10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_____________________________________________

FORM 10-Q

_____________________________________________

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____________to_____________

Commission File Number 000-51470

_____________________________________________

AtriCure, Inc.

(Exact name of Registrant as specified in its charter)

_____________________________________________

Delaware	34-1940305
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

7555 Innovation Way

Mason, OH 45040

(Address of principal executive offices)

(513) 755-4100

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

_____________________________________________

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer, accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☒
Non-Accelerated Filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES ☐ NO ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 3, 2016
Common Stock, $.001 par value	33,202,924

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2016 and 2015	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 6.	Exhibits	26
Signatures		27
Exhibit Index		28

2

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Amounts)

(Unaudited)

	June 30,		December 31,
	2016		2015
Assets
Current assets:
Cash and cash equivalents	$	19,917	$	23,764
Short-term investments		22,510		10,814
Accounts receivable, less allowance for doubtful accounts of $75 and $136, respectively		21,354		19,409
Inventories		19,311		17,659
Other current assets		3,373		3,106
Total current assets		86,465		74,752
Property and equipment, net		30,902		31,279
Long-term investments		5,525		7,706
Intangible assets, net		52,953		53,775
Goodwill		105,257		105,257
Other noncurrent assets		411		323
Total Assets	$	281,513	$	273,092
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	11,926	$	12,744
Accrued liabilities		12,790		18,394
Other current liabilities and current maturities of capital leases		473		450
Total current liabilities		25,189		31,588
Capital leases		13,504		13,710
Long-term debt		24,969		—
Other noncurrent liabilities		40,851		41,109
Total Liabilities		104,513		86,407
Commitments and contingencies (Note 7)
Stockholders’ Equity:
Common stock, $0.001 par value, 90,000 shares authorized and 33,203 and 32,274issued and outstanding, respectively		33		32
Additional paid-in capital		361,023		352,900
Accumulated other comprehensive loss		(490)		(611)
Accumulated deficit		(183,566)		(165,636)
Total Stockholders’ Equity		177,000		186,685
Total Liabilities and Stockholders’ Equity	$	281,513	$	273,092

See accompanying notes to condensed consolidated financial statements.

3

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Revenue	$	39,672	$	32,583	$	75,612	$	62,469
Cost of revenue		10,854		9,466		20,880		17,617
Gross profit		28,818		23,117		54,732		44,852
Operating expenses:
Research and development expenses		9,124		5,862		17,687		11,471
Selling, general and administrative expenses		27,432		22,074		54,202		43,344
Total operating expenses		36,556		27,936		71,889		54,815
Loss from operations		(7,738)		(4,819)		(17,157)		(9,963)
Other income (expense):
Interest expense		(477)		(17)		(736)		(35)
Interest income		60		43		99		86
Other		(34)		(90)		(114)		(231)
Loss before income tax expense		(8,189)		(4,883)		(17,908)		(10,143)
Income tax expense		17		8		22		14
Net loss	$	(8,206)	$	(4,891)	$	(17,930)	$	(10,157)
Basic and diluted net loss per share	$	(0.26)	$	(0.18)	$	(0.57)	$	(0.37)
Weighted average shares outstanding—basic and diluted		31,575		27,304		31,466		27,187
Comprehensive loss:
Unrealized gains on investments	$	13	$	2	$	54	$	39
Foreign currency translation adjustment		(219)		253		67		(234)
Other comprehensive income (loss)		(206)		255		121		(195)
Net loss		(8,206)		(4,891)		(17,930)		(10,157)
Comprehensive loss	$	(8,412)	$	(4,636)	$	(17,809)	$	(10,352)

See accompanying notes to condensed consolidated financial statements.

4

ATRICURE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In  Thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2016		2015
Cash flows from operating activities:
Net loss	$	(17,930)	$	(10,157)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		5,869		4,141
Depreciation		3,678		2,087
Amortization of intangible assets		822		606
Amortization of deferred financing costs		86		31
Loss on disposal of property and equipment		117		63
Realized (gain) loss from foreign exchange on intercompany transactions		(15)		302
Amortization/accretion on investments		74		339
Change in allowance for doubtful accounts		(49)		117
Changes in operating assets and liabilities:
Accounts receivable		(1,897)		(468)
Inventories		(1,595)		(1,977)
Other current assets		(236)		(538)
Accounts payable		131		1,128
Accrued liabilities		(5,673)		(2,196)
Other noncurrent assets and liabilities		(338)		128
Net cash used in operating activities		(16,956)		(6,394)
Cash flows from investing activities:
Purchases of available-for-sale securities		(21,940)		(10,302)
Sales and maturities of available-for-sale securities		12,404		20,460
Purchases of property and equipment		(4,341)		(4,077)
Increases in property under build-to-suit obligation		—		(4,806)
Net cash (used in) provided by investing activities		(13,877)		1,275
Cash flows from financing activities:
Proceeds from debt borrowings		25,000		—
Payments on capital leases		(218)		(25)
Increases in build-to-suit obligation		—		4,806
Payment of debt fees		(120)		(62)
Proceeds from stock option exercises		2,301		1,854
Shares repurchased for payment of taxes on stock awards		(1,033)		(572)
Proceeds from issuance of common stock under employee stock purchase plan		987		906
Net cash provided by financing activities		26,917		6,907
Effect of exchange rate changes on cash and cash equivalents		69		(185)
Net (decrease) increase in cash and cash equivalents		(3,847)		1,603
Cash and cash equivalents—beginning of period		23,764		28,384
Cash and cash equivalents—end of period	$	19,917	$	29,987
Supplemental cash flow information:
Cash paid for interest	$	577	$	3
Cash paid for income taxes		—		20
Non-cash investing and financing activities:
Accrued purchases of property and equipment		306		1,652
Assets acquired through capital lease		43		36
Capital lease asset early termination		9		—

See accompanying notes to condensed consolidated financial statements.

5

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business—AtriCure, Inc. was incorporated in the State of Delaware on October 31, 2000. The “Company” or “AtriCure” consists of AtriCure, Inc. and its wholly-owned subsidiaries. The Company is a  leading atrial fibrillation (Afib) solutions partner providing innovative products, professional education and support for clinical science to reduce the economic and social burden of atrial fibrillation. The Company sells its products to medical centers globally through a direct sales force and distributors.

Basis of Presentation—The accompanying interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The accompanying interim financial statements are unaudited, but in the opinion of the Company’s management, contain all of the normal, recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America (GAAP) applicable to interim periods. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted or condensed. The Company believes the disclosures herein are adequate to make the information presented not misleading. Results of operations are not necessarily indicative of the results expected for the full fiscal year or for any future period.

The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.

Principles of Consolidation—The Condensed Consolidated Financial Statements include the accounts of the Company, AtriCure, LLC, Endoscopic Technologies, LLC and nContact Surgical, LLC, the Company’s wholly-owned subsidiaries, all organized in the State of Delaware, AtriCure Europe B.V. (AtriCure Europe), the Company’s wholly-owned subsidiary incorporated in the Netherlands and AtriCure Hong Kong Limited, the Company’s wholly-owned subsidiary incorporated in Hong Kong. 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 acquisition as cash equivalents in the accompanying Condensed Consolidated Financial Statements.

Investments—The Company places its investments primarily in U.S. Government agencies and securities, corporate bonds and commercial paper. The Company classifies all investments as available-for-sale. Investments with maturities of less than one year are classified as short-term investments. Investments are recorded at fair value, with unrealized gains and losses recorded as accumulated other comprehensive income (loss). The Company recognizes gains and losses when these securities are sold using the specific identification method and includes them in interest income or expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Revenue Recognition—The Company accounts for revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605, “Revenue Recognition” (ASC 605). The Company recognizes revenue when all of the following criteria are met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured.

Pursuant to the Company’s standard terms of sale, revenue is recognized when title to the goods and risk of loss transfers to customers and there are no remaining obligations that will affect the customers’ final acceptance of the sale. Generally, the Company’s standard terms of sale define the transfer of title and risk of loss to occur upon shipment to the respective customer. The Company does not normally maintain any post-shipping obligations to the recipients of the products. No installation, calibration or testing of products is performed by the Company subsequent to shipment to the customer in order to render it operational.

Revenue includes shipping and handling revenue of $329 and $271 for the three months ended June 30, 2016 and 2015, and $625 and $518 for the six months ended June 30, 2016 and 2015, respectively. Cost of freight for shipments made to customers is included in cost of revenue. Sales and other value-added taxes collected from customers and remitted to governmental authorities are excluded from revenue. The Company sells its products primarily through a direct sales force, with certain international markets sold through distributors. 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.

Sales Returns and Allowances—The Company maintains a provision for sales returns and allowances to account for potential returns of defective or damaged products, products shipped in error and invoice adjustments. The Company estimates such provision on a quarterly basis based primarily on specific identification, in addition to estimating a general reserve based on historical experience. Increases to the provision result in a reduction of revenue. The provision is included in accrued liabilities in the Condensed Consolidated Balance Sheets.

6

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Allowance for Doubtful Accounts Receivable—The Company evaluates the collectability of accounts receivable to determine the appropriate reserve for doubtful accounts. In determining the amount of the reserve, the Company considers aging of account balances, historical credit losses, customer-specific information and other relevant factors. An increase to the allowance for doubtful accounts results in a corresponding increase in selling, general and administrative expense. The Company reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs against the allowance has not been significant.

Inventories—Inventories are stated at the lower of cost or market using approximate costs based on the first-in, first-out cost method (FIFO). Inventories 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 utilization all impact excess and obsolete inventory. An inventory allowance based on product usage is estimated and recorded quarterly for excess, slow moving and obsolete inventory, as well as inventory with a carrying value in excess of its net realizable value. An increase to the inventory reserve allowance results in a corresponding increase in cost of revenue. Write-offs are recorded when a product is destroyed. The Company’s history of write-offs against the reserve has not been significant.

Inventories consist of the following:

	June 30,		December 31,
	2016		2015
Raw materials	$	5,581	$	6,159
Work in process		1,418		974
Finished goods		12,312		10,526
Inventories	$	19,311	$	17,659

Property and Equipment—Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method of depreciation for financial reporting purposes and is applied over the estimated useful lives of the assets. The estimated useful life by major asset category is the following: generators and other capital equipment, machinery, equipment and vehicles is three to seven years, computer and other office equipment is three years, furniture and fixtures is three to seven years and leasehold improvements and equipment under capital leases are the shorter of their useful life or remaining lease term. The Company reassesses the useful lives of property and equipment annually, and assets are retired if they are no longer in service. Maintenance and repair costs are expensed as incurred.

Generators and other capital equipment (such as the Company’s switchbox units and cryosurgical consoles) are placed with direct customers that use the Company’s disposable products. Depreciation of such assets is included in cost of revenue. 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. To the extent the Company experiences changes in the usage of this equipment or introduces new technologies, the estimated useful lives of this equipment may change in a future period. Depreciation related to these generators was $879 and $673 for the three months ended June 30, 2016 and 2015, respectively, and $1,715 and $1,293 for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016 and December 31, 2015, the net carrying amount of loaned equipment included in net property and equipment in the Condensed Consolidated Balance Sheets was $5,454 and $5,447, respectively.

The Company reviews property and equipment for impairment using its best estimates based on reasonable and supportable assumptions and projections.

Intangible Assets—Intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated periods benefited.

Included in intangible assets is In Process Research and Development (IPR&D). The Company defines IPR&D as 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. The estimated fair value of IPR&D acquired in a business combination is capitalized as an indefinite-lived intangible asset until completion or abandonment of the IPR&D project. Upon completion of the development project, the IPR&D is amortized over its estimated useful life. If the IPR&D project is abandoned, the related IPR&D asset is written off. The estimated fair value of IPR&D was determined using an income approach model and represents an estimate of the fair value of the PMA approval that could result from the CONVERGE IDE clinical trial.

The Company reviews intangible assets for impairment using its best estimates based on reasonable and supportable assumptions and projections.

7

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Goodwill—Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. The Company tests goodwill for impairment annually on November 30, or more often if impairment indicators are present. The Company’s goodwill is accounted for in a single reporting unit representing the Company as a whole.

Other Noncurrent Liabilities—Other noncurrent liabilities include contingent consideration recorded in business combinations, as well as long-term deferred revenues and other contractual obligations.

Other Income—Other income consists primarily of foreign currency transaction gains and losses. The Company recorded net foreign currency transaction losses of $35 and $46 for the three months ended June 30, 2016 and 2015, respectively, and $115 and $209 for the six months ended June 30, 2016 and 2015, respectively, in connection with settlements of its intercompany balance with AtriCure Europe and sales invoices transacted in British Pounds.

Taxes—Deferred 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 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 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 tax assets requires it to make significant estimates and judgments about its future operating results. Deferred 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. The Company evaluates deferred tax assets on a quarterly basis to determine if valuation allowances are required by considering all available evidence. Deferred 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, taxable income in carry-back years 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. The Company has recorded a full valuation allowance against 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.

A provision of The Patient Protection and Affordable Care Act enacted in 2010, as amended (Patient Act), required manufacturers of medical devices to pay an excise tax on all U.S. medical device sales. In December 2015, the U.S. government approved the suspension of the excise tax on medical device sales beginning January 1, 2016 through December 31, 2017. The Company’s expense related to the medical device excise tax, which was recorded in cost of revenue, was $0 and $149 for the three months ended June 30, 2016 and 2015, respectively, and $0 and $304 for the six months ended June 30, 2016 and 2015, respectively.

Net Loss Per Share—Basic and diluted net loss per share is computed in accordance with FASB ASC 260, “Earnings Per Share” (ASC 260) 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 4,471 and 4,290 stock options and restricted stock shares as of June 30, 2016 and 2015, respectively, 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 Loss and Accumulated Other Comprehensive Loss—In addition to net losses, the comprehensive loss includes foreign currency translation adjustments and unrealized gains and losses on investments.

8

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Accumulated other comprehensive income (loss) consisted of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Total accumulated other comprehensive loss at   beginning of period	$	(284)	$	(798)	$	(611)	$	(348)
Unrealized Gains on Investments
Balance at beginning of period	$	2	$	(17)	$	(39)	$	(54)
Other comprehensive income (loss) before reclassifications		13		2		54		39
Amounts reclassified from accumulated other comprehensive   income to other income on the statement of operations		—		—		—		—
Balance at end of period	$	15	$	(15)	$	15	$	(15)
Foreign Currency Translation Adjustment
Balance at beginning of period	$	(286)	$	(781)	$	(572)	$	(294)
Other comprehensive income (loss) before reclassifications		(229)		392		52		68
Amounts reclassified from accumulated other comprehensive   income to other income on the statement of operations		10		(139)		15		(302)
Balance at end of period	$	(505)	$	(528)	$	(505)	$	(528)
Total accumulated other comprehensive loss at end of period	$	(490)	$	(543)	$	(490)	$	(543)

Research and Development—Research and development costs are expensed as incurred. These costs include compensation and other internal and external costs associated with the development and research related to new and existing products or concepts, preclinical studies, clinical trials, healthcare compliance and regulatory affairs.

