Bovie Medical Corporation — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. The filing identifies the registrant as Bovie Medical Corporation; the metadata names Apyx Medical Corp. Financial amounts below are in U.S. dollars, in thousands unless noted.
Business context and financial performance
Bovie develops, manufactures and markets electrosurgical and related medical products, and is commercializing its J-Plasma surgical technology. It sells through distributors, OEM arrangements and a direct sales force. The filing describes J-Plasma as an early-stage commercialization effort.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Sales | $7,274 | $6,945 | $13,402 | $13,427 |
| Gross profit / margin | $3,140 / 43.2% | $1,877 / 27.0% | $5,814 / 43.4% | $4,634 / 34.5% |
| Operating loss | $(1,548) | $(1,746) | $(3,821) | $(1,687) |
| Net income (loss) | $(1,497) | $251 | $(2,375) | $(9,356) |
| Net income (loss) attributable to common shareholders | $(1,497) | $29 | $11,359 | $(9,782) |
| Basic EPS | $(0.06) | $0.00 | $0.53 | $(0.55) |
The six-month common-shareholder profit and EPS reflect a $13,956 gain related to conversion of warrants and preferred shares; the company still reported a $2,375 net loss for the period. Diluted six-month EPS was $0.41.
Cash, liquidity and debt
- Cash and cash equivalents were $14,087 at June 30, 2015, up from $5,733 at December 31, 2014. Restricted cash was $839, pledged as collateral for the mortgage.
- Current assets were $24,544 and current liabilities $3,850; reported working capital was approximately $21 million, up about $9.1 million from year-end.
- Operating cash use was $4,121 in the first half, versus $1,313 a year earlier. Capital expenditures were $462, versus $164. Financing provided $12,937, primarily from the stock offering and exercises of warrants/options.
- Mortgage debt totaled $3,292, including current and long-term portions, with $239 current. It bears interest at LIBOR plus 3.5% (3.687% at quarter-end), is secured by the Clearwater facility and receivables, and has a stated initial maturity of March 2017. The company must maintain minimum liquidity of $750; extension terms include debt-service coverage requirements.
Material changes and unusual items
- Q2 sales rose 4.7% year over year; first-half sales were nearly flat. Q2 growth included higher J-Plasma and other electrosurgical sales. First-half J-Plasma sales were $453, compared with $46; OEM sales declined to $1,017 from $1,981, while core sales increased to $11,932 from $11,400.
- First-half gross margin increased to 43.4% from 34.5%. The prior-year Q2 included an approximately $843 inventory-obsolescence charge, which depressed the comparison margin.
- Operating expenses increased: first-half R&D was $951 (up 46%), salaries and related costs $3,821 (up $1,495), and SG&A $4,219 (up $1,419). Management attributed much of the increase to J-Plasma development, sales-force expansion, commercialization, advertising and marketing.
- In March, the company sold 5,218,749 common shares at $2.50 per share, reporting net proceeds of approximately $11.5 million. It also exchanged Series A preferred shares and related warrants for Series B preferred stock. Series B shares remaining at June 30 were convertible into approximately 3.95 million common shares. Common shares outstanding increased to 27,194,251 from 17,995,409 at year-end.
- Derivative liabilities fell from $12,613 at year-end to $532 at June 30, largely reflecting the exchange and conversion transactions; fair-value changes are non-cash and contributed materially to reported period comparisons.
Outlook, risks and contingencies
No numerical revenue or earnings guidance is provided. Management said it would continue substantial investment in J-Plasma and expected these investments could adversely affect near-term profitability and cash flow, particularly over the next 12–24 months. It had invested approximately $8.1 million in J-Plasma through June 30, 2015, including $2.6 million in the first half; management cautioned that success and future returns are not assured.
- International sales were 13.9% of first-half revenue, down from 14.6%. Management cited a stronger U.S. dollar, lower oil prices affecting some government-funded healthcare markets, and political and civil unrest.
- Customer concentration remains significant: the ten largest customers generated 57.1% of first-half sales; McKesson and NDC accounted for 17.7% and 13.2%, respectively. The company also relies on distributors, OEM customers and certain sole-source suppliers.
- Purchase commitments were $3,801 for 2015. Inventory obsolescence, product adoption, supply interruptions, litigation outcomes, derivative valuations and realization of deferred tax assets are identified as areas of risk or estimation uncertainty.
- The company reported ordinary-course legal proceedings but no specific material case; it stated that no identified litigation was expected to have a material adverse impact. No material changes to previously disclosed risk factors were reported. Disclosure controls were deemed effective, with no material quarterly change in internal controls.
Important facts for investors to verify
- Confirm the issuer identity and relationship between the filing’s Bovie Medical Corporation and the metadata’s Apyx Medical Corp.
- Track J-Plasma sales, clinical/commercial adoption, commercialization spending and whether the technology can generate sustainable margins and cash flow.
- Reconcile reported common-shareholder income and EPS to the non-cash $13,956 conversion-related gain and assess dilution from remaining preferred shares, options and warrants.
- Monitor operating cash burn, cash runway, restricted collateral and compliance with mortgage liquidity and any extension covenants.
- Assess the durability of gross-margin improvement given the prior-year inventory charge, and monitor inventory reserves, customer concentration, OEM exposure and sole-source supply dependence.