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13: R3 Condensed Consolidated Balance Sheets HTML 25K
(Parenthetical)
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(Unaudited)
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Member's/Stockholders' Equity (Unaudited)
16: R6 Condensed Consolidated Statements of Cash Flows HTML 96K
(Unaudited)
17: R7 Organization and Summary of Key Accounting HTML 44K
Policies
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25: R15 Related Party Transactions HTML 21K
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27: R17 Segment Information HTML 24K
28: R18 Subsequent Events HTML 20K
29: R19 Organization and Summary of Key Accounting HTML 57K
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(Former
Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock, par value $0.001 per share
iAIRS
iThe Nasdaq Global Market
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes oiNox
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesx No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
iNon-accelerated
filer
x
Smaller reporting company
i☒
Emerging growth company
i☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. i☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No i☒
We have made statements in the sections titled “Quantitative and Qualitative Disclosures About Market Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other sections of this Quarterly Report on Form 10-Q that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,”“might,”“will,”“should,”“expects,”“plans,”“anticipates,”“believes,”“estimates,”“predicts,”“potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial
performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed in the section titled “Risk Factors” in our Annual Report on Form 10-K.
Our future results could be affected by a variety of other factors, including, but not limited to, failure to open and operate new centers in a timely and cost-effective manner; shortages or quality control issues with third-party manufacturers or suppliers; competition for surgeons; litigation or medical malpractice claims; inability to protect the confidentiality of our
proprietary information; changes in the laws governing the corporate practice of medicine or fee-splitting; changes in the regulatory, macroeconomic conditions, including inflation and the threat of recession, economic and other conditions of the states and jurisdictions where our facilities are located; and business disruption or other losses from war, pandemic, terrorist acts or political unrest.
The risk factors discussed in “Risk Factors” in our Annual Report on Form 10-K could cause our results to differ materially from those expressed in the forward-looking statements made in this Quarterly Report on Form 10-Q.
There also may be other risks that are currently unknown to us or that we are unable to predict at this time.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot
guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Forward-looking statements speak only as of the date they were made, and we are under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations.
The
Company, through its wholly-owned subsidiaries, is a provider of practice management services to professional associations (“PAs”) located throughout the United States. The Company owns and operates non-clinical assets and provides its management services to the PAs through management services agreements (“MSAs”). Management services provide for the administration of the non-clinical aspects of the medical operations and include, but are not limited to, financial, administrative, technical, marketing, and personnel services. Pursuant to the MSA, the PA is responsible for all clinical aspects of the medical operations of the practice.
i
Principles
of Consolidation
These consolidated financial statements present the financial position and results of operations of the Company, its wholly-owned subsidiaries, and the PAs, which are under the control of the Company and are considered variable interest entities in which the Company is the primary beneficiary.
All intercompany accounts and transactions have been eliminated in consolidation.
i
Variable
Interest Entities
The Company has a variable interest in the managed PAs where it has a long-term and unilateral controlling financial interest over such PAs’ assets and operations. The Company has the ability to direct the activities that most significantly affect the PAs’ economic performance via the MSAs and related agreements. The Company is a practice management service organization and does not engage in the practice of medicine. These services are provided by licensed professionals at each of the PAs. Certain key features of the MSAs and related agreements enable the Company
to assign the member interests of certain of the PAs to another member designated by the Company (i.e., “nominee shareholder”) for a nominal value in certain circumstances at the Company’s sole discretion. The MSA does not allow the Company to be involved in, or provide guidance on, the clinical operations of the PAs. The Company consolidates the PAs into the financial statements. All of the Company’s revenue is earned from services provided by the PAs. The only assets and liabilities held by the PAs included in the accompanying consolidated
balance sheets are clinical related. The clinical assets and liabilities are not material to the Company as a whole.
Basis of Presentation
The condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of operations and member's/stockholders' equity for the three and six months ended June 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 are unaudited. The unaudited condensed consolidated financial statements have been prepared on the
same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair statement of the Company’s financial position as of June 30, 2022 and the results of operations and cash flows for the three and six months ended June 30, 2022 and 2021. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial data and the other financial information disclosed in these notes to the condensed consolidated financial statements related to the three and six months ended June 30, 2022
and 2021 are also unaudited. The consolidated results of operations for the three and six
months ended June 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022 or for any other future annual or interim period.