Advertising Costs— The Company expenses advertising costs as incurred. Advertising costs were not significant during the three and six months ended June 30, 2016 and 2015.

Share-Based Compensation—The Company follows FASB ASC 718, “Compensation-Stock Compensation” (ASC 718) to record share-based compensation for all employee share-based payment awards, including stock options, restricted stock and stock purchases related to an employee stock purchase plan, based on estimated fair values. The Company’s share-based compensation expense recognized under ASC 718 for the three months ended June 30, 2016 and 2015 was $3,027 and $2,417, respectively, and $5,869 and $4,141, respectively, for the six months ended June 30, 2016 and 2015, on a before and after tax basis.

ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. 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 Company’s Condensed Consolidated Statement of Operations and Comprehensive Loss. The expense has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, 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 of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of 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 fair value of market-based performance option grants is estimated at the date of grant using a Monte-Carlo simulation. 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 Statement of Operations and Comprehensive Loss.

The Company estimates the fair value of restricted stock based upon the grant date closing market price of the Company’s common stock. The Company’s determination of fair value is affected by the Company’s stock price as well as assumptions regarding the number of shares expected to be granted.

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 and records compensation expense based upon the fair value of the stock at the beginning of the purchase period using the Black-Scholes model.

9

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Use of Estimates—The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 and records cash and investments in U.S. government agencies and securities as Level 1 within the fair value hierarchy. Accounts receivable, short-term other assets, accounts payable and accrued liabilities are also classified 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 and commercial paper are classified as Level 2 within the fair value hierarchy (see Note 3 – Fair Value for further information). The book value of the Company’s fixed interest rate debt approximates its fair value as of June 30, 2016.Fixed interest rate debt fair value is determined by calculating the net present value of future debt payments and is classified as Level 2. Significant unobservable inputs with respect to the Level 3 fair value measurement of the contingent consideration liability is developed using Company data. When an input is changed, the corresponding valuation models are updated and the results are analyzed for reasonableness.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014 the FASB issued a final standard on revenue from contracts with customers. The standard, issued as FASB ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In July 2015 the FASB decided to defer the effective date of ASU 2014-09 for entities reporting under U.S. GAAP from interim and annual reporting periods beginning after December 15, 2016 to interim and annual reporting periods beginning after December 15, 2017 and allow early adoption as of the original effective date. A full retrospective or modified retrospective approach may be taken to adopt the guidance in the ASU. FASB ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)”, FASB ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, and FASB ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, have been issued in 2016 to further refine the guidance in ASU 2014-09. The Company is evaluating the impact of the provisions of the revenue-related ASUs on its consolidated financial position, results of operations and related disclosures.

In November 2015 the FASB issued ASU 2015-17, “Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes” (ASU 2015-17), which requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. Also, companies will no longer allocate valuation allowances between current and noncurrent deferred tax assets because those allowances also will be classified as noncurrent. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for financial statements that have not been issued. The Company has evaluated the impact of the provisions of ASU 2015-17 on its consolidated financial position and related disclosures and has determined that the new guidance does not have a material impact on its financial reporting.

In January 2016 the FASB issued ASU 2016-01, “Financial Instruments — Overall — Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. The Company is evaluating the impact of ASU 2016-01 on its consolidated financial position and related disclosures.

In February 2016 the FASB issued ASU 2016-02, “Leases”(ASU 2016-02) which requires lessees to record most leases onto their balance sheet but recognize expenses on their income statement in a manner similar to today’s accounting. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. The Company is evaluating the provisions of ASU 2016-02 to determine the impact on its consolidated financial position and related disclosures.  

In March 2016 the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09), which changes certain aspects of accounting for share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to

10

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur rather than apply an estimate for expense recognition. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted, however, all of the guidance within the ASU must be adopted in the same period. The Company is evaluating the impact of ASU 2016-09 on its consolidated financial position, results of operations and related disclosures.

In June 2016 the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaces today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and requires entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods therein.Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is evaluating the impact of ASU 2016-13 on its consolidated financial position, results of operations 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 standard describes a fair value hierarchy 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 which are the following:

· 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. The fair value of the Company’s contingent consideration liability was estimated on the acquisition date of nContact Surgical, Inc. (nContact)using Level 3 inputs.

11

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

In accordance with ASC 820, 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 June 30, 2016:  

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	13,763	$	—	$	13,763
U.S. government agencies and securities		5,582		—		—		5,582
Corporate bonds		—		10,499		—		10,499
Commercial paper		—		11,954		—		11,954
Total assets	$	5,582	$	36,216	$	—	$	41,798
Liabilities:
Acquisition-related contingent consideration		—		—		40,207		40,207
Total liabilities	$	—	$	—	$	40,207	$	40,207

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three or six month periods ended June 30, 2016.

In accordance with ASC 820, 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, 2015:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	18,572	$	—	$	18,572
U.S. government agencies and securities		1,590		—		—		1,590
Corporate bonds		—		16,930		—		16,930
Total assets	$	1,590	$	35,502	$	—	$	37,092
Liabilities:
Acquisition-related contingent consideration		—		—		40,207		40,207
Total liabilities	$	—	$	—	$	40,207	$	40,207

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the twelve months ended December 31, 2015.

Acquisition-Related Contingent Consideration. Contingent consideration arrangements obligate the Company to pay former shareholders of an acquired entity if specified future events occur or conditions are met, such as the achievement of certain technological milestones or the achievement of targeted revenue milestones. The Company measures such liabilities using unobservable inputs, applying the income approach, such as the discounted cash flow technique or the probability-weighted scenario method. Various key assumptions, such as the probability of achievement of the agreed milestones, projected revenues from acquisitions and the discount rate, 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. Subsequent revisions to key assumptions, which impact the estimated fair value of contingent consideration liabilities, are reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss. Acquisition-related contingent consideration is recorded in other noncurrent liabilities in the Condensed Consolidated Balance Sheets.

The Company acquired nContact on October 13, 2015. The aggregate consideration paid to nContact shareholders includes up to $50,000 in contingent consideration based on completion of enrollment of the CONVERGE IDE trial and corresponding PMA approval by December 31, 2020. nContact shareholders are entitled to additional contingent consideration based on specified product

12

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

revenue in excess of an annual growth rate of more than 25% through 2019. There were no changes in the estimates or discount rate during the three or six months ended June 30, 2016.

The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration as of June 30, 2016:

Beginning Balance – January 1, 2016	$	40,207
Amounts acquired		—
Transfers in (out) of Level 3		—
Changes in fair value included in earnings		—
Ending Balance – June 30, 2016	$	40,207

The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration as of December 31, 2015:

Beginning Balance – January 1, 2015	$	—
Amounts acquired		40,207
Transfers in (out) of Level 3		—
Changes in fair value included in earnings		—
Ending Balance – December 31, 2015	$	40,207

4. INTANGIBLE ASSETS

The following table provides a summary of the Company’s intangible assets:

	June 30,				December 31,
	2016				2015
	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Non-compete agreement	$	100	$	100	$	100	$	100
Fusion technology		9,242		2,310		9,242		1,848
Clamp & probe technology		829		691		829		552
Estech trade name		208		208		208		208
SUBTLE access technology		2,179		317		2,179		96
IPR&D		44,021		—		44,021		—
Total	$	56,579	$	3,626	$	56,579	$	2,804

Amortization expense related to intangible assets with definite lives, which excludes the IPR&D asset, was $411 and $303 for the three months ended June 30, 2016 and 2015, respectively, and $822 and $606 for the six months ended June 30, 2016 and 2015, respectively.

13

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Future amortization expense related to intangible assets with definite lives is projected as follows:

2016	$	822	July 1, 2016 through December 31, 2016
2017		1,367
2018		1,367
2019		1,367
2020		1,235
2021 and thereafter		2,774
Total	$	8,932

5. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

	June 30,		December 31,
	2016		2015
Accrued payroll and employee-related expenses	$	3,381	$	4,021
Accrued commissions		3,772		6,061
Accrued taxes and value-added taxes payable		859		912
Accrued bonus		3,177		6,088
Other accrued liabilities		936		723
Accrued royalties		402		382
Sales returns allowance		263		207
Total	$	12,790	$	18,394

6. INDEBTEDNESS

Bank Credit Facility.The Company has a debt agreement (Loan Agreement) with Silicon Valley Bank (SVB). The Loan Agreement, as amended, restated and modified, effective April 25, 2016, includes a $25,000 term loan and $15,000 revolving line of credit, both which maturein  April 2021. Borrowing availability under the revolving credit facility is based on the lesser of $15,000 or a borrowing base calculation as defined by the Loan Agreement. As of June 30, 2016 the Company had no borrowings under the revolving credit facility and had borrowing availability of $15,000. The revolving line of credit is subject to an annual commitment fee of $50, and any borrowings bear interest at the Prime Rate. Financing costs related to the revolving line of credit are included in other assets in the Condensed Consolidated Balance Sheets and amortized ratably over the term of the Loan Agreement.

The term loan has a five-year term, with principal payments to be made ratably commencing twelve months after the inception of the loan through to 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 Prime Rate and is subject to an additional 4.0% fee on the original $25,000 term loan principal amount at maturity or prepayment of the term loan that is being accrued over the term of the Loan Agreement. The Company has accrued $53 of this fee as of June 30, 2016. Financing costs related to the term loan are net against the outstanding loan balance in the Condensed Consolidated Balance Sheets and amortized ratably over the term of the Loan Agreement.

The Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes covenants related to liquidity, sales growth and a minimum cash balance, and includes other customary terms and conditions. Specified assets have been pledged as collateral.

Capital Lease Obligations.As of June 30, 2016 the Company had capital leases for its corporate headquarters building and computer equipment that expire at various terms through 2030.  

In August 2014 the Company entered into a new building lease (Mason Lease) in order to re-locate its corporate headquarters and West Chester, Ohio facilities from their current location to a building to be constructed in Mason, Ohio. The term of the Mason Lease is fifteen years with three separate five-year renewal options, at the Company’s option, and commenced in October 2015. On the Commencement Date, the Company provided a letter of credit to the Landlord in the amount of $1,250, which amount may decrease or be removed entirely based on the Company’s financial performance. The Company was deemed the owner of the project

14

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

during the construction period. As a result, project costs incurred during construction of the building were included in property and equipment as construction in progress and the corresponding financing obligation was included in other current liabilities during the construction period.  Increases in purchases of building under construction and proceeds from the construction financing obligation were also included in the Condensed Consolidated Statement of Cash Flows during the construction period. Upon completion of construction, the Company recorded the current and noncurrent portions of the Mason Lease obligation within capital leases and the value of the underlying asset in property and equipment in the Condensed Consolidated Balance Sheet.  

At June 30, 2016 the cost of the leased assets, both building and computer equipment, was $14,486. The assets are depreciated over their estimated useful lives, which equal the terms of the leases. Accumulated amortization on the capital leases was $832 at June 30, 2016.  

Future maturities on capital lease obligations are projected as follows:

2016	$	1,072	July 1, 2016 through December 31, 2016
2017		1,434
2018		1,448
2019		1,466
2020		1,488
2021 and thereafter		15,899
Total payments	$	22,807
Imputed interest		(8,830)
Net capital lease obligations, of which $473 is current and $13,504 is noncurrent	$	13,977

7. COMMITMENTS AND CONTINGENCIES

Lease Commitments.The Company leases certain office, manufacturing and warehouse facilities and equipment under noncancelable operating leases that expire at various terms through 2021.  

Royalty Agreements.  The Company has certain royalty agreements in place with terms that include payment of royalties based on product revenue from sales of specified current products. The royalty agreements have effective dates as early as 2003 and terms ranging from three years to at least twenty years. The royalties range from 0.75% to 5% of specified product sales. Parties to the royalty agreements have the right at any time to terminate the agreement immediately for cause. Royalty expense of $445 and $471 was recorded as part of cost of revenue for the three months ended June 30, 2016  and 2015, respectively.Royalty expense of $886 and $898 was recorded as part of cost of revenue for the six months ended June 30, 2016 and 2015, respectively.

Purchase Agreements.The Company enters into standard purchase agreements with certain vendors in the ordinary course of business. Outstanding commitments at June 30, 2016 and 2015 were not significant.

Legal.  The Company is not currently party to any material pending or threatened litigation. The Company may, from time to time, become a party to legal proceedings.

8. INCOME TAX PROVISION

The Company files federal, state, 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 full valuation allowance against 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. Tax credits are accounted for as a reduction of income taxes in the year in which the credit originates.

The Company’s provision for income taxes for continuing operations in interim periods is computed by applying its estimated annual effective rate against its loss before income tax (expense) benefit for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur. The effective tax rate for the three months ended June 30, 2016 and 2015 was

15

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

(0.20%) and (0.17%), respectively. The effective tax rate for the six months ended June 30, 2016 and 2015 was (0.12%) and (0.14%), respectively.

The Company has not had to accrue any interest and penalties related to unrecognized income tax benefits as a result of offsetting of net operating losses. However, if the situation occurs, the Company will recognize interest and penalties within the income tax expense (benefit) line in the Condensed Consolidated Statements of Operations and Comprehensive Loss and within the related tax liability line in the Condensed Consolidated Balance Sheets. Federal, state and local tax returns of the Company are routinely subject to review by various taxing authorities. The Internal Revenue Service is currently reviewing the Company’s 2014 federal tax return.

9. EQUITY COMPENSATION PLANS

The Company has several share-based incentive plans: the 2005 Equity Incentive Plan (2005 Plan), the Second Amended and Restated 2014 Stock Incentive Plan (2014 Plan) and the 2008 Employee Stock Purchase Plan (ESPP).

Equity Incentive Plans

The Company granted awards under the 2005 Plan until the 2014 Annual Meeting of Stockholders at which stockholders adopted the 2014 Plan. Pursuant to its terms, the 2014 Plan supersedes and replaces the 2005 Plan. Under the 2014 Plan, the Board of Directors may grant incentive stock options to employees and any parent or subsidiary’s employees, and may grant nonstatutory stock options, restricted stock or stock appreciation rights to employees, directors and consultants of the Company and any parent or subsidiary’s employees, directors and consultants. The administrator (currently the Compensation Committee of the Board of Directors) has the power 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 June 30, 2016, 9,399 shares of common stock had been reserved for issuance under the 2014 Plan.

Options granted under the plans generally expire tenyears from the date of grant. Options granted from the 2005 Plan and 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 threeyears. Restricted stock awards granted under the 2005 Plan and 2014 Plan generally vest 25% annually over four years from date of grant.

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. Beginning on January 1, 2009 and on the first day of each fiscal year thereafter during the term of the ESPP, the number of shares available for sale under the ESPP shall be increased by the lesser of (i) two percent (2%) of the Company’s outstanding shares of common stock as of the close of business on the last business day of the prior calendar year, not to exceed 600 shares, or (ii) a lesser amount determined by the Board of Directors. At June 30, 2016 there were 408 shares available for future issuance under the ESPP.

