Apyx Medical Corporation

Hello and welcome, ladies and gentlemen, to the second quarter of fiscal year 2024 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. our most recent 10-Q filing 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 those 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 operator and welcome everyone to our earnings call for the second quarter of 2024. I'm joined on today's call by Matt Hill, our Chief Financial Officer. Let me provide you with a brief outline of today's call. I'll discuss our revenue performance in the second quarter and some of the highlights from our recent operational progress. That will review our Q2 financial results and full year guidance, which we updated in our earnings release today. I'll then share a few closing thoughts on our outlook and priorities for the balance of the year before we begin Q&A. Starting off with a review of our quarterly revenue results. In the second quarter, total revenue decreased 10% year over year to $12.1 million. By segment, sales of our advanced energy products decreased 17% year over year to $9.8 million, offset in part by sales of our OEM products, which increased 29% year over year to $2.4 million. We were pleased to see OEM sales that exceeded our expectations for the second quarter driven primarily by stronger than expected sales to several customers. Looking at the performance of our advanced energy segment in further detail, as we had anticipated and communicated in the expectations shared on our last earnings call, our advanced energy performance in the second quarter continued to reflect the challenging environment in the cosmetic surgery market that we and other companies have experienced since the middle of last year. Most notably, the market for capital equipment purchasing remained soft as prospective customers continued to delay purchase decisions given concerns about the broader macroeconomic environment. As expected, this continued to impact global generator sales throughout the second quarter which drove the year-over-year decrease in advanced energy revenue. In spite of this challenging environment, we were pleased to drive strong growth in sales of our handpieces, fueled by demand from our global base of customers as well as new users. Handpiece sales to customers in both the US and international markets increased by more than 20% year over year, helping to mitigate the impact of lower generator sales as anticipated. Our handpiece sales performance was largely consistent with our expectations for the quarter, and we expect continued growth in the second half of 2024 as well, as I'll discuss later. In addition to driving sales performance, we remained equally focused on controlling cost to optimize our cash efficiency in this environment. Turning to a discussion of our recent operational progress, our team has been working diligently to offset the challenging market environment by engaging with prospective surgeon customers to navigate the potential barriers to generator adoption, leveraging the extensive and growing portfolio of clinical evidence for Renuvion, which supports our technology is the best on the market, and executing our marketing strategy to raise awareness of our best-in-class technology and its benefits at both the surgeon and patient levels. I'll now discuss our progress with respect to each of these three items in turn, beginning with our efforts to facilitate generator adoption. In this market, we've seen prospective surgeon customers express concerns about the financing environment and high interest rates. To address these concerns, our team is focused on educating surgeons on the purchasing options available through our third-party partners and working with them to identify creative solutions to access our technology. As a reminder, in addition to traditional purchasing, we have third party partners in place that are able to assist prospective customers in financing generator purchases through both subscription and leasing models. Beyond addressing these concerns, we continue to raise awareness about the compelling benefits of our best-in-class technology leveraging our extensive portfolio of clinical evidence. By ionizing helium to create cold atmospheric plasma, Renuvion enables surgeons to rapidly heat soft tissue to the ideal temperature for contraction and cool it back down in fractions of a second. Because of this, we believe it is inherently safer faster and more effective than alternative methods. Its strong safety and efficacy profile of our technology is supported by an extensive portfolio of more than 90 published clinical papers, abstracts and posters, as well as three multi-site IDE clinical studies. Most recently, a retrospective continuous series study of 450 patients compared Renuvion to a commonly used bipolar RF technology. Its results were presented by its lead author, Dr. Michael Kluska, at the AACS scientific meeting earlier this year and was published yesterday in the peer-reviewed journal Plastic and Reconstructive Surgery Global Open. Dr. Kluska and his fellow researchers found that patients treated with Renuvion exhibited statistically significantly fewer adverse events than those treated with bipolar RF, including significantly fewer burns, hematoma, hypertrophic scar, and seroma. They concluded that Renuvion may offer a safer alternative to bipolar RF following liposuction or body contouring procedures. We believe these and other clinical studies demonstrate that we have the best in class technology on the market to coagulate and contract soft tissue, which addresses loose skin directly