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Item 7. Management’s Discussion and Analysis

2023-03-10 compared with 2022-03-11 · 151 added, 136 removed, 282 unchanged (50% of the section changed)

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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 Annual Report on Form 10-K.

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 Annual Report on Form 10-K.

Unless otherwise indicated or the context otherwise requires, references in this Annual Report on Form 10-K to the “Company,” “Elite Body Sculpture,” “we,” “us” and “our” refer to, (i) EBS Intermediate Parent LLC and its consolidated subsidiaries and the Professional Associations immediately prior to the Reorganization (as defined in the prospectus filed in connection with our IPO) and the consummation of our IPO and (ii) AirSculpt Technologies, Inc.

and its consolidated subsidiaries, including EBS Intermediate Parent LLC, and the Professional Associations immediately following the Reorganization and the consummation of our IPO.

Further, references in this form 10-K to "our board of directors" refer to, (i) the Board of Managers of EBS Parent LLC immediately prior to the Reorganization and the consummation of our IPO and (ii) the Board of Directors of AirSculpt Technologies, Inc.

immediately following the Reorganization and the consummation of our IPO.

and its consolidated subsidiaries and the Professional Associations.

Key Factors Affecting Our Performance

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• Adjusted EBITDA Margin* was 25.6%, 34.6% and 27.9% in 2022, 2021 and 2020, respectively;

• Loss per share (1) was $(0.26) and $(0.01) for 2022 and 2021, respectively;

• Adjusted Net Income per share (diluted)* was $0.37 and $0.08 in 2022 and 2021, respectively.

* For a reconciliation of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Net Income per share, which are all non-GAAP measures, to the most directly comparable GAAP financial measures, information about why we consider them useful and a discussion of the material risks and limitations of these measures, please see “—Non-GAAP Financial Measures—Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Net Income per Share.”

(1) 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.

Thus, the basic and diluted earnings (loss) per share represent only the period from October 28, 2021 to December 31, 2021.

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 incur multiple procedures during one 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 15 over the 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.

Total Case and Revenue Metrics

Fiscal Year Ended

2022 2021 2020

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Revenue per case growth 7.1 % 13.1 % N/A

Number of total facilities 18 14 10

Number of facilities 22 18 14

Number of total procedure rooms 47 32 23

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Same-Center Information

For the years ended December 31, 2021 and 2020, 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, 2020.

For the twelve months ended December 31, 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.

Fiscal Year Ended

Twelve Months Ended

Cases 10,497 10,421

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Revenue per case growth 7.4 % N/A

Number of total facilities 11 11

Number of facilities 14 14

Number of total procedure rooms 28 22

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We define same-center facilities and procedure rooms as facilities and procedure rooms that have been owned or operated since January 1, 2020.

Fiscal Year Ended

Twelve Months Ended

Cases 8,851 5,692

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Number of total procedure rooms 19 19

Non-GAAP Financial Measures—Adjusted EBITDA and Adjusted EBITDA Margin

Non-GAAP Financial Measures—Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Net Income per Share

We report our financial results in accordance with accounting principles generally accepted in the United States of America ("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 loss on debt modification, IPO related costs, sponsor management fee, pre-opening de novo and relocation costs, restructuring and related severance, equity-based compensation, depreciation and amortization, interest expense, net and income tax expense.

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.

We define Adjusted EBITDA as net income/(loss) excluding depreciation and amortization, net interest expense, income tax expense/(benefit), loss on debt modification, sponsor management fee, pre-opening de novo and relocation costs, restructuring and related severance costs, IPO related costs, (gain)/loss on disposal of long-lived assets, and equity-based compensation.

We define Adjusted Net Income as net income/(loss) excluding loss on debt modification, pre-opening de novo and relocation costs, restructuring and related severance costs, IPO related costs, (gain)/loss on disposal of long-lived assets, and equity-based compensation.

These items are tax effected when reconciling back to the closest GAAP measure of net income/(loss).

We include Adjusted EBITDA and Adjusted Net Income because they are important measures on which our management assesses and believes investors should assess our operating performance.

