Rob Gershon - CEO Peter Donato - CFO, Treasurer, Secretary.

Russell Cleveland - Private Investor.

Good afternoon. And welcome to the Bovie Medical Corporation Third Quarter 2014 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Hosting today's call will be Robert Gershon, Chief Executive Officer of Bovie Medical Corporation. After today's presentation we will open the call for questions.

(Operator Instructions) Please note this event is being recorded. Before we begin, I would like to make the following Safe Harbor statement. Today's call will relate to Bovie's third quarter 2014 earnings release and will contain forward-looking statements regarding predictions about future events.

Forward-looking information is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected.

Although, the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved.

Important factors that may cause actual results to differ materially and could impact the company and the statements contained in this conference call can be found in the company's filings with the Securities and Exchange Commission, including the company's report on Form 10-K/A and 10-Qs for the year ended December 31, 2013 and the quarters ended March 31, 2014 and June 30, 2014.

The company assumes no obligation to update or supplement any forward-looking statements whether as a result of new information, further events or otherwise. Now, I'd turn the floor over to Mr. Rob Gershon..

Okay. Thank you, Kevin, and good afternoon everyone. We appreciate your participation in today's call to review our third quarter results, our outlook for the remainder of 2014, and our positioning going into 2015. Joining me today is our CFO, Peter Donato, who will provide a detailed review about our results.

And Jack McCarthy, our Chief Commercialization Officer, who will participate with us in the Q&A session following our prepared remarks. To sum up Q3, it was a period of very solid performance and significant progress for Bovie Medical.

We continued to post double-digit growth in total revenues reflecting year-over-year growth in sales of electrodes and generators improved OEMs sales at a modest contribution from our recent launch of Derm 101 and 102, which began shipping in August.

You may recall that these products along with the IDS 310 generator represented the first new major core product launches for Bovie in more than 10 years.

Derm 101 and Derm 102 are high frequency desiccators that can be used by family practitioners, pediatricians, physician assistant and general dermatologists to perform minor skin procedures in their offices without having to refer patients to a dermatologist specialist.

We entered into an exclusive distribution agreement with a global medical products firm that has already reordered over 3x the number of products compared to their initial order giving you some idea of the demand that they expect in the marketplace. This is important for several reasons that far exceed the short-term financial impact.

First, it is emblematic of the untapped value that lies in our R&D pipeline, where we have a number of products that can be refined and developed with limited investment required on our part to drive future profitable revenue growth.

Second, it illustrates how Bovie products are adaptable to other market as the origins of Derm 101 and 102 came from one of our higher wattage Bovie generators. From an end market perspective, animal health represents just one area in which we have seen growth and where we can significantly expand our offerings.

For example, generators, medical lighting and catteries are all used in animal health.

And in addition to Bovie's own product development, we are evaluating products that we could add to our existing distribution channels as well as evaluating other products that we could add to our direct sales force that are complementary to J-Plasma core points namely hospitals, surgery centers and physician procedural suites.

Third, our products have international appeal that can be further cultivated. We have seen that our Latin America business has been growing steadily from a small base. And we are moving ahead to gain additional traction.

Next week in Dusseldorf, Germany, we will attend MEDICA, which is the world's leading healthcare, industry trade conference where we will be speaking with existing and new potential distribution partners about our core products as well as J-Plasma.

We are currently going through the regulatory process of gaining a CE Mark to be able to sell J-Plasma in Europe, and to register the product in Canada. Our OEM business continued to perform well in the third quarter.

Here again, is an example of the unrealized value of the Bovie brand and our reputation for high-quality manufacturing and product performance. As I have mentioned in previous calls, we are the go-to company to manufacture electro surgical generators for some of the world's largest medical device companies.

In light of this position and the projected demand, we have adopted a disciplined approach to taking OEM orders.

This involves making sure that we are doing the higher margin design work along with the development of manufacturing, calibrating the timing of these contracts so that they are staggered and making pricing adjustments to reflect the value of Bovie's contribution.

Additionally, we are planning to use of shared services to enable us to handle greater OEM volume without comprising the facilities that we will need to meet the growing demand of our core products and J-Plasma.

I'm pleased to report that we have signed several contracts this year that should lead to at least similar performance in 2015 and progressively improved performance in 2016 and 2017. Now, to J-Plasma. There have been many new positive developments over the last few months.

As noted in today's earnings release J-Plasma sales in the third quarter where a little over $98,000 or twice what they were in the first six months of this year.

We view this as a strong performance in the early stages of the product launch especially given the newness of the sales time and the timing of their training and the seasonal slowdown in medical device sales in August.

The takeaways from our perspective is that we have laid important ground grow in the first nine months of this year with respect to the commercialization of J-Plasma and while there are still more to do, we are focusing on those metrics that demonstrate execution.

