AirSculpt Technologies, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 30, 2021. AirSculpt Technologies, Inc. was incorporated in June 2021 and had no operations through quarter-end; the operating results below are for predecessor EBS Intermediate Parent, LLC and subsidiaries, which became AirSculpt’s wholly owned operating business in the October 2021 reorganization. Financial statements are unaudited.
Financial performance
| Metric | Three months ended Sep. 30, 2021 | Three months ended Sep. 30, 2020 | Nine months ended Sep. 30, 2021 | Nine months ended Sep. 30, 2020 |
|---|---|---|---|---|
| Revenue | $34.7 million | $17.8 million | $95.8 million | $39.9 million |
| Operating income | $9.6 million | $3.4 million | $28.0 million | $3.8 million |
| Net income | $8.1 million | $2.9 million | $24.7 million | $2.0 million |
| Pro forma net income after estimated corporate income taxes | $6.1 million | $2.4 million | $18.8 million | $1.5 million |
| Adjusted EBITDA (non-GAAP) | $12.1 million | $5.3 million | $35.9 million | $9.4 million |
| Adjusted EBITDA margin (non-GAAP) | 35.0% | 29.9% | 37.5% | 23.5% |
Q3 revenue grew 94.3% year over year; nine-month revenue grew 139.9%. Cases increased 60.4% in Q3 and 110.5% for the nine-month period. Revenue per case rose 21.1% and 14.0%, respectively. Cost of service declined to 32.9% of revenue from 37.9% in Q3 and from 39.7% to 32.9% for the nine months. The company attributed improved cost ratios to fixed-cost leverage and clinical-staff efficiencies. Adjusted EBITDA is a company-defined non-GAAP measure and excludes, among other items, interest, certain expansion costs, sponsor fees and unit-based compensation.
Cash, liquidity and debt
- At September 30, 2021, cash was $20.7 million, working capital was $8.5 million and $5.0 million remained available under the revolver.
- For the first nine months, operating cash flow was $32.3 million, capital expenditures were $4.7 million, financing cash outflow was $17.3 million, and cash increased $10.4 million.
- Debt principal was $84.5 million, reported net of financing costs as $83.0 million; $82.1 million was classified as long-term. Debt increased following a $52.0 million incremental term loan in May. The loan is secured by substantially all company assets, has financial covenants, and matures in October 2023, with $83.4 million of scheduled maturities shown for 2023. The company reported covenant compliance at September 30 and after an October amendment.
- Floating-rate exposure: management estimated a 100-basis-point rate change would alter annual interest expense by approximately $0.8 million.
Material changes, outlook and risks
- Growth reflected three new centers, expansion from 13 to 16 centers and from 21 to 27 procedure rooms, stronger same-center volumes, and recovery from COVID-related cancellations in 2020. Same-center Q3 cases rose 29.9%; nine-month same-center cases rose 75.2%.
- Management reported minimal COVID-19 impact through the first nine months of 2021, but noted that future effects and potential temporary center closures remain uncertain. It cited plans to keep investing in marketing and opening centers, and expected absolute selling, general and administrative costs to rise, including public-company costs. Management believed operating cash and revolver availability would meet needs for at least 12 months; no specific financial guidance was provided.
- The May debt amendment generated a $682,000 modification loss. The company distributed $66.6 million to its member in the first nine months, including approximately $59.7 million funded with the incremental borrowing and cash on hand.
- After quarter-end, the October 28 IPO priced at $11 per share. The company sold 2,173,913 shares and selling stockholders sold 5,876,087; the company reported approximately $13.5 million net proceeds after offering costs. The IPO and reorganization made the operating company subject to C-corporation taxation after October 28; historical pro forma tax figures are estimates.
- Risks include medical malpractice and other litigation, potentially insufficient insurance, competition for surgeons, supplier constraints, center-opening execution, regulatory changes affecting medical practice or fee-splitting, and pandemic-related disruption. Management said current legal matters were routine and not expected to have a material adverse effect, while acknowledging outcomes are uncertain.
Important facts for investors to verify
- Reconcile IPO proceeds: the filing reports $17.7 million after underwriting discounts but before approximately $4.2 million of offering expenses, and approximately $13.5 million net after those expenses.
- Review the debt maturity and covenant terms, particularly the large scheduled 2023 maturity, interest-rate exposure and post-IPO covenant amendments.
- Assess how much 2021 growth reflects durable same-center demand versus recovery from COVID-affected 2020 comparisons, new-center additions and increased marketing.
- Track the effect of IPO-related stock-unit awards, public-company costs and the transition to corporate income taxation on future per-share results.