This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Please stand by. Hello and welcome ladies and gentlemen to the fourth quarter and fiscal year 2022 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 risks and uncertainties that could cause actual results to differ materially from those indicated, including, without limitation, those identified in the risk factors section of our most recent annual report on Form 10-K, and the company's other filings with the Securities and Exchange Commission. 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 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, APICS Medical's President and Chief Executive Officer. Please go ahead, sir.
spk02: Thanks, operator. Welcome everyone to our fourth quarter and fiscal year 2022 earnings call. I'm joined on today's call by our Chief Financial Officer, Tara Sem. Turning to a quick agenda of what we intend to cover today, I'll start by reviewing our fourth quarter revenue results and the factors that contributed to our performance. Then I'll provide you with an update on our operational progress during the fourth quarter and in recent months. Tara will then discuss our fourth quarter fiscal results in detail, as well as our financial guidance for 2023, which we introduced in our earnings release today. I'll conclude with some thoughts on our outlook and key areas of focus in 2023 before we open the call for Q&A. Let's get started with a review of our fourth quarter revenue results. Our total revenue in the fourth quarter decreased 25% year over year to $12.6 million. These results were approximately 300,000 below the low end of our guidance range we provided in our November earnings call. Our total revenue performance was driven by softer than anticipated advanced energy sales, which decreased 30% year-over-year to $10.5 million, and offset partially by better-than-expected OEM sales, which increased 15% year-over-year to $2.1 million. Looking at the performance in our advanced energy business in more detail, global sales of our advanced energy products continue to be impacted by business disruption related to the medical safety device communication, which was posted by the FDA in March of 2022. While we anticipated continued disruption throughout the fourth quarter, the level of impact was higher than we anticipated, most notably as it relates to global sales of our advanced energy generators. In the fourth quarter, global generator sales decreased nearly 50% year over year, driven by declines both domestically and internationally. These declines were moderated by a 10% decrease in global handpiece sales. As we have discussed in prior quarters, generator sales are primarily a reflection of sales to new users of our technology. This aspect of our advanced energy business has seen the most notable impact from the safety communication. While the pace of recovery in global generator sales was slower than our guidance had assumed, it is important to recognize that overall demand trends improved versus Q3, with generator sales increasing nearly 40% on a sequential basis. Looking at our advanced energy performance by geographic region in more detail, sales of our advanced energy generators in all markets continued to be more difficult than we had anticipated. In the U.S. specifically, sales of our advanced energy products decreased by more than 30% year over year, with sales of our U.S. generators decreasing by more than 40% year over year. Given the confusion in the market related to the safety communication, Our reps have continued to find that more time and effort has been required to help potential new customers understand the communication and the safety and efficacy profile of our technology, which has elongated our historical sales cycle. While generator sales to new customers remained impacted in 2022, we were pleased to grow both our total installed base and our active installed base in the U.S. by 20% year over year, which speaks to the success of our U.S. sales team has had in engaging with and educating customers since the safety communication was initially posted. Outside the U.S., sales of our advanced energy generators decreased by more than 60% year over year, as we continue to experience weaker than anticipated demand for generators from distributors in key countries, most notably in Europe and Latin America. While distributor demand for handpieces in the fourth quarter varied across international markets we serve, we were pleased to see stronger than anticipated handpiece demand from our distributors in several countries in Latin America Europe and APAC, which resulted in year-over-year growth in international handpiece sales in Q4. Shifting to a discussion of our operational performance in the fourth quarter and recent months, during the fourth quarter, our team remained focused on the two primary objectives that we outlined on our most recent earnings call. First, we remain focused on engaging with potential U.S. customers and our existing OUS distributors to clarify potential confusion related to the safety communication. As a reminder, in 2022, we obtained two new specific clinical indications, an indication for use in dermatological procedures for the treatment of moderate to severe wrinkles and rye tides, and an indication to approve the appearance of lax or loose skin in the neck and submental region. Following our receipt of these two 510 clearances, the FDA issued updates to the safety communication with revisions to reflect each new indication. With this as a backdrop, during the fourth quarter, our team continued to their work to communicate these important developments, leveraging our updated marketing and educational materials, ensure prospective customers understand the overall safety and efficacy profile of our products as supported by our IDE clinical studies, real-world evidence, and over 50 clinical publications. and address any questions related to the safety communication. The process has been more prolonged outside of the U.S. given our indirect commercial model. With this in mind, we were pleased to host our first Latin America users meeting in early November, which I was able to attend personally. This