Good afternoon, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year 2018 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 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 complete 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, Apyx Medical's President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Welcome, everyone, to our fourth quarter and fiscal year 2018 earnings call. I'm joined on this afternoon's call by our Chief Financial Officer, Tara Semb. Let me provide you with a quick agenda for today's call. I'll begin with a high-level overview of our fourth quarter sales results, along with the commentary on the factors that contributed to our strong performance during the period, then I'll discuss some notable operating highlights we achieved during the quarter. I will then briefly review the strategic initiatives that we were focused on executing this year as part of our long-term growth strategy before turning the call over to Tara to discuss our fourth quarter financial results in detail and review our fiscal year 2019 guidance, which we introduced in our earnings press release this afternoon. Following Tara's discussion, I'll close by sharing some additional thoughts on why we believe Apyx is incredibly well positioned for success in the years to come before opening the call for questions. Before diving in our fourth quarter review, I thought I would -- it would be appropriate to start with 2 notable events that happened during the quarter. Both of these items are very important as investors think about our investment story going forward. First, we announced the addition of a new member of our executive leadership team in December. As Tara Semb joined our new -- as our new CFO on January 1. Tara replaced Jay Ewers, who had announced plans to retire earlier in the fourth quarter. Tara has a strong background in finance and operations, having held multiple executive level positions throughout her career. She has experience in helping companies execute rapid growth strategies as well as helping large multinational companies scale their business and improve profitability across multiple business segments…

Thanks, Charlie. As a reminder, our results are reported on a continuing operations basis for the period ended December 31. Any financial impacts related to the divestment and sale of our core segment appear in our financial statements as discontinued operations and are excluded from the commentary that follows. Total revenue for fourth quarter 2018 increased $2.3 million or 62% year-over-year to $5.9 million compared to $3.7 million last year. By business segment, total revenue growth for the fourth quarter was driven by Advanced Energy segment sales, which increased $1.3 million or 40.5% year-over-year to $4.3 million. OEM segment sales increased $1 million or 179% year-over-year to $1.6 million in Q4, driven primarily by higher-than-expected demand from third-party equipment manufacturers for our proprietary generator products. OEM sales results also benefited from sales of generators related to our 10-year manufacturing and supply agreement with Symmetry entered into as part of the divestiture of the core business. Revenue in the United States increased approximately $1.3 million or 43% year-over-year to $4.4 million, and international revenue increased approximately $957,000 or 162% year-over-year to $1.5 million. International revenue represented approximately 26% of sales in the fourth quarter of 2018 compared to 16% of total sales in the fourth quarter of '17. Our fourth quarter reported revenue results for the Advanced Energy segment and total company include a $191,000 impact, which was not included in our preliminary revenue results, which we announced on January 7, 2019. During our year end close, we identified a subsection of accounting standard ASC 606 revenue from contracts with customers that require fees paid to group purchasing organizations or GPOs, to be reported as a reduction of revenue. ASC 606 became effective for Apyx in the first quarter of 2018. As such, we were required to record the amount paid…

[ Do you want me to go ]?

Yes.

Turning to a review of our 2019 financial guidance, which we introduced in our earnings press release this afternoon. For the 12 months ending December 31, 2019, we expect total revenue in the range of $25 million to $26 million, representing growth of 50% to 56% year-over-year compared to the total revenue from continuing operations of $16.7 million in the fiscal year 2018. Our 2019 revenue guidance assumes Advanced Energy revenue in the range of $20 million to $21 million, representing growth of 53% to 61% year-over-year compared to Advanced Energy revenue of $13.1 million in fiscal year 2018. OEM revenue of approximately $5 million, representing growth of 38% year-over-year compared to $3.6 million for fiscal year 2018. Note, we expect approximately 50% of our total OEM segment revenue could come from legacy OEM activities with the balance coming from our manufacturing agreement with Symmetry.

In terms of profitability guidance for fiscal year 2019, we expect GAAP net loss in the range of $24 million to $23 million compared to GAAP net loss from continuing operations of $9.5 million in 2018. And we expect adjusted EBITDA loss in the range of $20.4 million to $19.4 million compared to adjusted EBITDA loss from continuing operations of $11.7 million in fiscal year '18. As a reminder, we have included a full reconciliation from GAAP net loss to non-GAAP adjusted EBITDA in our earnings press release this afternoon. Lastly, for modeling purposes, for the full year 2019, we expect gross margin of approximately 59% to 61% this year compared to 64.7% last year. The largest driver of the expected decline in gross margins this year is the impact of 12 months contribution from our manufacturing agreement with Symmetry in 2019 compared to approximately 3 months contribution in 2018. Excluding the full year contributions, the total company revenue from this agreement, our gross 2019 margin would be approximately 63%. Stock-based compensation of approximately $4 million; depreciation and amortization of approximately $700,000 and weighted average diluted shares outstanding of approximately 34 million shares. Finally, we plan to file our 10-K for the 12 months ending December 31, 2018, with the SEC this evening. I wanted to make the investment community aware of a disclosure in the filing in Item 9A, Controls and Procedures, that relates to our evaluation of the effectiveness of internal controls over financial reporting and disclosures. Specifically, this evaluation concluded that the company's internal controls and procedures were not effective because of 3 material weaknesses. We are committed to maintaining a strong internal control environment and in response to the identified material weaknesses, management, with the oversight of the Audit Committee of the Board of Directors, has already begun to take actions towards remediation, the details of which are disclosed in our 10-K. It is also important to note that we have also received an unqualified opinion on our 2018 financials from our external auditors. With that, I'll turn the call back to Charlie for closing remarks. Charlie?

