Apyx Medical(APYX) - 2024 Q2 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) Unaudited financial statements for Q2 and H1 2024 reflect decreased revenue, gross profit, and assets, alongside significant net losses and negative operating cash flow Condensed Consolidated Balance Sheets Total assets decreased to $65.4 million by June 30, 2024, driven by reduced cash, while total equity significantly fell to $14.9 million due to accumulated deficit Key Balance Sheet Items (in thousands) | Metric | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $32,678 | $43,652 | | Total current assets | $56,671 | $70,362 | | Total assets | $65,394 | $79,240 | | Total current liabilities | $10,639 | $12,740 | | Long-term debt, net | $33,628 | $33,185 | | Total liabilities | $50,470 | $52,318 | | Total equity | $14,924 | $26,922 | Condensed Consolidated Statements of Operations Q2 2024 sales decreased 10.5% to $12.1 million, resulting in a 19.2% gross profit drop and a significantly higher net loss of $6.6 million Q2 2024 vs Q2 2023 Performance (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :--- | :--- | :--- | | Sales | $12,149 | $13,569 | | Gross Profit | $7,493 | $9,279 | | Loss from operations | ($5,547) | ($1,235) | | Net loss attributable to stockholders | ($6,556) | ($994) | | Loss per share (Basic and diluted) | ($0.19) | ($0.03) | Six Months 2024 vs 2023 Performance (in thousands, except per share data) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Sales | $22,393 | $25,711 | | Gross Profit | $13,442 | $16,852 | | Loss from operations | ($12,162) | ($6,846) | | Net loss attributable to stockholders | ($14,132) | ($4,477) | | Loss per share (Basic and diluted) | ($0.41) | ($0.13) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities for H1 2024 increased to $10.7 million, leading to an $11.0 million decrease in cash and cash equivalents Six-Month Cash Flow Summary (in thousands) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($10,670) | ($6,733) | | Net cash (used in) provided by investing activities | ($324) | $7,001 | | Net cash (used in) provided by financing activities | ($10) | $8,158 | | Net change in cash and cash equivalents | ($10,974) | $8,287 | | Cash and cash equivalents, end of period | $32,678 | $18,479 | Notes to Condensed Consolidated Financial Statements The notes detail business operations, accounting policies, debt covenants, and significant litigation contingencies, including segment sales data - The company's business focuses on its Helium Plasma Platform Technology, sold as Renuvion® in the cosmetic surgery market and J-Plasma® in the hospital surgical market, alongside OEM agreements[16] - The company is in compliance with financial covenants on its Perceptive Credit Agreement, which include minimum trailing twelve-month net revenue targets for its Advanced Energy segment and a minimum cash balance of $3 million[28] - The company is involved in several product liability lawsuits, accruing an estimated loss of $1.45 million for one set of cases and $1.3 million for another set filed in March 2024, both representing estimated defense costs[44][46] Segment Sales (in thousands) | Segment | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Advanced Energy | $9,766 | $11,722 | (16.7)% | | OEM | $2,383 | $1,847 | 29.0% | | Total | $12,149 | $13,569 | (10.5)% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 10.5% Q2 revenue decrease to lower Advanced Energy sales, partially offset by 29.0% OEM growth, leading to gross margin decline and higher operating losses Results of Operations Q2 2024 total revenue decreased 10.5% to $12.1 million, primarily due to a 16.7% fall in Advanced Energy sales, while OEM sales grew 29.0%, resulting in gross margin contraction Sales by Reportable Segment - Q2 (in thousands) | Segment | June 30, 2024 | June 30, 2023 | Change | | :--- | :--- | :--- | :--- | | Advanced Energy | $9,766 | $11,722 | (16.7)% | | OEM | $2,383 | $1,847 | 29.0% | | Total | $12,149 | $13,569 | (10.5)% | - The decrease in Advanced Energy sales was driven by lower generator sales in domestic and some international markets due to economic uncertainty in the aesthetic capital equipment space, partially offset by increased handpiece volume[70] - Gross margin for Q2 2024 decreased to 61.7% from 68.4% in Q2 2023, attributed to changes in sales mix, with the OEM segment and international sales (both typically lower margin) comprising a higher percentage of total sales[74] - Management believes the increased use of GLP-1 weight-loss drugs may have an initial negative impact on liposuction procedures but will provide a long-term tailwind for Renuvion sales as patients seek solutions for skin laxity resulting from rapid weight loss[64] Liquidity and Capital Resources Liquidity weakened with cash and cash equivalents at $32.7 million and working capital at $46.0 million, reflecting $10.7 million net cash used in operations, offset by available credit and ATM facilities Liquidity Snapshot (in millions) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $32.7 | $43.7 | | Working capital | $46.0 | $57.6 | - The increase in cash used in operations for the first six months of 2024 was primarily due to payment of accrued bonuses and a higher operating loss driven by lower Advanced Energy sales[90] - The company has a credit agreement with Perceptive for up to $45 million, with an initial loan of $37.5 million drawn, and a shelf registration statement is in place, including an unused ATM facility for up to $40 million[94][95] Critical Accounting Estimates Critical accounting estimates include stock-based compensation, accounts receivable and inventory allowances, litigation contingencies, and income taxes, notably the valuation allowance against deferred tax assets - Key critical accounting estimates include: Stock-Based Compensation, Accounts Receivable Allowance, Inventory Obsolescence Allowance, Litigation Contingencies, and Income Taxes[99] - For litigation, the company accrues a liability when a loss is probable and can be reasonably estimated, recording the minimum of the range if no single amount is a better estimate[105] - A full valuation allowance is maintained on net deferred tax assets due to historical losses and the expectation of continued losses in the near term[107] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable for the company - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable[113] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[115] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[116] Part II. Other Information Item 1. Legal Proceedings Information on legal proceedings, including ongoing product liability lawsuits and accrued defense costs, is detailed in Note 10 of the financial statements - Information regarding legal proceedings is detailed in Note 10 of the Notes to Condensed Consolidated Financial Statements[118] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - No material changes have been made to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2023[120] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[122] Item 6. Exhibits The report lists exhibits filed, including Sarbanes-Oxley certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files - Exhibits filed with the report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL instance and taxonomy documents[124]