Apyx Medical Corporation

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Good afternoon, ladies and gentlemen, and welcome to the third quarter of fiscal year 2019 earnings conference call for Apex Medical Corporation. At this time, all participants are in place in a listen-only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the risk factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commissions, as well as our most recent 10-Q filing. Such factors may be updated from time to time in our filings with the SEC which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investor relations portion of our website. I would now like to turn the call over to Mr. Charlie Goodwin, Apex Medical's president and chief executive officer. Please go ahead, sir.

Thanks, operator. Welcome, everyone, to our third quarter of fiscal year 2019 earnings call. I am joined on this afternoon's call by our chief financial officer, Tara Semm. Let me provide you with a quick agenda for today's call. I'll begin my prepared remarks with an overview of our third quarter revenue performance and the primary drivers of our revenue growth during the period. Then I'll discuss our recent operational progress with updates on the four strategic initiatives that we are pursuing as part of our longer-term growth strategy, as well as the enhancements we have made to our product portfolio. Tara will then provide you with a detailed revenue of our financial results for the third quarter, as well as our fiscal year guidance for 2018, which we updated in our earnings press release this afternoon. I'll then share some additional closing remarks before we open the call for questions. During the third quarter of 2019, we generated impressive revenue growth, continuing the strong financial performance that we saw during the first half of 2019. We reported total revenue in the third quarter of 7.6 million which represented growth of 3.9 million or 106% growth year over year. Our total revenue growth continued to be driven by strong global demand for our advanced energy products. We achieved impressive sales performance in our advanced energy business during the third quarter with growth of 3.1 million or 104% year over year. We continue to drive growth in our advanced energy business by increasing the adoption and utilization of our Renuvion generators and hand pieces in the U.S. cosmetic surgery market and fulfilling demand from distributors in the OUS market. We also saw contributions from growth in our OEM business, which increased by $800,000 or 116% year over year. Our OEM growth was primarily driven by contributions from our electrosurgical generator and supply agreement with Symmetry Surgical. Looking at our third quarter 2019 revenue performance from a geographical standpoint, Our total U.S. sales increased by 2.8 million, or 101% year-over-year. U.S. sales were primarily driven by a 96% increase in our advanced energy sales and a 116% increase in OEM sales. Our advanced energy sales performance in the U.S. resulted from strong growth in sales of our Renuvion generators, coupled with utilization-based demand for our handpieces. Our total international sales increased 1.1 million or 123% year over year. Our international sales growth was driven by strong utilization related demand for our Renuvion generators and handpieces from distributors in our existing OUS markets, most notably in Europe and Latin America. As a reminder, we added four new countries during the first six months of this year. While our team remains focused on expanding our geographical footprint, we continue to expect our growth in 2019 to be fueled by the distributor relationships that we have formed in prior years. With our impressive third quarter sales performance as a backdrop, I'll now turn to a discussion of our recent operational progress beginning with a review of our four strategic initiatives that we're focused on. Number one, formulize our regulatory strategy to pursue specific clinical indications that will enable us to market and sell Renuvion for our targeted procedures. Two, secure new clinical evidence demonstrating the safety and efficacy of our Renuvion technology. Three, enhance physician and practice support for our cosmetic surgery customers. And four, improve our manufacturing capabilities and efficiencies. We believe our focus on these four strategic initiatives will position Apix Medical for long-term growth in the cosmetic surgery market, and we continue to make important progress with respect to each of them. Beginning with our first initiative, Our clinical and regulatory affairs teams remain focused on securing the necessary support to obtain new clinical indications from the FDA for our target procedures within the US cosmetic surgery market. Specifically, we have been focused on developing a new clinical study to evaluate the safety and efficacy of Renuvion in dermal resurfacing procedures. We intend to use the results of this study to support a new application for FDA 510 clearance for Renuvion with an indication for derma resurfacing procedures. During the third quarter, we developed our investigational device exemption or IDE application for this study and submitted it for approval. We subsequently obtained and incorporated feedback from the FDA on our proposed clinical study protocol. And lastly, we selected and trained the clinical sites that will participate in the study. In addition to dermal resurfacing, we're also focused on building the requisite clinical support to pursue a new indication for the treatment of skin laxity via the subdermal use of Renuvion in the neck and submental regions. We obtained our IDE approval for a study evaluating the use of Renuvion for treatment of skin laxity on July 25th, and we are excited to report the initiation of enrollment in October. This is a prospective multi-center, multi-phase evaluator-blinded study designed to evaluate the safety and efficacy data on 52 subjects at up to five investigational centers in the U.S. Our primary effectiveness endpoint is the improvement in the appearance of lax tissue in the neck and submental region at six months. as determined by an assessment of before and after photos by three blinded independent photographic reviewers. The design of this study assumes a 75% success rate of subjects with correctly identified images, meaning that more than 75% of the subjects must have their six-month images correctly identified by two of the three blinded independent photographic reviewers. The study's primary and secondary safety variables will be the evaluation of post-treatment pain and discomfort and the evaluation of the adverse events respectively. It is important to note that we will conduct our skin laxity study in two phases. The first phase will include 20 subjects and we intend to report the one month safety data