Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ATRC > SEC Filings for ATRC > Form 10-Q on 2-Nov-2012All Recent SEC Filings

Show all filings for ATRICURE, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ATRICURE, INC.


2-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and notes thereto contained in Item 1 of Part I of this Form 10-Q and our audited financial statements and notes thereto as of and for the year ended December 31, 2011 included in our Form 10-K filed with the Securities and Exchange Commission ("SEC") to provide an understanding of our results of operations, financial condition and cash flows.

Forward-Looking Statements

This Form 10-Q, including the sections titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors," contains forward-looking statements regarding our future performance. All forward-looking information is inherently uncertain and actual results may differ materially from assumptions, estimates or expectations reflected or contained in the forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this quarterly report on Form 10-Q, and in our annual report on Form 10-K for the year ended December 31, 2011. Forward-looking statements convey our current expectations or forecasts of future events. All statements contained in this Form 10-Q other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words "may," "continue," "estimate," "intend," "plan," "will," "believe," "project," "expect," "anticipate" and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. With respect to the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise unless required by law.

Overview

We are a medical device company and a leader in developing, manufacturing and selling innovative cardiac surgical ablation systems designed to create precise lesions, or scars, in cardiac, or heart, tissue for the treatment of atrial fibrillation ("AF"), and systems for the exclusion of the left atrial appendage. We are the only company with a system cleared by the United States Food and Drug Administration ("FDA"), for the treatment of patients with persistent and long-standing persistent AF. We have two primary product lines for the ablation of cardiac tissue. Our primary product line for the ablation of cardiac tissue is the AtriCure Synergy Ablation System ("Synergy System"), a bipolar ablation clamp system and related radiofrequency ("RF") ablation devices. We also offer a cryoablation product line, which features reusable and disposable cryoablation devices. Additionally, we offer the AtriClip™ Gillinov-Cosgrove Left Atrial Appendage System ("AtriClip system"), which is designed to safely and effectively exclude the left atrial appendage.

Cardiothoracic surgeons have adopted our RF and cryo ablation systems to treat AF in an estimated 120,000 patients since January 2003, and we believe that we are currently the market leader in the surgical treatment of AF. Our products are utilized by cardiothoracic surgeons during concomitant open-heart surgical procedures and also during sole-therapy minimally invasive cardiac ablation procedures. During a concomitant open procedure, the surgeon ablates cardiac tissue and/or excludes the left atrial appendage, secondary, or concomitant, to a primary cardiac procedure such as a valve or coronary bypass. Additionally, cardiothoracic surgeons have adopted our products as a treatment alternative for AF patients who may be candidates for sole-therapy minimally invasive surgical procedures. Our Synergy System, which includes our Isolator ฎ Synergy clamps, a radiofrequency generator and related switchbox, is cleared by the FDA for the treatment of patients with persistent and long-standing persistent AF during open-heart concomitant coronary artery bypass grafting and/or valve replacement or repair procedures. During 2011 product sales of the Synergy System in the United States ("U.S.") represented approximately 40% of our U.S. revenue. To date, none of our other products have been approved or cleared by the FDA for the treatment of other forms of AF or for other uses for the treatment of AF. Additionally, the FDA has not cleared or approved our products for a reduction in the risk of stroke. 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, which surgeons generally use to ablate cardiac tissue for the treatment of AF or for the exclusion of the left atrial appendage.

Recent Developments

During the third quarter of 2010 our Dual Epicardial Endocardial Persistent Atrial Fibrillation ("DEEP AF") clinical trial was approved by the FDA. DEEP AF was a feasibility trial designed to evaluate the safety and effectiveness of our minimally invasive products with catheter mapping and ablation technologies for the treatment of patients with persistent or long-standing persistent AF. The trial was modified during the first quarter of 2011 to include the use of the AtriClip system to exclude the left atrial appendage. Enrollment in the trial was initiated in December 2010 and was closed in November 2011 after it was determined that a staged approach, where the minimally invasive surgical ablation procedure is performed and the catheter optimization is performed separately, may be more applicable to a larger number of investigators. The trial was conducted at six U.S. medical centers and


Table of Contents

enrolled 24 patients. In February 2012 we submitted to the FDA a staged DEEP AF ("Staged DEEP") protocol which evaluates the effectiveness of a staged approach where a minimally invasive ablation procedure is performed initially and the catheter and mapping optimization procedure is performed on a different day during the same hospitalization. The protocol was conditionally approved by the FDA in March 2012, and final approval was received in June 2012. Enrollment in the Staged DEEP trial was initiated during the third quarter of 2012. We expect to enroll up to 30 patients at six medical centers.

