Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our financial statements and related notes contained elsewhere in this report and with the audited consolidated financial statements and footnotes as of and for the year ended December 31, 2024 contained within our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 13, 2025. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors discussed in this report and those discussed in other documents we file with the SEC. In light of these risks, uncertainties and assumptions, readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements represent beliefs and assumptions as of the date of this report. While we may elect to update forward-looking statements and at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Past performance does not guarantee future results.

Executive Level Overview

We are a surgical aesthetics company with a passion for elevating people's lives through innovative products, including our Helium Plasma Platform Technology products marketed and sold as Renuvion^® and the AYON Body Contouring System^TM in the cosmetic surgery market and J-Plasma^® in the hospital surgical market. Renuvion and J-Plasma offer surgeons a unique ability to provide controlled heat to tissue to achieve their desired results. The AYON Body Contouring System^TM is an FDA-cleared, surgeon-designed body contouring system that combines precision, versatility, and innovation in an all-in-one platform. It seamlessly integrates fat removal, closed loop contouring, and Renuvion's tissue contraction and electrosurgical capabilities, empowering surgeons to deliver comprehensive body contouring treatments for patients. We also leverage our deep expertise and decades of experience in unique waveforms through OEM agreements with other medical device manufacturers.

We operate in two business segments: OEM and Surgical Aesthetics, formerly known as Advanced Energy. The OEM segment is primarily development and manufacturing contracts and product driven. The Surgical Aesthetics segment sells both capital equipment and consumables in the form of a single-use handpiece. Sales of handpiece units are a substantial portion of our business and for the nine months ended September 30, 2025 and 2024, we sold approximately 63,000 and 64,000 units, respectively. This is a result of an overall lower number of liposuction procedures and commercial focus on the launch of AYON. In the U.S. Handpiece revenue accounts for more than 50% of our total Surgical Aesthetics revenue.

Recent Activities

Glucagon- like peptide -1 receptor agonists ("GLP-1s"), such as Mounjaro^®, Wegovy^® and Ozempic^®, are prescribed for the treatment of diabetes and/or weight loss in combination with exercise to improve glycemic control. GLP-1's have also been found to mimic the GLP-1 satiety hormone in our bodies. When one eats, GLP-1 is released in the small intestines regulating blood sugar and sending signals to the brain centers that control appetite. Studies have shown patients taking GLP-1's have experienced a loss of body weight. Currently, three GLP-1's are cleared by the FDA for weight loss, but we anticipate a number of additional drug candidates will be cleared, as well as oral versions of these medications.

We believe the increased use of GLP-1s had an initial negative impact on the revenue for plastic and cosmetic surgeons and created uncertainty in the aesthetic space. However, we believe, that the use of these drugs will have a ripple effect which will drive people towards plastic surgery and may provide a tailwind for sales of our Renuvion products. Rapid weight loss caused by these drugs can contribute to loose skin. To address this, the cosmetic surgery market focuses on body contouring. Body contouring is a customizable treatment for patients to target specific fat deposits, engage in the transfer of fat, and treatments to address loose or lax skin. Renuvion is the only FDA approved device for the treatment of this issue post liposuction. Additionally, Renuvion may be used to treat skin laxity without the use of liposuction, potentially increasing the total available market for our products.

On May 13, 2025, we announced that we had received 510(k) clearance from the U.S. Food and Drug Administration (the "FDA") for the AYON Body Contouring System™ ("AYON"). We completed our soft launch of AYON, leveraging our relationships with key surgeons in critical geographies. Additionally, we commenced the commercial launch of AYON in September 2025.

The initial 510(k) clearance for AYON covers a wide variety of aesthetic treatments, including Renuvion to address loose and lax skin, ultrasound-assisted liposuction, electrosurgery to support procedures requiring removal of excess tissue and closed loop contouring, among others. October 13, 2025, we announced that we had submitted the 510(k) premarket notification to the FDA for the label expansion of AYON to include power liposuction.

