Good afternoon, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year 2018 Earnings Conference Call for Apyx Medical Corporation. [Operator Instructions] 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 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 complete 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, Apyx Medical's President and Chief Executive Officer. Please go ahead, sir. .

Thank you, operator. Welcome, everyone, to our fourth quarter and fiscal year 2018 earnings call. I'm joined on this afternoon's call by our Chief Financial Officer, Tara Semb. .

Let me provide you with a quick agenda for today's call. I'll begin with a high-level overview of our fourth quarter sales results, along with the commentary on the factors that contributed to our strong performance during the period, then I'll discuss some notable operating highlights we achieved during the quarter.

I will then briefly review the strategic initiatives that we were focused on executing this year as part of our long-term growth strategy before turning the call over to Tara to discuss our fourth quarter financial results in detail and review our fiscal year 2019 guidance, which we introduced in our earnings press release this afternoon.

Following Tara's discussion, I'll close by sharing some additional thoughts on why we believe Apyx is incredibly well positioned for success in the years to come before opening the call for questions. .

Before diving in our fourth quarter review, I thought I would -- it would be appropriate to start with 2 notable events that happened during the quarter. Both of these items are very important as investors think about our investment story going forward. First, we announced the addition of a new member of our executive leadership team in December.

As Tara Semb joined our new -- as our new CFO on January 1. Tara replaced Jay Ewers, who had announced plans to retire earlier in the fourth quarter. Tara has a strong background in finance and operations, having held multiple executive level positions throughout her career.

She has experience in helping companies execute rapid growth strategies as well as helping large multinational companies scale their business and improve profitability across multiple business segments and geographies around the world.

I believe we have added an asset to the executive leadership team, and we are very fortunate to have her helping us at such an important time in this company's history. .

The second important item I wanted to begin the call with is our corporate rebranding and the company name change to Apyx Medical Corporation effective January 1, 2019. Many of you will recall that our sale of our company's core segment to Symmetry Surgery last summer included the sale of the Bovie brand name.

We had announced plans to rename the surviving newCo entity and we chose Apyx Medical. The name Apyx reflects our mission, our mission to continue our journey to the top, the summit, the peak. This is not just about revenue growth, but about a culture of peak performance in all we do.

We also announced plans to move our stock exchange listing to the NASDAQ Global Select Market from the NYSE and began trading on the NASDAQ on January 2, 2019 under the ticker APYX. .

With that, let's turn the review to our sales performance during the fourth quarter. We achieved total revenue of $5.9 million for the fourth quarter which represented 62% growth year-over-year.

Our total revenue growth in the fourth quarter was driven by strong sales of our Advanced Energy business which increased by $1.25 million or 41% year-over-year. We also saw strong contributions of total growth from our OEM business, which increased by $1 million or 179% year-over-year. From a geographic standpoint, during the fourth quarter, U.S.

sales increased by $1.3 million or 43% year-over-year, while international sales increased by $957,000 or 162% year-over-year. .

Fourth quarter Advanced Energy sales in both the U.S. and internationally reflects solid execution of our strategy in 2018, specifically to focus on driving growth by increasing the adoption and utilization of our Renuvion Cosmetic Technology in the U.S.

cosmetic surgery market while also meeting the growing demand from our network of OUS distributors and entering new partnerships with our OUS distributors in new countries. .

As expected, our fourth quarter total sales growth also benefited from strong OEM growth driven primarily by the expected contributions from the electrosurgical generator and supply agreement we signed with Symmetry as part of the divestiture and sale of Bovie's core business last summer. .

Turning to a brief review of our fiscal year 2018 performance. We are clearly very proud of our reported results this year with a total revenue growth of 63% year-over-year well ahead of our original guidance expectations for sales growth that were in the range of 29% to 34% year-over-year.

Advanced Energy sales were the largest driver of growth in 2018 as sales increased 71% year-over-year, well ahead of the original guidance expectations of 40% to 45% Advanced Energy sales growth, which we introduced in our Q4 '17 call last year. The 71% revenue growth was driven by 43% growth in the U.S.

and 184% growth outside the U.S., albeit off a much lower base of revenue outside the U.S. in 2017. Growth continues to come from sales of both generators and handpieces, which means our Advanced Energy growth in 2018 was fueled by strong adoption of generators and utilization handpieces.

