Good morning, ladies and gentlemen and welcome to the Third Quarter of Fiscal Year 2020 Earnings Conference Call for Apyx 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 Securities and Exchange Commission, as well as our most recent 10-Q filing. Such factors maybe 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 these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release in the Investor Relations portion of our website. I would now like to turn the conference over to Mr. Charlie Goodwin, Apyx Medical’s President and Chief Executive Officer. Please go ahead, sir.

Thanks, operator. Welcome everyone to our earnings call for the third quarter of 2020. I am joined on the call this morning by Tara Semb, our Chief Financial Officer. Let me provide you with a quick agenda for today’s call. I will begin with a review of our revenue results for the third quarter, including a summary of the impact of the COVID-19 pandemic on our quarterly results. Following this discussion, I will provide you with an update on our recent operational highlights and the progress we have made on our four initiatives we are pursuing as part of our long-term growth strategy. Tara will then provide you with a detailed review of our financial results, as well as some assumptions and considerations for modeling our financial performance in the fourth quarter. Following Tara’s remarks, I will conclude with some additional thoughts on our near-term and long-term outlook before we open the call for questions. With that, let’s get started with review of our revenue results. We reported total revenue of $7 million for the third quarter of 2020, representing a decrease of 8% year-over-year. From a geographic standpoint, our total U.S. sales for the third quarter of 2020 decreased 6% year-over-year to $5.2 million, while the total international sales decreased 14% year-over-year to $1.7 million. In terms of revenue performance in each of our business segments, in our OEM business, sales were essentially flat year-over-year at $1.5 million and in our Advanced Energy business, sales decreased 10% year-over-year to $5.5 million. The 10% decline in our total Advanced Energy revenue in Q3 was driven by a decline in generator sales of 36% year-over-year, which was partially offset by an increase in handpiece revenue of 48% year-over-year. Despite the continued impact of COVID-19 on our capital sales, we were pleased…

Thanks, Charlie. As Charlie covered our third quarter revenue performance in detail, I will begin my review of our Q3 financial results by continuing down the P&L. Gross profit for the third quarter of 2020 decreased $0.6 million or 10.7% year-over-year to $4.7 million. Gross profit margin for the second quarter of 2020 was 67.9% compared to 69.9% last year. The year-over-year decrease in gross profit was driven by product mix within our Advanced Energy segment and revenue mix between our segments. The decrease in gross margin was offset partially by improved product margins within our Advanced Energy segment as a result of our continued manufacturing efficiency initiatives and by improved margins attributable to product mix within our OEM segment. Operating expenses for the third quarter of 2020 decreased $1 million or 9.5% year-over-year to $9.1 million compared to $10.1 million for the third quarter of 2019. The decrease in operating expenses year-over-year was driven by a $1.1 million decrease in selling, general and administrative expenses, and a $0.2 million decrease in professional services partially offset by a $0.3 million increase in salaries and related costs. It is important to note that the year-over-year decrease in operating expenses reflects our initiatives to control costs and reduce our discretionary spending in response to the impact of COVID-19 on our financial condition. Loss from operations for the third quarter of 2020 was $4.4 million compared to operating loss of $4.8 million last year. Income tax benefit in the third quarter of 2020 was $0.7 million compared to income tax expense of approximately $0.2 million in the third quarter of 2019. In the third quarter of 2020, we benefited from a GAAP tax benefit related to the CARES Act, which was enacted by the U.S. government to provide relief from the coronavirus pandemic.…

Thanks, Tara. Looking ahead, we remain cautiously optimistic with respect to the near-term outlook for our Advanced Energy business. While the capital equipment environment remains uncertain, we expect to see continued strength in handpiece demand. The strong utilization is a direct result of the impressive clinical results that our surgeons have been able to achieve with our technology. In a market that is crowded with technologies that over-promise and under-deliver, Renuvion allows our surgeons to truly differentiate their practices by delivering the results that their patients are looking for. With $43.5 million of cash at the end of the quarter, we remain very well capitalized to weather the ongoing effects of this pandemic while continuing to execute our growth strategy as recovery progresses. As we close out the year to prepare for 2021, Apyx Medical is focused on returning to strong sustainable growth as quickly as possible by continuing to elevate the global cosmetic surgery market with our technology and expand our share of this multibillion dollar opportunity that this market represents. Before we open the line for questions, I would like to commend our employees for helping us achieve this impressive progress this quarter under very difficult circumstances. I would like to personally thank our customers, distributors and shareholders for their continued support and everyone on today’s call for their interest in Apyx Medical. With that operator, let’s now open the call for questions.

Thank you. [Operator Instructions] And our first question will come from David Turkaly from JMP Securities. Your line is now live.