The
condensed consolidated balance sheet as of December 31, 2021 is derived from the Company’s annual audited consolidated financial statements for the year ended December 31, 2021, which should be read in conjunction with these condensed consolidated financial statements and which are included in the Company’s Annual Report dated March 11, 2022 filed with the Securities and Exchange Commission ("SEC") pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, as well as interests in PAs controlled by the Company through rights granted to the Company by contract to manage and control the affiliate’s business (as described in “Variable Interest Entities” above). All significant intercompany balances and transactions are eliminated in consolidation.
i
Revenue
Recognition
Revenue consists primarily of revenue earned for the provision of the Company’s patented AirSculpt® procedures. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are delivery of specialty, minimally invasive liposuction services.
The
Company assists patients, as needed, by providing third-party financing options to pay for procedures. The Company has arrangements with various financing companies to facilitate this option. There is a financing transaction fee based on a set percentage of the amount financed and the Company recognizes revenue based on the expected transaction price which is reduced for financing fees.
Revenue for services is recognized when the service is performed. Payment is typically rendered in advance of the service. Customer contracts generally do not include more than one performance obligation.
The
Company’s policy is to require payment for services in advance. Payments received for services that have yet to be performed as of June 30, 2022 and December 31, 2021 are included in deferred revenue and patient deposits.
iDeferred Financing Costs, Net
Loan costs and discounts are capitalized in the period in which they are incurred and amortized on the straight-line basis over the term
of the respective financing agreement which approximates the effective interest method. These costs are included as a reduction of long-term debt on the condensed consolidated balance sheets. Total amortization of deferred financing costs was approximately $i0.3 million and $i0.1 million
for the three months ended June 30, 2022 and 2021, respectively, and $i0.5 million and $i0.2 million
for the six months ended June 30, 2022 and 2021, respectively. Amortization of loan costs and discounts is included as a component of interest expense.
iLong-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with the provisions
of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill and Other. This standard requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to future estimated cash flows expected to arise as a direct result of the use and eventual disposition of the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. iiiiNo///
impairment charges were recognized for the three and six months ended June 30, 2022 and 2021.
ASC Topic 820, Fair Value
Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosure requirements about fair value measurements.
ASC Topic 820 defines three categories for the classification and measurement of assets and liabilities carried at fair value:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or observable inputs that are corroborated by market data.
Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.
The fair value of financial instruments is generally estimated through the use of public market
prices, quotes from financial institutions and other available information. Judgment is required in interpreting data to develop estimates of market value and, accordingly, amounts are not necessarily indicative of the amounts that could be realized in a current market exchange.
Short-term financial instruments, including cash, prepaid expenses and other current assets, accounts payable, and other liabilities, consist primarily of instruments without extended maturities, for which the fair value, based on management’s estimates, approximates their carrying values. Borrowings bear interest at what is estimated to be current market rates of interest, accordingly, carrying value approximates fair value.
i
Earnings
Per Share
Basic earnings per share of common stock is computed by dividing net income/(loss) attributable to AirSculpt Technologies, Inc. for the three and six months ended June 30, 2022 by the weighted-average number of shares of common stock outstanding during the same period. Diluted earnings per share of common stock is computed by dividing net income/(loss) attributable to AirSculpt Technologies, Inc. for the three and six months ended June 30, 2022 by the weighted-average number of shares of common stock adjusted to give effect to potentially dilutive securities. Where the inclusion of potentially dilutive shares would be antidilutive, diluted loss per share equals basic loss per share.
Prior to the IPO, the EBS Intermediate Parent, LLC structure included only LLC common units.
As a result, the Company does not believe earnings per share to be a meaningful presentation in the accompanying condensed consolidated financial statements for the three and six months ended June 30, 2021.
iAdvertising Costs
Advertising costs are expensed in the period when the costs are incurred and are included as a component of selling, general and
administrative costs. Advertising expenses were approximately $i5.2 million and $i2.6 million for the three months ended June 30, 2022 and 2021,
respectively, and $i10.0 million and $i5.1 million for the six months ended June 30, 2022 and 2021, respectively.
i
Income
Taxes
Prior to the Reorganization, the Company was organized as a limited liability company and had elected to be treated as a partnership for federal and state income tax purposes. Accordingly, the tax consequences of the Company’s profits and losses were passed through to the members of the Company and were reported in their respective income tax returns. Therefore, historically no provision for income taxes has been provided in the accompanying condensed consolidated financial statements for the periods prior to the Reorganization.
As a result of the Reorganization, the
Company became subject to taxation as a C corporation for periods after October 28, 2021.
