What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-14 compared with 2024-02-27 · 121 added, 108 removed, 301 unchanged (43% of the section changed)

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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 elsewhere in this Annual Report on Form 10-K.

This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions.

This discussion and analysis contains forward-looking statements that involve risks, 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.

Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including those risks.

You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report.

You should read this Annual Report completely, including Part I, Item 1A (Risk Factors) of this Annual Report and the “Forward-Looking Statements” sections of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by our forward-looking statements contained in the following discussion and analysis.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Unless otherwise indicated or the context otherwise requires, references in this Annual Report on Form 10-K to the “Company,” “AirSculpt,” “we,” “us” and “our” refer to AirSculpt Technologies, Inc.

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Our results of operations and financial condition have been, and will continue to be, affected by a number of factors, including the following:

Growth Initiatives and Strategic Priorities

Given the recent decline in revenue, the Company is focusing on stabilizing revenue growth through a number of strategic and growth initiatives, including:

• optimizing our marketing investment by spending on techniques that have proven successful for us in the past using a returns-based approach and testing new areas such as online video, and other social marketing channels under the direction of our new Chief Digital Officer;

• improving our go-to-market and sales strategies under our new Chief Sales Officer who is dedicated to strengthening our consultative sales model with enhanced training, improving our sales processes, and providing a greater focus on lead conversion;

• expanding consumer financing offerings;

• focusing on new product innovation where we believe that there is an opportunity to introduce new services, particularly in the area of skin tightening, that would allow us to expand our customer reach and generate incremental revenues.

Our Ability to Attract New Patients

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• consumer sentiment about the benefits and risks of aesthetic procedures generally and AirSculpt ® in particular.

Our Ability to Successfully Expand our Footprint

Our growth strategy depends, in large part, on growing and expanding our operations, both in existing and new geographic regions, particularly in densely populated and affluent metropolitan and suburban regions, and operating our new centers successfully.

Our ability to successfully open and operate new centers depends on many factors, including, among others, our ability to:

Our Ability to Successfully Operate in New Markets

Our growth strategy depends, in large part, on successfully operating our new facilities, both in existing and new geographic regions, particularly in densely populated and affluent metropolitan and suburban regions.

Our ability to successfully operate new centers depends on many factors, including, among others, our ability to:

• recruit qualified surgeons for our new centers;

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• successfully integrate new centers into our existing management structure and operations, including information system integration;

• negotiate acceptable lease terms at suitable locations;

• source sufficient levels of medical supplies at acceptable costs;

• obtain and maintain necessary permits and licenses;

• construct and open our centers on a timely basis;

• generate sufficient levels of cash or obtain financing on acceptable terms to support our expansion;

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• identify and satisfy the needs and preferences of our patients.

Our failure to effectively address challenges such as these could adversely affect our ability to successfully open and operate new centers in a timely and cost-effective manner.

Our failure to effectively address challenges such as these could adversely affect our ability to operate new centers in a cost-effective manner.

In addition, there can be no assurance that newly-opened centers will achieve net sales or profitability levels comparable to those of our existing centers in the time periods estimated by us, or at all.

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◦ Same-center volume changed (13.7)%, (1.4)%, and 0.7% in 2024, 2023, and 2022, respectively;

• Net income (loss) was $(4.5) million, $(14.7) million and $10.6 million in 2023, 2022 and 2021, respectively;

• Net loss was $(8.3) million, $(4.5) million and $(14.7) million in 2024, 2023 and 2022, respectively;

• Adjusted EBITDA* was $20.7 million, $43.2 million and $38.9 million in 2024, 2023 and 2022, respectively;

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* 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

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Same-Center Information

For the twelve months ended December 31, 2023 and 2022, 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 for at least twelve months as of December 31, 2023.

We define same-center facilities and procedure rooms as facilities and procedure rooms that have been owned or operated for at least twelve months as of December 31, 2023.

For the twelve months ended December 31, 2024 and 2023, we define same-center case and revenue growth as the growth in each of our cases and revenue at facilities that were owned and operated during the twelve months ended December 31, 2024 and 2023, respectively.

