Apyx Medical(APYX) - 2024 Q1 - Quarterly Report

Part I. Financial Information Condensed Consolidated Financial Statements (Unaudited) For the first quarter ended March 31, 2024, Apyx Medical reported total sales of $10.2 million, a 15.6% decrease year-over-year. The company experienced a wider loss from operations of $6.6 million and a net loss of $7.6 million, compared to a $3.5 million net loss in the prior year's quarter. The balance sheet shows a decrease in cash and cash equivalents to $37.3 million and a reduction in total equity to $20.5 million. Net cash used in operating activities increased significantly to $6.3 million Condensed Consolidated Balance Sheets As of March 31, 2024, total assets were $70.7 million, down from $79.2 million at year-end 2023, primarily due to a decrease in cash and cash equivalents from $43.7 million to $37.3 million. Total liabilities decreased slightly to $50.3 million, while total equity declined from $26.9 million to $20.5 million, driven by the net loss during the quarter Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $37,282 | $43,652 | | Total current assets | $61,926 | $70,362 | | Total assets | $70,711 | $79,240 | | Liabilities & Equity | | | | Total current liabilities | $10,556 | $12,740 | | Long-term debt, net | $33,406 | $33,185 | | Total liabilities | $50,251 | $52,318 | | Total equity | $20,460 | $26,922 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2024, sales decreased 15.6% to $10.2 million from $12.1 million in the prior-year period. Gross profit fell to $5.9 million from $7.6 million. The loss from operations widened to $6.6 million from $5.6 million, and the net loss increased to $7.6 million, or $(0.22) per share, compared to a net loss of $3.5 million, or $(0.10) per share, in Q1 2023 Q1 2024 vs Q1 2023 Statement of Operations (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Sales | $10,244 | $12,142 | | Gross Profit | $5,949 | $7,573 | | Loss from operations | $(6,615) | $(5,611) | | Net loss attributable to stockholders | $(7,576) | $(3,483) | | Loss per share (Basic and diluted) | $(0.22) | $(0.10) | Condensed Consolidated Statements of Cash Flows For the first quarter of 2024, net cash used in operating activities was $6.3 million, a significant increase from $1.9 million used in the same period of 2023. This was primarily due to a larger operating loss and payment of accrued bonuses. Investing activities used a minimal $35,000. The company's cash and cash equivalents decreased by $6.4 million, ending the period at $37.3 million Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,341) | $(1,881) | | Net cash used in investing activities | $(35) | $(110) | | Net cash (used in) provided by financing activities | $(5) | $8,112 | | Net change in cash and cash equivalents | $(6,370) | $6,063 | | Cash and cash equivalents, end of period | $37,282 | $16,255 | Notes to Condensed Consolidated Financial Statements Key notes detail the company's debt structure, litigation contingencies, and segment performance. The company has a credit agreement with Perceptive with specific financial covenants, including minimum revenue targets and a $3 million cash balance requirement. Apyx is facing several product liability lawsuits and has accrued a total of $2.75 million for estimated defense costs. Segment data shows a significant decline in Advanced Energy sales, while OEM sales grew - The company operates in two segments: Advanced Energy (Renuvion® and J-Plasma® products) and OEM (agreements with other medical device manufacturers)[23][60] - The company has a term loan with Perceptive Credit Holdings with a floating interest rate of one-month SOFR plus 7.0% (12.3% at March 31, 2024). The agreement includes covenants for minimum revenue targets and maintaining a $3 million cash balance[31][33] - The company has accrued probable losses for legal defense costs related to two sets of product liability lawsuits, totaling $1.45 million and $1.3 million respectively[53][54] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 15.6% year-over-year revenue decline to a 23.1% drop in Advanced Energy segment sales, particularly in domestic generator sales, citing economic uncertainty in the aesthetic capital equipment market. This was partly offset by a 13.8% increase in OEM sales. Gross margin decreased from 62.4% to 58.1% due to an unfavorable sales mix. The net loss widened, and cash used in operations increased. The company believes its existing cash and potential financing facilities are sufficient to fund operations, despite anticipating continued near-term losses Sales by Reportable Segment (in thousands) | Segment | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Advanced Energy | $7,453 | $9,690 | (23.1)% | | OEM | $2,791 | $2,452 | 13.8% | | Total | $10,244 | $12,142 | (15.6)% | - The decrease in Advanced Energy sales was driven by lower domestic sales of generators due to economic uncertainty in the aesthetic capital equipment market, as well as a decrease in single-use handpieces[75] - Gross margin decreased to 58.1% from 62.4% in the prior year, primarily due to changes in sales mix, with the lower-margin OEM segment and international sales comprising a higher percentage of total sales[77][78] - Net cash used in operating activities increased to $6.3 million in Q1 2024 from $1.9 million in Q1 2023, mainly due to the payment of accrued bonuses in 2024 and a higher operating loss[91] - The company has a credit facility of up to $45 million from Perceptive, with an initial loan of $37.5 million drawn and a potential delayed draw of $7.5 million available upon meeting a revenue target[94] Quantitative and Qualitative Disclosures about Market Risk This item is not applicable for the company as a smaller reporting company - The company has indicated that this section is not applicable[116] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024. There were no material changes in the company's internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[118] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[119] Part II. Other Information Legal Proceedings The company is involved in several product liability lawsuits concerning its Helium Plasma technology. For one set of related cases, it has accrued an estimated loss of $1.45 million for defense costs. For another group of lawsuits filed in March 2024 related to alleged off-label use and mismarketing, it has accrued an estimated loss of $1.3 million. The company denies liability and intends to defend these suits vigorously - This section refers to Note 10 of the financial statements for details on legal proceedings[121] - The company has determined that a loss is probable for defense costs in two separate sets of product liability lawsuits and has recorded estimated losses of $1,450,000 and $1,300,000, respectively[53][54] 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 - The company states there have been no material changes to the risk factors described in its 2023 Form 10-K[123] 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 - None reported[125] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported[125] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[125] Other Information The company reported no other information for this item - None reported[125] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, CEO/CFO certifications, and XBRL data files - Lists exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL documents[127]