Expense Information Under FASB ASC 718

The following table summarizes share-based compensation expense related to employees under FASB ASC 718 for the three and six months ended June 30, 2016 and 2015. This expense was allocated as follows:

16

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Cost of revenue	$	88	$	106	$	227	$	196
Research and development expenses		443		347		922		636
Selling, general and administrative expenses		2,496		1,964		4,720		3,309
Total share-based compensation expense related to   employees	$	3,027	$	2,417	$	5,869	$	4,141

10. 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 in the United States and internationally. Management considers all such sales to be part of a single reportable 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:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
United States	$	30,872	$	25,744	$	59,144	$	48,667
Europe		5,408		4,122		10,169		8,538
Asia		3,262		2,538		5,990		4,838
Other international		130		179		309		426
Total international		8,800		6,839		16,468		13,802
Total revenue	$	39,672	$	32,583	$	75,612	$	62,469

Domestic revenue by product type was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Open-heart ablation	$	14,721	$	13,648	$	28,689	$	26,002
Minimally invasive ablation		7,990		5,057		14,715		9,404
AtriClip		7,348		6,286		14,196		11,789
Total ablation and AtriClip		30,059		24,991		57,600		47,195
Valve tools		813		753		1,544		1,472
Total domestic	$	30,872	$	25,744	$	59,144	$	48,667

17

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

International revenue by product type was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Open-heart ablation	$	5,438	$	4,088	$	9,910	$	8,304
Minimally invasive ablation		2,186		1,858		4,350		3,826
AtriClip		1,024		789		1,889		1,460
Total ablation and AtriClip		8,648		6,735		16,149		13,590
Valve tools		152		104		319		212
Total international	$	8,800	$	6,839	$	16,468	$	13,802

The majority of the Company’s long-lived assets are located in the United States.

18

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

(Dollar amounts referenced in this Item 2 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 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, 2015 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, 2015. Forward-looking statements addressour 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,” “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 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-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 leading atrial fibrillation (Afib) solutions partner providing innovative products, professional education and support for clinical science to reduce the economic and social burden of atrial fibrillation. We have several product lines for the ablation of cardiac tissue, including our Isolator® Synergy Ablation System, the first and only surgical device approved by the United States Food and Drug Administration (FDA) for the treatment of persistent and longstanding persistent forms of Afib in patients undergoing certain open concomitant procedures. We also offer a variety of minimally invasive ablation devices and access tools to facilitate the growing trend in less invasive cardiac and thoracic surgery. Our cryoICE® cryosurgery product line offers a variety of cryoablation devices. Our AtriClip® Left Atrial Appendage Exclusion System is the most widely sold device worldwide specifically designed to occlude the heart’s left atrial appendage (LAA). We believe cardiothoracic surgeons are adopting our ablation and LAA management (LAAM) devices for the treatment of Afib and reduction of Afib-related complications such as stroke.

Cardiothoracic surgeons have adopted our radiofrequency ablation and cryoablation systems to treat Afib in over 200,000 patients since 2004, and we believe that we are currently the market leader in the surgical treatment of Afib. Our products are utilized by cardiothoracic surgeons during both open-heart and minimally invasive surgical procedures, either on a concomitant or sole-therapy basis. During a concomitant procedure, the surgeon ablates cardiac tissue and/or occludes the left atrial appendage, secondary, or concomitant, to a primary cardiac procedure such as a valve repair or replacement or coronary artery bypass graft (CABG). Our Isolator Synergy System, which includes our Isolator Synergy clamps, RF generator and related switchbox, is approvedby FDA for the treatment of persistent and long-standing persistent Afib concomitant to other open-heart surgical procedures such as coronary artery bypass grafting and/or valve replacement or repair. To date, none of our other products have been approved or cleared by FDA specifically for the treatment of Afib.  Our 510(k)-cleared RF and cryo ablation products are indicated for the ablation of cardiac tissue and/or treatment of cardiac arrhythmias. In addition, our cryoICE® probe is cleared for blocking pain by temporarily ablating peripheral nerves. Our AtriClip products are 510(k)-cleared with an indication for occlusion of the LAA, under direct visualization, concomitant to other open cardiac surgical procedures. In October 2015 we acquired nContact, a leader in minimally invasive technology for epicardial ablation. We also have a line of reusable surgical instruments typically used for cardiac valve replacement or repair. 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 use to ablate cardiac tissue,to occlude the left atrial appendage, to perform mitral and aortic valve replacement and repair and/or to ablate peripheral nerves during cardiothoracic surgery.

In the United States we sell our products to medical centers through our direct sales force. In certain international markets, such as Germany, France, the United Kingdom and the Benelux region, sales are made directly to medical centers, with the remaining international sales being made through distributors who in turn sell our products to end users. Our business is primarily transacted in U.S. Dollars with the exception of transactions with our European subsidiary which are transacted in Euros or British Pounds.

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Recent Developments

We submitted an Investigational Device Exemption (IDE) application for the Staged DEEP AF pivotal trial to FDA in May 2014. The Staged DEEP AF pivotal trial evaluates the safety and efficacy of the Isolator Synergy System when used in a staged approach, where a minimally invasive surgical ablation procedure is first performed, and the patient undergoes the intracardiac catheter procedure approximately 90-120 days later. FDA approval to enroll up to 220 subjects at 23 domestic medical centers and two international medical centers was received during the third quarter of 2014. Enrollment began during the first quarter of 2015, and there are currently 41 patients enrolled and thirteen sites initiated. Enrollment has been temporarily suspended while we evaluate changes to the trial protocol with FDA.

We are in the beginning stages of our ATLAS study, which 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. At full capacity, we expect to enroll approximately 2,000 patients at up to twenty sites. We began enrollment in February 2016, and there are currently 47 patients enrolled and six sites initiated.

We are in the beginning stages of our cryoanalgesia study (FROST), which is a non-IDE randomized pilot study evaluating whether intraoperative intercostal cryoanalgesia in conjunction with standard of care provides improved analgesic efficacy in patients undergoing unilateral thoracotomy cardiac procedures as compared to current standard of care. The study will involve treatment arm subjects who will receive intercostal cryoanalgesia in conjunction with standard post-operative pain management and control arm subjects who will receive standard post-operative pain management only. At full capacity, we expect to enroll 100 patients at up to five sites. We began enrollment in June 2016, and there are currently 2 patients enrolled and two sites initiated.

We are also pursuing a non-IDE trial in Europe, CEASE AF, 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.  We expect the study to have an enrollment of approximately 210 patients across ten sites. There are currently 24 patients enrolled and eight sites initiated.

With the acquisition of nContact, we are conducting the CONVERGE IDE clinical trial. The CONVERGE pivotal trial evaluates the safety and efficacy of the EPi-Sense Guided Coagulation System with VisiTrax technology to treat symptomatic persistent Afib patients who are refractory or intolerant to at least one Class I and/or III anti-arrhythmic drug. We have FDA approval to enroll up to 153 subjects at fifteen domestic medical centers and two international medical centers.  We recently received approval from FDA to increase the number of trial sites to 27 domestic medical centers and three international medical centers. Enrollment began during the first quarter of 2014, and there are currently 49 patients enrolled and thirteen domestic sites initiated.

We announced the launch of the AtriClip PRO2LAA Exclusion System in the United States in April 2016. The new AtriClip PRO2 system has increased functionality which enhances the capability to occlude the LAA during minimally-invasive surgical (MIS) procedures. The AtriClip PRO2 system features an ambidextrous locking and trigger-style clip closing mechanism, handle-based active articulation levers, and a hoopless end effector. The ambidextrous locking and trigger-style clip closing mechanism allows the operator to maintain focus on the LAA while maneuvering the device. The handle-based active articulation levers allow the operator to steer the end effector without removing the device. The hoopless end effector enhances anatomical visualization, and simplifies removal of the applier after deployment of the clip. The AtriClip PRO2 system received CE Mark in June 2016.

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Results of Operations

Three months ended June 30, 2016 compared to three months ended June 30, 2015

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
	June 30,
	2016				2015
	Amount		% of Revenues		Amount		% of Revenues
Revenue	$	39,672	100.0	%	$	32,583	100.0	%
Cost of revenue		10,854	27.4	%		9,466	29.1	%
Gross profit		28,818	72.6	%		23,117	70.9	%
Operating expenses:
Research and development expenses		9,124	23.0	%		5,862	18.0	%
Selling, general and administrative expenses		27,432	69.1	%		22,074	67.7	%
Total operating expenses		36,556	92.1	%		27,936	85.7	%
Loss from operations		(7,738)	(19.5)	%		(4,819)	(14.8)	%
Other income (expense):
Interest expense		(477)	(1.2)	%		(17)	(0.1)	%
Interest income		60	0.2	%		43	0.1	%
Other		(34)	(0.1)	%		(90)	(0.3)	%
Total other expense		(451)	(1.1)	%		(64)	(0.3)	%
Loss before income tax expense		(8,189)	(20.6)	%		(4,883)	(15.1)	%
Income tax expense		17	0.0	%		8	—	%
Net loss	$	(8,206)	(20.7)	%	$	(4,891)	(15.1)	%

Revenue. Total revenue increased 21.8%(21.5% on a constant currency basis) from $32,583 for the three months ended June 30, 2015 to $39,672 for the three months ended June 30, 2016. Constant currency basis amounts are calculated by applying previous period foreign currency exchange rates to each of the comparable periods. Revenue from sales to customers in the United States increased $5,128, or 19.9%, and revenue from sales to international customers increased $1,961,  or 28.7%  (27.4% 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 $1,073, increased sales of ablation-related minimally invasive (MIS) products of $2,933and increased sales of the AtriClip system of $1,062.  The increase in MIS sales was largely influenced by the nContact acquisition, which closed in the fourth quarter of 2015. The increase in international revenue was primarily due to increased sales in Japan, China, Germany, the United Kingdom and France.

Cost of revenue and gross margin. Cost of revenue increased $1,388, from $9,466 for the three months ended June 30, 2015 to $10,854 for the three months ended June 30, 2016.  As a percentage of revenue, cost of revenue decreased from 29.1% for the three months ended June 30, 2015 to 27.4% for the three months ended June 30, 2016. Gross margin for the three months ended June 30, 2016 and 2015 was 72.6% and70.9%, respectively. The increase in gross margin was primarily due to the reduction of scrap and obsolescence charges (primarily related to non-core or Estech products), as well as the repeal of the medical device excise tax, which were included in the three months ended June 30, 2015. The improvements to gross margin were offset slightly by heavier loaner generator depreciation and increased costs related to moving into a larger and more modern facility.

Research and development expenses. Research and development expenses increased $3,262,  or 55.6%,  from $5,862 for the three months ended June 30, 2015to $9,124 for the three months ended June 30, 2016. The increase in expense was primarily due to a $1,044 increase in product development, regulatory and clinical personnel expense, a $494 increase in product development project expense,a $916 increase in clinical trial expense, a $285 increase in regulatory filing expense, a $97 increase in share-based compensation and a $111 increase in amortization expense as a result of the nContact acquisition.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $5,358, or 24.3%, from $22,074 for the three months ended June 30, 2015 to $27,432 for the three months ended June 30, 2016. The increase was primarily due to a $2,708 increase in personnel and related expenses, such as travel costs, a $532 increase in share-based compensation expense and a $1,028 increase in marketing, tradeshows, training and related expenses.

Net interest income (expense). Net interest income (expense) for the three months ended June 30, 2016 and 2015 was $(417) and $26, respectively. Interest expense associated with outstanding amounts on our term loan and capital lease obligations, as well as the amortization of financing costs, are included in net interest expense. The large increase in interest expense was driven by the commencement of the Mason facility capital lease in late 2015 and the addition of the term loan in April 2016.

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Other income and expense. Other income and expense consists primarily of foreign currency transaction gains and losses. 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, were also included in other income and expense during the three months ended June 30, 2015. Net other expense for the three months ended June 30, 2016 and 2015 totaled $34 and$90, respectively.

Six months ended June 30, 2016 compared to six months ended June 30, 2015

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

	Six Months Ended
	June 30,
	2016				2015
	Amount		% of Revenues		Amount		% of Revenues
Revenue	$	75,612	100.0	%	$	62,469	100.0	%
Cost of revenue		20,880	27.6	%		17,617	28.2	%
Gross profit		54,732	72.4	%		44,852	71.8	%
Operating expenses:
Research and development expenses		17,687	23.4	%		11,471	18.4	%
Selling, general and administrative expenses		54,202	71.7	%		43,344	69.4	%
Total operating expenses		71,889	95.1	%		54,815	87.7	%
Loss from operations		(17,157)	(22.7)	%		(9,963)	(15.9)	%
Other income (expense):
Interest expense		(736)	(1.0)	%		(35)	(0.1)	%
Interest income		99	0.1	%		86	0.1	%
Other		(114)	(0.1)	%		(231)	(0.4)	%
Total other (expense) income		(751)	(1.0)	%		(180)	(0.4)	%
Loss before income tax expense		(17,908)	(23.7)	%		(10,143)	(16.3)	%
Income tax expense		22	0.0	%		14	—	%
Net loss	$	(17,930)	(23.7)	%	$	(10,157)	(16.3)	%

Revenue. Total revenue increased 21.0%(21.0% on a constant currency basis) from $62,469 for the six months ended June 30, 2015 to $75,612 for the six months ended June 30, 2016. Constant currency basis amounts are calculated by applying previous period foreign currency exchange rates to each of the comparable periods. Revenue from sales to customers in the United States increased $10,477, or 21.5%, and revenue from sales to international customers increased $2,666, or 19.3%  (19.0% 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 $2,687, increased sales of ablation-related minimally invasive (MIS) products of $5,311and increased sales of the AtriClip system of $2,407.  The increase in MIS sales was largely influenced by the nContact acquisition, which closed in the fourth quarter of 2015. The increase in international revenue was primarily due to increased sales in Japan, China, Germany, Italy, the Benelux region, the United Kingdom and France.

Cost of revenue and gross margin. Cost of revenue increased $3,263, from $17,617 for the six months ended June 30, 2015 to $20,880 for the six months ended June 30, 2016. As a percentage of revenue, cost of revenue decreased from 28.2% for the six months ended June 30, 2015 to 27.6% for the six months ended June 30, 2016. Gross margin for the six months ended June 30, 2016 and 2015 was 72.4% and71.8%, respectively. The increase in gross margin was primarily due to the elimination of certain scrap and obsolescence charges (primarily related to non-core or Estech products), as well as the repeal of the medical device excise tax, all which were included in the six months ended June 30, 2015. Additional increases in the gross margin during the six months ended June 30, 2016 relate to a slightly higher U.S. sales mix. These increases in gross margin were partially offset by heavier loaner generator depreciation and increased costs related to moving into a larger and more modern facility.