Liquidity

We have incurred recurring net losses and cash outflows from operations and we anticipate that losses will continue in the near term. We plan to continue to fund our operations and capital funding needs through existing cash, sales of our products and, if necessary, additional equity and/or debt financing. However, we cannot be certain that additional financing will be available when needed or that, if available, financing will be obtained on terms acceptable to us. The sale of additional equity would result in dilution to our stockholders. Incurring additional debt financing would result in further debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, it may be necessary to delay, limit, reduce, or terminate our sales, marketing and product development. Any of these actions could harm our business, prospects and results of operations.

In November 2024, we undertook a cost saving restructuring which included an organizational reduction in force to better focus, optimize and streamline operations. As a result of the organizational changes, we reduced our workforce by nearly 25%. We estimate the annualized future cost savings from the reduction in force to be approximately $4.3 million which we expect to contribute to our goal of decreasing loss and achieving cash-flow breakeven. In addition, to the reduction in force, we eliminated bonuses in 2024, reduced the board of directors from eight to five members and reduced board cash compensation from $0.5 million annually to $0.1 million. In addition to the organizational changes, we have identified other direct cost savings we anticipate achieving in 2025. The identified cost savings include reductions in professional fees, lower research and development costs as we complete the development of AYON, credit card fees and stock-based compensation. We foresee, in totality, these cost savings will reduce our annual operating expenses below $40 million in 2025.

We are actively monitoring trade policy and tariff announcements including the recent executive orders issued by the U.S. federal administration regarding tariffs on imports from various countries, including the European Union, Canada, Mexico and China. In addition, we are monitoring the potential impact of actions taken by these countries in response to the announced tariffs. We currently manufacture in Clearwater, Florida and Sofia, Bulgaria and we intend to utilize these locations to minimize the impact of the tariffs, but such tariffs may make our products less cost competitive and reduce gross margins. At this time, the overall impact on our business related to these or any other tariffs that may be imposed, remains uncertain and depends on multiple factors, including the duration and expansion of current tariffs, future changes to tariff rates, scope or enforcement, retaliatory measures by impacted trade partners, inflationary effects, and the effectiveness of our responses in managing these challenges.

In regard to our operating segments, results are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, availability of discrete financial information, and information presented to the Board of Directors and investors. Asset information is not reviewed by the CODM by segment and is not available by segment and, accordingly, we have not presented a measure of assets by reportable segment.

Our reportable segments are disclosed as principally organized and managed as two operating segments: Surgical Aesthetics and OEM. "Corporate & Other" includes certain unallocated corporate and administrative costs which are not specifically attributed to any reportable segment. The OEM segment is primarily development and manufacturing contract and product driven. All related expenses are recorded as cost of sales and therefore no segment specific operating expenses are incurred.

We strongly encourage investors to visit our website: www.apyxmedical.comto view the most current news and to review our filings with the Securities and Exchange Commission.

Results of Operations

Sales

Total revenue increased by 12.1%, or approximately $1.4 million, for the three months ended September 30, 2025 when compared with the three months ended September 30, 2024. Surgical Aesthetics segment sales increased 19.1%, or approximately $1.8 million, for the three months ended September 30, 2025 when compared with the three months ended September 30, 2024. The Surgical Aesthetics sales increase was driven by sales of AYON, as we commenced our commercial launch during the quarter and an increased volume of single-use handpieces in both domestic and international markets. These increases were partially offset by decreases in domestic sales of generators, including upgrades to the Apyx One Console, where the purchase of AYON was not part of the sale and upgrades to the Apyx One Console in international markets. Overall, domestic Surgical Aesthetics segment sales increased by over 30% from the prior year period. OEM segment sales decreased 17.6%, or approximately $0.4 million, for the three months ended September 30, 2025 when compared with the three months ended September 30, 2024. The decrease in OEM sales was due to decreases in sales volume to existing customers, including Symmetry Surgical under our 10-year generator manufacturing and supply agreement.

