AirSculpt Technologies(AIRS) - 2023 Q1 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section highlights that the report includes forward-looking statements subject to risks and uncertainties, with no obligation to update them - The report contains forward-looking statements identifiable by words such as 'may,' 'expects,' 'plans,' 'anticipates,' and 'believes,' which are subject to risks and uncertainties[8] - Actual results could differ materially due to factors discussed in the 'Risk Factors' section of the Annual Report on Form 10-K, including operational, competitive, regulatory, and macroeconomic conditions[8][9][10] - The company is under no duty to update any forward-looking statements after the report date[11] Part I Financial Information This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements Presents AirSculpt Technologies' unaudited condensed consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates | Metric | March 31, 2023 ($000s) | December 31, 2022 ($000s) | Change ($000s) | | :-------------------------------- | :---------------------- | :------------------------ | :------------- | | Total assets | 209,521 | 200,759 | 8,762 | | Total liabilities | 134,293 | 129,993 | 4,300 | | Total stockholders' equity | 75,228 | 70,766 | 4,462 | | Cash and cash equivalents | 11,283 | 9,616 | 1,667 | | Right of use operating lease assets | 29,432 | 23,764 | 5,668 | Condensed Consolidated Statements of Operations This section details the company's financial performance over a period, including revenue, expenses, and net income or loss | Metric | Three Months Ended March 31, 2023 ($000s) | Three Months Ended March 31, 2022 ($000s) | Change ($000s) | | :-------------------------------- | :---------------------------------------- | :---------------------------------------- | :------------- | | Revenue | 45,813 | 39,544 | 6,269 | | Total operating expenses | 44,051 | 40,715 | 3,336 | | Income/(loss) from operations | 1,762 | (1,171) | 2,933 | | Pre-tax net income/(loss) | 27 | (2,663) | 2,690 | | Net loss | (14) | (693) | 679 | | Basic loss per share | (0.00) | (0.01) | 0.01 | | Diluted loss per share | (0.00) | (0.01) | 0.01 | Condensed Consolidated Statements of Other Comprehensive Income/(Loss) This section presents items of comprehensive income or loss not recognized in net income, such as foreign currency adjustments | Metric | Three Months Ended March 31, 2023 ($000s) | Three Months Ended March 31, 2022 ($000s) | | :-------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net loss | (14) | (693) | | Change in foreign currency translation adjustment | 22 | — | | Total other comprehensive income | 22 | — | | Comprehensive income/(loss) | 8 | (693) | Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in the company's equity, including common stock, retained earnings, and other comprehensive income | Item | Balance at Dec 31, 2022 ($000s) | Issuance of common stock through unit vesting ($000s) | Dividends ($000s) | Equity-based compensation ($000s) | Net loss ($000s) | Other comprehensive income ($000s) | Balance at Mar 31, 2023 ($000s) | | :-------------------------- | :------------------------------ | :------------------------------------------------ | :---------------- | :-------------------------------- | :--------------- | :--------------------------------- | :------------------------------ | | Common Stock (Amount) | 56 | — | — | — | — | — | 56 | | Additional Paid-in Capital | 85,858 | — | 66 | 4,388 | — | — | 90,312 | | Accumulated Other Comp. Loss | (76) | — | — | — | — | 22 | (54) | | Accumulated Deficit | (15,072) | — | — | — | (14) | — | (15,086) | | Total Stockholders' Equity | 70,766 | — | 66 | 4,388 | (14) | 22 | 75,228 | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities over a period | Cash Flow Activity | Three Months Ended March 31, 2023 ($000s) | Three Months Ended March 31, 2022 ($000s) | Change ($000s) | | :-------------------------------- | :---------------------------------------- | :---------------------------------------- | :------------- | | Net cash provided by operating activities | 6,219 | 7,080 | (861) | | Net cash used in investing activities | (3,815) | (4,274) | 459 | | Net cash used in financing activities | (737) | (924) | 187 | | Net increase in cash and cash equivalents | 1,667 | 1,882 | (215) | | Cash and cash equivalents, end of period | 11,283 | 27,229 | (15,946) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE 1 – Organization and Summary of Key Accounting Policies This note describes the company's formation, business model, and significant accounting policies applied in financial reporting - AirSculpt Technologies, Inc. was formed on June 30, 2021, and completed an initial public offering (IPO) on October 28, 2021[30] - The company provides practice management services to professional associations (PAs) and consolidates them as variable interest entities, with all revenue earned from services provided by PAs[31][32][34] - Revenue is primarily from patented AirSculpt® procedures, recognized when the service is performed, with payment typically rendered in advance[39][41] - Advertising expenses were approximately $6.1 million for the