Research and development expenses. Research and development expenses increased $6,216,  or 54.2%,  from $11,471 for the six months ended June 30, 2015to $17,687 for the six months ended June 30, 2016. The increase in expense was primarily due to a $2,240 increase in product development, regulatory and clinical personnel expense, a $1,072 increase in product development project expense,a $1,122 increase in clinical trial expense, a $276 increase in regulatory filing expense,a $286 increase in share-based compensation and a $222 increase in amortization expense as a result of the nContact acquisition.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $10,858, or 25.1%, from $43,344 for the six months ended June 30, 2015 to $54,202 for the six months ended June 30, 2016. The increase was primarily due to

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a $6,275 increase in personnel and related expenses,such as travel costs, a $1,411 increase in share-based compensation expense and a $976 increase in marketing, tradeshows, training and related expenses.

Net interest income (expense). Net interest income (expense) for the six months ended June 30, 2016 and 2015 was $(637) and $51, respectively. Interest expense associated with outstanding amounts on our term loan and capital lease obligations, as well as the amortization of financing costs, are included in net interest expense. The large increase in interest expense was driven by the commencement of the Mason facility capital lease in late 2015 and the addition of the term loan in April 2016.

Other income and expense. Other income and expense consists primarily of foreign currency transaction gains and losses. 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, and grant income were also included in other income and expense during the six months ended June 30, 2015. Net other expense for the six months ended June 30, 2016 and 2015 totaled $114 and$231, respectively.

Liquidity and Capital Resources

As of June 30, 2016 the Company had cash, cash equivalents and investments of $47,952 and outstanding debt of $25,000, resulting in a net cash position of $22,952. We had unused borrowing capacity of $15,000 under our revolving credit facility. Most of our cash is held by financial institutions in the United States of America. We had net working capital of $61,276 and an accumulated deficit of $183,566 as of June 30, 2016.

Cash flows used in operating activities. Net cash used in operating activities for the six months ended June 30, 2016 was $16,956. The primary net uses of cash for operating activities were as follows:

· the net loss of $17,930, offset by $10,582 of non-cash expenses, including $5,869 in share-based compensation and $4,500 in depreciation and amortization; and

· a net decrease in cash used related to changes in operating assets and liabilities of $9,608, due primarily to the following:

· an increase in accounts receivable of $1,897, due primarily to increased revenues and the timing of collections;

· anincrease in inventory of $1,595,  due primarily to increased inventory levels in support of anticipated revenue growth and the move to a new corporate headquarters building;

· an increase in other current assets of $236, due primarily to the timing of insurance premium payments; and

· a  $5,542decrease in accounts payable and accrued liabilities due primarily to the timing of payments, including variable compensation payments.

Cash flows used in investing activities. Net cash used in investing activities was $13,877 for the six months ended June 30, 2016. The primary source of cash from investing activities was $12,404 related to sales and maturities of available-for-sale securities. This source of cash was offset by $4,341 related to the purchase of property and equipment, which included the placement of our RF and cryo generators with our customers, and $21,940 related to the purchase of available-for-sale securities.

Cash flows provided by financing activities. Net cash provided by financing activities during the six months ended June 30, 2016 was $26,917, which was primarily due to proceeds from borrowings of debt of $25,000, proceeds from stock option exercises of $2,301our employee stock purchase plan of $987, partially offset by shares repurchased for payment of taxes on stock awards of $1,033and capital lease payments of $218.

Credit facility. The Company’s Loan and Security Agreement with Silicon Valley Bank (SVB), as amended, restated, and modified effective April 25, 2016 (Loan Agreement) provides for a $25,000 term loan and a revolving credit facility under which we may borrow a maximum of $15,000.The term loan has a five-year term, with principal payments to be made ratably commencing twelve months after the inception of the loan through to the loan’s maturity date. If we meet certain conditions, as specified by the loan agreement, the commencement of term loan payments may be deferred by an additional six months. The term loan accrues interest at the Prime Rate and is subject to an additional 4.0% fee on the original $25,000 term loan principal amount at maturity or prepayment of the term loan.  Borrowing availability under the revolving credit facility is based on the lesser of $15,000 or a borrowing base calculation as defined by the Loan Agreement. As of June 30, 2016 we had no borrowings under the revolving credit facility, and we had borrowing availability of $15,000. The applicable borrowing rate on advances outstanding under the revolving credit facility is the Prime Rate.The revolving line of credit is subject to an annual commitment fee of $50, and any borrowings bear interest at the Prime Rate. The Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes covenants related to liquidity, sales growth and a minimum cash balance, and includes other customary terms and conditions. The term loan and revolving credit facility both maturein April 2021.

The Loan 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 borrowings under the revolving credit facility or when we hold less than

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$20,000 in cash and investments with SVB. Financial covenants under the credit facility include minimum trailing twelve month revenues  and a minimum liquidity ratio. Further, a minimum fixed charge ratio applies when specific covenant milestones are achieved. 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 under the Loan Agreement, an obligation to repay all obligations in full and a right by SVB to exercise all remedies available to it under the Loan Agreement and related agreements including the Guaranty and Security Agreement. Specified assets have been pledged as collateral.

In connection with the terms of our Mason facility lease, a letter of credit in the amount of $1,250 was issued to the landlord of our Mason facility in October 2015 and remains outstanding as of June 30, 2016.

Uses of liquidity and capital resources. Our future capital requirements depend on a number of factors, including the rate of 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 costs of filing, 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 may adversely impact our revenue, access to the capital markets or future demand for our products.

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, depositary 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.

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. Such cash needs over the next twelve months include incremental operating and integration costs resulting from the acquisition of nContact in October 2015. The transaction provides for contingent consideration to be paid upon attaining specified regulatory approvals and clinical and revenue milestones over the next five years. Subject to the terms and conditions of the nContact merger agreement, such contingent consideration is paid in AtriCure common stock and cash. 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 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 and marketing efforts.

Off-Balance-Sheet Arrangements

As of June 30, 2016 we had operating lease agreements not recorded on the Condensed Consolidated Balance Sheets. Operating leases are utilized in the normal course of business.

Seasonality

During the third quarter, we typically experience a moderate decline in revenue that we attribute primarily to the elective nature of certain procedures in which our products are used. We believe this is due to fewer people choosing to undergo elective procedures during the summer months.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of 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, including those related to sales returns and allowances, accounts receivable, inventories and share-based compensation. We use 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. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 includes additional information about the Company, our operations, our financial position and our critical accounting policies and estimates and should be read in conjunction with this Quarterly Report.

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Recent Accounting Pronouncements

See Note 2 in the Notes to the Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 2016 there were no material changes to the information provided under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Form 10-K for the year ended December 31, 2015.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (Exchange Act), as of the end of the period covered by this report. Our management, including the President and Chief Executive Officer (the Principal Executive Officer) and Senior Vice President and Chief Financial Officer (the Principal Accounting and FinancialOfficer), supervised and participated in the evaluation. Based on the 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 (the Principal Executive Officer) and Senior Vice President and Chief Financial Officer (the Principal Accounting and 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 June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

Information with respect to legal proceedings can be found under the heading “Legal” in Note 7 – Commitments and Contingencies to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

Item 1A.  Risk Factors

In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Item 1A, “ Risk Factors” in our Form 10-K for the year ended December 31, 2015, all of which could materially affect our business, financial condition or future results. The risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may adversely affect our business, financial condition and/or operating results. There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

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Item 6.  Exhibits

Exhibit     No.	Description
31.1	Rule 13a-14(a) Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Rule 13a-14(a) Certification of Principal Accounting and Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to 18 U.S.C. Section 1350 by the Principal Executive Officer, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to 18 U.S.C. Section 1350 by the Principal Accounting and Financial Officer, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AtriCure, Inc.
	(REGISTRANT)
Date: August 5, 2016	/s/ Michael H. Carrel
	Michael H. Carrel
	President and Chief Executive Officer (Principal Executive Officer)
Date: August 5, 2016	/s/ M. Andrew Wade
	M. Andrew Wade
	Senior Vice President and Chief Financial Officer (Principal Accounting and Financial Officer)

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EXHIBIT INDEX

Exhibit     No.	Description
31.1	Rule 13a-14(a) Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Rule 13a-14(a) Certification of Principal Accounting and Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to 18 U.S.C. Section 1350 by the Principal Executive Officer, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to 18 U.S.C. Section 1350 by the Principal Accounting and Financial Officer, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
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

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EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO

SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael H. Carrel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of AtriCure, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2016

By:	/s/MichaelH.Carrel
	MichaelH.Carrel
	PresidentandChiefExecutiveOfficer
	(PrincipalExecutiveOfficer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER

PURSUANT TO

SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, M. Andrew Wade, certify that:

1. I have reviewed this quarterly report on Form 10-Q of AtriCure, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2016

By:	/s/ M. Andrew Wade
	M.AndrewWade
	SeniorVicePresidentandChiefFinancialOfficer
	(PrincipalAccountingandFinancialOfficer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of AtriCure, Inc. (Company) on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (Report), I, Michael H. Carrel, President and Chief Executive Officer and Principal Executive Officer of the Company, certify, pursuant to Rule 13a–14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 5, 2016

By:	/s/MichaelH.Carrel
	MichaelH.Carrel
	PresidentandChiefExecutiveOfficer
	(PrincipalExecutiveOfficer)

A signed original of this written statement or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to AtriCure, Inc. and will be retained by AtriCure, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the report or as a separate disclosure document.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of AtriCure, Inc. (Company) on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (Report), I, M. Andrew Wade, Vice President and Chief Financial Officer and Principal Accounting and Financial Officer of the Company, certify, pursuant to Rule 13a–14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 5, 2016

By:	/s/ M. Andrew Wade
	M.AndrewWade
	SeniorVicePresidentandChiefFinancialOfficer
	(PrincipalAccountingandFinancialOfficer)

A signed original of this written statement or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to AtriCure, Inc. and will be retained by AtriCure, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the report or as a separate disclosure document.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 03, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Trading Symbol	ATRC
Entity Registrant Name	AtriCure, Inc.
Entity Central Index Key	0001323885
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		33,202,924

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 19,917	$ 23,764
Short-term investments	22,510	10,814
Accounts receivable, less allowance for doubtful accounts of $75 and $136, respectively	21,354	19,409
Inventories	19,311	17,659
Other current assets	3,373	3,106
Total current assets	86,465	74,752
Property and equipment, net	30,902	31,279
Long-term investments	5,525	7,706
Intangible assets, net	52,953	53,775
Goodwill	105,257	105,257
Other noncurrent assets	411	323
Total Assets	281,513	273,092
Current liabilities:
Accounts payable	11,926	12,744
Accrued liabilities	12,790	18,394
Other current liabilities and current maturities of capital leases	473	450
Total current liabilities	25,189	31,588
Capital leases	13,504	13,710
Long-term debt	24,969
Other noncurrent liabilities	40,851	41,109
Total Liabilities	104,513	86,407
Commitments and contingencies (Note 7)
Stockholders' Equity:
Common stock, $0.001 par value, 90,000 shares authorized and 33,203 and 32,274 issued and outstanding, respectively	33	32
Additional paid-in capital	361,023	352,900
Accumulated other comprehensive loss	(490)	(611)
Accumulated deficit	(183,566)	(165,636)
Total Stockholders' Equity	177,000	186,685
Total Liabilities and Stockholders' Equity	$ 281,513	$ 273,092

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Condensed Consolidated Balance Sheets [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 75	$ 136
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	90,000,000	90,000,000
Common stock, shares issued	33,203,000	32,274,000
Common stock, shares outstanding	33,203,000	32,274,000

XML

Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Condensed Consolidated Statements of Operations and Comprehensive Loss [Abstract]
Revenue	$ 39,672	$ 32,583	$ 75,612	$ 62,469
Cost of revenue	10,854	9,466	20,880	17,617
Gross profit	28,818	23,117	54,732	44,852
Operating expenses:
Research and development expenses	9,124	5,862	17,687	11,471
Selling, general and administrative expenses	27,432	22,074	54,202	43,344
Total operating expenses	36,556	27,936	71,889	54,815
Loss from operations	(7,738)	(4,819)	(17,157)	(9,963)
Other income (expense):
Interest expense	(477)	(17)	(736)	(35)
Interest income	60	43	99	86
Other	(34)	(90)	(114)	(231)
Loss before income tax expense	(8,189)	(4,883)	(17,908)	(10,143)
Income tax expense	17	8	22	14
Net loss	$ (8,206)	$ (4,891)	$ (17,930)	$ (10,157)
Basic and diluted net loss per share	$ (0.26)	$ (0.18)	$ (0.57)	$ (0.37)
Weighted average shares outstanding-basic and diluted	31,575	27,304	31,466	27,187
Comprehensive loss:
Unrealized gains on investments	$ 13	$ 2	$ 54	$ 39
Foreign currency translation adjustment	(219)	253	67	(234)
Other comprehensive income (loss)	(206)	255	121	(195)
Net loss	(8,206)	(4,891)	(17,930)	(10,157)
Comprehensive loss	$ (8,412)	$ (4,636)	$ (17,809)	$ (10,352)

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities:
Net loss	$ (17,930)	$ (10,157)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense	5,869	4,141
Depreciation	3,678	2,087
Amortization of intangible assets	822	606
Amortization of deferred financing costs	86	31
Loss on disposal of property and equipment	117	63
Realized (gain) loss from foreign exchange on intercompany transactions	(15)	302
Amortization/accretion on investments	74	339
Change in allowance for doubtful accounts	(49)	117
Changes in operating assets and liabilities:
Accounts receivable	(1,897)	(468)
Inventories	(1,595)	(1,977)
Other current assets	(236)	(538)
Accounts payable	131	1,128
Accrued liabilities	(5,673)	(2,196)
Other noncurrent assets and liabilities	(338)	128
Net cash used in operating activities	(16,956)	(6,394)
Cash flows from investing activities:
Purchases of available-for-sale securities	(21,940)	(10,302)
Sales and maturities of available-for-sale securities	12,404	20,460
Purchases of property and equipment	(4,341)	(4,077)
Increases in property under build-to-suit obligation		(4,806)
Net cash (used in) provided by investing activities	(13,877)	1,275
Cash flows from financing activities:
Proceeds from debt borrowings	25,000
Payments on capital leases	(218)	(25)
Increases in build-to-suit obligation		4,806
Payment of debt fees	(120)	(62)
Proceeds from stock option exercises	2,301	1,854
Shares repurchased for payment of taxes on stock awards	(1,033)	(572)
Proceeds from issuance of common stock under employee stock purchase plan	987	906
Net cash provided by financing activities	26,917	6,907
Effect of exchange rate changes on cash and cash equivalents	69	(185)
Net (decrease) increase in cash and cash equivalents	(3,847)	1,603
Cash and cash equivalents-beginning of period	23,764	28,384
Cash and cash equivalents-end of period	19,917	29,987
Supplemental cash flow information:
Cash paid for interest	577	3
Cash paid for income taxes		20
Non-cash investing and financing activities:
Accrued purchases of property and equipment	306	1,652
Assets acquired through capital lease	43	$ 36
Capital lease asset early termination	$ 9

XML

Description of Business and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2016

Description of Business and Summary of Significant Accounting Policies [Abstract]

Description of Business and Summary of Significant Accounting Policies

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business—AtriCure, Inc. was incorporated in the State of Delaware on October 31, 2000. The “Company” or “AtriCure” consists of AtriCure, Inc. and its wholly-owned subsidiaries. The Company is a  leading atrial fibrillation (Afib) solutions partner providing innovative products, professional education and support for clinical science to reduce the economic and social burden of atrial fibrillation. The Company sells its products to medical centers globally through a direct sales force and distributors.