Total revenue decreased by 0.6%, or approximately $0.2 million, for the nine months ended September 30, 2025 when compared with the nine months ended September 30, 2024. Surgical Aesthetics segment sales increased 8.0%, or approximately $2.1 million, for the nine months ended September 30, 2025 when compared with the nine months ended September 30, 2024. The Surgical Aesthetics sales increase was driven by sales of AYON, as we commenced our commercial launch during the third quarter. This increase was partially offset by decreases in domestic and internal sales of generators, including upgrades to the Apyx One Console, where the purchase of AYON was not part of the sale. OEM segment sales decreased 31.4%, or approximately $2.3 million, for the nine months ended September 30, 2025 when compared with the nine months ended September 30, 2024. The decrease in OEM sales was due to decreases in sales volume to existing customers, including Symmetry Surgical under our 10-year generator manufacturing and supply agreement.

International sales represented approximately 27.5% and 29.2% of total revenues for the three and nine months ended September 30, 2025, respectively, as compared with 32.2% and 30.8% of total revenues for the same period in the prior year. Management estimates our products have been sold in more than 60 countries through local dealers, coordinated by our sales and marketing personnel through our facilities in Clearwater, Florida and Sofia, Bulgaria.

Gross Profit

Gross profit for the three months ended September 30, 2025, increased 19.3% to $8.3 million, compared to $7.0 million for the same period in the prior year. Gross margin for the three months ended September 30, 2025, was 64.4%, compared to 60.5% for the same period in 2024. The increase in gross margin for the three months ended September 30, 2025 from the prior year period is primarily attributable to mix between our segments with Surgical Aesthetics comprising a higher percentage of total sales, geographic mix, with domestic sales comprising a higher percentage of total sales and product mix within our OEM segment. These increases were partially offset by changes in product mix within our Surgical Aesthetics segment.

Gross profit for the nine months ended September 30, 2025, increased 3.2% to $21.0 million, compared to $20.4 million for the same period in the prior year. Gross margin for the nine months ended September 30, 2025, was 62.5%, compared to 60.2% for the same period in 2024. The increase in gross margin for the nine months ended September 30, 2025 from the prior year period is primarily attributable to mix between our segments with Surgical Aesthetics comprising a higher percentage of total sales, geographic mix, with domestic sales comprising a higher percentage of total sales. These increases were partially offset by changes in product mix within our OEM segment.

Other Costs and Expenses

Research and development

Research and development expenses decreased 29.9% for the three months ended September 30, 2025, primarily due to lower compensation and benefits costs ($0.2 million) and lower spending on our product development initiatives and clinical studies ($0.1 million), as we complete the development of AYON.

Research and development expenses decreased 38.7% for the nine months ended September 30, 2025, primarily due to lower compensation and benefits costs ($1.0 million) and lower spending on our product development initiatives and clinical studies ($0.5 million), as we complete the development of AYON.

Professional services

Professional services expense decreased 10.1% for the three months ended September 30, 2025, primarily due to a decrease in physician and marketing consulting expenses ($0.3 million). This decrease was partially offset by an increase in board of director's stock-based compensation expense ($0.1 million), which was offset by lower board cash compensation included in selling, general and administrative expenses.

Professional services expense decreased 14.4% for the nine months ended September 30, 2025, primarily due to a decreases in physician and marketing consulting expenses ($0.4 million), legal expenses ($0.3 million), recruiting expenses ($0.1 million) and accounting and audit fees ($0.1 million). This decrease was partially offset by an increase in board of director's stock-based compensation expense ($0.1 million), which was offset by lower board cash compensation included in selling, general and administrative expenses.

Salaries and related costs

During the three months ended September 30, 2025, salaries and related expenses decreased 9.0%, primarily due to a decrease in salaries and benefits ($0.6 million), which was due to lower headcount following our reduction in force in the fourth quarter of 2024 and lower stock-based compensation expense ($0.5 million). These decreases were partially offset by the prior year reversal of our annual bonus accrual during the third quarter of 2024 (0.7 million). Annual bonuses for 2025 are discretionary.

