputs by applying the
probability-weighted scenario method. Various key assumptions, such as the probability and timing of achievement of the agreed
milestones, are used in the determination of fair value of contingent consideration arrangements and are not observable in the market.
Subsequent revisions to key assumptions, which impact the estimated fair value of contingent consideration liabilities, are reflected in
selling, general and administrative expenses.
Income Taxes—Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. We measure deferred income tax assets and liabilities 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 changes in tax rates is recognized in the period that includes the enactment date.
Our estimate of the valuation allowance for deferred tax assets requires us to make significant estimates and judgments about
our 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 some portion of the deferred tax asset will not be realized. Significant weight is
given to evidence that can be objectively verified. We evaluate deferred income tax assets on an annual basis to determine if valuation
allowances are required by considering all available evidence. 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 tax assets are future reversals of existing taxable temporary differences, future taxable
income, exclusive of reversing temporary differences and carryforwards and tax planning strategies that are both prudent and feasible.
In evaluating whether to record a valuation allowance, the applicable accounting standards deem that the existence of cumulative
losses in recent years is a significant piece of objectively verifiable negative evidence that must be overcome by objectively verifiable
positive evidence to avoid the need to record a valuation allowance. We have recorded a valuation allowance against substantially all
net deferred income tax assets as it is more-likely-than-not that the benefit of such deferred income tax assets will not be recognized in
future periods.
We believe our critical accounting policies regarding revenue recognition, allowance for credit losses on accounts receivable,
inventories, property and equipment, IPR&D intangible asset, goodwill, share-based employee compensation, contingent
consideration and income taxes affect our more significant judgments and estimates used in the preparation of our consolidated
financial statements. We base our judgments and estimates on historical experience, current conditions and other reasonable factors.
Recent Accounting Pronouncements
See Note 2 – Recent Accounting Pronouncements to our Consolidated Financial Statements for further information.
41
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Amounts referenced in this Item 7A are in thousands, except per share amounts.)
The Company is exposed to various market risks, which include potential losses arising from adverse changes in market rates
and prices, such as foreign exchange fluctuations and changes in interest rates. Interest on the term loan and revolving credit facility
accrue at a variable rate based on the Prime Rate.
Products sold by AtriCure Europe, B.V. accounted for 10.9% and 11.7% of the Company’s total revenue for the years ended
December 31, 2020 and 2019. Since such revenue was primarily denominated in Euros or British Pounds, the Company is exposed to
exchange rate fluctuations between the Euro and the U.S. Dollar and between the British Pound and the Euro. For the years ended
December 31, 2020 and 2019, foreign currency transaction gains of $44 and $180 were recorded primarily in connection with
settlements of the intercompany balances and invoices transacted in British Pounds. For revenue denominated in Euros, if there is an
increase in the rate at which Euros are exchanged for U.S. Dollars, it will require more Euros to equal a specified amount of U.S.
Dollars than before the rate increase. In such cases, and if products are priced in Euros, the Company will receive less in U.S. Dollars
than was received before the rate increase went into effect. The Euro to U.S. Dollar conversion rate fluctuations may impact our
reported revenue and expenses. In other international markets, the Company denominates sales in U.S. Dollars. If products are priced
in U.S. Dollars and competitors price their products in the local currency, an increase in the relative strength of the U.S. Dollar could
result in the Company’s price not being competitive in a market where business is not transacted in U.S. Dollars.
The Company invests its cash primarily in money market accounts, repurchase agreements, U.S. government and agency
obligations, corporate bonds, asset-backed securities and commercial paper. Although the Company believes its cash to be invested in
a conservative manner, with cash preservation being the primary investment objective, the value of the securities held will fluctuate
with changes in the financial markets including, among other things, changes in interest rates, credit quality and general volatility.
This risk is managed by investing in high quality investment grade securities.
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents balances and
investments in corporate bonds. Certain of AtriCure’s cash and cash equivalents balances exceed FDIC insured limits or are invested
in money market accounts with investment banks that are not FDIC-insured. The Company places its cash and cash equivalents in
what it believes to be credit-worthy financial institutions. As of December 31, 2020, $41,694 of the cash and cash equivalents balance
was in excess of FDIC limits.
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ATRICURE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts
Page
44
46
47
48
49
50
71
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
AtriCure, Inc.
Mason, Ohio
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AtriCure, Inc. and subsidiaries (the "Company") as of
December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and
cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the
Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 26, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
Valuation of Contingent Consideration Pursuant to the SentreHEART Merger Agreement - Refer to Note 3 to the financial
statements
Critical Audit Matter Description
The Company has a contingent consideration arrangement of $184.8 million as of December 31, 2020 arising from the 2019
SentreHEART acquisition which obligates the Company to pay former shareholders of the acquired company certain amounts if
specified future events occur or conditions are met, such as the achievement of certain regulatory or reimbursement milestones
(“milestones”). The Company measured the liability associated with the contingent consideration arrangement at fair value, using
unobservable inputs by applying the probability-weighted scenario method. Various key assumptions, including the probability and
timing of achievement of regulatory or reimbursement milestones (“key assumptions”), are used in the determination of fair value of
the contingent consideration arrangement and are not observable in the market, thus representing a Level 3 measurement within the
fair value hierarchy. Given that the valuation of the contingent consideration arrangement is based on unobservable inputs and is
sensitive to changes in the probability and timing of achievement of the milestones, auditing these key assumptions required a high
degree of auditor judgment and an increased extent of effort.
44
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s key assumptions used in the determination of the fair value of the contingent
consideration arrangement included the following, among others:
• We inquired of management and the Company’s clinical research personnel to understand each milestone and key assumptions,
including current progress and any clinical results received to date.
• We tested the design and operating effectiveness of the Company’s internal controls over management’s estimates of key
assumptions used in the valuation of the contingent consideration arrangement, including consideration of the impact on
assumptions from the COVID-19 pandemic.
• We evaluated management’s ability to accurately project the key assumptions by comparing actual progress to management’s
historical projections.
• We evaluated the reasonableness of the key assumptions by comparing them to (1) internal communications to management and
the Board of Directors and (2) information included in the Company’s external communications.
• We examined regulatory trends to consider the impact of changes in the regulatory environment on the key assumptions.
• We independently corroborated the reasonableness of the key assumptions by verifying the process and timing necessary to
achieve each milestone.
Valuation of the In Process Research and Development Intangible Asset Pursuant to the nContact Merger Agreement — Refer to
Note 6 to the financial statements
Critical Audit Matter Description
The Company has an in process research and development (IPR&D) intangible asset arising from the 2015 nContact acquisition in the
amount of $44.0 million. On at least an annual basis, the Company performs impairment testing on the IPR&D intangible asset, by
comparing the carrying value to the estimated fair value. An impairment charge is required if the carrying value of the IPR&D
intangible asset is in excess of the estimated fair value. Estimated fair value is measured using the excess earnings method and key
cash flow assumptions, such as revenue growth rates, related profit margins, and obsolescence rates (“key cash flow assumptions”).
Given that the determination of the estimated fair value of the IPR&D intangible asset required management to make significant
estimates related to key cash flows assumptions, auditing these key cash flow assumptions required a high degree of auditor judgment
and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s key assumptions used in the determination of the fair value of the IPR&D intangible
asset arising from the 2015 nContact acquisition included the following, among others:
• We inquired of management and the Company’s commercial personnel to understand the key cash flow assumptions.
• We tested the design and operating effectiveness of the Company’s internal controls over management’s estimates of key cash
flow assumptions used in the valuation of the IPR&D intangible asset.
• We evaluated whether the key cash flow assumptions used were reasonable by considering industry data and current market
forecasts, including consideration of the effects of the COVID-19 pandemic, and whether such assumptions were consistent with
evidence obtained in other areas of the audit.
• We evaluated management’s ability to accurately project the key cash flow assumptions by comparing actual progress to
management’s historical projections.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the significant valuation assumptions and
calculations by:
Evaluating the excess earnings method,
Testing the reasonableness of the valuation assumptions utilized, including the discount rate, and
Testing the mathematical accuracy of the discounted cash flows used to determine the estimated fair value of the
IPR&D intangible asset.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
February 26, 2021
We have served as the Company's auditor since 2002.
45
ATRICURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 and 2019
(In Thousands, Except Per Share Amounts)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for credit losses of $1,096 and $1,124
Inventories
Prepaid and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Long-term investments
Intangible assets, net
Goodwill
Other noncurrent assets
Total Assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Other current liabilities and current maturities of debt and leases
Total current liabilities
Long-term debt
Finance lease liabilities
Operating lease liabilities
Contingent consideration and other noncurrent liabilities
Total Liabilities
Commitments and contingencies (Note 12)
Stockholders’ Equity:
$
$
$
2020
2019
41,944 $
202,274
23,146
35,026
4,347
306,737
28,290
1,914
14,178
128,199
234,781
440
714,539 $
12,736 $
27,984
8,417
49,137
53,435
10,969
1,180
187,424
302,145
28,483
53,318
28,046
29,414
3,899
143,160
32,646
4,032
12,675
129,881
234,781
705
557,880
14,948
32,750
2,218
49,916
59,634
11,774
2,796
186,417
310,537
Common stock, $0.001 par value, 90,000 shares authorized; 45,346 and 39,655 issued and
outstanding
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
45
742,389
312
(330,352)
412,394
714,539 $
40
529,658
(158)
(282,197)
247,343
557,880
$
See accompanying notes to consolidated financial statements.
46
ATRICURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 2020, 2019 and 2018
(In Thousands, Except Per Share Amounts)
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development expenses
Selling, general and administrative expenses
Total operating expenses
Loss from operations
Other income (expense):
Interest expense
Interest income
Other
Loss before income tax expense
Income tax expense
Net loss
Basic and diluted net loss per share
Weighted average shares outstanding – basic and diluted
Comprehensive loss:
Unrealized (loss) gain on investments
Foreign currency translation adjustment
Other comprehensive income (loss)
Net loss
Comprehensive loss, net of tax
$
2020
206,531 $
57,222
149,309
2019
230,807 $
60,472
170,335
2018
201,630
54,510
147,120
43,070
150,472
193,542
(44,233)
41,230
162,227
203,457
(33,122)
(4,885)
1,101
(24)
(48,041)
114
(48,155) $
(1.14) $
42,125
(46) $
516
470
(48,155)
(47,685) $
(4,111)
2,398
(160)
(34,995)
199
(35,194) $
(0.94) $
37,589
137 $
(96)
41
(35,194)
(35,153) $
34,723
129,524
164,247
(17,127)
(4,607)
1,006
(183)
(20,911)
226
(21,137)
(0.62)
34,087
(31)
(202)
(233)
(21,137)
(21,370)
$
$
$
$
See accompanying notes to consolidated financial statements.
