Good morning and welcome to the Bovie Medical Corporation Fourth Quarter and Full-Year 2014 Earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Hosting today’s call will be Robert Gershon, Chief Executive Officer of Bovie Medical Corporation. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. Before we begin, I would like to make the following Safe Harbor statement. Today’s call will relate to Bovie’s fourth quarter and full-year 2014 earnings results and will contain forward-looking statements regarding predictions about future events. Forward-looking information is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. The company assumes no obligation to update or supplement any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I would like to turn the call over to Mr. Robert Gershon. Please go ahead.

Okay, thank you Emily, and good morning everyone. Thank you for participating in today’s call to review our fourth quarter and full-year 2014 performance and discuss our plans for 2015. Joining me today are Peter Donato, our Chief Financial Officer, and Jack McCarthy, our Chief Commercialization Officer. Last year at this time, we characterized 2014 as our investment year for J-Plasma and a period in which we would take action to build revenue growth in Bovie’s core business. I speak of all of my colleagues at Bovie Medical in saying that we are pleased to have delivered on that promise, as evidenced by strong J-Plasma sales momentum we have experienced in January and February of this year and the positive comparisons in our core business that we have reported on throughout 2014. We are confident that we have made the transition from an investment year in 2014 to an execution year in 2015. In terms of our overall business, the fourth quarter was another period of solid achievement. Revenues for the fourth quarter increased by 22% compared to last year, led by our traditional product lines: generators, electrodes, and medical lighting, where Bovie’s brand recognition and reputation are important differentiators. J-Plasma sales were $73,000, which was almost seven times higher than the similar period last year, and I’m pleased to report that every single hospital value analysis committee, or VAC, that has reviewed J-Plasma to date has approved it, and that number stands at 31. At the end of the fourth quarter, we had 18 ordering accounts. It is important to understand our definition of an ordering account. An account will perform a clinical evaluation of the product using the product in live surgeries. They will then have product approved through their VAC committee, place an initial stocking order. At…

Thank you, Rob. I’m going to take you through the fourth quarter in some more detail. We posted a robust 22% increase in net revenue compared with a year ago. Our core business saw an increase of nearly 20% and over $1 million, with growth coming across most of our major product lines. OEM sales nearly doubled to almost $600,000 while J-Plasma contributed $73,000, up from only $11,000 in the fourth quarter of last year. As Rob mentioned, so far in the first quarter of 2015, we are pleased to report that we are off to a good start, already sequentially higher than the entire fourth quarter of 2014. Our GAAP gross margin for the quarter was 32.7%. It was negatively impacted by charges totaling $450,000 that were primarily related to the write-down of excess inventory, adjustments from our annual physical inventory observations, and other adjustments. Excluding the charges, gross margin was 38.7%, down from 41.9% a year earlier. The margin decline was primarily due to mix. Turning to operating expenses, R&D for the quarter increased almost 24% versus last year’s fourth quarter at $398,000 compared with $321,000, as the R&D team has grown from a year ago as we continue to develop our J-Plasma product line and realize the value of our innovative R&D pipeline. Professional services fees were down $158,000 versus last year when the company had high legal costs associated with disputes that are now behind us. SG&A increased 45% or $551,000 to $1.8 million from $1.2 million last year. Ongoing and accelerated commercialization efforts for J-Plasma and growth initiatives in our core and OEM businesses were responsible for the majority of the increase and included: J-Plasma specific marketing expenses, travel and training costs associated with the new and growing J-Plasma salesforce, commissions, and increased selling expenses…

