AIRSCULPT TECHNOLOGIES, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes and other financial information appearing in our Annual Report on Form 10-K dated
March 11, 2022filed with the Securities and Exchange Commission("SEC") pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. See the section entitled "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed in "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report on Form 10-Q to the "Company," "Elite Body Sculpture," "we," "us" and "our" refer to AirSculpt Technologies, Inc.and its consolidated subsidiaries and the Professional Associations.
AirSculptis an experienced, fast-growing national provider of body contouring procedures delivering a premium consumer experience under its brand, Elite BodySculpture. At Elite Body Sculpture, we provide custom body contouring using our proprietary AirSculpt® method that removes unwanted fat in a minimally invasive procedure, producing dramatic results. In March 2022, we opened a new center in Las Vegas, NV.We now deliver our AirSculpt® procedures through a growing nationwide footprint of 19 centers across 15 states as of May 13, 2022. For the three months ended March 31, 2022, we performed 3,156 cases and generated approximately $39.5 millionof revenue, compared to 2,408 cases and $26.1 millionin revenue for the three months ended March 31, 2021. This represents approximately 51% growth for the three months ended March 31, 2022over the same period in prior year.
Main operational and commercial indicators
In addition to the measures presented in our condensed consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions:
Cases completed and revenue per case
Our case volumes in the table below, which are used to calculate revenue per case, represent one patient visit; despite this, a patient can have several areas treated during the same visit. We believe this is the best approach to assess our performance and revenue trends.
Total number of cases and revenue measures
Three Months Ended March 31, 2022 2021 Cases 3,156 2,408 Case growth 31.1 % N/A Revenue per case
$ 12,530 $ 10,856Revenue per case growth 15.4 % N/A Number of facilities 19 14 Number of total procedure rooms 36 23
Information on the same center
For the three months ended
March 31, 2022and 2021, we define same-center case and revenue growth as the growth in each of our cases and revenue at facilities that have been owned and operated since January 1, 2021. We define same-center facilities and procedure rooms based on if a facility has been owned or operated since January 1, 2021. 14
Case of the same center and revenue metrics
Three Months Ended March 31, 2022 2021 Cases 2,702 2,408 Case growth 12.2 % N/A Revenue per case
$ 12,436 $ 10,856Revenue per case growth 14.6 % N/A Number of facilities 14 14 Number of total procedure rooms 26 23
Non-GAAP Financial Measures – Adjusted EBITDA and Adjusted EBITDA Margin
We report our financial results in accordance with GAAP, however, management believes the evaluation of our ongoing operating results may be enhanced by a presentation of Adjusted EBITDA and Adjusted EBITDA Margin, which are non-GAAP financial measures. We define Adjusted EBITDA as net income excluding depreciation and amortization, net interest expense, income tax expense, sponsor management fee, pre-opening de novo and relocation costs, restructuring and related severance costs, IPO related costs, and equity-based compensation. We include Adjusted EBITDA because it is an important measure on which our management assesses and believes investors should assess our operating performance. We consider Adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis. Adjusted EBITDA has limitations as an analytical tool including: (i) Adjusted EBITDA does not include results from equity-based compensation and (ii) Adjusted EBITDA does not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of revenue. We included Adjusted EBITDA Margin because it is an important measure on which our management assesses and believes investors should assess our operating performance. We consider Adjusted EBITDA Margin to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis. Adjusted EBITDA Margin decreased to 24.8% for the three months ended
March 31, 2022compared to 36.6% for the three months ended March 31, 2021due to incurring a full quarter of public company costs and recently (in the last six months), opening three new de novo facilities.