At facilities that were not owned or operated for the entirety of the prior year period, the current year period has been pro-rated to reflect only growth experienced during the portion of the twelve months ended December 31, 2024 in which such facilities were owned and operated during the twelve months ended December 31, 2023.We define same-center facilities and procedure rooms based on if a facility was owned or operated as of December 31, 2023.

Twelve Months Ended

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Number of total procedure rooms 57 57

Our same-store revenue decline is primarily attributed to weaker than expected performance across the broader aesthetics and high-end retail industries.

For the years ended December 31, 2023 and 2022, 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 for at least twelve months as of December 31, 2023.

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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, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Net Income per Share, which are non-GAAP financial measures.

We define Adjusted EBITDA as net income/(loss) excluding depreciation and amortization, sponsor management fees, loss on debt modification, net interest expense, income tax expense/(benefit), 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 restructuring and related severance costs, IPO related costs, (gain)/loss on disposal of long-lived assets, loss on debt modification, equity-based compensation and the tax effect of these adjustments.

We define Adjusted EBITDA as net loss excluding depreciation and amortization, net interest expense, income tax expense, restructuring and related severance costs, loss on debt modification , loss/(gain) on disposal of long-lived assets, settlement costs for non-recurring litigation, and equity-based compensation.

We define Adjusted Net Income as net loss excluding restructuring and related severance costs, loss/(gain) on disposal of long-lived assets, settlement costs for non-recurring litigation, equity-based compensation and the tax effect of these adjustments.

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.

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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.

(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 because it does not include results from equity-based compensation.

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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:

The following table reconciles Adjusted EBITDA and Adjusted EBITDA Margin to net loss, the most directly comparable GAAP financial measure:

Twelve Months Ended

($ in thousands) 2024 2023 2022

Net (loss)/income $ (4,479) $ (14,679) $ 10,551

Sponsor management fee — — 1,636

Net loss $ (8,251) $ (4,479) $ (14,679)

Equity-based compensation (1)

3,762 18,224 29,457

Loss on debt modification — — 932

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Depreciation and amortization 11,888 10,253 8,061

(Gain)/loss on disposal of long-lived assets (212) 147 —

Loss/(gain) on disposal of long-lived assets 16 (212) 147

Litigation settlements (2)

Interest expense, net 6,247 6,485 6,751

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Adjusted EBITDA Margin 11.5 % 22.1 % 23.0 %

(1) During the first quarter of fiscal year 2024, the Company recorded a cumulative reversal of stock compensation expense of $10.4 million related to reassessing the probability of achieving the performance target on certain of the Company's performance-based stock units.

See Note 6 to the consolidated financial statements included in this Annual Report on Form 10-K for further discussion.

(2) This amount relates to settlement costs for non-recurring litigation of $0.9 million for the twelve months ended December 31, 2024.

For the twelve months ended December 31, 2024, 2023, and 2022 pre-opening de novo and relocation costs were $1.0 million, $3.3 million, and $4.3 million, respectively.

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($ in thousands) 2024 2023 2022

Net (loss)/income $ (4,479) $ (14,679) $ (393)

Net loss $ (8,251) $ (4,479) $ (14,679)

Equity-based compensation (1)

3,762 18,224 29,457

Loss on debt modification — — 932

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Restructuring and related severance costs 6,026 5,488 4,111

(Gain)/loss on disposal of long-lived assets (212) 147 —

Loss/(gain) on disposal of long-lived assets 16 (212) 147

Litigation settlements 850 — —

Tax effect of adjustments (1,271) (2,732) (2,195)

Adjusted net income $ 16,289 $ 18,504 $ 4,457

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

Adjusted net (loss)/income $ 1,132 $ 16,289 $ 18,504

Adjusted net (loss)/income per share of common stock (2)

Basic $ 0.02 $ 0.29 $ 0.33

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Diluted 58,281,133 57,611,469 57,918,005

See Note 6 to the consolidated financial statements included in this Annual Report on Form 10-K for further discussion.

