Charles Goodwin - CEO Jay Ewers - CFO.

Matthew O'Brien - Piper Jaffray Matt Hewitt - Craig-Hallum Russell Cleveland - RENN Capital.

Good afternoon, ladies and gentlemen. And welcome to the Fourth Quarter and Fiscal Year 2017 Earnings Conference Call for Bovie 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 those identified in the Risk Factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission, 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 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, Bovie Medical's Chief Executive Officer. Please go ahead..

Thank you, Julian. Welcome everyone to our fourth quarter 2017 earnings call. I am joined on this evening's call by our Jay Ewers, our Chief Financial Officer. Let me provide you with a quick agenda for today's call, as the recently appointed Chief Executive Officer of Bovie Medical.

I'll begin my remarks with the brief introduction and share some thoughts on the company. Then I'll discuss our revenue performance for the fourth quarter and fiscal 2017, while sharing some additional commentary on the primary drivers of growth in our three business segments.

I'll then turn the call over to Jay, who will review our financial results in detail and discuss our 2018 financial guidance, which we introduced in our earnings press release this afternoon. Following Jay's discussion, I'll share some closing remarks on our strategy for 2018 before we open the call for your questions.

Before delving into the discussion of our results for the fourth quarter and fiscal year 2017, I thought I take a moment to introduce myself, share a few summary points on my experiences and background and provide you with a high level overview of my initial thoughts on the Bovie Medical story.

I Joint Bovie Medical team in mid-December with 25 plus years of experience in the healthcare industry. A large portion of my carrier was spent at Olympus and Gyrus ACMI. I joined Gyrus on the sale side in 2002 was promoted to Vice President of sales and assisted in the company's acquisition of ACMI.

Following the acquisition I became President of Gyrus ACMI surgical division. Over the next three years I developed the surgical division’s global distribution network and achieved average annual sales growth of 35%.

I was promoted to manage Gyrus ACMI's entire 700 employee global business as President of Worldwide Sales in 2007 and contributed to the company's sale to Olympus for $2.2 billion in 2008.

I then served as Group Vice President of Olympus’s Global Surgical Energy Group for five years, a surgical energy business which consisted of over 500 employees worldwide.

To summarize my 11 years as an executive at Olympus and Gyrus ACMI has provided me with expertise in managing large global businesses, developing distribution networks and commercializing energy based surgical devices.

I am confident that these skills make me well suited to lead Bovie to its next phase of growth in combination of course with the efforts of our dedicated employees.

Since joining the Bovie Medical team, I have focused in part on building relationships with our employees and physician customers to evaluate all of the primary aspects of our strategy and determine how best position the company for growth going forward.

The primary takeaway from these discussions has been understanding and appreciating the extent to which our physician customers are very passionate about the benefits of J-Plasma technology.

I've been aware of J-Plasma since my early days at Olympus and my decision to join Bovie Medical was driven largely by my personal conviction that this company possesses a truly unique technology with the potential to transform energy based surgery.

J-Plasma is differentiated from the landscape of energy based surgical devices by its ability to more effectively control heat and maximize precision, while limiting the potential for damage to tissues surrounding the treatment area.

My excitement about these primary benefits was confirmed when I begin to have in-depth conversations with our customers in the cosmetic surgery market.

Just as a side note what we define as the cosmetic surgery market consist primarily of plastic surgeons, cosmetic surgeons and dermatologist who perform a variety of elective procedures, which are paid for out of pocket.

The physician customers that I have interacted with in this market have been able to achieve very positive outcomes when using J-Plasma as a subdermal coagulator following liposuction.

The passion of our physician customers as a result of their experience with J-Plasma has also evidenced itself in frequent pear-to-pear selling between our physician customers and their colleagues, which serves as a very nice tailwind to our commercialization efforts.

These experiences in addition to the strong commercial traction that we achieved in 2017 have reinforced my conviction that the cosmetic surgery market represents the most attractive opportunity for our J-Plasma technology.

With that said, as we enter 2018, I believe there are opportunities to improve our growth profile by further focusing our commercialization efforts on this opportunity and positioning the organization to more effectively support our pursuit of the cosmetic surgery market going forward.

