Good afternoon, ladies and gentlemen, and welcome to the Third Quarter of Fiscal Year 2021 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 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, Apex Medical's President and Chief Executive Officer.

Please go ahead, sir..

Thanks, Hector. Good afternoon, everyone, and welcome to our third quarter earnings call. Joining me on the call this afternoon is our Chief Financial Officer, Tara Semb. Turning to a quick agenda of what we intend to cover today.

I'll begin with a review of our third quarter revenue results and the key drivers that contributed to the strong performance we saw. I'll then provide an update of our third quarter operational progress with respect to the 4 strategic initiatives we are pursuing to enhance our long-term growth in the cosmetic surgery market.

Tara will discuss our third quarter financial results in detail and review our financial guidance for 2021, which we updated in our earnings press release this afternoon. Then I will share some additional closing thoughts on our outlook before we open the call for questions. With this agenda in mind, let's start with a review of our revenue results.

In the third quarter, we delivered $11.8 million in total revenue, representing 70% growth year-over-year. Our U.S. revenue increased 52% year-over-year to $7.9 million, and international revenue increased 125% year-over-year to $3.9 million.

By segment, our total revenue growth was almost exclusively driven by sales of our Advanced Energy products, which increased 88% year-over-year to $10.3 million, while sales in our OEM business increased 3% year-over-year to $1.5 million. Looking at the results in our Advanced Energy segment.

Our Advanced Energy sales growth exceeded our expectations for the quarter, driven primarily by strong growth in global sales of our handpieces, along with demand for our generators in the U.S. Global sales of our handpieces increased more than 100% year-over-year.

We were pleased to see that this growth was diversified with strong contributions from sales to both our U.S. customers and international distributors, reflecting strong utilization-based demand for our global customer base.

The greater than 100% increase in global handpiece sales in Q3 was especially notable given the emergence of the Delta variant during the third quarter and the return of the typical seasonality that we experience each year as surgeons tend to take vacations in the latter months of summer.

Global sales of generators increased more than 70% year-over-year, driven primarily by strong demand for our Renuvion generators from new customers in the U.S. cosmetic surgery market. The process of engaging with potential new customers in the U.S.

has continued to improve since the onset of the pandemic, due in part to our virtual engagement efforts and the resumption of industry trade shows. As a result, in the third quarter, we saw double-digit growth in U.S. generator sales on a quarter-over-quarter basis.

Internationally, while we experienced growth in generator sales on both a year-over-year and quarter-over-quarter basis, our performance was relatively more modest in comparison to the U.S. as the global capital equipment purchasing environment continued to be affected by COVID-19.

Our international generator sales growth was driven largely by sales to distributors in key geographies, including Brazil and Taiwan. In summary, we were very proud to deliver another quarter of stronger-than-anticipated sales performance in our Advanced Energy business, driven largely by growth in our global handpiece and U.S.

generator sales, reflecting solid utilization and adoption trends of our Helium Plasma Technology. We were also pleased to complement our sales performance with 13% year-over-year improvements in both our net loss attributable to stockholders and our adjusted EBITDA loss. Moving to third quarter operating highlights.

We continue to drive progress with respect to our 4 strategic initiatives intended to position Apyx Medical for sustainable long-term growth in the cosmetic surgery market. Let me take a minute to update you on each of them, beginning with our regulatory strategy in the U.S. and internationally.

In the U.S., we remain focused on obtaining specific clinical indications for our targeted cosmetic surgery procedures, specifically dermal resurfacing and the treatment of skin laxity.

Beginning with our pursuit of an indication for dermal resurfacing procedures, following the submission of our 510(k) premarket notification to the FDA on May 28, we have continued to engage with the agency to facilitate their review of our application.

With respect to our pursuit of an indication for skin laxity procedures, in early August, we completed patient enrollment in the second phase of our IDE study, evaluating the use of Renuvion in skin laxity procedures in the neck and submental region.

We continue to anticipate submitting our 510(k) premarket notification to the FDA for this indication in the second quarter of 2022. Outside of the U.S., we continued our efforts to obtain registrations for our Advanced Energy products, enabling us to commercialize new countries in the future.

Our steady pace of progress on this front in recent years positions us well to facilitate the global adoption of our Helium Plasma Technology over a multiyear period. Moving to our second strategic initiative, expanding the portfolio of clinical evidence for our Renuvion technology in the cosmetic surgery market.

During the quarter, we saw a notable independent peer-reviewed clinical publication during the third quarter. The article was published in the American Journal of Cosmetic Surgery in July, and discussed the results of a 5-subject retrospective study.

All 5 subjects received liposuction in one arm and liposuction combined with Renuvion on the other arm.

