Apyx Medical Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Apyx develops and sells Helium Plasma Technology products marketed as Renuvion and J-Plasma, and provides products and services through OEM agreements.
Financial performance
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Sales | $12.5 million | $8.6 million; up 44.6% |
| Gross profit / margin | $8.2 million / 65.8% | $5.9 million / 67.8% |
| Operating loss | $5.9 million | $4.7 million |
| Net loss attributable to stockholders | $5.9 million; $0.17 per share | $4.9 million; $0.14 per share |
| Cash used in operating activities | $4.5 million | $2.1 million |
- Advanced Energy sales increased 41.2% to $10.8 million; OEM sales increased 71.7% to $1.7 million. Domestic sales rose 35.6% and international sales 61.0%; international revenue was 39.6% of total sales versus 35.6%.
- Gross margin declined 2.0 percentage points, which management attributed mainly to segment, product and geographic mix and higher manufacturing and shipping costs.
- Operating expenses rose to $14.1 million from $10.6 million. Increases included professional services, salaries and SG&A; Q1 2022 professional services included a $250,000 accrual for a distributor dispute.
- Cash and cash equivalents were $26.2 million at March 31, down from $30.9 million at year-end 2021. Working capital was $43.2 million, compared with $47.5 million at year-end.
- Total liabilities were $13.2 million, including finance and operating lease obligations; the filing reports no material conventional borrowings. Purchase commitments totaled approximately $7.5 million, substantially all expected within 12 months.
Material developments, outlook and risks
- On March 14, 2022, the FDA issued a Safety Communication warning against use of Apyx’s Advanced Energy products outside their FDA-cleared indications. The company reported slowed adoption, primarily in the U.S., and expected continuing effects on operations and cash flows into Q2 and possibly beyond.
- Apyx continued seeking additional 510(k) clearances. On April 4, 2022, it filed a premarket notification for Renuvion use to improve the appearance of loose skin in the neck and submental region. No quantified financial guidance was provided.
- Management cited supply-chain instability and inflationary costs as ongoing uncertainties, though these had not materially affected financial performance to date. The company noted potential future pressure from raw-material, freight and labor costs.
- The company disclosed legal actions relating to its Helium Plasma technology and a dispute with an insurance carrier over coverage. Management said claims were believed adequately insured and not expected to have a material adverse effect, but uncovered damages or denied coverage could be material.
- A former international distributor alleged improper contract termination. Management deemed a loss probable, estimated a range of $250,000 to $1.0 million, and accrued $250,000; the amount could change in the near term.
- Gross unrecognized tax benefits were approximately $1.3 million, with accrued interest and penalties of approximately $603,000. The company said uncertain tax positions were expected to be resolved by October 2022; resolving all in its favor could produce approximately $1.9 million of tax benefits.
Important facts for investors to verify
- Whether the FDA communication continues to slow U.S. adoption, and the timing and outcome of additional regulatory clearances.
- Revenue trends, gross margin recovery, and operating cash use in subsequent quarters.
- Outcomes and insurance coverage for the Helium Plasma-related legal actions and the distributor dispute.
- Resolution of uncertain tax positions and execution of the $7.5 million purchase commitments amid supply-chain and cost pressures.