To that end, while we are still not disclosing additional details about the composition of Advanced Energy revenue or the installed base overall, we appreciate the market's interest in understanding the utilization dynamic in our business.

And we are happy to report that we saw more than a threefold increase in the number of handpieces we sold in 2018 as compared to 2017. .

Our growth performance in 2018 represents the clearest evidence of our success in executing our strategic plan. We focused the organization on maximizing the opportunity we have in introducing our J-Plasma technology under the Renuvion brand in the U.S. cosmetic surgery market.

And after starting the year off well, the core segment sale transaction we announced last summer, allowed us to further focus our efforts on the strategic plan and deliver strong growth trends over the second half of the year despite facing tougher comparisons.

We believe our growth performance in 2018 was a result of the powerful combination of an attractive addressable market opportunity, having what we believe is the best technology on the market today and our focused commercial strategy. .

Let me speak to each of these in a little bit more detail. First, we believe the U.S. cosmetic surgery market represents a large and compelling market opportunity for our company, which will enable us to drive strong and sustained growth.

Using Renuvion as a subdermal coagulator following liposuction procedures, we estimate that our potential addressable market for generators and handpieces is approximately $1.5 billion in the United States alone.

Importantly, this addressable opportunity includes an annual reoccurring revenue component for the sale of our Renuvion handpieces of more than $170 million based on the estimated 400,000 liposuction procedures that happen each and every year. Second, regarding our J-Plasma technology, which powers our Renuvion generators and handpieces.

As discussed on prior calls, while the initial decision to shift the commercial focus in the U.S. to the cosmetic surgery market predated my joining the company, the initial decision was well founded.

The decision was due in large part to the incredibly positive feedback we were receiving from some of our earliest adopters of our technology including plastic surgeons, dermatologists and cosmetic surgeons across the U.S. who were using it for subdermal coagulation of soft tissue following liposuction procedures.

It was clear to me shortly after taking over in December of 2017 that the strategy to focus our commercial efforts for the J-Plasma technology in the cosmetic surgery market was sound.

But I also knew we had an opportunity to better understand why the clinical feedback and patient outcomes were so positive, which meant, we needed to invest in learning what made our technology so special.

We believe that the J-Plasma technology, which powers our Renuvion generators and handpieces, represents a truly unique energy modality that is able to deliver heat to tissue in an incredibly efficient and controlled manner.

Specifically, the combination of our proprietary RF energy and Helium Plasma allows Renuvion to quickly heat subdermal tissue to the optimal treatment temperatures and then cool the tissue almost instantaneously. We believe this approach enables physicians to minimize thermal diffusion to the surrounding tissue that is not being treated.

Our technology also allows Renuvion to deliver full power to all types of soft tissue and to heat the subdermal tissue in a faster and more efficient manner.

And lastly, the fact that Renuvion does not rely on direct contact with the tissue being treated provides physicians with more freedom to deliver energy to all desired tissues within the subdermal space. The third contributor to our early commercial success in the U.S. cosmetic surgery market is our focus.

This was a company with limited resources, which meant we couldn't afford to be anything other than focused with our commercial efforts. Our targeted approach has paid off so far. We have gained significant market share in 2018 despite having a direct selling infrastructure focused on this market of only 15 direct sales reps coming into the year.

Our commercial success over the first half of 2018 was further validation of our strategy and clear evidence of the huge unmet need for a technology like Renuvion. The Symmetry transaction provided us with the requisite capital to invest in our sales force and expand our coverage of the U.S. cosmetic surgery market.

As planned, we identified strong direct sales reps to join our team over the second half of 2018. Our direct team increased from 17 direct reps at the end of Q2 to 27 reps at the end of 2018. .

number one, to secure new clinical evidence demonstrating the safety and efficacy of our Renuvion technology; two, formulizing our regulatory strategy to pursue specific clinical indications that will enable us to market and sell Renuvion for our target procedures; three, enhance physician and practice support for our cosmetic surgery customers; and four, improve our manufacturing capabilities and efficiencies.