In December 2010 we submitted our final clinical module to the FDA, including the supplementary data, in support of a Premarket Approval ("PMA") for our Synergy Ablation System for the treatment of AF during concomitant open-heart procedures. In October 2011 the ABLATE PMA was reviewed at a meeting of the FDA's Circulatory System Devices Panel. The panel recommended approval by the FDA of AtriCure's Synergy Ablation System. In December 2011 the FDA approved the Synergy Ablation System for the treatment of patients with persistent and long-standing persistent AF during open-heart concomitant coronary artery bypass grafting and/or valve replacement or repair procedures. The PMA included the implementation of a 350-patient post-approval study ("PAS"), of which approximately 60 patients have been enrolled through the ABLATE AF study. Additionally, the FDA approval included a physician training and education program. We submitted protocol for the PAS to the FDA in February 2012. We received a letter from the FDA regarding deficiencies in the protocol in April 2012, and we responded to the letter in May 2012. The PAS protocol was approved in September 2012.

In May 2011 we received clearance from the FDA for our cryoICE BOX generator for the cryosurgical treatment of cardiac arrhythmias. We received CE Mark, a mandatory conformity mark for products marketed in Europe, for the cryoICE BOX in February 2011. We initiated a limited commercial release of cryoICE BOX in Europe in June 2011. During July 2011 we submitted a supplemental 510(k) to the FDA for enhancements made to the cryoICE BOX, which was approved in August 2011. We released the cryoICE BOX during the fourth quarter of 2011.

In July 2011 we were awarded a $1.0 million grant from the Ohio Third Frontier Commission, a technology-based economic development initiative dedicated to supporting existing industries that are transforming themselves with new globally competitive products and fostering the formation and attraction of new companies in emerging industry sectors in the state of Ohio. The grant is being used to develop and commercialize a left atrial appendage exclusion device for use in minimally invasive standalone procedures.

In August 2011 we filed an Investigational Device Exemption ("IDE") with the FDA for a new feasibility trial. The 30-patient trial was designed to evaluate the safety and effectiveness of AtriCure's thoracoscopically deployed AtriClip system for the exclusion of the left atrial appendage for stroke prevention in patients with non-valvular AF and in whom long-term oral anticoagulation therapy is considered unsuitable. Our stroke clinical trial was approved by the FDA during the fourth quarter of 2011. Recent findings in the research and development of less invasive versions of the AtriClip system have caused us to place this trial on hold while we evaluate our progress and determine our approach to expand AtriClip technologies into the sole-therapy device markets for left atrial appendage exclusion.

The Company's CFO resigned effective April 30, 2012. In connection with the resignation, the CFO and AtriCure entered into an agreement pursuant to which the CFO is entitled to receive: (i) all accrued and unpaid base salary through the effective date of the resignation; (ii) payment for any accrued and unused vacation; (iii) continued vesting of all stock options and restricted stock until April 30, 2013; and (iv) twelve (12) months base salary ($0.3 million).

In August 2012 we filed an IDE with the FDA for ABLATE II, a sole-therapy clinical trial intended for patients that have failed single or multiple catheter ablation attempts. The trial leverages our existing open, concomitant PMA approval for AF and our AF-approved products and accessory devices to perform a Maze IV ablation treatment. The trial was conditionally approved by the FDA in September 2012. We anticipate initiating enrollment during the first half of 2013.