three months ended March 31, 2023, compared to $4.8 million for the same period in 2022[50] NOTE 2 – Goodwill and Intangibles, Net This note details the company's goodwill and other intangible assets, including their amortization and carrying values | Asset Category | March 31, 2023 ($000s) | December 31, 2022 ($000s) | | :-------------------------------- | :---------------------- | :------------------------ | | Goodwill | 81,734 | 81,734 | | Technology and know-how (gross) | 53,600 | 53,600 | | Trademarks and tradenames (gross) | 17,700 | 17,700 | | Accumulated amortization of technology and know-how | (16,079) | (15,186) | | Accumulated amortization of tradenames and trademarks | (5,310) | (5,015) | | Total intangible assets, net | 49,911 | 51,099 | - Aggregate amortization expense on intangible assets was approximately $1.2 million for both the three months ended March 31, 2023, and 2022[57] NOTE 3 – Property and Equipment, Net This note provides information on the company's property and equipment, including additions, disposals, and accumulated depreciation | Asset Category | March 31, 2023 ($000s) | December 31, 2022 ($000s) | | :-------------------- | :---------------------- | :------------------------ | | Medical equipment | 9,474 | 8,906 | | Office and computer equipment | 740 | 551 | | Furniture and fixtures | 3,604 | 3,457 | | Leasehold improvements | 18,658 | 14,614 | | Construction in progress | 2,150 | 2,854 | | Less: Accumulated depreciation | (7,342) | (6,176) | | Property and equipment, net | 27,284 | 24,206 | - Depreciation expense increased to approximately $1.2 million for the three months ended March 31, 2023, from $0.7 million for the same period in 2022[58] NOTE 4 – Debt This note outlines the company's debt obligations, including term loans, revolving credit facilities, and associated interest rates - On November 7, 2022, the company entered into a new credit agreement for an $85.0 million term loan and a $5.0 million revolving loan facility[59] | Metric | March 31, 2023 ($000s) | December 31, 2022 ($000s) | | :-------------------------------- | :---------------------- | :------------------------ | | Term loan | 84,469 | 85,000 | | Unamortized debt discounts and issuance costs | (1,196) | (1,455) | | Total debt, net | 83,273 | 83,545 | | Less: Current portion | (2,125) | (2,125) | | Long-term debt, net | 81,148 | 81,420 | - As of March 31, 2023, the interest rate on outstanding loans was 7.23%, and the company had $5.0 million available on the revolving credit facility and was in compliance with all covenants[62][63][64] NOTE 5 – Leases This note details the company's lease arrangements, including right-of-use assets, lease liabilities, and future minimum rental payments - Rent expense for medical office suites increased to $1.5 million for the three months ended March 31, 2023, from $1.0 million for the same period in 2022[65] | Year | Future Minimum Rental Payments ($000s) | | :--- | :------------------------------------- | | 2023 (excluding Q1) | 4,310 | | 2024 | 6,393 | | 2025 | 6,542 | | 2026 | 6,173 | | 2027 | 5,069 | | Thereafter | 11,081 | | Total lease payments | 39,568 | | Less: imputed interest | (9,366) | | Total lease obligations | 30,202 | - Operating cash outflows from operating leases were $1.25 million for Q1 2023, up from $0.98 million for Q1 2022[67] NOTE 6 – Stockholders' Equity and Equity-Based Compensation This note describes changes in stockholders' equity and the nature and impact of equity-based compensation plans - During Q1 2023, the company granted 608,955 restricted stock units (RSUs) with time-based vesting and 585,588 performance-based stock units (PSUs) with market-based vesting conditions[69][70] - Equity-based compensation expense decreased to $4.4 million for Q1 2023 from $7.3 million for Q1 2022[71] - The company paid $0.2 million in dividends to shareholders in Q1 2023, compared to $0.3 million in distributions to the Parent in Q1 2022[72] NOTE 7 – Earnings Per Share This note presents the calculation of basic and diluted earnings per share, considering potential dilutive securities | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(14) | $(693) | | Weighted average shares outstanding - basic | 56,443,370 | 55,640,154 | | Weighted average shares outstanding - diluted | 56,443,370 | 55,640,154 | | Loss per share (basic and diluted) | $(0.00) | $(0.01) | - Potentially dilutive shares (RSUs and PSUs) were excluded from the diluted loss per share calculation because their inclusion would have been anti-dilutive[76] NOTE 8 – Income Taxes This note provides details on the company's income tax expense or benefit, effective tax rate, and deferred tax assets and liabilities | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Income tax expense/(benefit) | $41 thousand | $(2.0) million | | Effective tax rate | 151.9% | 74.0% | - The primary driver of the difference between the effective and statutory tax rate is non-deductible executive compensation under Section 162(m) of the Internal Revenue Code[77] NOTE 9 – Commitments and Contingencies This note discloses the company's legal proceedings, claims, and other commitments that could impact its