in-person meeting provided us with the opportunity to directly address the topic of the safety communication, clarify any potential misconceptions, and explain clinical and real-world data supporting our advanced energy products. The event also included a series of presentations and discussion panels with our KOLs, which proved to be very interactive providing our customers in Latin America region with the opportunity to learn from their peers. Overall, the meeting was very productive and well attended, contributing to our strong handpiece sales in Latin America during the fourth quarter. With respect to our second primary objective, we continued to advance our regulatory strategy to secure additional 510 clearances related to the use of our Renuvion technology in cosmetic surgery procedures. During the fourth quarter, our team engaged with the FDA to obtain their feedback on a proposed 510 submission for a specific clinical indication for the use of the Renuvion APR handpiece for the coagulation of subcutaneous soft tissues where needed following liposuction. We believe receiving clearance for this indication will address the remaining limitations of the safety communication. We submitted our related pre-submission request to the FDA in September and received the agency's formal response and feedback in December. This feedback was incorporated into our request for 510 clearance which we submitted at the end of January and announced via press release on February 1st. Our request for 510 clearance is supported by substantial evidence demonstrating the safety and of our Renuvion APR handpiece when used following liposuction procedures, including data from our IDE clinical study in skin laxity as well as real-world evidence. As it relates to our real-world evidence, we were able to conduct an analysis of the use of Renuvion following liposuction leveraging data from a large set of retrospective chart reviews. Our dataset included treatment data from more than 480 patients and 1,180 areas of the body. Importantly, when this data was compared to real-world evidence for liposuction treatments gathered in literature review, our analysis demonstrated that there were no new or increased risks for Renuvion procedures following liposuction procedures compared to liposuction alone. During the fourth quarter, we also completed and submitted our request for an additional 510 clearance to obtain an indication related to the use of the Renuvion APR handpiece for the contraction of soft tissue, including subcutaneous tissue, where needed on the body. On February 27th, we were pleased to receive clearance for this indication, further demonstrating the safety and effectiveness of our Renuvion technology when used to contract soft tissue. We were pleased with the strong progress our regulatory team has made in this past year and in recent months as we continue to secure clearances supporting the safe and effective use of our advanced energy products. In addition to these efforts, I'd like to share an update on the important operational progress we have made on several other fronts to position Apex Medical for improved financial performance in 2023. During the fourth quarter, our sales and marketing teams continued their efforts to prepare for the commercial launch related to the use of our Renuvion technology for the two new clinical indications that we secured in 2022. As a reminder, these two new clinical indications enable us to market our technology to both surgeons and potential patients for use in approximately 200,000 neck contouring procedures and 200,000 wrinkle reduction procedures we estimate are performed in the U.S. each year. I am very pleased to announce that we began our launch for both indications on January 3rd. In tandem with this launch, we introduced our first direct-to-consumer brand campaign titled This Is Me. Our launch and direct to consumer brand campaign are supported by a nationwide campaign featuring digital advertising on multiple platforms, social media initiatives, and a dedicated patient-focused website, all designed to raise awareness of Renuvion and highlight the benefits of our technology. While we remain in the early months of this launch, the feedback we have received from surgeons and patients has been very positive. In advance of launch, we were also pleased to see our technology featured in two popular television series focused on cosmetic procedures during the fourth quarter. The E Channel Series Botched and TLC Series Awake Surgery. On the new product front, we completed preparations for the commercialization of our next generation Renuvion generator, the Apix1 console. In designing the Apix1 console, our product development team worked closely with members of the surgeon community. Our overarching goal was to enhance the functionality, ease of use, and overall experience for our surgeon customers. With this in mind, the Apix-1 console features key enhancements, including adaptive and intuitive touchscreens, procedural presets for specific parts of the body, cloud connectivity, data logging and sharing, remote upgrade capabilities and system diagnostics, and an advanced gas system that measures and monitors gas volume and usage. In addition to these features, APEX One is also designed to be compatible with future generations of our Renuvion handpieces. Following our launch in late January, the APEX One is now available in the U.S. and we have introduced an upgrade program for all of our existing U.S. users. Lastly, in addition to our progress on the commercial, regulatory, and new product development fronts, we have made important progress in recent months to enhance our balance sheet. In January, we were notified that the IRS had completed their examination of our federal income tax returns for 2018, 19, and 20 and approved that our cash tax refunds of at least $7.5 million be processed. We continue to await the receipt of these funds. On February 21st, we announced a new five-year agreement with MidCap Financial for a credit facility of up to $35 million. The facility includes a senior secured term loan of up to $25 million and a revolving line of credit up to $10 million. At closing, tranche one