The Company applies the provisions of ASC 740-10, Accounting for Uncertain Tax Positions (“ASC 740-10”). Under these provisions, companies must determine and assess all material positions existing as of the reporting date, including all significant uncertain positions, for all tax years that are open to assessment or challenge under tax statutes. Additionally,
those
positions that have only timing consequences are analyzed and separated based on ASC 740-10’s recognition and measurement model.
ASC 740-10 provides guidance related to uncertain tax positions for pass-through entities and tax-exempt not-for profit entities. ASC 740-10 also modifies disclosure requirements related to uncertain tax positions for nonpublic entities and provides that all entities are subject to ASC 740-10 even if the only tax position in question is the entity’s status as a pass-through.
As required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the uncertain tax position guidance to all tax positions for which the statute of limitations remained open and determined that there are iino/
uncertain tax positions as of June 30, 2022 or December 31, 2021. The Company is not subject to U.S. federal tax examination prior to 2021, when it was formed.
The Company has effective tax rates of approximately i75.7% and i57.5%
for the three and six months ended June 30, 2022, respectively, and i—% and i—%
for the three and six months ended June 30, 2021, respectively, inclusive of all applicable U.S. federal and state income taxes. Prior to the Reorganization, the Company was not subject to federal taxation.
i
NOTE 2 – GOODWILL AND INTANGIBLES, NET
The annual review of goodwill
impairment will be performed in October 2022. There were no triggering events during the three and six months ended June 30, 2022 and 2021.
Accumulated
amortization of technology and know-how
(i13,399)
(i11,613)
Accumulated
amortization of tradenames and trademarks
(i4,425)
(i3,835)
Total
intangible assets
$
i53,476
$
i55,852
/
Aggregate
amortization expense on intangible assets was approximately $ii1.2/
million for both of the three months ended June 30, 2022 and 2021, and $ii2.4/
million for both of the six months ended June 30, 2022 and 2021.
Depreciation expense was approximately $i0.8 million and $i0.3 million for the three months ended June 30, 2022 and
2021, respectively, and $i1.5 million and $i0.6 million for the six months ended June 30, 2022 and 2021,
respectively.
i
NOTE 4 – DEBT
In October 2018, the Company entered into a credit agreement (the “Credit Agreement”) with a lender. Under the terms of the Credit Agreement, we obtained a $i34.0 million
term loan. In May 2021, the Company amended the Credit Agreement by adding an incremental $i52.0 million senior secured term loan, resulting in an $i83.8 million
term loan in aggregate. The proceeds from this loan plus excess cash on the balance sheet were used to pay a distribution to EBS Parent, LLC (the "Parent") of approximately $i59.7 million and the related fees for this transaction. Beginning on June 30, 2021, the quarterly principal payments increased from $i100,000
to $i212,500.
There were no changes in the terms of the Credit Agreement during the three and six months ended June 30, 2022.
The
scheduled future maturities of long-term debt as of June 30, 2022 is as follows (in 000’s):
2022
$
i425
2023
i83,413
Total
maturities
$
i83,838
/
All borrowings under the Credit Agreement are cross collateralized by substantially all assets of the Company and are subject to certain
restrictive covenants including quarterly total leverage ratio, fixed charge ratio requirements and a limit on capital expenditures. The Company is in compliance with all covenants and has ino letter of credit outstanding as of June 30, 2022.
/i
NOTE
5 – LEASES
The Company’s operating leases are primarily for real estate, including medical office suites and corporate offices. For the three months ended June 30, 2022 and 2021, the Company incurred rent expense of $i1.0 million and $i0.8
million, respectively, for its medical office suites. For the six months ended June 30, 2022 and 2021, the Company incurred rent expense of $i2.0 million and $i1.6
million, respectively, related to its medical office suites. The Company’s rent expense related to its medical office suites is classified in cost of services within the Company’s condensed consolidated statements of operations. The Company incurred rent expense of $i119,000 and $i27,000
for the three months ended June 30, 2022 and 2021, respectively, and $i164,000 and $i49,000
for the six months ended June 30, 2022 and 2021, respectively, related to the corporate offices which is classified in selling, general and administrative expenses. The Company currently does not have any finance leases.
Real estate lease agreements typically have initial terms of five to iten years and may include ione
or more options to renew. The useful life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do not contain any material residual value guarantees, restrictions or covenants.