financial position - The company is involved in pending and threatened legal actions, primarily medical malpractice claims, which management believes will not have a material adverse effect on its financial condition[78] - There is no assurance that the company's liability insurance coverage will be adequate to cover all potential liabilities arising from future claims[79] NOTE 10 – Segment Information This note describes the company's operating segments and how financial information is reported to the chief operating decision maker - The company operates as a single reportable segment: direct medical procedure services, focusing on its patented AirSculpt® procedures[80] - The Chief Operating Decision Maker (CODM), the CEO, reviews financial information on a consolidated basis, including revenue, gross profit, and Adjusted EBITDA, to assess performance[80] - Adjusted EBITDA is a non-GAAP measure that excludes depreciation, amortization, interest, taxes, pre-opening costs, restructuring costs, IPO costs, asset disposal gains/losses, and equity-based compensation[80][82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operational results, highlighting revenue growth, key metrics, non-GAAP measures, and liquidity Overview This section provides a high-level summary of the company's business, operational highlights, and strategic direction - AirSculpt, operating as Elite Body Sculpture, is a fast-growing national provider of minimally invasive body contouring procedures using its proprietary AirSculpt® method[86] - The company expanded its footprint to 23 centers across 18 states and Canada as of May 12, 2023, including a new center opened in Orange County, CA, in March 2023[86] | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Growth | | :---------------- | :-------------------------------- | :-------------------------------- | :----- | | Cases performed | 3,640 | 3,156 | 15.3% | | Revenue | $45.8 million | $39.5 million | 15.9% | Key Operational and Business Metrics This section presents crucial non-financial and financial metrics used to evaluate the company's operational performance and growth | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Growth | | :-------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Cases | 3,640 | 3,156 | 15.3% | | Revenue per case | $12,586 | $12,530 | 0.4% | | Number of facilities | 23 | 19 | +4 | | Number of total procedure rooms | 49 | 36 | +13 | | Metric (Same-Center) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Growth | | :-------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Cases | 3,155 | 3,127 | 0.9% | | Revenue per case | $12,676 | $12,510 | 1.3% | | Number of facilities | 18 | 18 | 0 | | Number of total procedure rooms | 38 | 35 | +3 | - Cases per procedure room were lower due to the recent addition of four de novo centers and expansions, which increased procedure rooms by 13 over the prior year, a decline expected to be temporary as new rooms ramp up[88] Non-GAAP Financial Measures—Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Net Income per Share This section defines and reconciles non-GAAP financial measures, providing additional insights into the company's performance - Adjusted EBITDA is defined as net loss excluding depreciation and amortization, net interest expense, income tax expense/(benefit), pre-opening de novo and relocation costs, restructuring and related severance costs, IPO related costs, (gain)/loss on disposal of long-lived assets, and equity-based compensation[94] - Adjusted Net Income is defined as net loss excluding pre-opening de novo and relocation costs, restructuring and related severance costs, IPO related costs, (gain)/loss on long-lived assets disposal, and equity-based compensation, with these items tax-effected[95] | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | | :-------------------- | :---------------------------------------- | :---------------------------------------- | | Net loss | (14) | (693) | | Adjusted EBITDA | 10,721 | 9,788 | | Adjusted EBITDA Margin | 23.4% | 24.8% | | Adjusted net income | 5,821 | 7,652 | | Adjusted net income per share (Basic) | 0.10 | 0.14 | | Adjusted net income per share (Diluted) | 0.10 | 0.14 | Results of Operations This section analyzes the company's financial performance, discussing revenue, expenses, and profitability trends | Metric | 3 Months Ended Mar 31, 2023 ($000s) | % of Revenue (2023) | 3 Months Ended Mar 31, 2022 ($000s) | % of Revenue (2022) | Change ($000s) | Change (%) | | :-------------------------------- | :---------------------------------- | :------------------ | :---------------------------------- | :------------------ | :------------- | :--------- | | Revenue | 45,813 | 100.0% | 39,544 | 100.0% | 6,269 | 15.9% | | Cost of service | 18,017 | 39.3% | 14,662 | 37.1% | 3,355 | 22.9% | | Selling, general and administrative | 23,882 | 52.1% | 24,167 | 61.1% | (285) | (1.2)% | | Income/(loss) from operations | 1,762 | 3.8% | (1,171) | (3.0)% | 2,933 | N/A | | Net loss | (14) | 0.0% | (693) | (1.8)% | 679 | (98.0)% | - Revenue increased by $6.3 million (15.9%) due to the addition of four de novo centers, expanding the footprint from 19 to 23 centers