I will discuss these improvements in our strategy as part of my outlook for 2018, but first let me review our fourth quarter and fiscal revenue performance. For the fourth quarter 2017, we reported total revenue of $11.3 million, up 20% year-over-year.

Our Q4 total revenue growth was driven by impressive sales performance in our Advanced Energy business segment, which increased $2.1 million or 219% year-over-year. Within our Advanced Energy business, our growth was driven by sales of our J-Plasma technologies into the cosmetic surgery market.

Our J-Plasma sales growth was largely comprised of sales of our generators, reflecting growth in our physician user base, we also saw growth in J-Plasma handpiece sales during the fourth quarter as well.

In addition to sales of our Advanced Energy products, our fourth quarter total revenue growth benefited from growth in our core segment, which increased approximately $140,000 or 2% year-over-year to $7.7 million, primarily due to growth in sales of electrosurgical generators.

Our total revenue growth was offset partially by sales in our OEM business, which decreased by approximately $410,000 or 42% year-over-year to $0.6 million. This decline was expected as we experienced exceptionally strong demand for our OEM products in 2016. Importantly, the fourth quarter was -- we experienced strong growth internationally.

Our total international sales increased by $1.3 million or 244% year-over-year to $1.9 million in the fourth quarter. As a reminder, we sell our products internationally through a network of distributors and estimate that our products have been sold in more than 150 countries worldwide.

Our international sales growth in the fourth quarter was primarily driven by strong demand from distributors in our core business. Fueled impart by additional product registrations in or OUS countries that were obtained during the course of 2017.

We also saw strong international sales during the quarter in our Advanced Energy business, driven by the signing of several new distributor agreements during the period. I will discuss the growth opportunities for our J-Plasma products, outside the U.S. in greater detail, later in my remarks, as part of my overview, our strategy for 2018.

Turning to a brief review of our 2017 revenue performance, due impart to strong revenue growth performance in Q4, we reported total revenue for the full year of $38.9 million, representing growth of $2.3 million or 6% year-over-year, compared to $36.6 million in 2016.

As I think about the drivers of our 2017 revenue performance as a whole, one of the important takeaways is that Bovie Medical was able to offset significant sales decline in our OEM business, which decreased $2.7 million or 51% year-over-year to $2.6 million by driving strong growth in Advanced Energy, which increased $4.1 million or 119% year-over-year to $7.6 million.

The growth in our Advanced Energy business speaks to the traction that our selling organization has been able to achieve since refocusing their J-Plasma selling efforts on the cosmetic surgery market in March of last year.

More broadly, this performance also demonstrates the impact that our Advanced Energy business can have on our overall revenue growth profile, even while we remain in the initial stages of commercializing J-Plasma. With that, let me turn the call to Jay for more detailed review of our financial results for the fourth quarter and fiscal 2017.

Jay?.

Thanks, Charlie. Total revenue for fourth quarter 2017 increased $1.9 million or 19.5% year-over-year to $11.3 million, compared to $9.5 million in the fourth quarter of 2016.

By business segment, total revenue growth in the fourth quarter was primarily driven by Advanced Energy segment sales, which increased $2.1 million or 218.6 % year-over-year to $3.1 million.

We were extremely pleased with our Advanced Energy growth in the United States in the fourth quarter, where we generated a record $2.6 million in sales of J-Plasma. We also saw initial stocking orders of J-Plasma generators for new O-U.S. distributors this quarter, which drove strong international sales as well.

Our core segment increased approximately $143,000 or 1.9% year-over-year and our OEM segment decreased approximately $409,000 or 41.9% year-over-year. By product line, total revenue growth in the fourth quarter was driven primarily by a 35.8% increase in sales of electrosurgical products.

Revenue growth also benefitted from growth in our cauteries products line, which increased by 13.8% and was moderated by sales of our lighting and other product lines, which decreased 29.4% and 22.8% respectively in the period.

By product line, sales of electrosurgical, cauteries, lighting and other products represented 70%, 17%, 4% and 9% of total revenue respectively in the fourth quarter.

Revenue in the United States increased approximately $521,000 or 5.8% year-over-year to $9.5 million and international revenue increased approximately $1.3 million or 244.1% year-over-year to $1.9 million.

The increase in international sales was impart the function of the easier comparison in the fourth quarter of 2016, when international sales represented 6% of total revenue in that quarter compared to 15% of total revenue in the first nine months of 2016.