On August 2, 2012, The Company's Chief Executive Officer and President of the Company ("CEO") notified the Company that he was resigning from his positions with the Company. Pursuant to his Employment Agreement, the CEO continued to serve as Chief Executive Officer and President of the Company through September 30, 2012. The CEO's term as a member of the Company's Board of Directors ended effective August 2, 2012. In connection with the resignation, the CEO and AtriCure entered into an agreement pursuant to which he is entitled to receive: (i) all accrued and unpaid base salary through the effective date of the resignation; (ii) payment for any accrued and unused vacation;
(iii) continued vesting of all stock options and restricted stock until March 31, 2013; and (iv) six (6) months base salary ($0.2 million).


Table of Contents

Results of Operations

Three months ended September 30, 2012 compared to three months ended
September 30, 2011

The following table sets forth, for the periods indicated, our results of
operations expressed as dollar amounts and as percentages of total revenue:



                                                         Three Months Ended September 30,
                                                      2012                               2011
                                                              % of                               % of
                                            Amount          Revenues           Amount          Revenues
                                                              (dollars in thousands)
Revenue                                    $ 16,139             100.0 %       $ 15,222             100.0 %
Cost of revenue                               4,590              28.4 %          4,137              27.2 %

Gross profit                                 11,549              71.6 %         11,085              72.8 %
Operating expenses:
Research and development expenses             2,905              18.0 %          3,069              20.2 %
Selling, general and administrative
expenses                                     11,173              69.2 %          9,207              60.5 %

Total operating expenses                     14,078              87.2 %         12,276              80.6 %

Loss from operations                         (2,529 )           (15.6 %)        (1,191 )            (7.8 %)
Other income (expense):
Interest expense                               (190 )            (1.2 %)          (170 )            (1.1 %)
Interest income                                   3               0.0 %              5               0.0 %
Other                                           160               1.0 %            212               1.4 %

Total other income (expense)                    (27 )            (0.2 %)            47               0.3 %
Loss before income tax expense               (2,556 )           (15.8 %)        (1,144 )            (7.5 %)
Income tax expense                               11               0.0 %             12              (0.1 %)

Net loss                                   $ (2,567 )           (15.8 %)      $ (1,156 )            (7.6 %)

Revenue. Total revenue increased 6.0% (7.8% on a constant currency basis) from $15.2 million for the three months ended September 30, 2011 to $16.1 million for the three months ended September 30, 2012. Revenue from sales to customers in the United States increased $0.6 million, or 5.1%, and revenue from sales to international customers increased $0.3 million, or 9.0% (16.7% on a constant currency basis). The increase in sales to customers in the United States was primarily due to increased sales of ablation-related open-heart products of $0.7 million and increased sales of the AtriClip system of $0.2 million. This increase was partially offset by a reduction in sales of products used in minimally invasive standalone cardiac ablation procedures. The increase in international revenue was primarily due to an increase in product sales in our European markets.

Cost of revenue and gross margin. Cost of revenue increased $0.5 million, from $4.1 million for the three months ended September 30, 2011 to $4.6 million for the three months ended September 30, 2012. The increase in cost of revenue was primarily due to an increase in revenue and an increase in product cost primarily due to an increase in resources being dedicated to manufacturing related activities. As a percentage of revenue, cost of revenue increased from 27.2% for the three months ended September 30, 2011 to 28.4% for the three months ended September 30, 2012. Gross margin for the three months ended September 30, 2012 and 2011 was 71.6% and 72.8%, respectively. The decrease in gross margin was primarily due to increased international sales, which carry lower gross margins, and an increase in manufacturing costs and inefficiencies primarily associated with transitioning to the manufacturing of PMA approved products.

Research and development expenses. Research and development expenses decreased $0.2 million, from $3.1 million for the three months ended September 30, 2011 to $2.9 million for the three months ended September 30, 2012. As a percentage of revenue, research and development expenses decreased from 20.2% for the three months ended September 30, 2011 to 18.0% for the three months ended September 30, 2012. The decrease in expense was primarily due to a $0.2 million decrease in clinical activities related to preparing for an FDA panel in late 2011.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $2.0 million, or 21.4%, from $9.2 million for the three months ended September 30, 2011 to $11.2 million for the three months ended September 30, 2012. Approximately $0.7 million of the increase was driven by expenses recorded in conjunction with the departure of the Company's Chief Executive Officer. The remaining increase was primarily due to an increase in sales and marketing expenditures and an increase in training related to the December 2011 FDA clearance of our Synergy System for the treatment of AF.