of the term loan provided us with approximately $8 million of net proceeds. On March 15th, we filed an 8K disclosing our entry into a sale and leaseback agreement, which further strengthens our balance sheet and financial condition. Under the terms of the agreement, the company sold our property located in Clearwater, Florida including the building that houses our offices and manufacturing facility, to VK Acquisitions LLC for gross proceeds of $7.65 million. The agreement is subject to customary due diligence and inspection period over the next 35 days. Upon closing, we would expect to receive cash of approximately $6.7 million in proceeds from the sale transaction, net of commissions, expenses, and first-year deposit of our rent expense. We believe the $8 million of net proceeds from tranche one of our term loan the 6.7 of cash from our sale and leaseback transaction, and the expected seven and a half million in tax refunds, together with potential future borrowings from our term loan and available borrowings on our revolver facility, provide ample liquidity to fund our strategic growth initiatives over the near term. As we work to achieve our longer term goals of generating sustainable profitability and strong free cash flow generation in the future. Stepping back. While 2022 ultimately provided to be more challenging than we had anticipated, we remain pleased with the continued passion we have seen for our technology from our customers. Despite difficult circumstances, our team has achieved notable progress across many key aspects of our strategy, as I just discussed. We believe these achievements position Apex Medical for a return to driving strong sales growth and important improvements in our profitability profile with the ample liquidity to fund our strategic growth initiatives in the near term as we progress towards our longer term financial goals. I will discuss our 2023 outlook and related priorities further in a minute. But first, let me turn it over to Tara to review our quarterly financial results and 2023 guidance. Tara?
spk05: Thanks, Charlie. I will begin my review of our financial performance at the gross profit line since Charlie covered our revenue results. Gross profit for the fourth quarter of 2022 decreased $3.9 million, or 32% year-over-year, to $8.2 million. Gross profit margin was 65.3% compared to 72.2% in the prior year period. The decrease in our gross margin was driven primarily by changes in the sales mix between our two segments, product mix within our advanced energy segment, and higher costs to manufacture inventory as we continue to experience increased material and shipping costs. These headwinds to our gross margin performance were partially offset by geographic mix within our advanced energy segment, with domestic sales comprising a higher percentage of total sales, and by the increased mix of newer product models. Operating expenses increased $0.3 million, or 2% year over year, to $14.2 million. The increase in operating expenses year over year was driven by professional services expenses and research and development expenses, which each increased by $0.3 million. These increases were partially offset by a $0.2 million decrease in SG&A and a $0.1 million decrease in salaries and related costs. Our operating expenses came in approximately $0.7 million above what our low end of guidance had assumed. driven by higher than anticipated SG&A and professional service expenses related to higher insurance and legal expenses and higher consulting fees, respectively. Loss from our operations for the fourth quarter of 2022 increased $4.2 million, or 251% year-over-year, to $5.9 million. Total other income net was $19,000 compared to total other expense of $0.2 million in the fourth quarter of 2021. Income tax expense was $0.2 million compared to $0.1 million in the fourth quarter of 2021. Net loss attributable to stockholders was $6 million or 17 cents per share compared to $2 million or 6 cents per share for the fourth quarter of 2021. Adjusted EBITDA loss for the fourth quarter of 2022 was $4.1 million compared to $0.3 million in the prior year period. As a reminder, we provided a detailed reconciliation from net loss attributable to stockholders to non-GAAP adjusted EBITDA loss in our earnings press release this morning. As of December 31st, 2022, The company had cash and cash equivalents of $10.2 million compared to $30.9 million as of December 31, 2021. Cash used in operations in 2022 was $20.3 million compared to $10.4 million last year. The increase in use of cash from operations is primarily attributable to the year-over-year increase in net loss, and a roughly $3.5 million increase in cash used for working capital, driven primarily by strategic investments in our inventory to ensure our ability to meet demand amidst the challenging global supply chain environment, offset partially by better accounts receivable collections compared to the prior year period. Turning to a review of our 2023 financial guidance, which we introduced in our earnings press release today, For the 12 months ending December 31st, 2023, we expect total revenue in the range of 58 to $61 million, representing growth of 30 to 37% year over year. Our total revenue guidance range assumes advanced energy revenue of 50 to $53 million, representing growth of approximately 36 to 44% year over year, and OEM revenue of approximately $8 million, representing growth of approximately 4% year-over-year. In terms of our profitability guidance for fiscal year 2023, we expect net loss attributable to stockholders of approximately $14 million compared to $23.2 million last year. Our formal financial guidance for 2023 incorporates the following considerations for modeling purposes. gross margins of approximately 65% to 67% this year compared to 65% last year. We expect tailwinds to our gross margin as our revenue mix favors the advanced energy segment and our U.S. growth exceeds growth in sales to customers outside the U.S. We also expect continued margin tailwinds related to product mix within our advanced energy segment. These tailwinds are expected to be partially or fully offset by year-over-year headwinds related to raw materials