The following table reconciles Adjusted EBITDA and Adjusted EBITDA margin to (loss)/net income, the most directly comparable GAAP financial measure:
Three Months Ended March 31, ($ in thousands) 2022 2021 Net (loss)/income
$ (693) $ 6,621Plus Sponsor management fee - 125 Equity-based compensation 7,316 86 IPO related costs 731 - Pre-opening de novo and relocation costs 847 552 Restructuring and related severance costs 179 109 Depreciation and amortization 1,886 1,491 Interest expense, net 1,492 586 Income tax benefit (1,970) - Adjusted EBITDA $ 9,788 $ 9,570Adjusted EBITDA Margin 24.8 % 36.6 % 15
Impact of COVID-19
Through the first three months of 2022, we experienced only minor impact at our centers, primarily due to staffing challenges brought on by COVID-19. We continue to monitor the current COVID-19 situation in each market we perform procedures and will react accordingly.
Three months completed
The following tables summarize certain results from the statements of income for each of the periods indicated and the changes between periods. The tables also show the percentage relationship to revenue for the periods indicated: Three Months Ended March 31, 2022 2021 % of % of ($ in thousands) Amount Revenue Amount Revenue Revenue
$ 39,544100.0 % $ 26,141100.0 % Operating expenses: Cost of service (exclusive of depreciation and amortization shown below) 14,662 37.1 % 8,785 33.6 % Selling, general and administrative 24,167 61.1 % 8,658 33.1 % Depreciation and amortization 1,886 4.8 % 1,491 5.7 % Total operating expenses 40,715 103.0 % 18,934 72.4 % (Loss)/income from operations (1,171) (3.0) % 7,207 27.6 % Interest expense, net 1,492 3.8 % 586 2.2 % Pre-tax net (loss)/income (2,663) (6.7) % 6,621 25.3 % Income tax benefit (1,970) (5.0) % - - % Net (loss)/income $ (693)(1.8) % $ 6,62125.3 % Overview-Our financial results for the three months ended March 31, 2022compared to the three months ended March 31, 2021reflect the addition of five de novo centers and expansion of existing centers which increased our procedure rooms by 13. Revenue-Our revenue increased $13.4 million, or 51.3%, compared to the same period in 2021. The increase is the result of adding five de novo centers which expanded our footprint from 14 centers to 19 centers and our number of procedure rooms from 23 to 36 as of March 31, 2022. We have also experienced strong revenue per case growth over the prior year of 15.4%. This increase is primarily due to patients having more areas treated at one visit as compared to prior periods and we attribute this to our brand awareness focus and more specifically to AirSculpt TV, which allows prospective patients to see live procedures being performed. Revenue also increased due to our same-center case volume, which increased to 2,702 cases from 2,408 cases for the three months ended March 31, 2022, a 12.2% increase compared to the same period in 2021. This increase at our existing centers relates to continued expansion of our social media and marketing capabilities to drive further brand awareness and increase consumer acceptance for our procedures. Cost of Service-Our cost of services increased $5.9 million, or 66.9%, compared to the three months ended March 31, 2021. This increase is attributable to opening five centers since the 2021 period and an increase in our same center volumes and revenue. Cost of service was 37.1% and 33.6% as a percentage of revenue for the three months ended March 31, 2022and 2021, respectively. This increase is primarily due to adding five de novo centers over the prior period. Cost of service as a percent of revenue is higher for a de novo center in the first year until the center reaches maturity, which can take up to two years. Cost of services was also impacted by clinical additions to our nursing teams. These investments will further enhance quality and safety for our patients and better prepare us for future growth in both existing centers and the new centers we are developing. 16
Selling, General and Administrative Expenses-Selling, general and administrative expenses increased
$15.5 million, or 179.1%, for the three months ended March 31, 2022compared to the same period in 2021. This increase is primarily related to the addition of public company costs of approximately $2.3 millionand an increase in equity-based compensation of $7.3 million. This increase is also related to additional expenses we incurred for marketing and corporate support as we grow our center count through de novo expansion and providing support for our centers. We expect these costs to continue to increase as we continue to open de novo centers and expand the support we provide to our centers. Selling, general and administrative expenses as a percent of revenue was at 61.1% and 33.1% for the three months ended March 31, 2022and 2021, respectively. Selling expenses consist of advertising costs for social, digital and traditional marketing and sales and marketing personnel. Total selling expenses were approximately $7.1 millionand $3.6 millionfor the three months ended