Basis of Presentation—The accompanying interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The accompanying interim financial statements are unaudited, but in the opinion of the Company’s management, contain all of the normal, recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America (GAAP) applicable to interim periods. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted or condensed. The Company believes the disclosures herein are adequate to make the information presented not misleading. Results of operations are not necessarily indicative of the results expected for the full fiscal year or for any future period.

The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.

Principles of Consolidation—The Condensed Consolidated Financial Statements include the accounts of the Company, AtriCure, LLC, Endoscopic Technologies, LLC and nContact Surgical, LLC, the Company’s wholly-owned subsidiaries, all organized in the State of Delaware, AtriCure Europe B.V. (AtriCure Europe), the Company’s wholly-owned subsidiary incorporated in the Netherlands and AtriCure Hong Kong Limited, the Company’s wholly-owned subsidiary incorporated in Hong Kong. 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 acquisition as cash equivalents in the accompanying Condensed Consolidated Financial Statements.

Investments—The Company places its investments primarily in U.S. Government agencies and securities, corporate bonds and commercial paper. The Company classifies all investments as available-for-sale. Investments with maturities of less than one year are classified as short-term investments. Investments are recorded at fair value, with unrealized gains and losses recorded as accumulated other comprehensive income (loss). The Company recognizes gains and losses when these securities are sold using the specific identification method and includes them in interest income or expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Revenue Recognition—The Company accounts for revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605, “Revenue Recognition” (ASC 605). The Company recognizes revenue when all of the following criteria are met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured.

Pursuant to the Company’s standard terms of sale, revenue is recognized when title to the goods and risk of loss transfers to customers and there are no remaining obligations that will affect the customers’ final acceptance of the sale. Generally, the Company’s standard terms of sale define the transfer of title and risk of loss to occur upon shipment to the respective customer. The Company does not normally maintain any post-shipping obligations to the recipients of the products. No installation, calibration or testing of products is performed by the Company subsequent to shipment to the customer in order to render it operational.

Revenue includes shipping and handling revenue of $329 and $271 for the three months ended June 30, 2016 and 2015, and $625 and $518 for the six months ended June 30, 2016 and 2015, respectively. Cost of freight for shipments made to customers is included in cost of revenue. Sales and other value-added taxes collected from customers and remitted to governmental authorities are excluded from revenue. The Company sells its products primarily through a direct sales force, with certain international markets sold through distributors. 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.

Sales Returns and Allowances—The Company maintains a provision for sales returns and allowances to account for potential returns of defective or damaged products, products shipped in error and invoice adjustments. The Company estimates such provision on a quarterly basis based primarily on specific identification, in addition to estimating a general reserve based on historical experience. Increases to the provision result in a reduction of revenue. The provision is included in accrued liabilities in the Condensed Consolidated Balance Sheets.

Allowance for Doubtful Accounts Receivable—The Company evaluates the collectability of accounts receivable to determine the appropriate reserve for doubtful accounts. In determining the amount of the reserve, the Company considers aging of account balances, historical credit losses, customer-specific information and other relevant factors. An increase to the allowance for doubtful accounts results in a corresponding increase in selling, general and administrative expense. The Company reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs against the allowance has not been significant.

Inventories—Inventories are stated at the lower of cost or market using approximate costs based on the first-in, first-out cost method (FIFO). Inventories 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 utilization all impact excess and obsolete inventory. An inventory allowance based on product usage is estimated and recorded quarterly for excess, slow moving and obsolete inventory, as well as inventory with a carrying value in excess of its net realizable value. An increase to the inventory reserve allowance results in a corresponding increase in cost of revenue. Write-offs are recorded when a product is destroyed. The Company’s history of write-offs against the reserve has not been significant.

Inventories consist of the following:

	June 30,		December 31,
	2016		2015
Raw materials	$	5,581	$	6,159
Work in process		1,418		974
Finished goods		12,312		10,526
Inventories	$	19,311	$	17,659

Property and Equipment—Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method of depreciation for financial reporting purposes and is applied over the estimated useful lives of the assets. The estimated useful life by major asset category is the following: generators and other capital equipment, machinery, equipment and vehicles is three to seven years, computer and other office equipment is three years, furniture and fixtures is three to seven years and leasehold improvements and equipment under capital leases are the shorter of their useful life or remaining lease term. The Company reassesses the useful lives of property and equipment annually, and assets are retired if they are no longer in service. Maintenance and repair costs are expensed as incurred.

Generators and other capital equipment (such as the Company’s switchbox units and cryosurgical consoles) are placed with direct customers that use the Company’s disposable products. Depreciation of such assets is included in cost of revenue. 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. To the extent the Company experiences changes in the usage of this equipment or introduces new technologies, the estimated useful lives of this equipment may change in a future period. Depreciation related to these generators was $879 and $673 for the three months ended June 30, 2016 and 2015, respectively, and $1,715 and $1,293 for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016 and December 31, 2015, the net carrying amount of loaned equipment included in net property and equipment in the Condensed Consolidated Balance Sheets was $5,454 and $5,447, respectively.

The Company reviews property and equipment for impairment using its best estimates based on reasonable and supportable assumptions and projections.

Intangible Assets—Intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated periods benefited.

Included in intangible assets is In Process Research and Development (IPR&D). The Company defines IPR&D as 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. The estimated fair value of IPR&D acquired in a business combination is capitalized as an indefinite-lived intangible asset until completion or abandonment of the IPR&D project. Upon completion of the development project, the IPR&D is amortized over its estimated useful life. If the IPR&D project is abandoned, the related IPR&D asset is written off. The estimated fair value of IPR&D was determined using an income approach model and represents an estimate of the fair value of the PMA approval that could result from the CONVERGE IDE clinical trial.

The Company reviews intangible assets for impairment using its best estimates based on reasonable and supportable assumptions and projections.

Goodwill—Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. The Company tests goodwill for impairment annually on November 30, or more often if impairment indicators are present. The Company’s goodwill is accounted for in a single reporting unit representing the Company as a whole.

Other Noncurrent Liabilities—Other noncurrent liabilities include contingent consideration recorded in business combinations, as well as long-term deferred revenues and other contractual obligations.

Other Income—Other income consists primarily of foreign currency transaction gains and losses. The Company recorded net foreign currency transaction losses of $35 and $46 for the three months ended June 30, 2016 and 2015, respectively, and $115 and $209 for the six months ended June 30, 2016 and 2015, respectively, in connection with settlements of its intercompany balance with AtriCure Europe and sales invoices transacted in British Pounds.

Taxes—Deferred 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 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 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 tax assets requires it to make significant estimates and judgments about its future operating results. Deferred 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. The Company evaluates deferred tax assets on a quarterly basis to determine if valuation allowances are required by considering all available evidence. Deferred 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, taxable income in carry-back years 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. The Company has recorded a full valuation allowance against 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.

A provision of The Patient Protection and Affordable Care Act enacted in 2010, as amended (Patient Act), required manufacturers of medical devices to pay an excise tax on all U.S. medical device sales. In December 2015, the U.S. government approved the suspension of the excise tax on medical device sales beginning January 1, 2016 through December 31, 2017. The Company’s expense related to the medical device excise tax, which was recorded in cost of revenue, was $0 and $149 for the three months ended June 30, 2016 and 2015, respectively, and $0 and $304 for the six months ended June 30, 2016 and 2015, respectively.

Net Loss Per Share—Basic and diluted net loss per share is computed in accordance with FASB ASC 260, “Earnings Per Share” (ASC 260) 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 4,471 and 4,290 stock options and restricted stock shares as of June 30, 2016 and 2015, respectively, 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 Loss and Accumulated Other Comprehensive Loss—In addition to net losses, the comprehensive loss includes foreign currency translation adjustments and unrealized gains and losses on investments.

Accumulated other comprehensive income (loss) consisted of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Total accumulated other comprehensive loss at   beginning of period	$	(284)	$	(798)	$	(611)	$	(348)
Unrealized Gains on Investments
Balance at beginning of period	$	2	$	(17)	$	(39)	$	(54)
Other comprehensive income (loss) before reclassifications		13		2		54		39
Amounts reclassified from accumulated other comprehensive   income to other income on the statement of operations		—		—		—		—
Balance at end of period	$	15	$	(15)	$	15	$	(15)
Foreign Currency Translation Adjustment
Balance at beginning of period	$	(286)	$	(781)	$	(572)	$	(294)
Other comprehensive income (loss) before reclassifications		(229)		392		52		68
Amounts reclassified from accumulated other comprehensive   income to other income on the statement of operations		10		(139)		15		(302)
Balance at end of period	$	(505)	$	(528)	$	(505)	$	(528)
Total accumulated other comprehensive loss at end of period	$	(490)	$	(543)	$	(490)	$	(543)

Research and Development—Research and development costs are expensed as incurred. These costs include compensation and other internal and external costs associated with the development and research related to new and existing products or concepts, preclinical studies, clinical trials, healthcare compliance and regulatory affairs.

Advertising Costs— The Company expenses advertising costs as incurred. Advertising costs were not significant during the three and six months ended June 30, 2016 and 2015.

Share-Based Compensation—The Company follows FASB ASC 718, “Compensation-Stock Compensation” (ASC 718) to record share-based compensation for all employee share-based payment awards, including stock options, restricted stock and stock purchases related to an employee stock purchase plan, based on estimated fair values. The Company’s share-based compensation expense recognized under ASC 718 for the three months ended June 30, 2016 and 2015 was $3,027 and $2,417, respectively, and $5,869 and $4,141, respectively, for the six months ended June 30, 2016 and 2015, on a before and after tax basis.

ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. 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 Company’s Condensed Consolidated Statement of Operations and Comprehensive Loss. The expense has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, 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 of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of 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 fair value of market-based performance option grants is estimated at the date of grant using a Monte-Carlo simulation. 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 Statement of Operations and Comprehensive Loss.

The Company estimates the fair value of restricted stock based upon the grant date closing market price of the Company’s common stock. The Company’s determination of fair value is affected by the Company’s stock price as well as assumptions regarding the number of shares expected to be granted.

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 and records compensation expense based upon the fair value of the stock at the beginning of the purchase period using the Black-Scholes model.

Use of Estimates—The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 and records cash and investments in U.S. government agencies and securities as Level 1 within the fair value hierarchy. Accounts receivable, short-term other assets, accounts payable and accrued liabilities are also classified 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 and commercial paper are classified as Level 2 within the fair value hierarchy (see Note 3 – Fair Value for further information). The book value of the Company’s fixed interest rate debt approximates its fair value as of June 30, 2016. Fixed interest rate debt fair value is determined by calculating the net present value of future debt payments and is classified as Level 2. Significant unobservable inputs with respect to the Level 3 fair value measurement of the contingent consideration liability is developed using Company data. When an input is changed, the corresponding valuation models are updated and the results are analyzed for reasonableness.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2016

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014 the FASB issued a final standard on revenue from contracts with customers. The standard, issued as FASB ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In July 2015 the FASB decided to defer the effective date of ASU 2014-09 for entities reporting under U.S. GAAP from interim and annual reporting periods beginning after December 15, 2016 to interim and annual reporting periods beginning after December 15, 2017 and allow early adoption as of the original effective date. A full retrospective or modified retrospective approach may be taken to adopt the guidance in the ASU. FASB ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)”, FASB ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, and FASB ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, have been issued in 2016 to further refine the guidance in ASU 2014-09. The Company is evaluating the impact of the provisions of the revenue-related ASUs on its consolidated financial position, results of operations and related disclosures.

In November 2015 the FASB issued ASU 2015-17, “Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes” (ASU 2015-17), which requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. Also, companies will no longer allocate valuation allowances between current and noncurrent deferred tax assets because those allowances also will be classified as noncurrent. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for financial statements that have not been issued. The Company has evaluated the impact of the provisions of ASU 2015-17 on its consolidated financial position and related disclosures and has determined that the new guidance does not have a material impact on its financial reporting.

In January 2016 the FASB issued ASU 2016-01, “Financial Instruments — Overall — Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. The Company is evaluating the impact of ASU 2016-01 on its consolidated financial position and related disclosures.

In February 2016 the FASB issued ASU 2016-02, “Leases”(ASU 2016-02) which requires lessees to record most leases onto their balance sheet but recognize expenses on their income statement in a manner similar to today’s accounting. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. The Company is evaluating the provisions of ASU 2016-02 to determine the impact on its consolidated financial position and related disclosures.  

In March 2016 the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09), which changes certain aspects of accounting for share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur rather than apply an estimate for expense recognition. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted, however, all of the guidance within the ASU must be adopted in the same period. The Company is evaluating the impact of ASU 2016-09 on its consolidated financial position, results of operations and related disclosures.

In June 2016 the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaces today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and requires entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods therein.Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is evaluating the impact of ASU 2016-13 on its consolidated financial position, results of operations and related disclosures.

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Fair Value

6 Months Ended

Jun. 30, 2016

Fair Value [Abstract]

Fair Value

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 standard describes a fair value hierarchy 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 which are the following:

· 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. The fair value of the Company’s contingent consideration liability was estimated on the acquisition date of nContact Surgical, Inc. (nContact)using Level 3 inputs.

In accordance with ASC 820, 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 June 30, 2016:  

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	13,763	$	—	$	13,763
U.S. government agencies and securities		5,582		—		—		5,582
Corporate bonds		—		10,499		—		10,499
Commercial paper		—		11,954		—		11,954
Total assets	$	5,582	$	36,216	$	—	$	41,798
Liabilities:
Acquisition-related contingent consideration		—		—		40,207		40,207
Total liabilities	$	—	$	—	$	40,207	$	40,207

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three or six month periods ended June 30, 2016.

In accordance with ASC 820, 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, 2015:  

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	18,572	$	—	$	18,572
U.S. government agencies and securities		1,590		—		—		1,590
Corporate bonds		—		16,930		—		16,930
Total assets	$	1,590	$	35,502	$	—	$	37,092
Liabilities:
Acquisition-related contingent consideration		—		—		40,207		40,207
Total liabilities	$	—	$	—	$	40,207	$	40,207

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the twelve months ended December 31, 2015.