inflation, changes in foreign currency exchange rates against the U.S. dollar, and to a lesser extent, incremental rent expense related to our sale-leaseback transaction. Second, the year-over-year change in operating expenses to range between a decrease of 1% to growth of 5%. Third, total interest and other loss of approximately $1.4 million in 2023 compared to total interest and other income of approximately $0.7 million last year. Total interest and other loss in 2023 includes net interest expense of approximately $1.7 million and a $350,000 gain in our other income loss line related to the lapse of the statute of limitations on our joint and several payroll liability. Fourth, income tax benefit of approximately $2.2 million compared to an expense of $0.4 million last year. We also expect non-cash depreciation and amortization of approximately $0.7 million, non-cash stock-based compensation of approximately $6 million, non-controlling interest of approximately $125,000, and weighted average diluted shares outstanding of approximately 34.8 million shares. And for the first quarter of 2023, we anticipate total revenue in the range of $10.8 to $11.2 million, driven by a decrease in advanced energy sales in the range of approximately 21 to 17% year over year, offset partially by growth in OEM sales of approximately 34% year over year. Finally, our formal financial guidance for 2023 assumes we end the year with at least $18 million in cash and cash equivalents and restricted cash on our balance sheet as of December 31, 2023. This cash projection for the year ended 2023 includes a number of key assumptions and discrete items to bear in mind when evaluating our financial condition. First, we expect normalized cash used in operating and investing activities of approximately $14.5 million in 2023. This reflects our expectation for gap net loss of $14 million, .5 million of CapEx, and that our non-cash items, including depreciation and amortization and stock comp expense, as well as non-cash amortization related to our debt facilities, are offset by cash used in working capital this year. Second, our cash projection for the year ended 2023 includes a one-time benefit to working capital of $7.5 million related to the tax refund discussed earlier and a one-time benefit to cash flow from investing activities of $6.7 million related to the sale-leaseback transaction. Third, our cash projection for the year ended 2023 includes the $8 million of net proceeds we received from tranche one of our term loan, but assumes no additional borrowings on either the term loan or the revolver in 2023. With that, I'll turn the call back to Charlie for closing remarks.
spk02: Thanks, Tara. As mentioned, our 2023 revenue guidance assumes total revenue growth of at least 30% year over year to $58 million. driven primarily by advanced energy growth of at least 36% year-over-year to $50 million. In 2023, the low end of our revenue guidance assumes improving year-over-year sales results as we progress through the year, with the stronger advanced energy year-over-year growth trends in the second half versus growth trends in the first half. We expect strong contributions to growth from improving generator sales, most notably in the US as we move through the year. We also expect improving handpiece sales trends in both the US and OUS as we move through the year. We expect this improving performance to be driven by the recent and continued efforts of our team to raise awareness and educate the market on the safety and efficacy of our Renuvion technology with important tailwinds related to the recent commercial launch of our Renuvion clinical indications obtained in 2022 and our related consumer focused marketing activities. Our recently obtained 510 clearance received for the use of Renuvion APR handpiece for the contraction of soft tissue and the recent commercial launch of our new Renuvion Apix-1 generator. Importantly, the low end of our advanced energy revenue guidance assumes no change in the FDA safety communication as it stands currently. In addition to driving both adoption and utilization of our advanced energy products by leveraging these important tailwinds in 2023, we remain focused on continuing our strong pace of operational progress by executing on the following strategic initiatives. First, we remain focused on advancing our regulatory strategy. to address the remaining limitations of the safety communication and improve our ability to market our technology. Second, we will continue to enhance our Renuvion product portfolio by working to bring new technologies like our Apix-1 console to market. And third, we will further expand our portfolio of clinical evidence supporting the use of our new products. And fourth, we will continue to closely manage our expenses and drive progress towards improving profitability while evaluating additional non-dilutive opportunities to further enhance our balance sheet condition. As our guidance implies, in 2023, we expect to reduce our net loss attributed to stockholders by more than 40% year over year. And I want to emphasize that driving improving cash flow from operations is a 2023 priority for our organization as part of our multi-year initiative to generate strong free cash flow on a sustainable basis in the future. Through our recent achievements and continued progress on the initiatives I've outlined, we look forward to returning to our historical cadence of strong growth and our trajectory of progress towards profitability in 2023. Moreover, with unique technology supported by a strong portfolio of clinical evidence, large and rapidly growing addressable markets that we are just beginning to penetrate, and a dedicated team of employees, we remain excited about the future prospects in the years to come as we drive innovation in the cosmetic surgery market. I'd like to conclude my remarks today by thanking our employees and distributors for their efforts. and thanking them for the progress they've achieved amidst a challenging year. I'd like to thank our customers, investors, and everyone on today's call for their continued support of Apix Medical. With that, operator, let's now open the call for questions.