47
ATRICURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2020, 2019, and 2018
(In Thousands)
Balance—December 31, 2017
34,586 $
35 $
386,963 $
(225,866) $
34 $
161,166
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Accumulated Comprehensive
Income (Loss)
Deficit
Total
Stockholders’
Equity
Issuance of common stock through public
offering
Issuance of common stock for settlement of
contingent consideration
Issuance of common stock under equity
incentive plans
Issuance of common stock under employee
stock purchase plan
Share-based employee compensation expense
Other comprehensive loss
Net loss
Balance—December 31, 2018
Issuance of common stock for SentreHEART
acquisition
Issuance of common stock under equity
incentive plans
Issuance of common stock under employee
stock purchase plan
Share-based employee compensation expense
Other comprehensive income
Net loss
Balance—December 31, 2019
Issuance of common stock through public
offering
Issuance of common stock under equity
incentive plans
Issuance of common stock under employee
stock purchase plan
Share-based employee compensation expense
Other comprehensive income
Net loss
Balance—December 31, 2020
2,875
232
781
130
—
—
—
38,604 $
699
248
104
—
—
—
39,655
4,574
1,013
3
—
1
82,870
6,279
1,554
—
—
—
—
—
—
—
39 $
2,383
16,495
—
—
496,544 $
—
—
—
(21,137)
(247,003) $
1
—
—
—
—
—
40
5
—
20,306
(7,831)
2,662
17,977
—
—
529,658
188,953
(2,194)
—
—
—
—
—
(35,194)
(282,197)
—
—
—
—
—
—
—
(233)
—
(199) $
—
—
—
—
41
—
(158)
—
—
104
—
—
—
45,346 $
—
—
—
—
45 $
3,330
22,642
—
—
742,389 $
—
—
—
(48,155)
(330,352) $
—
—
470
—
312 $
82,873
6,279
1,555
2,383
16,495
(233)
(21,137)
249,381
20,307
(7,831)
2,662
17,977
41
(35,194)
247,343
188,958
(2,194)
3,330
22,642
470
(48,155)
412,394
See accompanying notes to consolidated financial statements.
48
ATRICURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2020, 2019 and 2018
(In Thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense
Depreciation
Amortization of intangible assets
Amortization of deferred financing costs
Loss on disposal of property and equipment and impairment of assets
Amortization (accretion) of investments
Change in fair value of contingent consideration
Other non-cash adjustments to income
Payment of contingent consideration in excess of purchase accounting amount
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable
Inventories
Other current assets
Accounts payable
Accrued liabilities
Other noncurrent assets and liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchases of available-for-sale securities
Sales and maturities of available-for-sale securities
Purchases of property and equipment
Proceeds from sale of property and equipment
Proceeds from capital grant
Cash paid for SentreHEART business combination
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from sale of stock, net of offering costs of $218, $0, $229
Proceeds from debt borrowings
Payments on debt and finance leases
Payment of debt fees
Proceeds from stock option exercises
Shares repurchased for payment of taxes on stock awards
Proceeds from issuance of common stock under employee stock purchase plan
Payment of contingent consideration liability previously established in purchase accounting
Proceeds from economic incentive loan
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents—beginning of period
Cash and cash equivalents—end of period
Supplemental cash flow information:
Cash paid for interest
Cash paid for income taxes
Non-cash investing and financing activities:
Contingent consideration in business combinations
Stock issuance in business combinations
Share-settled portion of contingent consideration
Accrued purchases of property and equipment
Assets obtained in exchange for finance lease obligations
Finance lease early termination
2020
2019
2018
$
(48,155) $
(35,194) $
(21,137)
22,642
7,866
1,682
509
277
1,236
(357)
1,070
—
5,087
(5,265)
(477)
(1,560)
(4,908)
484
(19,869)
(227,045)
75,306
(5,259)
—
800
—
(156,198)
17,977
7,423
1,943
375
604
(922)
(4,916)
1,514
—
(3,201)
(5,151)
(1,199)
2,790
3,108
(962)
(15,811)
(73,249)
100,485
(12,182)
39
—
(17,240)
(2,147)
188,958
—
(667)
(35)
10,835
(13,029)
3,330
—
—
189,392
136
13,461
28,483
41,944 $
—
20,000
(629)
(329)
1,202
(9,033)
2,662
—
500
14,373
(163)
(3,748)
32,231
28,483 $
4,366 $
217
3,719 $
259
—
—
—
298
22
—
171,300
20,307
—
1,053
270
—
$
$
16,495
7,244
1,510
515
323
(362)
(10,825)
763
(96)
(2,837)
(146)
(367)
(2,398)
7,016
131
(4,171)
(106,588)
27,389
(6,211)
6
—
—
(85,404)
82,873
17,381
(1,755)
(1,136)
6,012
(4,457)
2,383
(1,125)
—
100,176
(179)
10,422
21,809
32,231
3,870
65
—
—
6,279
348
24
(6)
See accompanying notes to consolidated financial statements.
49
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
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.
Principles of Consolidation—The Consolidated Financial Statements include the accounts of AtriCure, Inc. and our wholly-
owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
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 certain financial institutions.
Investments—The Company makes investments primarily in U.S. government and agency obligations, corporate bonds,
commercial paper and asset-backed securities and classifies all investments as available-for-sale. Investments with maturities of less
than one year are classified as short-term. 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 13 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 result in a reduction of revenue, and the provision is included in accrued liabilities.
Allowance for Credit Losses on Accounts Receivable—The Company evaluates the expected credit losses of 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 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 product 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.
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 (see Note 8). The Company reassesses the useful lives of
property and equipment at least annually and retires assets if they are no longer in service. Maintenance and repair costs are expensed
as incurred.
The Company’s RF and cryo generators are generally placed with customers served by our direct sales force. The estimated
useful lives of this equipment are based on anticipated usage by customers and the timing and impact of expected new technology
rollouts by the Company and may change in a future period if the Company experiences changes in the usage of the equipment or
introduces new technologies. Depreciation related to generators and other capital equipment is recorded in cost of revenue.
The Company reviews property and equipment for impairment at least annually using its best estimates based on reasonable and
supportable assumptions and projections of expected future cash flows. Property and equipment impairments recorded by the
Company have not been significant.
Leases—The Company determines if an arrangement is a lease at inception of the contract. The Company 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 a purchase option whose exercise is reasonably certain. Operating leases are included in operating
lease right-of-use (ROU) assets, other current liabilities and current maturities of debt and leases, and operating lease liabilities.
Finance leases are included in property and equipment, other current liabilities and current maturities of debt and leases, and finance
lease liabilities.
50
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
ROU 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. Operating lease ROU assets and liabilities are measured and recorded at the commencement
date based on the present value of lease payments over the lease term. The operating lease ROU asset excludes lease incentives. The
Company uses the implicit rate when readily determinable, however, most of the leases do not provide an implicit rate and therefore,
the Company uses the incremental borrowing rate based on the information available at measurement. The lease terms may include
options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. 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 to effectively account for the operating lease ROU assets and liabilities based on the term of the
underlying lease. Lease expense is recognized on a straight-line basis over the lease term. See Note 11 for further discussion.
Intangible Assets—Intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated
periods benefited. The Company reassesses the useful lives of intangible assets annually.
Included in intangible assets is In Process Research and Development (IPR&D), representing the value of acquired technologies
which have not yet reached technological feasibility. The primary basis for determining the 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, the IPR&D will be amortized over its estimated useful life. The IPR&D
assets represent estimates of the fair value of the pre-market approval (PMA) that could result from the CONVERGE IDE and
aMAZE IDE clinical trials. If the IPR&D project is abandoned or regulatory approvals are not obtained, 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 assets over the estimated fair
value.
The Company reviews intangible assets for impairment using its best estimates based on reasonable and supportable
assumptions and projections of expected future cash flows. The Company performs impairment testing annually on October 1 or more
often if impairment indicators are present.
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 tests goodwill for impairment annually on October 1, or more often if impairment indicators are present.
Contingent Consideration and other Noncurrent Liabilities—This balance consists of the contingent consideration recorded in
business combinations, as well as deferred payroll taxes as a result of the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act), deferred revenues, asset retirement obligations and other contractual obligations. The contingent consideration balance
is included in noncurrent liabilities as such settlement is both required and expected to be made primarily in shares of the Company’s
common stock pursuant to the SentreHEART merger agreement.
Other Income (Expense)—Other income (expense) consists of foreign currency transaction gains and losses generated by
settlements of intercompany balances denominated in Euros and invoices transacted in British Pounds.
Income Taxes— Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing 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 reversals of existing taxable temporary differences, future taxable income, exclusive of reversing
temporary differences and 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 to record a valuation allowance. The Company has recorded
a 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 Tax Cut and Jobs Act (Tax Reform Act) allows companies an
election to reclassify the income tax effects of the Tax Reform Act on items within accumulated other comprehensive income (loss) to
retained earnings. The Company has not made this election due to its full valuation allowance.
51
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Net Loss Per Share—Basic and diluted net loss per share is computed by dividing the net loss by the weighted average number
of common shares outstanding during the period. Since the Company has experienced net losses for all periods presented, net loss per
share excludes the effect of 2,301, 3,623 and 3,869 stock options, restricted stock awards, restricted stock units and performance share
awards as of December 31, 2020, 2019 and 2018 because they are anti-dilutive. Therefore, the number of shares calculated for basic
net loss per share is also used for the diluted net loss per share calculation.
Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)—In addition to net losses, the
comprehensive income/loss includes foreign currency translation adjustments and unrealized gains and losses on investments.