(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.

(2) 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).

Our Operating Structure

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All of our revenue is earned from services provided by the Professional Associations we manage.

See “Critical Accounting Policies and Estimates—Principles of Consolidation.”

See “Critical Accounting Policies and Estimates.”

Components of Results of Operations

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We assist patients, as needed, by providing third-party financing options to pay for procedures.

We have arrangements with various financing companies to facilitate this option.

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.

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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.

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

General and Administrative

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

We also expect increases from other costs associated with continuing to grow our business.

As we continue to expand the number of centers and procedures rooms, we anticipate general and administrative expenses to decrease as a percentage of revenue over time.

Interest Expense

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2024 2023 2022

($ in thousands) Amount % of

($ in 000s) Amount % of

Revenue Amount % of

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Selling, general and administrative 98,880 54.8 % 102,381 52.3 % 101,418 60.1 %

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

Depreciation and amortization 11,888 6.6 % 10,253 5.2 % 8,061 4.8 %

(Gain)/loss on disposal of long-lived assets (212) (0.1) % 147 0.1 % — — %

Loss/(gain) on disposal of long-lived assets 16 — % (212) (0.1) % 147 0.1 %

Total operating expenses 182,166 101.0 % 186,434 95.2 % 173,339 102.7 %

Income/(loss) from operations 9,483 4.8 % (4,545) (2.7) % 15,768 11.8 %

Loss/(income) from operations (1,816) (1.0) % 9,483 4.8 % (4,545) (2.7) %

Interest expense, net 6,247 3.5 % 6,485 3.3 % 6,751 4.0 %

Pre-tax net income/(loss) 2,998 1.5 % (11,296) (6.7) % 10,880 8.2 %

Income tax expense 7,477 3.8 % 3,383 2.0 % 329 0.2 %

Net (loss)/income $ (4,479) (2.3) % $ (14,679) (8.7) % $ 10,551 7.9 %

Pre-tax net (loss)/income (8,063) (4.5) % 2,998 1.5 % (11,296) (6.7) %

Income tax (benefit)/expense 188 0.1 % 7,477 3.8 % 3,383 2.0 %

Net loss $ (8,251) (4.6) % $ (4,479) (2.3) % $ (14,679) (8.7) %

Twelve Months Ended December 31, 2024 Compared to Twelve Months Ended December 31, 2023

Overview— Our financial results for the twelve months ended December 31, 2023 compared to the twelve months ended December 31, 2022 reflect the addition of five de novo centers which increased procedure rooms by 10.

Revenue— Our revenue increased $27.1 million, or 16.1%, compared to the same period in 2022.

The increase is the result of adding five de novo centers which increased our footprint from 22 centers to 27 centers as of December 31, 2023.

Cost of Service— Our cost of service increased $11.2 million, or 17.9%, compared to the twelve months ended December 31, 2022.

This increase is primarily attributable to opening five de novo centers since the 2022 period.

Overview— Our financial results for the twelve months ended December 31, 2024 compared to the twelve months ended December 31, 2023 reflect the addition of five de novo centers which increased procedure rooms by ten.

Revenue— Our revenue decreased $15.6 million, or 7.9%, compared to the same period in 2023.

The decrease is primarily attributed to weaker than expected performance across the broader aesthetics and high-end retail industries.

Cost of Service— Our cost of service decreased $2.6 million, or 3.6%, compared to the twelve months ended December 31, 2023.

The percentage decrease in cost of service is driven by the decrease in cases compared to the 2023 period and partially offset by increases in nursing and rent costs related to our new facility openings during the 2024 period.

Cost of service was 39.6% and 37.8% as a percentage of revenue for the twelve months ended December 31, 2024 and 2023, respectively.

Selling, General and Administrative Expenses— Selling, general and administrative expenses increased $1.0 million, or 0.9%, for the twelve months ended December 31, 2023 compared to the same period in 2022.

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 support for our centers, offset by a decrease in our equity-based compensation expense.

