Apyx Medical Corporation

Good afternoon, ladies and gentlemen, and welcome to the third quarter of fiscal year 2021 earnings conference call for Apex Medical Corporation. At this time, all participants have been placed 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 risk and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the risk factor section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission, as well as our most recent 10Q 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 We'll 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 those 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, Hector. Good afternoon, everyone, and welcome to our third quarter earnings call. Joining me on the call this afternoon is our Chief Financial Officer, Tara Sam. Turning to a quick agenda of what we intend to cover today, I'll begin with a review of our third quarter revenue results. and the key drivers that contributed to the strong performance we saw. I'll then provide an update of our third quarter operational progress with respect to the four strategic initiatives we are pursuing to enhance our long-term growth in the cosmetic surgery market. Tara will discuss our third quarter financial results in detail and review our financial guidance for 2021 which we updated in our earnings press release this afternoon. Then I will share some additional closing thoughts on our outlook before we open the call for questions. With this agenda in mind, let's start with a review of our revenue results. In the third quarter, we delivered $11.8 million in total revenue, representing 70% growth year over year. Our U.S. revenue increased 52% year over year to $7.9 million, and international revenue increased 125% year over year to $3.9 million. By segment, our total revenue growth was almost exclusively driven by sales of our advanced energy products, which increased 88% year over year to $10.3 million, while sales in our OEM business increased 3% year-over-year to $1.5 million. Looking at the results in our advanced energy segment, our advanced energy sales growth exceeded our expectations for the quarter, driven primarily by strong growth in global sales of our handpieces, along with demand for our generators in the U.S. Global sales of our handpieces increased more than 100% year over year. We were pleased to see that this growth was diversified with strong contributions from sales to both our US customers and international distributors, reflecting strong utilization-based demand for our global customer base. The greater than 100% increase in global handpiece sales in Q3 was especially notable given the emergence of the Delta variant during the third quarter and the return of the typical seasonality that we experience each year as surgeons tend to take vacations in the latter months of summer. Global sales of generators increased more than 70% year over year driven primarily by strong demand for our Renuvion generators from new customers in the U.S. cosmetic surgery market. The process of engaging with potential new customers in the U.S. has continued to improve since the onset of the pandemic due in part to our virtual engagement efforts and the resumption of industry trade shows. As a result, in the third quarter, we saw double digit growth in U.S. generator sales on a quarter-over-quarter basis. Internationally, while we experienced growth in generator sales on both a year-over-year and quarter-over-quarter basis, our performance was relatively more modest in comparison to the U.S. as the global capital equipment purchasing environment continued to be affected by COVID-19. Our international generator sales growth was driven largely by sales to distributors in key geographies, including Brazil and Taiwan. In summary, we were very proud to deliver another quarter of stronger than anticipated sales performance in our advanced energy business, driven largely by growth in our global handpiece and U.S. generator sales, reflecting solid utilization and adoption trends of our helium plasma technology. We were also pleased to complement our sales performance with 13% year-over-year improvements in both our net loss attributable to stockholders and our adjusted EBITDA loss. Moving to third quarter operating highlights, we continue to drive progress with respect to our four strategic initiatives, intended to position Apix Medical for sustainable long-term growth in the cosmetic surgery market. Let me take a minute to update you on each of them, beginning with our regulatory strategy in the US and internationally. In the US, we remain focused on obtaining specific clinical indications for our targeted cosmetic surgery procedures, specifically dermal resurfacing and the treatment of skin laxity. Beginning with our pursuit of an indication for dermal resurfacing procedures, following the submission of our 510 pre-market notification to the FDA on May 28th, we have continued to engage with the agency to facilitate their review of our application. With respect to our pursuit of an indication for skin laxity procedures, In early August, we completed patient enrollment in the second phase of our IDE study, evaluating the use of Renuvion in skin laxity procedures in the neck and submental region. We continue to anticipate submitting our 510 pre-market notification to the FDA for this indication in the second quarter of 2022. Outside of the US, we continued our efforts to obtain registrations for our advanced energy products, enabling us to commercialize new countries in the future. Our steady pace of progress on this front in recent years positions us well to facilitate the global adoption of our helium plasma technology over a multi-year period. Moving to our second strategic initiative, expanding the portfolio of clinical evidence for our Renew Beyond Technology in the cosmetic surgery market. During the quarter, we saw a notable independent peer-reviewed clinical publication during the third quarter. The article was published in the American Journal of Cosmetic Surgery in July and discussed the results of a five-subject retrospective study. All five subjects received liposuction in one arm and liposuction combined with Renuvion on the other arm. The evaluators were blinded to which arm received liposuction combined with Renuvion, and the results from each arm were compared in order to evaluate Renuvion's efficacy in managing skin laxity when used in combination with liposuction compared to liposuction alone. The researchers found that six months post-procedure Four of the five subjects demonstrated significant improvement in contour and laxity in the arm that received liposuction combined with Renuvion. With respect to our third strategic initiative, enhancing physician and practice support for our cosmetic surgery customers, working with several of our top surgeon users, our team continued to develop, organize, and host physician mentor programs, or PMPs, providing our new and existing surgeon customers with opportunities to learn how to use and market Renuvion directly from their peers. We hosted three PMP events during the quarter, which were attended by over 130 clinicians that participated either virtually or in person. Our team hosted two virtual training sessions for our newer international distributors, in order to improve their ability to educate and support the surgeon customers in their local markets. In addition to these efforts, we participated in eight in-person industry conference and trade shows. While attendance at these in-person events was roughly 50% to 75% below pre-COVID levels, we have been pleased to resume hosting in-person podium presentations and other educational events enabling us to engage and educate potential new surgeon customers. We also continue to expand the educational and marketing materials available on our existing surgeons' customers via our online portal. Lastly, regarding our fourth and final strategic initiative to improve our manufacturing capabilities and efficiencies, we continue to facilitate the commercial introduction of our APR handpiece. the first product to benefit from our manufacturing team's effort to reduce the per unit manufacturing costs of our advanced energy hand pieces. Our team remains focused on bringing this product to our international customer base by securing the requisite product registrations in each country where our OUS distributors operate. We began this multi-year effort in 2021 and expect it will drive material improvements in our handpiece gross margins over time. Lastly, we made progress in expanding and improving our handpiece production capabilities in both our Bulgaria and Clearwater facilities. Most notably, we began manufacturing handpieces at our Bulgarian facility during the third quarter, and we believe this facility will allow us to nearly double our existing handpiece manufacturing capacity. By continuing to advance these four strategic initiatives, we are laying the groundwork for our future success. Tara will now review the third quarter financial results and updated 2021 guidance. Tara?