International sales represented approximately 17% of sales in the fourth quarter of 2017 and the growth was primarily driven by strong demand from distributors in our core business fueled in part by additional product registrations in O-U.S. countries that were obtained during the course of 2017.

Year-over-year growth also benefited from generator sales to new distributors in our Advanced Energy segment. Turning to a review of the rest of the P&L. Gross profit increased $1.1 million or 22.1% year-over-year to $5.9 million, compared to $4.8 million for the fourth quarter of 2016.

Gross margin increased approximately 110 basis points year-over-year to 52% for the fourth quarter of 2017 compared to 50.9% last year. The increase in gross margins was primarily due to higher margins in the Advanced Energy segment, which represented 27% of the total company sales this quarter compared to 10% of sales in the fourth quarter of 2016.

Operating expenses for fourth quarter of 2017 increased $1.1 million or 18.9% year-over-year to $7 million, compared to $5.9 million for the fourth quarter of 2016.

The increase in operating expenses was driven by $1.5 million of servants and related expense primarily related to the departure of our former Chief Executive Officer and Chief Commercialization Officer and by a $1.2 million increase in selling, general and administrative expenses.

The increase in operating expenses was partially offset by a $1.4 million decrease in salaries and related costs due to a reduction in incentive compensation as well as accrued expense related to a change in benefit policy.

Loss from operations for the fourth quarter of 2017 was $1.1 million, compared to a loss from operations of $1 million for the prior year period.

Net loss attributable to common shareholders for the fourth quarter of 2017 was approximately $824,000 or $0.03 per diluted share compared to a loss of $523,000 or $0.04 per diluted share for the fourth quarter of 2016.

The change in net loss in the fourth quarter was driven primarily by a lower benefit from the change in non-cash fair value of derivative liabilities, which represented approximately $126,000 this year compared to $619,000 last year.

Offset partially by a non-cash tax benefit of $196,000 this year related a one-time benefit from the revaluation of deferred tax liabilities as part of the Tax Cuts and Jobs Act. Fourth quarter 2017 adjusted EBITDA loss was $580,000 compared to $589,000 last year.

Excluding the non-recurring expenses of $1.5 million related to the departure of former members of our executive team, and the related closure of the corporate office and purchase New York, fourth quarter EBITDA was $944,000 compared to adjusted EBITDA loss of $589,000 last year.

We have provided a detailed reconciliation from GAAP net loss to adjusted EBITDA in our press release this afternoon. Turning to a brief summary of our financial performance for the fiscal year 2017 period, total revenue for fiscal year 2017 increased $2.3 million or 6.2% to $38.9 million, compared to $36.6 million in 2016.

By product line, total revenue growth in fiscal year 2017 was driven by 118.7% increase in Advanced Energy sales and a 3% increase in core sales and partially offset by a 51.2% decrease in OEM sales. Fiscal year 2017 gross profit increased $1.8 million or 10.3% year-over-year to $19.8 million compared to $17.9 million for 2016.

Gross margin increased approximately 190 basis points year-over-year to 50.8% for 2017 compared to 48.9% last year. The increase in gross margin was driven by higher margins in the company’s Advanced Energy and Core segments, which represented 74% and 20% of fiscal 2017 sales, compared to 76% and 10% of total sales in fiscal 2016.

Fiscal year 2017 operating expenses increased $3.3 million or 15.3% year-over-year to $25 million, compared to $21.7 million for 2016.

The increase in operating expenses was primarily driven by a $2.8 million increase in selling, general and administrative expenses year-over-year, as well as the aforementioned $1.5 million of severance and related expense incurred during the fourth quarter of 2017.

The increase in operating expenses was partially offset by a $1.1 million decrease in salaries and related costs compared to the prior year. Loss from operations for 2017 was $5.3 million, compared to $3.8 million for 2016.

Excluding the aforementioned $1.5 million of non-recurring severance and related expense, our loss from operations was essentially flat year-over-year. Net loss attributable to common shareholders for fiscal year 2017 was $5.1 million or $0.17 per diluted share compared to a loss of $4 million or $0.15 per diluted share for 2016.

Full year 2017 adjusted EBITDA loss was $3.7 million, compared to $2.2 million last year. Excluding the aforementioned non-recurring expenses of $1.5 million, our full year 2017 adjusted EBITDA loss was $2.2 million, essentially flat with full year 2016.