The evaluators were blinded to which arm received liposuction combined with Renuvion, and the results from each arm were compared in order to evaluate Renuvion's efficacy in managing skin laxity when used in combination with liposuction compared to liposuction alone.

The researchers found that 6 months post-procedure, 4 of the 5 subjects demonstrated significant improvement in contour and laxity in the arm that received liposuction combined with Renuvion.

With respect to our third strategic initiative, enhancing physician and practice support for our cosmetic surgery customers, working with several of our top surgeon users, our team continued to develop, organize and host physician mentor programs, or PMPs, providing our new and existing surgeon customers with opportunities to learn how to use and market Renuvion directly from their peers.

We hosted 3 PMP events during the quarter, which were attended by over 130 clinicians that participated either virtually or in-person. Our team hosted 2 virtual training sessions for our newer international distributors in order to improve their ability to educate and support the surgeon customers in their local markets.

In addition to these efforts, we participated in 8 in-person industry conferences and trade shows.

While attendance at these in-person events was roughly 50% to 75% below pre-COVID levels, we have been pleased to resume hosting in-person podium presentations and other educational events, enabling us to engage and educate potential new surgeon customers.

We also continued to expand the educational and marketing materials available on our existing surgeons customers via our online portal.

Lastly, regarding our fourth and final strategic initiative to improve our manufacturing capabilities and efficiencies, we continued to facilitate the commercial introduction of our APR handpiece, the first product to benefit from our manufacturing team's effort to reduce the per unit manufacturing cost of our Advanced Energy handpieces.

Our team remains focused on bringing this product to our international customer base by securing the requisite product registrations in each country where our OUS distributors operate. We began this multiyear effort in 2021 and expect it will drive material improvements in our handpiece gross margins over time.

And lastly, we made progress in expanding and improving our handpiece production capabilities in both our Bulgaria and Clearwater facilities. Most notably, we began manufacturing handpieces at our Bulgarian facility during the third quarter, and we believe this facility will allow us to nearly double our existing handpiece manufacturing capacity.

By continuing to advance these 4 strategic initiatives, we are laying the groundwork for our future success. Tara will now review the third quarter financial results and updated 2021 guidance.

Tara?.

U.S. growth is only driven by contributions from Renuvion sales related to its use as a subdermal coagulator following liposuction procedures; and international growth is driven primarily by demand in existing international markets.

Our updated total revenue guidance range also assumes an OEM revenue decline of approximately 9% year-over-year compared to our prior guidance, which assumed a decline of approximately 16% year-over-year.

In terms of profitability guidance for fiscal year 2021, we now expect net loss attributable to stockholders in the range of $17.8 million to $17.2 million. This compares to our prior guidance range of $19.3 million to $18 million. And we expect adjusted EBITDA loss in the range of $11.6 million to $10.7 million.

This compares to our prior guidance range of $13.1 million to $11.5 million. Our formal financial guidance for 2021 continues to incorporate the following considerations for modeling purposes. First, we assume our total company revenue growth for the full year 2021 period will be driven exclusively by our Advanced Energy business.

We expect strong Advanced Energy growth, both in the U.S. and internationally, and the midpoint of our Advanced Energy guidance now assumes 80% growth year-over-year in sales to U.S. customers and 70% growth in sales to international customers in 2021.

Second, we now expect gross margins of approximately 68% this year, compared to 63.2% last year, driven primarily by continued mix benefits by segment, by geography and by product. Third, we continue to expect GAAP operating expense to increase approximately 25% year-over-year, driven by 9% growth in our normalized operating expenses.

Fourth, we expect net interest and other expense of approximately $430,000 in 2021 compared to a benefit of approximately $700,000 last year. Fifth, we expect income tax expense of approximately $350,000 compared to an income tax benefit of $7.5 million last year, which was driven by a net operating loss carryback tax benefit from the 2020 CARES Act.

And lastly, we expect noncash depreciation and amortization of approximately $800,000 to $900,000, noncash stock-based compensation expense in a range of approximately $5.1 million to $5.2 million, noncontrolling interest of $50,000 and weighted average diluted shares outstanding of approximately 34 million to 35 million shares.

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

Thanks, Tara. In Q3, we were pleased to deliver another quarter of performance that exceeded our expectations, driven largely by the impressive execution across our entire team and overall improving environment globally, particularly in handpiece demand, and an improving capital equipment environment in the U.S.

As we look ahead to the remainder of 2021, we expect to see continued strength in both global handpiece sales and U.S. generator sales. Our updated 2021 revenue guidance range incorporates the better-than-expected performance in Q3 as well as an updated growth expectation for Q4. We have increased our expectations for handpiece demand from both U.S.

and OUS customers and have increased growth expectations for generator demand from U.S. customers based on the continued recovery in the U.S. capital equipment market.