Cash paid for amounts included in the measurement of lease liabilities:
Operating
cash outflows from operating leases
$
i2,026
$
i1,494
Right-of-use
assets obtained in exchange for lease obligations:
Operating leases
$
i6,138
$
i—
/i
Future
minimum rental payments under all non-cancellable operating lease agreements for the succeeding five years are as follows, excluding common area maintenance charges that may be required by the agreements (in 000’s):
NOTE
6 – STOCKHOLDERS' EQUITY AND EQUITY-BASED COMPENSATION
Subsequent to the IPO and Reorganization, AirSculpt established the 2021 Equity Incentive Plan. During the six months ended June 30, 2022, the Company granted i285,423
restricted stock units to executive officers and employees. These RSUs are not considered outstanding until vested. Certain restricted stock units are subject to time-based vesting conditions while other restricted stock units are subject to performance-based vesting conditions. Of the total restricted stock units granted i103,936 had market-based performance vesting conditions. The
market vesting criteria is based on the Company’s actual performance and/or market condition results as compared to the targets. In addition to the achievement of the performance conditions, these PSUs are generally subject to the continuing service of the employee over the ratable vesting period from the earned date continuing through the settlement of the shares. For these PSUs, the shares settle in the first quarter of the year following the year in which the vesting criteria is met. The time-based vesting units fair values were determined based on the closing price of the Company’s common stock on the trading date immediately prior to the grant date. The fair values of restricted stock units with a market-based vesting condition were estimated using a Monte Carlo simulation model.
The
Company recorded equity-based compensation expense of $i7.3 million and $i0.1 million for the three months
ended June 30, 2022 and 2021, respectively, and $i14.6 million and $i0.2
million for the six months ended June 30, 2022 and 2021, respectively, in selling, general and administrative expenses on the condensed consolidated statements of operations. Forfeitures are recognized as incurred.
The Company recognized distributions to the Parent of approximately $i0.3 million and $i60.1 million
for the three months ended June 30, 2022 and 2021, respectively, and approximately $i0.6 million and $i63.8
million for the six months ended June 30, 2022 and 2021, respectively.
/
i
NOTE 7 – EARNINGS PER SHARE
Basic
earnings per share of common stock is computed by dividing net income/loss attributable to AirSculpt Technologies, Inc. for the three and six months ended June 30, 2022 by the weighted-average number of shares of common stock outstanding during the same period. Diluted earnings per share of common stock is computed by dividing net income/loss
attributable to AirSculpt Technologies, Inc. for the three and six months ended June 30, 2022 by the weighted-average number of shares of common stock adjusted to give effect to potentially dilutive
securities. Where the inclusion of potentially dilutive shares would be antidilutive, diluted loss per share equals basic loss per share.
Prior to the IPO, the EBS Intermediate Parent, LLC structure included only LLC common units issued and outstanding to pre-IPO LLC members. The Company analyzed the calculation of earnings per unit for periods prior to the IPO and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per share information has not been presented for periods prior to the IPO on October 28, 2021.
i
A
reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share of common stock is as follows (in 000’s except for shares and per share figures):
Weighted
average shares of common stock outstanding - basic
i55,640,154
N/A
i55,640,154
N/A
Add:
Effect of dilutive securities
i2,720,531
N/A
i—
N/A
Weighted
average shares of common stock outstanding - diluted
i58,360,685
N/A
i55,640,154
N/A
Loss
per share of common stock outstanding - basic and diluted
$
ii0.01/
N/A
$
(ii0.00/)
N/A
/i
The
following number of potentially dilutive shares were excluded from the calculation of diluted loss per share because the effect of including such potentially dilutive shares would have been antidilutive.
As a result of the Reorganization, the Company became subject to taxation as a C corporation for periods after October 28, 2021. The Company's income tax expense/(benefit) for the three and six months ended June 30, 2022 was $i1.8 million and
$(i0.1) million, respectively, and the effective tax rate for the three and six months ended June 30, 2022 was i75.7% and i57.5%,
respectively. The main driver of the difference between the effective and statutory rate is non-deductible executive compensation under Section 162(m) of the Internal Revenue Code. There are iino/
uncertain tax positions as of June 30, 2022 or December 31, 2021.