Accumulated other comprehensive (loss) income consisted of the following (net of tax):
Total accumulated other comprehensive (loss) income at beginning of period
Unrealized gains (losses) on investments
Balance at beginning of period
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive (loss) income
to interest income
Balance at end of period
Foreign currency translation adjustment
Balance at beginning of period
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive (loss) income
to other (expense) income
Balance at end of period
Total accumulated other comprehensive income (loss) at end of period
2020
2019
2018
(158) $
(199) $
34
100 $
(70)
24
54 $
(258) $
555
(39)
258 $
312 $
(37) $
137
—
100 $
(162) $
(277)
181
(258) $
(158) $
(6)
(31)
—
(37)
40
(367)
165
(162)
(199)
$
$
$
$
$
$
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 of and research related to new and existing
products or concepts, preclinical studies, clinical trials, scientific and regulatory affairs.
Advertising Costs— The Company expenses advertising costs as incurred. Advertising expense was $655, $635 and $785
during the years ended December 31, 2020, 2019 and 2018.
Share-Based Compensation—The Company records share-based compensation for all share-based payment awards, including
stock options, restricted stock, performance shares and stock purchases related to an employee stock purchase plan, based on
estimated fair values.
The Company estimates the fair value of share-based payment awards on the date of grant. The value of the portion of the award
that is ultimately expected to vest is recognized as expense over the requisite service periods in the Consolidated Statements of
Operations and Comprehensive Loss. The Company estimates forfeitures at the time of grant and revises them, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.
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 fair value is affected by the Company’s stock price, as well as assumptions
regarding several subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility
over the term of the awards and actual and projected employee stock option exercise behaviors. The value of the portion of the awards
that is ultimately expected to vest is recognized as expense over the requisite service periods in the Consolidated Statements of
Operations and Comprehensive Loss. The Company estimates the fair value of restricted stock awards, restricted stock units and
performance share awards based upon the grant date closing market price of the Company’s common stock. The estimated fair value
of performance share awards may be adjusted over the performance period based on changes to estimates of performance target
achievement.
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 period.
Expense is adjusted at the time of stock purchase.
52
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Use of Estimates—The preparation of the financial statements in conformity with accounting principles generally accepted in
the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, 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. Actual results could differ from those estimates.
Fair Value Disclosures— The Company classifies cash investments in U.S. government and agency obligations, accounts
receivable, short-term other assets, accounts payable and accrued liabilities as Level 1. 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,
repurchase agreements, 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. Significant unobservable inputs with respect to the fair value measurements of the Level 3 contingent consideration
liabilities are developed using Company data. See Note 3 – Fair Value for further information on fair value measurements.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued Accounting Standard Update (ASU) 2016-13, “Financial Instruments – Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). This guidance requires that financial assets measured
at amortized costs, such as trade receivables and contract assets, be presented net of expected credit losses, which may be estimated
based on relevant information such as historical experience, current conditions and future expectations for each pool of similar
financial assets. The Company has applied the new requirements by calculating and recording an allowance for credit losses on trade
receivables as of January 1, 2020. As a result of the adoption, the Company adjusted its allowance for credit losses on trade
receivables; however, the adjustment did not have a material impact on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting
for Goodwill Impairment” (ASU 2017-04). The guidance removes the requirement to perform a hypothetical purchase price allocation
to measure goodwill impairment. Under ASU 2017-04, a goodwill impairment will be the amount by which a reporting unit’s carrying
value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance becomes effective for annual reporting
periods beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted, and applied
prospectively. The Company has adopted this guidance as of January 1, 2020, and the adoption of this standard did not have a material
impact on its consolidated financial statements and related disclosures.
3. FAIR VALUE
FASB 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 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 that the Company has the ability to access at the
measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with
sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not
entail a significant degree of judgment.
• 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. The valuation technique for the Company’s Level 2 assets is
based on quoted market prices for similar assets from observable pricing sources at the reporting date.
• 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. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available,
thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
53
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
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)
Assets:
Money market funds
Commercial paper
U.S. government and agency obligations
Corporate bonds
Asset-backed securities
Total assets
Liabilities:
Contingent consideration
Total liabilities
$
$
$
$
— $
—
45,399
—
—
45,399 $
38,452 $
76,914
—
73,730
20,409
209,505 $
— $
—
—
—
—
— $
Total
38,452
76,914
45,399
73,730
20,409
254,904
— $
— $
— $
— $
184,800 $
184,800 $
184,800
184,800
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, 2019:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
Assets:
Money market funds
Repurchase agreements
Commercial paper
U.S. government and agency obligations
Corporate bonds
Asset-backed securities
Total assets
Liabilities:
Contingent consideration
Total liabilities
$
$
$
$
— $
—
—
8,539
—
—
8,539 $
14,502 $
10,000
13,755
—
24,852
18,847
81,956 $
— $
—
—
—
—
—
— $
Total
14,502
10,000
13,755
8,539
24,852
18,847
90,495
— $
— $
— $
— $
185,157 $
185,157 $
185,157
185,157
There were no changes in the levels or methodology of measurement of financial assets and liabilities during the years ended
December 31, 2020 and 2019.
Contingent Consideration. The Company has contingent consideration arrangements arising from the nContact and
SentreHEART acquisitions.
Contingent consideration arrangements under the nContact merger agreement obligated the Company to pay former
shareholders of nContact up to $50,000 for the completion of enrollment of the CONVERGE IDE trial (Trial Enrollment Milestone)
and corresponding PMA approval by December 31, 2020 (Regulatory Milestone). nContact shareholders were also entitled to
additional sales-based contingent consideration on revenue in excess of an annual growth rate of more than 25% over a specified
baseline through 2019 (Commercial Milestone). No payments were made under the Commercial Milestone for calendar years 2016
through 2019 as revenues did not exceed the targets for these years. The Company completed patient enrollment on August 21, 2018,
and cash payment of $1,221 and issuance of 232 shares of common stock was made to former nContact shareholders for the Trial
Enrollment Milestone on September 20, 2018. No payments were made for the Regulatory Milestone as the Company did not obtain
PMA approval from FDA for the Epi-Sense Guided Coagulation System as of December 31, 2020. Therefore, as of December 31,
2020, the terms of the contingent consideration arrangements under the nContact merger agreement expired and the underlying fair
value is $0.
54
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Contingent consideration arrangements under the SentreHEART merger agreement obligate the Company to pay former
shareholders of SentreHEART for the following milestones, if achieved:
• PMA Milestone – up to $140,000 upon receiving PMA from FDA for the LARIAT system with an approved indication allowing
commercial distribution in the United States for the exclusion of the LAA for treatment of atrial fibrillation. The full contingent
consideration amount is only received if PMA approval is received on or before December 31, 2022. The potential contingent
consideration is reduced by 4.17% (or one-twenty-fourth) each month following December 2022 and is reduced to zero if the
milestone is achieved after December 31, 2023. Payment of $25,000 of the PMA milestone may be accelerated upon achievement
of an Interim Success Milestone as defined by the merger agreement.
• CPT Reimbursement Milestone – up to $120,000 upon American Medical Association approval of a Medicare Category 1 Current
Procedural Terminology (CPT) Code. The full contingent consideration amount is only received if approval of the CPT Code is
received on or before December 31, 2025. The potential contingent consideration is reduced by 4.17% (or one-twenty-fourth)
each month following December 2025 and is reduced to zero if the milestone is achieved after December 31, 2026.
Subject to the terms and conditions of the merger agreement, all contingent consideration would be paid in cash and stock at the
discretion of the Company, subject to certain limitations, with the maximum number of shares that may be issued after closing limited
to 6,322, representing total shares that may be issued in connection with the merger of 7,021 less 699 shares paid at closing. The
maximum contingent consideration payable by AtriCure will not exceed $260,000.
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 used in 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.
The recurring Level 3 fair value measurements of the contingent consideration liabilities include the following significant
inputs as of December 31, 2020:
Fair Value
Valuation Technique
Input
Range
Weighted average
by relative fair value
Regulatory &
Reimbursement milestones
$
184,800 Probability-weighted
scenario approach
Probability of payment
Projected year of
payment
Discount rate
70.00 - 85.00 %
2022 - 2025
5.56 %
80.62 %
n/a
5.56 %
Contingent consideration liabilities are periodically remeasured. Changes in the discount rate, time until payment and
probabilities 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 also causes a decrease in the fair value
measurement. Subsequent revisions in key assumptions, which impact the estimated fair value of contingent consideration liabilities
are recorded in selling, general and administrative expenses. The nContact contingent consideration was remeasured to $0 during 2020
and expired as of December 31, 2020 without meeting the regulatory milestone. The fair value of the SentreHEART contingent
consideration was remeasured during 2020 resulting in an increase in fair value due to accretion and changes in estimates related to
the forecasted timing of achievement of the milestones.
The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for
acquisition-related contingent consideration for each of the years ended December 31:
Beginning Balance – January 1
Amounts acquired
Settlement of trial enrollment milestone
Changes in fair value included in selling, general and administrative expenses
Ending Balance – December 31
2020
185,157 $
—
—
(357)
184,800 $
2019
18,773 $
171,300
—
(4,916)
185,157 $
2018
37,098
—
(7,500)
(10,825)
18,773
$
$
Contingent consideration liabilities are classified as noncurrent liabilities primarily based on expected timing of payments and
the Company expects to settle the majority of the milestone payments in stock.
55
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
4. INVESTMENTS
Investments as of December 31, 2020 consisted of the following:
Corporate bonds
U.S. government and agency obligations
Commercial paper
Asset-backed securities
Total
Investments as of December 31, 2019 consisted of the following:
Corporate bonds
U.S. government and agency obligations
Commercial paper
Asset-backed securities
Total
Cost Basis
$
$
73,702 $
45,385
76,914
20,397
216,398 $
Unrealized
Gains
(Losses)
28 $
14
—
12
54 $
Fair Value
73,730
45,399
76,914
20,409
216,452
Cost Basis
$
$
24,796 $
8,529
13,755
18,813
65,893 $
Unrealized
Gains
(Losses)
56 $
10
—
34
100 $
Fair Value
24,852
8,539
13,755
18,847
65,993
The Company has not experienced any significant realized gains or losses on its investments in the years ended December 31,
2020, 2019 and 2018.