All 4 strategic initiatives are focused on establishing a foundation to support the long-term growth of Renuvion in the U.S. cosmetic surgery market and the long-term growth of J-Plasma in the markets outside the U.S. .

Let me update you on the progress in each of these areas now. With respect to our first strategic initiative in 2018, we have been primarily focused on securing new clinical evidence for our Renuvion cosmetic technology by pursuing an IDE clinical study evaluating the use of Renuvion for dermal resurfacing procedures.

We completed enrollment in the spring and worked through follow-up and data evaluation this past fall. Dermal resurfacing represents a new target procedure for Renuvion in the cosmetic surgery market. An estimated 200,000 fully ablative dermal resurfacing procedures are performed in the U.S.

market each year representing an annual incremental market opportunity of approximately $85 million from the sales of our handpieces alone. This IDE clinical study for dermal resurfacing is also an important component of our second strategic initiative formulizing our regulatory strategy to pursue specific clinical indications.

Our first new clinical indication we are pursuing is for the use of Renuvion in dermal resurfacing procedures and we use the data we obtained from our IDE clinical study to support our 510(k) submission, which we announced in December.

We have also been developing our multiyear strategy to secure specific clinical indications for our target procedures in the cosmetic surgery market under the direction of Dr. Topaz Kirlew, our VP of Regulatory Affairs.

In accordance with our third strategic initiative, we are continuing to build physician and practice support for our customers in the cosmetic surgery market with our Renuvion cosmetic technology brand.

We have made considerable progress in this incredibly important part of our business strategy as we continue to believe that having the best technology like Renuvion does not guarantee commercial success. In fact, it is our efforts in the area of physician and practice support that may be even more important.

We launched this dedicated channel-specific brand for our J-Plasma generators and handpieces in late March, and we remain committed to enhancing its visibility in the marketplace in light of the strong reception that it has received from physician community in recent months.

We have also been pleased with the response of our tagline, Reshaping What's Possible, which really captures the impact of our Renuvion technology can have on a practice from the strong outcomes and satisfaction from the patients to the benefit our clinician customers receive in attracting new patients.

We couldn't be happier with the results of our strategic investment in this dedicated branding effort in the cosmetic surgery market. We also believe we will be able to leverage the platform and positive name recognition we have established for the Renuvion brand when introducing new procedures to the cosmetic surgery market in the future.

We have also invested in practice support, including programs to help practices learn how to effectively market to potential patients and programs to help clinicians understand what makes our technology better than existing alternatives. .

We have also invested in a small team of clinical specialists who are charged with supporting our sales team in educating and training our clinician customers. Not only has the strategy enhanced our relationships with new customers, it has freed up time for our reps to focus on selling.

Ultimately, we think this strategy ensures that our relationships with the clinician doesn't end when he or she buys a generator, but that he or she has everything needed to comfortably adopt the technology into the practice, which we believe is key to driving utilization.

And lastly, in connection with our 4 strategic initiatives, we continue to identify and pursue new ways to improve our manufacturing capabilities.

As discussed on prior calls, we welcomed 2 important professionals to our company's leadership team in 2018 with the appointment of Craig Swandal to our Board in March and the appointment of Laura Iversen to the position of Director of Global Operations for Advanced Energy in late 2018.

Both have been instrumental in developing our strategy for enhancing our readiness to meet the demand we expect for generators and handpieces.

The importance of this strategic initiative cannot be understated and while I'm proud of the progress we have made to date, we will continue to prioritize investments in our manufacturing scale to ensure we can deliver the commercial success we expect as a result of driving improving adoption and utilization from clinicians around the world. .

In summary, 2018 was a fantastic year for both growth and progress towards our goals of setting up the company for long-term success. .

Before turning the call over to Tara for the financial review, I wanted to share my thoughts on a report that was published in an online blog last month. This report was written with the express intent to harm our stock price, and the author disclosed is financial interest in profiting as a result of the stock's decline.

This report was incredibly frustrating as it was full of factual inaccuracies, including some claims and disparaging commentary about my prior work history and character. The basis of the blogger's claims were tied to my name appearing in a 90-page complaint filed in a lawsuit brought by a whistle blower against Olympus. .