We consider Adjusted EBITDA and Adjusted Net Income each to be an important measure because they help 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.

Adjusted Net Income has limitations as an analytical tool including that Adjusted Net Income does not include results from equity-based compensation.

We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of revenue.

We include 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 income (loss), the most directly comparable GAAP financial measure:

Fiscal Year Ended

We define Adjusted Net Income per Share as Adjusted Net Income divided by weighted average basic and diluted shares.

We included Adjusted EBITDA Margin and Adjusted Net Income per Share because they are important measures on which our management assesses and believes investors should assess our operating performance.

We consider Adjusted EBITDA Margin and Adjusted Net Income per Share to be important measures because they help 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:

Twelve Months Ended

($ in thousands) 2022 2021 2020

Net income (loss) $ 10,551 $ 7,577 $ (2,212)

Net (loss)/income $ (14,679) $ 10,551 $ 7,577

Sponsor management fee — 1,636 500

1,636 500 500

Equity-based compensation 29,457 7,185 325

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Depreciation and amortization 8,061 6,597 5,641

(Gain)/loss on disposal of long-lived assets 147 — —

Interest expense, net 6,751 4,888 2,456

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Adjusted EBITDA Margin 25.6 % 34.6 % 27.9 %

Sponsor management fee for the fiscal year ended December 31, 2021 includes a $1.0 million fee related to the termination of the related management and advisory services agreement.

See “Note 10 - Related Party Transactions” for further discussion.

The Company's adjusted EBITDA was impacted by a full year's worth of public company costs during 2022.

This added an additional $6.7 million of incremental public company costs in 2022.

Normalizing 2021 for these costs, our adjusted EBITDA grew by $3.7 million or 9.4%.

The following table uses tax-adjusted amounts to reconciles Adjusted Net Income and Adjusted Net Income per Share to net loss, the most directly comparable GAAP financial measure:

Twelve Months Ended

Net loss $ (14,679) $ (393)

Equity-based compensation 28,801 4,615

Loss on debt modification 690 —

IPO related costs 541 235

Pre-opening de novo and relocation costs 3,177 —

Restructuring and related severance costs 3,042 —

(Gain)/loss on disposal of long-lived assets 109 —

Adjusted net income $ 21,681 $ 4,457

Adjusted net income per share of common stock (1) (2)

Basic $ 0.39 $ 0.08

Diluted $ 0.37 $ 0.08

Weighted average shares outstanding (1)

Basic 55,684,701 55,640,154

Diluted 57,918,005 58,329,428

(1) In 2021, basic and diluted weighted average shares outstanding and loss per share represent only the period from October 28, 2021 to December 31, 2021 (see Note 7).

As the Company completed its IPO in 2021, we do not believe adjusted net income per share is a meaningful metric for the 2020 period.

(2) Diluted Adjusted Net Income Per Share is computed by dividing adjusted net income by the weighted-average number of shares of common stock outstanding adjusted for the dilutive effect of all potential shares of common stock.

Impact of COVID-19

The COVID-19 global pandemic has significantly affected our centers, employees, customers, communities, business operations and financial performance, as well as the U.S.

economy and financial markets.

The COVID-19 pandemic materially impacted our financial performance for the year ended December 31, 2020.

Our facilities were shutdown for two to three months during 2020.

Our operating structure allows for some flexibility in the cost structure according to the volume of cases performed, including much of our cost of services.

As a result of this flexibility and the return of volumes in the second half of 2020, we did not request or receive any proceeds from the CARES Act and other governmental assistance programs.

Other than the temporary decrease in revenue and cost of service, we did not incur any significant costs attributable to the pandemic.

We have not experienced any facility shutdowns during 2021.

However, we continue to monitor the current COVID-19 situation in each market we perform procedures and will react accordingly should events require us to temporarily close.

In 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 where we perform procedures and will react accordingly.

Our Operating Structure

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We have 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 we recognize revenue based on the expected transaction price which is reduced for financing fees.