5. BUSINESS COMBINATIONS
On August 13, 2019, the Company acquired 100% of the outstanding equity interests of SentreHEART. Founded in 2005 and
based in Redwood City, California, SentreHEART developed innovative technology for remote delivery of a suture for closure of
anatomic structures including the left atrial appendage (LAA). This technology is currently being studied in the aMAZE IDE clinical
trial, an FDA-approved, prospective, multicenter, randomized controlled trial. The objective of the aMAZE IDE trial is to demonstrate
that the LARIAT® device for LAA closure, plus a Pulmonary Vein Isolation (PVI) ablation, will lead to a reduced incidence of
recurrent Afib compared to PVI alone. Management believes the acquisition of SentreHEART will significantly expand the
Company’s addressable markets with a product designed for electrophysiologists, and the acquisition of SentreHEART deepens the
Company’s commitment to provide the broadest possible offering of ablation and LAA management solutions to patients and
customers.
The total consideration paid to SentreHEART’s former shareholders at the acquisition date was $18,008 in cash and 699 shares
of AtriCure common stock valued at approximately $20,307. The cash paid at acquisition was subject to adjustment for net working
capital balances outside of a specified range, resulting in a $768 adjustment received by the Company in November 2019. The merger
agreement also provides for the Company to pay contingent consideration 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. In connection with the acquisition of SentreHEART, fair value of $171,300 was recorded for the
SentreHEART contingent consideration. See Note 3 for further details regarding the SentreHEART acquisition-related contingent
consideration. Subject to the terms and conditions of the merger agreement, all contingent consideration would be paid in cash and
stock at the discretion of the Company, subject to certain limitations, including the total number of shares that may be issued in
connection with the merger. The maximum contingent consideration payable by AtriCure will not exceed $260,000.
The Company accounted for the acquisition in accordance with ASC 805, “Accounting for Business Combinations”. The assets
acquired, liabilities assumed and the estimated contingent consideration obligations are recorded at their respective fair values as of
the date of acquisition. The process of estimating fair values of identifiable assets, certain intangible assets and assumed liabilities
requires significant assumptions and estimates. The judgments used to determine the fair value assigned to each class of assets
acquired and liabilities assumed, as well as asset lives, can materially impact the amounts recorded and the Company’s results of
operations.
56
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
The components of the aggregate purchase price for the SentreHEART acquisition are as follows:
Fair value of AtriCure common stock issued at closing
Cash
Fair value of contingent consideration liabilities
Total purchase price
$
$
20,307
17,240
171,300
208,847
The fair value of the contingent consideration liabilities was determined by applying the probability-weighted scenario method.
Key assumptions in the valuation of the contingent consideration liabilities are based on management’s judgment and estimates and
include the probability of achievement of each of the milestones, timing of achievement and discount rates, reflecting the inherent
risks of achieving the respective milestones. Most assumptions are not observable in the market, and thus represent a Level 3
measurement within the fair value hierarchy. See Note 3 for discussion of unobservable inputs.
The following table summarizes the fair values of the assets acquired and the liabilities assumed based on the information that
was available as of the acquisition date:
Inventories
Current assets
Operating lease right-of-use asset
Property and equipment
Intangible assets
Other assets
Total identifiable assets
Current liabilities
Operating lease liability
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Total consideration
August 13, 2019
1,848
$
328
2,929
94
82,570
202
87,971
5,719
2,929
8,648
79,323
129,524
208,847
$
$
$
$
$
During the measurement period, the Company recorded adjustments for the fair value of consideration transferred, including
settlement of working capital, and the evaluation of certain tax attributes. Net deferred tax assets of $20,590 and offsetting valuation
allowances were also recognized at the acquisition date for the future tax consequences attributable to differences between the above
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and acquired operating loss and tax
credit carryforwards of SentreHEART. At acquisition, SentreHEART had approximately $184,036 of federal and state net operating
loss carryforwards, which begin to expire in 2026 and $37,906 of federal net operating loss carryforwards which have no expiration as
a result of the Tax Reform Act. A portion of the net operating loss carryforwards are subject to certain limitations under Internal
Revenue Code Section 382. The Company recorded a full valuation allowance against the net deferred tax assets at acquisition. The
goodwill recorded is not deductible for tax purposes.
The valuation of the intangible assets acquired and related amortization periods are as follows:
Developed technology
IPR&D
Total
Amortization
Valuation
$
$
270
82,300
82,570
Term
(in years)
15
Indefinite
The fair value of the LARIAT developed technology was estimated using the relief-from-royalty method, an income approach.
The LARIAT developed technology asset is amortized on a straight-line basis over its estimated useful life. The IPR&D asset was
estimated using the excess earnings method, also an income approach. The IPR&D asset represents an estimate of the fair value of the
57
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
PMA approval from the in-process aMAZE IDE clinical trial and is accounted for as an indefinite-lived intangible asset until
completion or abandonment of the project.
The Company recorded the excess of the aggregate purchase price over the estimated fair values of the identifiable net assets
acquired as goodwill. Goodwill is primarily attributable to the benefits the Company expects to realize by enhancing its product
offering and addressable markets, thereby contributing to an expanded revenue base. As discussed in Note 1, the Company accounts
for goodwill in a single reporting unit representing the Company as a whole.
The 2019 operating results of SentreHEART, including $1,280 of appendage management revenue and $8,505 of net loss, are
included in the Consolidated Statements of Operations and Comprehensive Loss beginning August 14, 2019. The Consolidated
Balance Sheet as of December 31, 2019 reflects the acquisition of SentreHEART. The Company recognized approximately $138 and
$3,978 of acquisition-related costs in the years ended December 31, 2020 and 2019, consisting of legal, audit, tax and other due
diligence expenses. Acquisition-related costs are included in selling, general and administrative expenses.
The following supplemental pro forma information presents the financial results of the Company for the twelve months ended
December 31, 2019 and 2018 as if the acquisition of SentreHEART had occurred on January 1, 2018.
Revenue
Net loss
Basic and diluted net loss per share
Year Ended
December 31,
(unaudited)
2019
232,768 $
(40,970)
(1.09) $
2018
205,725
(42,959)
(1.23)
$
$
Certain pro forma adjustments have been made when calculating the amounts above to reflect the impact of the purchase
transaction, primarily consisting of the exclusion of SentreHEART’s interest expense incurred on debt paid off or converted to equity
in the acquisition, exclusion of fair value adjustments for SentreHEART’s derivative liabilities and preferred warrants settled as part
of the acquisition, adjustments for amortization of intangible assets with determinable lives and exclusion of contingent consideration
remeasurement. The Company also eliminated transaction expenses incurred by both AtriCure and SentreHEART. The supplemental
pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred
had the acquisition been made on January 1, 2018, nor is it indicative of any future results. The pro forma information does not
include any adjustments for potential revenue enhancements, cost synergies or other operating efficiencies that could result from the
acquisition.
6. INTANGIBLE ASSETS AND GOODWILL
The following table provides a summary of the Company’s intangible assets at December 31:
2020
2019
Technology
IPR&D
Total
Estimated
Useful Life
5-15 years $
Cost
11,691 $
126,321
138,012 $
$
Accumulated
Amortization
9,813 $
—
9,813 $
Cost
11,691 $
126,321
138,012 $
Accumulated
Amortization
8,131
—
8,131
Amortization expense related to intangible assets with definite lives, which excludes the IPR&D asset, was $1,682, $1,943 and
$1,510 for the years ended December 31, 2020, 2019 and 2018.
58
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Future amortization expense is projected as follows:
2021
2022
2023
2024
2025
2026 and thereafter
Total
$
$
951
718
18
18
18
155
1,878
The Company expects to begin amortizing the $44,021 IPR&D asset that represents the fair value of the PMA approval from the
CONVERGE IDE clinical trial in 2021.
The following table provides a summary of the Company’s goodwill, which is not amortized, but rather tested annually for
impairment:
Net carrying amount as of December 31, 2018
Additions
Net carrying amount as of December 31, 2019
Additions
Net carrying amount as of December 31, 2020
7. INVENTORIES
Inventories consisted of the following at December 31:
Raw materials
Work in process
Finished goods
Inventories
8. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Generators and other capital equipment
Building under finance lease
Computer and other office equipment
Machinery, equipment and vehicles
Furniture and fixtures
Leasehold improvements
Construction in progress
Land
Equipment under finance leases
Total
Less accumulated depreciation
Property and equipment, net
$
$
105,257
129,524
234,781
—
234,781
2020
11,966 $
2,424
20,636
35,026 $
2019
11,126
1,260
17,028
29,414
$
$
Estimated
Useful Life
1-3 years $
15 years
3 years
3-7 years
3-7 years
5-15 years
N/A
N/A
3-5 years
$
2020
18,669 $
14,250
8,045
6,697
5,849
8,645
2,067
502
409
65,133
(36,843)
28,290 $
2019
20,167
14,250
7,606
5,905
5,009
6,078
5,708
502
483
65,708
(33,062)
32,646
Property and equipment depreciation expense was $7,866, $7,423 and $7,244 for the years ended December 31, 2020, 2019 and
2018. Depreciation related to generators and other capital equipment was $2,503, $2,910 and $3,191 for fiscal years 2020, 2019 and
2018. As of December 31, 2020 and 2019, the net carrying value of generators and other capital equipment was $3,410 and $4,272.
59
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31:
Accrued payroll and employee-related expenses
Accrued legal settlement
Accrued commissions
Accrued bonus
Sales returns and allowances
Accrued taxes and value-added taxes payable
Accrued royalties
Other accrued liabilities
Total
10. INDEBTEDNESS
$
$
2020
2019
8,576 $
6,000
4,765
4,389
1,889
1,256
703
406
27,984 $
6,748
—
8,734
10,840
3,979
1,658
732
59
32,750
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 $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.
Principal payments of the term loan are to be made ratably commencing March 1, 2021 through the loan’s maturity date. If the
Company meets certain conditions, as specified by the Loan Agreement, the commencement of term loan principal payments may be
deferred by an additional six months. 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 $495 accrued in the outstanding loan
balance as of December 31, 2020. Additionally, the unamortized original financing costs related to the term loan of $393 are netted
against the outstanding loan balance in the 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 December 31, 2020, the Company
had no borrowings under the revolving credit facility and had borrowing availability of $8,750. Financing costs related to the
revolving line of credit are included in other assets in the Consolidated Balance Sheets and amortized ratably over the twelve-month
period of the annual fee.