Let me state for the record. I was not party to the lawsuit, nor was I ever named as a defendant in the case. My name appeared once in a 90-page complaint as part of a list of executives who were alleged to have had knowledge of fraudulent activities.

I was employed in various sales and senior leadership roles at Gyrus from 2002 to 2008 when we were acquired by Olympus where I was a Group Vice President of the Global Surgical Energy Group. Olympus was investigated by the Department of Justice in 2010. As part of that investigation, I was, of course, interviewed.

That interview took place over the phone, and I was never deposed in the matter. Furthermore, although the Department of Justice conducted a multiyear investigation of Olympus, they never contended that I engaged in or had knowledge of any improper activities.

The falsehoods about my prior work history were frustrating, but candidly, the unsubstantiated claims against the safety and efficacy of our J-Plasma technology and blatant mischaracterization of our IDE study on dermal resurfacing are among the most troublesome. .

As discussed earlier in my prepared remarks, we believe our technology is truly differentiated, and we have invested in expanding the clinical support for Renuvion, which we look forward to sharing with the investment community and our clinician customers in 2019 and beyond.

As it relates to the result of the IDE study specifically, we have consistently said that the study was launched with the primary goal of demonstrating safety and efficacy to support our FDA 510(k) submission, and that following the receipt of this regulatory clearance, we would pursue options for showcasing the results. .

Finally, I want to thank our employees for not letting their frustration with this short attack, distract them from their responsibilities. In fact, I am proud to say, I think the incident was a catalyst for our team of Apyx employees who already believed in our mission to work with even more conviction towards achieving our strategic objectives. .

With that, let me turn the call over to Tara to review our fourth quarter financial results and our fiscal 2019 financial guidance, which we introduced in this afternoon's release.

Tara?.

Thanks, Charlie. As a reminder, our results are reported on a continuing operations basis for the period ended December 31. Any financial impacts related to the divestment and sale of our core segment appear in our financial statements as discontinued operations and are excluded from the commentary that follows.

Total revenue for fourth quarter 2018 increased $2.3 million or 62% year-over-year to $5.9 million compared to $3.7 million last year. .

By business segment, total revenue growth for the fourth quarter was driven by Advanced Energy segment sales, which increased $1.3 million or 40.5% year-over-year to $4.3 million. .

OEM segment sales increased $1 million or 179% year-over-year to $1.6 million in Q4, driven primarily by higher-than-expected demand from third-party equipment manufacturers for our proprietary generator products. .

OEM sales results also benefited from sales of generators related to our 10-year manufacturing and supply agreement with Symmetry entered into as part of the divestiture of the core business.

Revenue in the United States increased approximately $1.3 million or 43% year-over-year to $4.4 million, and international revenue increased approximately $957,000 or 162% year-over-year to $1.5 million.

International revenue represented approximately 26% of sales in the fourth quarter of 2018 compared to 16% of total sales in the fourth quarter of '17. .

Our fourth quarter reported revenue results for the Advanced Energy segment and total company include a $191,000 impact, which was not included in our preliminary revenue results, which we announced on January 7, 2019.

During our year end close, we identified a subsection of accounting standard ASC 606 revenue from contracts with customers that require fees paid to group purchasing organizations or GPOs, to be reported as a reduction of revenue. ASC 606 became effective for Apyx in the first quarter of 2018.

As such, we were required to record the amount paid for GPO fees as a reduction of revenue when incurred. The $191,000 impact recorded in the fourth quarter of 2018 represents the full year impact from GPO activity that occurred throughout the year.

While the full year impact of this correction was $191,000, approximately $61,000 was related to activity in Q4. Excluding the impact related to our correction of the company's prior treatment of ASC 606 in the fourth quarter, our Advanced Energy segment sales growth year-over-year would have been approximately 430 basis points higher. .

Moving down the P&L. Gross profit increased $827,000 or 30.7% year-over-year to $3.5 million compared to $2.7 million for the fourth quarter of 2017. The increase in fourth quarter 2018 gross profit was driven primarily by strong sales in the company's Advanced Energy segment.