There is a financing transaction fee based on a set percentage of the amount financed.

We recognize revenue based on the expected transaction price which is reduced for financing fees.

Our policy is to require full payment for services in advance of performing a procedure.

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Our advertising costs include social media, digital marketing and traditional advertising.

Selling costs include salaries and commissions for employees engaged in marketing and sales.

Selling expenses include salaries and commissions for employees engaged in marketing and sales.

We define our customer acquisition costs as the total selling expenses per case.

We generally expect our selling costs to increase as we continue to grow our brand and expand our national footprint.

We generally expect our selling expenses to increase as we continue to grow our brand and expand our national footprint.

We evaluate our selling expense as compared to growth in our sales volume and will invest accordingly to the extent we believe we can increase our growth without materially negatively impacting our Adjusted EBITDA Margins.

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Interest expense, net consists primarily of interest costs on our outstanding borrowings under our debt.

We expect this amount to increase as a result of our recent amendment to our credit agreement in May 2021, which increased our long-term debt balance by approximately $52.0 million to approximately $85.0 million.

Results of Operations

The following tables summarize certain results from the statements of operations for each of the periods indicated and the changes between periods.

The tables also show the percentage relationship to revenue for the periods indicated:

Fiscal Year Ended

The following table and notes summarize certain results from the statements of operations for each of the periods indicated and the changes between periods.

The table also show the percentage relationship to revenue for the periods indicated:

Twelve Months Ended

2022 2021 2020

($ in thousands) Amount % of

Revenue Amount % of

Revenue $ 168,794 100.0 % $ 133,315 100.0 % $ 62,766 100.0 %

Operating expenses:

Cost of service (exclusive of depreciation and amortization shown below) 44,536 33.4 % 23,471 37.4 % 15,488 37.6 %

Cost of service 62,781 37.2 % 44,536 33.4 % 23,471 37.4 %

Selling, general and administrative 101,418 60.1 % 65,732 49.3 % 23,621 37.6 %

65,732 49.3 % 23,621 37.6 % 20,125 48.8 %

Loss on debt modification 932 0.6 % 682 0.5 % — — %

682 0.5 % — — % — 0.0 %

Depreciation and amortization 8,061 4.8 % 6,597 4.9 % 5,641 9.0 %

6,597 4.9 % 5,641 9.0 % 4,960 12.0 %

Loss on disposal of long-lived assets 147 0.1 % — — % — — %

Total operating expenses 173,339 102.7 % 117,547 88.2 % 52,733 84.0 %

117,547 88.2 % 52,733 84.0 % 40,573 98.4 %

Income from operations

15,768 11.8 % 10,033 16.0 % 663 1.6 %

(Loss)/Income from operations (4,545) (2.7) % 15,768 11.8 % 10,033 16.0 %

Interest expense, net 6,751 4.0 % 4,888 3.7 % 2,456 3.9 %

Pre-tax net income (loss) 10,880 8.2 % 7,577 12.1 % (2,212) (5.4 %)

Pre-tax net (loss)/income (11,296) (6.7) % 10,880 8.2 % 7,577 12.1 %

Income tax expense 3,383 2.0 % 329 0.2 % — — %

329 0.2 % — — % — 0.0 %

Net income (loss)

$ 10,551 7.9 % $ 7,577 12.1 % $ (2,212) (5.4 %)

Net (loss)/income $ (14,679) (8.7) % $ 10,551 7.9 % $ 7,577 12.1 %

Twelve Months Ended December 31, 2022 Compared to Twelve Months Ended December 31, 2021

Overview— Our financial results for the twelve months ended December 31, 2022 compared to the twelve months ended December 31, 2021 reflect the addition of four de novo centers.

Revenue— Our revenue increased $35.5 million, or 26.6%, compared to the same period in 2021.

The increase is the result of adding four de novo centers which increased our footprint from 18 centers to 22 centers as of December 31, 2022.

We have also experienced strong revenue per case growth over the prior year of 7.1%.

