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AtriCure Inc. Reports Operating Results (10-Q)

August 10, 2010 | About:
10qk

10qk

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AtriCure Inc. (ATRC) filed Quarterly Report for the period ended 2010-06-30.

Atricure Inc. has a market cap of $105.3 million; its shares were traded at around $6.81 with and P/S ratio of 1.9. ATRC is in the portfolios of Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Effective July 2, 2010, we terminated our distributor agreement with a European distributor. Under the terms of the agreement we paid the distributor 200,000 (approximately $250,000) and are obligated to repurchase saleable disposable product inventory, which we estimate to be $100,000. Additionally, we are obligated, upon appropriate assignment, to pay approximately $100,000 for capital equipment, a majority of which is on loan at customer locations. Additionally, we entered into a consulting agreement with the distributor to provide ongoing consulting services through September 30, 2012. In exchange for these services, beginning October 1, 2010, the distributor will earn 50,000 (approximately $63,000) per quarter for a total of 400,000 (approximately $500,000). Additionally, the distributor will earn 10,000 (approximately $12,500) per month for consulting services for each month during the third quarter of 2010. We believe that selling directly in this market will allow us to better penetrate this market and expand the adoption of our products.

Cost of revenue and gross margin. Cost of revenue decreased $0.1 million, from $3.1 million for the three months ended June 30, 2009 to $3.0 million for the three months ended June 30, 2010. As a percentage of revenue, cost of revenue decreased from 22.6% to 20.9% for the three months ended June 30, 2009 and 2010, respectively. Gross margin for the three months ended June 30, 2010 and 2009 was 79.1% and 77.4%, respectively. The decrease in cost of revenue and the improvement in gross margin was primarily due to a reduction in product costs, primarily associated with increased manufacturing efficiencies, and an increased mix of sales from customers in the United States, which generally carry a higher average selling price and corresponding gross margin than sales to international customers. These were partially offset by an increased mix of revenue from new products, such as Cryo1, which has a lower gross margin than our disposable RF products and a reduction in average selling prices for sales to international customers, due to general economic conditions, reimbursement, and competitor pricing.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $0.7 million or 7.9%, from $8.6 million for the three months ended June 30, 2009 to $9.2 million for the three months ended June 30, 2010. The increase was primarily attributable to a $0.7 million increase in headcount related selling expenses driven by an increase in average worldwide sales and marketing headcount of 10 individuals to support our growth initiatives.

Net interest expense. Net interest expense decreased $0.1 million to $0.2 million for the three months ended June 30, 2010. The decrease was primarily due to an increase in interest incurred associated with our May 2009 term loan borrowing under our credit facility and related amortization of the discount on long-term debt for the warrant issued in May 2009 in conjunction with our credit facility. These increases were offset by net interest expense for the three months ended June 30, 2009, including a write-off of debt fees of $0.1 million associated with the termination of a credit facility.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.5 million or 8.3%, from $17.5 million for the six months ended June 30, 2009 to $19.0 million for the six months ended June 30, 2010. The increase was primarily attributable to a $1.3 million increase in headcount related selling expenses driven by an increase in average worldwide sales and marketing headcount of 10 individuals to support our growth initiatives.

Other expense. Other expense consists primarily of foreign currency transaction gains/losses and non-employee option expense/ income related to the fair market value change for fully vested options outstanding for consultants, which are accounted for as free standing derivatives. For each of the six months ended June 30, 2010 and 2009, other expense included approximately $160,000 and $130,000, respectively related to foreign currency transaction losses associated with partial settlements of intercompany balances. Other expense for the six months ended June 30, 2010 and 2009 included expense of approximately $27,000 and $51,000, respectively, associated with an increase in value of certain non-employee stock options.

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