Good afternoon, ladies and gentlemen. And welcome to the Third Quarter 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 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. Rob Gershon, Bovie Medical's Chief Executive Officer. Please go ahead, sir.

Thanks, Leandra. Welcome, everyone, to our third quarter of 2017 earnings call. I am joined on this evening's call by our Chief Financial Officer, Jay Ewers; and our Chief Commercialization Officer, Jack McCarthy. Let's get started with a brief agenda. I'll begin my remarks with a high-level overview of our revenue performance for the third quarter of 2017. In tandem, with a discussion of the factors that contributed to the results we saw in each of our three business segments. After this overview, I'll turn to a more detailed update on the commercial progress that we are seeing for J-Plasma in our two target markets. I'll then shift to a more general discussion of our operational progress in the third quarter before turning the call to Jay to review our financial results in detail and discuss our 2017 financial guidance, which we updated in our earnings press release this afternoon. Following Jay's discussion, I'll share some closing remarks before we open the call for your questions. With that, let's begin with an overview of our revenue performance, during the third quarter we were excited to achieve strong growth in our Advanced Energy segment, the growth engine of our organization. Advanced Energy sales grew approximately $700,000 or 52% year over year to $2.1 million in the third quarter, driven almost exclusively by sales of J-Plasma generators and handpieces. Within our Advanced Energy business, we saw more evidence that the awareness and adoption of our J-Plasma technology continues to grow in our two target markets of plastic surgery and surgical oncology. I'm pleased to report that we continue to experience strong demand for our J-Plasma generators and handpieces from both of these target markets during the third quarter. The impressive performance that we achieved in our Advanced Energy segment was offset primarily…

Thanks, Rob. Total revenue for third quarter 2017 decreased $717,000 or 7.1% year-over-year to $9.3 million compared to $10.1 million in the third quarter of 2016. Our Advanced Energy segment sales increased $727,000 or 52% year-over-year, and we're offset by year-over-year sales declines in revenue from our OEM and Core segments of 70.2% and 3% respectively. Third quarter sales by product line was driven by a 9.1% increase in sales of electrosurgical products. The growth in sales of electrosurgical products was more than offset by a decline in sales of our products in our other category, which decreased 50.7% in the period. And in sales of our cauteries and lighting products, which decreased 9% and 22.6% respectively. By product line, sales of electrosurgical, cauteries, lighting and other products represented 66%, 18%, 6% and 9% of total revenue, respectively, in the third quarter. Revenue in the United States decreased $753,000 or 8.6% year-over-year to $8 million, and international revenue increased $36,000 or 2.7% year-over-year to $1.4 million. International sales represented approximately 15% of sales in the third quarter compared to approximately 13% of sales in the prior year period. Turning to a review of the rest of the P&L. Gross profit decreased $468,000 or 9.2% year-over-year to $4.6 million compared to $5.1 million for the third quarter of 2016. Gross margin decreased approximately 120 basis points year-over-year to 49.1% for the third quarter of 2017 compared to 50.3% last year. Our third quarter gross margins were adversely impacted by a write-down of approximately $370,000 for obsolete inventory related to our first-generation J-Plasma products, which have been substantially upgraded to the current product generation. The decrease in gross margin was partially offset by higher margins in our Advanced Energy segment compared to the third quarter of 2016. Excluding the impact of the…

Thanks, Jay. I'll conclude my remarks today by highlighting that as a result - as our results and guidance illustrate, the Advanced Energy segment is the growth engine of Bovie Medical and the future of our organization. With this fact in mind, we are excited to deliver another quarter of strong performance in this segment, as we continue to demonstrate the success of our targeted sales strategy for J-Plasma. We are raising our 2017 revenue guidance assumptions for Advanced Energy to account for the strong commercial progress in the third quarter and revising our revenue guidance assumptions for our core business segment, due to the lower-than-expected core business sales. As we enter the fourth quarter of 2017, we are focused on bringing the year to a strong close by continuing to execute on our J-Plasma sales strategy in our targeted markets and expanding our future growth opportunities through the pursuit of new indications, new products and new IP. We believe that our strategic direction and execution in Advanced Energy will enable us to change the standard of care in our target markets, improve patient outcomes, and ultimately generate strong returns for our shareholders. Thank you all for your participation on tonight's call and your interest and support for Bovie Medical. With that, Leandra, we will now open the call for questions.