On April 29, 2020, the Company and SVB entered into an amendment to the Loan Agreement which modified a covenant
related to the Company’s liquidity ratio through the third quarter 2020 testing date and increased the early termination fees for both
the term loan and revolving line of credit. The amendment was treated as a debt modification.
On February 8, 2021, the Company and SVB entered into an amendment to the Loan Agreement which modified conditions
which allow the Company to request to defer the term loan principal payments an additional six months, commencing in September
2021, if such conditions were satisfied. Additionally, the covenant reporting requirements were modified. The amendment was treated
as a debt modification. Subsequent to the amendment, the conditions were satisfied by the Company and the Company requested such
deferral. As a result, borrowings outstanding under the existing term loan agreement have been classified to reflect the deferral of
principal payments in the Consolidated Balance Sheet as of December 31, 2020.
Future principal payments of long-term debt are projected as follows:
2021
2022
2023
2024
Total long-term debt, of which $6,667 is current and $53,333 is noncurrent
$
$
6,667
20,000
20,000
13,333
60,000
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.
60
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
11. LEASES
The Company has operating and finance leases for corporate 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 is as follows:
Operating Leases
Weighted average remaining lease term (years)
Weighted average discount rate
Finance leases
Weighted average remaining lease term (years)
Weighted average discount rate
As of December 31, 2020
As of December 31, 2019
3.2
5.68 %
9.7
6.91 %
3.5
5.94 %
11.0
7.05 %
In connection with the terms of the Company’s corporate headquarters lease, a letter of credit for $1,250 was issued to the
building lessor in October 2015. The letter of credit is renewed annually and remains outstanding as of December 31, 2020.
The components of lease expense are as follows:
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
Year Ended
December 31, 2020
Year Ended
December 31, 2019
$
1,237 $
952
$
1,050
844
1,894 $
998
872
1,870
Short term lease expense was not significant during the twelve months ended December 31, 2020 and 2019.
Supplemental cash flow information related to leases is as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
$
Right-of-use assets obtained in exchange for lease obligations:
Operating Leases
Finance Leases
Operating lease right-of-use asset obtained in business combination
Early termination of operating lease
Year Ended
December 31, 2020
Year Ended
December 31, 2019
1,236 $
844
664
1,421
22
—
2,743
1,026
872
629
1,884
270
2,929
—
61
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Supplemental balance sheet information related to leases is as follows:
As of December 31, 2020
As of December 31, 2019
Operating Leases
Operating lease right-of-use assets
Other current liabilities and current maturities of debt and leases
Operating lease liabilities
Total operating lease liabilities
Finance Leases
Property and equipment, at cost
Accumulated depreciation
Property and equipment, net
Other current liabilities and current maturities of debt and leases
Finance lease liabilities
Total finance lease liabilities
Maturities of lease liabilities as of December 31, 2020 are as follows:
$
$
$
$
$
$
1,914 $
927
1,180
2,107 $
14,659 $
(5,247)
9,412 $
823 $
10,969
11,792 $
2021
2022
2023
2024
2025
2026 and thereafter
Total payments
Less imputed interest
Total
Operating Leases
$
927 $
637
239
246
253
—
2,302 $
(195)
2,107 $
$
$
4,032
1,465
2,796
4,261
14,733
(4,197)
10,536
753
11,774
12,527
Finance Leases
1,608
1,629
1,652
1,674
1,625
8,172
16,360
(4,568)
11,792
12. 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 the later
of 2023 or until 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 $2,596, $2,892 and $2,715 was recorded as part of cost of
revenue for the years ended December 31, 2020, 2019 and 2018.
Purchase Agreements. The Company enters into standard purchase agreements with certain vendors in the ordinary course of
business, generally with terms that allow cancellation.
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. When management has assessed that a loss is probable and an amount can be reasonably estimated, the
Company records a liability.
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 requires 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 and is
62
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
cooperating with its investigation. However, the Company cannot predict when the investigation will be resolved, the outcome of the
investigation or its potential impact on the Company.
The Company acquired nContact Surgical, Inc. pursuant to a merger agreement dated October 4, 2015. The merger agreement
provides 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 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 has 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.
13. 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. Revenue includes
shipping and handling revenue of $1,192, $1,485 and $1,236 in 2020, 2019 and 2018.
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 limited 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. We estimate 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 recorded as selling expense and royalties are recorded as cost of
revenue.
See Note 18 for disaggregated revenue by geographic area and by product category.
63
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
14. INCOME TAXES
The Company files federal, state, local and foreign income tax returns in jurisdictions with varying statutes of limitations.
Income taxes are computed using the asset and liability method in accordance with FASB ASC 740, “Income Taxes”, under which
deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the
Company’s assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax laws. A valuation allowance
against deferred tax assets is recorded when it is more likely than not that such assets will not be fully realized. The Company has
recorded a valuation allowance against substantially all its net deferred tax assets as it is more likely than not that the benefit of the
deferred tax assets will not be recognized in future periods.
The Company’s provision for income taxes for each of the years ended December 31 is as follows:
Current Tax Expense
Federal
State
Foreign
Total current tax expense
Deferred Tax Expense
Federal
State
Foreign
Change in valuation allowance
Total deferred tax expense
Total tax expense
The detail of deferred tax assets and liabilities at December 31 is as follows:
Deferred tax assets (liabilities):
Net operating loss carryforward
Research and development and AMT credit carryforwards, net
Deferred interest
Equity compensation
Accruals and reserves
Inventories
Intangible assets
Property and equipment, net
Finance and operating lease liabilities
Right-of-use assets
Other, net
Subtotal
Less valuation allowance
Total
2020
2019
2018
$
$
$
(26) $
78
74
126
(26) $
34
165
173
(10,304) $
(1,686)
(3,071)
15,049
(12)
114 $
(7,655) $
(1,368)
(1,690)
10,739
26
199 $
(51)
28
198
175
(3,048)
178
45
2,876
51
226
2020
2019
$
123,556 $
9,365
1,598
8,623
3,739
1,360
(30,773)
(1,315)
3,164
(2,547)
293
117,063
(117,025)
$
38 $
111,000
8,193
909
8,233
3,513
1,007
(30,996)
(1,482)
4,016
(3,476)
287
101,204
(101,178)
26
The Company has federal net operating loss carryforwards of $339,699 which have expirations between 2021 and 2037 and
$116,485 which has no expiration. The Company has state and local net operating loss carryforwards of $301,983 with varying
expirations from 2021 to 2040. A portion of the Company’s federal and state net operating loss carryforwards are subject to certain
limitations under Internal Revenue Code Sections 382 and 383. The Company has federal research and development credit
carryforwards of $9,365 which have expirations between 2022 and 2040. Additionally, the Company has foreign net operating loss
carryforwards of approximately $49,714 which have expirations between 2021 and 2027. On January 1, 2019 the Company adopted
ASC 842 and recognized $400 of operating lease liability deferred tax assets and $400 of offsetting right-of-use asset deferred tax
liabilities.
64
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
The Company’s 2020, 2019 and 2018 effective income tax rates differ from the federal statutory rate as follows:
Federal tax at statutory rate
Federal and Foreign tax rate change
Federal R&D credit
Federal deferred adjustment
Valuation allowance
State income taxes
Foreign NOL rate change
Foreign tax rate differential
Permanent differences and other
Effective tax rate
2020
21.00 % $
2.97
2.05
2.77
(31.33)
3.35
0.92
0.57
(2.53)
(0.23) % $
(10,088)
(1,425)
(985)
(1,328)
15,048
(1,607)
(441)
(274)
1,214
114
2019
21.00 % $
1.40
2.53
3.28
(32.45)
4.02
(1.17)
(0.38)
1.17
(0.60) % $
(6,950)
(462)
(837)
(1,085)
10,739
(1,334)
388
126
(386)
199
2018
$
21.00 %
(6.84)
4.39
(10.77)
(13.75)
(0.99)
(1.22)
(0.60)
7.70
(1.08) %
$
(4,391)
1,430
(918)
2,253
2,876
206
256
125
(1,611)
226
The Company’s pre-tax book loss for domestic and international operations was $(43,218) and $(4,823) for 2020, $(28,002) and
$(6,993) for 2019 and $(13,443) and $(7,468) for 2018.
The Company had undistributed earnings of foreign subsidiaries of approximately $235 at December 31, 2020. The Company
does not consider these earnings as permanently reinvested and has determined that no current and deferred taxes are required on such
amounts.
Federal, state and local tax returns of the Company are routinely subject to examination by various taxing authorities. Federal
income tax returns for periods beginning in 2017 are open for examination. Generally, state and foreign income tax returns for periods
beginning in 2016 are open for examination. However, taxing authorities have the ability to adjust net operating loss and tax credit
carryforwards from years prior to these periods. The Company has not recognized certain tax benefits because of the uncertainty of
realizing the entire value of the tax position taken on income tax returns upon review by the taxing authorities.
A reconciliation of the change in federal and state unrecognized tax benefits for 2020, 2019 and 2018 is presented below:
Balance at the beginning of the year
Increases (decreases) for prior year tax positions
Increases (decreases) for current year tax positions
Increases (decreases) related to settlements
Decreases related to statute lapse
Balance at the end of the year
2020
2019
2018
$
$
1,777 $
21
—
—
—
1,798 $
1,157 $
620
—
—
—
1,777 $
1,157
—
—
—
—
1,157
For 2019, the Company’s increase for prior year tax positions relates to uncertain income tax benefits assumed pursuant to the
SentreHEART acquisition. Historically, the Company did not have any interest and penalties accrued for unrecognized income tax
benefits as a result of offsetting net operating losses. The Company has accrued interest and penalties associated with uncertain
income tax benefits assumed pursuant to the SentreHEART acquisition as of December 31, 2019, and recognized interest and
penalties within income tax expense. The amount is not significant.
There are no amounts included in the balance of unrecognized tax benefits at December 31, 2018 that, if recognized, would
affect the effective tax rate. The balance of unrecognized tax benefits at December 31, 2020 and 2019 includes $1,798 and $1,777 of
tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes and valuation allowance.
The Company does not expect that its unrecognized tax benefits for research credits will significantly change within twelve months of
December 31, 2020.
15. CONCENTRATIONS
During 2020, 2019 and 2018, approximately 10.8%, 12.0% and 10.8% of the Company’s total net revenue was derived from its
top ten customers. During 2020, 2019 and 2018 no individual customer accounted for more than 10% of the Company’s revenue.
