Apyx Medical Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited consolidated results. Apyx develops and sells Helium Plasma Technology products, marketed as Renuvion and J-Plasma, and provides products and development/manufacturing services through its OEM business.
Financial performance
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Sales | $10.3 million | $11.2 million | $22.8 million | $19.9 million |
| Gross profit | $6.9 million | $7.5 million | $15.1 million | $13.4 million |
| Gross margin | 67.2% | 67.1% | 66.4% | 67.4% |
| Operating loss | $(6.0) million | $(4.0) million | $(11.8) million | $(8.8) million |
| Net loss attributable to stockholders | $(5.4) million | $(4.0) million | $(11.4) million | $(8.9) million |
| Loss per share, basic and diluted | $(0.16) | $(0.12) | $(0.33) | $(0.26) |
Revenue mix: Q2 Advanced Energy sales fell 16.2% to $8.4 million, while OEM sales rose 54.7% to $1.9 million. For H1, Advanced Energy sales increased 8.7% to $19.2 million and OEM sales rose 62.2% to $3.6 million. Domestic sales increased 7.6% in Q2 and 19.7% in H1; international sales declined 38.9% in Q2 and increased 5.5% in H1.
Cash flow and liquidity: Operating cash use was $10.4 million in H1 2022, compared with $7.1 million in H1 2021; capital expenditures were $0.7 million versus $0.2 million. Cash and cash equivalents were $20.1 million at June 30, 2022, down from $30.9 million at year-end 2021. Working capital was approximately $39.2 million, versus $47.5 million at year-end.
Balance sheet: Total assets were $59.5 million and total liabilities were $13.3 million at June 30, 2022. The filing reports no conventional borrowings; disclosed financing obligations are lease liabilities, totaling $0.8 million ($0.6 million operating and $0.2 million finance). Purchase commitments were approximately $5.6 million, substantially all expected to be purchased within 18 months.
Changes and notable items
- Q2 sales declined 8.3%, principally because the FDA’s March 14, 2022 Safety Communication was followed by lower utilization-based demand for Advanced Energy handpieces and slower generator adoption. H1 sales nevertheless grew 14.7%, reflecting stronger first-quarter and OEM sales.
- Operating losses widened in both periods as operating expenses rose. H1 professional services increased 37.1%, salaries and related costs increased 17.3%, and SG&A increased 25.3% year over year. Management cited legal, compensation, advertising, training, travel and bad-debt costs among the drivers.
- Q2 gross margin was slightly higher year over year, while H1 margin decreased by 1.0 percentage point. Management cited segment and product mix and higher shipping/manufacturing costs.
- Other income included approximately $0.6 million from release of a joint and several payroll liability after the statute of limitations lapsed. This benefited reported results and is not described as recurring operating revenue.
Outlook, risks and contingencies
- Regulatory and commercial outlook: FDA cleared the Renuvion Dermal Handpiece in May 2022 for specified dermal resurfacing procedures, limited to Fitzpatrick Skin Types I–III. In July 2022, FDA cleared expanded use of the Renuvion APR Handpiece for certain skin-contraction procedures in the neck and submental region. Management believes the clearances should materially mitigate future financial effects of the Safety Communication. The filing provides no numerical revenue or earnings guidance.
- Supply chain and inflation: Management reported ongoing global supply-chain instability and inflationary pressure, including raw-material, freight and labor costs. These had not materially affected performance to date, but future effects remain uncertain.
- Legal matters: A former international distributor alleges improper contract termination; management recorded $250,000 against an estimated loss range of $250,000–$1.0 million. A securities class action related primarily to statements about off-label use and business effects has an estimated loss range of $475,000–$2.5 million; $475,000 was accrued. The company says it intends to defend the class action and believes relevant claims are insured, but coverage disputes or damages exceeding coverage could have a material adverse effect.
- Taxes: The IRS is examining the company’s 2018–2020 federal returns, with completion expected no later than May 2023. The company reported approximately $1.97 million of uncertain tax positions in accrued current liabilities; resolution could affect results.
- The China joint venture had not commenced principal operations as of the filing. Management also noted that interim results are not necessarily indicative of full-year results.
Key facts for investors to verify
- Whether the new FDA-cleared indications restore Advanced Energy demand and utilization, and how the company communicates permitted use of its products.
- Whether OEM growth continues and offsets weakness in Advanced Energy sales, particularly in international markets.
- Cash burn, cash levels and working-capital trends relative to the company’s operating needs and purchase commitments.
- Updates to the distributor dispute, securities class action, insurance coverage and recorded loss estimates.
- Outcome and timing of the IRS examination, and any changes to uncertain tax positions.
- Effects of supply-chain, shipping, raw-material and labor costs on margins; the filing does not provide quantified future impact estimates.