/i
NOTE 9 – RELATED PARTY TRANSACTIONS
The
Company entered into a professional services agreements, effective October 2, 2018, with Vesey Street Capital Partners, LLC, JCBI II, LLC, and Dr. Aaron Rollins (collectively the “Advisors”), where the Advisors provided certain managerial and advisory services to the Company. Each of the Advisors had an ownership interest in the Parent. Under the professional services agreements, the Company agreed to pay the Advisors an aggregate annual fee (also referred to as the sponsor management fee) of the greater of $i500,000
or i2% of consolidated earnings before interest, tax, depreciation and amortization, payable in advance quarterly installments, and the fee was allocated between the Advisors based on the outstanding Parent Class A Units held. Under the agreements, the Company also reimbursed the Advisors for any out-of-pocket expenses incurred related to providing their services. In conjunction with the IPO and Reorganization, the professional services agreements with the Advisors were terminated. During the three months ended
June 30, 2022 and 2021, the Company incurred sponsor management fees of approximately $i— and $i125,000,
respectively. During the six months ended June 30, 2022 and 2021, the Company incurred sponsor management fees of approximately $i— and $i250,000,
respectively.
In the ordinary course of business, the Company becomes involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by the PAs employed and affiliated physicians. The Company may also become subject to other lawsuits which could involve large claims and significant costs. The Company believes, based upon a review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on its business, financial condition, results of
operations, and cash flows. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on the Company’s business, financial condition, results of operations, and cash flows.
Although the Company currently maintains liability insurance coverage intended to cover professional liability and certain other claims, the Company cannot assure that its insurance coverage will be adequate to cover liabilities arising out of claims asserted against it in the future where the outcomes of such claims are unfavorable. Liabilities in excess of the
Company’s insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on the Company’s business, financial condition, results of operations, and cash flows.
i
NOTE 11 – SEGMENT INFORMATION
The
Company has ione reportable segment: direct medical procedure services. This segment is made up of facilities and medical staff that provide the Company’s patented AirSculpt® procedures to patients. Segment information is presented in the same manner that the Company’s chief operating decision maker (“CODM”) reviews the operating results in assessing performance and allocating
resources. The Company’s CODM is the Company’s chief executive and chief operating officers. This committee reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources. The Company’s CODM reviews revenue, gross profit and Adjusted EBITDA. Gross profit is defined as revenues less cost of service incurred and Adjusted EBITDA as net income/loss excluding depreciation and amortization, net interest expense, loss on debt modification, sponsor management fee, pre-opening de novo and relocation costs, restructuring and related severance costs, IPO related costs, loss on disposal of long-lived assets, and equity-based
compensation.
/i
NOTE 12 – SUBSEQUENT EVENTS
On August 10, 2022, the Board of Directors of AirSculpt Technologies, Inc. approved a $i0.41
per share special cash dividend. The dividend will be paid on September 14, 2022, to shareholders of record at the close of business on August 26, 2022.
On August 11, 2022the Company amended the Credit Agreement to provide for (i) the payment of cash dividends in an amount not to exceed $i23,000,000
on or prior to September 30, 2022 and (ii) the payment of cash dividends in an amount not to exceed $i2,000,000 with respect to securities that are not vested at the time such cash dividend is paid.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2022 filed 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.
Overview
AirSculpt is an experienced, fast-growing national provider of body contouring procedures delivering a premium consumer
experience under its brand, Elite Body Sculpture. 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, and in July 2022, we opened a new center in Boston, MA. We deliver our AirSculpt® procedures through a growing nationwide footprint of 20 centers across 16 states as of August 12, 2022.
For the three and six months ended June 30, 2022, we performed 3,691 and 6,847 cases, respectively. For the three and six months ended June 30, 2022, we generated approximately $49.7 million and $89.2 million of revenue, respectively, compared to $35.0 million and $61.1 million for the three and six months
ended June 30, 2021, respectively. This represents approximately 42% growth for the three months ended June 30, 2022 over the same period in prior year and approximately 46% growth for the six months ended June 30, 2022 over the same period in prior year.
Key Operational and Business Metrics
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
Performed and Revenue per Case
Our case volumes in the table below, which are used for calculating revenue per case, represent one patient visit; notwithstanding that, a patient may have multiple areas treated during one visit. We believe this provides the best approach for assessing our revenue performance and trends. Our cases per procedure room is lower in the current period due to the recent addition of four de novo centers and expansions of existing centers which increased our procedure rooms by 13 over prior year. We believe this decline to be temporary as the new procedure rooms ramp up. The expansion of procedure rooms will provide an ample platform for the Company's continued future growth.
For the three months ended June 30, 2022 and 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 April 1, 2021. We define same-center facilities and procedure rooms based on if a facility has been owned or operated since April 1, 2021.