Table of Contents

Net interest expense. Net interest expense for the three months ended September 30, 2012 and 2011 was $0.2 million. Net interest expense primarily represents interest expense related to amounts outstanding on our term loan and amortization of debt issuance costs.

Other income and expense. Other income and expense consists primarily of foreign currency transaction gains and losses, grant income and non-employee option gains and losses related to the fair market value change for fully vested options outstanding for consultants, which are accounted for as free-standing derivatives. Other income totaled $0.2 million for the three months ended September 30, 2012 and 2011.

Nine months ended September 30, 2012 compared to nine months ended September 30, 2011

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of total revenue:

                                                          Nine Months Ended September 30,
                                                      2012                               2011
                                                              % of                               % of
                                            Amount          Revenues           Amount          Revenues
                                                              (dollars in thousands)
Revenue                                    $ 51,883             100.0 %       $ 47,639             100.0 %
Cost of revenue                              14,871              28.7 %         12,383              26.0 %

Gross profit                                 37,012              71.3 %         35,256              74.0 %
Operating expenses:
Research and development expenses             9,180              17.7 %          8,893              18.7 %
Selling, general and administrative
expenses                                     33,178              63.9 %         29,399              61.7 %

Total operating expenses                     42,358              81.6 %         38,292              80.4 %

Loss from operations                         (5,346 )           (10.3 %)        (3,036 )            (6.4 %)
Other income (expense):
Interest expense                               (616 )            (1.2 %)          (651 )            (1.4 %)
Interest income                                   8               0.0 %             13               0.0 %
Other                                           460               0.9 %            324               0.7 %

Total other income (expense)                   (148 )            (0.3 %)          (314 )            (0.7 %)
Loss before income tax expense               (5,494 )           (10.6 %)        (3,350 )            (7.0 %)
Income tax expense                               20               0.0 %             26              (0.1 %)

Net loss                                   $ (5,514 )           (10.6 %)      $ (3,376 )            (7.1 %)

Revenue. Total revenue increased 8.9% (10.3% on a constant currency basis) from $47.6 million for the nine months ended September 30, 2011 to $51.9 million for the nine months ended September 30, 2012. Revenue from sales to customers in the United States increased $2.4 million, or 6.6%, and revenue from sales to international customers increased $1.8 million, or 16.4% (22.3% on a constant currency basis). The increase in sales to customers in the United States was primarily due to increased sales of ablation-related open-heart products of $2.6 million and increased sales of the AtriClip system of $1.0 million. This increase was partially offset by a reduction in sales of products used in minimally invasive standalone cardiac ablation procedures. The increase in international revenue was primarily due to an increase in product sales in direct European markets, Russia and Asia.

Cost of revenue and gross margin. Cost of revenue increased $2.5 million, from $12.4 million for the nine months ended September 30, 2011 to $14.9 million for the nine months ended September 30, 2012. The increase in cost of revenue was primarily due to an increase in revenue and an increase in product cost primarily due to an increase in resources being dedicated to manufacturing related activities. As a percentage of revenue, cost of revenue increased from 26.0% for the nine months ended September 30, 2011 to 28.7% for the nine months ended September 30, 2012. Gross margin for the nine months ended September 30, 2012 and 2011 was 71.3% and 74.0%, respectively. The decrease in gross margin was primarily due to:

• an increased mix of international sales, which carry lower gross margins;

• an increased mix of revenue from the AtriClip system, which has a lower gross margin than other single-use products;

• an increase in manufacturing costs and inefficiencies primarily associated with transitioning to the manufacturing of PMA approved products; and

• an increase in capital equipment sales, which have a lower gross margin than our single-use products.