Our guidance continues to reflect that the OUS capital equipment environment remains relatively more challenging and, thus, our Q4 growth expectations are unchanged versus prior guidance.

Building on our recent momentum, we look forward to bringing 2021 to a strong conclusion as we increase global awareness, adoption and utilization of our Helium Plasma Technology. By executing our growth strategy and leveraging our solid balance sheet, we aim to expand our share of the multibillion-dollar global cosmetic surgery market.

Ultimately, we believe we have the team, the technology and the strategic focus to emerge as the most disruptive cosmetic surgery company over time. We remain dedicated to achieving this goal and look forward to updating you on our future progress.

I'd like to conclude my remarks today by thanking everyone at Apyx Medical for their efforts in the recent months, which made our success this past quarter possible. I'd also like to thank our customers, distributors and investors for their support. With that, operator, let's now open the call for questions..

[Operator Instructions]. And our first question comes from Dave Turkaly with JMP Securities..

Charlie, I wouldn't normally ask you a question sort of about how the quarter progressed, but hear me out here. A lot of your competitors have talked about, having challenges maybe early on, July, August because of Delta, and then coming out better. Or the exact opposite, challenges more towards the end of the quarter and then coming back in October.

It doesn't look like you saw anything, but I just want to ask you.

As the quarter progressed, I mean, were you this strong across the board? And were there really, I guess, essentially no impact that you saw from Delta?.

Well, so our Q3 performance reflects an improving environment, specifically in the United States, but particularly in handpiece demand globally and improving capital equipment in the U.S.

We saw globally strong utilization-based demand for our handpieces, and our customers are reporting no shortage of demand from the patient side requesting these procedures. U.S. generator sales were up double digits quarter-over-quarter in Q3, and it actually became easier for us to engage with potential new U.S.

customers as industry trade show events were back open again. And outside the United States, the environment varied by country to country. But overall, we still did see strong growth in our OUS handpieces. And capital outside the United States, it remains impacted by COVID in various regions.

However, even outside the United States, we still delivered year-over-year and quarter-over-quarter growth in our generator sales in Q3. So yes, we had a very good and a very strong quarter..

And I guess, the uptick in your 4Q guidance indicates you don't see it slowing down, but I guess, I'd just love to get your thoughts on early on in the pandemic, we said, hey, maybe people are home, and they're going to get a procedure done and while they had the time off.

And now that people are coming back, it still doesn't seem to have slowed anything down.

So I mean, do you think it's the cosmetic market overall, or are you guys just executing really well on those initiatives?.

Yes. The thing that we really do see is demand for this technology and this procedure on a global basis. And so customers are coming in and wanting this. And obviously, our clinicians are performing this at a high level. And so we're very excited about the quarter that we just had and the fourth quarter that we're going into.

But I don't know if it's just the market or our technology or a combination of both, but we're very happy with the situation that we're in..

Our next question comes from the line of Matthew O'Brien with Piper Sandler..

So help me reconcile a little bit your commentary on international. Just as I looked at the performance here, it's really strong again. With the capital commentary, which sounds like things are a little bit lumpy. I know the handpiece growth has been phenomenal.

But what I'm really trying to get at, Charlie, is that this business has been growing very quickly over the last several years. I know it's still smaller than your overall domestic franchise.

But can those two -- the delta between those two continue to narrow in terms of how big the international business is? And then, kind of dovetailing off of that, with the generator growth you've seen in Q2, which I know had an easy comp, but also here in Q3, domestically, how do we think about the growth of -- the translation of handpiece growth domestically based on the generator growth we've seen as we head into '22?.

So if you look at our total guidance that we gave, we increased by $3.4 million on the low end and $2.4 million on the high end. And that was driven by better-than-anticipated growth in Q3, and then we updated our expectations for Q4. And the reason for that is that we see increased demand, both in the U.S.

and the OUS for handpieces for the procedure volume. And we would expect that to keep strong, obviously, both in the United States and outside the United States. We increased our growth expectations for generator demand in the U.S., and the OUS capital equipment remained unchanged.

And our guidance there is -- just reflects cautious optimism because there's still parts of the other parts of the world that are being affected by COVID more. Our growth, though, outside the United States for generators was still up year-over-year and quarter-over-quarter. It just wasn't as much as the United States.

So we still did see growth outside the United States, but just not to the level that we're seeing in the United States..

Okay. Okay. I'll leave it there. Although I do think your international business versus Q3 of '19 has essentially doubled so -- versus what we've seen domestically. So that's why I'm kind of wondering about the growth trajectory there. But moving over to dermal resurfacing. I know you submitted in May.

I'm just curious, I didn't really get a full update or hear a full update as far as where you're at with the agency, outside of chatting with them.

Is there a reset on the clock, or should we still expect approval here fairly soon?.

