Apyx Medical Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; compared with the corresponding 2021 periods. Apyx develops and sells Helium Plasma Technology products, including Renuvion and J-Plasma, and provides OEM products and services.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $9.1 million | $11.8 million | $31.9 million | $31.7 million |
| Gross profit / margin | $5.8 million / 63.2% | $8.1 million / 68.1% | $20.9 million / 65.5% | $21.5 million / 67.7% |
| Operating loss | $5.8 million | $4.0 million | $17.6 million | $12.8 million |
| Net loss attributable to stockholders | $5.8 million | $4.2 million | $17.1 million | $13.2 million |
| Loss per share, basic and diluted | $0.17 | $0.12 | $0.50 | $0.38 |
Cash and cash equivalents were $14.8 million at September 30, 2022, down from $30.9 million at December 31, 2021. Working capital was $35.1 million, versus $47.5 million at year-end 2021. Nine-month operating cash outflow was $15.8 million, compared with $10.7 million in 2021; investing cash outflow was $0.9 million. The company reported $3.1 million in purchase commitments, substantially all expected within 15 months.
Total liabilities were $13.1 million, including lease liabilities; the filing reports no conventional borrowings. Current liabilities were $11.2 million. Inventory increased to $12.0 million from $6.8 million at year-end 2021. The company also reported a $7.5 million income tax receivable.
Material changes and operating performance
- Q3 revenue fell 23.0% year over year. Advanced Energy revenue declined 31.3% to $7.1 million, while OEM revenue increased 34.0% to $2.0 million.
- For the first nine months, revenue was nearly flat, up 0.6%. Advanced Energy revenue declined 6.1% to $26.3 million; OEM revenue rose 50.7% to $5.6 million.
- Management attributed lower Advanced Energy demand to reduced handpiece utilization and generator adoption following the FDA’s March 2022 Safety Communication. International sales declined 46.0% in Q3 and 13.2% for the nine-month period.
- Gross margin declined in both comparisons, which management attributed primarily to sales and product mix, higher material and inbound shipping costs, and the larger OEM share of revenue.
- Nine-month operating expenses increased to $38.5 million from $34.2 million. SG&A rose 16.5% and professional services rose 21.5%; the latter included higher legal costs. Q3 salaries and related costs fell 8.0%, mainly because the company reversed its bonus accrual after determining it would not meet its 2022 bonus plan.
Outlook, risks and unusual items
- Going concern and funding: Recurring losses, $15.8 million of operating cash use, and $14.8 million of cash led management to state that substantial doubt exists about the company’s ability to continue as a going concern for at least one year from issuance. Management believes expense management and potential financing plans alleviate that doubt, but financing is not assured. Options under evaluation include debt, equity, or leveraging unencumbered real estate; the company is also pursuing collection of its tax receivable.
- FDA and demand: The FDA issued a Safety Communication concerning use outside cleared indications. The FDA subsequently recognized new clearances for the Renuvion Dermal Handpiece and expanded APR Handpiece indications. Management expected these clearances to mitigate effects over time but said reduced demand continued and could adversely affect future periods.
- Legal contingencies: The company accrued $250,000 for a former distributor dispute, with estimated losses of $250,000–$1.0 million, and $475,000 for a securities class action, with estimated losses of $475,000–$2.5 million. It also disclosed other Helium Plasma-related legal actions and an insurance-coverage dispute; uninsured costs could be material.
- Taxes: The IRS is examining the company’s 2018–2020 federal returns, with completion expected no later than May 2023. The company reported $2.0 million in accrued uncertain tax positions and stated that resolution could result in a material tax benefit if it prevails.
- Other items: Nine-month other income included approximately $650,000 from the release of a payroll liability after the statute of limitations expired. Supply-chain instability and inflation had not materially affected results to date, according to management, but future effects remain uncertain. No quantified revenue or earnings guidance is provided in the filing.
Important facts for investors to verify
- Whether demand and utilization recover following the FDA communication and new product clearances, particularly in Advanced Energy and international markets.
- Cash burn, available liquidity, collection timing of the $7.5 million tax receivable, and whether additional financing is obtained on acceptable terms.
- Subsequent changes in legal matters, insurance coverage, and recorded loss estimates.
- Inventory recoverability and the effect of product mix, material costs, and shipping costs on margins.
- Progress and outcome of the IRS examination, as well as the status of purchase commitments and supply-chain conditions.