Thank you, Peter. The progress we have made in 2014 has enabled us to enter 2015 in full execution mode. We are very pleased with the high level of J-Plasma sales activities, especially the VAC approvals that have led to sales that we have closed and shipped in the first two months of 2015. J-Plasma is currently being used in hospitals, surgery centers, and office-based procedure rooms in nine states across the country. Selling capital equipment with disposables is a complex process, and we have succeeded in attracting top notch, experienced sales professionals who are targeting the right accounts. The diversified customer base that we are developing gives us confidence that our sales professionals are well equipped to continue to effectively differentiate the J-Plasma product in our target markets. We have set several ambitious objectives for 2015 based on metrics that will drive accelerated adoption of J-Plasma. They include expanding our direct sales force as appropriate, increasing the number of ordering accounts to 125, up from 18 at the end of 2014. Keep in mind that J-Plasma has already been approved by 31 VAC committees and are in various stages of evaluation at another 34, so we expect to be close to halfway to our 125 account objective by the end of the second quarter. Increasing the number of surgeons using J-Plasma to 250 - that’s two surgeons per account, in line with what we have experienced in 2014. Adding five more independent published white papers, bringing the total to 10, and gaining five to 10 new key opinion leaders who can be advocates for the product. Today, we have five. Again, based on the foundation we laid in 2014 and the successes we have had to date, our plans call for a progressive increase in J-Plasma sales in each quarter of 2015. We look forward to sharing the specifics of the progress we have made in the first quarter when we report our results in May. At the same time, we see significant opportunities to build our core business at a strong sustainable pace by adding new products that are complementary to our existing lines, leveraging our OEM relationships to add business that includes the higher margin design work, along with the development and manufacturing, and making the pricing adjustments to reflect the value of Bovie’s contribution. Expanding internationally, where we are engaged in increasing our revenues with existing distributors and adding new ones, and using R&D as a platform to maintain Bovie’s reputation for market leadership and unlock the value of our product and patent portfolio. In summary, we have entered 2015 with positive momentum, and we are expecting substantial progress in the periods ahead. Emily, at this time, we would like to now open the call to questions.

[Operator instructions] Our first question is from Dave Turkaly of JMP Securities. Please go ahead.

Thanks, and thanks for all the detail on the accounts. I was just wondering, of the 18 ordering, the 34 under review and the 31 that have approved J-Plasma, do you have a sense of the surgeon base? I mean, is this primarily gynecologists, or any breakout of sort of those three core markets you’re targeting for those numbers?

Sure, Dave. Thanks for your question. I’m going to turn it over to Jack to add some color commentary, but in general I’ll indicate that our primary focus is in the acute care setting with the GYNs. But with that, I’ll ask Jack to add some color to it.

Yeah Dave, that’s correct. Rob is correct on that. The primary focus this year is GYNs, and that’s where most of the mix is, followed by plastics and dermatology. The GYNs are certainly the focus as that is the target of procedures that we are pursuing at this time.

Great. I was just wondering if you have a number for this, but do you have an idea of how many gynecological surgeons there are in the U.S., and I guess just from a procedural base, do we know how many on average surgeries these guys can perform in a year, just a given surgeon?

Sure, so I’ll give some broad statements. I don’t have in front of me - and Jack, if you have it, certainly chime in - but I don’t have in front of me the number of GYN surgeons. We do have it, I just don’t have it in front of me. But certainly what we do is target specific procedures, so I’ll give you an example. The number one targeted procedure for us is endometriosis, and in the United States alone there are some 600,000 cases that are being done. But Jack, you might want to comment on just kind of general caseload for the GYN surgeon.

Yeah, the GYN surgeons typically operate a couple times a week, and depending on volume it’s anywhere from three to six cases per day.

Okay, that’s helpful. I guess also with your expanding salesforce, I was curious, do you have at this point--I know you’re still kind of early in the process here, but sort of a target or a--I don’t want to say quota, but a range that you think an experience rep whose been trained, maybe, 12 months in the field, what they could be contributing sort of in an annual business to you guys?

Yeah, so we do think about what--once a rep is up and running--are you asking kind of size of territory? I think that’s what you’re asking.

Yeah, that’s right. I can imagine some of these guys might be able to do--I don’t know if a million might be high, but just generally what you do think a territory or rep should do once they’re fully productive in annual business, if you have an estimate.

Yeah, it’s reasonable to expect over time when a rep is fully up and running and fully trained, everything is going, so the time horizon for that is fluid, of course, but the territories and size could vary depending upon the territory anywhere from 5 to 750. It probably wouldn’t max--go beyond 750, but that’s a fair assumption over time.

Excellent. Thanks a lot.

Our next question is from Charles Haff of Craig Hallum. Please go ahead.

Hi, thanks for taking my questions. The U.S. gynecological market is obviously very large, over a billion dollars, but I’m wondering what your plans are for international distribution. You mentioned a little bit of commentary in the call, but just was wondering if you could give a little more detail there. Thank you.

Sure. Thanks, Charles, for your question. Our focus in the early stages of commercialization, without question, is U.S. as a priority. Having said that, we’re very pleased with the recent CE mark that we’ve received for all of our hand pieces and the Bovie Ultimate generator. With that, we are getting organized in OUS and outside U.S. launch, and that’s going to happen in time. So make no mistake about it - the U.S. is the priority, but we have spent time getting organized by meeting with distributors during Medica - I think I commented on this in the last call, during Medica back in November we met with some distributors and potential distributor partners in Dusseldorf for the European area, and then more recently in January we attended Arab Health and began meeting with distributors in the Middle East. So getting organized, it’s a priority for the future, but our main focus is on the U.S. first.