spk07: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1. And our first question will come from Matthew O'Brien with Piper Sandler. Please proceed.
spk04: Morning. Thanks for taking the questions. Um, either Charlie or Tara, can you just talk about the, the guidance for the year, especially in light of the Q1 commentary? Because as I look back historically, the company in Q4 of 21 did about $16 million in total sales. You'd have to do about that, um, for the rest of the year, Q3 through Q, sorry, Q2 through Q4 to hit the low end of your guidance range. So it just seems like, you know, after a year of difficult visibility, There's a lot of ramp that's built in, especially in the back half of the year, to get even to the low end of the guidance. So why do that coming off such a tough year, and what gives you all that confidence?
spk02: Yeah, thanks, Matt. I appreciate the question. So the first thing is that we are confident in our ability to grow AE at least 36%. And the reason that we're confident for that is for a few reasons. we actually have multiple tailwinds for growth. And the first is, remember, we just started in January our commercialization related to the 510 s that we obtained earlier in 22. And this is the first time that we have been able to market directly to patients to be able to talk to them about the benefits of Renuvion for these specific procedures. And that, we believe, will develop and have tailwinds in 2023. Second, our latest 510K clearance that we just obtained in February, this allows us to market the use of our Renuvion handpiece for the contraction of soft tissue anywhere on the body as needed. And so that is another piece of marketing that we will be able to talk about and do as we move forward in 2023. And third, we actually just launched our new Apix-1 generator, which obviously features multiple enhancements and gives the team another reason to engage with potential customers. And not only will it do that, it's for the first time we will have a source of revenue for upgrades associated with that from existing customers. So we've made important progress in educating our users, potential new customers, and we believe that these effects will help us in 2023. And importantly, that our low end of our guidance still assumes no change in the FDA safety communication. And we also expect improving trends and contributions for our advanced energy growth to our existing OUS distributors too. So we believe that we've got a lot of new tailwinds behind us. We also are faced with easy comparisons in the second through fourth quarter as far as percentages go. And we believe that we can get back to growing this business in 2023. Got it.
spk04: Thanks for that, Charlie. And then that kind of one part of the response there dovetails into the The second question, just on APICS 1 and the new generator, can you give us a sense for what that replacement cycle might look like? You know, I don't know. I'm sure you don't want to give us the number of customers you have, but what level of upgrade or revenue opportunity do you see there in 23 and even in 24 as well? Thank you.
spk02: Yeah, thank you. And you are correct of talking about it in 23 and 24 because it will be a multi-year program to upgrade everybody. I think the important thing for the APICS-1 and the important thing to remember there is that this, for the first time, is really a console, a surgical console that was designed by members of this community, i.e. plastic surgeons, to be able to function and do the body contouring procedures that they're looking to do. And so we will be upgrading for a fee to our existing users, and we will not be giving any of those away. And we are building production as we speak in 2023, and we right now are continuing to offer both the APIX-1 and the RS-3 But we intend to be selling the APEX 1 fully by year end and we'll continue to sell the RS3 generator internationally. But the upgrade itself will be a new revenue source that we have actually never had here at APEX. So we're excited about what this means for us, what this brings to our customers. And the other thing too about APEX 1 is it will drive all future new instrumentation also.
spk04: Very helpful. Thank you.
spk02: Thank you.
spk07: Our next question is from Matt Hewitt with Craig Callum Capital Group. Please proceed.
