Company Overview

Apyx Medical Corporation is an innovative medical device company that has carved out a unique niche in the rapidly evolving cosmetic surgery market. With a steadfast focus on advanced energy technology, the company has developed a proprietary helium plasma and radiofrequency platform marketed under the Renuvion® brand, which has garnered significant attention from surgeons and patients alike.

Founded in 1982 and incorporated under the laws of the State of Delaware, Apyx Medical has its principal executive office located in Clearwater, Florida. The company has evolved from its initial focus on medical devices for the treatment of cardiac arrhythmias to become a leader in advanced energy technology for the cosmetic surgery market. Apyx manufactures a proprietary helium plasma and radiofrequency platform technology marketed and sold as Renuvion in the cosmetic surgery market and J-Plasma in the hospital surgical market.

Global Expansion

In 2019, Apyx expanded its global footprint by executing a joint venture agreement with its Chinese supplier, securing a 51% ownership interest in the China JV. This strategic move required initial capital contributions of approximately $357,000, which were made in prior years. The company's commitment to this partnership was further solidified in June 2023 when Apyx amended the joint venture agreement to increase its registered capital, necessitating an additional $255,000 contribution. As of September 30, 2024, $153,000 of this amount had been contributed.

Legal Challenges

Throughout its history, Apyx has faced various legal challenges related to its Helium Plasma Platform Technology. The company is currently involved in several legal actions, which are being defended by insurance carrier-appointed counsel. While management has not yet received estimates of the net potential range of losses in all cases, they believe that Apyx has meritorious defenses and that these claims are not expected to have a material adverse effect on the company's financial condition, results of operations, or cash flows.

In 2022, Apyx encountered a significant legal challenge when it was notified of certain procedures alleged to have been performed by the same physician, which became the subject of two related products liability cases. The situation escalated in 2023 when the company's insurance carriers indicated that all or most of the ten individual plaintiffs' allegations could be subject to separate deductibles. In response to these legal matters, Apyx recorded an estimated loss of $1.45 million during 2022. While two of the plaintiffs' claims were dismissed by the courts in March 2024, management acknowledges that the actual amount of loss may change in the near term, though they expect it to remain within the estimated range.

Core Technology

At the core of Apyx Medical's offering is the Renuvion system, a revolutionary device that utilizes helium plasma and radiofrequency energy to provide precise and controlled tissue heating. This technology has proven particularly effective in body contouring procedures, allowing surgeons to tighten and sculpt skin with unparalleled precision and minimal downtime for patients.

Financials

The company's financial performance has been a mixed bag in recent years, with the COVID-19 pandemic and macroeconomic headwinds posing significant challenges. In 2023, Apyx reported total revenue of $52.35 million, a 17.6% decrease from the prior year, and a net loss of $18.85 million. The company's operating cash flow (OCF) for 2023 was -$5.25 million, with free cash flow (FCF) at -$5.78 million.

For the third quarter of 2024, Apyx reported revenue of $11.49 million, down 4.1% year-over-year. The net loss for the quarter was $4.70 million, with OCF at -$4.44 million and FCF at -$4.59 million. The decrease in revenue was primarily driven by lower sales of generators in both domestic and international markets, partially offset by increased handpiece volume.

The company operates in two main business segments: Advanced Energy and OEM. The Advanced Energy segment, which focuses on the Helium Plasma Platform Technology products, saw a 5.6% decrease in sales for Q3 2024. However, handpiece revenue, which now accounts for more than 60% of the segment's total revenue, grew 9% overall and 15% in the United States. The OEM segment, which focuses on development and manufacturing contract work, saw a 2.8% increase in sales for the same period.

Gross profit for Q3 2024 decreased 12.8% to $6.95 million, with a gross margin of 60.5%, compared to 66.6% in the prior year period. The decrease in gross margins was primarily due to lower average selling prices of generators to domestic customers, changes in the sales mix between the two segments, and geographic mix within the Advanced Energy segment.