Thank you. [Operator Instructions] And our first question will come from the line of David Turkaly with JMP Securities. Your line is open.

Thank you. Rob, I just wanted to be clear on one thing. I think you said the Cool-Coag, the two new hand pieces would be launched this year. But implying that they haven't been yet, so they're not in your numbers today, but does that mean that they're launching imminently, before the end of the year, correct?

Yeah, yes, we are expecting to launch them by the end of the year. And they - by virtue of the timing of the launch, they're not going to contribute significantly from a revenue perspective.

Got you. And then, on the cut and then on the specific indications that dermal resurfacing, I believe that's a 510(k), I haven't gotten to check the website quickly. But any thoughts sort of on number of patients and in sort of timing of that clearance, when could that be achieved? Sure, so let me just share with you what our approach is.

It is in fact a 510(k) submission. And our strategy in general is to expand our specific indications, the first specific indication is dermal resurfacing, so our clinical study was accepted, and the full details of that study today reside on ClinicalTrials.gov. So, this study as indicated in our prepared remarks is a multi-center prospective study with about 50-plus patients involved. We received the IDE, and the IRBs are up and running, which was our first major milestone. Our focus now and the next major milestone is the enrollment into the study. So, we expect enrollment to begin in the first half, early in the first half of 2018, and that's the next milestone. We will comment on further milestones once that one is achieved.

[Or it's documents.] [ph] Got you. Last one, the generators I think again, majority of the generators to the plastic side and the handpieces to the oncology side, do you anticipate that continuing as we look ahead through 2018? Or should that mix kind of equalize at some point in the near-term?

Yeah, thanks for the question. It's a good question, and over time, it might equalize. We haven't really projected out 2018 from a mix perspective. But certainly, we expect that both of these target surgeon segment will continue to grow in 2018 and we'll certainly comment more on that in the new year.

Great, thanks a lot.

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

Hi, thanks for taking my questions. Before we move on to J-Plasma, I just wanted to ask you about the electrosurgical, non-J-Plasma electrosurgical number. So that was light. But then, some of these other lower growth segments, like other and lighting, and cauteries kind of did in line or better with our estimates. So, what do you think it was about the electrosurgical side that saw the impacts from the hurricanes or the other factors that you didn't see in some of those other core business lines?

Yeah, okay. I'll go ahead and start, and certainly invite Jay to chime in. So, to take a step back for a moment, the core performance was certainly less than we anticipated. And there were really three overall drivers that impacted our core business. One driver was the timing and performance of new products. I'll list the three drivers and then I'll go through each one. So, timing and performance of new products is one, timing of some international tenders is another. And the hurricanes, is the third. So, let me just go through each one very briefly. So, the new products, we had some new product sales assumptions that fit in these categories that have not come to fruition in the timeframe that we really expected. So that impacted the number. With respect to the timing of international tenders, we expected some tenders that were released at the same period in 2016, to be released in 2017, and they simply weren't. So, we don't have control over that, but that was a surprise to us. With respect to the hurricanes, we believe that we were impacted by the hurricanes. But we quantify the exact impact with certainty.

Okay. We'll maybe dig into that a little bit more later.

Okay.

With respect to J-Plasma, so on the timing from ClinicalTrials.gov, it sounds like you expect to have the enrollment completed by July. And I see that it's only 55 patients and presuming that these people would be getting free dermal resurfacing treatments. It doesn't seem like it would be really hard to give away free dermal resurfacing treatments to the correct patient population that you want. Are you being slightly conservative with your timing there or are there other things that we're not thinking about when it comes to patient selection here? Just help me understand why it would take probably six months to enroll 55 patients.

Yeah. So, the way we think about it, is we approach the whole clinical trial process thinking about it from a milestones perspective. So, the first milestone was to have the study accepted, get the IDEs, and now the IRBs are up and running. We are training the sites, as we indicated in our prepared remarks. And then the next major milestone is the beginning of enrollment. And that - and - so once that enrollment begins, we certainly expected to begin in early 2018 - certainly in the first half of 2018. And once enrollment begins that is the next major milestone, that's we're focused on, and we'll certainly communicated out to the investment community accordingly. And then, we'll see how quickly enrollment period takes that one is not in our control.

Okay. So, the input that you've received from the investigators, is that maybe there would - I mean, I guess you'll have five sites or something like that. And they think they can enroll about 11 patients each or, I mean, what kind of feedback have you received from the investigators in terms of the pace of enrollment?