Yes. Unfortunately, we're engaging with the FDA, and we're working with them. But as far as predicting when that is going to be, your guess is as good as mine. We told you that we would -- when we submitted it. And we'll tell you, obviously, when we get it. But opposed to that, it's tough to predict when it will actually happen.

So all I can tell you right now is that we're still engaging with them to facilitate the application. And as soon as we know, you guys will know..

And sorry, just to follow up there a little bit.

Charlie, have they asked some more information? Is there anything that's kind of deviating from normal course here?.

Well, it's always an interactive process, and they always ask for various levels of information. And so we're just still working through that process with them..

Our next question comes from the line of Kyle Bauser with Colliers Securities..

Charlie and Tara, great results here, and thanks for all the updates. So clearly, we're already seeing some incredible growth with subdermal coagulation -- or continued growth.

Once you're able to market direct to consumers for skin laxity, what sort of addressable market do you think that opens up? In other words, you're already seeing really nice adoption with subdermal coagulation.

How do you quantify kind of the incremental opportunity with direct-to-consumer?.

Yes. No, that's a great question, Kyle. Thank you. Yes, look, we can continue to keep growing this business the way that we're doing it now. But we believe that once we can start talking directly to the consumer about skin laxity and what Renuvion can do for them, that, that is going to dramatically open the market.

Remember, right now, when we talk about the market opportunity, we're talking on the back of the 400,000 liposuction procedures that are done in the United States. But when we're able to market directly to the consumers, we think that we can take some customers away from other therapies, like CoolSculpting.

We think we can take customers away that would potentially want a tummy tuck. And we think the market, probably conservatively just in the United States, more than doubles of what it is right now. And quite honestly, it could even be bigger than that. And then, obviously, outside the United States, the market is bigger than inside the United States.

And so the TAM becomes really big, really fast when we can -- when we believe when we can start to tell the consumers directly the benefits of Renuvion technology for skin laxity..

Got it. That's helpful.

And then what's the latest number of field-based reps and sales managers and independent sales agencies? And then how do you envision these numbers changing, if at all, once you do obtain that skin laxity indication?.

Yes. So we've held steady with about 40 feet on the street. That's about where we are. We haven't had any changes with that. But I think that when we would get the skin laxity indication, we would probably take -- we would probably add a few reps at that point in time.

We definitely wouldn't go from 40 to 80, but we could find ourselves going from 40 to 50 to 55, somewhere in that range. But definitely, would wait until that indication -- or be there when that indication is here, for sure..

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

aybe the first one for me, since it prompted me here in one of the prior questions. Have you seen any change in demand given some of the headlines regarding CoolSculpting? I think there's been some press regarding some issues that they've been having with customers. And I'm just curious if that's resulted in any incremental demand for Renuvion..

Yes, that is really hard to tell at this point in time. I don't know. In the U.S., we just have really strong demand being reported from our customers that patients are asking for this procedure.

So we know that we've got strong patient demand, and I don't know if that's driving it or if it's just because people are finding out what Renuvion can do for them..

Got it.

And then, I guess, as a follow-up, given the opportunity and the facility opened up in Bulgaria, should we expect any impact on gross margins, maybe as we get into '22 and beyond just from having that facility open up in manufacturing?.

Yes. That will definitely help gross margins as we move forward. It's a multiyear progression that we will have there. But remember, Bulgaria is primarily going to be serving the European and Middle Eastern markets. And it is part of our manufacturing strategy for sure..

[Operator Instructions]. Our next question comes from the line of Russell Cleveland with RENN Capital..

It was a sensational quarter. My question, part of it was answered earlier about the FDA and the dermal resurfacing, the -- I call it the face lift.

Give me some indication, how big do you think the market is in the United States for the facelift, and how big is it overseas? And again, we're trying to figure out why it's taking so long to clear the FDA. But if you could comment on those questions..

Yes. So remember that the big part of our business is the skin laxity portion of the business, and that's the business that we're currently driving now. The dermal resurfacing would be an indication that we would be selling for the very first time. It is being used off-label by clinicians today, but we are not promoting that as a company.

And it is fully ablative technology. And so there's roughly only about 200,000 procedures in the United States that would be available for the patients that would want that type of therapy. And the reason is, is that the recovery time is long, but the results are really good. So that's the market there in the United States.

Outside the United States, it's probably about the same size. Again, a lot of the market has moved to the fractional portion where there's less downtime, and we've talked about that many times. As far as the length of time that it's taking to get this with the FDA. I wish I could control that, but that is outside of my control.

And like I mentioned, we will obviously update everybody as soon as we hear from them..

Ladies and gentlemen, we are currently showing no remaining questions at this time. That does conclude our conference for today. Thank you all for your participation..