March 31, 2022and 2021, respectively. Our customer acquisition costs were approximately $2,200and $1,500per customer in the three months ended March 31, 2022and 2021, respectively. We intend to continue investing in our sales and marketing capabilities as we add new centers and further increase our brand awareness, which will also drive further same-center growth. As a result, we expect these costs to increase on an absolute dollar basis. Additionally, selling expenses as a percentage of revenue may fluctuate from quarter to quarter based on the timing and scope of our initiatives and the related impact to our revenue. General and administrative expenses include employee-related expenses, including salaries and related costs (excluding physician and clinical cost included in cost of service), equity-based compensation, technology, operations, finance, legal, corporate office rent and human resources. General and administrative expense were approximately $17.1 millionand $5.0 millionfor the three months ended March 31, 2022and 2021, respectively. As previously mentioned, equity-based compensation and public company costs were the two main drivers for this increase. We expect our general and administrative expenses to increase over time in absolute dollars due to the additional legal, accounting, insurance, investor relations and other costs that we incur as a public company. We also expect to expand our corporate team to support the opening of new centers and growth at existing facilities. Depreciation and Amortization-Depreciation and amortization increased to approximately $1.9 millionfor the three months ended March 31, 2022compared to $1.5 millionfor the same period in 2021. This increase is the result of having five additional de novo centers during the three months ended March 31, 2022as compared to the 2021 period. Interest Expense, net-Interest expense increased to $1.5 millionfrom $0.6 millionfor the three months ended March 31, 2022and 2021, respectively. The increase is the result of adding an incremental $52.0 millionof senior secured term loans in May 2021. Income Tax Expense-As a result of the Reorganization, the Company became subject to taxation as a C corporation for periods after October 28, 2021. Our effective tax rate is 74.0% for the three months ended March 31, 2022.
Cash and capital resources
We principally rely on cash flows from operations as our primary source of liquidity and, if needed, up to
$5.0 millionin revolving loans under our revolving credit facility. Our primary cash needs are for payroll, marketing and advertisements, rent, capital expenditures associated with de novo locations and new procedure room additions, as well as information technology and infrastructure, including our corporate office. We believe that the cash expected to be generated from operations and the availability of borrowings under the revolving credit facility will be sufficient for our working capital requirements, liquidity obligations, anticipated capital expenditures relating to the opening of de novo centers, adding new procedure rooms to our existing locations, and payments due under our existing credit facilities for at least the next 12 months. As of March 31, 2022, we had $27.2 millionin cash and cash equivalents and an available amount of $5.0 millionunder our revolving credit facility. We do not have any letters of credit outstanding as of March 31, 2022. 17
The following table summarizes the net cash provided by (used for) operating activities, investing activities and financing activities for the periods indicated: Three Months Ended March 31, ($ in thousands) 2022 2021 Cash Flows Provided By (Used For): Operating activities
$ 7,080 $ 9,178Investing activities (4,274) (1,592) Financing activities (924) (3,757) Net increase in cash and cash equivalents 1,882 3,829
The primary source of our operating cash flow is the collection of patient payments received prior to performing surgical procedures. For the three months ended
March 31, 2022, our operating cash flow decreased by $2.1 millioncompared to the same period in 2021. This decrease is primarily driven by $2.3 millionof public company costs in the three months ended March 31, 2022which did not exist in the prior year period. At March 31, 2022, we had working capital of $16.5 millioncompared to $13.0 millionat December 31, 2021.
Net cash used in investing activities for the three months ended
March 31, 2022and 2021 was $4.3 millionand $1.6 million, respectively. These expenditures were used to open new de novo centers, facilitate the addition of new procedure rooms to existing facilities, and invest in improvements to our medical equipment and technology during the period. The increase in investing activities during the three months ended March 31, 2022as compared to the three months ended March 31, 2021was attributable to capital expenditures for de novo center activities, construction related to adding procedure rooms to existing facilities, and investments in improving our medical equipment and technology.
