AirSculpt Technologies, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. AirSculpt provides management services supporting minimally invasive body-contouring procedures. It reported 19 centers and 38 procedure rooms at quarter-end; a Boston center opened in July, and the company reported 20 centers across 16 states as of August 12.
Key financial results
Amounts in millions except per-share data, percentages, and operational metrics.
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $49.7 | $35.0 | $89.2 | $61.1 |
| Operating income | $4.0 | $11.2 | $2.8 | $18.4 |
| Net income (loss) | $0.6 | $10.0 | ($0.1) | $16.6 |
| Operating margin | 8.0% | 32.0% | 3.1% | 30.1% |
| Net margin | 1.2% | 28.7% | (0.1)% | 27.2% |
| Adjusted EBITDA and margin | $15.2; 30.7% | $14.2; 40.6% | $25.0; 28.0% | $23.8; 38.9% |
| Net cash from operations | Not separately stated | Not separately stated | $17.5 | $23.8 |
Q2 cost of service was $17.5 million (35.2% of revenue), versus $11.2 million (32.1%) a year earlier. First-half cost of service was $32.2 million (36.0%), versus $20.0 million (32.7%). GAAP gross margin, calculated as revenue less cost of service, was 64.8% in Q2 and 64.0% in the first half, down from 67.9% and 67.3%, respectively.
Cash and cash equivalents were $35.3 million at June 30, 2022, compared with $25.3 million at December 31, 2021. First-half investing cash use was $6.1 million, primarily for new centers, procedure-room additions, equipment, and technology; financing cash use was $1.4 million. Working capital was $21.4 million, and $5.0 million remained available under the revolving facility.
Debt carrying value, net of financing costs and discounts, was $82.7 million; gross term-loan principal was $83.8 million. The debt is secured by substantially all company assets and subject to financial covenants, which the company said it was meeting. Scheduled maturities include $83.4 million in 2023. Operating lease liabilities totaled approximately $22.1 million.
Changes and management commentary
- Revenue grew 42% in Q2 and 46% in the first half. Case volumes rose 22.5% and 26.3%, respectively; revenue per case increased 16.0% and 15.6%.
- Same-center cases grew 4.7% in Q2 and 7.6% in the first half, while same-center revenue per case rose 15.0% and 15.3%. Management attributed higher revenue per case partly to more treatment areas per visit and marketing/brand awareness.
- Management attributed weaker margins to new-center ramp-up costs, increased clinical staffing, higher marketing and corporate-support costs, public-company expenses, and equity compensation. New centers may take up to two years to mature; management said lower cases per procedure room following capacity additions should be temporary.
- SG&A increased to $26.0 million in Q2 from $10.3 million and to $50.2 million for the first half from $19.0 million. Equity-based compensation was $7.3 million in Q2 and $14.6 million in the first half. First-half advertising expense was $10.0 million, versus $5.1 million.
- Customer acquisition cost increased to approximately $2,000 in Q2 from $1,300 and to $2,150 in the first half from $1,400.
Outlook, risks, and unusual items
- No formal revenue, earnings, or margin guidance is provided. Management expected marketing, public-company, and corporate-support costs to rise in absolute dollars as the company expands. It believed operating cash flow and revolving-credit availability would cover working capital, planned capital expenditure, and debt payments for at least 12 months.
- Management cited possible recession, inflation and geopolitical headwinds, which could reduce revenue and operating cash flow; it also reported minor COVID-related staffing impacts in the first half. Other stated risks include opening centers on time and cost-effectively, supplier shortages or quality issues, competition for surgeons, regulatory changes affecting corporate practice of medicine or fee-splitting, and litigation or medical-malpractice claims. Insurance may not cover all claims.
- The company became subject to corporate income tax after its October 2021 reorganization. Q2 tax expense was $1.8 million on $2.4 million pretax income, an effective rate of 75.7%; management cited nondeductible executive compensation as a key rate driver.
- After quarter-end, the board approved a $0.41-per-share special cash dividend, payable September 14, 2022 to shareholders of record August 26. The August 11 credit-agreement amendment permitted dividends up to $23 million by September 30, plus up to $2 million for certain unvested securities. The dividend is a material cash use following the quarter.
- Other notable items: a $0.2 million loss on disposal of leasehold improvements; $0.7 million of prior-year debt-modification expense; and $14.6 million first-half equity compensation, a substantial noncash add-back in operating cash flow and Adjusted EBITDA. Adjusted EBITDA is non-GAAP and excludes equity compensation and debt-service costs.
- The filing states disclosure controls were effective at a reasonable-assurance level and reports no material change in internal control over financial reporting. The cover-page checkboxes appear to mark “No” for having filed all required reports during the preceding 12 months; verify this against the filed original.
Important facts for investors to verify
- Whether same-center growth, revenue per case, and new-center utilization can support expansion while restoring margins.
- The sustainability and cash impact of the special dividend, including covenant capacity and remaining liquidity after payment.
- The 2023 debt maturity and refinancing or repayment plan, given the stated $83.4 million scheduled maturity.
- How equity compensation, marketing spend, and rising customer-acquisition costs affect GAAP profitability and the quality of Adjusted EBITDA.
- The filing-status checkbox on the original cover page, and the adequacy of insurance and reserves for pending or future clinical claims.