and 36 to 49 procedure rooms. Same-store revenue increased by 2.2%[101] - Cost of service increased by 22.9% due to new center openings and higher rent, with de novo centers typically having a higher cost of service as a percentage of revenue in their initial year[102] - Selling expenses increased to $8.6 million in Q1 2023 from $6.0 million in Q1 2022, with customer acquisition costs rising to $2,360 from $2,200 per customer[104] - Interest expense increased to $1.7 million from $1.5 million due to rising interest rates[108] Liquidity and Capital Resources This section discusses the company's ability to meet its short-term and long-term financial obligations and fund its operations - The company relies on cash flows from operations and a $5.0 million revolving credit facility for liquidity, which management believes will be sufficient for working capital, capital expenditures, and debt payments for at least the next 12 months[110] - Cash and cash equivalents were $11.3 million as of March 31, 2023, with $5.0 million available under the revolving credit facility[111] - Net cash provided by operating activities decreased by $0.9 million in Q1 2023 compared to Q1 2022, primarily due to increased spending on brand awareness[113] - Net cash used in investing activities decreased to $3.8 million in Q1 2023 from $4.3 million in Q1 2022, attributable to less expansion of existing facilities[114] - Net cash used in financing activities was $0.7 million in Q1 2023, including $0.2 million in dividends paid to shareholders and $0.5 million in principal payments on debt[115] JOBS Act Accounting Election This section explains the company's election regarding accounting standards under the Jumpstart Our Business Startups (JOBS) Act - As an 'emerging growth company' under the JOBS Act, AirSculpt has irrevocably elected not to delay adopting new or revised accounting standards, adhering to the same standards as other public companies[4][120] - The company is eligible for other exemptions for up to five years or until it ceases to be an emerging growth company, such as not providing an auditor's attestation report on internal controls[121][122] Critical Accounting Policies and Estimates This section highlights accounting policies requiring significant judgment and estimates that materially impact financial reporting - There have been no material changes in the nature of the company's critical accounting policies and estimates from those disclosed in its Annual Report on Form 10-K dated March 10, 2023[123] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, AirSculpt Technologies, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide market risk disclosures[124] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures, concluding they were effective with no material changes in internal control - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023[126] - There were no material changes in internal control over financial reporting during the quarter ended March 31, 2023[127] - Management recognizes that controls provide only reasonable, not absolute, assurance and are subject to inherent limitations such as faulty judgment, error, circumvention, or management override[128] Part II Other Information This section includes disclosures on legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information Item 1. Legal Proceedings The company is routinely involved in legal actions, primarily medical malpractice claims, which are considered ordinary course of business - The company is subject to pending and threatened legal actions, mostly medical malpractice claims, which are ordinary and routine[129] - Management believes the resolution of current legal actions will not have a material adverse effect, but there is no assurance that insurance coverage will be adequate for all liabilities[129] Item 1A. Risk Factors There were no material changes to the risk factors previously discussed in the Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to the risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2022, except as updated or supplemented by factual information in this 10-Q[130] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities and no use of proceeds to report[131] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[132] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[133] Item 5. Other Information The company reported no other information for this item - There is no other information to report under this item[134] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including employment agreements and certifications - Exhibits include employment agreements, certifications of principal executive and financial officers (pursuant to Sarbanes-Oxley Act Sections 302 and 906), and Inline XBRL documents[136] - Certifications under 18 U.S.C. Section 1350 (Exhibit 32.1 and 32.2) are not deemed filed with the Securities and Exchange Commission[138] Signatures The report is duly signed on behalf of AirSculpt Technologies, Inc. by Dennis Dean, Chief Financial Officer, on May 12, 2023 - The report was signed by Dennis Dean, Chief Financial Officer (Principal Accounting and Financial Officer), on May 12, 2023[142]