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

The percentage increase is primarily due to the decline in revenue and not being able to leverage certain fixed costs within cost of service such as rent and certain nursing costs.

Selling, General and Administrative Expenses— Selling, general and administrative expenses decreased $3.5 million, or 3.4%, for the twelve months ended December 31, 2024 compared to the same period in 2023.

This decrease is related to a decrease in our equity-based compensation expense (see Note 6 to the consolidated financial statements included in this Annual Report on Form 10-K for further discussion) partially offset by 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 our marketing and corporate support costs to continue to increase on an absolute dollar basis as we open de novo centers.

Selling, general and administrative expenses as a percent of revenue were 54.8% and 52.3% for the twelve months ended December 31, 2024 and 2023, respectively.

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Our customer acquisition costs were approximately $3,130 and $2,465 per customer in the twelve months ended December 31, 2024 and 2023, 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.

We intend to continue investing in our sales and marketing capabilities as we add new centers.

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 $65.6 million and $71.3 million for the twelve months ended December 31, 2023 and 2022, respectively.

This reduction is due to a decrease in equity-based compensation.

We expect to continue growing our corporate team to support the opening of new centers and growth at existing facilities.

General and administrative expense were approximately $54.9 million and

$65.6 million for the twelve months ended December 31, 2024 and 2023, respectively.

This reduction is due to a decrease in equity-based compensation (see Note 6 to the consolidated financial statements included in this Annual Report on Form 10-K for further discussion).

Depreciation and Amortization— Depreciation and amortization increased to approximately $11.9 million for the twelve months ended December 31, 2024 compared to $10.3 million for the same period in 2023.

This increase is the result of having five additional de novo centers during the twelve months ended December 31, 2024 as compared to the 2023 period.

(Gain)/loss on disposal of long-lived assets— For the twelve months ended December 31, 2023, we recognized a $212,000 gain related to the disposal of previous property, plant, and equipment as a result of relocation to expand certain centers.

Interest Expense, net— Interest expense decreased to $6.2 million from $6.5 million for the twelve months ended December 31, 2024 and 2023, respectively.

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Twelve Months Ended December 31, 2023 Compared to Twelve Months Ended December 31, 2022

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.

Overview — Our financial results for the twelve months ended December 31, 2023 compared to the twelve months ended December 31, 2022 reflect the addition of five de novo centers which increased procedure rooms by 10.

Revenue —Our revenue increased $27.1 million, or 16.1%, compared to the same period in 2022.

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.

The increase is the result of adding five de novo centers which increased our footprint from 22 centers to 27 centers as of December 31, 2023.

Cost of Service —Our cost of service increased $11.2 million, or 17.9%, compared to the twelve months ended December 31, 2022.

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.

This increase is primarily attributable to opening five de novo centers since the 2022 period.

Cost of service was 37.8% and 37.2% as a percentage of revenue for the twelve months ended December 31, 2023 and 2022, 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 $1.0 million, or 0.9%, for the twelve months ended December 31, 2023 compared to the same period in 2022.

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 52.3% and 60.1% for the twelve months ended December 31, 2023 and 2022, 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.

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General and administrative expense were approximately $65.6 million and $71.3 million for the twelve months ended December 31, 2023 and 2022, 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.

This reduction is due to a decrease in equity-based compensation.

Depreciation and Amortization —Depreciation and amortization increased to approximately $10.3 million for the twelve months ended December 31, 2023 compared to $8.1 million for the same period in 2022.

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.

The main drivers of the difference between the effective and statutory rates are due to the Reorganization and non-deductible officer compensation expense.

This increase is the result of having five additional de novo centers during the twelve months ended December 31, 2023 as compared to the 2022 period.

(Gain)/loss on disposal of long-lived assets —For the twelve months ended December 31, 2023, we recognized a $212,000 gain related to the disposal of previous property, plant, and equipment as a result of relocation to expand certain centers.

Interest Expense, net —Interest expense decreased to $6.5 million from $6.8 million for the twelve months ended December 31, 2023 and 2022, respectively.