During the nine months ended September 30, 2025, salaries and related expenses decreased 27.5%, primarily due to a decrease in salaries and benefits ($1.9 million), which was due to lower headcount following our reduction in force in the fourth quarter of 2024, lower stock-based compensation expense ($1.4 million) and bonus expense ($0.2 million), as bonuses for 2025 are discretionary.

Selling, general and administrative expenses

During the three months ended September 30, 2025, selling, general and administrative expense decreased 14.8%, primarily due to lower insurance expense, including claims on our policies ($0.3 million), lower meeting and training costs ($0.1 million), travel expenses ($0.1 million) and board of directors cash compensation ($0.1 million). These decreases were partially offset by an increase in commissions ($0.1 million).

During the nine months ended September 30, 2025, selling, general and administrative expense decreased 20.3%, primarily due to lower travel expenses ($0.9 million), meeting and training costs ($0.8 million), regulatory and translation expenses ($0.4 million), insurance expense, including claims on our policies ($0.3 million), board of directors cash compensation ($0.3 million), sales and property taxes ($0.1 million), payment processing fees ($0.1 million), software subscriptions ($0.1 million), foreign currency gains and losses ($0.1 million) and office supplies and shipping costs ($0.1 million). These decreases were partially offset by higher advertising expense, including trade show fees and related costs ($0.3 million) and allowances for credit losses ($0.1 million).

Interest Income (Expense)

Interest income decreased approximately $0.1 million and $0.4 million for the three and nine months ended September 30, 2025, respectively, when compared with the same period in the prior year. These decreases are due to a lower average balance and lower average yield in our investments in money market funds and U.S. Treasury securities included in cash and cash equivalents.

Interest expense was largely unchanged at approximately $1.4 million and approximately $4.2 million for the three and nine months ended September 30, 2025 and 2024, respectively.

Income Taxes

Income tax expense was approximately $78,000 and $60,000 with effective tax rates of (4.2)% and (1.3)% for the three months ended September 30, 2025 and 2024, respectively. Income tax expense was approximately $176,000 and $163,000 with effective tax rates of (1.8)% and (0.9)% for the nine months ended September 30, 2025 and 2024, respectively. For the three and nine months ended September 30, 2025 and 2024, the effective rate differs from the statutory rate primarily due to the full valuation allowance recorded on the net operating loss ("NOL") and net deferred tax assets generated during the period.

Liquidity and Capital Resources

At September 30, 2025, we had approximately $25.1 million in cash and cash equivalents as compared to approximately $31.7 million in cash and cash equivalents at December 31, 2024. Our working capital at September 30, 2025 was approximately $37.8 million compared with $45.7 million at December 31, 2024.

For the nine months ended September 30, 2025, net cash used in operating activities was approximately $5.5 million, compared with net cash used in operating activities of approximately $15.5 million in the nine months ended September 30, 2024. The decrease in cash used in operations is primarily due to improvements in our accounts receivable and accounts payable positions and the decrease in operating loss, which is a result of the cost cutting measures implemented in the fourth quarter of 2024, compared to the same period in the prior year. These decreases were partially offset by cash used to procure inventory as we commenced the commercial rollout of AYON during the period and decreases in non-cash expenses included in our operating losses.

Net cash used in investing activities for the nine months ended September 30, 2025 and 2024, was $0.8 million and $0.5 million, respectively, related to investments in property and equipment.

Net cash provided by financing activities for the nine months ended September 30, 2025 was $95,000 and was primarily related to contributions to the China JV by the non-controlling member and proceeds on the exercise of stock options.

We have incurred recurring net losses and cash outflows from operations and we anticipate that losses will continue in the near term. We plan to continue to fund our operations and capital funding needs through existing cash, sales of our products and if necessary additional equity and/or debt financing. However, we cannot be certain that additional financing will be available when needed or that, if available, financing will be obtained on terms acceptable to us. The sale of additional equity would result in dilution to our stockholders. Incurring additional debt financing would result in further debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, it may be necessary to delay, limit, reduce, or terminate our sales, marketing and product development. Any of these actions could harm our business, results of operations and prospects.

