Apyx Medical Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results; monetary amounts below are in U.S. dollars. Apyx develops and sells helium plasma technology products, marketed as Renuvion in cosmetic surgery and J-Plasma in hospital surgery, and supplies products through OEM agreements.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $11.2 million | $4.3 million | $19.9 million | $9.3 million |
| Gross profit / margin | $7.5 million / 67.1% | $2.1 million / 48.7% | $13.4 million / 67.4% | $5.1 million / 54.6% |
| Operating loss | $4.0 million | $6.2 million | $8.8 million | $13.7 million |
| Net loss attributable to stockholders | $4.0 million | $4.7 million | $8.9 million | $6.6 million |
| Loss per share, basic and diluted | $0.12 | $0.14 | $0.26 | $0.19 |
- Q2 revenue rose 161.3%; first-half revenue rose 113.7%. Advanced Energy sales increased 248.0% in Q2 and 157.4% year to date. OEM sales declined 12.8% in Q2 and 8.8% year to date.
- International sales were 34.2% of Q2 revenue and 34.8% of first-half revenue, compared with 21.0% and 24.6%, respectively, in the prior-year periods.
- Operating expenses were $11.6 million in Q2 and $22.2 million for the first half. SG&A and salaries rose year over year, including higher sales commissions, bonuses, travel, and insurance costs.
- Cash used in operations was $7.1 million for the first half, versus $12.4 million in 2020. Capital expenditures were $0.2 million. Cash declined to $34.7 million from $41.9 million at December 31, 2020.
- At June 30, working capital was $50.8 million. Total liabilities were $11.9 million; the filing reports lease liabilities but no conventional borrowings. Current and long-term operating and finance lease liabilities totaled approximately $0.5 million.
Changes and management commentary
- Management attributed revenue recovery to higher handpiece utilization and generator adoption, against a prior-year period severely affected by COVID-19. It noted that capital-equipment demand remained at varying stages of recovery.
- Gross margin improvement reflected higher Advanced Energy sales mix, product mix, manufacturing efficiencies, newer product models, and greater production volumes spreading fixed costs. Higher inbound shipping costs partly offset these benefits.
- Research and development spending increased, including continued investment in two investigational device exemption clinical studies and product development.
- Management expressed optimism about continued recovery in cosmetic and plastic surgery markets and utilization of its products, but provided no quantified financial guidance in the filing.
Liquidity, risks, and notable items
- COVID-19-related uncertainty remains, including possible effects on elective procedures, customer demand, and economic conditions. The company reported longer supplier and freight lead times and higher inbound shipping costs; these had not materially disrupted production by the filing date.
- Purchase commitments totaled approximately $2.3 million, substantially all expected to be purchased within six months. The China joint venture had not commenced principal operations.
- Apyx disclosed legal actions relating to use of its helium plasma technology and a dispute with one insurer over the total coverage available. Management considered its defenses meritorious and did not expect material adverse effects, while warning that uninsured or excess damages could be material.
- Gross unrecognized tax benefits were approximately $1.3 million; accrued interest and penalties related to uncertain tax positions were approximately $0.4 million. The filing says the positions are expected to be resolved by October 2022 and that prevailing on all positions could result in approximately $1.8 million of income tax benefits.
- First-half 2020 results included a $6.4 million income tax benefit, primarily associated with release of a valuation allowance after CARES Act NOL carryback provisions. In 2021, Apyx recorded income tax expense and maintained a valuation allowance on deferred tax assets.
- Management reported effective disclosure controls as of June 30, 2021. The new ERP system was implemented in part during Q1 2021, and related control changes continued to be evaluated.
Important facts for investors to verify
- Whether the strong revenue recovery continues beyond the COVID-affected comparison period, especially in Advanced Energy handpiece utilization and generator adoption.
- Whether higher sales translate into sustained margins and reduced operating cash burn as selling, staffing, and development expenses rise.
- Whether supplier and freight delays, component availability, and shipping costs worsen or affect production and customer delivery.
- Developments in helium plasma-related litigation and the insurer coverage dispute, including any material change in expected exposure.
- Resolution and financial impact of uncertain tax positions, and the timing and cash consequences of purchase commitments.