spk01: Good morning and thank you for taking the questions. Maybe just to follow on the revenue side a little bit, as you have launched these new marketing campaigns here recently, What has been the feedback and the response from the markets that you've been specifically targeting? Are you seeing that in the sales and the utilization or any color that you could provide there?
spk02: Yeah, look, we are still in the initial months of our direct-to-consumer campaign. So I want to be clear there and make sure that, you know, as we sit here today, we're two and a half months into this. But The feedback that we have gotten from surgeon customers and patients has been very, very positive that the This Is Me campaign is resonating with them. And when you're looking at this campaign and really if you're stripping things down from this campaign, what really is hitting home is the fact that people want to look like they look. They want to look natural. They don't want to be full of fillers and all kinds of things. They want a natural look. They just want to look younger. And that's exactly what the Renuvion technology is allowing doctors to do is to bring that. And that is the whole genesis, if you will, of the This Is Me campaign, and it's really resonating both with the consumer side and the physician side.
spk01: That's helpful. And then maybe my follow-up. In the OUS markets, it sounds like you're starting to see some recovery in the utilization, but that it's the generators that are the lag there. What are you hearing from your distributor partners as you've received a couple of approvals? I mean, are they literally just waiting for this last piece, and at that point they've said they'll come back? Or what do you think is going to be the catalyst to get them to come back full? Thank you.
spk02: Yeah, no, it's, it's, it's a really good question. And remember that, um, Worldwide we grew, we grew generators 20. We grew our installed base in our active or in, in the U S actually, we grew our installed base and our active installed base 20%, even through the, even through all the things that the safety notice and outside the United States, it's a little bit tougher because of our indirect model. But, yeah, I think when we were down in Brazil, the part that was tough for the Latin American audience to understand was the part of the safety notice where it said, do not use after lipo. And after talking through that and walking them through that and the customers through that, we made a lot of headway there and a lot of understanding on exactly what was going on. And I think that's why we saw such – a strong fourth quarter in Latin America. And we would expect improving trends in a lot of different areas as we move forward this year. And I think that, you know, once we are able to get through of all of this, I think that, yes, that will take care of any existing markets that are out there today.
spk01: That's great. Thank you.
spk07: Our next question is from Frank Takian with Lake Street Capital Markets. Please proceed.
spk03: Hey, thanks for taking my questions. Wanted to first start with one on the most recent 510 clearance. Can you just speak to whether or not that actually technically does cover use after liposuction and whether or not there could be a potential amendment to the safety notification that's out there right now based on that 510 in advance of the actual specific LiPo 510K?
spk02: Yeah, so I'm not going to answer the second question. Obviously, you know, we are working with the agency and doing everything we can to the agency to make sure that they are comfortable with the safety and the efficacy profile of our technology. And so that remains obviously a huge focus for us. But when you're talking about the second indication that we just obtained on February 27th, it has the contraction of soft tissue everywhere on the body and as needed. And so the real question is, is it needed after liposuction? And if the answer to that is yes, then that 510K suffices for that. And so, you know, it was an important 510K for us to get. It obviously shows that the agency believes that the technology is safe and effective. And, you know, now we as an organization are still working through with the agency, and we still have our submission in that we submitted at the end of January.
spk03: Okay, that's helpful. And then just for my second one, maybe on the cash balance, assuming the sale leaseback closes and including the $8 million from mid-cap, I've got you at pro forma around the $25 million mark using year-end cash. Is that enough to drop the going concern, or do you still need the tax credit to have that going concern dropped?
spk05: Well, we expect to end, again, the year of 2023 with $18 million in cash. And, you know, that's based on normalized operating investing activities of $14.5 million in 2023, $500,000 of which is capex. And it also assumes that our non-cash items, including depreciation and amortization, are offset by cash use and working capital. And we do have the discrete items, the sale leaseback and the tax refund, as well as the net proceeds of $8 million on our loan. We are not assuming in our guidance anything on additional borrowings on either of the term, you know, the term loan or the revolver in 2023. As we progress through that and those things do happen, the tax refund comes in and we do close on the sale leaseback. That should remove the need to disclose anything. And I just want to clarify that. The disclosure in our 10-K was that we assess the conditions and the potential environment to create a going concern, but all of these things that I just talked about, we believe in management, disclose that we believe that all of these things alleviate the risk of a going concern, and that was agreed upon by our auditors in the 10-K.
spk03: Got it. Great. Thanks for taking my questions.
spk05: Mm-hmm.
spk07: We are showing no further questions in the queue at this time. That does conclude our conference for today. Thank you for your participation.
Disclaimer