Thanks for all the detail. Tara, I know you talked a bit about existing customers and the pipelines and how busy they are and all of us can appreciate some of the difficulties likely with new folks, but I guess I would just like to hear your thoughts sounds like fourth quarter can continue to improve? Do you think as we move into 2021 you are adding more new accounts as well as servicing your existing folks?

Yes. So, we are incredibly happy with the U.S. handpiece sales growth of 93% year-over-year and that is definitely a reflection of strong utilization based demand and in the U.S. that is definitely the case. And we see that, that utilization demand continue as really, if you look, physicians are really using this to help differentiate their practices before and after that these doctors are able to get with the technology is incredible. And this has been consistent with our Q2 call that we talked about this demand. And at the beginning in July, in the first half of August, they were working through the backlog of patients, but after that it’s just – now it’s just we believe it’s just a steady state of business and their businesses are strong and we do expect to continue.

Got it. And just as a quick follow-up, congrats on the FDA updates. I was wondering if you could give us your latest thoughts on sort of when those final indications could be received for both? Thank you.

So when we are talking about the dermal, we completed enrollment last week. And remember that they have a 90-day follow-up that each patient has to go through meaning that the last patient will be followed up sometime in February. And then after that, as you remember, we need to gather the information, we need to have it analyzed by third-party reviewers, we need to prepare the 510(k) submission. So with the dermal study, we expect to submit that sometime in May I believe. And then with the IDE skin laxity, we are very excited that we just got notification from the FDA that we met the requirements for the safety data and we are working with them to start Phase 2 of that. And when we do start Phase 2, we will tell everybody, because that will be the start of enrollment in Phase 2. So we will do that via press release when we begin Phase 2.

Thank you.

Thank you. Our next question today is coming from Matthew O’Brien from Piper Sandler. Your line is now live. Matthew O’Brien: Good morning. Thanks for taking the questions. I guess Charlie or Tara, just for starters, can you talk about what you are seeing in some of these hotspots that are really breaking out around the U.S., California, Illinois, Texas, and then with that, with some of these increasing your cases – COVID cases? I guess what gives you that confidence that you could still get back to growth here in the U.S. in Q4 and then OUS in early ‘21? I mean, from a generator perspective, I know the handpieces are doing great, but what gives you that confidence?

Yes. So, it’s a very good question. I think that what we have seen in that in that confidence is that the hotspots that you are talking about, in some of them, Texas, Florida, even Arizona and California that even happened over the summer that our customers were able to manage their practice, keep their patients safe and demand was still there. And so now that it’s the 9th of November, our mindset is that they will be able to keep doing that and there will not be any major lockdowns between now and the end of the year. And that was really the issue in the spring is that they – is that the doctors weren’t able to do procedures and our mindset is that they will between now and the end of the year. And in the fourth quarter, even with that thing, we are not assuming any material improvement in the capital environment in Q4. So, it really is the strength of our handpiece demand and the strength of our existing customers using the technology and the demand from their patients. Matthew O’Brien: That’s really helpful. And then…

Outside the United States becomes obviously a mixed bag and it’s a little bit trickier there. Some of the lockdowns in the countries are a little bit more strict. So it’s tougher outside the United States and that’s why we obviously don’t see growth there in the fourth quarter. Matthew O’Brien: Got it. And then that’s helpful, thank you. As a follow-up just, I think you mentioned to-date with the last question that you are going to be submitting for approval on subderm in May, I am assuming just a typical kind of 6 months…

Dermal, dermal. Matthew O’Brien: Sorry, on dermal in May. So, hopefully by the end of next year is that the expectation that you get the approval and then what kind of investment you anticipate making to ramp up and be prepared for that new indication as we head into ‘22?

Yes. So we are targeting that submission in May of 2021 and then typically that submission is 90 days submission with the FDA. It has been in some cases been running a little bit more, because of COVID and who knows what it will be in May, whether it will be back to work or whether they will still be working remotely at that time. And we will let you know publicly when we actually do submit that 510(k) in May. As far as investment goes, we will not have a tremendous amount of investment in 2021. With that, the investment really will come more on the back of hopefully getting the indication in – with the laxity also to be able to talk about that. But we are happy with the size of our general sales force right now. And there won’t be a huge amount of investment that will go in that there will be some stuff on social media obviously, but our existing distribution channels will be able to handle that. Matthew O’Brien: Got it. Thank you.

Thank you. Our next question today is coming from Matt Hewitt from Craig-Hallum Capital Group. Your line is now live.

Good morning and congratulations on all the progress here. First question, Charlie, you mentioned that there is a little bit of a reluctance to buy new technology by some of your customers and I am – is that a function of them uncertain about how things are going to play with COVID, I guess, over the winter months or is that more of a function of maybe their balance sheets and they are just kind of getting back to normal business operations and they don’t want to kind of pick themselves up, I guess here over the next couple of months?