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 revenue, which increased to $135.4 million from $125.1 million for the twelve months ended December 31, 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 $18.2 million, or 41.0%, compared to the twelve months ended December 31, 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 37.2% and 33.4% as a percentage of revenue for the twelve months ended December 31, 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 service 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 $35.7 million, or 54.3%, for the twelve months ended December 31, 2022 compared to the same period in 2021.

This increase is primarily related to the addition of public company costs of approximately $6.7 million and an increase in equity-based compensation of $22.3 million.

This increase is also related to additional expenses we incurred for marketing and corporate support as we grow our center count through de novo expansion and providing support for our centers.

We expect these costs to continue to increase as we continue to open de novo centers and expand the support we provide to our centers.

Selling, general and administrative expenses as a percent of revenue were 60.1% and 49.3% for the twelve months ended December 31, 2022 and 2021, respectively.

Normalizing the prior year for the increase in equity-based compensation and public company costs, selling, general and administrative expenses as a percent of revenue were 60.1% and 71.1% for the twelve months ended December 31, 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 $22.4 million and $13.5 million for the twelve months ended December 31, 2022 and 2021, respectively.

Our customer acquisition costs were approximately $2,300 and $1,902 per customer in the twelve months ended December 31, 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 $79.0 million and $52.2 million for the twelve months ended December 31, 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 $932,000 loss related to refinancing our existing credit agreement by entering a new agreement in November 2022.

Depreciation and Amortization— Depreciation and amortization increased to approximately $8.1 million for the twelve months ended December 31, 2022 compared to $6.6 million for the same period in 2021.

This increase is the result of having four additional de novo centers during the twelve months ended December 31, 2022 as compared to the 2021 period.

Loss on disposal of long-lived assets— We recognized a $147,000 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 $6.8 million from $4.9 million for the twelve months ended December 31, 2022 and 2021, respectively.

The increase is primarily the result of adding an incremental $52.0 million of senior secured term loans in May 2021.

Further, the variable component of interest on our debt has increased during 2022.

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 (29.9)% for the twelve months ended December 31, 2022.

Twelve Months Ended December 31, 2021 Compared to Twelve Months Ended December 31, 2020

Overview —Our financial results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 reflect the addition of four de novo centers which increased our procedure rooms by eight.

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Further, during the twelve months ended December 31, 2020, our facilities were shut down for two to three months as a result of the COVID-19 pandemic.

Cost of Services —Our cost of services increased $21.1 million, or 89.7%, compared to the twelve months ended December 31, 2020.

Cost of Service —Our cost of service increased $21.1 million, or 89.7%, compared to the twelve months ended December 31, 2020.

This increase is primarily attributable to our increase in revenue related to our de novo centers and our same-center case and revenue per case growth.

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This increase is tied to the previously mentioned cost incurred with the IPO, increase in equity-based compensation and growth in our infrastructure supporting our centers.

We expect this percentage

to decrease over time as we expand our national footprint, however, we do expect additional absolute dollar increases as we expand our footprint and related support services.

We expect this percentage to decrease over time as we expand our national footprint, however, we do expect additional absolute dollar increases as we expand our footprint and related support services.

Additionally, we expect our selling, general and administrative expenses to increase over time due to the additional legal, accounting, insurance, investor relations and other costs that we incur as a public company.

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We expect our effective tax rate to increase in the future as we will be a C corporation for the full financial periods presented.

Twelve Months Ended December 31, 2020 Compared to Twelve Months Ended December 31, 2019

Overview —Our financial results for the fiscal year ended December 31, 2020 compared to fiscal year ended December 31, 2019 reflect the addition of four centers which increased our procedure rooms by seven.

Additionally, our 2020 results were negatively impacted by the COVID-19 pandemic.

Beginning in March 2020, our revenue and operations were negatively affected.

As a result of federal, state, and local guidelines, we cancelled or postponed most procedures scheduled at our facilities during the second half of March 2020 and much of the second quarter of 2020.

As a result, case volumes and revenue and cost of services across most of our centers were significantly impacted in the second quarter of 2020.