For the six months ended June 30, 2022 and 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 as facilities and procedure rooms that have been owned or operated since January 1, 2021.
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/(loss) excluding depreciation and amortization, net interest expense, income tax expense/(benefit), sponsor management fee, pre-opening de novo and relocation costs, restructuring and related severance costs, IPO related costs, loss on disposal of long-lived assets, 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.
The following table reconciles Adjusted EBITDA and Adjusted EBITDA Margin to net (loss)/income, the most directly comparable GAAP financial measure:
Three Months Ended June 30,
Six Months Ended June 30,
($
in thousands)
2022
2021
2022
2021
Net income/(loss)
$
583
$
10,027
$
(110)
$
16,648
Plus
Sponsor
management fee
—
125
—
250
Equity-based compensation
7,275
86
14,591
172
Loss on debt
modification
—
682
—
682
IPO related costs
—
—
731
—
Pre-opening de novo and relocation
costs
1,249
430
2,096
982
Restructuring and related severance costs
550
161
730
270
Depreciation
and amortization
1,962
1,532
3,848
3,023
Loss on disposal of long-lived assets
227
—
227
—
Interest
expense, net
1,559
1,171
3,051
1,757
Income tax expense/(benefit)
1,821
—
(149)
—
Adjusted
EBITDA
$
15,226
$
14,214
$
25,015
$
23,784
Adjusted EBITDA Margin
30.7
%
40.6
%
28.0
%
38.9
%
Impact
of COVID-19
Through the first six 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.
The following table and notes summarize certain results from the statements of income for each of the periods indicated and the changes between periods. The table also show the percentage relationship to revenue for the periods indicated:
Cost of service (exclusive of depreciation and amortization shown below)
17,492
35.2
%
11,223
32.1
%
Selling,
general and administrative
26,010
52.4
%
10,332
29.5
%
Loss on debt modification
—
—
%
682
2.0
%
Depreciation
and amortization
1,962
4.0
%
1,532
4.4
%
Loss on disposal of long-lived assets
227
0.5
%
—
—
%
Total
operating expenses
45,691
92.0
%
23,769
68.0
%
Income from operations
3,963
8.0
%
11,198
32.0
%
Interest
expense, net
1,559
3.1
%
1,171
3.3
%
Pre-tax net income
2,404
4.8
%
10,027
28.7
%
Income
tax expense
1,821
3.7
%
—
—
%
Net income
$
583
1.2
%
$
10,027
28.7
%
Overview—Our
financial results for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 reflect the addition of four de novo centers and expansions of existing centers which increased our procedure rooms by 13.
Revenue—Our revenue increased $14.7 million, or 42.0%, compared to the same period in 2021. The increase is the result of adding four de novo centers which expanded our footprint from 15 centers to 19 centers and our number of procedure rooms from 25 to 38 as of June 30, 2022. We have also experienced strong revenue per case growth over the prior year of 16.0%. 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 3,155 cases from 3,014 cases for the three months ended June 30, 2022, a 4.7% 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 $6.3 million, or 55.9%, compared to the three months ended June 30, 2021. This increase is attributable to opening four centers since the 2021 period and an increase in our same center volumes and revenue. Cost
of service was 35.2% and 32.1% as a percentage of revenue for the three months ended June 30, 2022 and 2021, respectively. This increase is primarily due to adding four 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.
Selling, General and Administrative Expenses—Selling, general and administrative expenses increased $15.7 million, or 151.7%, for the three months ended June 30,
2022 compared to the same period in 2021. This increase is primarily related to the addition of public company costs of approximately $1.9 million and an increase in equity-based compensation of
$7.2 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 52.4% and 29.5% for the three months
ended June 30, 2022 and 2021, respectively.
Selling expenses consist of advertising costs for social, digital and traditional marketing and sales and marketing personnel. Total selling expenses were approximately $7.6 million and $3.9 million for the three months ended June 30, 2022 and 2021, respectively. Our customer acquisition costs were approximately $2,000 and $1,300 per customer in the three months ended June 30, 2022 and 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 $18.4 million and $6.4 million for the three months ended June 30, 2022 and 2021, respectively. As previously mentioned, equity-based compensation, increasing our corporate overhead, and public company costs were the three 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.
Loss on debt modification—We recognized a $0.7 million loss related to amending our existing credit agreement in May 2021, adding an incremental $52.0 million of senior secured term loans.