Gross margin for the fourth quarter of 2018 was 59.4% compared to 73.7% last year. The change in gross margin was primarily due to revenue mix in our Advanced Energy segment and higher OEM sales as a percentage of total revenue this year.

OEM segment gross margins were lower in the fourth quarter of '18 when compared to the prior year period, driven primarily by revenue related to our new product manufacturing and supply agreements with Symmetry in the fourth quarter of 2018, which did not contribute to revenue results in the prior year period. .

Fourth quarter 2018 gross margin was also impacted by the correction of the company's prior treatment of ASC 606, which reduced revenue and gross profit by $191,000 or approximately 439 basis points of the total year-over-year decline in gross margin for the period. .

Operating expenses for fourth quarter 2018 increased $2.7 million or 46% year-over-year to $8.7 million compared to $5.9 million for the fourth quarter of 2017.

The year-over-year change in operating expenses from continuing operations was primarily driven by a $2 million increase in salaries and related costs, $0.8 million increase in professional services, a $0.2 million increase in research and development expenses and $0.5 million increase in selling, general and administrative expenses.

Operating expenses from continuing operations for the fourth quarter of 2018 also included severance and related expenses of $741,000 related to the departure of the company's former Chief Financial Officer. .

Loss from operations for the fourth quarter of 2018 was $5.2 million compared to operating loss of $3.2 million last year. Net loss from continuing operations for fourth quarter 2018 was $3.3 million or $0.10 per diluted share compared to a net loss from continuing operations of $3 million or $0.09 per diluted share for the fourth quarter of 2017.

Fourth quarter adjusted 2018 EBITDA loss was $4.8 million compared to an adjusted EBITDA loss of $2.7 million last year. Excluding the impact of these severance payments of $741,000 and $1.5 million in the fourth quarters of '18 and '17, respectively, adjusted EBITDA loss was $4.1 million compared to $1.2 million last year.

We have provided a detailed reconciliation from GAAP net loss to adjusted EBITDA in our press release this afternoon. As of December 31, 2018, the company had cash and cash equivalents of $16.5 million and short-term investments in U.S. treasury bills of 61.7 million as compared to cash and cash equivalents of $10.7 million as of 12/31/17.

The company had working capital of $81.8 million as of December 31, 18, as compared to $16.6 million as of December 31, 2017. .

[ Do you want me to go ]?.

Yes. .

Turning to a review of our 2019 financial guidance, which we introduced in our earnings press release this afternoon.

For the 12 months ending December 31, 2019, we expect total revenue in the range of $25 million to $26 million, representing growth of 50% to 56% year-over-year compared to the total revenue from continuing operations of $16.7 million in the fiscal year 2018.

Our 2019 revenue guidance assumes Advanced Energy revenue in the range of $20 million to $21 million, representing growth of 53% to 61% year-over-year compared to Advanced Energy revenue of $13.1 million in fiscal year 2018.

OEM revenue of approximately $5 million, representing growth of 38% year-over-year compared to $3.6 million for fiscal year 2018. Note, we expect approximately 50% of our total OEM segment revenue could come from legacy OEM activities with the balance coming from our manufacturing agreement with Symmetry. .

In terms of profitability guidance for fiscal year 2019, we expect GAAP net loss in the range of $24 million to $23 million compared to GAAP net loss from continuing operations of $9.5 million in 2018.

And we expect adjusted EBITDA loss in the range of $20.4 million to $19.4 million compared to adjusted EBITDA loss from continuing operations of $11.7 million in fiscal year '18. 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 2019, we expect gross margin of approximately 59% to 61% this year compared to 64.7% last year.

The largest driver of the expected decline in gross margins this year is the impact of 12 months contribution from our manufacturing agreement with Symmetry in 2019 compared to approximately 3 months contribution in 2018.

Excluding the full year contributions, the total company revenue from this agreement, our gross 2019 margin would be approximately 63%. Stock-based compensation of approximately $4 million; depreciation and amortization of approximately $700,000 and weighted average diluted shares outstanding of approximately 34 million shares.

Finally, we plan to file our 10-K for the 12 months ending December 31, 2018, with the SEC this evening. I wanted to make the investment community aware of a disclosure in the filing in Item 9A, Controls and Procedures, that relates to our evaluation of the effectiveness of internal controls over financial reporting and disclosures.