Okay, and in regards to western Europe, are there existing reimbursement codes that you feel that you can use, or do you need to apply for unique reimbursement codes in these western European countries?

I don’t know, Peter, if you have a view on that?

Yeah Charles, we believe that we do, but we are in the early innings. As it’s set up here, the existing codes were already in place. There was some tweaking and some ways that made it more lucrative or more acceptable to the doctors. We’re under that assumption in Europe, but as Rob indicated, the discussions were very preliminary and we’re just laying the groundwork in 2015 for some international markets, select international or targeted markets.

Okay, great. Then another question for you, Peter, on the details of the write-down of the deferred tax asset. I’m wondering if you can kind of explain that a little bit more and the reason why you guys took the write-down there. Thank you.

Absolutely, good question. It’s a complicated area. The standard that we apply, Charles, when we look at an asset by definition means it has future value, and when it relates to tax assets that are on the books, the standards are more likely than not. As a general rule, when a company is in an operating loss position, the auditors and others, including management, take a harder look at your ability to use the loss in the near term. The near term is you take a backward look two or three years and see what your operating losses look like, and then you look at what your book income is going to look like in the next year or two. Given the fact the company has reported losses for three consecutive years and we’re likely in a loss position in 2015, that was the differentiating factor this quarter. We really didn’t know that, Charles, until we really saw how the spending was going to take off for 2014 for J-Plasma. It became apparent that we had losses and that, coupled with the historic losses and the peek ahead to 2015, led management to take the charge now. Now, obviously that’s an ongoing analysis and you have the ability to take all or part of that valuation allowance back when there’s positive evidence that you’re more likely than not going to use the asset.

Okay, thank you. Then Jack, a question for you on upcoming medical meetings. Are there any important medical meetings that are coming up that you think will help your efforts to get the word out on J-Plasma?

Yeah, the two big meetings for us, especially within GYN, is SLS and AAGL, which will happen in the back half of the year for us.

Okay, and any more symposiums? I know you’re doing a lot of physician training, but any other smaller venues that might help out?

We evaluate local symposiums and conferences as they become available, and based on where our reps are and if one of our KLs [ph] may be speaking, we would then target one of those conferences.

Okay, great. Thanks guys. Nice quarter.

Our next question is from Russell Cleveland of Renn Cap. Please go ahead.

Thanks so much, fellows, for the numbers and the progress on J-Plasma. I’ve got two questions. One is about the number surgeons using the product, and then I’ve got a question for you, Peter. But you said 125 accounts is our goal this year, and that would equate to approximately 250 surgeons. Is that right?

Yes. For your second question, yes. You can think of accounts as two surgeons per account, so the 125, we expect to have 250.

My question to follow up on that, it seems like some of these big hospitals would have a lot more than two surgeons, so the number of surgeons could go up considerably from this. I don’t know our target in number of surgeons, but it seemed like a thousand or two in the next couple of years is possible, but because of these big chains where they have so many surgeons working. What’s the thought there?

Certainly the numbers can grow quite significantly, and we’re very pleased with where we’re at right now with respect to progress and surgeon adoption. Getting a product through the VAC process is not easy, and we’re thrilled that at this early stage, we’re batting a thousand, so we’ve been able to successfully get the product committed at every single--or approved by every VAC that it’s been presented to. What’s behind that are the surgeons that are championing it, and you’re right - that number can change quite drastically. It’s simply too early to predict what those hard numbers are, so we’re speaking really to our experience in the early innings.

Great. A question for Peter - Peter, our GAAP accounting on the balance sheet with all these warrants and so forth is extremely confusing, and kind of overshadows the real progress we’re making. So the question is, can we get past these unusual write-offs and various things on the balance sheet that we have seen, and are we making progress there?

Yes, so you and I started talking about this over the summer, Russell - this is Peter. We are making progress. With respect to the operating adjustments, those are frustrating, right? You’re inheriting an operation that’s now under a different rigor. Clearly $2 million of inventory write-offs in a year, nobody is excited about that, but we putting controls in place to really, number one, reduce the amount of money tied up in inventory, right - that reduces your risk overall. But we have put a number of procedures in place to control it, and we don’t have any visibility to anything as we’re two months into 2015, and we feel a lot better about the progress there. With respect to the warrants, we are making a lot of progress. I know I’ve said it now two or three calls in a row, but each and every quarter the progress gets greater, and as I said back in November, it’s not a unilateral decision by the company, so we are in negotiations to clean that up and hopefully at some point we’ll bring you some good news. But rest assured, it remains a priority for the company and we’re working hard to resolve it.

