AirSculpt Technologies, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 13, 2023. AirSculpt provides management services to professional associations delivering minimally invasive body-contouring procedures. It reported 27 centers across 18 states, Canada, and the U.K. as of November 13, versus 20 centers a year earlier.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $46.8 million | $38.9 million | $148.3 million | $128.1 million |
| Operating income (loss) | $1.0 million | ($1.4 million) | $8.1 million | $1.4 million |
| Net income (loss) | ($1.7 million) | ($7.4 million) | $95,000 | ($7.5 million) |
| Adjusted EBITDA | $9.1 million | $8.1 million | $33.1 million | $31.0 million |
| Adjusted EBITDA margin | 19.4% | 20.8% | 22.3% | 24.2% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $19.1 million | $17.8 million |
| Capital expenditures | Not provided for quarter | Not provided for quarter | $8.1 million | $10.7 million |
- Q3 revenue grew 20.3%; nine-month revenue grew 15.8%. Case volumes rose 19.0% and 15.7%, respectively, while revenue per case increased 1.1% for Q3 and was nearly flat for the nine-month period.
- Same-center results were weaker: Q3 cases grew 4.0% and revenue per case 1.3%; nine-month same-center cases declined 0.3%, while revenue per case rose 0.4%.
- Cost of service was 38.8% of revenue in Q3, compared with 38.3%; for nine months it was 37.9%, compared with 36.7%. SG&A as a share of revenue improved to 53.5% from 60.2% in Q3 and to 51.8% from 57.4% for nine months.
- Q3 GAAP net loss narrowed year over year, but the company remained loss-making for the quarter. Nine-month results moved to slight net income from a substantial loss. The Q3 income tax expense was $786,000 despite a pretax loss; the filing cites nondeductible executive compensation as a key reason for the unusual effective tax rate.
Balance sheet, cash flow, and debt
- At September 30, cash and cash equivalents were $8.7 million, compared with $9.6 million at year-end 2022. Working capital was negative $3.4 million, improved from negative $5.6 million.
- Total debt carrying value was $72.7 million, versus $83.5 million at December 31, 2022. The company voluntarily prepaid $10.0 million of principal in September; the term loan’s stated interest rate was 7.83%. The $5.0 million revolving facility was undrawn, and the company reported compliance with its debt covenants.
- Nine-month financing cash outflow was $12.0 million, including $11.6 million of term-loan payments. Cash declined by $1.0 million over the period. Management said operating cash generation and available revolver capacity should cover working capital, planned center investment, and obligations for at least the next 12 months.
Outlook, risks, and notable items
- The company opened five centers during 2023 through September, in addition to two opened in the prior period referenced in its year-over-year comparison. Management expects marketing and corporate support costs to increase as it expands centers and invests in customer acquisition. New centers may have higher service costs as a percentage of revenue while maturing, which can take up to two years.
- No specific revenue, earnings, or margin guidance was provided in the filing. Management’s liquidity statement is its stated outlook for funding needs.
- Key risks include opening and operating new centers cost-effectively, inflation and higher interest rates, supplier availability or quality, competition for surgeons, medical malpractice and other litigation, and regulatory changes affecting the corporate practice of medicine or fee-splitting. Professional-liability claims could exceed insurance coverage.
- Equity-based compensation remained substantial at $13.5 million for the first nine months, though below $22.0 million a year earlier. Adjusted EBITDA and adjusted net income exclude equity compensation and other items and should be considered alongside GAAP results.
- Management stated disclosure controls were effective at a reasonable-assurance level and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether new-center growth translates into stronger same-center case volumes; nine-month same-center cases declined 0.3%.
- Whether cost of service and adjusted EBITDA margins stabilize as recently opened centers mature.
- Cash generation relative to planned expansion spending, negative working capital, and scheduled debt service under a floating-rate loan.
- The sustainability of near-break-even nine-month GAAP income given quarterly losses, tax expense, and significant stock-based compensation.
- Potential financial exposure from medical-liability claims and adequacy of insurance coverage.