Revenue —Our revenue increased $21.5 million, or 52.2%, compared to 2019.

The increase is the result of adding four de novo centers which expanded our footprint from 10 centers to 14 centers and our number of procedure rooms from 16 to 23 as of December 31, 2020.

Additionally, the increase was due in part to three centers opened during 2019 but subsequent to January 1, 2019.

Revenue also increased due to our same-center case volume increase to 4,074 cases from 3,712 cases for 2020 compared to 2019.

The increases in revenue was negatively impacted by the COVID-19 pandemic due to decreased case volume primarily in the second quarter of 2020.

Cost of Services —Our cost of services increased $8.0 million, or 51.5%, compared to 2019.

This increase is primarily attributable to opening four de novo centers.

Additionally, the increase was due in part from three centers opened during

2019 but subsequent to January 1, 2019.

Cost of services also increased due to our same-center volume to 4,074 from 3,712 for 2020 compared to 2019.

The increase in our cost of services was offset by reduced cost during the second quarter of 2020 due to the COVID-19 pandemic as we were able to manage our surgeon costs to match our lower volumes.

Selling, General and Administrative Expenses —Selling, general and administrative expenses increased $3.5 million, or 17.4%, compared to 2019.

This increase is related to additional expenses we incurred for marketing and corporate support as we grow our center count through de novo expansion and providing superior 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 37.6% and 48.8% for the 2020 and 2019, respectively.

This decrease is related to leveraging certain existing costs which are mostly fixed in nature.

We expect this percentage to continue to decrease over time as we expand our national footprint, however, we do expect additional increases as we expand our footprint and related support services.

Depreciation and Amortization —Depreciation and amortization increased to approximately $5.6 million for 2020 compared to $5.0 million for 2019.

This increase is the result of opening four de novo centers during 2020 plus three centers opened during 2019 but subsequent to January 1, 2019.

Interest Expense, Net —Interest expense decreased to $2.5 million from $2.9 million for the fiscal year ended December 31, 2020 and 2019, respectively.

The decrease is primarily a result of decreases in the LIBOR rate during 2020 compared to 2019.

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 adding procedure rooms to existing locations and opening de novo locations, as well as information technology and infrastructure, including our corporate office.

We believe that 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, and payments due under our existing credit facilities for at least the next 12 months.

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, and the addition of new procedure rooms to our existing locations, and payments due under our existing credit facilities for at least the next 12 months.

As of December 31, 2022, we had $9.6 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 December 31, 2022.

As of December 31, 2020, we had $10.4 million in cash and cash equivalents and $5.0 million of additional availability under our revolving credit facility, which represents the full available amount under the revolving credit facility.

We did not have any letters of credit outstanding as of December 31, 2020.

As of December 31, 2021, we had $25.3 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 December 31, 2021.

The following table summarizes the net cash provided by (used for) operating activities, investing activities and financing activities for the periods indicated:

Fiscal Year Ended

Twelve Months Ended

($ in thousands) 2022 2021 2020

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Financing activities (27,257) (4,549) (5,017)

Net increase (decrease) in cash and cash equivalents 14,968 5,251 (284)

In May 2021, we amended our existing credit agreement by adding an incremental $52.0 million of senior secured term loans.

We used the proceeds from these borrowings plus approximately $10.0 million of cash from our balance sheet to pay $59.7 million of distributions to our member.

Net (decrease)/increase in cash and cash equivalents (15,731) 14,968 5,251

Operating Activities

The primary source of our operating cash flow is the collection of patient payments received prior to performing surgical procedures.

For the twelve months ended December 31, 2022, our operating cash flow decreased by $2.2 million compared to the same period in 2021.

This decrease is primarily driven by $6.7 million of additional public company costs in the twelve months ended December 31, 2022, which did not exist in the prior year period.

Further, we have increased spending on our clinical infrastructure and brand awareness to support future growth.

At December 31, 2022, we had working capital of $(5.6) million compared to $13.0 million at December 31, 2021.