Yeah. So, it's too early, because enrollment hasn't begun. As soon as enrollment begins, and we have a clearer view on that, we will share it accordingly. But right now, it's just premature, because it hasn't started yet. And they'll be three - as per the ClinicalTrials.gov there will be three to five sites that are trained - that we're in the process of training that will be up and running and ready to enrollment.

Okay. And then maybe a question for Jack, the investigators for the study, Jack or maybe Shawn. I noticed there was one on there that when I looked at her website in Atlanta, she was not - hadn't used J-Plasma previously, but it's looks like she participates in a lot of clinical studies for sponsors. And that seems to be a little bit different than most of the time they see in the med device industry that people tend to use investigators that are familiar with the product already previously using the product. I wonder, if you could help me understand, why she was selected to be an investigator and kind of how you think about the risk of having somebody use the product in the clinical trial that hasn't used it before.

Thank you for the questions. It's a great question and just to be clear. In terms of selection of site, it's not a commercial decision that that handled by our regulatory and clinical department. And they - when they evaluate these sites, one of the major criteria was looking at sites who have experience with studies in the past and working with companies in the FDA, and as you indicated that site has had multiple experiences in clinical studies, so that was again one of the major criteria. But in terms of risk of the product, we have very high confidence in the product. And that is - we've shown that is a very safe product and easy to use. So, we don't believe there's a lot of risk in choosing someone, who has not used the product in the past.

Okay. And then me, I'll sneak one more back, and then I'll jump back in the queue here. But in terms of sales reps, I think, how many sales reps did you have in the quarter? Did you add any sales reps and what are your plans for additional sales reps to sell J-Plasma over the next couple of quarters?

Yeah, in terms of sales reps, when you think about ourselves reps, as you know we have a mix of direct reps and independent agents. At this time, we're very pleased with their performance, they're executing it's our two target specialties plastic and oncology, and we're seeing great results. Our guidance doesn't contemplate a material change in our sales organization.

Okay. And how many reps did you end the quarter with in terms of direct reps or distributed reps?

Direct reps we have 17, and independent reps we have 14.

Okay, great. Thanks for taking my questions.

Yeah, absolutely. Thank you.

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

Hello, fellows. Thanks for the report, very, very good J-Plasma results, and I appreciate that. My question EBITDA, we were hoping to breakeven and start making money, I believe in 2018, but it's showing results here in possibly the fourth quarter. So, can you give us your thoughts on when we can see positive EBITDA? What's your thoughts in that area?

Sure. Thank You, Russell. This is Jay. So, the midpoint of our revised EBITDA guidance has changed by approximately $1.6 million, and that's driven by three things, it's the impact of lower sales expectations in the core segment; lower gross margins from the inventory write-down' and some higher OpEx spending to support Advanced Energy commercialization. To answer the second part of your question regarding EBITDA positive and its impact on cash in burn. As we've discussed last quarter, it was our goal to be relatively cash neutral for cash burn in the second half of the year, and that remains our goal for the fourth quarter, and then going forward.

So, in the fourth quarter, we'll see a big change in the cash flow from operations and that will carry forward into 2018. Is that what we're seeing?

Yeah. We'll still be relatively cash neutral for the fourth quarter, so where we landed at the end of this quarter we expect that to be about the same in fourth, at the year-end.

Okay. That's all I had. Thanks so much.

Thank you, Russell.

[Operator Instructions] And your next question comes from the line of Jeff Bernstein with Cowen. Your line is open.

Hey, guys. Just a couple of quick one. Have you determined whether lipo is on label in the cosmetic market or not?

So, I'll start answering that question. So, our product is not used as a substitution if you will for liposuction. It's actually used in liposuction cases, where another product is used for the lipo portion. And our product is being used as a sub-dermal coagulator, and that is on label.

Got you. And then Dr. Patel study, I think, we're expecting some information there at some point and hopefully soon?

Yeah. So, I'll go ahead and comment on Dr. Patel's study. This study is referring to the Lymphocele study. It's a 100-patient study that he conducted. That study is now, the enrollment is complete, the patients - he is - as we understand it, still analyzing the results, and before he publishes, he is anxiously awaiting the launch of the Precise Flex. Because one of the things he would like to do, while the Precise Flex was not a part of his study, he would like to use that product first, so he is able to comment about it in the commentary portion of any publication that he does. So, I wouldn't - so there's nothing to expect with respect to that study until 2018, because he's awaiting getting some cases under his belt with Precise Flex.