The company had working capital of $16.6 million as of December 31, 2017, as compared to $21.3 million as of December 31, 2016. As of December 31, 2017, the company had cash and equivalents of $10.7 million, compared to $15.2 million as of December 31, 2016.

Turning to a review of our 2018 financial guidance, which we introduced in our earnings press release this afternoon, for the 12 months ended December 31, 2018, we expect total revenue in the range of $41 million to $42.5 million, representing growth of 5% to 9% year-over-year, compared to total revenue of $38.9 million in fiscal year 2017.

We expect total revenue growth in fiscal year 2018 to be driven by advanced energy sales growth in the range of approximately 40% to 45% year-over-year. We also expect adjusted EBITDA in a range of $1 million to $1.5 million, compared to an adjusted EBITDA loss of $3.7 million in fiscal year 2017.

As a reminder, we have included a full reconciliation from GAAP net loss to non-GAAP adjusted EBITDA in our earnings press release this afternoon.

Lastly for modeling purposes, for the full year 2018, we expect gross margins in the low 50s this year compared to 50.8% last year, stock-based compensation expense of approximately $700,000, depreciation and amortization of approximately $700,000 and weighted average diluted shares outstanding of approximately 33 million shares.

With that, I’ll turn the call back to Charlie for closing remarks.

Charlie?.

Thanks, Jay. Before we open the call for questions, I’d like to discuss our near and longer term strategy to drive growth in our Advanced Energy business segment moving forward.

In the near-term we expect to achieve 40% plus growth in our Advanced Energy business in 2018 by leveraging our internal resources to drive strong sales of our J-Plasma technology. Within the U.S. specifically, we remain in the early stage of adoption curve.

Our strong commercial traction and positive feedback from physicians over the last year has affirmed our conviction that the cosmetic surgery market represents the most attractive target opportunity for our J-Plasma technology.

Going forward, our sales reps will focus exclusively on our target procedures in the cosmetic surgery market in order to maximize the potential for distraction -- or minimize the potential for distraction, sorry.

More specifically, they will focus on efforts on outpatient setting, where the vast majority of cosmetic surgery markets are performed rather than spending time selling into markets, where procedures are performed in the acute care hospital inpatient setting.

Similar to our experience in 2017, the primary driver of Advanced Energy growth in 2018 will be our ability to attract early adopters in the cosmetic surgery market.

Those physician practitioners who have strong appreciation for the unparalleled features and benefits that our J-Plasma technology provides and are willing to adopt this highly differentiated technology in advance of substantial clinical validation.

Outside the U.S., we will continue to use distributor networks to market and sale our J-Plasma technology.

Importantly, we expect our J-Plasma sales growth in 2018 to be driven by a combination of increased demand from existing distributors who are responding to demand from end-user customers, as well as contributions from the addition of new distributor relationships.

As I think about our longer term strategy in the cosmetic surgery market, I believe more work needs to be done to move beyond the early adopter phase that we are currently in and position our organization to drive sustainable long-term growth.

Bovie Medical historically speaking has enjoyed a long and impressive history as a developer and manufacturer of a diverse array of electrosurgery devices. More recently in its history the company has created an impressive and differentiated energy based technology J-Plasma.

But identifying the appropriate target market to commercialize this technology has been a multi-year process. 2017 marked a clear point in the company's history and that we successfully identified the ideal target market for J-Plasma the cosmetic surgery market.

We experienced strong validation of this decision in the form of improving trends in awareness, adoption, utilization and revenue as we move through the year.

We are encouraged by the recent performance in commercializing our J-Plasma technology in the cosmetic surgery market, but we recognize that we are very early in the penetration of this large and growing market opportunity.

At this point in our growth cycle, I believe it is incredibly important to remain highly focused on executing our near term strategic growth plans, while also taking the requisite steps to ensure our ability to succeed over a multi-year period.

To that end, we will be developing our organizational expertise in the cosmetic surgery market as part of an effort to establish an infrastructure that will best position Bovie Medical to drive broad based adoption of our J-Plasma technology in the cosmetic surgery market in the coming years.