at the source. Our team drove awareness of our best in class technology during the second quarter by educating and training surgeons via multiple avenues. Throughout the quarter, we hosted five physician mentor programs in key areas across the U.S. and participated in courses at the Body Contouring Academy, all of which enabled prospective surgeon customers to experience the use of Renuvion in live surgeries and learn from their peers in the industry. We participated in six industry conferences and trade shows as well, where Renuvion was featured in a total of 37 podium presentations. And we hosted a Renuvion users meeting in Las Vegas, where 150 participants from 13 countries discussed techniques and approaches for applying our technology based on their clinical experiences and latest research. with 27 presentations over two days. And lastly, in addition to these surgeon education activities, we continue and enhance our direct-to-consumer initiatives in order to raise awareness of Renuvion at the patient level as well. After bringing on a new marketing leadership late last year, we've partnered with a leading communications firm to inform and support our DTC strategy. We've been pleased with our increased presence on social media in recent months and responses we've seen in the form of strong sequential year-over-year growth in impressions, new followers, and profile views. As part of the broader evolution of our DTC initiatives on June 26, we announced the Renewing Lives Campaign, a nationwide give-back program. For every Renuvion procedure performed in the US, Apix Medical will donate to a fund to fund Renuvion procedures for people who can most benefit from our technology but are not able to afford the treatment. In pursuing this give-back program, we aim to educate people about the positive impact of our body contouring technology can have on a patient's mental health and expand the perception of our treatment as we continue to raise awareness in the market. We intend to feature the stories and images from some of these patients who receive treatment under the Renewing Lives Give Back program in our future marketing materials. In summary, our team worked diligently during the second quarter to navigate the challenging environment in our industry. We engaged with prospective customers, offering creative solutions to facilitate the adoption, while educating the market on the unique benefits of our technology, supported our expanded portfolio of clinical publications and evolving DTC initiatives. Through these efforts, we were pleased to partly offset the headwinds in our industry by driving global growth in our handpiece sales, which exceeded 20% year over year, in addition to 29% growth of our OEM products. And we continue to manage our expenses, conserving capital, as we execute our strategy to position Apix Medical for strong growth and value creation as these near-term headwinds subside. Matt will now review our second quarter financial results in more detail, along with our financial guidance for 2024, which we updated in today's release.

Thank you, Charlie. Since Charlie already covered our revenue results, I will begin at the gross profit line. All references to second quarter financial results will be on a gap and a year-over-year basis unless noted otherwise. Gross profit for the second quarter of 2024 decreased $1.8 million, or 19%, to $7.5 million. Gross profit margin was 61.7% compared to 68.4% in the prior period. The decrease in our gross margin was driven primarily by changes in the sales mix between our two segments with our OEM segment comprising a higher percentage of total sales and geographic mix within our advanced energy segment with international sales comprising a higher percentage of total sales compared to the prior period. Operating expenses decrease point two million dollars or one percent to thirteen million dollars reflecting our continued emphasis on controlling costs the decrease in operating expenses was primarily driven by selling general and administrative expenses and salaries and related costs which decreased point five million dollars and point two million dollars respectively these decreases were partially offset by by professional service expenses and research and development expense which increased by 0.5 million dollars and 0.1 million dollars respectively loss from operations increased 4.3 million dollars or 349 percent to 5.5 million dollars it is important to note that the loss from operations in the second quarter of 2023 included a $2.7 million gain related to the sale-leaseback transaction of our Clearwater property that was completed during the period. Excluding that gain from our sales-leaseback transaction in the second quarter of 2023, our loss from operations increased $1.6 million, or 41%. Total other expense net was $1 million compared to income of $0.3 million in the second quarter of 2023. The change was driven primarily by increased net interest expense related to our outstanding debt obligations in the second quarter of 2024 as we had lower borrowings in the prior year period. In the second quarter of 2023, we also recorded the release of our joint and several payroll liability and a small insurance recovery that did not recur in 2024. Net loss attributable to stockholders was $6.6 million, or 19 cents per share, compared to $1 million, or 3 cents per share in the prior year period. Excluding the non-recurring gain related to the sale-leaseback transaction, in the second quarter of 2023, non-GAAP net loss attributable to stockholders increased $2.9 million or 78% year-over-year.