Specifically, this evaluation concluded that the company's internal controls and procedures were not effective because of 3 material weaknesses.

We are committed to maintaining a strong internal control environment and in response to the identified material weaknesses, management, with the oversight of the Audit Committee of the Board of Directors, has already begun to take actions towards remediation, the details of which are disclosed in our 10-K. .

It is also important to note that we have also received an unqualified opinion on our 2018 financials from our external auditors. With that, I'll turn the call back to Charlie for closing remarks.

Charlie?.

Thanks, Tara. I'd like to conclude today's prepared remarks with some additional thoughts on 2019, specifically in 2 areas. How we are driving growth this year and where we are investing in 2019 to drive future growth? Regarding our 2019 growth drivers, our full year revenue guidance assumes total revenue in the range of 50% to 56% year-over-year.

Advanced Energy will be the primary driver of total company growth again this year and we expect the segment revenue to increase 53% to 61% year-over-year, driven by continued generator adoption and handpiece utilization of Renuvion in the U.S. and J-Plasma outside the U.S. Our U.S.

advanced energy growth expectations only assume contributions from Renuvion sales related to its use as a subdermal coagulator following liposuction in the U.S. .

We plan to update our full year 2019 growth expectations following the receipt of our 510(k) clearance for dermal resurfacing. With respect to Advanced Energy sales growth expectations outside the U.S., similar to our practice in 2018 and our guidance assumes the contributions from utilization related demand in existing international markets only.

To the extent we receive material new OUS regulatory clearances during 2019, we plan to update our guidance accordingly. .

One final item for consideration when evaluating our 2019 growth expectations. We do not assume a material change in our direct sales infrastructure, which resulted in 27 representatives at year-end. As discussed earlier, we increased our direct sales force from 17 in Q2, 19 in Q3 and 27 at year-end.

The primary driver of year-over-year growth in the U.S. this year is the contributions of these 27 reps for 12 months of 2019 as compared to just 3 months of Q4 of 2018. .

Additionally, we ended 2018 with multiple independent agency partners that employed an estimated 20 to 23 agents, which when combined with our direct reps, gave us a field selling team of nearly 50 at year-end.

The majority of these agency relationships were added in late Q3 and early Q4 as part of our hybrid selling model, whereby we supplemented our investment in direct reps with more P&L-friendly commission-only agents.

These agency partners did not produce the results we were expecting and given how important our early commercialization efforts are in the U.S., we believe it is prudent to focus our sales responsibilities on our direct reps, who are full employees of Apyx and thus fully invested in our success.

As such, our 2019 guidance assumes we average approximately 35 to 40 sales professionals this year of which 27 are direct reps and the balance are our highest-performing agency partners..

approximately $3 million of investments in R&D initiatives and expanding the clinical validation of our J-Plasma Renuvion technology; approximately $2 million of investment in marketing initiatives, including increased participation at trade shows, advertising and other activities to increase the awareness of our differentiated technology; and approximately $2.5 million in higher stock option expense related to a decision to invest in our employees by expanding our option pool to include grants to many more valuable contributors throughout the organization.

An incremental $1 million impact of a full year of expenses for the increase of our direct sales force compared to only 3 months of impact last year; and finally, approximately $2 million related to our pursuit of new regulatory clearances. .

As discussed on recent calls, we are developing our long-term regulatory strategy under the leadership of Dr. Topaz Kirlew, our VP of Regulatory Affairs. In the U.S., we have identified other potential clinical indications where we believe our Renuvion technology would serve an unmet need in the U.S. cosmetic surgery market.

We plan to pursue regulatory clearances for specific clinical indication in the years to come, and we plan to do so in a strategic and comprehensive manner meaning that we intend to prepare and submit requests for 510(k) clearance from the FDA that have clinical support demonstrating our technology safe and effective use.

Outside the U.S., we plan on expanding our geographic footprint. Importantly, we will prioritize only the registrations and licenses in each respective country. .

