AirSculpt Technologies, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. AirSculpt provides practice-management services supporting minimally invasive body-contouring procedures. It reported one operating segment. Comparisons are with the three months ended March 31, 2021; the prior period preceded the October 2021 IPO and corporate reorganization, so some comparisons, including per-share results and taxes, are not directly comparable.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $39.5 million | $26.1 million |
| Cases performed | 3,156 | 2,408 |
| Revenue per case | $12,530 | $10,856 |
| Operating income (loss) | $(1.2) million | $7.2 million |
| Net income (loss) | $(0.7) million | $6.6 million |
| Operating cash flow | $7.1 million | $9.2 million |
Revenue grew 51.3%; cases increased 31.1% and revenue per case increased 15.4%. Same-center cases rose 12.2%, and same-center revenue per case increased 14.6%. Gross profit was approximately $24.9 million, or 62.9% of revenue, versus $17.4 million, or 66.4%, in Q1 2021. The net loss was $0.01 per share, basic and diluted; 2021 EPS was not presented.
Adjusted EBITDA, a non-GAAP measure, was $9.8 million versus $9.6 million; adjusted EBITDA margin declined to 24.8% from 36.6%. The company reported $27.2 million in cash, $32.4 million in current assets and $15.9 million in current liabilities at March 31. Working capital was $16.5 million. Investing cash outflow was $4.3 million, primarily for center openings and expansion; financing cash outflow was $0.9 million.
Debt principal was $84.1 million, reported net of discounts and issuance costs at $82.6 million; $81.8 million was classified as long-term debt. The $5.0 million revolving facility was available. Debt is floating-rate and secured by substantially all assets; a 100-basis-point rate change would change annual interest expense by approximately $0.8 million. The company reported covenant compliance. Scheduled maturities show $0.6 million for the remainder of 2022 and $83.4 million in 2023.
Material changes and management commentary
- The company had 19 centers and 36 procedure rooms at March 31, 2022, compared with 14 centers and 23 rooms a year earlier; five new centers contributed to growth. A Las Vegas center opened in March.
- Cost of service rose 66.9% and increased to 37.1% of revenue from 33.6%. Management attributed the higher ratio to new centers, which may take up to two years to mature, and added clinical staff.
- SG&A increased 179.1% to $24.2 million. Drivers included $7.3 million of equity-based compensation, approximately $2.3 million in public-company costs, and increased marketing and corporate support. Advertising expense was $4.8 million versus $2.5 million; customer acquisition cost was approximately $2,200 versus $1,500.
- Interest expense increased to $1.5 million from $0.6 million, reflecting the additional $52 million term loan borrowed in May 2021. The company also recorded a $2.0 million income tax benefit and reported a 74% effective tax rate; it became subject to corporate income taxes after the 2021 reorganization.
Outlook, risks and unusual items
Management said cash from operations and the available revolver should be sufficient for working capital, planned capital expenditures and obligations for at least the next 12 months. No specific revenue or earnings guidance was provided. Management expects absolute SG&A costs to increase as it opens centers, expands support functions and continues marketing investment. COVID-19 had only minor reported effects in the quarter, mainly staffing challenges.
Key disclosed risks include opening centers on time and cost-effectively, supplier or staffing constraints, competition for surgeons, medical-malpractice claims and insurance adequacy, regulation of corporate practice of medicine and fee-splitting, and economic or other disruptions. The company reported ordinary-course legal matters and said outcomes were not expected to have a material adverse effect, while noting adverse outcomes or insufficient insurance could be material. It reported no material changes to the risk factors in its 2021 Form 10-K and no off-balance-sheet arrangements.
Notable items include $7.3 million of equity-based compensation, $0.7 million of IPO-related costs, and $0.8 million of pre-opening and relocation costs in the Adjusted EBITDA reconciliation. The 2021 comparison includes no corporate income-tax provision because the predecessor was a pass-through entity. Management stated disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether case growth, revenue per case and same-center trends continue, and how much growth depends on new-center openings and pricing or procedure mix.
- Whether newer centers mature as expected and whether higher cost-of-service and customer-acquisition costs moderate.
- The composition and recurrence of SG&A, equity compensation and public-company costs; assess Adjusted EBITDA alongside GAAP losses and cash requirements.
- Debt maturity, floating-rate exposure, covenant headroom and the company’s ability to fund planned expansion while servicing debt.
- The assumptions behind management’s 12-month liquidity assessment and the adequacy of professional-liability insurance for pending or future claims.