Good afternoon, ladies and gentlemen. And welcome to the Second Quarter of 2017 Earnings Conference Call for Bovie Medical Corporation. At this time, all participants have been placed in a listen-only mode. At the end of the Company's prepared remarks, we will conduct a question-and-answer session. Please note that this conference call is being recorded and 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 are 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. Rob Gershon, Bovie Medical's Chief Executive Officer. Please go ahead, sir.

Thanks Emily. Good evening, everyone. And welcome to our second quarter of 2017 earnings call. I am joined on the call this evening by our Chief Financial Offer, Jay Ewers, and our Chief Commercialization Officer, Jack McCarthy. Let me begin with a brief agenda for this evening's call. I'll start the call with a high level summary of our revenue results for the second quarter of 2017, along with the discussion of the items that contributed to the performance in each of our three business segments. Then I'll review our operational progress in the second quarter. After those remarks, I'll turn the call over to Jay for a more detail look at our Q2 financial results and review of our financial guidance for 2017, which we reaffirmed in our earnings release this afternoon. I will then share some closing remarks before opening the call for your questions. So now let's get started with an overview of our financial performance. For the second quarter of 2017, we reported total revenue of $9.8 million, representing 5.4% growth year-over-year. We are pleased to see that our Advanced Energy segment was the largest contributor to our total company revenue growth in the second quarter, increasing over $1 million or 137% year-over-year to $1.8 million in Q2. This represents our largest revenue quarter for Advanced Energy since commercialization efforts of J-Plasma began. Total company revenue growth also benefited from a $0.6 million or 9% increase in our Core segment in the second quarter. Unfortunately, the extremely positive growth performance we experienced in our Advanced Energy and Core segment this quarter was offset partially by a year-over-year decline in our OEM sale. Let me expand on the primary factors that contributed to our performance in each business segment during the quarter. Starting with our Advanced Energy…

Thanks Rob. Total revenue for second quarter 2017 increased $0.5 million or 5.4% year-over-year to $9.8 million, compared to $9.3 million in the second quarter of 2016. Total revenue growth was driven by a 136.7% increase in sales from our Advanced Energy segment and 8.8% increase in sales from our Core segment, which was offset partially by a 69.8% decrease in sales from our OEM segment. Second quarter sales by product line was driven by a 22.2% increase in sales of electrosurgical products, along with increase sales of cauteries and lighting products, which grew 8.9% and 18.5% respectively. This growth was offset partially by a decline is sales of other products which decreased 54.5% in a period. By product line, sales of electrosurgical, cauteries, lighting and other products represented 63%, 19%, 10% and 8% of total revenue respectively. Revenue in the United States increased $1million, or 12.3% year-over-year, to $8.7 million, and international revenue decreased $0.4 million, or 29.1% year-over-year, to $1.1 million. International sales represented approximately 11% of sales in the second quarter compared to approximately 17% of sales in the prior year period, driven by two significant tenders in our Core business segment which benefited our international revenue results in the second quarter of last year and did not recur in 2017. Gross profit increased $0.3 million, or 7.3% year-over-year, to $5 million, compared to $4.7 million for the second quarter of 2016. Gross margin increased approximately 90 basis points year-over-year to 51.5% for the second quarter of 2017, compared to 50.6% last year. The increase in gross margins was attributable to higher margins in our Advanced Energy segment, driven by higher volume and pricing mix and higher margins in our Core segment, which was due to improved product and pricing mix. The overall increase in margins was…

Thanks Jay. In light of our revenue performance during the second quarter, as well as the continued operational progress achieved by our team, we are reaffirming our guidance for the fiscal year. Looking ahead, our confidence in the growth of Advanced Energy business in 2017 is supported by the continued focus of our sales force on our two target market, plastic surgery and surgical oncology, as well as the contributions from our new product launches in the second half of 2017. We intend to build upon the commercial progress that we've seen this quarter by bringing our transformational J-Plasma technology into the hands of new surgeon users while supporting increased utilization within our installed base. We'll also continue to further enhance the long-term growth prospects of our Advanced Energy business by one, expanding our product portfolio with new applications and support for our existing products. And securing 510(k) clearances for new products. Two, growing our portfolio of clinical evidence. And three, pursuing new indications and new IP. Ultimately, we believe that our continued execution on this strategy in 2017 will generate strong returns for our shareholders over time. And we look forward to updating you on our continued progress throughout the year. So with that Emily we will now open the call for questions.

[Operator Instructions] And our first question will come from the line of Matt O'Brien with Piper Jaffray.

Good afternoon, thanks so much for taking my questions. Just sort of on advanced energy business which is really strong in the quarter. Rob or Jay whichever one, if you could talk a little bit about the bump that you got on the generator side versus what you saw in underlying utilization of these handheld which I know in one segment of the business was quite strong. I think that would be helpful.