Therefore, in today's release we commenced providing our new commercial metric of ordering accounts and that number stood at 14 at the end of the third quarter. Also, at the end of the third quarter, our J-Plasma systems were under evaluation by over 20 hospital value analysis committees.

Our surgeon pipeline is still around 100 and the focus of our expanded sales force is to convert those surgeons to routine users. In the third quarter, we advanced on all key elements of the J-Plasma commercialization plan.

Two new independent white papers were published, one on the products pre and post procedural results on facial wrinkles and the second on the benefit of treating Endometriosis and chronic pelvic pain with J-Plasma.

This brings the number of independent white papers published this year to 4 of the planned 5 and an additional one is expected by the end of the fourth quarter. Since July, we have completed four surgeon training programs, one each in Tampa, St. Louis, Orlando and Portland Oregon.

So far 4 additional training programs are scheduled to be completed before the end of the year. In August, we added two senior sales professionals, Todd Hornsby, as Vice President of Sales and Craig Roberson, as Eastern Regional Manager.

They bring a combined 35 years of medical device sales experience to Bovie and they have already contributed to the acceleration of our J-Plasma sales process.

In October, we added 5 additional direct sales people bringing our J-Plasma direct sales force to 13 professionals, and they are working together with a group of 21 independent manufacturers' representatives.

We are also pleased to report that J-Plasma was recognized as an innovation of the year by the Society of Laparoendoscopic Surgeons, SLS in educational non-profit organization established to ensure the highest standards for the practice of laparoscopic, endoscopic and minimally invasive surgery.

In summary, this was a solid quarter for Bovie Medicals and we are looking to a strong finish to this year of transition, revenues increased 15% for the first nine months of 2014 and we expect year-over-year revenue growth to continue in the fourth quarter.

J-Plasma represents transformational technology and we look forward to a continued successful rollout. Now, I would like to turn the call over to our CFO, Peter Donato for a financial review.

Peter?.

Thank you, Rob. I'm going to take you through the quarter in some more detail. We posted a healthy 17% increase in net revenues compared with the year ago.

As Rob said, our core business saw a double-digit increase of 11% or about $600,000 over a $200,000 increase in our OEM business and $75,000 increase in J-Plasma sales from the third quarter of 2013. The increase in J-Plasma represent double – the $45,000 achieved during the entire first half of this year.

Our GAAP gross margin for the quarter was 28.3%. It was negatively impacted by charges totaling nearly $800,000 that were primarily related to the write-down of some international consignment inventory related to J-Plasma and other items.

Excluding the charges gross margin was 41.3% an expansion of 250 basis points compared with a 38.8% a year earlier. And expansion of 210 basis points from the second quarter of this year.

This margin improvement reflects the continued benefit received from structure reductions in our labor force initiated late last year a more favorable product mix and up tick in our OEM business.

The adjusted margins this quarter were marginally indicative of our go-forward margins exclusive of any special charges and we expect to see margins improving as volumes picked up in our core and OEM businesses and especially as J-Plasma continues to gain traction in the marketplace.

Turning to operating expenses, R&D for the quarter increased almost 27% versus last year's third quarter at $368,000 compared with $291,000 as we continued to develop our J-Plasma product line and continue to deliver on our strategy of realizing the value of our innovative R&D pipeline.

Professional services fees were down almost $400,000 versus last year, when the company had high legal cost associated with disputes that are now behind us. SG&A increased 81%, or $953,000 to $2.1 million from $1.2 million last year.

Ongoing and accelerated commercialization efforts for J-Plasma and growth initiatives in our core OEM businesses were responsible for about 75% of this increase and it included J-Plasma specific marketing costs, travel and training costs associated with the new and growing J-Plasma sales force commissions and increased selling expenses in our core business and $175,000 charge for the write-off of uncollectible accounts receivable.

Lastly, salaries and related cost trended higher from a year ago by $902,000. This increase includes salaries and incentive compensation for the newly established executive team. Costs related to the growing J-Plasma direct sales force, other head count to support our growth as well as some other smaller items.

All told, our operating expenses grew 57% versus prior year as we continue to invest and grow our business. Now to operating income, we are reporting on a GAAP basis a loss of $2.4 million versus $475,000 loss in the year ago quarter.

To try get an apples-to-apples comparison, we can exclude from this year's third quarter the cost associated with the adjustments mentioned earlier. Inventory $796,000 and accounts receivable write-offs $175,000. With these exclusions, our operating losses reduced to approximately $1.4 million on an adjusted non-GAAP basis.

Using this comparison, our results are about $900,000 below last year keeping in mind, we spent over $800,000 on J-Plasma related activities this quarter which is about $650,000 more than last year's third quarter.

