AirSculpt Technologies, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparisons are with the same 2021 periods. AirSculpt provides management services for professional associations delivering minimally invasive body-contouring procedures. It reported 20 centers in 17 states at September 30 and 21 centers as of November 14, 2022.
Financial and operating results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $38.9 million | $34.7 million | $128.1 million | $95.8 million |
| Operating income (loss) | $(1.4) million | $9.6 million | $1.4 million | $28.0 million |
| Net income (loss) | $(7.4) million | $8.1 million | $(7.5) million | $24.7 million |
| Adjusted EBITDA and margin | $9.2 million; 23.6% | $12.1 million; 35.0% | $34.2 million; 26.7% | $35.9 million; 37.5% |
| Operating cash flow | Not presented quarterly in the supplied filing text | $17.8 million | $32.3 million |
- Q3 revenue grew 12.2%; nine-month revenue grew 33.8%. Cases rose 5.0% in Q3 and 19.1% year to date, while revenue per case increased 6.9% and 12.3%, respectively.
- Same-center Q3 cases declined 7.6% and same-center revenue declined 2.1%; management attributed the quarterly softness partly to extended vacations by physicians at larger centers, deferring cases. Nine-month same-center cases increased 1.5%.
- Operating expenses rose faster than revenue. Cost of service was 38.3% of Q3 revenue versus 32.9% a year earlier; SG&A was 60.2% versus 34.6%. Nine-month ratios were 36.7% and 57.4%, respectively, compared with 32.9% and 32.3%.
- SG&A included $7.4 million of equity-based compensation in Q3 and $22.0 million for the nine months, compared with $0.1 million and $0.3 million in 2021. Advertising expense was $5.4 million in Q3 and $15.4 million year to date. Management cited public-company costs, marketing, and corporate support among the drivers of higher SG&A.
- Cash and cash equivalents were $7.6 million at September 30, down from $25.3 million at December 31, 2021. Working capital was negative $3.8 million, versus positive $13.0 million at year-end. Nine-month investing cash use was $10.7 million, principally for new centers, procedure-room additions, equipment, and technology.
- Debt carrying value was $82.5 million, including $1.2 million of unamortized financing costs and discount; $5.0 million was available under the revolving facility. The company reported compliance with debt covenants. Lease liabilities totaled approximately $24.8 million.
Material changes, outlook, and risks
- Four new centers and expansions increased procedure rooms from 27 to 43 year over year. Management said new-center service costs are higher during the initial ramp, which can take up to two years, and that the lower cases-per-room metric should improve as rooms ramp.
- A $0.41-per-share special cash dividend, totaling $22.8 million, was paid in September. The dividend contributed to financing cash outflow and reduced liquidity.
- Income tax expense was $4.2 million in Q3 and $4.1 million year to date despite pre-tax losses. Management attributed the unusual effective tax rates to nondeductible executive compensation, including under Internal Revenue Code Section 162(m).
- Management expected operating cash flow and the available revolver to cover working-capital needs, planned capital spending, and obligations for at least 12 months. It also expected marketing and corporate costs to rise as the company expands. No numerical revenue or earnings guidance was provided.
- On November 7, 2022, after quarter-end, the company entered a new credit agreement with $85.0 million of term loans and a $5.0 million revolving facility, maturing November 7, 2027; proceeds were used in part to repay the prior facility’s $83.6 million principal balance. New borrowing margins vary with leverage and benchmark rate.
- Risks identified include recession-related demand and cash-flow pressure, inflation, higher floating-rate debt costs, new-center execution, staffing and supplier issues, competition for surgeons, changes in medical-practice laws, and medical-malpractice claims. The company said current legal matters were routine and not expected to have a material adverse effect, but outcomes and insurance adequacy are not assured.
- Management assessed disclosure controls as effective at a reasonable-assurance level and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether same-center demand and physician capacity recover after Q3’s case declines, and whether new centers and added procedure rooms reach expected utilization.
- Whether revenue growth can offset rising service costs, marketing/customer-acquisition costs, public-company expenses, and substantial equity-based compensation.
- Cash generation and liquidity after the special dividend, given negative working capital, reduced cash, planned expansion spending, and debt service.
- The terms and ongoing covenant compliance of the November 2022 refinancing, including exposure to benchmark interest rates.
- The sustainability of reported Adjusted EBITDA and the tax impact of nondeductible compensation; Adjusted EBITDA excludes equity compensation and debt interest and is not a GAAP measure.