Absolutely. Thanks Matt for your question. The bump on the generator side came very much from our focused on our two target segment, plastic surgery and surgical oncology but specifically the bump on the generator side came mostly from plastic surgery. Now with respect to utilization of handpiece sales, we had very strong increased utilization in handpiece sales from both the plastic surgery side and the surgical oncology side. And it was more heavily weighted on the surgical oncology side which is exactly what we expected.

Sorry about that just a little bit more clarification there. As far as the generator bump that you saw this quarter, was it several hundred thousand dollars I mean the utilization that you got-- utilization trend, if you can provide any kind of quantitative metrics as far as what you saw there specifically in plastic and surgical oncology that's really what I was getting after. And then I have a couple of follow ups.

Right. So to answer the first part of your question with respect to generator sales. I'll just reiterate one thing. The vast, vast majority of the generator sales which were up quiet significantly, that's what drive the revenue quite significantly came, the lion share really came from plastic surgery. So you were asking with hundreds and thousands of dollars, it's absolutely was, it was -- it certainly made up given the ASP of the generator relative to handpieces as you would expect the bigger bump comes from the generator. And given the very short sale cycle for generator sales in the plastic surgery market, this is exactly what we expected. So when we described in Q1 that we are going to take a step back in Q1 to take two steps forward in Q2 and beyond, this is what we were expecting to occur. Now as far as utilization and I know you are looking for quantitative numbers. We don't report very specifically on utilization trends on the handpiece side, certainly a significant as you would expect, a significant sequential uptick quarter-over-quarter, which is what had actually experienced since the onset of commercialization and it was more pronounced in Q2 as expected it to be than in previous quarters.

Got it. And so then as far as -- excuse me Advanced Energy goes again, it was increase to the guidance it was great to see but it's essentially kind of midpoint what you just delivered here in Q2 versus what we were modeling so is there anything to read into that as far as the back half of the year goes in terms of the -- again the utilization trend because what I am really trying to get after is the reorder rate that you are seeing the proliferation and utilization you are seeing within account after they start on your -- after they order generator.

So per our guidance Matt, so I'll start and see if Jay wants to add any more color by if I missed anything out here. But as implied in our guidance, we are taking it up to the 90% to 95% range. And we do expect what that translates to in the back half of the year to occur. I don't Jay if you want to expand upon the specifics of the guidance.

No. I think, sorry Rob, we are guiding to 90% to 95% growth in the second half. And I would say Matt if you look at in 2016 about 60% of our revenue came in the second half. So the growth rate for math would be lower than what it is.

Yes. So let me -- I am sorry let me just take a quick step back for a moment. First of all, to take a step back we are very happy with the first half year performance. And as you kind of just do the math, the back half of the year does certainly have more revenue than the first half of the year. It has to. So, yes, we will have growth in the second half of the year for sure. But if you are looking at the actual growth rate which is what Jay was just alluding to, certainly the growth rate will slow. But we are expecting the strong second half of growth. Does that help?

Okay, got it. Yes, that's very helpful. And that's kind of what I was trying to get after specific way. I mean it just seems like the trends are quite good and there maybe a little bit of conservatism in there along with what's still very robust growth. Jay, specifically on the EBITDA guidance. The sales guidance for the year hasn't changed. Maybe we start skewing little bit more towards the higher end of that. The EBITDA outlook has improved a bit so I am wondering what -- I am looking at SG&A stepping up sequentially and I am wondering what the source of the -- and I know it's modest, but modest EBITDA improvement really would be for the company.

Sure. It's a couple of things. The higher revenue margins in the low 50s and then OpEx leveling out. We expected our OpEx in the first half to be higher as a percentage of sales, our revenue is increasing, margin will increase as we see improved Advanced Energy sales, and we see the pick up from that. OpEx will flatten out and that's where we'll pick up our EBITDA or adjusted EBITDA.

Your next question comes from the line of Charles Haff with Craig Hallum. Your line is open.

Hi, guys. Congrats on the nice quarter. I had a couple questions here so first on guidance. So of the three components that you broke down, the three business segments, 90% roughly of the revenue mix you are raising your expectations and for 10% of your revenue mix, you are lowering expectations and yet you are still keeping your revenue guidance the same in terms of dollars. I am wondering if you could kind of help me understand that a little bit because it seems like you should be raising the guidance.

So why don't I start with one comment and then ask Jay to profile the guidance in a little bit more detail. So Charles and first of all thank you for your opening comment and it is -- the way you characterize it is exactly right. And the reason why -- so I just leave with the punch line the overall guidance remain on balance the same is because we do see downside, we are lowering our guidance in the OEM business to one that is so volatile and unpredictable. But given the production forecast that we see for the balance of the year, we are bringing that down but we are seeing that offset by the uptick in primarily Advanced Energy but also in Core.

Okay. And then for non OEM electrosurgical you produced revenues quite a bit higher about $1.8 million, higher than our estimate. I am wondering if you could drill down a little bit more what pockets of strength in the errant products or elsewhere that you saw in the non OEM electrosurgical.

