Apyx Medical Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; it does not provide a standalone fourth-quarter income statement.
Business context
Apyx develops and sells helium plasma medical technology, marketed as Renuvion in cosmetic surgery and J-Plasma in hospital surgery, and manufactures products for other medical-device companies through its OEM segment. FY2020 revenue was 80.2% Advanced Energy and 19.8% OEM. COVID-19 reduced demand, while handpiece utilization and business trends improved in the second half; demand for capital equipment remained sluggish.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $27.7 million | $28.2 million | Down 1.9% |
| Gross profit / margin | $17.5 million / 63.2% | $19.1 million / 67.6% | Margin down 4.4 percentage points |
| Operating loss | $20.1 million | $20.9 million | Loss narrowed |
| Net loss attributable to stockholders | $11.9 million | $19.7 million | Loss narrowed |
| Basic and diluted loss per share | $0.35 | $0.58 | Loss per share narrowed |
| Cash used in operating activities | $16.1 million | $18.5 million | Cash use declined |
| Cash and cash equivalents, year-end | $41.9 million | $58.8 million | Down $16.9 million |
Year-end working capital was $56.9 million, versus $64.4 million a year earlier. Current assets were $66.1 million and current liabilities $9.2 million. The filing reports no off-balance-sheet arrangements and no conventional borrowings at year-end; lease liabilities totaled approximately $0.7 million. A related-party note was repaid in 2020.
Domestic sales declined 3.9% to $18.8 million; international sales rose 2.9% to $8.9 million and represented 32.1% of revenue. Advanced Energy revenue decreased 2.0% to $22.2 million; OEM revenue decreased 1.1% to $5.5 million.
Changes, outlook and management commentary
Gross margin fell principally because of product mix and approximately $0.4 million of inventory impairments on older products and components; about $0.1 million was subsequently recovered through sales. Operating expenses declined, including lower travel, advertising and certain legal costs, but R&D rose to $3.9 million from $3.7 million. The net loss improved partly because of a $7.5 million income tax benefit, including a CARES Act-related release of a federal NOL valuation allowance. The company expected approximately $7.5 million in tax refunds during 2021.
Management described the recovery as uneven and timing as uncertain, while expressing cautious optimism about cosmetic and plastic surgery demand. It planned continued investment in clinical evidence, regulatory strategy, customer support and manufacturing efficiency. For 2021, it expected to invest approximately 10%–15% of revenue in R&D. Management also expected losses to continue in the foreseeable future and to maintain a valuation allowance on net deferred tax assets.
Risks, contingencies and unusual items
- COVID-19 could continue to affect elective procedures, customer demand, clinical studies, regulatory timelines, supply, manufacturing and cash flows. The company reported minor freight-related procurement delays but no significant supplier disruption to date.
- Regulatory approvals and permitted product indications are consequential risks. The company also cited evolving EU medical-device requirements and possible sterilization-supply disruption from ethylene-oxide facility closures.
- The company is involved in legal actions relating to its technology and disclosed a dispute with one insurer over available coverage. Management did not expect the matters to be material, but uninsured or above-limit damages could have a material adverse effect. A securities class action was settled, paid and dismissed with prejudice in 2020.
- Accrued liabilities included approximately $1.0 million for joint and several payroll-tax liability tied to past stock-option exercises, and approximately $1.3 million in uncertain tax positions, apart from related accrued interest and penalties.
- Inventory purchase commitments were approximately $1.9 million, substantially expected to be purchased by the end of 2021. Approximately $0.2 million remained to be contributed to the China joint venture.
- The company reported that previously identified material weaknesses in internal control had been remediated and management concluded controls were effective at year-end. The auditor gave an unqualified opinion on the financial statements but did not provide an opinion on internal control effectiveness.
Important facts for investors to verify
- Whether the expected tax refunds were received and whether subsequent cash use is consistent with the company’s liquidity outlook.
- Whether revenue, handpiece utilization and generator adoption recovered as management anticipated, including by geography and segment.
- Progress and outcomes of clinical studies, regulatory clearances and any restrictions affecting product marketing or use.
- Developments in technology-related litigation and the insurer coverage dispute, including potential exposure beyond insurance limits.
- Future inventory obsolescence, the remaining China joint-venture commitment, payroll-tax liability and uncertain tax positions.
- Whether control remediation remains effective and how outstanding options—4.94 million at year-end—affect potential shareholder dilution.