With this goal in mind, in 2018 we are focused on laying the groundwork to drive adoption this cosmetic surgery market by, expanding our clinical support of J-Plasma, enhancing physician and practice support for our customers, formulizing our regulatory strategy, and improving our manufacturing capabilities and efficiencies.

Let me discuss each one of these items in more detail. First, we will establish clinical support demonstrating the safety and efficacy or our J-Plasma technology when applied to our target procedures in the cosmetic surgery market.

To this end, in late January we announced the enrollment of our first patient in our IDE Clinical Study for J-Plasma for use in dermal skin resurfacing. I am very pleased to report that our three clinical sites for the study are now enrolling patients and we expect to complete enrollment in the first half of 2018.

Second, we will demonstrate our commitment to the cosmetic surgery market by launching a new channel specific brand for our J-Plasma technology that will resonate with our physicians and their customers. Within the cosmetic surgery market, our technology will be known under the brand name Renewbion [ph].

Our current and potential customers will be able to leverage the increasing awareness of this brand and integrate it into their practice based marketing efforts and advertising efforts. Third, we will formalize our regulatory strategy to obtain specific clinical indications for our target procedures.

To assist and formulating our regulatory strategy, we recently appointed a new Director of Regulatory Affairs, Dr. Topaz Kirlew. Under the direction of Dr.

Kirlew we will expand our strategy beyond its initial focus on specific indication for Dermal Resurfacing procedures and pursue indications for additional procedures to support our longer term goal of penetrating the cosmetic surgery market.

And lastly, we will improve our manufacturing capacity and efficiencies to accommodate the strong demand that we anticipate as we penetrate this market and see broad based adoption of J-Plasma technology.

By focusing on these primary elements of our J-Plasma strategy in 2018, I am very confident that we can deliver on the stated near-term growth objectives, while establishing the foundation to support broad based adoption and deliver strong sustainable profitable growth over the longer term.

Before opening the call up for questions, I would like to take a moment to welcome Craig Swandal to Bovie's Board of Directors. As we announced via press release this afternoon, Craig joins our Board as a Director with over 30 years of experience working for medical technology and electronics companies.

We look forward to leveraging his expertise in manufacturing initiatives and operational development. In closing, I would also like to thank our dedicated employees for their efforts in 2017 and for bringing the year to a strong close in the fourth quarter.

I would further like to thank our Board of Directors and our shareholders for their support and especially everyone on this call for their interest in Bovie Medical. Operator, we will now open the call for questions..

Thank you. [Operator Instructions] And our first question will come from Matthew O'Brien from Piper Jaffray. Your line is open..

Good afternoon, gents. Thanks for taking my questions.

Few for me and I’ll try to run through this fairly quick, but Jay or Charlie, can you run through what the contribution was from a stocking order perspective in Q4 from maybe just on the generator side specifically?.

Yes….

If you don't have I can move on to the next question….

You are talking O-U.S., right?.

Either U.S. or O-U.S., but it sounds the like majority of it came O-U.S..

Correct..

Can you give us any sense for the size of that in Q4?.

I don't know that I have those numbers at the sip of my fingers..

Okay. Okay, that's fair.

Secondly, the salaries and other line the big decrease that we saw, Jay, where there any headcount reductions in their specifically or is that just more some internal adjustments?.

It was actually both, it was -- there was some headcount reduction in the second half of 2017. And it also was some adjustments to incentive comp accruals and change in employee benefit plans..

Okay.

So, is this just an adjustment basically to kind of refocus some of the spent from the organization specifically in Advanced Energy, is that the way to think about it?.

From Advanced Energy, no….

To Advanced Energy..

To Advanced Energy, yes, you could look it at that way, yes..

Okay, got it.

So then maybe Charlie on the new distributor agreements, can you give us the number that you signed in Q4 and how do we think about how many you anticipate signing here in 2018? And then how do we think about specifically the growth in J-Plasma this year generator versus the disposable?.

All of the O-U.S. growth that we had in Advanced Energy was from distributor agreements that we signed in 2017. We don’t -- we have maybe a handful that would come in 2018, but the majority of that has been done in 2017.

And on the $1.7 million of upside that we had in Q4 of 2017 for internationally half of that was core, half of that was Advanced Energy..

