10-K: Apyx Medical Reports FY2024 Results, Navigates Market Challenges, and Focuses on Cost Savings

Apyx Medical's FY2024 results reveal a focus on cost reduction and strategic adjustments amidst market headwinds, including a revenue decrease and ongoing efforts to achieve cash-flow breakeven.

Summary

• Apyx Medical Corporation reported its financial results for the year ended December 31, 2024.
• The company experienced a decrease in total revenue by 8.1%, amounting to $48.1 million compared to $52.3 million in 2023.
• The Advanced Energy segment saw a decrease in sales of 11.0%, while the OEM segment increased by 5.9%.
• The company incurred a loss from operations of $18.8 million and used $18.0 million of cash in operations.
• As of December 31, 2024, Apyx Medical had cash and cash equivalents of $31.7 million.
• Apyx Medical implemented a cost-saving restructuring in November 2024, reducing the U.S. workforce by nearly 25% and expecting annualized cost savings of approximately $4.3 million.
• The company also eliminated bonuses, reduced the board size, and decreased board cash compensation.
• Apyx Medical anticipates reducing annual operating expenses below $40 million in 2025 through identified cost savings.
• The company submitted a 510(k) premarket notification to the FDA for the AYON Body Contouring System on January 6, 2025.
• An amendment to the Perceptive Credit Agreement reduced revenue targets and introduced a maximum operating expense financial covenant.
• A registered direct offering closed on November 7, 2024, generating $7.0 million in proceeds.
• The company is focused on expanding regulatory approvals, launching AYON, and generating consumer interest through direct-to-consumer advertising.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While the company is taking steps to reduce costs and has submitted a new product for FDA approval, it also faces declining revenue and ongoing losses.

Positives

• OEM segment sales increased by 5.9% compared to 2023.
• The company is implementing cost-saving measures expected to reduce annual operating expenses below $40 million in 2025.
• Apyx Medical submitted a 510(k) premarket notification to the FDA for the AYON Body Contouring System.
• The company closed a $7.0 million registered direct offering.
• Single-use handpiece unit sales grew 8% overall and 15% in the United States.
• The company was in compliance with the financial covenants contained within the Perceptive Credit Agreement, as amended, as of December 31, 2024.

Negatives

• Total revenue decreased by 8.1% compared to 2023.
• The Advanced Energy segment experienced an 11.0% decrease in sales.
• The company incurred a loss from operations of $18.8 million.
• The company used $18.0 million of cash in operations.
• Gross profit margin decreased by approximately 3.5% during the year ended December 31, 2024, compared with 2023.

Risks

• The company has a history of operating losses that have impacted overall cash flows and may impact the ability to continue as a going concern.
• The aesthetic equipment market is highly competitive, and the company may be unable to compete effectively.
• The company relies on certain suppliers, subcontractors, and manufacturers for raw materials and other products and are vulnerable to fluctuations in the availability and price of such products and services.
• The company's manufacturing facilities are located in Clearwater, Florida and Sofia, Bulgaria and could be affected due to multiple weather risks, including risks to the Florida facility from hurricanes and similar phenomena.
• If there is not sufficient consumer demand for the procedures performed with the company's products, surgeon demand for the company's products could be inhibited, resulting in unfavorable operating results and reduced growth potential.
• Quality problems and product liability claims could lead to recalls or safety alerts, reputational harm, adverse verdicts or costly settlements, and could have a material adverse effect on the company's business, results of operations, financial condition and cash flows.
• Regulations of the FDA and other regulatory agencies in and outside the U.S. impose significant compliance and monitoring obligations on the company's business.
• The company is subject to governmental export controls and economic sanctions that could impair the company's ability to compete in international markets due to licensing requirements and subject the company to potential liability if the company is not in compliance with applicable laws.
• The market price of the company's stock has been and may continue to be highly volatile.
• The company may, in the future, identify deficiencies in internal controls over financial reporting.
• The company relies on its management team and other key personnel, and the company may lose key personnel or fail to attract, train, and retain other talented personnel.
• The company is at risk of being the victim of a cyber-attack or a security breach that may expose confidential customer, product and company data or compromise the company's internal IT infrastructure.
• Adverse global and regional economic conditions could materially adversely affect the company's business, results of operations and financial condition.
• The company's business can be impacted by political events, trade and other international disputes, war, terrorism, natural disasters, public health issues, industrial accidents and other business interruptions.

Future Outlook

Apyx Medical plans to continue funding operations through existing cash, product sales, and potential equity and/or debt financing, focusing on expanding regulatory approvals, launching AYON, and generating consumer interest through direct-to-consumer advertising.

Industry Context

The report acknowledges the impact of GLP-1 medications on the cosmetic surgery market and the company's strategy to address the increasing demand for body contouring procedures.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or comparable companies.
• However, it mentions competitors in the energy-based medical device industry for the aesthetics market, noting that many are well-established with greater financial resources.
• The document notes that the company faces competition from RF-based, argon plasma, and CO2 laser products within its target market.

Legal Proceedings

• The company is involved in a number of legal actions relating to the use of its technology.
• 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 $1,650,000 to $1,950,000.
• The company recorded an estimated loss of $1,450,000 related to the matters during 2022 and $200,000 related to the matters during 2024.
• The company has determined that a loss, comprised of estimated costs to defend the company against the lawsuits, is probable and currently estimates the range of losses in connection with these matters to be between $1,300,000 and $1,500,000.
• The company recorded an estimated loss of $1,300,000 related to these matters during 2023.
• The company has also determined that there is a reasonable possibility that there will be an additional loss related to the matters, but the company is unable to provide an estimate of the range of such additional loss at this time.

Related Party Transactions

• Some relatives of Nikolay Shilev, Apyx Bulgaria's Managing Director, are considered related parties.
• The partner in the company's China joint venture is also a supplier of the company.
• For the years ended December 31, 2024 and 2023, the company made purchases from this supplier of approximately $1.0 million and $0.6 million, respectively.
• At December 31, 2024 and 2023, the company had payables to this supplier of approximately $243,000 and $82,000, respectively.

Stakeholder Impact

• Shareholders will experience dilution from the issuance of new shares and warrants.
• Employees have been impacted by the reduction in force.
• Customers may benefit from the development of new products like AYON.
• Suppliers may be affected by the company's efforts to find alternative sources of supply and streamline its supplier network.

Next Steps

• Continue commercialization of Helium Plasma Technology.
• Expand regulatory approvals to expand product availability in new markets worldwide.
• Execute regulatory pathway for AYON in the United States.
• Successfully launch AYON in the United States and eventually worldwide.
• Generate consumer interest in the treatment of loose and lax skin through a focused direct-to-consumer advertising strategy, including as a result of the side effects of GLP-1's.

Key Dates