Liquidity

As of September 30, 2024, Apyx reported cash and cash equivalents of $28.01 million. The company's debt-to-equity ratio stood at 3.07, with a current ratio of 5.46 and a quick ratio of 4.52. Apyx also has access to a $7.5 million delayed draw loan available until December 31, 2024, subject to certain conditions.

The company's financial outlook remains cautious, with management guiding for total revenue in the range of $46.6 million to $47.6 million for the full year 2024, representing a year-over-year decline of 9% to 11%. This includes Advanced Energy revenue of $37.2 million to $38.2 million and OEM revenue of approximately $9.4 million. Apyx expects a net loss attributable to stockholders of approximately $25 million for fiscal year 2024, with gross margins of approximately 60% and total operating expenses in the range of $48 million to $49 million. Cash used in operations in 2024 is expected to be approximately $20.1 million.

For 2025, the company has introduced a more optimistic outlook, projecting total revenue in the range of $47.6 million to $49.5 million, representing a potential increase of 2% to 6% compared to 2024. This includes Advanced Energy revenue of $39.1 million to $41 million and OEM revenue of approximately $8.5 million. Apyx expects to achieve these revenue results with operating expenses of no greater than $40 million in 2025.

Global Presence

Apyx has been expanding its international presence, with international sales representing approximately 32.2% and 30.8% of total revenues for Q3 2024 and the first nine months of 2024, respectively. This marks an increase from 27.8% and 26.6% in the prior year periods. The company's products have been sold in over 60 countries through local dealers, demonstrating its growing global footprint.

Cost-Saving Initiatives

To improve its financial position, Apyx has implemented strategic initiatives to streamline operations. This includes a recent organizational restructuring that saw a nearly 25% reduction in its U.S. workforce, which is expected to result in annualized cost savings of approximately $4.3 million. Additionally, the company has identified other cost-saving measures, including reductions in professional fees, research and development, and stock-based compensation, which are expected to further reduce annual operating expenses below $40 million.

Future Outlook

Looking ahead, Apyx Medical is positioning itself for a potential resurgence, buoyed by the growing popularity of glucagon-like peptide-1 (GLP-1) drugs for weight loss. As these medications become more widely prescribed, the company anticipates an increase in demand for its Renuvion technology, as patients who experience rapid weight loss often require surgical intervention to address loose and lax skin.

To capitalize on this emerging opportunity, Apyx Medical is in the final stages of developing the Ayon body contouring system, an integrated platform that seamlessly combines Renuvion with other advanced technologies, such as ultrasound-assisted liposuction and power-assisted liposuction. The company plans to submit a 510(k) application to the FDA for the Ayon system by the end of the first quarter of 2025, with the goal of launching the product in the second half of the year.

Industry Trends

The aesthetic medical device market, in which Apyx's Renuvion product operates, is expected to grow at a compound annual growth rate (CAGR) of around 10-12% over the next five years. This growth is primarily driven by increased adoption of minimally invasive procedures and growing consumer demand for body contouring treatments, aligning well with Apyx's strategic focus and product offerings.

Conclusion

Apyx Medical's journey has not been without its challenges, as the company has faced headwinds from the COVID-19 pandemic, macroeconomic uncertainty, and increased competition in the aesthetic surgery market. However, the company's unwavering commitment to innovation and its focus on the emerging opportunities presented by GLP-1 drugs suggest that Apyx Medical may be poised for a resurgence in the years to come.

As the company continues to navigate the complexities of the medical device industry, investors will be closely watching Apyx Medical's progress in the development and commercialization of the Ayon system, as well as its ability to capitalize on the growing demand for body contouring procedures driven by the GLP-1 drug market. With a strong technological foundation, a clear strategic vision, and targeted cost-saving initiatives, Apyx Medical appears well-positioned to carve out a significant share of the lucrative cosmetic surgery market and improve its financial performance in the coming years.