In closing, with a highly differentiated technology supported by strong physician feedback in the cosmetic surgery market, a focused commercial strategy and expanded direct sales force, multiple strategic initiatives in place and targeted strategic investments plan to support the broad-based adoption of our technology in the years to come, we couldn't be more excited about the future prospects of Apyx Medical.

.

With that, operator, now -- let's now open the call for questions. .

[Operator Instructions] Our first question will come from the line of Dave Turkaly with JMP Securities. .

So just on the 2019 guidance, it seems like you mentioned subdermal coagulation only. And then I think that the direct reps you may kind of hold where they are. So just love to get your thoughts on productivity, again, where you see 27? When they're mature? And how long that takes? Just to get your thoughts on those right now. .

Yes. So obviously, most of those reps were added in the fourth quarter. And we increased our direct sales force, as I said, from 17 to 27, it's probably closer to about a 6- to 12-month ramp up for those reps to become fully effective. But yes, our guidance in our revenue in the United States assumes only subdermal coagulation.

And as I stated in the prepared remarks, as we get further clearances, we will update our guidance at that point in time. .

And I guess in terms of just the productivity standpoint of some of the guys that have been there for a while, could you just remind us of where they can be after 12 months or maybe where some of your top guys are today?.

Yes. We've said after 12 months. So that number is somewhere around $1 million. .

And I guess maybe just one for Tara, just the disclosure that you mentioned, I'm sure we'll get to check that out in detail later.

But weaknesses, I'm just curious, are these things that you've typically seen in the past, maybe with some companies that are smaller, are you familiar with things like this? And I guess if there's any just sort of commentary you guys can make about any details that would help us feel like, okay, these are kind of minor things.

I know you said you're already taking action. But I'd love to just get your thoughts on... .

Yes, Dave, this is Charlie. I'll grab that. First is, obviously, we're not happy about the situation. And it was really the former financial team. The great thing for us right now is that Tara has significant experience in this area.

She was a Director of Internal Audit for Amsted Industries, which was a multinational manufacturing company, and we are very confident that this will all be taken care of and remediated by the end of 2019.

And so we're very fortunate to have her because of her experience, and I know she will get this taken care of, and this will be the last time we have to talk about this. .

Your next question comes from Matt O'Brien with Piper Jaffray. .

This is Kevin on for Matt today. I had a quick question on the dermal front as well as guidance.

I understand that you're probably going to update us as far as numbers go, but if there's any color that you can provide on how much dermal resurfacing can impact the back half of the year, if you can? And then what an overall sustainable type growth rate looks like in 2020 and beyond, in that space with all those new reps getting up the curve?.

Yes. Look, Kevin, obviously, today, we're not going to talk about the impact on revenue until we get the clearance from the FDA. But just remember that there's 200,000 of those procedures that are done here which represents about another $85 million in annual handpiece utilization. And will also help us in generator adoption at some point in time, too.

But we're not going to get into those until we get the clearance, and we'll give you guys updates when that happens and help you out with that at that point in time. .

Okay. That's completely fair. As far as the increased investments go for the year, you spoke to 70% year-over-year, and we really appreciate the breakdown there. And you mentioned it was transient.

How much do you think in the longer term, if you could frame it up for folks? How quickly does it tick down and beyond? And where are the leverage points in the model? I know on the margin side, you've talked historically about manufacturing leverage, and it seems like you're consistently increasing pricing for J-Plasma, if I'm not mistaken.

So can you just give us a frame up for when those start to taper off if they're transient and where the leverage points are in the model?.

Yes. Look, we've said before that we feel very good about our guidance and our plan for 2019. And obviously, sitting here today, we are only going to talk about 2019. We're not going to get too far in the future. And obviously, from -- we've talked a lot, I've talked every call that I've been on about manufacturing efficiencies.

And so that is an area of continued focus for us, and we will obviously hope to drive and have higher margins in the future. But we're not going to talk about that. Today, these are the targeted investments that are going to help the foundation to support the long-term growth of this company.

And as I mentioned before, in some of these key things, these will help set us up for the future and really help take us down a successful path. .

Okay. If I could just sneak 1 in on 2019 that you can comment on the progress on some of the international market, Brazil, South Korea, China, and then where it makes sense if you receive approvals in other regions. Can you just talk about what going on internationally speaking in 2019? And then I'll jump in the queue. .