As of December 31, 2020 and 2019, 13.0% and 16.5% of the Company’s total accounts receivable balance was derived from its
top ten customers. No individual customer accounted for more than 10% of the Company’s accounts receivable as of December 31,
2020 and 2019.
65
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
The Company maintains cash and cash equivalents balances at financial institutions which at times exceed FDIC limits. As of
December 31, 2020, $41,694 of the cash and cash equivalents balance was in excess of the FDIC limits.
16. EMPLOYEE BENEFIT PLANS
The Company sponsors the AtriCure, Inc. 401(k) Plan (401(k) Plan), a defined contribution plan covering substantially all U.S.
employees of the Company. Eligible employees may contribute pre-tax annual compensation up to specified maximums under the
Internal Revenue Code. During 2020, 2019 and 2018, the Company made matching contributions of 50% on the first 6% of employee
contributions to the 401(k) Plan. The Company’s matching contributions expensed during 2020, 2019 and 2018 were $2,237, $1,915
and $1,560. Additional amounts may be contributed to the 401(k) Plan at the discretion of the Company’s Board of Directors,
however, no such discretionary contributions were made during 2020, 2019 or 2018. The Company also provides retirement benefits
for employees of AtriCure Europe B.V. and other foreign subsidiaries. Total contributions to retirement plans for these employees
were $244, $248 and $243 in 2020, 2019 and 2018.
17. 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 administrator (the Compensation Committee of the Board
of Directors) 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 December 31, 2020, 12,899 shares of common stock had been
reserved for issuance under the 2014 Plan and 1,932 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 granted prior to 2018 under the 2014 Plan generally vest at a rate of 25% on the
first anniversary date of the grant and ratably each month thereafter over the following three years. Restricted stock awards granted
prior to 2018 generally vest between one year and four years from the date of grant. Stock options generally expire ten years from the
date of grant.
In 2012 the Company granted 450 performance options to its President and Chief Executive Officer pursuant to his Employment
Agreement. The options expire ten years from the date of grant and vest in increments of 25 shares when the volume adjusted
weighted average closing price of the common stock of the Company as reported by NASDAQ (or any other exchange on which the
common stock of the Company is listed) for 30 consecutive days equals or exceeds each of $10.00 per share, $12.50 per share, $15.00
per share, $17.50 per share, $20.00 per share, $25.00 per share, $30.00 per share, $35.00 per share and $40.00 per share. As of
December 31, 2020, all of the performance options vested. A Monte Carlo simulation was performed to estimate the fair values,
vesting terms and vesting probabilities for each tranche of options. Expense calculated using these estimates was recognized over the
estimated vesting terms. As of December 31, 2017, compensation costs related to non-vested performance options were fully
recognized.
The Compensation Committee approved the grant of performance share awards to the Company’s Executive Leadership Team
pursuant to the Company’s 2014 Plan. The form of award agreement for the PSAs (PSA Grant Form) provides, among other things,
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 as measured against the specified performance target at the end of the three-year performance period as determined by
the Compensation Committee. Established threshold, target and maximum payout opportunities, which may range from 0% to 200%
of the target amount, are used to calculate the number of shares that will be issuable when the award vests. Additionally, 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 (each as
described in greater detail in the PSA Grant Form). The Company estimated the fair value of the PSAs based on its closing stock price
on the grant date and will adjust compensation expense over the performance period based on its estimate of performance target
achievement.
In 2020, the Compensation Committee modified the methodology for measuring performance of the 2018, 2019, and 2020
performance awards. As a result of the modification which impacted the vesting conditions and performance measures related to the
awards, the incremental compensation cost resulting from the modification is $4,162, of which $569 is reflected in the year ended
December 31, 2020.
66
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Activity under the plans during 2020 was as follows:
Time-Based Stock Options
Outstanding at January 1, 2020
Granted
Exercised
Cancelled
Outstanding at December 31, 2020
Vested and expected to vest
Exercisable at December 31, 2020
Restricted Stock Awards and Performance Share Awards
Outstanding at January 1, 2020
Awarded
Released
Forfeited
Outstanding at December 31, 2020
Performance Stock Options
Outstanding at January 1, 2020
Granted
Exercised
Cancelled
Outstanding at December 31, 2020
Exercisable at December 31, 2020
Activity under the plans during 2019 was as follows:
Time-Based Stock Options
Outstanding at January 1, 2019
Granted
Exercised
Cancelled
Outstanding at December 31, 2019
Vested and expected to vest
Exercisable at December 31, 2019
Number of
Shares
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
1,507 $
52
(646)
(9)
904 $
900 $
807 $
14.38
39.02
13.08
28.97
16.57
16.49
14.61
4.08 $
4.06 $
3.55 $
35,345
35,271
33,143
RSA
Shares
Outstanding
Weighted
Average
Grant Date
Fair Value
21.76
40.77
20.89
33.34
30.92
PSA
Shares
Outstanding
Weighted
Average
Grant Date
Fair Value
26.34
38.42
57.08
34.16
39.70
264 $
140
(72)
(45)
287 $
1,402 $
446
(875)
(38)
935 $
Number of
Shares
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
450 $
—
(275)
—
175 $
175 $
13.48
—
8.66
—
21.04
21.04
3.07 $
3.07 $
6,085
6,085
Number of
Shares
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
1,582 $
42
(110)
(7)
1,507 $
1,503 $
1,392 $
13.83
28.77
10.91
30.48
14.38
14.35
13.55
4.25 $
4.24 $
3.90 $
27,340
27,319
26,398
67
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Restricted Stock Awards and Performance Share Awards
Outstanding at January 1, 2019
Awarded
Released
Forfeited
Outstanding at December 31, 2019
Performance Stock Options
Outstanding at January 1, 2019
Granted
Exercised
Cancelled
Outstanding at December 31, 2019
Exercisable at December 31, 2019
RSA
Shares
Outstanding
Weighted
Average
Grant Date
Fair Value
18.19
30.12
18.44
18.02
21.76
PSA
Shares
Outstanding
Weighted
Average
Grant Date
Fair Value
17.71
30.77
—
—
26.34
90 $
174
—
—
264 $
1,746 $
435
(776)
(3)
1,402 $
Number of
Shares
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
450 $
—
—
—
450 $
350 $
13.48
—
—
—
13.48
13.48
3.45 $
3.45 $
8,566
6,662
The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $29,594, $1,985
and $5,343. As a result of the Company’s full valuation allowance on its net deferred tax assets, no tax benefit was recognized related
to the stock option exercises. The exercise price per share of each option is equal to the fair market value of the underlying share on
the date of grant. For 2020, 2019 and 2018, $10,835, $1,202 and $6,012 in cash proceeds were included in the Consolidated
Statements of Cash Flows as a result of the exercise of stock options. The total fair value of restricted stock vested during 2020, 2019
and 2018 was $34,200, $23,479 and $11,864. The Company issues registered shares of common stock to satisfy stock option exercises
and restricted stock grants.
Employee Stock Purchase Plan
The ESPP is available to eligible employees as defined in the plan document. Under the ESPP, shares of the Company’s
common stock may be purchased at a discount (currently 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 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 December 31, 2020, there were 387 shares available for future
issuance under the ESPP.
Valuation and Expense Information Under FASB ASC 718
The following table summarizes share-based compensation expense related to employees, directors and consultants for 2020,
2019 and 2018. The expense was allocated as follows:
Cost of revenue
Research and development expenses
Selling, general and administrative expenses
Total
The expense by award type was allocated as follows:
Restricted Stock Awards & Time-Based Stock Options
Performance Share Awards
ESPP
Total
68
2020
2019
1,425 $
3,530
17,687
22,642 $
917 $
2,374
14,686
17,977 $
2018
1,545
1,987
12,963
16,495
2020
18,612 $
2,921
1,109
22,642 $
2019
13,922 $
3,254
801
17,977 $
2018
15,032
766
697
16,495
$
$
$
$
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
As of December 31, 2020 there was $18,561 of unrecognized compensation costs related to non-vested stock options and
restricted stock arrangements ($1,075 relating to stock options and $17,486 relating to restricted stock). This cost is expected to be
recognized over a weighted-average period of 2.0 years for stock options and 1.7 years for restricted stock. As of December 31, 2020
there was $6,940 of unrecognized compensation costs related to non-vested performance share awards, and this cost is expected to be
recognized over a weighted-average period of 1.6 years.
In calculating compensation expense, the fair value of restricted stock awards, restricted stock units and performance share
awards is based on the market value of the Company’s stock on the date of the awards or subsequent modification (as applicable). The
fair value of the options is estimated on the grant date using the Black-Scholes model including the following assumptions:
Range of risk-free interest rate
Range of expected life of stock options (years)
Range of expected volatility of stock
Weighted-average volatility
Dividend yield
2020
2019
2018
0.30-1.73 %
1.43-2.64 %
5.15 to 5.65
40.00 - 43.00 %
41.54 %
0.00 %
5.13 to 5.69
40.00 - 42.00 %
40.87 %
0.00 %
2.31 - 3.01 %
5.14 to 5.71
41.00 - 42.00 %
41.51 %
0.00 %
The Company’s estimate of volatility is based solely on the Company’s trading history over the expected option life. The risk-
free interest rate assumption is based upon the U.S. treasury yield curve at the time of grant for the expected option life. The Company
estimates the expected terms of options using historical employee exercise behavior.
Based on the assumptions noted above, the weighted average estimated grant date fair value per share of the stock options,
restricted stock awards and performance share awards granted for 2020, 2019 and 2018 was as follows:
Stock options
Restricted stock awards
Performance share awards
$
2020
2019
2018
$
15.25
40.77
38.42
$
11.56
30.12
30.77
10.97
18.71
17.71
18. SEGMENT AND GEOGRAPHIC INFORMATION
The Company evaluates reporting segments in accordance with FASB ASC 280, “Segment Reporting”. The Company develops,
manufactures and sells devices designed primarily for the surgical ablation of cardiac tissue and systems designed for the exclusion of
the left atrial appendage. 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 geographic areas is based on the location of the
customers to whom products are sold.