from this phase to the FDA for review. Following the FDA's review and approval of this safety data, we will expect to begin the second phase of this study, which will include an additional 32 subjects. As a reminder, during the third quarter, we added important expertise to our regulatory affairs team to support and inform our long-term strategy. We appointed Dr. Labette Garber as our Director of Global Regulatory Affairs in July, and also announced the appointment of Minnie Baylor Henry to our board of directors who chairs our newly formed regulatory and compliance committee. Turning to our second strategic objective, we continue to develop additional clinical studies and publications to expand our portfolio of clinical evidence demonstrating the safety and efficacy of our Renuvion technology in cosmetic surgery procedures. As I have mentioned on prior calls, in 2019, we expect to publish a retrospective clinical study examining the subdermal use of Renuvion in liposuction procedures. This study is awaiting publication in the Journal of Plastic and Reconstructive Surgery, and we look forward to providing an overview of this study and its findings once it becomes available. We also made important additions to our clinical team during the third quarter with the appointment of Carrie Larson as our Senior Director of Clinical Affairs and the additions of four new plastic and cosmetic surgery experts to our Medical Advisory Board, namely Dr. Brian Kenney, Dr. Paul Ruff, Dr. Richard Gentile, and Dr. Edward Zimmerman. With respect to our third strategic objective, During Q3, we entered into a partnership with a private company called MedShift, which offers its surgeon customers access to medical equipment as part of a monthly subscription program and provides them with a variety of practice-focused support services, including web development, marketing, and procedural analytics. This partnership enables us to deliver another attractive option for those surgeons that are interested in adopting Renuvion technology without making an initial capital investment and also offer additional support solutions for their practice. The partnership with MedShift gives our sales force another option to offer prospective customers who are interested in purchasing alternatives. In addition to our MedShift partnership, we continue to develop and implement new programming to provide support and training for our current and prospective surgeon customers. On our recent calls, I have introduced our new physician mentor programs, or PMPs, which involve educational sessions and live cases designed to provide surgeons with the ability to learn directly from their peers in in a formal educational setting. During the quarter, we continued to organize new PMPs and have hosted a total of 15 of these events in key locations across the country since the beginning of 2019. We also continue to utilize our team of clinical specialists to provide our new customers with additional one-on-one training as they begin their first cases. Lastly, with respect to our fourth strategic initiative, we continue to implement new process improvements to enhance our manufacturing efficiency and reduce the per unit manufacturing cost for our advanced energy products. I am pleased to report that our team has made important progress over the course of 2019 and we are now beginning to see the early benefits of our advanced energy gross margins as a result of our focus in this strategic initiative. I'd like to close my update on our operational progress this quarter by highlighting the important achievements made by our R&D and regulatory affairs teams which culminated in the development and regulatory clearance of two new handpieces. On August 5th, we announced the receipt of FDA 510 clearance for the next generation version of our J plasma precise handpiece with an indication for cutting, coagulation, and ablation of soft tissue. The J plasma precise handpiece was designed for use in laparoscopic procedures and is used by our surgeon customers in our OUS markets. In recent years, we received feedback from many of these customers that they would like to see an updated version of this handpiece which would enable them to deliver standard monopolar coagulation energy in addition to our precise J plasma energy to coagulate wide areas of tissue during a procedure. In response to this feedback, our R&D and manufacturing teams created this next generation version of our J-plasma precise handpiece, which incorporates our cool coag technology, enabling surgeons to alternate between delivering our novel J-plasma energy along with monopolar coagulation energy in a non-contact spray called plasma beam coagulation in a single handpiece. They also redesigned the new handpiece to make it 39% lighter than the prior generation to provide our surgeon customers with improved ergonomics. We expect to begin our limited commercial launch of this new handpiece in select countries in continental Europe by the end of 2019. On October 14th, we announced 510 clearance of the Apix Plasma RF handpiece, the latest addition to our Renuvion product portfolio for the percutaneous delivery of radiofrequency energy and or helium plasma cutting coagulation and ablation of soft tissue. The Apex Plasma RF handpiece is designed to be used percutaneously and features important enhancements compared to prior generations of our Renuvion handpieces. Most notably, the Apex Plasma RF handpiece has a smaller diameter instrument shaft a bullet-shaped instrument tip, a new handle design, and distance indicators to help surgeons minimize unwanted energy application near the incision entry site. It will be made available in multiple configurations to meet the needs of our cosmetic surgery customers. I'm especially pleased with the product development process that led to the creation of the Apix Plasma RF handpiece. During this process, we obtained extensive feedback and input from our surgeon customers and members of our medical advisory board. I believe our team has developed a great product and we look forward to getting it in the hands of our surgeon customers as we initiate a limited commercial launch during the fourth quarter of 2019. Importantly, our Apex Plasma RF handpiece will be used in our clinical study evaluating the use of Renuvion in skin laxity procedures. In short, during the third quarter, we achieved impressive financial performance combined with important operational progress that will position Apix Medical for continued success as we strive to be the world's leading innovator in unique energy solutions for the cosmetic surgery market. I'll now turn the call over to Tara to provide you with a detailed review of our third quarter financial results and discuss our fiscal year 2019 financial guidance which we updated in this afternoon's release. Tara?