Apyx Medical Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are with the same 2022 periods. Apyx develops and sells Helium Plasma Technology products (Renuvion and J-Plasma) and provides OEM products and services. Figures below are in U.S. dollars; financial statement amounts are unaudited.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Sales | $12.0 million | $9.1 million | $37.7 million | $31.9 million |
| Gross profit / margin | $8.0 million / 66.6% | $5.8 million / 63.2% | $24.8 million / 65.9% | $20.9 million / 65.5% |
| Operating loss | $4.6 million | $5.8 million | $11.5 million | $17.6 million |
| Net loss attributable to stockholders | $4.6 million | $5.8 million | $9.1 million | $17.1 million |
| Basic and diluted loss per share | $0.13 | $0.17 | $0.26 | $0.50 |
- Revenue: Q3 sales rose 31.4%; Advanced Energy sales increased 38.9% to $9.8 million and OEM sales rose 5.2% to $2.1 million. Nine-month sales grew 18.1%, with Advanced Energy up 19.0% and OEM up 14.1%.
- Margins and expenses: Q3 gross margin improved 3.4 percentage points, mainly from segment and product mix. Nine-month margin increased 0.4 points. Nine-month operating expenses were $39.0 million versus $38.5 million; lower professional services were offset by higher salaries and SG&A.
- Cash flow: Cash from operating activities was a reported use of $3.0 million for the nine months, including the benefit of the tax refund collected. Management reported operating cash use of approximately $11.1 million excluding that refund. Investing activities provided $6.8 million, principally from the property sale; financing activities provided $8.3 million.
- Liquidity: September 30 cash and equivalents were $22.1 million, versus $10.2 million at year-end 2022; working capital was $39.9 million versus $31.1 million. The MidCap agreement required maintaining $10.0 million in cash. The filing identified substantial doubt about the ability to continue as a going concern based on conditions at September 30; following the subsequent refinancing, management said its actions alleviated that doubt for at least one year from issuance.
- Debt: At September 30, the balance sheet reported a $9.0 million net term loan. On November 8, 2023, Apyx replaced MidCap with Perceptive financing: a funded $37.5 million initial term loan and a possible $7.5 million delayed draw. Proceeds repaid MidCap and covered transaction costs; remaining proceeds were for working capital and general corporate purposes. The Perceptive loan bears floating interest at one-month SOFR, subject to a 5% floor, plus 7%, and is secured by substantially all assets.
Material changes, outlook and risks
- Management attributed sales growth primarily to domestic customers upgrading to the Apyx One Console, launched in January 2023, and its higher average selling price; international generator and handpiece sales also increased. OEM growth reflected increased sales to existing customers and new supply activity.
- FDA safety communications in 2022 had slowed adoption. Apyx received additional Renuvion clearances in 2022 and 2023; management believes the May 2023 FDA update addresses the original communication and may help mitigate its financial effects. The filing provides no quantified revenue guidance or forecast.
- On May 8, Apyx sold its Clearwater facility for a $7.65 million purchase price, received approximately $6.6 million net cash proceeds, and entered a 10-year leaseback. The transaction generated a $2.7 million accounting gain; rent starts at $619,500 annually and escalates 4% each year during the initial term.
- Other notable items include an $8.1 million IRS refund received in August, including interest, and a $2.1 million reversal of uncertain-tax-position liabilities that contributed to the nine-month tax benefit. The company expects approximately $2.5 million of loss on extinguishment of MidCap debt following the refinancing.
- Risks include recurring losses and operating cash outflows, elevated borrowing costs and restrictive financial covenants, and product-liability litigation. Apyx disclosed probable estimated losses of $1.45 million to $2.4 million for two related product-liability matters; it also noted a dispute with one insurer over available coverage. Purchase commitments totaled approximately $3.5 million, substantially expected within 12 months. Supply-chain instability and inflation could affect future results, though management said their impact had not been material to date.
- The company was not in compliance with MidCap’s minimum trailing-twelve-month revenue covenant at September 30; the filing says repayment of MidCap with Perceptive proceeds removed implications of that noncompliance. Management also reported that disclosure controls were effective, while new debt-accounting and covenant controls were still being tested.
Important facts for investors to verify
- Whether revenue growth and improved gross margins continue, particularly in Advanced Energy, and how much growth reflects console upgrades and product mix.
- Perceptive’s effective interest cost, covenant compliance, cash requirements, delayed-draw conditions, prepayment fees, and the potential dilution from warrants to purchase up to 1.25 million shares.
- Cash use excluding the one-time tax refund, and whether the refinancing and operating cost measures provide sufficient liquidity as losses continue.
- Developments in product-liability claims and the insurer coverage dispute, including whether actual losses exceed recorded accruals.
- The effect of FDA-cleared indications and communications on adoption, and any continuing regulatory, supply-chain, or inflation-related risks.