The decrease is due to the lower principal balance resulting from the Company's voluntary $10 million prepayment made in 2023.

Income Tax Expense — Our effective tax rate is 249.4% and (29.9)% for the twelve months ended December 31, 2023 and 2022, 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.

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, 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, 2023, we had $10.3 million in cash and cash equivalents and an available amount of $5.0 million under our revolving credit facility.

Our primary cash needs are for payroll, marketing and advertisements, rent, debt service, as well as information technology and infrastructure, including our corporate office.

As we have experienced revenue declines in the most recent year, we have implemented a cost reduction program that is estimated to eliminate approximately $3 million in annual overhead costs and contracted expenses.

These initiatives may not realize anticipated savings or benefits from one or more of the various strategies and cost-savings initiatives undertaken as part of these efforts in full or in part or within the time periods expected.

We also may not realize the increase in sales related to these initiatives.

Our ability to improve operating results depends upon a significant number of factors, some of which are beyond our control.

If we are unable to realize the anticipated savings or benefits, or otherwise fail to implement the growth strategies, the business operating results and liquidity may be adversely affected.

We believe that the cash expected to be generated from operations will be sufficient for our working capital requirements, liquidity obligations, and payments due under our existing credit facilities for at least the next 12 months.

As of December 31, 2024, we had $8.2 million in cash and cash equivalents with no availability under our revolving credit facility.

We do not have any letters of credit outstanding as of December 31, 2024.

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Twelve Months Ended

($ in thousands) 2023 2022 2021

($ in 000s) 2024 2023 2022

Cash Flows Provided By (Used For):

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Financing activities 630 (13,391) (27,257)

Net increase/(decrease) in cash and cash equivalents 646 (15,731) 14,968

Net (decrease)/increase in cash and cash equivalents (2,027) 646 (15,731)

Operating Activities

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For the twelve months ended December 31, 2024, our operating cash flow decreased by $12.6 million compared to the same period in 2023.

The decrease is related to having more restructuring and related severance costs and the timing of working capital payments primarily related to lease deposits on upcoming de novo projects.

The decrease is primarily attributed to weaker than expected revenue performance and an increase in our marketing investments during the twelve months ended December 31, 2024 as compared to the prior year period.

At December 31, 2024, we had working capital of $(11.5) million compared to $(4.4) million at December 31, 2023.

For the twelve months ended December 31, 2023, our operating cash flow decreased by $0.5 million compared to the same period in 2022.

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 increased spending on our clinical infrastructure and brand awareness to support future growth.

The decrease is related to having more restructuring and related severance costs and the timing of working capital payments primarily related to lease deposits on upcoming de novo projects.

At December 31, 2023, we had working capital of $(4.4) million compared to $(5.6) million at December 31, 2022.

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.

Investing Activities

Net cash used in investing activities for the twelve months ended December 31, 2023 and 2022 was $9.9 million and $12.9 million, respectively.

Investing activities during both periods were attributable to the expansion of multiple existing facilities and opening of de novo locations.

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.

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.

Net cash used in investing activities for the twelve months ended December 31, 2024, 2023, and 2022 was $14.0 million, $9.9 million, and $12.9 million, respectively.

Investing activities during all three periods were attributable to the preparation for the opening of de novo locations and the relocation of multiple existing facilities.

Financing Activities

Net cash used in financing activities during the twelve months ended December 31, 2024 was $0.6 million.

During the twelve months ended December 31, 2023, we made principal payments on our debt of $12.1 million, which included a voluntary prepayment of $10.0 million, paid cash dividends to shareholders of $0.4 million, and made payments of taxes withheld through vested equity-based compensation of $0.2 million.

During the twelve months ended December 31, 2024, we made principal payments on our debt of $2.1 million, borrowed $5.0 million on our revolving credit facility, and made payments of taxes withheld through vested equity-based compensation of $0.9 million.

Net cash used in financing activities for the twelve months ended December 31, 2023 was $13.4 million.

For 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.

