Good morning, ladies and gentlemen, and welcome to the First Quarter of Fiscal Year 2021 Earnings Conference Call for Apyx 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'd 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..

Thanks, Operator. Welcome, everyone to our first quarter earnings call. I'm joined on this call this morning by our Chief Financial Officer, Tara Semb. Let me provide you with a quick agenda for today's call. I'll begin with a review of our first quarter revenue results.

Following this discussion, I'll share an update on the operational progress we made during the quarter towards the four strategic initiatives we're pursuing to enhance our long-term growth in the cosmetic surgery market.

Tara will then provide a detailed review of our financial results and an overview of our 2021 financial guidance which we updated in our press release this morning. I'll then conclude with some additional closing thoughts before we open the call for questions. With that, let's get started with the review of our revenue results.

In the first quarter of 2021, we delivered total revenue of $8.6 million representing growth of 73% year-over-year, which was well ahead of our expectations. Our total revenue performance was especially noteworthy given the disruption created by the COVID-19 pandemic, which continued to challenge the overall operating environment, both in the U.S.

and internationally. By geographic region, the U.S. sales increased 54% year-over-year to $5.6 million, while total international sales increased 123% year-over-year to $3.1 million.

The year-over-year increase in total revenue was driven exclusively by our sales of our Advanced Energy products, which increased 92% year-over-year to $7.7 million more than offsetting a modest decline in our OEM business which decreased 3% year-over-year to $1 million.

Shifting to a more detailed discussion of our Advanced Energy business, I'm pleased to report that the 92% year-over-year growth we saw in total Advanced Energy sales was driven by strong global sales of both our generators and handpieces reflecting encouraging adoption and utilization of our technology in our key markets around the world.

As we mentioned on our earnings call in March, during the first quarter we continued to see strong utilization of our handpieces in the U.S. coupled with demand from our distributors internationally, despite the elevated volumes of COVID cases in many countries..

Thanks, Charlie. Given Charlie's detailed review of our first quarter revenue results, I'll begin my discussion of our Q1 financial results by continuing down the P&L. Gross profit for the first quarter of 2021 increased $2.9 million or 96% year-over-year to $5.9 million.

Gross profit margin for the first quarter of 2021 was 67.8% compared to 59.7% last year.

The year-over-year increase in gross profit margins was driven by revenue mix between our two segments and as well as improved product margins in our Advanced Energy segment, due to the continued manufacturing efficiency initiatives that Charlie mentioned earlier.

The year-over-year increase in gross profit margins was offset partially by revenue mix, by geography and by product. Operating expenses for the first quarter of 2021 increased $0.1 million or 1% year-over-year to $10.6 million compared to $10.5 million for the first quarter of 2020.

The increase in operating expenses year-over-year was driven by $0.9 million increase in salaries and related costs and a $0.1 million increase in research and development expenses partially offset by a $0.9 million decrease in professional services, and a $0.1 million decrease in selling, general and administrative expenses.

The very modest year-over-year increase in operating expenses reflects the continued benefits from our initiatives to control costs and reduce our discretionary spending, which began in the second quarter of 2020 in response to the impact of COVID-19 on our financial condition..

Thanks, Tara. We're raising our guidance for 2021 to reflect both our strong start to the year, including the encouraging adoption and utilization trends that we have seen as well as the continued confidence we have in our outlook for the remaining nine months.

With a solid balance sheet, a global multi-billion dollar addressable market opportunity, and differentiated technology supported by an expanding portfolio of clinical evidence, we remain well positioned to drive strong, sustained revenue growth and improving financial performance as the global environment continues to recover.

We look forward to building on our recent momentum this year by continuing to deliver exceptional financial performance and strategic execution as we establish Apyx Medical as a leading player in the global cosmetic surgery market.

I'd like to again thank our employees for their hard work, as well as our customers, distributors and investors for their continued support for Apyx Medical and our mission. With that operator, let's now open the call for questions..

Thank you. . And our first question will come from Dave Turkaly from JMP Securities..

Good morning and congrats on the broad strength you saw across the geographies and the different product lines. Charlie, we've asked this before and I'm just curious, given how balanced that growth was, I know capital has always been a larger component, but I assume it's got to be getting closer to 50:50.

