AtriCure, Inc. 10-Q Summary: Period Ended June 30, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2009, and the six-month period ended June 30, 2009. AtriCure, Inc. is a medical device company developing, manufacturing, and selling cardiac surgical ablation systems, primarily the Isolator bipolar ablation system and the Cryo1 disposable cryoablation device. The company operates in a single segment with sales in the United States and internationally.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Revenues | $13.78 million | $27.45 million |
| Gross Profit | $10.67 million (77.4% margin) | $21.40 million (78.0% margin) |
| Net Loss | $(1.44) million | $(9.41) million |
| Net Loss Per Share (Basic/Diluted) | $(0.10) | $(0.65) |
| Cash and Cash Equivalents | $13.73 million (as of June 30, 2009) | |
| Short-term Investments | $2.01 million (as of June 30, 2009) | |
| Total Debt (Current + Long-term) | $5.78 million (as of June 30, 2009) | |
| Working Capital | $21.57 million (Current Assets $30.59M - Current Liabilities $9.03M) |
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 7.3% for the quarter and 3.3% for the six months compared to the prior year periods. This was primarily driven by a reduction in capital equipment sales (specifically ORLab units and CCS-200 cryo generators) due to the hospital spending environment and a strategic shift to loaning generators while selling disposable probes.
- Goodwill Impairment: The company recorded a full goodwill impairment charge of $6.81 million in the first quarter of 2009 (included in the six-month results). This non-cash charge significantly impacted the net loss for the six-month period.
- Expense Management: Selling, general, and administrative (SG&A) expenses decreased significantly ($2.0 million for the quarter; $4.9 million for six months) due to a reduction in force in late 2008 and reduced marketing spend. However, Research and Development (R&D) expenses increased due to clinical trial expenditures (ABLADE and EXCLUDE trials).
- Debt Restructuring: The company terminated its credit facility with National City Bank and entered a new agreement with Silicon Valley Bank on May 1, 2009, borrowing $6.5 million under a term loan.
Guidance, Outlook, Risks, and Unusual Items
- Liquidity: Management believes current cash, investments, and available credit ($1.0 million remaining on the revolver) are sufficient to meet needs for at least the next 12 months. The company has an accumulated deficit of $86.9 million.
- Legal and Regulatory Risks:
- DOJ Investigation: The U.S. Department of Justice is investigating potential False Claims Act violations regarding marketing practices and billing codes for atrial fibrillation treatment.
- Class Action Lawsuits: Two securities class action lawsuits are pending (Levine v. AtriCure and Halford v. AtriCure) alleging violations of federal securities laws and improper product promotion.
- Qui Tam Suit: A qui tam complaint was unsealed in July 2009 related to the DOJ investigation.
- Unusual Items: The $6.81 million goodwill impairment is a non-recurring, non-cash item. Additionally, the company recorded foreign currency transaction losses and expenses related to the remeasurement of non-employee stock options.
- Outlook: The company expects seasonality to impact results, with a typical revenue decline in the third quarter due to the elective nature of cardiac procedures during summer months.
Key Facts for Investor Verification
- Verify the status and potential financial impact of the ongoing Department of Justice investigation and related qui tam/class action lawsuits, as the company states liability cannot be estimated.
- Confirm the sustainability of the revenue decline in capital equipment sales and the success of the transition to a disposable-probe business model.
- Monitor cash burn rates and the ability to service the new $6.5 million term loan (10% interest rate, 15.2% effective rate) given the accumulated deficit.
- Review the progress and costs of the ABLATE and EXCLUDE clinical trials, which are driving increased R&D expenses.
- Assess the impact of the goodwill impairment on future balance sheet strength and potential for further asset write-downs if market capitalization remains depressed.