Acquisition-Related Contingent Consideration. Contingent consideration arrangements obligate the Company to pay former shareholders of an acquired entity if specified future events occur or conditions are met, such as the achievement of certain technological milestones or the achievement of targeted revenue milestones. The Company measures such liabilities using unobservable inputs, applying the income approach, such as the discounted cash flow technique or the probability-weighted scenario method. Various key assumptions, such as the probability of achievement of the agreed milestones, projected revenues from acquisitions and the discount rate, 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. Subsequent revisions to key assumptions, which impact the estimated fair value of contingent consideration liabilities, are reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss. Acquisition-related contingent consideration is recorded in other noncurrent liabilities in the Condensed Consolidated Balance Sheets.

The Company acquired nContact on October 13, 2015. The aggregate consideration paid to nContact shareholders includes up to $50,000 in contingent consideration based on completion of enrollment of the CONVERGE IDE trial and corresponding PMA approval by December 31, 2020. nContact shareholders are entitled to additional contingent consideration based on specified product revenue in excess of an annual growth rate of more than 25% through 2019. There were no changes in the estimates or discount rate during the three or six months ended June 30, 2016.

The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration as of June 30, 2016:

Beginning Balance – January 1, 2016	$	40,207
Amounts acquired		—
Transfers in (out) of Level 3		—
Changes in fair value included in earnings		—
Ending Balance – June 30, 2016	$	40,207

The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration as of December 31, 2015:

Beginning Balance – January 1, 2015	$	—
Amounts acquired		40,207
Transfers in (out) of Level 3		—
Changes in fair value included in earnings		—
Ending Balance – December 31, 2015	$	40,207

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Intangible Assets

6 Months Ended

Jun. 30, 2016

Intangible Assets [Abstract]

Intangible Assets

4. INTANGIBLE ASSETS

The following table provides a summary of the Company’s intangible assets:

	June 30,				December 31,
	2016				2015
	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Non-compete agreement	$	100	$	100	$	100	$	100
Fusion technology		9,242		2,310		9,242		1,848
Clamp & probe technology		829		691		829		552
Estech trade name		208		208		208		208
SUBTLE access technology		2,179		317		2,179		96
IPR&D		44,021		—		44,021		—
Total	$	56,579	$	3,626	$	56,579	$	2,804

Amortization expense related to intangible assets with definite lives, which excludes the IPR&D asset, was $411 and $303 for the three months ended June 30, 2016 and 2015, respectively, and $822 and $606 for the six months ended June 30, 2016 and 2015, respectively.

Future amortization expense related to intangible assets with definite lives is projected as follows:

2016	$	822	July 1, 2016 through December 31, 2016
2017		1,367
2018		1,367
2019		1,367
2020		1,235
2021 and thereafter		2,774
Total	$	8,932

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Accrued Liabilities

6 Months Ended

Jun. 30, 2016

Accrued Liabilities [Abstract]

Accrued Liabilities

5. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

	June 30,		December 31,
	2016		2015
Accrued payroll and employee-related expenses	$	3,381	$	4,021
Accrued commissions		3,772		6,061
Accrued taxes and value-added taxes payable		859		912
Accrued bonus		3,177		6,088
Other accrued liabilities		936		723
Accrued royalties		402		382
Sales returns allowance		263		207
Total	$	12,790	$	18,394

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Indebtedness

6 Months Ended

Jun. 30, 2016

Indebtedness [Abstract]

Indebtedness

6. INDEBTEDNESS

Bank Credit Facility.The Company has a debt agreement (Loan Agreement) with Silicon Valley Bank (SVB). The Loan Agreement, as amended, restated and modified, effective April 25, 2016, includes a $25,000 term loan and $15,000 revolving line of credit, both which maturein  April 2021. Borrowing availability under the revolving credit facility is based on the lesser of $15,000 or a borrowing base calculation as defined by the Loan Agreement. As of June 30, 2016 the Company had no borrowings under the revolving credit facility and had borrowing availability of $15,000. The revolving line of credit is subject to an annual commitment fee of $50, and any borrowings bear interest at the Prime Rate. Financing costs related to the revolving line of credit are included in other assets in the Condensed Consolidated Balance Sheets and amortized ratably over the term of the Loan Agreement.

The term loan has a five-year term, with principal payments to be made ratably commencing twelve months after the inception of the loan through to 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 Prime Rate and is subject to an additional 4.0% fee on the original $25,000 term loan principal amount at maturity or prepayment of the term loan that is being accrued over the term of the Loan Agreement. The Company has accrued $53 of this fee as of June 30, 2016. Financing costs related to the term loan are net against the outstanding loan balance in the Condensed Consolidated Balance Sheets and amortized ratably over the term of the Loan Agreement.

The Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes covenants related to liquidity, sales growth and a minimum cash balance, and includes other customary terms and conditions. Specified assets have been pledged as collateral.

Capital Lease Obligations.As of June 30, 2016 the Company had capital leases for its corporate headquarters building and computer equipment that expire at various terms through 2030.  

In August 2014 the Company entered into a new building lease (Mason Lease) in order to re-locate its corporate headquarters and West Chester, Ohio facilities from their current location to a building to be constructed in Mason, Ohio. The term of the Mason Lease is fifteen years with three separate five-year renewal options, at the Company’s option, and commenced in October 2015. On the Commencement Date, the Company provided a letter of credit to the Landlord in the amount of $1,250, which amount may decrease or be removed entirely based on the Company’s financial performance. The Company was deemed the owner of the project during the construction period. As a result, project costs incurred during construction of the building were included in property and equipment as construction in progress and the corresponding financing obligation was included in other current liabilities during the construction period.  Increases in purchases of building under construction and proceeds from the construction financing obligation were also included in the Condensed Consolidated Statement of Cash Flows during the construction period. Upon completion of construction, the Company recorded the current and noncurrent portions of the Mason Lease obligation within capital leases and the value of the underlying asset in property and equipment in the Condensed Consolidated Balance Sheet.  

At June 30, 2016 the cost of the leased assets, both building and computer equipment, was $14,486. The assets are depreciated over their estimated useful lives, which equal the terms of the leases. Accumulated amortization on the capital leases was $832 at June 30, 2016.  

Future maturities on capital lease obligations are projected as follows:

2016	$	1,072	July 1, 2016 through December 31, 2016
2017		1,434
2018		1,448
2019		1,466
2020		1,488
2021 and thereafter		15,899
Total payments	$	22,807
Imputed interest		(8,830)
Net capital lease obligations, of which $473 is current and $13,504 is noncurrent	$	13,977

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2016

Commitments and Contingencies [Abstract]

Commitments and Contingencies

7. COMMITMENTS AND CONTINGENCIES

Lease Commitments.The Company leases certain office, manufacturing and warehouse facilities and equipment under noncancelable operating leases that expire at various terms through 2021.  

Royalty Agreements.  The Company has certain royalty agreements in place with terms that include payment of royalties based on product revenue from sales of specified current products. The royalty agreements have effective dates as early as 2003 and terms ranging from three years to at least twenty years. The royalties range from 0.75% to 5% of specified product sales. Parties to the royalty agreements have the right at any time to terminate the agreement immediately for cause. Royalty expense of $445 and $471 was recorded as part of cost of revenue for the three months ended June 30, 2016 and 2015, respectively.Royalty expense of $886 and $898 was recorded as part of cost of revenue for the six months ended June 30, 2016 and 2015, respectively.

Purchase Agreements.The Company enters into standard purchase agreements with certain vendors in the ordinary course of business. Outstanding commitments at June 30, 2016 and 2015 were not significant.

Legal.  The Company is not currently party to any material pending or threatened litigation. The Company may, from time to time, become a party to legal proceedings.

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Income Tax Provision

6 Months Ended

Jun. 30, 2016

Income Tax Provision [Abstract]

Income Tax Provision

8. INCOME TAX PROVISION

The Company files federal, state, 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 full valuation allowance against 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. Tax credits are accounted for as a reduction of income taxes in the year in which the credit originates.

The Company’s provision for income taxes for continuing operations in interim periods is computed by applying its estimated annual effective rate against its loss before income tax (expense) benefit for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur. The effective tax rate for the three months ended June 30, 2016 and 2015 was (0.20%) and (0.17%), respectively. The effective tax rate for the six months ended June 30, 2016 and 2015 was (0.12%) and (0.14%), respectively.

The Company has not had to accrue any interest and penalties related to unrecognized income tax benefits as a result of offsetting of net operating losses. However, if the situation occurs, the Company will recognize interest and penalties within the income tax expense (benefit) line in the Condensed Consolidated Statements of Operations and Comprehensive Loss and within the related tax liability line in the Condensed Consolidated Balance Sheets. Federal, state and local tax returns of the Company are routinely subject to review by various taxing authorities. The Internal Revenue Service is currently reviewing the Company’s 2014 federal tax return.

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Equity Compensation Plans

6 Months Ended

Jun. 30, 2016

Equity Compensation Plans [Abstract]

Equity Compensation Plans

9. EQUITY COMPENSATION PLANS

The Company has several share-based incentive plans: the 2005 Equity Incentive Plan (2005 Plan), the Second Amended and Restated 2014 Stock Incentive Plan (2014 Plan) and the 2008 Employee Stock Purchase Plan (ESPP).

Equity Incentive Plans

The Company granted awards under the 2005 Plan until the 2014 Annual Meeting of Stockholders at which stockholders adopted the 2014 Plan. Pursuant to its terms, the 2014 Plan supersedes and replaces the 2005 Plan. Under the 2014 Plan, the Board of Directors may grant incentive stock options to employees and any parent or subsidiary’s employees, and may grant nonstatutory stock options, restricted stock or stock appreciation rights to employees, directors and consultants of the Company and any parent or subsidiary’s employees, directors and consultants. The administrator (currently the Compensation Committee of the Board of Directors) has the power 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 June 30, 2016, 9,399shares of common stock had been reserved for issuance under the 2014 Plan.

Options granted under the plans generally expire tenyears from the date of grant. Options granted from the 2005 Plan and 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 threeyears. Restricted stock awards granted under the 2005 Plan and 2014 Plan generally vest 25% annually over four years from date of grant.

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. Beginning on January 1, 2009 and on the first day of each fiscal year thereafter during the term of the ESPP, the number of shares available for sale under the ESPP shall be increased by the lesser of (i) two percent (2%) of the Company’s outstanding shares of common stock as of the close of business on the last business day of the prior calendar year, not to exceed 600 shares, or (ii) a lesser amount determined by the Board of Directors. AtJune 30, 2016 there were 408 shares available for future issuance under the ESPP.

Expense Information Under FASB ASC 718

The following table summarizes share-based compensation expense related to employees under FASB ASC 718 for the three and six months ended June 30, 2016 and 2015. This expense was allocated as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Cost of revenue	$	88	$	106	$	227	$	196
Research and development expenses		443		347		922		636
Selling, general and administrative expenses		2,496		1,964		4,720		3,309
Total share-based compensation expense related to   employees	$	3,027	$	2,417	$	5,869	$	4,141

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Segment and Geographic Information

6 Months Ended

Jun. 30, 2016

Segment and Geographic Information [Abstract]

Segment and Geographic Information

10. 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 in the United States and internationally. Management considers all such sales to be part of a single reportable 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:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
United States	$	30,872	$	25,744	$	59,144	$	48,667
Europe		5,408		4,122		10,169		8,538
Asia		3,262		2,538		5,990		4,838
Other international		130		179		309		426
Total international		8,800		6,839		16,468		13,802
Total revenue	$	39,672	$	32,583	$	75,612	$	62,469

Domestic revenue by product type was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Open-heart ablation	$	14,721	$	13,648	$	28,689	$	26,002
Minimally invasive ablation		7,990		5,057		14,715		9,404
AtriClip		7,348		6,286		14,196		11,789
Total ablation and AtriClip		30,059		24,991		57,600		47,195
Valve tools		813		753		1,544		1,472
Total domestic	$	30,872	$	25,744	$	59,144	$	48,667

International revenue by product type was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Open-heart ablation	$	5,438	$	4,088	$	9,910	$	8,304
Minimally invasive ablation		2,186		1,858		4,350		3,826
AtriClip		1,024		789		1,889		1,460
Total ablation and AtriClip		8,648		6,735		16,149		13,590
Valve tools		152		104		319		212
Total international	$	8,800	$	6,839	$	16,468	$	13,802

The majority of the Company’s long-lived assets are located in the United States.

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Description of Business and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Description of Business and Summary of Significant Accounting Policies [Abstract]

Nature of the Business

Nature of the Business—AtriCure, Inc. was incorporated in the State of Delaware on October 31, 2000. The “Company” or “AtriCure” consists of AtriCure, Inc. and its wholly-owned subsidiaries. The Company is a  leading atrial fibrillation (Afib) solutions partner providing innovative products, professional education and support for clinical science to reduce the economic and social burden of atrial fibrillation. The Company sells its products to medical centers globally through a direct sales force and distributors.

Basis of Presentation

Basis of Presentation—The accompanying interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The accompanying interim financial statements are unaudited, but in the opinion of the Company’s management, contain all of the normal, recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America (GAAP) applicable to interim periods. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted or condensed. The Company believes the disclosures herein are adequate to make the information presented not misleading. Results of operations are not necessarily indicative of the results expected for the full fiscal year or for any future period.

The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.

Principles of Consolidation

Principles of Consolidation—The Condensed Consolidated Financial Statements include the accounts of the Company, AtriCure, LLC, Endoscopic Technologies, LLC and nContact Surgical, LLC, the Company’s wholly-owned subsidiaries, all organized in the State of Delaware, AtriCure Europe B.V. (AtriCure Europe), the Company’s wholly-owned subsidiary incorporated in the Netherlands and AtriCure Hong Kong Limited, the Company’s wholly-owned subsidiary incorporated in Hong Kong. All intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and Cash Equivalents—The Company considers highly liquid investments with maturities of three months or less at the date of acquisition as cash equivalents in the accompanying Condensed Consolidated Financial Statements.

Investments

Investments—The Company places its investments primarily in U.S. Government agencies and securities, corporate bonds and commercial paper. The Company classifies all investments as available-for-sale. Investments with maturities of less than one year are classified as short-term investments. Investments are recorded at fair value, with unrealized gains and losses recorded as accumulated other comprehensive income (loss). The Company recognizes gains and losses when these securities are sold using the specific identification method and includes them in interest income or expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Revenue Recognition

Revenue Recognition—The Company accounts for revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605, “Revenue Recognition” (ASC 605). The Company recognizes revenue when all of the following criteria are met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured.

Pursuant to the Company’s standard terms of sale, revenue is recognized when title to the goods and risk of loss transfers to customers and there are no remaining obligations that will affect the customers’ final acceptance of the sale. Generally, the Company’s standard terms of sale define the transfer of title and risk of loss to occur upon shipment to the respective customer. The Company does not normally maintain any post-shipping obligations to the recipients of the products. No installation, calibration or testing of products is performed by the Company subsequent to shipment to the customer in order to render it operational.