Thanks, Tara. I'd like to conclude today's prepared remarks with some additional thoughts on 2019, specifically in 2 areas. How we are driving growth this year and where we are investing in 2019 to drive future growth? Regarding our 2019 growth drivers, our full year revenue guidance assumes total revenue in the range of 50% to 56% year-over-year. Advanced Energy will be the primary driver of total company growth again this year and we expect the segment revenue to increase 53% to 61% year-over-year, driven by continued generator adoption and handpiece utilization of Renuvion in the U.S. and J-Plasma outside the U.S. Our U.S. advanced energy growth expectations only assume contributions from Renuvion sales related to its use as a subdermal coagulator following liposuction in the U.S. We plan to update our full year 2019 growth expectations following the receipt of our 510(k) clearance for dermal resurfacing. With respect to Advanced Energy sales growth expectations outside the U.S., similar to our practice in 2018 and our guidance assumes the contributions from utilization related demand in existing international markets only. To the extent we receive material new OUS regulatory clearances during 2019, we plan to update our guidance accordingly. One final item for consideration when evaluating our 2019 growth expectations. We do not assume a material change in our direct sales infrastructure, which resulted in 27 representatives at year-end. As discussed earlier, we increased our direct sales force from 17 in Q2, 19 in Q3 and 27 at year-end. The primary driver of year-over-year growth in the U.S. this year is the contributions of these 27 reps for 12 months of 2019 as compared to just 3 months of Q4 of 2018. Additionally, we ended 2018 with multiple independent agency partners that employed an estimated 20 to 23 agents, which when…

[Operator Instructions] Our first question will come from the line of Dave Turkaly with JMP Securities.

So just on the 2019 guidance, it seems like you mentioned subdermal coagulation only. And then I think that the direct reps you may kind of hold where they are. So just love to get your thoughts on productivity, again, where you see 27? When they're mature? And how long that takes? Just to get your thoughts on those right now.

Yes. So obviously, most of those reps were added in the fourth quarter. And we increased our direct sales force, as I said, from 17 to 27, it's probably closer to about a 6- to 12-month ramp up for those reps to become fully effective. But yes, our guidance in our revenue in the United States assumes only subdermal coagulation. And as I stated in the prepared remarks, as we get further clearances, we will update our guidance at that point in time.

And I guess in terms of just the productivity standpoint of some of the guys that have been there for a while, could you just remind us of where they can be after 12 months or maybe where some of your top guys are today?

Yes. We've said after 12 months. So that number is somewhere around $1 million.

And I guess maybe just one for Tara, just the disclosure that you mentioned, I'm sure we'll get to check that out in detail later. But weaknesses, I'm just curious, are these things that you've typically seen in the past, maybe with some companies that are smaller, are you familiar with things like this? And I guess if there's any just sort of commentary you guys can make about any details that would help us feel like, okay, these are kind of minor things. I know you said you're already taking action. But I'd love to just get your thoughts on...

Yes, Dave, this is Charlie. I'll grab that. First is, obviously, we're not happy about the situation. And it was really the former financial team. The great thing for us right now is that Tara has significant experience in this area. She was a Director of Internal Audit for Amsted Industries, which was a multinational manufacturing company, and we are very confident that this will all be taken care of and remediated by the end of 2019. And so we're very fortunate to have her because of her experience, and I know she will get this taken care of, and this will be the last time we have to talk about this.

Your next question comes from Matt O'Brien with Piper Jaffray.

This is Kevin on for Matt today. I had a quick question on the dermal front as well as guidance. I understand that you're probably going to update us as far as numbers go, but if there's any color that you can provide on how much dermal resurfacing can impact the back half of the year, if you can? And then what an overall sustainable type growth rate looks like in 2020 and beyond, in that space with all those new reps getting up the curve?

Yes. Look, Kevin, obviously, today, we're not going to talk about the impact on revenue until we get the clearance from the FDA. But just remember that there's 200,000 of those procedures that are done here which represents about another $85 million in annual handpiece utilization. And will also help us in generator adoption at some point in time, too. But we're not going to get into those until we get the clearance, and we'll give you guys updates when that happens and help you out with that at that point in time.

Okay. That's completely fair. As far as the increased investments go for the year, you spoke to 70% year-over-year, and we really appreciate the breakdown there. And you mentioned it was transient. How much do you think in the longer term, if you could frame it up for folks? How quickly does it tick down and beyond? And where are the leverage points in the model? I know on the margin side, you've talked historically about manufacturing leverage, and it seems like you're consistently increasing pricing for J-Plasma, if I'm not mistaken. So can you just give us a frame up for when those start to taper off if they're transient and where the leverage points are in the model?

Yes. Look, we've said before that we feel very good about our guidance and our plan for 2019. And obviously, sitting here today, we are only going to talk about 2019. We're not going to get too far in the future. And obviously, from -- we've talked a lot, I've talked every call that I've been on about manufacturing efficiencies. And so that is an area of continued focus for us, and we will obviously hope to drive and have higher margins in the future. But we're not going to talk about that. Today, these are the targeted investments that are going to help the foundation to support the long-term growth of this company. And as I mentioned before, in some of these key things, these will help set us up for the future and really help take us down a successful path.

Okay. If I could just sneak 1 in on 2019 that you can comment on the progress on some of the international market, Brazil, South Korea, China, and then where it makes sense if you receive approvals in other regions. Can you just talk about what going on internationally speaking in 2019? And then I'll jump in the queue.

Yes. So as I stated in the prepared remarks, our guidance assumes only from existing markets that we are currently in. As we get clearances throughout 2019 that we think will have a material impact on our numbers, we will obviously update guidance and let you guys know about that at that point in time.

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

First one for me. Once you received approval or 510(k) approval, is it your plan at that point to add maybe some more sales resources? Or are you going to go it with the 27 direct even after that approval?

We are happy with the number of reps that we have right now, and we think that the number of reps that we're looking at, at this point in time is the right number for us to get and to move down that path.

Okay. And then with some of the movement on the agency side, is it -- as you look at with your 27 direct reps, are they going to be taking on a little bit more territory? Or how are you kind of hashing out that aspect of it?

Yes. Obviously, they're focused in the major markets of the United States, and some of them will have a little bit more territory. But remember, we still do have some of our top-performing agencies with us. And so we do have nice coverage throughout the U.S. in all the major markets around, and we feel good about -- we feel good about where we are and our guidance that we gave you talks about 35 to 40 professionals this year. So that is our coverage within the United States.

Our next question comes from Kyle Bauser with Doherty & Company.

Charlie and Tara, and congrats on the productive 2018, to say the least. So first, on your plans to expand the indications, I appreciate the comments in your prepared remarks. It'd be great to hear more, though, about the pipeline and how you're thinking about that. I know the hiring of Dr. Kirlew as the regulatory Director was a great addition, and you've been working together to formulate a plan for subsequent indications can you just kind of talk a little bit more about how she's helped you create this multiyear strategy and potentially some other indications you're exploring?

Yes. Look, we're not going to get into potential indications at this point in time. And the only reason being is we'll wait until we actually announce them and actually do them as opposed to telling you that we're going to do them and then having you wait and down the road. But Topaz has been instrumental in this strategy and she's been instrumental in helping us throughout this process and guiding our way through our entire regulatory strategy. And don't forget first, one of the first things that we needed to do was really understand how our technology worked and the importance of how it works and what makes it work so well also is into some of the future things that we need so there were things that we needed to do first to do this. We'll be happy to tell you and let you know when the time is right, it's just not right at this point in time.

Yes. Understood. And the follow-up, after an expected clearance of the dermal resurfacing indication, when it becomes on label and you're able to actually articulated treatment protocol to guide patient selection and device usage. Can you kind of talk about plans for how you roll out this new indication, so to speak, marketing programs, teach-ins, training, et cetera? And how quickly you think you'll be able to get users up and running?

Yes. So when we get clearance, we will talk to you about the plan for a lot of that. We will talk to you about what we expect from a revenue point of view. And we'll give you a time line once that is. It doesn't make sense to give you a time line right now because we don't know when we're going to get clearance. And so we'll be a lot more specific when we get that and we can move forward there.

Your next question comes from Russell Cleveland with Renn Capital. Russell Cleveland;Renn Capital;President, CEO: Thank you for the complete review and also mentioning that report and the falsehood of what was happening there. Here's a question that you may not be able to answer, but cash flow. We're investing, of course, in our growth and our sales force and so forth. Any thoughts when we might be able to cross the line into positive cash flow.

Yes. We haven't given any words or any guidance yet for future years with that, Russ, just like you mentioned before, it's a question that I probably can't answer at this point in time. But just know that we like our balance sheet very much. We're in a very good position. And as I mentioned, a lot of these expenses that we have in 2019 are transient expenses to help set us up for the future. Russell Cleveland;Renn Capital;President, CEO: Great. Just one follow-on on this. The foreign sales, the potential overseas, it looks bigger than the United States. Are we going to use our own reps overseas? Are we going to do joint ventures with other companies?

Yes. So we use distributor -- we use a distributor model overseas. The thing that we did talk about in today's call that was in the prepared remarks and one of the investments that we're making in 2019 is to actually own the registrations ourselves. And so a lot of small companies, unfortunately, have to have the distributor on the relationship. And because of our balance sheet and because we think it's better for the company long term, we're actually going to own the registrations in the countries that we go into outside the U.S.

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