On November 22, 2022, we filed a shelf registration statement providing us the ability to register and sell our securities in the aggregate amount up to $100 million. The shelf registration statement included an embedded ATM facility for up to $40 million.

On November 7, 2024, we entered into an amendment to the Perceptive Credit Agreement. The amendment reduced the financial covenant trailing twelve-month revenue targets relating to its Surgical Aesthetics segment (tested quarterly), with amended year-end targets of $37.0 million, $52.4 million and $60.3 million for 2025, 2026 and 2027, respectively. The amendment also introduced a maximum operating expense financial covenant, with full year targets of $40.0 million and $45.0 million for 2025 and 2026, respectively. The Perceptive Credit Agreement, as amended, continues to contain customary affirmative and negative covenants, including covenants limiting the ability of us and our subsidiaries, among other things, to incur debt, grant liens, make distributions, enter certain restrictive agreements, pay or modify subordinated debt, dispose of assets, make investments and acquisitions, enter into certain transactions with affiliates, and undergo certain fundamental changes, in each case, subject to limitations and exceptions set forth in the Perceptive Credit Agreement. Additionally, we must maintain a balance of $3.0 million in cash and cash equivalents during the term of the Perceptive Credit Agreement. As of September 30, 2025, we were in compliance with the financial covenants contained within the Perceptive Credit Agreement, as amended. Our continued compliance with covenants is subject to meeting or exceeding forecasted Surgical Aesthetics revenues, as amended and reducing operating expenses.

For a more in-depth description of the terms of the Perceptive Credit Agreement, as amended, see Note 11 in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2024 and Note 5 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

At September 30, 2025, we had purchase commitments totaling approximately $4.4 million, substantially all of which is expected to be purchased within the next twelve months.

Critical Accounting Estimates

In preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), we have adopted various accounting policies. Our most significant accounting policies are disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 13, 2025.

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates and assumptions, including those related to inventories, intangible assets, property, plant and equipment, legal proceedings, research and development, warranty obligations, product liability, sales returns and discounts, stock-based compensation and income taxes are updated as appropriate, which in most cases is at least quarterly. We base our estimates on historical experience, or various assumptions that are believed to be reasonable under the circumstances and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may materially differ from these estimates.

Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Our critical accounting estimates include the following:

Accounts Receivable Allowance

We maintain a reserve for uncollectible accounts receivable. When evaluating the adequacy of the allowance for credit losses, we analyze historical bad debt experience, the composition of outstanding receivables by customer class, and the age of outstanding balances, and we make estimates in connection with establishing the allowance for credit losses, including the expected impacts of changes in the operating environment in multiple countries as well as the credit terms being offered to customer, to determine where adjustments to historical experience are warranted. The economic uncertainty in the capital equipment market being experienced in the aesthetic space as a result of the disruption from GLP-1's has resulted in the granting of extended credit terms. Accordingly, we believe that there is additional exposure in our outstanding receivables and have adjusted our accounts receivable allowance for this expectation. Changes in estimates are reflected in the period they are made. If the financial condition of our customers deteriorates, resulting in an inability to make payments, additional allowances may be required.

Litigation Contingencies

In accordance with authoritative guidance, we record a liability in our consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible, but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded. We discuss significant judgements with counsel, which include determining the legitimacy of asserted and unasserted claims, the probability that a loss has been incurred, the estimates of the net potential range of losses associated with these claims, the timing of the losses associated with these claims and historical experience with these claims. Additionally, the deductibles on our insurance policies that cover these claims have increased in recent periods, creating additional exposure and losses in excess of historical experience. It is at least reasonably possible that a change in the actual amount of loss will occur in the near term.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements at this time.

Recent Accounting Pronouncements

See Note 2 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

APYX MEDICAL CORPORATION