Yes. So as I stated in the prepared remarks, our guidance assumes only from existing markets that we are currently in. As we get clearances throughout 2019 that we think will have a material impact on our numbers, we will obviously update guidance and let you guys know about that at that point in time. .

Your next question comes from Matt Hewitt with Craig-Hallum Capital. .

First one for me.

Once you received approval or 510(k) approval, is it your plan at that point to add maybe some more sales resources? Or are you going to go it with the 27 direct even after that approval?.

We are happy with the number of reps that we have right now, and we think that the number of reps that we're looking at, at this point in time is the right number for us to get and to move down that path. .

Okay.

And then with some of the movement on the agency side, is it -- as you look at with your 27 direct reps, are they going to be taking on a little bit more territory? Or how are you kind of hashing out that aspect of it?.

Yes. Obviously, they're focused in the major markets of the United States, and some of them will have a little bit more territory. But remember, we still do have some of our top-performing agencies with us. And so we do have nice coverage throughout the U.S.

in all the major markets around, and we feel good about -- we feel good about where we are and our guidance that we gave you talks about 35 to 40 professionals this year. So that is our coverage within the United States. .

Our next question comes from Kyle Bauser with Doherty & Company. .

Charlie and Tara, and congrats on the productive 2018, to say the least. So first, on your plans to expand the indications, I appreciate the comments in your prepared remarks. It'd be great to hear more, though, about the pipeline and how you're thinking about that. I know the hiring of Dr.

Kirlew as the regulatory Director was a great addition, and you've been working together to formulate a plan for subsequent indications can you just kind of talk a little bit more about how she's helped you create this multiyear strategy and potentially some other indications you're exploring?.

Yes. Look, we're not going to get into potential indications at this point in time. And the only reason being is we'll wait until we actually announce them and actually do them as opposed to telling you that we're going to do them and then having you wait and down the road.

But Topaz has been instrumental in this strategy and she's been instrumental in helping us throughout this process and guiding our way through our entire regulatory strategy.

And don't forget first, one of the first things that we needed to do was really understand how our technology worked and the importance of how it works and what makes it work so well also is into some of the future things that we need so there were things that we needed to do first to do this.

We'll be happy to tell you and let you know when the time is right, it's just not right at this point in time. .

Yes. Understood. And the follow-up, after an expected clearance of the dermal resurfacing indication, when it becomes on label and you're able to actually articulated treatment protocol to guide patient selection and device usage.

Can you kind of talk about plans for how you roll out this new indication, so to speak, marketing programs, teach-ins, training, et cetera? And how quickly you think you'll be able to get users up and running?.

Yes. So when we get clearance, we will talk to you about the plan for a lot of that. We will talk to you about what we expect from a revenue point of view. And we'll give you a time line once that is. It doesn't make sense to give you a time line right now because we don't know when we're going to get clearance.

And so we'll be a lot more specific when we get that and we can move forward there. .

Your next question comes from Russell Cleveland with Renn Capital. .

Thank you for the complete review and also mentioning that report and the falsehood of what was happening there. Here's a question that you may not be able to answer, but cash flow. We're investing, of course, in our growth and our sales force and so forth. Any thoughts when we might be able to cross the line into positive cash flow. .

Yes. We haven't given any words or any guidance yet for future years with that, Russ, just like you mentioned before, it's a question that I probably can't answer at this point in time. But just know that we like our balance sheet very much. We're in a very good position.

And as I mentioned, a lot of these expenses that we have in 2019 are transient expenses to help set us up for the future. .

Great. Just one follow-on on this. The foreign sales, the potential overseas, it looks bigger than the United States.

Are we going to use our own reps overseas? Are we going to do joint ventures with other companies?.

Yes. So we use distributor -- we use a distributor model overseas. The thing that we did talk about in today's call that was in the prepared remarks and one of the investments that we're making in 2019 is to actually own the registrations ourselves. And so a lot of small companies, unfortunately, have to have the distributor on the relationship.

And because of our balance sheet and because we think it's better for the company long term, we're actually going to own the registrations in the countries that we go into outside the U.S. .

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