I just love to get your thoughts on sort of where that mix stands today between the handpiece and the generators, and if we are approximating that level..

Yes. Thanks, Dave. We appreciate the question. Yes, we were very happy with our generators being up 80% year-over-year in Q1 and U.S. generator sales in particular were up 67% year-over-year. And it was our first quarter of growth, as we had talked about with the pandemic in the U.S. on the generator side.

And it was incredibly impressive growth in light of still the COVID-related challenges that still exist. On the U.S. side, we were up by 120% year-over-year, but that, remember, benefited from easy comps. But we still grew 6% over 2019.

And generator demand from multiple countries reflects our measured improvement in our operating environment -- quarter-over-quarter operating environment in certain OUS markets. As far as the exact mix of generators to handpieces, we're obviously not going to be talking about that in detail.

But we are incredibly happy with the continued growth and utilization that we've seen globally and the adoption of Renuvion. It is very exciting for us and we're -- makes us very confident about the future..

Yes, I appreciate that. And I had to drive a day. Thank you for that. And then it I guess as a follow-up on the international front. You call that Brazil and Taiwan and the Hampi side, you mentioned strengthen, I guess, across other countries on a generator, but obviously that's been very strong last two quarters sequentially.

So I guess any additional color you might give us there, maybe even particularly on the generator side would be helpful?.

Well, I think that the -- when you're talking about those two countries, in particular, and when you're talking about our long-term regulatory strategy that we've had to get new countries, obviously, there's going to be more generators that go into place, right when we get those because there's demand in a lot of those countries.

And so this strategy has been a strategy that we've been talking about now, since we've been here for three years. And as we continue to keep adding new countries, obviously generator adoption starts, but then the handpiece utilization then follows.

And so all of this really starts to build a nice business outside the United States with adoption of that, and you could see that with the handpiece growth up more than 120%.

But as we talked about outside the United States from a COVID perspective, it is really, really a mixed bag outside the United States and some areas are really being affected more than others.

And it is still hard to predict outside the United States how COVID is recovering, they're way behind on the vaccine and certain countries and things like that so..

Our next question comes from Matt Hewitt with Craig-Hallum..

Good morning. Congratulations on the strong quarter. A couple questions for me I was hoping to focus a little bit on the sales and marketing efforts. As you know, here domestically in pockets of OUS as vaccines are rolled out as COVID starts to decline.

Are you able to get out and about more from a sales perspective, get into see your customers? How should we thinking about some of those costs ramping up over the course of the year?.

Yes. So we were very much pleased with the progress that we made in the first quarter specifically in the United States, selling generators, and finally having growth in that again. And we were very active on this front in Q1 despite the COVID. We have actually just started in April; I think it was the very first in-person trade show that actually had.

And so we would expect as we go forward in the United States to have more in-person trade shows. But as you can see that we hosted a hybrid event for our PMP and that was in-person and then virtual and it was wonderful, because it was attended by about 200 docs.

And so -- and that's the same thing with the trade shows that we're seeing is there a hybrid thing of in-person and virtual. And so I think that this year, you will start to see a lot more of that.

And I think that as obviously we start attending more of those things and traveling more of those things, Tara, you'll start to see more of an increase in our expenses as we go-forward through the rest of the year..

Got it. And then maybe just a follow-up on that, it sounds like you've launched a couple of new marketing campaigns.

Would it be safe to assume that Q3 early Q4, you received the dermal resurfacing approval, would it be safe to assume that you would add some sales resources, some headcount to the sales team to really drive growth in that market after the approval. Thank you..

Yes, a good question. So for the dermal resurfacing study, we -- as I mentioned earlier, we continue to target our 510(k) by the end of this month. We anticipate at least 90 days from -- decision from the FDA. Our guidance in 2021 does not include contributions from sales for dermal resurfacing.

We do plan on getting the salesforce together in August to plan and prepare for a potential limited launch during Q4. But we really wouldn't expect any material contributions from a revenue perspective until our full commercial launch in 2022. And we're comfortable with the size of the sales organization that we have right now..

Our next question is from the line of Matt O'Brien with Piper Sandler..