Turning to the below the line items, under mark-to-market accounting, we incurred a non-cash loss related to the fair-value of our warrant liabilities of approximately $1.7 million and $242,000 charge related to the accretion of the dividends on our preferred stock.

These combined and netted with the book tax benefit of $1.4 million, net our GAAP loss for the quarter was $3 million. This translated to $0.17 loss per basic and diluted share and compares to the net loss of $341,000 and $0.02 per basic and diluted share in the third quarter of 2013.

Excluding the charges related to the warrants and preferred stock, charges associated with our inventory and accounts receivable write-downs, we would have reported a net loss per diluted share of $0.04 in the third quarter of 2014 versus last year's loss of $0.02 per diluted share.

Also, as I mentioned on the August earnings call, we continued to work on ways to optimize our capital structure in order to avoid these quarterly swings in our warrant valuation and other unusual charges. Turning to the balance sheet, our balance sheet remained marginally uneventful and very much in line with our expectations.

Cash on hand increased from a quarter earlier to $6.1 million compared with $5.6 million as of June 30th, a decline from the $7 million reported at year-end.

As stated previously, our core and OEM businesses are cash flow neutral to slightly positive and we continue to expect our cash balances our remain in the five plus million dollar range through the end of the year. Back to you, Rob..

Thanks Peter. Looking ahead to 2015, we are confident in both Bovie's growth prospects. Earlier this week, we announced the appointment of Shawn Roman to the newly created position of Director of R&D. This is inline with a strategy I discussed earlier to unlock the value that exists in our product pipeline and portfolio.

So far this year, we have negotiated OEM contracts that should result in 2015 revenues that are similar to those of 2014 and significantly progressive growth in 2016 and 2017. Today, we have a direct sales force of 13 to drive adoption of J-Plasma. Six months ago, we had four.

All of the sales people and executives that we have brought on Board this year come to Bovie with many years of medical device experience and excellent track record. The first nine months of the year have resulted in a lot of positive change at Bovie Medical.

And I thank the entire Bovie team for pulling together to enable us to achieve so much progress. And we all appreciate the support of our shareholders and all of our stakeholders. Operator Kevin, I would now like to open the call to questions..

Thank you. At this time, we will be conducting a question-and-answer session. (Operator Instructions) Our first question today is coming from Russell Cleveland, Private Investor. Please proceed with your question..

Good afternoon gentlemen and congratulations on a great quarter, really good numbers. Two questions, one for you, Rob, and one for Peter.

You had mentioned 100 surgeons currently using that, is there any relationship for example, if the 20 systems per systems, how many more surgeons will begin using it and maybe even another way of phrasing it our – is our target for number of surgeon say over the next quarter or two?.

Okay. Thanks Russell. I will take the first question. What we mentioned in the prepared remarks, is our pipeline is 100 surgeons, and these surgeons, it remains at a 100, these surgeons move through the pipeline from interested in using the product to being a routine user of the product.

As I mentioned in the remarks, we are now migrating to a new set of metrics that represent going from creating that awareness of J-Plasma to tracking actual accounts that are ordering J-Plasma and that was the over 20 that I mentioned before.

In addition to that, we also have 20 – I'm sorry, 14 ordering – I apologize, 14 accounts that are ordering J-Plasma right now and another 20 accounts in which the product is being considered by the value analysis committee. And we expect to move through the value analysis committee and increase the number of accounts that are ordering.

So they go through the [VAT] (ph) process and then they become ordering accounts. And just to be clear, our definition of an ordering account is an account that places an initial order and then reorders. So it's not just one order and now you are an account, it's if you are reordering the product.

So we view that really as a very relevant metric to continue to track and report on and that's indicative of sales as opposed to the individual surgeons..

Right, great. Okay. Then question for your Peter, I noticed we had the expense of 1.7 related to the derivative reevaluation on the warrants, do you think we can get that cleared up by year-end, it seems like it has taken an awful long time to get that off of the….

It has taken a long time. We did make a lot of progress and you and I have talked there. And we talked on the calls before. Unfortunately Russell, it's not a unilateral decision as far as Bovie there. There is a warrant holder on the other end. And we are active in negotiations with the warrant holders right now to see what we can do.

But, I think we have done a lot of work in the last few months. We're putting some language out there that might help us out going forward..

Do you think, we can get this resolved by year-end?.

I don't want to look into the crystal ball. Clearly, we are actively and negotiating that's all I can say at this point. Like I said there is another parties on the other end..

Thanks again and congratulations once more..

Okay. Thank you, Russell..

Thank you. (Operator Instructions) Look there are no further questions at this time. I would like to turn the floor back to the management for any further or closing comments..

Thank you, Kevin. And thank you all for participating today. We look forward to seeing you at upcoming conferences and to keeping you up to-date on our progress..

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today..