Got it, okay. So then last one for me and I’ll get back into queue. But, the cosmetic markets the focus that you guys have there; can you talk about that market opportunity maybe size it for those of us on the call? And then what exactly you’re doing to penetrate that you talked some marketing initiatives, et cetera.

But to get to that $11 million number roughly for J-Plasma here -- Advanced Energy in 2018, what do you have to do to get there? And then secondly, what about the rest of your customers that use J-Plasma for other indications, are you just going to service those guys or are you basically just kind of saying okay we’re really not going to pay attention to that segment of the market for the time being.

.

Yes, so here is how we would define the cosmetic surgery market. We say that this market is made up of plastic surgeons, cosmetic surgeons and dermatologists and in the United States that represents somewhere around 15,000 physicians to basically call on.

As you know J-Plasma is primarily used as a subdermal coagulator and just from the plastic surgery alone, there is around 200,000 procedures with liposuction where J-Plasma is used after liposuction.

And just from that group there is 200,000 procedures, there is probably another 200,000 procedures when you talk about cosmetic surgeons and dermatologists in that regard.

And obviously we are in the early stages of adoption and we remain at the very empathy of that and we will continue to go after these early adapters as we build out our clinical support to go after the rest of the market and that’s something that we will spend a lot of time doing in 2018.

As it pertains to our existing base of doctors and surgeons that are using the product inside the hospital, we will continue to support them and support them till the effort that they have always expected from us, we will just not be seeking out new customers in that space. .

Fair enough, thank you. .

Our next question comes from David Turkaly from JMP Securities. Your line is open. .

Hey guys, this is John [ph] on for Dave.

Can you hear me okay?.

We can, John. .

Okay, great.

So Charlie one for you to kind of start out maybe a high level one, you mentioned in the prepared remarks little bit about what initially drew you to the company, with the understanding you have only been there about three months, is there anything you have come across in that time either positive or negative that is particularly noteworthy or maybe even came as a bit of a surprise to you?.

I think the thing that is incredibly positive and the thing that remains -- that keeps me incredibly passionate about this opportunity is the level of passion that our existing customers have about the technology and the results they are seeing from their patients.

And that has been amazing to me and we have a wonderful group of early adopters that are helping us along this journey and it is really their commitment and their passion and the results that their patients are seeing that is incredibly exciting and I did not expect that level of passion from that group..

Okay, I appreciate that.

And then just kind of a quick on the skin resurfacing trial, based on your long history in med tech and specifically the experience you talked about in surgical energy, maybe you can just help us understand broadly, how important the skin resurfacing indication is when you have already got some surgeons out there getting really good results and you have already got some pretty solid growth and kind of a nice buzz around that business.

How incrementally important is that indication?.

Well, I think we need to make sure that we're separating the two things. What I was talking about earlier was J-Plasma being used as a subdermal coagulator. And that is where we're seeing the incredible growth to our J-Plasma story in 2017 and in 2018.

When it comes to dermal resurfacing we do not have an indication for dermal resurfacing right now and that is an off-label procedure, and there are some surgeons you're correct that are using that, but they are using that off-label.

So for us, it is very important for this IDE study that we were doing to be able to get the indication, to be able to use J-Plasma for dermal resurfacing safe and effectively.

And this is something that we will be submitting through the FDA -- finishing the study and then submitting to the FDA so we can actually go after this market that we are currently not going after right now..

Okay. And then, another one there on the trial, I think you guys had initially talked about having five centers. You said you've got three sites going now.

Do you think you'll end up getting to the five, or it sounds like you're going to potentially complete enrollment before too long? How should we think about the way that will progress?.

Yes, when you looked at that, we could have up to five, when we wrote the protocol. We decided on the number of three because that was the appropriate number for us to be able to manage and to make sure that we could drive this. And yes, we are very happy with the enrollment and we are very happy with the way this is moving forward..

Okay, great. And then just one last one on J-Plasma, kind of looking at the fourth quarter results and also for the guidance looking at 2018. If we just want to think about in our models how to look at that from quarter-to-quarter.

Assuming sort of a sequential down tick in 1Q 2018 based on some kind of onetime strength in the fourth quarter, would you then assume a sequential increase in the quarters across the year 2018?.

Well, I think one of the things that we have learned is there is seasonality in the cosmetic business. And typically from Q4 down to Q1, there is roughly about a 30% decrease in business.