Net cash used in financing activities during the three months ended
March 31, 2022was $0.9 million. During the three months ended March 31, 2022, we made distributions to our former member of $0.7 millionand made scheduled principal payments on our debt of $0.2 million. Net cash used in financing activities for the three months ended March 31, 2021was $3.8 million. For the three months ended March 31, 2021, we made distributions to EBS Parent, LLCof $3.7 millionand paid scheduled principal payments on our debt of $0.1 million.
The carrying value of our total indebtedness was
$82.6 millionand $82.6 million, which includes unamortized deferred financing costs and issuance discount of $1.5 millionand $1.7 million, as of March 31, 2022and December 31, 2021, respectively.
Term Loan and Revolving Credit Agreement
October 2018, we entered into our credit agreement with First Eagle Alternative Capital(formerly known as THL Corporate Finance). Under the terms of the credit agreement, we obtained a $34.0 millionterm loan and a $5.0 millionrevolving credit facility. Principal payments on the term loan commenced in January 2019and are paid quarterly in the amount of $100,000through the maturity date on October 2, 2023when all remaining unpaid principal shall be due. The term loan is presented as long-term debt, net of debt issuance costs. In May 2021, we amended the credit agreement by adding an incremental $52.0 millionsenior secured term loan to the existing term loan. The proceeds from this incremental loan plus excess cash on our balance sheet were used to pay a distribution to our member of approximately $59.7 millionand the related fees for this transaction. Beginning on June 30, 2021, our quarterly principal payments increased from $100,000to $212,500. 18
Under the credit agreement, we are obligated to make interest payments on the last day of each month. All outstanding loans bear interest based on either a base rate or LIBOR (in all cases, the LIBOR component has a floor of 1%) plus an applicable per annum margin of 4.5% (base rate) or 5.5% (LIBOR) if our total leverage ratio, as defined in the credit agreement, is equal to or greater than 2.5x and less than 4.25x. If our total leverage ratio is equal to or greater than 4.25x, the interest is based on either a base rate or LIBOR plus an applicable per annum margin of 5.0% (base rate) or 6.0% (LIBOR). If our total leverage ratio is below 2.5x, the interest is based on either a base rate or LIBOR plus an applicable per annum margin of 4.0% (base rate) or 5.0% (LIBOR). At
March 31, 2022, the applicable per annum margins under the credit agreement were 4.0% (base rate) and 5.0% (LIBOR). Additionally, we are required to pay an unused credit facility fee equal to 0.5% per annum on the unused amount of the revolving line of credit. If our total leverage ratio exceeds 4.25x for the preceding twelve-month period the principal payment on the term loan is $250,000per quarter or, beginning on September 30, 2021, $531,250per quarter. Also, additional principal prepayments could be required if excess cash flow exists, as defined in the credit agreement. All borrowings under the credit facility are collateralized by substantially all our assets. We are subject to certain restrictive financial covenants including quarterly total leverage ratio and fixed charge ratio requirements and a limit on capital expenditures. We are in compliance with all covenants and have no letters of credit outstanding as of March 31, 2022and December 31, 2021. On October 25, 2021, we amended certain provisions in our credit agreement related to the IPO transaction. The amendment revises certain definitions and covenant requirements but does not change the timing or amount of principal payments or interest due under the agreement. As of March 31, 2022, we were in compliance with all revised covenant requirements.
Off-balance sheet arrangements
We have no off-balance sheet arrangements
Accounting election of the JOBS law
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Subject to certain conditions set forth in the JOBS Act, if, as an "emerging growth company," we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an "emerging growth company," whichever is earlier.
Significant Accounting Policies and Estimates
A summary of significant accounting policies is disclosed in our Annual Report on Form 10-K dated
March 11, 2022filed with the Securities and Exchange Commission("SEC") pursuant to Section 13 or 15d of the Securities Exchange Act of 1934 under the caption "Critical Accounting Policies and Estimates" in the Management's Discussion and Analysis of Financial Condition and Results of Operations section. There have been no material changes in the nature of our critical accounting policies and estimates or the application of those policies since March 11, 2022. 19
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