10-Q: Apyx Medical Corp Reports Q3 2024 Results, Announces Restructuring and Cost-Saving Measures

Apyx Medical Corporation's Q3 2024 results show a decrease in revenue and a net loss, prompting a restructuring and cost-saving initiative.

Summary

• Apyx Medical Corporation reported a net loss of $4.7 million for the third quarter of 2024, compared to a loss of $4.6 million in the same period last year.
• Total revenue for the quarter was $11.5 million, a decrease of 4.1% compared to $12.0 million in Q3 2023.
• The company's Advanced Energy segment saw a 5.6% decrease in sales, while the OEM segment experienced a 2.8% increase.
• For the nine months ended September 30, 2024, the net loss was $18.9 million, compared to a loss of $9.2 million in the same period of 2023.
• Year-to-date revenue was $33.9 million, a 10.1% decrease from $37.7 million in the prior year.
• The company has implemented a cost-saving restructuring, including a 25% reduction in its US workforce, which is expected to save $4.3 million annually.
• Apyx also eliminated bonuses for 2024, reduced the board of directors from eight to five members, and decreased board cash compensation from $0.5 million to $0.1 million annually.
• The company anticipates reducing annual operating expenses below $40 million in 2025 through various cost-cutting measures.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with negative financial results but positive cost-cutting measures and a recent capital raise. The overall sentiment is cautiously negative due to the significant losses and revenue decline, but the restructuring efforts and capital raise provide some hope for the future.

Positives

• The OEM segment experienced a 2.8% increase in sales for the three months ended September 30, 2024.
• The company has taken decisive action to reduce costs through a significant restructuring.
• Apyx has secured $7.0 million in funding through a registered direct offering.
• The company is focused on reducing operating expenses below $40 million in 2025.
• Handpiece revenue grew 9% overall and 15% in the United States, now accounting for more than 60% of total Advanced Energy revenue.

Negatives

• Total revenue decreased by 4.1% for the three months ended September 30, 2024.
• The Advanced Energy segment experienced a 5.6% decrease in sales for the three months ended September 30, 2024.
• The company reported a net loss of $4.7 million for the third quarter of 2024.
• Gross profit decreased by 12.8% for the three months ended September 30, 2024.
• The company has incurred recurring net losses and cash outflows from operations.
• The company's cash and cash equivalents decreased from $43.7 million at the end of 2023 to $28.0 million at the end of Q3 2024.
• The company is facing economic uncertainty in the capital equipment market, particularly in the aesthetic space.

Risks

• The company has incurred recurring net losses and cash outflows from operations and anticipates that losses will continue in the near term.
• Apyx may need to raise additional capital through equity or debt financing, which could result in dilution or increased debt service obligations.
• The company's ability to meet financial covenants is subject to meeting or exceeding forecasted Advanced Energy revenues and reducing operating expenses.
• The company is involved in product liability lawsuits, and potential losses could have a material adverse impact on its financial condition.
• The company is facing economic uncertainty in the capital equipment market, particularly in the aesthetic space.
• The increased use of GLP-1s may have an initial negative impact on the number of liposuction procedures.

Future Outlook

The company plans to continue to fund operations through existing cash, sales of products, and potentially additional equity or debt financing. Apyx anticipates reducing annual operating expenses below $40 million in 2025 and achieving cash-flow breakeven.

Management Comments

• Management believes the increased use of GLP-1s may have had an initial negative impact on the number of liposuction procedures but will eventually drive people towards plastic surgery.
• Management estimates that the annualized future cost savings from the reduction in force is approximately $4.3 million.
• Management believes that the company has meritorious defenses in the product liability lawsuits and such claims are not expected to result in a material adverse effect on its financial condition.

Industry Context

The medical device industry is characterized by frequent claims and litigation. The company is facing economic uncertainty in the capital equipment market, particularly in the aesthetic space. The increased use of GLP-1s is creating uncertainty in the aesthetic space but is expected to drive demand for body contouring procedures.

Comparison to Industry Standards

• The document does not provide specific industry benchmarks for comparison.
• It is difficult to assess Apyx's performance against industry standards without more detailed information on competitors' results.
• The company's focus on cost reduction and restructuring is a common response to financial challenges in the medical device sector.
• The company's reliance on a single product line (Renuvion) may be a risk compared to companies with more diversified portfolios.
• The company's legal challenges are not uncommon in the medical device industry, but the potential financial impact is a concern.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in a number of legal actions relating to the use of its Helium Plasma Platform Technology.
• The company is defending product liability lawsuits alleging off-label use of Renuvion products and mismarketing.
• The company has determined that a loss, comprised of estimated costs to defend the Company against the lawsuits, is probable and that the range of estimated losses is approximately $1,450,000 to $1,950,000 for some cases and $1,300,000 to $1,500,000 for others.

Related Party Transactions

• The company made purchases from its China JV partner of approximately $189,000 and $50,000 for the three months ended September 30, 2024 and 2023, respectively.
• The company made purchases from its China JV partner of approximately $282,000 and $501,000 for the nine months ended September 30, 2024 and 2023, respectively.
• Two relatives of Nikolay Shilev, Apyx Bulgaria's Managing Director, are considered related parties.

Stakeholder Impact

• Shareholders will experience dilution from the recent equity offering.
• Employees have been impacted by the workforce reduction.
• Customers may be affected by changes in the company's operations.
• Suppliers may be impacted by the company's cost-cutting measures.
• Creditors may be concerned about the company's financial performance.

Next Steps

• The company will continue to implement its cost-saving restructuring plan.
• Apyx will focus on reducing operating expenses below $40 million in 2025.
• The company will monitor the impact of GLP-1s on the aesthetic market.
• Apyx will continue to defend itself in ongoing product liability lawsuits.
• The company will work to meet the financial covenants of the Perceptive Credit Agreement.

Key Dates

Keywords

Apyx Medical, Renuvion, J-Plasma, Advanced Energy, OEM, financial results, restructuring, cost savings, revenue, net loss, workforce reduction, capital raise, Perceptive Credit Agreement, product liability, GLP-1s