Revenue includes shipping and handling revenue of $329 and $271 for the three months ended June 30, 2016 and 2015, and $625 and $518 for the six months ended June 30, 2016 and 2015, respectively. Cost of freight for shipments made to customers is included in cost of revenue. Sales and other value-added taxes collected from customers and remitted to governmental authorities are excluded from revenue. The Company sells its products primarily through a direct sales force, with certain international markets sold through distributors. 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.

Sales Returns and Allowances

Sales Returns and Allowances—The Company maintains a provision for sales returns and allowances to account for potential returns of defective or damaged products, products shipped in error and invoice adjustments. The Company estimates such provision on a quarterly basis based primarily on specific identification, in addition to estimating a general reserve based on historical experience. Increases to the provision result in a reduction of revenue. The provision is included in accrued liabilities in the Condensed Consolidated Balance Sheets.

Allowance for Doubtful Accounts Receivable

Allowance for Doubtful Accounts Receivable—The Company evaluates the collectability of accounts receivable to determine the appropriate reserve for doubtful accounts. In determining the amount of the reserve, the Company considers aging of account balances, historical credit losses, customer-specific information and other relevant factors. An increase to the allowance for doubtful accounts results in a corresponding increase in selling, general and administrative expense. The Company reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs against the allowance has not been significant.

Inventories

Inventories—Inventories are stated at the lower of cost or market using approximate costs based on the first-in, first-out cost method (FIFO). Inventories 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 utilization all impact excess and obsolete inventory. An inventory allowance based on product usage is estimated and recorded quarterly for excess, slow moving and obsolete inventory, as well as inventory with a carrying value in excess of its net realizable value. An increase to the inventory reserve allowance results in a corresponding increase in cost of revenue. Write-offs are recorded when a product is destroyed. The Company’s history of write-offs against the reserve has not been significant.

Inventories consist of the following:

	June 30,		December 31,
	2016		2015
Raw materials	$	5,581	$	6,159
Work in process		1,418		974
Finished goods		12,312		10,526
Inventories	$	19,311	$	17,659

Property and Equipment

Property and Equipment—Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method of depreciation for financial reporting purposes and is applied over the estimated useful lives of the assets. The estimated useful life by major asset category is the following: generators and other capital equipment, machinery, equipment and vehicles is three to seven years, computer and other office equipment is three years, furniture and fixtures is three to seven years and leasehold improvements and equipment under capital leases are the shorter of their useful life or remaining lease term. The Company reassesses the useful lives of property and equipment annually, and assets are retired if they are no longer in service. Maintenance and repair costs are expensed as incurred.

Generators and other capital equipment (such as the Company’s switchbox units and cryosurgical consoles) are placed with direct customers that use the Company’s disposable products. Depreciation of such assets is included in cost of revenue. 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. To the extent the Company experiences changes in the usage of this equipment or introduces new technologies, the estimated useful lives of this equipment may change in a future period. Depreciation related to these generators was $879 and $673 for the three months ended June 30, 2016 and 2015, respectively, and $1,715 and $1,293 for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016 and December 31, 2015, the net carrying amount of loaned equipment included in net property and equipment in the Condensed Consolidated Balance Sheets was $5,454 and $5,447, respectively.

The Company reviews property and equipment for impairment using its best estimates based on reasonable and supportable assumptions and projections.

Intangible Assets

Intangible Assets—Intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated periods benefited.

Included in intangible assets is In Process Research and Development (IPR&D). The Company defines IPR&D as 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. The estimated fair value of IPR&D acquired in a business combination is capitalized as an indefinite-lived intangible asset until completion or abandonment of the IPR&D project. Upon completion of the development project, the IPR&D is amortized over its estimated useful life. If the IPR&D project is abandoned, the related IPR&D asset is written off. The estimated fair value of IPR&D was determined using an income approach model and represents an estimate of the fair value of the PMA approval that could result from the CONVERGE IDE clinical trial.

The Company reviews intangible assets for impairment using its best estimates based on reasonable and supportable assumptions and projections.

Goodwill

Goodwill—Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. The Company tests goodwill for impairment annually on November 30, or more often if impairment indicators are present. The Company’s goodwill is accounted for in a single reporting unit representing the Company as a whole.

Other Noncurrent Liabilities

Other Noncurrent Liabilities—Other noncurrent liabilities include contingent consideration recorded in business combinations, as well as long-term deferred revenues and other contractual obligations.

Other Income

Other Income—Other income consists primarily of foreign currency transaction gains and losses. The Company recorded net foreign currency transaction losses of $35 and $46 for the three months ended June 30, 2016 and 2015, respectively, and $115 and $209 for the six months ended June 30, 2016 and 2015, respectively, in connection with settlements of its intercompany balance with AtriCure Europe and sales invoices transacted in British Pounds.

Taxes

Taxes—Deferred 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 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 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 tax assets requires it to make significant estimates and judgments about its future operating results. Deferred 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. The Company evaluates deferred tax assets on a quarterly basis to determine if valuation allowances are required by considering all available evidence. Deferred 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, taxable income in carry-back years 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. The Company has recorded a full valuation allowance against 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.

A provision of The Patient Protection and Affordable Care Act enacted in 2010, as amended (Patient Act), required manufacturers of medical devices to pay an excise tax on all U.S. medical device sales. In December 2015, the U.S. government approved the suspension of the excise tax on medical device sales beginning January 1, 2016 through December 31, 2017. The Company’s expense related to the medical device excise tax, which was recorded in cost of revenue, was $0 and $149 for the three months ended June 30, 2016 and 2015, respectively, and $0 and $304 for the six months ended June 30, 2016 and 2015, respectively.

Net Loss Per Share

Net Loss Per Share—Basic and diluted net loss per share is computed in accordance with FASB ASC 260, “Earnings Per Share” (ASC 260) 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 4,471 and 4,290 stock options and restricted stock shares as of June 30, 2016 and 2015, respectively, 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 Loss and Accumulated Other Comprehensive Loss

Comprehensive Loss and Accumulated Other Comprehensive Loss—In addition to net losses, the comprehensive loss includes foreign currency translation adjustments and unrealized gains and losses on investments.

Accumulated other comprehensive income (loss) consisted of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Total accumulated other comprehensive loss at   beginning of period	$	(284)	$	(798)	$	(611)	$	(348)
Unrealized Gains on Investments
Balance at beginning of period	$	2	$	(17)	$	(39)	$	(54)
Other comprehensive income (loss) before reclassifications		13		2		54		39
Amounts reclassified from accumulated other comprehensive   income to other income on the statement of operations		—		—		—		—
Balance at end of period	$	15	$	(15)	$	15	$	(15)
Foreign Currency Translation Adjustment
Balance at beginning of period	$	(286)	$	(781)	$	(572)	$	(294)
Other comprehensive income (loss) before reclassifications		(229)		392		52		68
Amounts reclassified from accumulated other comprehensive   income to other income on the statement of operations		10		(139)		15		(302)
Balance at end of period	$	(505)	$	(528)	$	(505)	$	(528)
Total accumulated other comprehensive loss at end of period	$	(490)	$	(543)	$	(490)	$	(543)

Research and Development

Research and Development—Research and development costs are expensed as incurred. These costs include compensation and other internal and external costs associated with the development and research related to new and existing products or concepts, preclinical studies, clinical trials, healthcare compliance and regulatory affairs.

Advertising Costs

Advertising Costs— The Company expenses advertising costs as incurred. Advertising costs were not significant during the three and six months ended June 30, 2016 and 2015.

Share-Based Compensation

Share-Based Compensation—The Company follows FASB ASC 718, “Compensation-Stock Compensation” (ASC 718) to record share-based compensation for all employee share-based payment awards, including stock options, restricted stock and stock purchases related to an employee stock purchase plan, based on estimated fair values. The Company’s share-based compensation expense recognized under ASC 718 for the three months ended June 30, 2016 and 2015 was $3,027 and $2,417, respectively, and $5,869 and $4,141, respectively, for the six months ended June 30, 2016 and 2015, on a before and after tax basis.

ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. 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 Company’s Condensed Consolidated Statement of Operations and Comprehensive Loss. The expense has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, 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 of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of 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 fair value of market-based performance option grants is estimated at the date of grant using a Monte-Carlo simulation. 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 Statement of Operations and Comprehensive Loss.

The Company estimates the fair value of restricted stock based upon the grant date closing market price of the Company’s common stock. The Company’s determination of fair value is affected by the Company’s stock price as well as assumptions regarding the number of shares expected to be granted.

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 and records compensation expense based upon the fair value of the stock at the beginning of the purchase period using the Black-Scholes model.

Use of Estimates

Use of Estimates—The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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

Fair Value Disclosures—The Company classifies and records cash and investments in U.S. government agencies and securities as Level 1 within the fair value hierarchy. Accounts receivable, short-term other assets, accounts payable and accrued liabilities are also classified 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 and commercial paper are classified as Level 2 within the fair value hierarchy (see Note 3 – Fair Value for further information). The book value of the Company’s fixed interest rate debt approximates its fair value as of June 30, 2016. Fixed interest rate debt fair value is determined by calculating the net present value of future debt payments and is classified as Level 2. Significant unobservable inputs with respect to the Level 3 fair value measurement of the contingent consideration liability is developed using Company data. When an input is changed, the corresponding valuation models are updated and the results are analyzed for reasonableness.

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Description of Business and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2016

Description of Business and Summary of Significant Accounting Policies [Abstract]

Summary Of Inventories

Inventories consist of the following:

	June 30,		December 31,
	2016		2015
Raw materials	$	5,581	$	6,159
Work in process		1,418		974
Finished goods		12,312		10,526
Inventories	$	19,311	$	17,659

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consisted of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Total accumulated other comprehensive loss at   beginning of period	$	(284)	$	(798)	$	(611)	$	(348)
Unrealized Gains on Investments
Balance at beginning of period	$	2	$	(17)	$	(39)	$	(54)
Other comprehensive income (loss) before reclassifications		13		2		54		39
Amounts reclassified from accumulated other comprehensive   income to other income on the statement of operations		—		—		—		—
Balance at end of period	$	15	$	(15)	$	15	$	(15)
Foreign Currency Translation Adjustment
Balance at beginning of period	$	(286)	$	(781)	$	(572)	$	(294)
Other comprehensive income (loss) before reclassifications		(229)		392		52		68
Amounts reclassified from accumulated other comprehensive   income to other income on the statement of operations		10		(139)		15		(302)
Balance at end of period	$	(505)	$	(528)	$	(505)	$	(528)
Total accumulated other comprehensive loss at end of period	$	(490)	$	(543)	$	(490)	$	(543)

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Fair Value (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value [Abstract]

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

In accordance with ASC 820, 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 June 30, 2016:  

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	13,763	$	—	$	13,763
U.S. government agencies and securities		5,582		—		—		5,582
Corporate bonds		—		10,499		—		10,499
Commercial paper		—		11,954		—		11,954
Total assets	$	5,582	$	36,216	$	—	$	41,798
Liabilities:
Acquisition-related contingent consideration		—		—		40,207		40,207
Total liabilities	$	—	$	—	$	40,207	$	40,207

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the three or six month periods ended June 30, 2016.

In accordance with ASC 820, 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, 2015:  

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	18,572	$	—	$	18,572
U.S. government agencies and securities		1,590		—		—		1,590
Corporate bonds		—		16,930		—		16,930
Total assets	$	1,590	$	35,502	$	—	$	37,092
Liabilities:
Acquisition-related contingent consideration		—		—		40,207		40,207
Total liabilities	$	—	$	—	$	40,207	$	40,207

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the twelve months ended December 31, 2015.

Level 3 Fair Value Measurements Using Significant Other Unobservable Inputs for Acquisition-Related Contingent Consideration

The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration as of June 30, 2016:

Beginning Balance – January 1, 2016	$	40,207
Amounts acquired		—
Transfers in (out) of Level 3		—
Changes in fair value included in earnings		—
Ending Balance – June 30, 2016	$	40,207

The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration as of December 31, 2015:

Beginning Balance – January 1, 2015	$	—
Amounts acquired		40,207
Transfers in (out) of Level 3		—
Changes in fair value included in earnings		—
Ending Balance – December 31, 2015	$	40,207

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Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2016

Intangible Assets [Abstract]

Company's Intangible Assets with Definite Lives

The following table provides a summary of the Company’s intangible assets:

	June 30,				December 31,
	2016				2015
	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Non-compete agreement	$	100	$	100	$	100	$	100
Fusion technology		9,242		2,310		9,242		1,848
Clamp & probe technology		829		691		829		552
Estech trade name		208		208		208		208
SUBTLE access technology		2,179		317		2,179		96
IPR&D		44,021		—		44,021		—
Total	$	56,579	$	3,626	$	56,579	$	2,804

Future Amortization Expense Related to Intangible Assets with Definite Lives

Future amortization expense related to intangible assets with definite lives is projected as follows:

2016	$	822	July 1, 2016 through December 31, 2016
2017		1,367
2018		1,367
2019		1,367
2020		1,235
2021 and thereafter		2,774
Total	$	8,932

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Accrued Liabilities (Tables)

6 Months Ended

Jun. 30, 2016

Accrued Liabilities [Abstract]

Accrued Liabilities

Accrued liabilities consisted of the following:

	June 30,		December 31,
	2016		2015
Accrued payroll and employee-related expenses	$	3,381	$	4,021
Accrued commissions		3,772		6,061
Accrued taxes and value-added taxes payable		859		912
Accrued bonus		3,177		6,088
Other accrued liabilities		936		723
Accrued royalties		402		382
Sales returns allowance		263		207
Total	$	12,790	$	18,394

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Indebtedness (Tables)

6 Months Ended

Jun. 30, 2016

Indebtedness [Abstract]

Future Maturities on Capital Lease Obligations

Future maturities on capital lease obligations are projected as follows:

2016	$	1,072	July 1, 2016 through December 31, 2016
2017		1,434
2018		1,448
2019		1,466
2020		1,488
2021 and thereafter		15,899
Total payments	$	22,807
Imputed interest		(8,830)
Net capital lease obligations, of which $473 is current and $13,504 is noncurrent	$	13,977

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Equity Compensation Plans (Tables)

6 Months Ended

Jun. 30, 2016

Equity Compensation Plans [Abstract]

Share-Based Compensation Expense Related to Employee Share-Based Compensation

The following table summarizes share-based compensation expense related to employees under FASB ASC 718 for the three and six months ended June 30, 2016 and 2015. This expense was allocated as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Cost of revenue	$	88	$	106	$	227	$	196
Research and development expenses		443		347		922		636
Selling, general and administrative expenses		2,496		1,964		4,720		3,309
Total share-based compensation expense related to   employees	$	3,027	$	2,417	$	5,869	$	4,141

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Segment and Geographic Information (Tables)

6 Months Ended

Jun. 30, 2016

Segment and Geographic Information [Abstract]