For the twelve months ended December 31, 2023, we paid cash dividends to stockholders of $0.4 million and made principal payments on our debt of $12.1 million.

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

For the twelve months ended December 31, 2022, we made distributions to our former member of $1.2 million, paid cash dividends to stockholders 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.

Material Cash Requirements

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($ in thousands) Total Less than 1 Year 1-3 Years 4-5 Years More than 5 Years

Debt – principal

Debt – principal and revolver (1)

$ 75,750 $ 4,250 $ 71,500 $ — $ —

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Total $ 134,319 $ 17,216 $ 100,515 $ 7,993 $ 8,595

(1) Years 1-3 includes both the principal of the Term Loan as well as the revolving credit facility.

This amount does not reflect any prepayments.

(2) Amounts in the table reflect the contractually required interest payable pursuant to borrowings under our debt related to our Credit Agreement.

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Long-Term Debt

The carrying value of our total indebtedness was $71.6 million and $83.5 million, which includes unamortized deferred financing costs and issuance discount of $1.2 million and $1.5 million, as of December 31, 2023 and December 31, 2022, respectively.

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

Pursuant to the 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 previous credit facility.

On September 29, 2023, the Company voluntarily pre-paid $10.0 million of the principal of the term loans under the Credit Agreement using cash on hand.

The carrying value of our total indebtedness was $74.7 million and $71.6 million, which includes unamortized deferred financing costs and issuance discount of $1.0 million and $1.2 million, and funds drawn on the revolving credit facility of $5.0 million and $—, as of December 31, 2024 and December 31, 2023, respectively.

On November 7, 2022, the Company entered into the Term Loan and Revolving Credit Facility pursuant to the Credit Agreement with a syndicate of lenders, originally maturing November 7, 2027.

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

On September 29, 2023, the Company voluntarily pre-paid $10.0 million of the principal balance of the term loans under the Credit Agreement using cash on hand.

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

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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.

On September 13, 2024, the Company amended the Credit Agreement to modify certain financial condition covenants and the applicable margins.

As such, for the period of September 13, 2024 through June 30, 2025, the applicable per annum margin is 2.5% or 3.5% 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 2.0% or 3.0% for base rate or SOFR, respectively.

If the Company's total leverage ratio is below 1.0x, the applicable per annum margin is 1.5% or 2.5% for base rate or SOFR, respectively.

As of December 31, 2024, the interest rate was 7.86%.

On March 12, 2025, the Company entered the Third Amendment.

Under the terms of the Third Amendment, the parties thereto agreed to modify certain financial condition covenants made by the Company under the Term Loan and Revolving Credit Facility, such that (i) the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of the Company and its subsidiaries as of the last day of the fiscal quarters ending March 31, 2025 and June 30, 2025 must be no less than 0.50x and 1.10x, respectively, and no less than 1.25x on the last day of the fiscal quarters ending September 30, 2025 and thereafter, instead of 1.10x as of March 31, 2025 and 1.25x as of June 30, 2025 and thereafter, as previously set forth in the Credit Agreement;

(ii) the Consolidated Leverage Ratio (as defined in the Credit Agreement) of the Company and its subsidiaries as of the last day of the fiscal quarters ending March 31, 2025, June 30, 2025, September 30, 2025, December 31, 2025 and March 31, 2026, must not exceed 4:25x, 3.50x 3.25x, 3.25x, and 2.75x, respectively, and the Consolidated Leverage Ratio as of the last day of each fiscal quarter thereafter must not exceed 2.25x, instead of 3.25x as of March 31, 2025, 2.75x as of June 30, 2025, and 2.25x thereafter, as previously set forth in the Credit Agreement;

(iii) the Company and its subsidiaries will be required to maintain minimum Liquidity (as defined in the Credit Agreement) of not less than (A) $3,000,000.00 as of the last day of the month ending March 31, 2025, (B) $5,000,000 as of the last day of the month ending April 30, 2025, and (C) $7,500,000.00 as of the last day of the months ending May 31, 2025 and thereafter (or the last day of each fiscal quarter thereafter upon the satisfaction of certain financial tests described therein);

and (iv) new liquidity and financial reporting requirements have been added.

