Apyx Medical Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Apyx develops and sells Helium Plasma Technology products, including Renuvion and J-Plasma, and provides products and services through OEM arrangements.
Financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $12.1 million | $12.5 million |
| Gross profit / margin | $7.6 million / 62.4% | $8.2 million / 65.8% |
| Operating loss | $5.6 million | $5.9 million |
| Net loss | $3.5 million | $6.0 million |
| Net loss per share, diluted | $0.10 | $0.17 |
| Cash used in operations | $1.9 million | $4.5 million |
- Revenue declined 2.8%. Advanced Energy sales fell 10.4% to $9.7 million; OEM sales rose 46.0% to $2.5 million.
- Domestic revenue increased 17.5% to $8.9 million, while international revenue fell 33.9% to $3.3 million. International sales were 26.9% of revenue, versus 39.6% a year earlier.
- Gross margin declined 3.4 percentage points, primarily due to segment and product mix. Operating expenses decreased to $13.2 million from $14.1 million.
- The $2.3 million income tax benefit (versus $0.1 million tax expense) reflected reversal of approximately $2.1 million of uncertain-tax-position liabilities after the IRS completed its examination of 2018–2020 returns. This benefit helped reduce the reported net loss.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $16.3 million at March 31, up from $10.2 million at year-end. Working capital was $34.2 million, versus $31.1 million.
- The company drew a $10 million initial term-loan tranche under a facility of up to $35 million; the balance-sheet carrying value, net of discounts and issuance costs, was $8.8 million. The loan bears interest at 12.1% at quarter-end and has a February 2028 maturity. The company reported no revolver borrowings and approximately $5.7 million available.
- The facility is secured by substantially all company assets, requires at least $10 million of cash, and includes revenue covenants. Apyx reported compliance at March 31. The term loan is presented as current because of a subjective acceleration clause and recurring losses.
- Operating cash outflow and recurring losses led management to disclose substantial doubt about the company’s ability to continue as a going concern for at least one year from issuance. Management said cost reductions, further expense management, financing actions and other plans alleviate that doubt. The company had reduced U.S. headcount by 14% in January.
- After quarter-end, Apyx completed the Clearwater facility sale-leaseback on May 8 for $7.65 million and received approximately $6.6 million net proceeds. The 10-year triple-net lease starts at annual rent of $619,500, with 4% annual increases during the initial term.
Outlook, developments and risks
- No formal revenue or earnings guidance is provided. The credit agreement sets Advanced Energy trailing-12-month net-revenue targets, including a $49 million 2023 year-end target, as well as targets for 2024 and 2025. Access to additional term-loan tranches is conditional, including on revenue performance.
- Management attributed weaker Advanced Energy sales to reduced international generator adoption and lower global handpiece utilization following the FDA’s March 2022 safety communication. Domestic sales benefited partly from upgrades to the Apyx One Console, launched in January 2023.
- The company received FDA clearances for certain Renuvion uses in 2022 and, on February 27, 2023, for delivery of radiofrequency energy and/or helium plasma where soft-tissue coagulation or contraction is needed. Subsequent to quarter-end, additional clearance and an FDA safety-communication update were announced in April and May 2023. Management believes the updates may mitigate effects of the earlier warning, but gives no assurance.
- Management expects near-term losses to continue. It cited ongoing uncertainty from supply-chain conditions and inflation, although these had not materially affected financial performance to date.
- Legal matters include product-liability cases, a securities class action and an international distributor dispute. The company has recorded reserves for certain matters; outcomes and insurance coverage remain uncertain. Purchase commitments were approximately $4.0 million, substantially expected within 12 months.
Key facts for investors to verify
- Whether Advanced Energy demand recovers following FDA clearances and whether the revenue decline continues, particularly internationally.
- Cash burn, the $10 million minimum-cash requirement, covenant compliance, and the availability and conditions of additional debt tranches or revolver funds.
- Whether the sale-leaseback proceeds and expense reductions provide adequate liquidity, given recurring losses and the going-concern disclosure.
- Progress against the lender’s Advanced Energy revenue targets and the impact of high borrowing costs and lease obligations.
- Developments in litigation, insurance coverage and potential changes to recorded legal-loss estimates.