Revenue by geographic area was as follows:
United States
Europe
Asia
Other international
Total international
Total revenue
United States revenue by product type was as follows:
Open ablation
Minimally invasive ablation
Appendage management
Total ablation and appendage management
Valve tools
Total United States
69
2020
169,244 $
23,217
13,118
952
37,287
206,531 $
2019
185,829 $
27,929
15,976
1,073
44,978
230,807 $
2018
162,146
25,912
12,687
885
39,484
201,630
$
$
2020
75,399 $
25,647
66,981
168,027
1,217
169,244 $
2019
80,205 $
34,842
68,166
183,213
2,616
185,829 $
2018
72,250
35,053
52,891
160,194
1,952
162,146
$
$
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
International revenue by product type was as follows:
Open ablation
Minimally invasive ablation
Appendage management
Total ablation and appendage management
Valve tools
Total international
2020
18,655 $
6,171
12,353
37,179
108
37,287 $
2019
24,945 $
8,349
11,476
44,770
208
44,978 $
2018
21,118
9,176
8,988
39,282
202
39,484
$
$
The Company’s long-lived assets are principally located in the United States, except for $1,693 as of December 31, 2020 and
$1,228 as of December 31, 2019, which are located primarily in Europe.
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
March 31,
June 30,
2020
2019
2020
2019
September 30,
2020
2019
December 31,
2020
2019
For the Three Months Ended
Operating Results:
Revenue
Gross profit
Loss from operations
Net loss
Net loss per share (basic and diluted)
$
$
53,225 $
38,884
(15,454)
(16,408)
(0.42) $
53,966 $
39,871
(5,320)
(5,635)
(0.15) $
40,824 $
27,654
(7,285)
(8,236)
(0.20) $
58,906 $
43,893
(3,839)
(4,101)
(0.11) $
54,757 $
40,334
(3,991)
(4,949)
(0.11) $
56,614 $
41,797
(8,637)
(9,362)
(0.25) $
57,725 $
42,437
(17,503)
(18,562)
(0.42) $
61,321
44,774
(15,326)
(16,096)
(0.42)
Amounts may not sum to consolidated totals for the full year due to rounding. Basic and diluted net loss per share is computed
independently for each of the quarters presented. Therefore, the sum of the quarterly per share amounts will not necessarily equal the
total for the year.
70
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Beginning
Balance
Costs and
Expenses
Additions
Ending
Other (1)
Deductions
Balance
Reserve for sales returns and allowances
Year ended December 31, 2020
Year ended December 31, 2019
Year ended December 31, 2018
Allowance for inventory valuation
Year ended December 31, 2020
Year ended December 31, 2019
Year ended December 31, 2018
Valuation allowance for deferred tax assets
Year ended December 31, 2020
Year ended December 31, 2019
Year ended December 31, 2018
$
$
$
3,979 $
1,410 $
1,169 $
1,517 $
1,029 $
889 $
66 $
369 $
312 $
801 $
848 $
718 $
— $
2,240 $
— $
2,156 $
40 $
71 $
— $
— $
— $
539 $
360 $
578 $
1,889
3,979
1,410
1,779
1,517
1,029
101,178 $
69,849 $
66,973 $
15,847 $
10,739 $
2,876 $
— $
20,590 $
— $
— $
— $
— $
117,025
101,178
69,849
(1) In connection with the acquisition of SentreHEART, the Company recognized an allowance for sales returns and refunds of
for transition to ASC 606 to reflect SentreHEART’s historical refund practices, and recorded a valuation allowance to offset
the acquired net deferred tax assets.
71
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. 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 Rule 13(a) – 15(e) of the Securities Exchange Act of 1934 (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 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 December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. Internal control over financial reporting includes policies and
procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements. The Company’s management assessed the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. No matter how well designed,
because of inherent limitations in all control systems, internal control over financial reporting may not prevent or detect misstatements
should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the control procedures may deteriorate. In
making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated Framework (2013). Based on such assessment, management has concluded that
the Company’s internal control over financial reporting was effective as of December 31, 2020.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the consolidated financial
statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report on the effectiveness
of the Company’s internal control over financial reporting. The attestation report can be found on the following page as part of this
Item 9A.
72
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
AtriCure, Inc.
Mason, Ohio
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of AtriCure, Inc. and subsidiaries (the “Company”) as of December 31,
2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated
Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated
February 26, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
February 26, 2021
73
ITEM 9B. OTHER INFORMATION
Board Committees
Effective February 25, 2021, the Company’s Board of Directors re-constituted its committees as follows:
Audit: Sven A. Wehrwein (Chair), Daniel P. Florin, Mark R. Lanning, Regina E. Groves
Compensation: B. Kristine Johnson (Chair), Mark A. Collar, Mark R. Lanning, Karen N. Prange
Compliance, Quality and Risk: Regina E. Groves (Chair), Sven A. Wehrwein, Robert S. White, Daniel P. Florin
Nominating and Corporate Governance: Mark A. Collar (Chair), Scott W. Drake, Robert S. White, Karen N. Prange
Strategy: Robert S. White (Chair), Regina E. Groves, B. Kristine Johnson
Amendments to Performance Share Awards
Effective as of February 25, 2021, pursuant to approval and direction from the Compensation Committee, the Company
amended certain terms of performance share awards (PSAs) granted to active named executive officers and certain other executive
employees (collectively, the “Executive Leadership Team”) in 2018, 2019 and 2020 pursuant to the Company’s 2014 Plan.
The award agreements for the PSAs provide, among other things, 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. The number of shares that vest and are issued to the
recipient is based upon the Company’s performance as measured against the specified performance target (the Company’s revenue
compound annual growth rates (CAGR) at the end of the three-year performance period).
The amendments modify the methodology for calculating the Company’s three year revenue growth as follows: (i) one-year
revenue growth will be calculated for each year in the performance cycle; (ii) with respect to the calculation of revenue growth for
each year in the performance cycle, if the Company achieves a growth rate less than the “Threshold” Performance Goal, then a 0%
growth rate shall be substituted in place of such actual rate for the applicable year in the performance cycle; (iii) with respect to the
calculation of revenue growth for each year in the performance cycle, if the Company achieves a growth rate greater than the
“Maximum” Performance Goal, then the “Maximum” growth rate identified in the Performance Share Award Agreement shall be
substituted in place of such actual rate for the applicable year in the performance cycle; (iv) all three years in the applicable
performance cycle shall be averaged to provide revenue growth for purposes of determination vesting; and (v) in no event shall
payouts under such PSA agreements exceed the “Target” amount originally identified in the applicable PSA agreements.
With respect to the PSAs granted in 2018 to current active members of the Executive Leadership Team, the Compensation
Committee applied the calculation methodology described above to determine that the 2018 PSAs vest at the 93% payout level. With
respect to the PSAs granted in 2019 and 2020, on February 25, 2021 the Company executed amendments to the PSA agreements for
the 2019 and 2020 awards reflecting the modified calculation methodology described above. The form of amendment to the PSA
agreements is filed herewith as Exhibit 10.19. The description of these amendments does not purport to be complete and is qualified in
its entirety by reference to such exhibit.
The Compensation Committee took the actions described above due to developments related to the COVID-19 pandemic. The
challenging environment resulting from the COVID-19 pandemic materially and adversely impacted the Company’s addressable
markets, as cardiac surgery and elective procedures were either significantly reduced or indeterminately deferred during the pandemic
in order to preserve resources for COVID-19 patients and caregivers and to protect patients from potential exposure to COVID-19.
Consequently, the achievement of any revenue growth was rendered extremely unlikely. Management expects that the contraction in
addressable markets will continue to decrease demand for the Company’s products and adversely impact the Company’s revenue and
financial condition while the pandemic persists.
Recognizing the significant adverse impact of COVID-19 on the Company’s opportunity to grow revenue, which is the single
metric used to measure performance under the outstanding awards, the Compensation Committee determined that the opportunities to
achieve the performance thresholds for the PSA agreements entered into in 2018, 2019 and 2020 had all been directly and
significantly impacted. The Compensation Committee also noted that while the pandemic had a direct and material impact on the
Company’s 2020 revenue, the Company’s historical revenue growth outperformed the target revenue metrics. Further, despite the lack
of opportunity to achieve revenue growth as a result of the pandemic, the Compensation Committee believes that the Executive
Leadership team has been successful in executing strategic initiatives and has driven meaningful value for shareholders. The
Compensation Committee views the efforts of the Executive Leadership Team throughout the performance periods as critical to the
advancement of key Company initiatives, the prioritization of the safety and retention of Company employees and the Company’s
execution of shareholder value-driving activity.
74
2021 Performance Share Award Grants
Effective as of February 25, 2021, pursuant to approval and direction from the Compensation Committee, the Company granted
PSAs granted to the Executive Leadership Team.
The award agreements for the PSAs provide, among other things, 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 two measurements, each of which is equally
weighted at the end of the three-year performance period as determined by the Compensation Committee: (i) the Company’s revenue
compound annual growth rates (CAGR); and (ii) relative total shareholder return (TSR). TSR will be measured against the Nasdaq
Health Care Index constituents and will be measured as 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. Established threshold, target and
maximum payout opportunities, which may range from 0% to 200% of the target amount, are used to calculate the number of shares
that will be issuable when the award vests. The CAGR and TSR component payouts will be determined independently and added
together for the total payout for the three-year performance period, subject to the maximum(s) defined in the PSA agreements. All or a
portion of the 2021 PSAs may vest following a change of control or a termination of service by reason of death or disability.
The Compensation Committee granted target value of 2021 PSAs to the Company’s named executive officers as follows:
Name and Title
Target Value of PSAs
Michael H. Carrel
President and Chief Executive Officer
Angela L. Wirick
Chief Financial Officer
Douglas J. Seith
Chief Operating Officer
Justin J. Noznesky
Senior Vice President, Marketing and Business Development
Salvatore (Sam) Privitera
Chief Technical Officer
$
3,150,000
750,000
875,000
425,000
325,000
The form of award agreement for the PSAs granted in 2021 is filed herewith as Exhibit 10.20. The description of this
agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item with respect to the Company’s Directors is contained in our definitive proxy statement
(the “Proxy Statement”) for our 2021 Annual Meeting of Stockholders under the heading “Proposal One—Election of Directors” and
is incorporated herein by reference.
The information required by this item with respect to the Company’s Executive Officers is contained in the Proxy Statement
under the heading “Management” and is incorporated herein by reference.