Thanks, Charlie, and good afternoon, everyone. Since Charlie covered our revenue results, I will begin at the gross profit line. Gross profit for the third quarter of 2021 increased $3.3 million, or 70% year-over-year, to $8.1 million. Gross profit margin was 68% unchanged year-over-year. Operating expenses increased $2.9 million or 32% year-over-year to $12 million. The increase in operating expenses year-over-year was driven by a $1.9 million increase in selling general and administrative expenses, a $.7 million increase in salaries and related costs, a $0.2 million increase in professional services, and a $0.1 million increase in research and development expenses. Loss from operations for the third quarter of 2021 decreased $0.4 million or 9% year over year to $4 million. Income tax expense was $0.1 million compared to an income tax benefit of $0.7 million in the third quarter of 2020. Net loss attributable to stockholders was $4.2 million or 12 cents per share compared to $3.7 million or 11 cents per share for the third quarter of 2020. Adjusted EBITDA loss decreased 0.4 million or 13% year over year to $2.7 million. As a reminder, we provided a detailed reconciliation from our net loss attributable to stockholders to non-GAAP adjusted EBITDA loss in our press release this afternoon. As of September 30th, 2021, the company had cash and cash equivalents of $30.9 million compared to $41.9 million as of December 31st, 2020. Turning to our review of our 2021 financial guidance, which we updated in our earnings press release this afternoon, For the 12 months ending December 31st, 2021, we now expect total revenue in the range of $44 to $45 million, representing growth of 59 to 62% year over year. This compares to our prior guidance range, which assumed growth of 46 to 54% year over year. The updated total revenue guidance range assumes advanced energy revenue growth of 76 to 80% year over year, This compares to our prior guidance range, which assumed growth of 62% to 71% year-over-year. The updated Advanced Energy Revenue Guidance Range continues to assume U.S. growth is only driven by contributions from Renuvion sales related to its use as a subdermal coagulator following liposuction procedures, and international growth is driven primarily by demand in existing international markets. Our updated total revenue guidance range also assumes an OEM revenue decline of approximately 9% year over year compared to our prior guidance, which assumed a decline of approximately 16% year over year. In terms of profitability guidance for fiscal year 2021, we now expect net loss attributable to stockholders in the range of 17.8 to 17.2 million. This compares to our prior guidance range of $19.3 to $18 million. And we expect adjusted EBITDA loss in the range of $11.6 to $10.7 million. This compares to our prior guidance range of $13.1 million to $11.5 million. Our formal financial guidance for 2021 continues to incorporate the following considerations for modeling purposes. First, we assume our total company revenue growth for the full year 2021 period will be driven exclusively by our advanced energy business. We expect strong advanced energy growth, both in the U.S. and internationally, and the midpoint of our advanced energy guidance now assumes 80% growth year over year in sales to U.S. customers and 70% growth in sales to international customers in 2021. Second, We now expect gross margins of approximately 68% this year, compared to 63.2% last year, driven primarily by continued mixed benefits by segment, by geography, and by product. Third, we continue to expect GAAP operating expense to increase approximately 25% year-over-year, driven by 9% growth in our normalized operating expenses. Fourth, we expect net interest and other expense of approximately $430,000 in 2021 compared to a benefit of approximately $700,000 last year. Fifth, we expect income tax expense of approximately $350,000 compared to an income tax benefit of $7.5 million last year, which was driven by a net operating loss carryback tax benefit from the 2020 CARES Act. And lastly, we expect non-cash depreciation and amortization of approximately $800,000 to $900,000, non-cash stock-based compensation expense in a range of approximately $5.1 to $5.2 million, non-controlling interest of $50,000, and weighted average diluted shares outstanding of approximately 34 to 35 million shares. With that, I'll turn the call back to Charlie for closing remarks.