Great, thanks so much and congratulations on the progress we’re making.

As a reminder, if you’d like to ask a question, please press star, then one. Our next question comes from Glen Rudiger [ph] of Trust Management. Please go ahead.

Hi Rob, nice quarter. My question is first to Peter. How much total loss carry-forward do we currently have? I know we talked about losses over the last three years, but there’s nothing that really defines what the total is that we’re carrying forward, and obviously we may have some more coming next year, so how long have we got and how much money do we get to write off before we start paying taxes?

Yes, so we’re a long way away from paying taxes - good question. The amount was $6 million. Essentially we wrote off the vast majority of that deferred tax asset. Now, we will likely add to it in 2015, and with that we’ll use the same valuation analysis that we just talked about and see when we have visibility to profitability to pay it. So short answer is we’ll add to that loss and take VAs likely against them moving forward. It was about $6 million historically, and then we will evaluate each quarter. Cash taxes aren’t in sight, but clearly--you know, I’ve been in this situation and I anticipate that we will be here--at some point we’re going to see profitability and we’re going to be prepared for lowering our effective tax rate through utilization of R&D tax credits, domestic manufacturing credits, and leveraging anything we can internationally to reduce the rate. So that’s on our radar screen, but no cash taxes in the foreseeable future.

Okay, that’s a good thing to have in your back pocket. The $5 million cash on the balance sheet, is that essentially what’s left from the $7 million infusion that we got last year?

Yes, that’s right. As we’ve indicated, the core is breakeven to slightly positive. We do a good job of updating everybody on the J-Plasma spend, so now we have a full complement of sales folks out in the field and hence the reduction from $7 million to $5 million over the course of the year.

Okay. The 20 million shares that we’re showing now, if we use that as a total number of shares, does that include the warrants and the options? I see there were quite a few options that were issued to new employees back in November and December. Does that $20 million pretty much cover everything, or is there more that has to be put into the total mix?

Yes, there’s more. The actual number is just under $18 million on a GAAP basis, and then you would add the options as they become vested, so the overhang is approximately $2 million or $2.5 million for option overhang - that includes the ones that you mentioned throughout the year, but those will vest over a four-year period, so that will gradually go up. So that will get you to the 20 million, but it does not include impact for 3.5 million preferred shares that could be converted at a later date, and some 5.7 million or so warrants. So on a GAAP basis, 18 million total overhang, which is a ways out there, would put you somewhere around 28 million.

Okay. I don’t expect you to confirm this, but I’d like you tell you if I’m way out of the ballpark if I’m looking for $32 million to $34 million in revenue for 2015. Is that at least in the ballpark of what you’re budgeting?

Yes, so at this point, we’re not prepared to give guidance, so we’re not providing guidance.

Understand. Kind of a spinoff of that, is anybody’s research department looking at publishing anything on you? I haven’t seen any published research from anybody, and I understand that a lot of people don’t like to take anybody with less than a $100 million market cap, but if the stock gets to $5, it’s there, and I’m just wondering if any people are coming around and looking at you right now from a research standpoint.

You know, certainly we continue to have conversations in the financial community and meeting with many institutions, just as part of our overall investor relations strategy. We’ll have to stay tuned.

Our next question is from Rodney Baber of Newport Coast Securities. Please go ahead.

Robert, good presentation. I appreciate a lot of good information, and I’ll have to listen to this call again to pick up all these numbers you’ve been giving us, but thanks for that. One thing that’s on my mind is the recruitment of new salespeople. How do you go get these people? Are you taking from other companies? What kind of compensation plan do you get to be able to do that? Are you hiring people that you’re going to train, and how difficult is that to be able to ramp this thing the way you’re hoping to do it, to be able to actually bring those people in? What do you think the success of that will be?

Great question, and building a sales organization is very difficult to do. When you’re in the fortunate position to have a technology that is truly transformational, it certainly makes the recruiting process a bit easier, and also having the seasoned medical device experienced team that we have put in place has also made it easier from a networking perspective and having an established track record to make Bovie Medical a very attractive organization to work for if you’re a sales professional. Arming a sales professional with this type of technology is something that many of them covet, especially those that it’s just in their DNA to sell cutting-edge technology. That has made our recruitment efforts that much easier. We have been very fortunate to attract people with the kind of pedigree that you would expect and hope for, as I mentioned in the prepared remarks, from very large organizations such as Covidien, Ethicon and Intuitive Surgical, and other smaller medical device companies that really focus on OR sales. So those efforts continue. Jack, I would invite you to chime in to share some of your perspective on our recruiting efforts.