Research and development expenses. Research and development expenses increased $0.3 million, from $8.9 million for the nine months ended September 30, 2011 to $9.2 million for the nine months ended September 30, 2012. As a percentage of revenue,


Table of Contents

research and development expenses decreased from 18.7% for the nine months ended September 30, 2011 to 17.7% for the nine months ended September 30, 2012. The increase in expense was primarily due to a $0.2 million increase in clinical activities and clinical trial enrollment related expenses and a $0.2 million increase in costs related to product development activities.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $3.8 million, or 12.9%, from $29.4 million for the nine months ended September 30, 2011 to $33.2 million for the nine months ended September 30, 2012. Approximately $1.3 million of the increase was driven by expenses recorded in conjunction with the departure of the Company's Chief Financial Officer and Chief Executive Officer. The remaining increase was primarily due to an increase in sales and marketing expenditures and an increase in training related to the December 2012 FDA clearance of our Synergy System for the treatment of AF.

Net interest expense. Net interest expense for the nine months ended September 30, 2012 and 2011 was $0.6 million and $0.7 million, respectively. Net interest expense primarily represents interest expense related to amounts outstanding on our term loan, amortization of the debt discount related to the warrants issued in conjunction with the term loan and amortization of debt issuance costs.

Other income and expense. Other income and expense consists primarily of foreign currency transaction gains and losses, grant income and non-employee option gains and losses related to the fair market value change for fully vested options outstanding for consultants, which are accounted for as free-standing derivatives. Other income totaled $0.5 million for the nine months ended September 30, 2012 and $0.3 million for the nine months ended September 30, 2011.

Liquidity and Capital Resources

As of September 30, 2012 the Company had cash, cash equivalents and investments of $13.0 million and short-term and long-term debt of $8.9 million, resulting in a net cash position of $4.1 million. We had unused borrowing capacity of approximately $5.0 million under our revolving credit facility. We had net working capital of $18.5 million and an accumulated deficit of $108.7 million as of September 30, 2012.

Cash flows used in operating activities. Net cash used in operating activities for the nine months ended September 30, 2012 was $1.7 million. The primary net uses of cash for operating activities were as follows:

• the net loss of $5.5 million, offset by $4.5 million of non-cash expenses, including $2.9 million in share-based compensation, $1.5 million in depreciation and amortization and $0.1 million for the amortization of deferred financing costs and discount on long-term debt; and

• a net increase in cash used related to changes in operating assets and liabilities of $0.8 million, due primarily to the following:

• an increase in inventory of $0.3 million, due primarily to increased inventory levels in support of new products and anticipated revenue growth; and

• a $0.5 million reduction in accounts payable due primarily to the timing of payments.

Cash flows used in investing activities. Net cash used in investing activities was $2.8 million for the nine months ended September 30, 2012. The primary net uses of cash for investing activities were:

• a use of cash of $2.4 million related to the purchase of equipment, which consisted primarily of loans of our RF and cryo generators to our customers; and

• net investment purchases of $0.4 million.

Cash flows provided by financing activities. Net cash provided by financing activities for the nine months ended September 30, 2012 was $2.9 million, which was primarily due to net proceeds from the modified SVB term loan borrowing of $3.9 million, proceeds from stock option exercises of $0.6 million and proceeds from the issuance of common stock under the stock purchase plan of $0.4 million, partially offset by shares repurchased for payment of taxes on stock awards of $0.4 million and debt payments of $1.9 million.

Credit facility. Our Loan and Security Agreement with Silicon Valley Bank ("SVB"), as amended, restated, and modified (the "Agreement") provides for a term loan and a revolving credit facility under which we could borrow a maximum of $20.0 million. As of September 30, 2012 we had no borrowings under the revolving credit facility, and we had borrowing availability of approximately $5.0 million. The applicable borrowing rate on the revolving facility is 0.25% to 1.25% above the prime rate, as determined by the Liquidity Ratio. Also, as of September 30, 2012, $8.8 million was outstanding under the term loan, which included $2.0 million classified as current maturities of long-term debt. The term loan has a five year term, and principal payments in the amount of $0.2 million, together with accrued interest, are due and payable monthly. The term loan accrues interest at a fixed rate of 6.75%.


Table of Contents

The Agreement contains covenants that include, among others, covenants that limit our ability to dispose of assets, enter into mergers or acquisitions, incur indebtedness, incur liens, pay dividends or make distributions on our capital stock, make investments or loans, and enter into certain affiliate transactions, in each case subject to customary exceptions for a credit facility of this size and type. Additional covenants apply when we have outstanding . . .

  Add ATRC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ATRC - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.