Depreciation and Amortization—Depreciation and amortization increased to approximately $2.0 million for the three months ended June 30, 2022 compared to $1.5 million for the same period in 2021. This increase is the result of having four additional de novo
centers during the three months ended June 30, 2022 as compared to the 2021 period.
Loss on disposal of long-lived assets—We recognized a $0.2 million loss related to the disposal of previous leasehold improvements as a result of relocation to expand certain centers.
Interest Expense, net—Interest expense increased to $1.6 million from $1.2 million for the three months ended June 30, 2022 and 2021, respectively. The increase is the result of adding an incremental $52.0 million of 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 75.7% for the three months ended June 30, 2022.
The following table and notes summarize certain
results from the statements of income for each of the periods indicated and the changes between periods. The table also show the percentage relationship to revenue for the periods indicated:
Overview— Our financial results for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 reflect the addition of four de novo centers and expansions of existing centers which increased our procedure rooms by 13.
Revenue—Our
revenue increased $28.1 million, or 46.0%, compared to the same period in 2021. The increase is the result of adding 4 de novo centers which expanded our footprint from 15 centers to 19 centers and our number of procedure rooms from 25 to 38 as of June 30, 2022. We have also experienced strong revenue per case growth over the prior year of 15.6%. 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 5,710 cases from 5,308 cases for the six months ended June 30, 2022 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 service increased $12.1 million, or 60.7%, compared to the six months ended June 30, 2021. This increase is primarily attributable to opening four de novo centers since the 2021 period and an increase in our same center volumes and revenue. Cost of service was 36.0% and 32.7% as a percentage of revenue for the six months ended June 30, 2022 and 2021, respectively. This increase is primarily due to adding four 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.
Selling, General and Administrative Expenses—Selling, general and administrative expenses increased $31.2 million, or 164.2%, for the six months ended June 30, 2022 compared to the same period in 2021. This increase is primarily related to the addition of public company costs of approximately $4.2 million and an increase in equity-based compensation of $7.2 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 were 56.3% and 31.1% for the six months ended June 30, 2022 and 2021, respectively.
Selling expenses consist of advertising spend for social, digital and traditional marketing and sales and marketing personnel. Total selling expenses were approximately $14.7 million and $7.5 million for the six months
ended June 30, 2022 and 2021, respectively. Our customer acquisition costs were approximately $2,150 and $1,400 per customer in the six months ended June 30, 2022 and 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), unit-based compensation, technology, operations, finance, legal, corporate office rent and human resources. General and administrative expense were approximately $35.4 million and $11.4 million for the six months ended June 30, 2022 and 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.
Loss on debt modification—We recognized
a $682,000 loss related to amending our existing credit agreement in May 2021, adding an incremental $52.0 million of senior secured term loans.
Depreciation and Amortization—Depreciation and amortization increased to approximately $3.8 million for the six months ended June 30, 2022 compared to $3.0 million for the same period in 2021. This increase is the result of having three additional de novo centers during the six months ended June 30, 2022 as compared to the 2021 period.
Loss on disposal of long-lived assets—We recognized a $0.2 million loss related to the disposal of previous leasehold improvements as a result of relocation to expand certain centers.
Interest Expense, net—Interest
expense increased to $3.1 million from $1.8 million for the six months ended June 30, 2022 and 2021, respectively. The increase is the result of adding an incremental $52.0 million of 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 58% and —% for the six months ended June 30, 2022 and 2021, respectively.
Liquidity
and Capital Resources
We principally rely on cash flows from operations as our primary source of liquidity and, if needed, up to $5.0 million in 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 June 30,
2022, we had $35.3 million in cash and cash equivalents and an available amount of $5.0 million under our revolving credit facility. We do not have any letters of credit outstanding as of June 30, 2022.
The following table summarizes the net cash provided by (used for) operating activities, investing activities and financing activities for the periods indicated:
Six
Months Ended June 30,
($ in thousands)
2022
2021
Cash Flows Provided By (Used For):
Operating activities
$
17,478
$
23,814
Investing activities
(6,139)
(3,149)
Financing
activities
(1,433)
(14,196)
Net increase in cash and cash equivalents
9,906
6,469
Operating Activities
The primary source of our operating cash flow is the collection of patient payments received prior to performing surgical procedures. For the six months ended June 30, 2022, our operating cash flow decreased by $6.3 million compared to the same period in 2021. This decrease is primarily driven by $4.2 million
of public company costs in the six months ended June 30, 2022 which did not exist in the prior year period. At June 30, 2022, we had working capital of $21.4 million compared to $13.0 million at December 31, 2021.