The information required by this item with respect to compliance with Section 16(a) of the Exchange Act is contained in the
Proxy Statement under the heading “Delinquent Section 16(a) Reports” and is incorporated herein by reference.
The information required by this item with respect to the Company’s code of ethics that applies to directors, officers, and
employees, including the Company’s principal executive officer, principal financial officer, principal accounting officer or controller,
or persons performing similar functions, is contained in the Proxy Statement under the heading “Corporate Governance Guidelines—
Code of Conduct” and is incorporated herein by reference.
The information required by this item with respect to the procedures by which security holders may recommend nominees to the
Board is contained in the Proxy Statement under the heading “Questions and Answers” and is incorporated herein by reference.
The information required by this item with respect to the Company’s Audit Committee, including the Audit Committee’s
members and its financial experts, is contained in the Proxy Statement under the heading “Committees of the Board—Audit
Committee” and is incorporated herein by reference.
75
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item with respect to executive compensation and director compensation is contained in the
Proxy Statement under the headings “Executive Compensation” and “Director Compensation” and is incorporated herein by reference.
The information required by this item with respect to compensation committee interlocks and insider participation is contained
in the Proxy Statement under the heading “Compensation Committee Interlocks and Insider Participation” and is incorporated herein
by reference.
The compensation committee report required by this item is contained in the Proxy Statement under the heading “Executive
Compensation—Report of the Compensation Committee of the Board of Directors” and is incorporated herein by reference.
The information required by this item with respect to compensation policies and practices as they relate to the Company’s risk
management is contained in the Proxy Statement under the heading “Compensation Discussion and Analysis—Elements of Executive
Compensation” and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table summarizes information about our equity compensation plans as of December 31, 2020.
Plan Category
Equity compensation plans approved by
security holders (3)
Equity compensation plans not approved by
security holders
Total
_________________________
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights (1)
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights (2)
(b)
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
(c)
2,301,073 $
—
2,301,073 $
17
—
17
1,932,220
—
1,932,220
(1) Represents outstanding stock options, restricted stock awards, performance stock options and performance shares as of
December 31, 2020.
(2)
The weighted average exercise price is calculated without taking into account restricted stock that will become issuable, without
any cash consideration or other payment, as vesting requirements are achieved.
(3) Amounts include awards under our 2005 Equity Incentive Plan and 2014 Stock Incentive Plan but exclude shares purchased
under our 2018 Employee Stock Purchase Plan.
The information required by this item with respect to security ownership of certain beneficial owners and management is
contained in the Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management” and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item with respect to director independence is contained in the Proxy Statement under the
heading “Corporate Governance and Board Matters – Independence of the Board” and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item with respect to audit fees, tax fees and the audit committee’s pre-approval policies and
procedures are contained in the Proxy Statement under the heading “Proposal Two-Ratification of Appointment of Independent
Registered Public Accounting Firm” and is incorporated herein by reference.
76
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) The financial statements required by Item 15(a) are filed in Item 8 of this Form 10-K.
(2) The financial statement schedules required by Item 15(a) are filed in Item 8 of this Form 10-K.
(3) The following exhibits are included in this Form 10-K or incorporated by reference in this Form 10-K:
77
Exhibit No. Description
3.1
3.2
4.1
10.1#
10.2#
10.3#
10.4#
10.5
10.6
10.7#
10.8#
10.9#
10.10#
10.11
10.12
10.13
10.14
10.15
10.16
10.17§
10.18#
10.19#
10.20#
14
21
23.1
31.1
31.2
32.1
32.2
Second Amended and Restated Certificate of Incorporation (incorporated by reference to our Current Report on Form 8-
K, filed on May 27, 2016).
Fourth Amended and Restated Bylaws (incorporated by reference to our Current Report on Form 8-K filed on
February 16, 2018).
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
(incorporated by reference to our Annual Report on Form 10-K filed on February 24, 2020).
Employment Agreement, dated as of November 1, 2012, between AtriCure, Inc. and Michael H. Carrel (incorporated by
reference to our Current Report on Form 8-K, filed on November 1, 2012).
2005 Equity Incentive Plan, as amended on September 19, 2007 and on March 6, 2013 (incorporated by reference to our
Annual Report on Form 10-K filed on March 8, 2013).
AtriCure, Inc. 2018 Employee Stock Purchase Plan (Amended and Restated effective July 1, 2019 (incorporated by
reference to our Quarterly Report on Form 10-Q, filed on July 31, 2019).
Form of Change in Control Agreement between AtriCure and AtriCure Executive Officers (incorporated by reference to
our Annual Report on Form 10-K filed on March 8, 2013).
Loan and Security Agreement dated as of February 23, 2018 by and among Silicon Valley Bank, AtriCure, Inc.,
AtriCure, LLC, Endoscopic Technologies, LLC and nContact Surgical, LLC (incorporated by reference to our Current
Report on Form 8-K, filed on February 26, 2018).
Lease Agreement Dated August 20, 2014 between LM-VP AtriCure, LLC, as Landlord, and AtriCure, Inc., as Tenant
(incorporated by reference to our Current Report on Form 8-K, filed on August 25, 2014).
AtriCure, Inc. 2014 Stock Incentive Plan (Amended and Restated as of May 20, 2020) (incorporated by reference to our
Current Report on Form 8-K, filed on May 22, 2020).
Form of Restricted Stock Award Agreement under the Amended and Restated AtriCure, Inc. 2014 Stock Incentive Plan
(incorporated by reference to our Quarterly Report on Form 10-Q, filed on July 31, 2019).
Form of Stock Option Award Agreement under the Amended and Restated AtriCure, Inc. 2014 Stock Incentive Plan
(incorporated by reference to our Quarterly Report on Form 10-Q, filed on July 31, 2019).
Form of Restricted Share Unit Award Agreement under the Amended and Restated AtriCure, Inc. 2014 Stock Incentive
Plan (incorporated by reference to our Quarterly Report on Form 10-Q, filed on July 31, 2019).
Merger Agreement dated as of October 4, 2015 among nContact Surgical, Inc., AtriCure, Inc., Portal Merger Sub, Inc.,
Second Portal Merger Sub, LLC and WRYP Stockholder Services, LLC, as Representative of nContact stockholders
(incorporated by reference to our Current Report on Form 8-K, filed on October 5, 2015).
Merger Agreement dated as of August 11, 2019 among SentreHEART, Inc., AtriCure, Inc., Stetson Merger Sub, Inc.,
Second Stetson Merger Sub, LLC and Shareholder Representative Services LLC, as Representative of SentreHEART
stockholders (incorporated by reference to our Current Report on Form 8-K filed August 12, 2019).
First Loan Modification Agreement dated December 28, 2018 among AtriCure, Inc., Silicon Valley Bank, the lenders
named therein, AtriCure, LLC, Endoscopic Technologies, LLC and nContact Surgical, LLC (incorporated by reference
to our Current Report on Form 8-K filed on January 3, 2019).
Second Amendment to Loan and Security Agreement dated August 12, 2019 among AtriCure, Inc., Silicon Valley
Bank, and the other parties named therein (incorporated by reference to our Current Report on Form 8-K, filed on
August 11, 2019).
Joinder and Third Amendment to Loan and Security Agreement dated September 27, 2019 (incorporated by reference to
our Quarterly Report on Form 10-Q, filed on October 31, 2019).
Fourth Amendment to Loan and Security Agreement dated April 29, 2020 among AtriCure, Inc., Silicon Valley Bank
and the other parties named therein (incorporated by reference to our Current Report on Form 8-K filed with the
Commission on April 29, 2020).
Fifth Amendment to Loan and Security Agreement dated February 8, 2021 among AtriCure, Inc., Silicon Valley Bank
and the other parties named therein.
Form of Performance Share Award Grant Agreement for Awards Granted in 2018, 2019, 2020 (incorporated by
reference to our Annual Report on Form 10-K filed on February 24, 2020).
Form of First Amendment to Performance Share Award Agreement for Awards Granted in 2019 and 2020.
Form of Performance Share Award Agreement for Awards Granted in 2021.
Code of Conduct (incorporated by reference to our Annual Report on Form 10-K filed on March 1, 2019).
Subsidiaries of the Registrant.
Consent of Deloitte & Touche LLP.
Rule 13a-14(a) Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Rule 13a-14(a) Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer, as adopted, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350 by the Chief Financial Officer, as adopted, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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XBRL Instance Document
Exhibit No. Description
101.INS
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File
_________________________
# Compensatory plan or arrangement.
§
Certain portions of this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The omitted information is not
material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish
a copy of any omitted portion to the SEC upon request.
ITEM 16. FORM 10-K SUMMARY
Not provided.
79
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K to be
signed on our behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 26, 2021
Date: February 26, 2021
AtriCure, Inc.
(REGISTRANT)
/s/ Michael H. Carrel
Michael H. Carrel
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Angela L. Wirick
Angela L. Wirick
Chief Financial Officer
(Principal Accounting and Financial Officer)
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Michael H. Carrel and Angela L. Wirick, her or his attorney-in-fact, with the power of substitution, for her or him in any and
all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents
and purposes as she or he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, and any of them
or her or his substitute or substitutes, may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons
on behalf of the registrant and in the capacities indicated on February 26, 2021.
Signature
/s/ Scott W. Drake
Scott W. Drake
/s/ Michael H. Carrel
Michael H. Carrel
/s/ Angela L. Wirick
Angela L. Wirick
/s/ Mark A. Collar
Mark A. Collar
/s/ Daniel P. Florin
Daniel P. Florin
/s/ Regina E. Groves
Regina E. Groves
/s/ B. Kristine Johnson
B. Kristine Johnson
/s/ Mark R. Lanning
Mark R. Lanning
/s/ Karen N. Prange
Karen N. Prange
/s/ Sven A. Wehrwein
Sven A. Wehrwein
/s/ Robert S. White
Robert S. White
Title(s)
Scott W. Drake
Chairman of the Board
Michael H. Carrel
Director, President and Chief Executive Officer
(Principal Executive Officer)
Angela L. Wirick
Chief Financial Officer
(Principal Accounting and Financial Officer)
Mark A. Collar
Director
Daniel P. Florin
Director
Regina E. Groves
Director
B. Kristine Johnson
Director
Mark R. Lanning
Director
Karen N. Prange
Director
Sven A. Wehrwein
Director
Robert S. White
Director
80