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AtriCure Inc. Reports Operating Results (10-Q)

November 09, 2009 | About:
10qk

10qk

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AtriCure Inc. (ATRC) filed Quarterly Report for the period ended 2009-09-30.

AtriCure, Inc. is a medical device company focused on developing, manufacturing and selling innovative surgical devices to create precise lesions, or scars, in soft tissues. Medical journals have described the adoption by leading cardiothoracic surgeons of the AtriCure, Inc. bipolar ablation system as a standard treatment alternative during open-heart surgical procedures to safely, rapidly and reliably create lesions in cardiac, or heart, tissue to block the abnormal electrical impulses that cause atrial fibrillation, a quivering of the upper chambers of the heart. Atricure Inc. has a market cap of $75.26 million; its shares were traded at around $5.02 with and P/S ratio of 1.36.

Highlight of Business Operations:

Research and development expenses. Research and development expenses increased $0.6 million, from $8.0 million for the nine months ended September 30, 2008 to $8.6 million for the nine months ended September 30, 2009. As a percentage of revenues, research and development expenses increased from 18.6% for the nine months ended September 30, 2008 to 21.2% for the nine months ended September 30, 2009. The increase was primarily attributable to a $0.6 million increase in consulting expenses to support clinical trial activities, an increase in clinical trial expense of $0.4 million and an increase in share-based compensation of $0.4 million, partially offset by a decrease in product development project costs of $0.4 million.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased $7.0 million, from $32.6 million for the nine months ended September 30, 2008 to $25.6 million for the nine months ended September 30, 2009. The decrease was primarily due to lower headcount-related and travel expenses of $5.4 million, primarily the result of a reduction in our sales force which occurred during the fourth quarter of 2008 and a $0.8 million decrease in marketing expenses due primarily to reduced spending in support of tradeshow activities. These reductions in expenses were partially offset by an increase in legal expense of $0.5 million, related primarily to our DOJ investigation, and an increase in share-based compensation expense of $0.4 million. As a percentage of total revenues, selling, general and administrative expenses decreased from 75.4% for the nine months ended September 30, 2008 to 62.8% for the nine months ended September 30, 2009.

Net interest income (expense). Net interest income (expense) decreased $0.6 million from income of $0.1 million for the nine months ended September 30, 2008 to expense of ($0.5) million for the nine months ended September 30, 2009. The decrease was primarily due to the write-off of deferred financing costs of $0.1 million in connection with the termination of our credit facility with National City Bank, increased interest expense associated with borrowings under the term loan component of our new credit facility of $0.3 million (driven by a higher effective interest rate and an increase in average borrowings outstanding) and $0.1 million related to the amortization of the discount on long-term debt for the warrant issued in conjunction with our new credit facility.

Other (expense) income. Other (expense) income consists of foreign currency transaction (loss) gain, grant income 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 the nine months ended September 30, 2009, other expense of $0.2 million included $0.1 million related to foreign currency transaction losses associated with partial settlements of intercompany balances and $0.1 million of certain non-employee option expense due to an increase in the value of the options. Other income of $0.5 million for the nine months ended September 30, 2008 included income of $0.2 million associated with a reduction in value of certain non-employee stock options, $0.1 million related to foreign currency transaction gains associated with the partial settlement of intercompany balances, and $0.2 million in grant income related to our grant agreement with the Cleveland Clinic Foundation.

Cash flows provided by (used in) operating activities. Net cash provided by operating activities was $0.3 million for the nine months ended September 30, 2009 and net cash used in operating activities was $4.9 million for the nine months ended September 30, 2008. Net cash provided by operating activities for the nine months ended September 30, 2009 was primarily attributable to a goodwill impairment charge of $6.8 million, the recording of a settlement reserve related to the DOJ investigation of $3.8 million, non-cash charges related to share-based compensation of $2.7 million and depreciation and amortization of $1.8 million. These positive non-cash reconciling items were partially offset by a net loss of $14.1 million and a decrease in accounts payable and accrued liabilities of $1.7 million, driven primarily by a reduction in our overall expense structure. Net cash used in operating activities for the nine months ended September 30, 2008 was primarily attributable to the net loss of $7.0 million, an increase in accounts receivable and inventory of $1.6 million and $0.2 million, respectively, and a net increase in accounts payable and accrued liabilities of approximately $0.1 million. Net cash used by operations was partially offset by adjustments for depreciation and amortization of $2.2 million and non-cash charges related to share-based compensation of $1.8 million. The increase in accounts receivable was primarily due to an increase in and the timing of revenues. The increase in inventories was primarily related to anticipated growth and new product introductions.

Cash flows (used in) provided by financing activities. Net cash (used in) provided by financing activities for the nine months ended September 30, 2009 and 2008 was ($0.5) million and $5.3, respectively. For the nine months ended September 30, 2009, cash flows used in financing activities was attributable to payments made on our debt and capital lease obligations of $6.9 million, including a $6.0 million repayment in full of our National City credit facility, and $0.2 million in payment of debt fees, partially offset by proceeds from borrowings of long-term debt under our new credit facility of $6.5 million, and $0.1 million in proceeds from the issuance of common stock under our employee stock purchase plan. For the nine months ended September 30, 2008, cash provided by financing activities included borrowings against our credit facility in the amount of $6.0 million, as well as proceeds from exercises of stock options of $0.2 million, partially offset by payments made on our debt and capital lease obligations and fees of $0.9 million.

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10qk
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