Apyx Medical(US:APYX)2020-05-11 12:43Financial Performance - Total revenue decreased by 11.2% or approximately $0.6 million for the three months ended March 31, 2020, compared to the same period in 2019[67]. - Advanced Energy segment sales decreased by 8.8% or approximately $0.4 million for the three months ended March 31, 2020, compared to the same period in 2019[67]. - Gross profit for the three months ended March 31, 2020, decreased by 16.3% year-over-year to $2.98 million, with a gross margin of 59.7% compared to 63.3% in 2019[75]. - The company incurred a net loss of $(7.5) million for the first quarter of 2020, which was primarily funded by cash used in operating activities[86]. - For the three months ended March 31, 2020, the company reported a net cash used in operating activities of approximately $7.4 million, compared to $5.1 million in the same period for 2019, reflecting an increase in operating loss[86]. - The company's working capital decreased to approximately $63.6 million as of March 31, 2020, from $64.4 million at December 31, 2019, primarily due to the net loss incurred during the first quarter[85]. Expenses - Research and development expenses increased by 34.2% for the three months ended March 31, 2020, primarily due to spending on two IDE clinical studies[77]. - Selling, general and administrative expenses increased by approximately 28.4% for the three months ended March 31, 2020, primarily due to higher bad debt expense of $0.6 million[81]. - Interest income decreased by 48.9% for the three months ended March 31, 2020, compared to the prior year, due to a lower average balance and yield on investments[83]. International Sales - International sales represented approximately 27.6% of total revenues for the three months ended March 31, 2020, down from 30.5% in the prior year[68]. - International sales are coordinated by sales and marketing personnel at the Clearwater, Florida facility, with products sold in more than 45 countries[68]. COVID-19 Impact - The company expects decreased demand to continue into the second quarter of 2020 and possibly beyond due to the impact of the COVID-19 pandemic[74]. - The company has implemented hiring restrictions and reduced discretionary spending in response to the COVID-19 pandemic[65]. - The company is actively working with customers to collect receivables amid multiple requests for extensions due to the impact of the COVID-19 pandemic[87]. - The company expects that utilizing the net operating loss carryback provisions will significantly help mitigate the working capital impact of the COVID-19 pandemic on sales and operations[86]. Tax and Financial Obligations - The effective tax rate for the three months ended March 31, 2020, was 71.5%, significantly higher than (0.1)% for the same period in 2019, primarily due to the release of a valuation allowance on net operating loss carryforwards[84]. - The company recognized an income tax benefit of approximately $4.9 million in Q1 2020, with an expected tax refund of approximately $3.7 million by the end of 2020[86]. - The CARES Act allows the company to defer payroll tax payments incurred between March 27, 2020, and December 31, 2020, with an expected deferral of between $0.4 million and $0.5 million[87]. - The company has purchase commitments totaling approximately $0.7 million, expected to be fulfilled within the next six months[89]. Legal Matters - The company has accrued $1,000,000 for defense costs related to legal claims, with $820,000 still accrued as of March 31, 2020[122]. - The company is involved in various legal actions concerning its Helium Plasma technology, which may have a material adverse impact on its financial condition if damages exceed insurance coverage limits[119]. - The company intends to vigorously defend against allegations in a class action lawsuit related to public statements about its JPlasma® technology[121]. - The company believes that the allegations in the Amended Complaint are without merit and that claims are adequately covered by insurance[122]. Internal Controls - The company has identified material weaknesses in internal control over financial reporting as of December 31, 2019, and is in the process of remediation[112]. - Management has identified three material weaknesses in internal control over financial reporting as of December 31, 2019, including the need for additional qualified accounting personnel[109]. - The company has taken steps to remediate material weaknesses by hiring a new Chief Financial Officer and a Corporate Controller with relevant experience[114]. - The company continues to monitor the effectiveness of its internal controls over financial reporting on an ongoing basis[115]. - There were no changes in internal control over financial reporting that materially affected the company during the three months ended March 31, 2020[116]. - The company accrues a liability in its consolidated financial statements for known or probable losses that can be reasonably estimated[123]. - If the estimated loss is a range, the minimum amount of the range is recorded when no amount within the range is a better estimate[123]. - Significant judgment is required to estimate the amount and timing of a loss to be recorded, indicating potential variability in actual results[123].