And that is because you're looking at these surgeons are basically business owners and they buy towards the end of the year and then they're like the rest of this at the first of the year they have to worry about paying a tax bill usually. And so there usually is some kind of decrease in Q1.

But sequentially after that, yes, then you should be able to have -- we should be able to see sequential quarterly growth after that..

Okay, perfect. Thanks a lot guys. That's all we have for tonight. .

Hey, before we go to the next questions, I'd like to go back to Matt's starting question earlier. Matt, all of our O-U.S. Advanced Energy sales are to distributors who buy generators from us and then resell them.

In 2017 that was about $1 million of Advanced Energy sales of our total Advanced Energy sales and roughly $500,000 of that was Q4 2017 growth in Advanced Energy sales..

Our next question comes from the line of Matt Hewitt from Craig-Hallum. Your line is open. .

Good afternoon, gentlemen. Just a couple of questions for me, first regarding the sales headcount, I think exiting Q3 you had 17.

Could you update us where that was at the end of the fiscal year? And then how should we be thinking about that team going forward? It sounds like it could be -- you commented that you're going to be more focused on the cosmetic area.

Does that mean that sales people that were selling outside of that market are going to be brought into that team or are you going to let a few people go and rehire. How should we be thinking about that group? Thank you..

Yes, we ended actually fiscal 2017 with 14 direct reps, 14 independent reps and 3 regional managers. And it was always reported that there were 17 reps, it was actually 14 direct reps and 3 regional managers. And that's what we had at the end and that was the same thing that we actually had in Q3.

Our 2018 guidance assumes that we will add two to three new direct reps throughout the year. And they will have a modest contribution in 2018, but then they will ramp up to their normal production in 18 to 24 months.

And as far as who we're targeting for those reps, yes, we're targeting people who have experience in this marketplace there is no question about that. But our current reps have also developed great relationships and a nice pipeline and confident about the channel going forward into 2018 and beyond..

Great, thank you. And then maybe one follow-up, so just based upon the commentary that you gave regarding J-Plasma on the trial, are you still expecting that that will be completed in July and is that that you’ll have the information after the FDA shortly their after or how should we be thinking about timing on that? Thank you..

Yes, that's a very good question, I'm glad you asked it. We are still targeting completion of the enrollment by the end of June. But per the study and per the side, after our enrollment is done, there is a 90-day followup from the last patient.

And then after that 90-day followup, there is probably about two months to evaluate the data, prepare the data and submit a 510(k). And we're also working with an outside agency that's going to help us with that. So we expect to submit a 510(k) by year-end 2018..

Great, thank you very much..

[Operator Instructions] And our next question will comes from Russell Cleveland from RENN Capital. Your line is open..

Thanks so much for the call today, and Charlie welcome I am a very long-term shareholder here and really appreciate your efforts. The only thing that’s somewhat puzzling to me is it looks like we are getting traction here, I'm surprised that the revenue goal of $41 million to $42 million seems low for the opportunities we have.

And I don't know if we are going to revise this or but 5% to 9% seems to be a very low number in my book and I would like some comment on that are we going to do revise this as we go along.

So it's a puzzling the forecast we've made?.

Well, Russ, thank you for the question. 5% to 9% assumes the overall business. If you look at the Advanced Energy business in particular, you're looking at 40% to 45% growth, which is basically about a midpoint of $11 million and that makes up $1 million of O-U.S. and approximately $10 million of U.S., which is about 50% growth year-over-year.

So, when you looking at this business, I think it's important that going forward is that we look at basically the core and OEM businesses as basically flat, and we look at the growth for the Advanced Energy business for the J-Plasma business going forward.

And obviously as the J-Plasma business becomes a bigger and bigger contributor to the overall business, those growth rates will obviously go up for the entire business..

Right. It just seems if you add all the growth of J-Plasma to the old OEM and other sales not so much OEM, but the basic core business, it just seems like a very low number.

Now, I mean, maybe we're trying to just make sure we beat these numbers, but it just seems we ought to be a lot further down the road than these numbers? So, I'm hoping that we can revise them if we do better as we go through the year?.

Look, we will give updates as to our progress on a quarterly basis just like we always do..

Okay, thank you so much..

Thank you..

That does conclude our conference for today. Thank you for your participations..