Yes, Rob answered that real well in terms of the experienced reps we’re getting, and that will decrease the ramp because these reps will have the knowledge on how to really navigate a complex selling system, which the whole healthcare environment has turned into. So we are getting those types of reps; in fact, it’s not hard to recruit. We’re getting a lot of inbound interest because the reps we’re bringing in are so excited about this technology. You don’t get a chance in your career to sell a transformational technology like this, so this for reps is very attractive, and we are not having any issues at all in recruiting high talent people for the organization.

One other comment I’ll make, because I think it’s very important for the investment community to know that as we recruit these individuals, we do so responsibly. So we’re in an interesting position - there’s a lot more interest than positions that we’re hiring for at the moment, so not only were we able to ramp up rather quickly but we are building a nice bench of candidates that as we’re ready to expand, and we’ll do so very responsibly and appropriately, we’ll have a nice pool to choose from.

Terrific, good answer. Thanks for that. Second question is you’re spending X-amount of dollars on R&D. How much more needs to be spent on J-Plasma to get it where it needs to be, or will that always be a continuing development and money spent there? Second part of that question is you’re talking about bringing on other new products, which I loved hearing because it adds a dimension to your company - you’re not just J-Plasma at some point. But how much spending will you put into that? How significant could other new products be alongside of your core business and J-Plasma?

So I’ll start answering the question and I’m going to invite Peter to chime in as well. As far as the J-Plasma spend goes, it is important--you know, we’re at the beginning of J-Plasma, and we fully intend on launching additional product line extensions to J-Plasma in the form of additional disposable hand pieces, so that is part of our plan. So additional R&D spend will continue as appropriate. With respect to other products, I’ve stated it in previous calls - it is important when you build the world-class sales organization that we’re putting in place, we’re doing so to sell products beyond just J-Plasma, so we will be adding complementary products to their bag in due time. So that is also part of the plan, and as I alluded to in the prepared remarks, we are also adding additional products within the core business. That’s also important for continued sustainable growth throughout all of Bovie Medical.

Yes, and as you can see, our R&D spend has roughly been 4.5 to, call it 6% of sales. That trend will continue. The gross dollars year-over-year will increase. We’ve added some headcount, as I said in my prepared remarks, and the J-Plasma piece, as we said very publicly, represents about a third of the overall spend. As you can see by our fourth quarter trend, we’re not afraid to put the pedal on the gas a little bit if there’s an opportunity to move something along a little faster, so you’ll see a little bit of ebb and flow in that number, but as a general rule it will run just a little north of 5% of sales.

Great, thank you.

As a reminder, if you’d like to ask a question, please press star and then one. Our next question is a follow-up from Dave Turkaly of JMP Securities. Please go ahead.

Really quickly, and I apologize if I missed this, but your sales cycle, I just wanted to get an update there. And then as you’re bringing on these experienced reps, are they able to shorten that at all, or is that really just the hospital’s decision? Thanks.

Yes, I’ll comment in general, and then I’ll turn it over to Jack to add a little bit more color. The sales cycle is very much part of the industry standard. When you take a step back and you look at a capital piece of equipment sale with disposables, and it requires that you go through the process - that typically includes a clinical evaluation, the value analysis committee, and then processing a purchase order. So that sales cycle is systemic in the industry and for categories of product that fit in the same as J-Plasma. What I do believe shortens the sales cycle to a degree is the experience of the sales rep, who is very well versed on navigating this environment relative to someone who’s earlier in their career and is navigating this environment for the first time. It could certainly lengthen the sales process if you’re not overly familiar with it, and especially if you don’t have the relationships internally at the hospital to help move the process. In today’s environment, there are lots of checks and balances internally at a hospital that require more sign-offs than ever before, and if you have an experienced rep who has those relationships, they could move that process along. I don’t know, Jack, if there is any additional color you would like to add?

No, you said it well. We’re excited about being in 34 VACs right now. That’s a great story for us. We’ve got, like I said, 18 accounts already on board with another 13 approved, so we’re learning about the sales cycle but what we’ve experienced so far, we’re happy with.

Thank you.

This concludes our question and answer session. I’d like to turn the conference back over to Robert Gershon for any closing remarks.

Okay. Thank you very much, and thank you all for participating in today’s call. We look forward to keeping you up to date on our future developments at Bovie.