Yes. I think that answer to that is both. It depends on each individual situation and how they view the pandemic and investing in something new that they don’t already have. And so I think you have got both of those factors that come into play, along with the fact that because that there is the COVID pandemic, getting into the office in accounts where you don’t have the technology already is a little bit trickier, because a lot of the offices have rules about coming into the practice to try to keep their patients safe. We obviously don’t have that issue in accounts that have our technology already, because they are a business partner of ours. But for people trying to acquire the new technology, I think those are all in play.

Got it. And then obviously you have had some pretty good success this year opening up some new international markets despite the ongoing pandemic, how should we be thinking about Q4, are there any maybe near-term opportunities and then more importantly, I guess as you look at fiscal ‘21, what kind of targets are you looking for next year on the international front? Thank you.

Yes. So first thing is this we are not obviously, we have never talked about the places that we are going or the things that we are going to do. And the contribution from these countries that we have in here is already baked into the directional outlook that we provided for the fourth quarter and returning to international growth in 2021. So, all of that is still baked in there. And yes, we are extremely happy with the work that the group has done to get the registrations even during – obviously the COVID period. And this has been a major focus of ours and it will continue to be. We still have countries that we are pursuing and other things that we want to do in this area. And when we do, we will let you know how – when we add different countries.

Got it. Thank you.

Thank you. Our next question is coming from Kyle Bauser from Colliers Securities. Your line is now live.

Hi, good morning and congrats on the updates here. Appreciate the color on being able to return to U.S. growth in the Advanced Energy division in Q4 and OUS in early ‘21. I am sorry if I missed this, but just kind of wondering if you are able to provide any updates on how October is trending similar to last earnings call when you talked a little bit about July, just any kind of additional thoughts on how things have trended so far this quarter would be great?

Yes. Look, the – we are not going to give trends into how October was for the quarter we are going to go back to a more normalized way. As you know, we gave directionally what we think is going to happen in the fourth quarter and obviously November – or excuse me October is already baked into that direction. So we are going to kind of get back to – trying to get back to normal as much as we can here.

Sure.

Yes.

Got it. And regarding the clinical trials, maybe just two quick ones here. So appreciate the updates on the dermal resurfacing, so hope to submit that application in May, I thought there was a 6-month safety follow-up on that, but I guess by May, that should be enough time. Does it just take time to kind of put together the efficacy data? And then by the time May hit you can kind of check to make sure there weren’t any adverse events and then just shoot that off? And then the second question is just kind of timing on how long do you think the skin laxity trial might take to enroll the Phase 2 part?

Yes. So for the dermal IDE study, it is a 90-day follow-up for the patients. The 6-month is on the other study. Okay, so just so we are clear on that, the 90-day is – the 6-month is for the skin laxity, 90 days for the dermal resurfacing. But one of the things that has to happen is that there is a lot of data that needs to be crunched, there is a lot of evaluations from third-party evaluators that need to add and then we need to submit the 510(k). And so, our plan is to submit it in May and our plan is to do as fast as we possibly can obviously, but our plan is to also make sure that we do it right and then we – that we get it done the right way. So, we will let you know, on the dermal when we do submit that, but that is our plan. And then typically, it’s like I said it’s usually about 90 days after that, for the dermal. For the IDE, look, we just got notification from the FDA just late last week. And so we are working to start Phase 2 on that. In the next update that we will let you know publicly is when we begin Phase 2 of that study and then we will outline everything at that point in time.

Got it. Alright, great. Well, thanks for the updates today. I will jump back in queue there.

Thanks, Kyle.

Thank you. Our next question today is Russell Cleveland. [Operator Instruction] Our next question is coming from Russell Cleveland with Renn Capital. Your line is now live.

Thanks for the number. So, that 90% plus on the handpiece sale is very, very encouraging. So, my question is around margins, now, the margins on the handpieces, what are our goals there? And as the handpieces increase, it will become more and more important on our quarterly numbers. So, give me some color here on what our objectives are on the margins for the handpieces as opposed to our equipment sale?

So, we don’t break out the margins between capital equipment and consumables at this point in time. And so I – that’s just the way it is, but the product mix will continue to drive a margin expansion and the improvements that we are having in our manufacturing will continue to drive gross margins into the fourth quarter and for 2021, but we don’t breakout the margins between capital and disposable.

But obviously the handpiece sales can have much higher margins over time, is that the way am I interpreting that right?

Well, like I said, we don’t breakout the capital for disposables, but the overall gross margin of the business, yes, will continue as we move forward into Q4 into 2021.

Okay, thanks so much for the numbers.

Thanks, Russell.

Thank you. We have reached the end of our question-and-answer session. And ladies and gentlemen, that does conclude today’s teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Thank you.