Got you. Thanks.

Yeah.

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

Hi, thanks for taking my follow-up question. Jay, I was wondering in terms of the inventory write-down. Are you anticipating another write-down next quarter? Or are we kind of done with that now?

That's a great question, Charles. Thank you. So, as we always look every quarter at why our inventory levels are, and what we have to take a charge for. But we think we're done with this one in the foreseeable future. We got it all. It was related to the first generation and we are third generation in. So that was the right thing to do. It was the right thing do, but I'll anticipate a larger write-down in the future number.

Okay. And then, on the - back to the J-Plasma, Jack, when you commented earlier about your forecast doesn't anticipate much more additional sales hiring. One of the things that we've been hearing from clinicians who we speak with, that it seems to be a little bit of a backlog from accounts that want to try J-Plasma. It's taking a little while to get to them. Is that something that you think is acceptable or kind of what is the acceptable kind of waiting period before you can go out and meet with a clinician that has shown an interest in having a demo at their offices? I'm just trying to understand where you're coming from, when you say that you don't anticipate additional sales hiring in terms of the tolerance, because I'm sure that you're sensitive to make sure that you meet the expectations of the clinicians and the timing of the demos.

Yeah, so - yeah, great question. And I just want to clarify, my comments were related to 2017. I said, our guidance is related to 2017.

Okay.

And there has been no material change in 2017.

Okay. So, it sounds like you're open or thinking about doing more sales hiring in 2018 then?

Again, we're not commenting on 2018 on this call. We'll probably handle that on the next call.

Okay. And then in terms of the sites that you guys have for the dermal resurfacing trial, have all of the sites been approved or kind of locked in now? Or are you still working on getting the five or so sites locked in? I know you have a couple that were already on ClinicalTrials.gov, but just wondering about if you have all of them confirmed at this point.

Yeah, so Charles, it's Rob, I'll take that. Right now, we're in the process of bringing those sites up with respect to training and so forth. And we'll continue to update ClinicalTrials.gov as those sites come on board, so just stay-tuned for that and we're certainly happy to ping you when there are changes in ClinicalTrials.gov.

So then, Rob, when the site is confirmed that they're going to participate, the training happens after they've been confirmed, or the training happens before they're confirmed?

I do not know with certainty about that sequence. I know it happens rapidly, but I'm not certain what the sequence is.

Okay. And how long does the training usually take for a site?

I believe it's limited to a couple of days. But I don't know the details. I do know in terms of the timing. But there are different aspects to the training. There is clinical training that's done by a physician, an experienced user. And then there is in-servicing for the team in the OR. And then there's administrative training for the study portion of it, for collecting data and so forth.

Okay. And then, last question for me on the open handpiece. So, I guess by writing off the inventory, is this in preparation of switching all of the plastics and derms over to the open handpiece or do you think that you're still going to be selling the old version moving forward?

Yeah, it was one of the considerations, Charles, moving that to the generation. But we still have an installed base of our gen-one products and we'll sell through that inventory until those customers have upgraded or we run out of the product.

Right and just to clarify, the generator, so the inventory write-down was limited to the first-generation J-Plasma generator. That was a 100% of the write-down. And the new handpieces are not compatible, so I think that's why you were thinking about that, Charles. The new handpieces are not compatible with the old. And we are up to our third generation of generators, so it's just the responsible thing to do. We're not going to sell what is essentially an obsolete product at this point, so it was just the right prudent thing to do, is take the write-down now.

Okay, and then do you - I guess, one more then follow up to that. Do you have plans then to, at some point in the future, swap out the first-generation J-Plasma only generator with the ultimate generator that has the monopolar and the bipolar added to it? Or are you still going to maintain that that gen-one product out in the field?

Yeah, I'll go back to the comments that we made a while ago. When we first launched the Bovie Ultimate, we commented publicly that we are simultaneously launching an upgrade program. And the upgrade program allows customers that purchase the first-generation product to upgrade to the Bovie Ultimate. It's not a free program, so they do pay for those upgrades. So that upgrade program still exists today, and it is being utilized by many of our customers.

And they can use the open handpiece on the upgraded.

Yeah.

Okay, okay, great. Thanks for taking my follow-ups.

Yeah, you're welcome.

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