The decrease in working capital is primarily due to paying a special dividend of $23.2 million during the twelve months ended December 31, 2022.

For the twelve months ended December 31, 2021, our operating cash flow increased by $12.7 million compared to the same period in 2020.

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Net cash used in investing activities for the twelve months ended December 31, 2022 and 2021 was $12.9 million and $7.1 million, respectively.

These expenditures were used to open new de novo centers.

We also added one procedure room to an existing facility during the fiscal year 2021.

The increase in investing activities during the twelve months ended December 31, 2022 as compared to the twelve months ended December 31, 2021 was attributable to capital expenditures for adding four de novo centers, construction related to adding procedure rooms to five existing facilities, and investments in improving our medical equipment and technology.

The increase in investing activities during the twelve months ended December 31, 2021 as compared to the twelve months ended December 31, 2020 was primarily attributable to the impact of COVID-19 limiting our ability to fully execute our de novo center growth strategy during 2020.

Net cash used in investing activities during the year ended December 31, 2020 and 2019 was $3.7 million and $4.4 million, respectively which was primarily to fund capital expenditures to open de novo centers.

The decrease in investing activities during the fiscal year ended December 31, 2020 as compared to the year ended December 31, 2019 was primarily attributable to the impact of COVID-19 limiting our ability to fully execute our de novo center growth strategy.

Net cash used in investing activities during the year ended December 31, 2020 was $3.7 million which was primarily to fund capital expenditures to open de novo centers.

Financing Activities

Net cash used in financing activities during the twelve months ended December 31, 2022 was $27.3 million.

During the twelve months ended December 31, 2021, we received cash of $49.6 million, net of fees, from amending our existing credit agreement, adding an incremental $52.0 million in senior secured term loans.

We used the proceeds from these borrowings plus approximately $10.0 million of cash from our balance sheet to pay $59.7 million of distributions to our member.

We had further distributions to our member during the twelve months ended December 31, 2021 of $7.2 million and made scheduled principal payments on our debt of $0.8 million.

During the twelve months ended December 31, 2022, we made distributions to our former member of $1.2 million, paid cash dividends to shareholders of $23.2 million, and made payments of taxes withheld through vested equity-based compensation of $2.0 million.

Finally, we made principal payments on our debt of $84.3 million offset by borrowings of new debt of $83.5 million.

Net cash used in financing activities for the twelve months ended December 31, 2021 was $4.5 million.

For the twelve months ended December 31, 2021, we made distributions to EBS Parent, LLC of $66.9 million, had borrowings under our credit agreement of $49.6 million and paid scheduled principal payments on our debt of $0.8 million.

During the twelve months ended December 31, 2021, we received proceeds from our IPO of $13.5 million, net of issuance costs of $10.4 million.

Net cash used in financing activities during the year ended December 31, 2020 was $5.0 million.

During 2020, we made distributions to our member of $4.6 million.

In May 2020, we borrowed $2.5 million on our revolving credit facility.

We used the proceeds along with cash from operations to maintain cash liquidity during the COVID-19 pandemic.

Due to stronger than expected volumes returning that favorably impacted our cash position, we repaid $2.5 million on our revolving credit facility in December 2020.

Additionally, we made our scheduled $0.1 million quarterly principal payments during 2020 for a total of $0.4 million for the full year.

Net cash used in financing activities during the year ended December 31, 2019 was $0.8 million.

During 2019, we made distributions to our member of $0.3 million.

We also made principal payments during 2019 for a total of $0.5 million for the full year.

Material Cash Requirements

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Long-Term Debt

The carrying value of our total indebtedness was $82.6 million, $32.5 million and $32.7 million, which includes unamortized deferred financing costs, issuance discount and premium of $1.7 million, $0.6 million and $0.8 million, as of December 31, 2021, 2020 and 2019, respectively.

The carrying value of our total indebtedness was $83.5 million and $82.6 million, which includes unamortized deferred financing costs and issuance discount of $1.5 million and $1.7 million, as of December 31, 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 initial amount of $100,000, which increased to $212,500 subsequent to the May 2021 amendment, 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 December 31, 2021, 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.