In addition to revising the covenants listed above, the amendment revised or added new terms such that (i) for outstanding loans, beginning on or about July 1, 2025, the applicable per annum margin will be increased to 3.75% or 4.75% for base rate or SOFR, respectively, if the Company's total leverage ratio is equal to or greater than 3.00x, 3.50% or 4.50% for base rate or SOFR, respectively, if the Company's total leverage ratio is equal to or greater than 2.00x and less than 3.00x, and 3.25% or 4.25% for base rate or SOFR, respectively, if the Company's total leverage ratio is below 2.00x, (ii) the Term Loan and Revolving Credit Facility will mature on May 11, 2027 (instead of November 7, 2027);

(iii) Liquidity in excess of $3.0 million will be used to repay the outstanding funds drawn on the revolving credit facility on a monthly basis beginning April 30, 2025;

(iv) revolver draws will be subject to compliance with the minimum Liquidity covenant;

and (v) the Company will be required to reimburse SVB for certain fees and expenses relating to the engagement of a financial advisor, and (vi) 100% of first $10.0 million of any equity proceeds will be used to repay the Term Loan and Revolving Credit Facility, subject to a carve-out of the first $3.0 million of equity proceeds and any equity proceeds received from Sponsor.

In consideration of the Third Amendment, the Company paid a fee equal to 0.15% of the outstanding loans to consenting Lenders, and a $125,000 arrangement fee to SVB.

On March 12, 2025, in connection with the Third Amendment, the Company, SVB and our Sponsor (through certain affiliated entities) entered into the Limited Guarantee, pursuant to which our Sponsor agreed to provide a $10.0 million limited guaranty of the Company’s obligations under the Credit Agreement.

The Limited Guarantee is callable on June 15, 2025 (or upon the earlier occurrence of certain defaults described therein) if the Company has not prepaid the Term Loan (excluding regularly scheduled amortization) by $10.0 million as of such date.

Under the terms of the Limited Guarantee, if Sponsor is required to make any payment under the Limited Guarantee (other than as a result of a bankruptcy event), then Sponsor will be deemed to have purchased shares of common stock of the Company having an aggregate value equal to the amount of such payment.

The Company has agreed to issue a subordinated note to Sponsor if a payment occurs under the Limited Guarantee, to the extent such payment does not result from the issuance of shares of common stock by the Company to Sponsor.

JOBS Act Accounting Election

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States that have corporate practice of medicine laws require only physicians to practice medicine, exercise control over medical decisions or engage in certain arrangements with other physicians, such as fee-splitting.

Therefore, we mainly operate by maintaining MSAs with our affiliated Professional Associations, which are owned, directly or indirectly, and operated by a licensed surgeon, and which contract with individual surgeons to provide medical services.

Therefore, we mainly operate by maintaining MSAs with our affiliated Professional

Associations, which are owned, directly or indirectly, and operated by a licensed surgeon, and which contract with individual surgeons to provide medical services.

Under the MSAs, we provide and perform non-medical Management Services for which we are paid a management fee by each Professional Association.

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The surgeons contracted by the Professional Associations are exclusively in control of, and responsible for, all aspects of the practice of medicine.

Each surgeon owner of a Professional Association (each a “Surgeon Owner,” and collectively, the “Surgeon Owners”) is also party to a continuity agreement (each, a “Continuity Agreement,” and collectively, the “Continuity Agreements”), which (i) prohibits the applicable surgeons from freely transferring or selling their interests in the Professional Associations, (ii) provides for the ability to add a second surgeon equity holder to help ensure continuity of the Professional Association, and (iii) provides for the automatic transfer of ownership upon the occurrence of certain

events, save that, due to limitations under New York law, there is no Continuity Agreement in place with respect to the New York Professional Association.

See “Business—Surgeon Practice Structure—Continuity Agreements.”

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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 - Stockholders' Equity and 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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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