Sure. I can -- I'll go ahead and start just kind of in general. And it is actually the reason why we picked up guidance slightly in core. We are seeing an uptick in electro surgery generator sales specifically in the animal health market and that's where that growth is really coming from. And importantly it's also plays to an important strategy that we have in the core business which is to drive -- we alluded to it in our prepared remarks, to drive product mix. And what we mean by that very specifically is drive product mix to higher margin product, so the higher margin is actually for core business is contributing to the higher margin as well, certainly not the same as advanced energy. But it is a product mix play.

And I'd add to that Charles that when we are looking at the electrosurgical product lines, that also includes J-Plasma. It does. And it includes J-Plasma where we had a big uptick in the quarter.

Got it, okay, that makes it more clear. Thank you. And then for Precise Flex, are you still on track for second half 2017 full commercial launch?

Indeed we are.

Okay. And what type of expectations do you have for Precise Flex? I mean how material do you think it could be over the first couple of years? How should we think about that?

Yes. I mean I'll start -- I'll see if Jay wants to add any more color. It's certainly embedded within our guidance. We do consider it a headwind in the second half of the year. So it's in there. A little modest for the early innings of the implementation. It's certainly a product that is designed for broad based adoption. And we'll have more visibility after we have a better quarter or so of sales before it becomes a material contributor. We don't expect it to be in overly material contributor to J-Plasma sales even in 2017. But certainly we expect it to be significant in 2018. And we'll have more visibility to that and provide more clarity when we have them.

Okay. And you said a headwind for second half 2017, did you mean a tailwind?

Oh my goodness, I meant tailwind, sure, I am sorry, thanks for that clarification. Yes, I mean tailwind, I did not mean headwind. [Multiple Speakers]

And then on dermal resurfacing. Congratulation on the IDE there. I'm wondering if you can kind of give us some specifics of that clinical study. How many patients? How many sites? What are the endpoints? Treatment period, follow on period and maybe an approximate cost and how much this might cost you?

Sure. I'll give you a high level view and let you know that all of the specific will soon be available on cliicaltrial.go when it is posted. So we'll get extremely granular but it is not there yet so it's in draft mode. So I can only really comment at the highest level until it is filed and approved by the IRB and so forth. So I know you are familiar with the process. But in general, it's a multi site study and it includes -- we haven't published the number of patients. So I'll just state for the sake of providing a high level overview. It's over 50 patients and it will be over -- it will be around five sites or so. And as soon as it gets cleared by the IRB, all of the information will be published. The one thing I can share with you with respect to the IDE which I think is publicly available is that the follow up period post op is three months.

And Jay what do you think this may cost you approximately?

I know they are expensive but it's expensive and where we put it in of course in our budget and our projections for the year. It's several hundred thousands dollars.

Our next question comes from the line of Russell Cleveland with RENN Capital. Your line is open.

Hello, fellows. Great quarter especially in advanced energy and it's a shame that the tremendous progress we are making in advanced energy, it seemed to be offset it is kind like lost in the wilderness here when we have something that seems to be really taking off. I know the dermatology at least if you go on the website it is tremendous what we can do in the plastic area. And I know looking at some of the test, the face lift and all that before and after, is really startling and the comments we are getting. So the 7% or 8%, 10% growth has been obscured by a tremendous growth in dermatology. One of the questions I was going to ask is when is this new study going to be completed and that will help us -- the question is that with the market place seeming to be ahead of the test and so forth with all of the adoption, that if we look out a year or so in just the derm area, it seems like the growth there while you are saying 90% could be even more so. Could you comment on the dermatology area, plastic surgery in particular? And we are talking about numbers here but I think we are forgetting somewhere in here is just how good this process seems to be.

Yes. Russell thanks for your question. You said a lot and you asked a lot of questions. So I am going to break it down and try to cover all of it. If I miss any of it please ask. First of all, the offset from the OEM business. It's frustrating. It is frustrating that the OEM business which is the one piece of the business we have the least amount of control over because we are subjected to the demand of other customers and their production schedule. So that's why we've been saying for the past three years, that our goal is to keep that business between 8% and 12% of our overall revenue to decrease its impact, the volatility of that business to decrease the impact on the overall business. So it's frustrating when it happens especially in the quarter like this where you've seen tremendous growth in advanced energy. So certainly I'll leave it to others to do the math, if you omit the growth of OEM what that real growth looks like which is certainly well over 20%. So you can do the math on that. With respect to your question on plastic surgery and dermatology. Plastic surgery and cosmetic dermatology, we lump that into one category. So when we made the pivot and focused our sales force on plastic surgery and surgical oncology that was done to focus on where we believe the biggest growth areas area. And without question those of the two in our mind. One is in the outpatient setting with plastic surgery and cosmetic dermatology. And the other is in the inpatient setting with surgical oncology. And as we reported, we are very pleased with traction in both areas. But it's certainly the most pronounced in plastic. The new study in…

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