As a result of the increasing risk of a recession as well as other macroeconomic and geopolitical headwinds, we may experience reduced cash flow from operations if we experience decreased revenues.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2022 and 2021 was $6.1 million and $3.1 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 six months ended June 30, 2022 as compared to the six months ended June 30, 2021 was 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.
Financing Activities
Net cash used in financing activities during the six months ended June 30, 2022 was $1.4 million. During the six months ended June 30, 2022, we made
distributions to our former member of $1.0 million and made scheduled principal payments on our debt of $0.4 million.
Net cash used in financing activities for the six months ended June 30, 2021 was $14.2 million. For the six months ended June 30, 2021, we made distributions to EBS Parent, LLC of $63.8 million, had borrowings under our credit agreement of $50.0 million and paid scheduled principal payments on our debt of $0.4 million.
Long-term Debt
The carrying value of our total indebtedness was $82.7 million and $82.6 million, which includes unamortized deferred financing costs and issuance discount of $1.2 million
and $1.7 million, as of June 30, 2022 and December 31, 2021, respectively.
Term Loan and Revolving Credit Agreement
In 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 million term loan and a $5.0 million revolving credit facility. Principal payments on the term loan commenced in January 2019 and are paid quarterly in the amount of $100,000 through the maturity date on October 2, 2023 when 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 million senior 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 million and the related fees for this transaction. Beginning on June 30, 2021, our quarterly principal payments increased from $100,000 to $212,500.
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 June 30, 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 $250,000 per quarter or, beginning on September 30, 2021, $531,250
per 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 June 30, 2022 and 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 June 30, 2022, we were in compliance with all revised covenant requirements.
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.
Critical Accounting Policies and Estimates
A summary of significant accounting
policies is disclosed in our Annual Report on Form 10-K dated March 11, 2022 filed 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.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.
Our primary market risk exposure is changing interest rates. Interest rate risk is highly sensitive due to many factors, including United States monetary and tax policies, United States and international economic factors and other factors beyond our control. Our Credit Agreement bears interest at a floating rate equal to either LIBOR plus 5.5% or a base rate plus 4.5% if the Company’s total leverage is equal to or greater than
2.5x and less than 4.25x as defined in our Credit Agreement. As of June 30, 2022, we had term loan borrowings of $83.8 million in principal amount under the Loan Agreement. Based on the amount outstanding, a 100 basis point increase or decrease in market interest rates over a twelve-month period would result in a change to interest expense of approximately $0.8 million.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended,
(the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.
As of the end of the period covered by this 10-Q Report, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of June 30,
2022.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended June 30, 2022.
Limitations on the Effectiveness of Controls
Our management, including the Chief Executive Officer and the Chief Financial Officer, recognizes that any set of controls and procedures, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls. For these reasons, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
During the ordinary course of business, we have become and may in the future become subject to pending and threatened legal actions and proceedings, including with respect to the quality of our services. All of the current legal actions and
proceedings
that we are a party to are of an ordinary or routine nature incidental to our operations, the resolution of which should not have a material adverse effect on our financial condition, results of operations or cash flows. These claims, to the extent they exceed our insurance deductibles, are covered by insurance, but there can be no assurance that our insurance coverage will be adequate to cover any such liability.
Item 1A. Risk Factors
There have been no material changes with respect to the risk factors discussed in our Annual Report on Form 10-K dated March 11, 2022 filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 28, 2021, our Registration Statement on Form S-1, as amended (File No. 333-260067) was declared effective in connection with our initial public offering, pursuant to which we sold an aggregate of 8,050,000 shares of our common stock, including the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $11.00 per share. Morgan Stanley & Co. LLC, Piper Sandler & Co. and SVB Leerink LLC acted as representatives of the underwriters.
The initial public offering closed on November 2, 2021. The aggregate net proceeds received by the
Company from the initial public offering were approximately $17.7 million, after deducting underwriting discounts and commissions of $6.2 million, but before deducting offering expenses payable by the Company, which were approximately $4.2 million. In connection with our initial public offering, no payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates or to our affiliates. There has been no material change in the planned use of proceeds from our initial public offering as described in our prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on October 29, 2021.
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document
+ Indicates a management contract or any compensatory plan, contract or arrangement.
† The
certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
