Bovie Medical Corporation (now associated with Apyx Medical) — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015; comparative periods ended September 30, 2014. Amounts are in millions of dollars unless otherwise noted. The filing’s registrant name is Bovie Medical Corporation.
Business context and financial results
Bovie developed, manufactured and marketed electrosurgical and related medical products, including its early-commercialization-stage J-Plasma surgical technology. It sold through distributors, OEM arrangements and its own sales organization.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Sales | $7.823 | $6.788 | $21.226 | $20.214 |
| Gross profit / margin | $3.229 / 41.3% | $1.919 / 28.3% | $9.043 / 42.6% | $6.552 / 32.4% |
| Operating loss | $(1.813) | $(2.367) | $(5.635) | $(4.056) |
| Net income (loss) | $(1.587) | $(2.734) | $(3.963) | $(12.092) |
| Net income (loss) per share, diluted | $(0.06) | $(0.17) | $0.31 | $(0.72) |
The nine-month common-shareholder income of approximately $9.8 million reflects a $13.956 million gain on conversion of warrants and preferred shares; it does not represent operating profitability. The filing presents net loss of $3.963 million for the period.
Liquidity, cash flow and debt
- At September 30, cash and cash equivalents were $13.202 million, restricted cash was $0.839 million, current assets were $23.693 million and current liabilities were $4.662 million. Management reported working capital of approximately $19.0 million.
- For the first nine months, operating cash flow was $(4.765) million, compared with $(0.615) million in 2014; capital expenditures were $0.604 million. Financing provided $12.838 million, primarily from the public stock offering and warrant exercises. Cash increased $7.469 million to $13.202 million.
- Mortgage debt totaled approximately $3.233 million, including $0.239 million current and $2.994 million long-term. The loan bears interest at LIBOR plus 3.5% (3.699% at quarter-end), is secured by the Clearwater facility and receivables, and has a $0.839 million certificate of deposit pledged as collateral. Its initial maturity is March 2017, with an extension option subject to covenants.
Material changes and management commentary
- Q3 sales grew 15.3%; nine-month sales grew about 5.0%. Q3 J-Plasma sales were $0.505 million versus $0.091 million a year earlier; nine-month sales were $0.958 million versus $0.137 million. Core-category nine-month sales increased, while OEM sales declined.
- Gross margin improved substantially. Management attributed the comparison in part to an approximately $0.843 million excess and obsolete inventory charge in Q3 2014.
- Operating expenses rose: nine-month R&D was $1.534 million (up about 51%), salaries and related costs were $5.749 million (up about 44%), professional services were $1.070 million, and SG&A was $6.325 million (up about 29%). Management cited product development, J-Plasma sales-force expansion and commercialization, acquisition-related work, and sales and marketing spending.
- The company raised approximately $11.5 million net in a March 2015 common-stock offering. It also exchanged Series A preferred shares and warrants for Series B preferred stock; conversions and revaluation of derivative instruments materially affected reported earnings and equity.
- Management said continued J-Plasma development and marketing investment could adversely affect near-term profitability and cash flow, particularly over the next 12–24 months. It had invested approximately $9.6 million in J-Plasma through September 2015 and cautioned that commercial success and future returns were not assured. No specific revenue or earnings guidance was provided.
Risks, contingencies and subsequent event
- International sales were 13.3% of nine-month revenue, down from 14.3% in 2014; management cited currency strength, lower oil prices affecting some government-funded healthcare markets, and political instability.
- The ten largest customers represented 57.8% of nine-month revenue. The company also relied on major distributors, OEM customers and certain sole-source suppliers.
- Purchase commitments were approximately $3.554 million for the remainder of 2015. The mortgage includes a minimum-liquidity covenant of $0.750 million; management reported no debt default. The company disclosed ordinary-course litigation but did not identify a matter expected to have a material adverse effect. It reported no off-balance-sheet arrangements and no material change to previously disclosed risk factors.
- After quarter-end, on October 20, 2015, the company acquired all equity interests in Bovie Bulgaria for $0.566 million, with $0.425 million payable after registration and $0.142 million due five years later. A five-year management agreement, salary, potential bonus, restricted stock grant and specified severance terms accompanied the transaction.
- Management concluded disclosure controls were effective as of September 30, 2015; no material change in internal control over financial reporting was reported during the quarter.
Key facts for investors to verify
- Whether J-Plasma adoption and sales growth can sustain themselves, and how commercialization spending affects cash burn and margins.
- The drivers and durability of gross-margin improvement, including the effect of the prior-year inventory charge and current inventory reserves.
- Cash runway, working-capital needs, and compliance with mortgage covenants as operating cash use continues.
- The accounting and potential dilution associated with Series B preferred stock, warrants and related fair-value changes.
- Integration costs and financial impact of the Bovie Bulgaria acquisition, plus continuing customer, distributor and supplier concentration.