Revenue by Geographic Area

Revenue by geographic area was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
United States	$	30,872	$	25,744	$	59,144	$	48,667
Europe		5,408		4,122		10,169		8,538
Asia		3,262		2,538		5,990		4,838
Other international		130		179		309		426
Total international		8,800		6,839		16,468		13,802
Total revenue	$	39,672	$	32,583	$	75,612	$	62,469

Revenue by Product Type

Domestic revenue by product type was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Open-heart ablation	$	14,721	$	13,648	$	28,689	$	26,002
Minimally invasive ablation		7,990		5,057		14,715		9,404
AtriClip		7,348		6,286		14,196		11,789
Total ablation and AtriClip		30,059		24,991		57,600		47,195
Valve tools		813		753		1,544		1,472
Total domestic	$	30,872	$	25,744	$	59,144	$	48,667

International revenue by product type was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Open-heart ablation	$	5,438	$	4,088	$	9,910	$	8,304
Minimally invasive ablation		2,186		1,858		4,350		3,826
AtriClip		1,024		789		1,889		1,460
Total ablation and AtriClip		8,648		6,735		16,149		13,590
Valve tools		152		104		319		212
Total international	$	8,800	$	6,839	$	16,468	$	13,802

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Description of Business and Summary of Significant Accounting Policies (Narrative) (Details) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Description Of Business And Significant Accounting Policies [Line Items]
Shipping and handling revenue	$ 329	$ 271	$ 625	$ 518
Payment terms for end-users			30 days
Payment terms for distributors			60 days
Depreciation			$ 3,678	2,087
Net carrying amount of loaned equipment	30,902		30,902		$ 31,279
Foreign currency transaction (losses) gains			15	(302)
Company's expense related to the medical device excise tax	0	149	$ 0	$ 304
Options, restricted stock and performance based shares excluded from calculation of net loss per share			4,471	4,290
Share-based compensation expense recognized	3,027	2,417	$ 5,869	$ 4,141
Subsidiaries [Member]
Description Of Business And Significant Accounting Policies [Line Items]
Foreign currency transaction (losses) gains	35	46	$ 115	209
Computer and Other Office Equipment [Member]
Description Of Business And Significant Accounting Policies [Line Items]
Estimated useful life by major asset category			3 years
Generators [Member]
Description Of Business And Significant Accounting Policies [Line Items]
Depreciation	879	$ 673	$ 1,715	$ 1,293
Carrying Amount of Loaned Equipment [Member]
Description Of Business And Significant Accounting Policies [Line Items]
Net carrying amount of loaned equipment	$ 5,454		$ 5,454		$ 5,447
Short-term Debt [Member]
Description Of Business And Significant Accounting Policies [Line Items]
Maturity period of short term investment			1 year
Minimum [Member] | Generators and Other Capital Equipment, Machinery, Equipment and Vehicles [Member]
Description Of Business And Significant Accounting Policies [Line Items]
Estimated useful life by major asset category			3 years
Minimum [Member] | Furniture and Fixtures [Member]
Description Of Business And Significant Accounting Policies [Line Items]
Estimated useful life by major asset category			3 years
Maximum [Member] | Generators and Other Capital Equipment, Machinery, Equipment and Vehicles [Member]
Description Of Business And Significant Accounting Policies [Line Items]
Estimated useful life by major asset category			7 years
Maximum [Member] | Furniture and Fixtures [Member]
Description Of Business And Significant Accounting Policies [Line Items]
Estimated useful life by major asset category			7 years

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Description of Business and Summary of Significant Accounting Policies (Summary Of Inventories) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Description of Business and Summary of Significant Accounting Policies [Abstract]
Raw materials	$ 5,581	$ 6,159
Work in process	1,418	974
Finished goods	12,312	10,526
Inventories	$ 19,311	$ 17,659

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Description of Business and Summary of Significant Accounting Policies (Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Accumulated Other Comprehensive Income (Loss) [Line Items]
Total accumulated other comprehensive income (loss) at beginning of period	$ (284)	$ (798)	$ (611)	$ (348)
Total accumulated other comprehensive income (loss) at end of period	(490)	(543)	(490)	(543)
Unrealized (Losses) Gains on Investments [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Total accumulated other comprehensive income (loss) at beginning of period	2	(17)	(39)	(54)
Other comprehensive income (loss) before reclassifications	13	2	54	39
Amounts reclassified from accumulated other comprehensive income to other income on the statement of operations
Total accumulated other comprehensive income (loss) at end of period	15	(15)	15	(15)
Foreign Currency Translation Adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Total accumulated other comprehensive income (loss) at beginning of period	(286)	(781)	(572)	(294)
Other comprehensive income (loss) before reclassifications	(229)	392	52	68
Amounts reclassified from accumulated other comprehensive income to other income on the statement of operations	10	(139)	15	(302)
Total accumulated other comprehensive income (loss) at end of period	$ (505)	$ (528)	$ (505)	$ (528)

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Fair Value (Narrative) (Details) - nContact Surgical [Member] - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Oct. 13, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Acquisition-related contingent consideration		$ 50,000
Entitled sales-based contingent consideration on revenue in excess of annual growth through 2019	25.00%

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Fair Value (Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis) (Details) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Assets:
Total assets	$ 41,798	$ 37,092
Liabilities:
Acquisition-related contingent consideration	40,207	40,207
Total liabilities	40,207	40,207
Money Market Funds [Member]
Assets:
Total assets	13,763	18,572
U.S. Government Agencies and Securities [Member]
Assets:
Total assets	5,582	1,590
Corporate Bonds [Member]
Assets:
Total assets	10,499	16,930
Commercial Paper [Member]
Assets:
Total assets	11,954
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Total assets	5,582	1,590
Liabilities:
Acquisition-related contingent consideration
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | U.S. Government Agencies and Securities [Member]
Assets:
Total assets	5,582	1,590
Significant Other Observable Inputs (Level 2) [Member]
Assets:
Total assets	36,216	35,502
Liabilities:
Acquisition-related contingent consideration
Significant Other Observable Inputs (Level 2) [Member] | Money Market Funds [Member]
Assets:
Total assets	13,763	18,572
Significant Other Observable Inputs (Level 2) [Member] | Corporate Bonds [Member]
Assets:
Total assets	10,499	16,930
Significant Other Observable Inputs (Level 2) [Member] | Commercial Paper [Member]
Assets:
Total assets	11,954
Significant Other Unobservable Inputs (Level 3) [Member]
Liabilities:
Acquisition-related contingent consideration	40,207	40,207
Total liabilities	$ 40,207	$ 40,207

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Fair Value (Level 3 Fair Value Measurements Using Significant Other Unobservable Inputs for Acquisition-Related Contingent Consideration) (Details) - Significant Other Unobservable Inputs (Level 3) [Member] - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance	$ 40,207
Amounts acquired		40,207
Transfers in (out) of Level 3
Changes in fair value included in earnings
Ending Balance	$ 40,207	$ 40,207

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Intangible Assets (Narative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Intangible Assets [Abstract]
Amortization of intangible assets	$ 411	$ 303	$ 822	$ 606

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Intangible Assets (Company's Intangible Assets with Definite Lives) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Cost	$ 56,579	$ 56,579
Accumulated Amortization	3,626	2,804
Non-Compete Agreement [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	100	100
Accumulated Amortization	100	100
Fusion Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	9,242	9,242
Accumulated Amortization	2,310	1,848
Clamp and Probe Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	829	829
Accumulated Amortization	691	552
Estech Trade Name [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	208	208
Accumulated Amortization	208	208
SUBTLE Access Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	2,179	2,179
Accumulated Amortization	317	96
IPR&D [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	$ 44,021	$ 44,021

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Intangible Assets (Future Amortization Expense Related to Intangible Assets with Definite Lives) (Details) $ in Thousands	Jun. 30, 2016 USD ($)
Intangible Assets [Abstract]
2016	$ 822
2017	1,367
2018	1,367
2019	1,367
2020	1,235
2021 and thereafter	2,774
Total	$ 8,932

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Accrued Liabilities (Accrued Liabilities) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Accrued Liabilities [Abstract]
Accrued payroll and employee-related expenses	$ 3,381	$ 4,021
Accrued commissions	3,772	6,061
Accrued taxes and value-added taxes payable	859	912
Accrued bonus	3,177	6,088
Other accrued liabilities	936	723
Accrued royalties	402	382
Sales returns allowance	263	207
Total	$ 12,790	$ 18,394

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Indebtedness (Narrative) (Details)		6 Months Ended
	Apr. 25, 2016 USD ($)	Jun. 30, 2016 USD ($) loan
Line of Credit Facility [Line Items]
Accumulated amortization on the capital leases		$ 832,000
Maximum [Member]
Line of Credit Facility [Line Items]
Letter of credit required to landlord		1,250,000
Silicon Valley Bank Agreement [Member] | Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Line of credit		15,000,000
Line of credit, amount outstanding		0
Line of credit, availability		$ 15,000,000
Silicon Valley Bank, Second Amended And Restated Loan Agreement [Member]
Line of Credit Facility [Line Items]
Principal payment starting period after inception of loan to maturity	12 months
Upon certain conditions met, deferred loan payment period	6 months
Silicon Valley Bank, Second Amended And Restated Loan Agreement [Member] | Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Maturity date		Apr. 30, 2021
Annual commitment fee	$ 50,000
Building And Computer Equipment [Member]
Line of Credit Facility [Line Items]
Capital lease expiration period		Dec. 31, 2030
Cost of assets under lease		$ 14,486,000
Term Loan [Member] | Silicon Valley Bank, Second Amended And Restated Loan Agreement [Member]
Line of Credit Facility [Line Items]
Loan amount	$ 25,000,000
Loan term	5 years
Additional fee on total term loan	4.00%
Accrued fee amount		$ 53,000
Mason Lease [Member]
Line of Credit Facility [Line Items]
Lease term period		15 years
Number of renewal options | loan		3
Lease renewal option period		5 years

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Indebtedness (Future Maturities on Capital Lease Obligations) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Indebtedness [Abstract]
2016	$ 1,072
2017	1,434
2018	1,448
2019	1,466
2020	1,488
2021 and thereafter	15,899
Total payments	22,807
Imputed interest	(8,830)
Net capital lease obligations, of which $0 is current and $0 is noncurrent	13,977
Net capital lease obligations, current	473
Net capital lease obligations, noncurrent	$ 13,504	$ 13,710

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Commitments and Contingencies (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Commitments and Contingencies [Line Items]
Royalty expense	$ 445	$ 471	$ 886	$ 898
Minimum [Member]
Commitments and Contingencies [Line Items]
Royalty rates			0.75%
Royalty agreement term			3 years
Maximum [Member]
Commitments and Contingencies [Line Items]
Royalty rates			5.00%
Royalty agreement term			20 years
Office, Manufacturing, Warehouse Facilities, And Equipment [Member]
Commitments and Contingencies [Line Items]
Operating leases expire at various terms			Dec. 31, 2021

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Income Tax Provision (Narrative) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Tax Provision [Abstract]
Effective tax rate	(0.20%)	(0.17%)	(0.12%)	(0.14%)

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Equity Compensation Plans (Narrative) (Details) shares in Thousands, $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Participants purchase limit shares	3
Offering period	6 months
2005 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiry of options from the date of grant	10 years
2014 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiry of options from the date of grant	10 years
Common stock reserved for issuance	9,399
2008 Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Company's common stock may be purchased at a discount	15.00%
Participants purchase limit value | $	$ 25
Shares available for sale under the ESPP increased	2.00%
Outstanding shares of common stock exceed	600
Shares available for future issuance under the ESPP	408
Employee Stock Option [Member] | 2005 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercisable period beginning	3 years
Employee Stock Option [Member] | 2014 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercisable period beginning	3 years
Restricted Stock [Member] | 2005 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Restricted Stock [Member] | 2014 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
First Anniversary Date Of Grant [Member] | Employee Stock Option [Member] | 2005 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Annual vesting percentage	25.00%
First Anniversary Date Of Grant [Member] | Employee Stock Option [Member] | 2014 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Annual vesting percentage	25.00%
Four Years From Date Of Grant [Member] | Restricted Stock [Member] | 2005 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Annual vesting percentage	25.00%
Four Years From Date Of Grant [Member] | Restricted Stock [Member] | 2014 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Annual vesting percentage	25.00%

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Equity Compensation Plans (Share-Based Compensation Expense Related to Employee Share-Based Compensation) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share-based compensation expense related to employees	$ 3,027	$ 2,417	$ 5,869	$ 4,141
Cost of Revenue [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share-based compensation expense related to employees	88	106	227	196
Research and Development Expenses [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share-based compensation expense related to employees	443	347	922	636
Selling, General and Administrative Expenses [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total share-based compensation expense related to employees	$ 2,496	$ 1,964	$ 4,720	$ 3,309

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Segment and Geographic Information (Revenue by Geographic Area) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 39,672	$ 32,583	$ 75,612	$ 62,469
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	30,872	25,744	59,144	48,667
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	5,408	4,122	10,169	8,538
Asia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	3,262	2,538	5,990	4,838
Other International [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	130	179	309	426
International [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 8,800	$ 6,839	$ 16,468	$ 13,802

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Segment and Geographic Information (Revenue by Product Type) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenue from External Customer [Line Items]
Revenue	$ 39,672	$ 32,583	$ 75,612	$ 62,469
United States [Member]
Revenue from External Customer [Line Items]
Revenue	30,872	25,744	59,144	48,667
United States [Member] | Open-heart Ablation [Member]
Revenue from External Customer [Line Items]
Revenue	14,721	13,648	28,689	26,002
United States [Member] | Minimally Invasive Ablation [Member]
Revenue from External Customer [Line Items]
Revenue	7,990	5,057	14,715	9,404
United States [Member] | AtriClip [Member]
Revenue from External Customer [Line Items]
Revenue	7,348	6,286	14,196	11,789
United States [Member] | Ablation and AtriClip [Member]
Revenue from External Customer [Line Items]
Revenue	30,059	24,991	57,600	47,195
United States [Member] | Valve Tools [Member]
Revenue from External Customer [Line Items]
Revenue	813	753	1,544	1,472
International [Member]
Revenue from External Customer [Line Items]
Revenue	8,800	6,839	16,468	13,802
International [Member] | Open-heart Ablation [Member]
Revenue from External Customer [Line Items]
Revenue	5,438	4,088	9,910	8,304
International [Member] | Minimally Invasive Ablation [Member]
Revenue from External Customer [Line Items]
Revenue	2,186	1,858	4,350	3,826
International [Member] | AtriClip [Member]
Revenue from External Customer [Line Items]
Revenue	1,024	789	1,889	1,460
International [Member] | Ablation and AtriClip [Member]
Revenue from External Customer [Line Items]
Revenue	8,648	6,735	16,149	13,590
International [Member] | Valve Tools [Member]
Revenue from External Customer [Line Items]
Revenue	$ 152	$ 104	$ 319	$ 212