Hi, this is Korinne on for Matt. Thanks for taking the questions and congrats on the quarter. So first just looking at your guidance with the no change to OEM guide, despite the segment doing a little bit better in Q1 than we had anticipated. Can you just speak to some of the trends you've seen with that business and why U.S.

got unchanged?.

Yes. Well, I -- thank you for the question. For the OEM, we had -- it's right in what our guidance was for the first quarter. So the first quarter results that we had of $1 million are -- right, what we basically had expected and where we thought the business would be after Q1.

And our guidance for 2021 assumes a 20% decrease in revenue, which is approximately $4.4 million and we did the $1 million in Q1. So for us, it was right on what we expected and that's why there was no change in the OEM revenue. And when you asked why, it is down this year.

Remember, we've always talked about the OEM business being about a $5 million business. It did $5.5 million last year. We're forecasting it to do $4.4 million this year.

But it is really driven by demand trends from COVID, because remember these are sold to our partner, customers that primarily sell these in hospitals and the hospital environment has been impacted globally by COVID more than obviously our market here in the aesthetic space..

Great. Thank you. That's helpful. And then just on the gross margin front, how should we think about the ramp throughout the year to get up from where we are now to that 69% to 71% range? Should it be like a pretty good sequential improvement or will it be a little bit lumpy? Any color on that would be helpful..

Yes. So if you remember for the gross margins, it was primarily driven by our segment and by our product mix and the product mix specifically on the APR handpiece. And we rolled out the APR last year in the United States, and we're seeing obviously adoption of that in the U.S. and we just started to do that outside the United States.

And so outside the United States, we would expect that has -- obviously we'll have more APR sold in the last quarter of the year, outside the United States than we will in the first quarter of the year. And so that that ramp will help drive the gross margin sequentially on a quarter-by-quarter basis..

Thank you. . Our next question is coming from the line of Russell Cleveland with RENN Capital. Please proceed with your question, sir..

Hi gang, thanks so much for the great numbers. A couple of quick questions. First on the international scale there's a lot of places that we're not, for example, like Argentina and so forth.

Can you comment on your international growth, how we're looking at the world and these places that we're not now?.

So Russell, as you know our OS -- our OUS regulatory strategy has been something that we've been focused on and obviously, we're working on as fast as we can, especially given the COVID environment in a lot of these countries, and a lot of -- some countries are more hampered by COVID than others as far as their ministries of health of allowing these things.

But we never do comment on the timing of it, because we're not in control of the timing of it, but we are very encouraged that we were able to get three new registrations this quarter, which is a testament to the team and the work that they're doing. And then the strong growth that we had internationally of a 120% is obviously real exciting.

And this is a multi-year strategy for us also to really keep adding to new countries. And our guidance really only assumes growth for -- from existing countries. And we're not baking a lot of growth into when we get these new registrations, because we just aren't in control of that..

Okay. My second question, it's, are FDA on the dermal resurfacing, which I -- which we call facelift.

Now that's being done, currently we just don't have the regulatory approval, but that's being performed as we speak with our technology, is that correct?.

Yes. It is an off-label procedure. We cannot promote it and we do not promote it. So it is being done. You're correct, because the clinician can decide to use the technology any way that they want to. But there are a lot of clinicians that will not use a technology off-label.

They wait for the company to actually get an indication for that before they actually use it. So yes, it is being done, but it is being done off-label. And it is something that we as an organization do not promote or actually commercialize in the marketplace today..

So -- and you spoke about this earlier and indicated that really, it would be a fourth quarter or going into next year before we would really get the completion of the study, hopefully approvals and launch our marketing campaign in that; is that where we are?.

Yes. So we are on track to submit our 510(k) by the end of this month. It is at least a 90-day process after that for the dermal resurfacing. And then we plan to get it the salesforce together towards the end of August to start planning for a soft launch.

We always do a soft launch when we launch a certain product that will be in the fourth quarter and then you would expect then to have material revenue from that in 2022..

Great. Thanks again for the numbers. That ends my questions..

All right. Thanks, Russ..

Thank you. We currently are showing no remaining questions at this time. And that does conclude our conference for today. Thank you for your participation..

Thank you..