Apyx Medical Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Apyx develops and sells Helium Plasma Technology products, marketed as Renuvion in cosmetic surgery and J-Plasma in hospital surgery, and also generates revenue through OEM arrangements.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $8.64 million | $5.00 million |
| Gross profit / gross margin | $5.86 million / 67.8% | $2.98 million / 59.7% |
| Operating loss | $4.75 million | $7.49 million |
| Net loss | $4.91 million | $1.95 million |
| Loss per share, basic and diluted | $0.14 | $0.06 |
| Net cash used in operating activities | $2.05 million | $7.41 million |
- Revenue rose 72.9%. Advanced Energy sales increased 92.2% to $7.66 million; OEM sales decreased 3.3% to $0.98 million. Domestic sales grew 53.8% and international sales 122.8%.
- Gross margin improved 8.1 percentage points. Management attributed the increase mainly to a larger Advanced Energy sales mix, product mix, manufacturing efficiencies, and newer product models.
- Operating expenses totaled $10.61 million, versus $10.48 million. R&D increased 13.8% to $1.12 million; professional services decreased 36.3% to $1.52 million; salaries and related costs increased 28.2% to $4.25 million; SG&A decreased 1.9% to $3.72 million.
- Net loss widened despite the smaller operating loss, principally because Q1 2020 included a $4.91 million income tax benefit. Q1 2021 recorded $66,000 of tax expense.
- Cash and cash equivalents were $39.54 million at quarter-end, down from $41.92 million at December 31, 2020. Working capital was approximately $53.3 million, compared with $56.9 million at year-end. Investing activities used $0.19 million; financing activities used $0.06 million.
- The filing reports no off-balance-sheet arrangements and no conventional borrowing balance. Reported liabilities include operating and finance lease obligations; the filing does not provide a separate debt measure.
Material changes, outlook, and risks
- Management reported stronger handpiece utilization among existing U.S. customers and shipments to new international customers, alongside increased first-quarter demand for handpieces and generators. Generator demand in some regions remained affected by COVID-19, and demand trends were uneven.
- Management was cautiously optimistic about continued recovery in cosmetic and plastic surgery, but gave no specific financial guidance. It said pandemic duration, variants, customer activity, and consumer confidence made future effects difficult to predict.
- COVID-19-related procurement delays had been minor and had not significantly affected operations as of the filing. The company had previously reduced discretionary spending, hiring, capital expenditures, and some R&D and clinical activity, and had begun easing certain measures.
- Q1 2020 results included a CARES Act-related tax benefit from releasing a valuation allowance on prior-year net operating losses and refunds of tariffs paid in 2019. These items make year-over-year net income comparisons less representative of operating performance.
- Legal actions relate to use of Helium Plasma technology. Management said it believes claims are adequately insured and has meritorious defenses, but disclosed a dispute with one insurer over available coverage; uncovered damages could materially affect results. The company also accrued OEM product recall costs in Q1.
- Purchase commitments totaled approximately $3.3 million, substantially all expected to be purchased within six months. Uncertain tax positions included $1.313 million of gross unrecognized tax benefits; the company expected resolution by October 2022.
- Management concluded disclosure controls were effective at March 31, 2021. A new ERP system replaced much of the prior core financial systems in Q1, and the company said it would continue evaluating related control changes during 2021.
Important facts for investors to verify
- Whether Advanced Energy revenue growth and improved gross margins persist as product and geographic mix change.
- How elective-procedure demand, generator adoption, and international distributor activity develop as pandemic conditions evolve.
- The company’s cash-burn trajectory and ability to fund operations, purchase commitments, clinical studies, and product development.
- Potential financial exposure from Helium Plasma-related litigation, the insurance coverage dispute, and OEM product recall costs.
- Resolution and financial impact of uncertain tax positions, and the effectiveness of controls following the ERP implementation.