On August 11, 2022, we amended the Credit Agreement to provide for (i) the payment of cash dividends in an amount not to exceed $23.0 million on or prior to September 30, 2022 and (ii) the payment of cash dividends in an amount not to exceed $2.0 million with respect to securities that are not vested at the time such cash dividend is paid.

In doing so, we incurred an amendment fee of $0.2 million.

On November 7, 2022, we entered into a new credit agreement with a syndicate of lenders (the "new Credit Agreement") maturing November 7, 2027.

Pursuant to the new Credit Agreement, there is (i) an $85.0 million aggregate principal amount of term loans and (ii) a revolving loan facility in an aggregate principal amount of up to $5.0 million.

The proceeds were used, in part, to pay off the Company’s $83.6 million outstanding principal balance under its existing credit facility.

Under the new Credit Agreement, all outstanding loans bear interest based on either a base rate or SOFR plus an applicable per annum margin.

The applicable per annum margin is 2.0% or 3.0% for base rate or SOFR, respectively, if the Company's total leverage ratio is equal to or greater than 2.0x.

If the Company's total leverage ratio is equal to or greater than 1.0x and less than 2.0x, the applicable per annum margin is 1.5% or 2.5% for base rate or SOFR, respectively.

If the Company's total leverage ratio is below 1.0x, the applicable per annum margin is 1.0% or 2.0% for base rate or SOFR, respectively.

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.

On October 25, 2021, we amended certain provisions in our credit agreement related to the IPO.

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.

We did not make any payments on our debt with the IPO proceeds received during the period.

We were in compliance with all covenants and had no letters of credit outstanding as of December 31, 2021, 2020 and 2019.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as of December 31, 2021 and December 31, 2020.

Our business experiences limited seasonality.

We are subject to certain restrictive financial covenants including quarterly total leverage ratio and fixed charge ratio requirements.

We are in compliance with all covenants and have no letters of credit outstanding as of December 31, 2022 and December 31, 2021.

JOBS Act Accounting Election

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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 chief executive officer’s compensation to median employee compensation.

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 IPO or until we are no longer an “emerging growth company,” whichever is earlier.

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Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired.

Goodwill is not amortized and are evaluated annually for impairment or sooner if factors occur that would trigger an impairment review.

Goodwill is not amortized but is evaluated annually for impairment or sooner if factors occur that would trigger an impairment review.

Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance.

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Goodwill is not amortized but evaluated for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that the value may not be recoverable.

Events or changes in circumstances which could trigger an impairment review include significant adverse changes in the business climate, unanticipated competition, a loss

of key personnel, or the strategy for our overall business, significant industry or economic trends, or significant underperformance relevant to expected historical or projected future results of operations.

Events or changes in circumstances which could trigger an impairment review include significant adverse changes in the business climate, unanticipated competition, a loss of key personnel, or the strategy for our overall business, significant industry or economic trends, or significant underperformance relevant to expected historical or projected future results of operations.

Goodwill is assessed for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

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The quantitative analysis involves comparing the estimated fair value of a reporting unit with its respective book value, including goodwill.

If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary.

If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no

additional steps are necessary.

If, however, the fair value of the reporting unit is less than its book value, then the carrying amount of the goodwill is reduced by recording an impairment loss in an amount equal to the excess.

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We recognize equity-based compensation expense for employees and non-employees based on the grant-date fair value of awards over the applicable service period.

See “Note 6 - Equity-based Compensation” for further discussion of the awards outstanding.

See “Note 6 - Stockholders' Equity and Equity-based Compensation” for further discussion of the awards outstanding.

The grant date fair value of awards that contain market-based conditions are estimated using a Monte Carlo simulation model.

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The Company does not anticipate paying any cash dividends in the foreseeable future.

See “Note 6 - Equity-based Compensation” for further discussion on the valuation of these awards.

See “Note 6 - Stockholders' Equity and Equity-based Compensation” for further discussion on the valuation of these awards.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis