Good afternoon, ladies and gentlemen, and welcome to the Third Quarter of Fiscal Year 2019 Earnings Conference Call for Apyx Medical Corporation. At this time, all participants have been placed on listen-only mode. At the end of the company’s prepared remarks, we will conduct 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 non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Charlie Goodwin, Apyx Medical's, President and Chief Executive Officer. Please go ahead, sir.

Thanks, operator. Welcome everyone to our third quarter of fiscal year 2019 earnings call. I am 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 my prepared remarks with an overview of our third quarter revenue performance, and the primary drivers of our revenue growth during the period. Then, I'll discuss, a recent operational progress with updates on the four strategic initiatives that we are pursuing as part of our longer-term growth strategy, as well as the enhancements we have made to our product portfolio. Tara will then provide you with a detailed revenue of our financial results for the third quarter, as well as our fiscal year guidance for 2018, which we updated in our earnings press release this afternoon. I'll then share some additional closing remarks, before we open the call for questions. During the third quarter of 2019, we generated impressive revenue growth, continuing the strong financial performance that we saw during the first half of 2019. We reported total revenue in the third quarter of $7.6 million, which represented growth of $3.9 million, or 106% growth year-over-year. Our total revenue growth continued to be driven by strong global demand for our Advanced Energy products. We achieved impressive sales performance in our Advanced Energy business during the third quarter, with growth of $3.1 million, or 104% year-over-year. We continue to drive growth and our Advanced Energy business by increasing the adoption and utilization of our Renuvion generators and handpieces in the U.S. cosmetic surgery market and fulfilling demand from distributors in the o-U.S. market. We also saw contributions from growth in our OEM business, which increased by $800,000, or 116% year-over-year. Our OEM growth was primarily driven by contributions from our…

Thanks, Charlie. As a reminder, our results are reported on a continuing operations basis for the period ending September 30, 2019. 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 third quarter 2019 increased $3.9 million or 106% year-over-year to $7.6 million, compared to $3.7 million last year. By business segments, total revenue growth in the third quarter was driven primarily by Advanced Energy segments sales, which increased $3.1 million or 104% year-over-year to $6.1 million. Total revenue growth in the third quarter also benefited from growth in sales from our OEM segment. OEM segment sales increased $800,000 or 116% year-over-year to $1.5 million in the third quarter of 2019, driven primarily by sales of generators related to our manufacturing and supply agreement with Symmetry Surgical. Advanced Energy and OEM sales represented approximately 80% and 20% of total revenue in the third quarter of 2019 respectively, compared to 81% and 19% in the prior year period. Revenue in the United States increased approximately $2.8 million or 101% year-over-year to $5.6 million, and international revenue increased approximately $1.1 million or 123% year-over-year to $2 million. International revenue represented approximately 27% of total sales in the third quarter of 2019 compared to 25% of total sales in the third quarter of 2018. Moving down the P&L, gross profit increased approximately $2.5 million or 99% year-over-year to $5 million, compared to $2.5 million for the third quarter of 2018. The increase in third quarter 2019 gross profit was driven primarily by strong sales in the company's Advanced Energy segment. Gross margins for the third quarter of 2019 was 66.2% compared to 68.7% last year. The primary drivers of the decline…

Thanks, Tara. In summary, I couldn't be more proud of the impressive financial and operational performance, and the accomplishments made possible by the entire Apyx Medical team this quarter. I'd like to thank everyone at Apyx Medical for their efforts during the third quarter and their continued commitment to our organization’s success. With stronger than expected Q3 financial results and an improved outlook for the rest of the year, we are raising our 2019 guidance for revenue, net loss and adjusted EBITDA loss. Looking ahead, we will continue to drive growth in our Advanced Energy business, execute against our strategic objectives and invest thoughtfully to capitalize on the strong global demand that exists for our innovative Advanced Energy technologies and establish ourselves as a leader in the global cosmetic surgery market. With our unique energy solutions, dedicated employees and well capitalized balance sheet, we believe we're poised to reshape what's possible in the cosmetic surgery market and achieve strong returns for our shareholders. With that, operator, let's now open the call for questions.

Thank you. [Operator Instructions] We so ask that you limit yourself to one question and one follow-up. [Operator Instructions] And our first question comes from Matt Hewitt with Craig-Hallum Capital. Please go ahead.

Yeah. This is Lucas on for Matt Hewitt here at Craig-Hallum. I guess, my first question relates to international. It sounds like things are going pretty well on that front. But could you give us some color on maybe how many other clearances are in the works? And if there's any that could potentially hit before the end of the year?

Obviously, the international business is very important for us and we're pursuing registrations in the o-US markets and obviously, I’ve mentioned before that we want to own them. The timing is hard to predict, because each country is a little bit different and we're not in control of that. But we have entered four new countries in 2019, two of which were Canada and Mexico. And our guidance going forward does not contemplate any new material countries in Q4 of 2019.

Okay. Fair enough. And then, I guess, turning to your clinical trials. You touched briefly upon the skin laxity trial. Could you maybe walk us through what the next steps would be if that trial is successful?

Yeah. So, if you remember, we've got a 20 patient pilot study for safety to submit to the FDA and so we have, as I mentioned, started enrollment for those patients. And once we finished those patients and submit that data to the FDA, then the FDA will get back to us and let us know if they're happy with that. And if they are happy with that then we will move to Phase II, which is the 32 subjects. And then, we've got to wait six months for everybody to get better, so we can see the effectiveness at that point in time.

Okay. Thank you very much. That's all I had.

Appreciate it.

Your next question comes from Kyle Bauser with Dougherty. Your line is open.

Hey, Charlie and Tara. Good evening. Another really strong quarter here.

Thank you, Kyle.

Regarding the skin laxity trial, just to confirm, all the patients will be having standalone Renuvion therapy only, that they won't have lipo in conjunction as well, correct? And then, on the primary endpoint greater than 75% that the subjects must have in their six months images to be correctly identified, can you speak to how you arrived at that 75% cut-off. Thank you.

So yes, you are correct in that, the patients will be having Renuvion-only and no lipo, so that is part of the -- acceptance for the patients that have to be part of the study. The 75% that they will be subject to is in conversations with us, with the FDA of what they would like to see in order to give approval. And remember in this study in particular is, the before picture and the after picture are shown side by side. And so what they need to show is the independent photographic reviewers needed to be able to identify the before and correctly identify the after to show the skin laxity.

Okay, got it. So they'll be showed in conjunction. I think in the previous trial that was not the case, correct?

That's correct. In the previous trial they were randomized images. In this trial, you will see -- the reviewers will see the before picture, they will see the after picture and they will have to correctly identify each one.

Okay. Okay, perfect. That's great. And on the dermal resurfacing study, so glad to hear you selected and trained the site, you incorporated your feedback in the ID application, have you resubmitted that? And when might we start enrolling for this trial, any sort of timeline? Thanks.

We -- well, our expectation is that we expect to begin enrolling by the end of the year. And when we get that go ahead from the FDA, we will obviously let you know at that point in time. But our expectation is that, we’ll begin enrolment by the end of the year.

Okay. And then lastly, if I can just sneak one more in, you've seen some obviously explosive growth here today from both handpiece and generator sales. We're certainly hearing in the field about strong demand. So on the supply side of things, can you provide me a little bit more color around the lean initiatives that Laura and Craig have been working on? And additionally, would just love to hear, how you're feeling about keeping up with demand in general on the handpiece side? Thank you.

Yeah. No, thank you Kyle. Well, as you know from being somebody that's been here since I've been here is that, it's been a focus of ours from the very beginning for our operational excellence and it's been something that in order to scale a business that you have to be able to keep up with demand. And I can say that, we're doing a very good job of keeping up with demand. And as I mentioned in the prepared remarks today, I'm incredibly proud of the work that the whole operations team is doing because now we're actually starting to see some lower costs in our products, because of the work that they are doing. And so, it's incredibly nice that we've been focused on this for a while. And it's wonderful to start to get to see some of that -- some of their hard work get to show on the financial results.

Okay, great. Thanks for the updates. Charlie, I’ll jump back in queue.

Thank you.

Your next question comes from Matthew O'Brien with Piper Jaffray. Your line is open.

Good afternoon. Thanks for taking the questions. Just for starters Charlie, the Q3 strength is great to see, obviously, sequentially and what's seasonally slower period typically. So can you talk about, really specifically where some of that came from be it new accounts, existing accounts, going deeper with handpieces? And then can you fold within their, how this new operating lease arrangement with MedShift could impact the business going forward? How do we think about the impacts both pros and cons?

Yeah, okay. Thank you. Yeah, the business was strong both in the United States and outside the United States, and it was both an adoption of new customers and increased utilization. And so, it was a wonderful quarter from both sides of the pond. I think that if you look at -- the U.S. growth was way up and so was the international growth, so that was very good. In specifically to MedShift, when you're talking about that, the way I would look at MedShift is, MedShift is another option that our reps have for our customers to be able to acquire our technology. So currently, if you're a rep, you can have a prospective customer, they can buy it directly from us. They can lease it from us, or they can have a subscription model through MedShift where they pay a monthly subscription fee, and along with that, they get marketing help and web development, and some analytics through that. And so for us in our reps, it is just another way for our end users to acquire the technology. And from the reps perspective, they're agnostic to which one that they -- which path that our customer chooses. We're excited about the partnership that we have with MedShift, but it's early in the in the relationship and so we'll see how this plays out in the months and quarters to come.

Okay. And then as the follow-up and I actually have two questions, I'll just ask them both here. But on the new handpieces side of things, do you think you can get some pricing premium on either both of those products? And then for Tara, the leverage that we're seeing here in Q3, not just on the gross margin line, but elsewhere is really strong. So I'm struggling a little bit with getting the model to the guidance range here in Q4. So can you talk about some of the puts and takes. I'm sure R&D will spike up a little bit with more of these studies that you're running, but just other things that could be hitting in Q4 that may not have hit in Q3 because again it looks -- it looks like there's a ton of leverage that we saw here in Q3? Thank you.

Well, the first question on the handpieces is we'll always be looking in the marketplace to be able to maximize the amount that we can charge for our handpieces, but also fit within the business needs of our customers and our partners. And so we will look to -- we will always look to balance that to make sure that they're getting what they need from us and that we as a company are getting the appropriate gross margin on that. And so we're excited about having these new handpieces. These new handpieces will definitely help us, especially next year. And we should start to see a little bit higher gross margins because of that.

And then Tara for the leverage?

Yeah. I mean, the gross profit is definitely the primary driver of that. If we look at the guidance, it's basically up $1.5 million and it's, think about it roughly as one-third, one-third, one-third, one-third of outside revenue in Q3, one-third from better than expected gross margin in Q3 and then one-third from higher gross margin expectations in Q4. I think that definitely on the R&D there will be a pickup in the fourth quarter, continue to pick up in expenses related to the clinical studies, and obviously we continue with the registrations of our product in the various countries that come at a cost.

Thank you.

Thank you.

[Operator Instructions] Your next question comes from Russell Cleveland with RENN Capital. Your line is open.

Thanks so much for taking my call here. Thanks again for the excellent results. It was terrific. So, congratulations on that. A clarification on the FDA, you may have partially already answered this. So, we have, have resubmitted to the FDA our test procedure using different doctors and our procedure we're going to use for the facelifts. And we are now waiting their approval of the program or we're waiting to issue our recommendation so can you clarify that one?

Yeah. We -- as you know, we talked about application on July 23rd, and then we got feedback from them. We took their feedback. We didn't have to. But we decided to take their feedback, and we're waiting. We're waiting on their approval of the feedback, which we did take a lot of their feedback. So, we don't see that there's an issue with that, but we're waiting on their approval before beginning enrollment, and we expect that to be by the end of the year.

Okay. So, when we put out an announcement that we are undertaking the new FDA study or not?

Correct, correct. We start enrollment, we will let you all know that enrollment has begun. That's correct.

Okay, great. Well, thanks again for the numbers.

Thank you, Russell

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