Hello, and welcome, ladies and gentlemen to the First Quarter of 2022 Earnings 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 current expectations of management and involve inherent risks and uncertainties that can cause actual results to differ materially from those indicated, including, without limitation, those identified in the Risk Factors section of our recent annual report on Form 10-K, filed with the Securities and Exchange Commission, on our most recent 10-Q filing, and the company's other filings with the Securities and Exchange Commission. 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. Charlie Goodwin, Apyx Medical's President and Chief Executive Officer. Please go ahead, sir.

Thanks, operator. Welcome, everyone, to our first quarter earnings call. I'm joined on today's call by our Chief Financial Officer, Tara Semb. Turning to a quick agenda of what we intend to cover today, I'll begin by discussing our first quarter revenue results and the drivers of our performance. I'll then provide you with an update on the recent developments following the FDA's safety communication that was posted in mid-March. I'll briefly review some of the recent operational highlights, including an update on the status of each of our five 10-K submissions. Tara will discuss first quarter financial results in detail and review our financial guidance for 2022, which we updated in our earnings press release today. After Tara's commentary, I'll share some thoughts on our outlook and focus areas for the remaining months of 2022 before we open the call for Q&A. Starting with a review of our first quarter revenue results, total revenue increased 45% year over year to $12.5 million, exceeding the expectations of $10.5 million to $12 million, which we shared in our Q4 earnings call. Our total revenue growth was primarily driven by Advanced Energy sales, which increased 41 percent year over year to $10.8 million. OEM sales contributed to our growth as well, increasing 72% year over year to $1.7 million. Within our Advanced Energy business, strong global handpiece demand was by far the largest contributor to our year-over-year growth in Q1, with handpiece sales increasing by more than 80% year over year. We were also pleased to see that handpiece sales growth was driven by strong sales in both U.S. and international customers. As a reminder, our handpiece sales growth is an important indicator of the utilization that we are seeing from our existing surgeon customers, reflecting the underlying demand for our Helium…

Thanks, Charlie. Since Charlie covered our revenue results, I will begin at the gross profit line. Gross profit for the first quarter of 2022 increased $2.4 million, or 40% year over year, to $8.2 million. Gross profit margin was 66%, compared to 68% in the prior year period. The decrease in gross margin in Q1 was driven by sales mix between segments, product and geographic mix within our Advanced Energy segment, and higher cost to manufacture inventory, as we continue to experience increased shipping costs. The year-over-year decrease in gross margin this quarter was partially offset by the mix of newer product models, as we obtain registration and introduce these products into the various markets that we serve. Operating expenses increased $3.5 million, or 33% year over year, to $14.1 million. The increase in operating expense year over year was driven by a $1.7 million increase in selling, general, and administrative expenses, a $0.9 million increase in salaries and related costs, and a $0.8 million increase in professional services expenses. The increase in selling, general, and administrative expense and professional services was primarily driven by the return of in-person internal training events and trade shows, as well as our in-person users meeting in 2022. Loss from operations for the first quarter of 2022 increased $1.1 million, or 24% year over year, to $5.9 million. Total other loss net was $27,000, compared to $0.1 million last year. Income tax expense was $0.1 million, consistent with the first quarter of 2021. Net loss attributable to stockholders was $5.9 million, or $0.17 per share, compared to $4.9 million, or $0.14 per share, for the first quarter of 2021. Adjusted EBITDA loss for the first quarter of 2022 was $4 million, compared to adjusted EBITDA loss of $3.4 million in the prior-year period. As…

Thanks, Tara. Despite the significant challenge we have faced in recent months, we are pleased by our performance and the impressive engagement and support we have seen from our fellow Apyx employees, as well as our distributors and customers. Our stated expectations for our Advanced Energy sales performance in the second quarter reflect our improved outlook for this business in the near term. We have updated our outlook for total revenue in fiscal 2022 based on our better-than-expected results in the first quarter and our growth expectations for the second quarter and second half of 2022. We continue to believe that the Advanced Energy handpiece revenue will represent the largest driver of our total Advanced Energy revenue growth again in 2022, given the strong utilization-based demand we expect for our Renuvion handpieces. As I mentioned earlier, our Advanced Energy products remain on the market. They continue to retain their existing FDA 510(k) clearances, and we intend to continue marketing and selling our products for their existing cleared clinical indications. We believe that the disruption related to the FDA safety communication will be transitory and that the long-term growth for Apyx Medical remains compelling. With this in mind, our team remains focused on engaging with existing customers to facilitate utilization, raising the awareness and adoption of our innovative Helium Plasma Technology, and securing new specific 510(k) clearances to further expand our annual addressable market opportunity. We believe that our continued execution on these strategic initiatives will position Apyx Medical to achieve strong, sustained growth and progress towards profitability. I'd like to thank our employees, surgeon customers, distributors, and shareholders, along with everyone on today's call for their continued support of Apyx Medical. With that, operator, let's open the call for questions.

[Operator Instructions] And our first question will come from Matt Hewitt with Craig-Hallum Capital Group.

Thank you for the detailed update. My first question is, with the conversations that you've had with your installed base, with your user surgeons, I'm just curious what you're hearing from them from a procedure volume standpoint. Has this impacted, or maybe what types of questions are they getting from patients? What types of questions are they asking you regarding that safety communication? Any additional color would be helpful.

Yes. Thanks, Matt. First, I want to say that our sales team has done a great job in engaging with customers to address the FDA safety communication and answer all their questions, and I'm very, very happy with the job that they have done. As I mentioned in the call, they have spoken with all of our U.S. customers and international distributors, and we're spending as much time with these customers to answer all of their questions and to make sure that they've got what they need. We've also been very pleased with the level of support that we're seeing from the majority of our customers, which really speaks to their belief in our technology and the technology safety profile. And this has obviously been a significant challenge, but we believe we're managing it and supporting our customers as effectively as possible. And the response from the customers as a whole as to their utilization and continued support of the technology has been remarkable and been great.

And then maybe shifting gears with this question a little bit for Tara, on the supply chain side, are you seeing any impact there on ability to obtain handpieces or whatnot? And I guess the -- another component of that is the inflationary pressure, as you mentioned. You are seeing some of that, particularly on the shipping side. Are you able to pass those through to the customer, or are you taking a little bit of hit on that?

Yes. I mean I think that the team does a great job in managing the flow of components for our products. We have faced challenges, like every company, with availability mostly of chips, but the team has continued to work on securing those. As you saw, we had purchase commitments at the end of the quarter. In our Q, we reported $7.5 million, so we do have purchase commitments out for the year for those components. As far as inflation, I mean, we've really seen so far that the bulk of it has been related to the shipping costs and not seeing too much related to the components. But obviously, as those -- that environment continues to go up as far as inflation, we could see that further on in the year. But so far, it's not had a material impact.

[Operator Instructions] And we do have a follow-up from Matt.

I'll keep going, then. I think, Tara, you mentioned that your guidance does contain the potential for approvals starting in Q3, if I heard you correctly. How should we be thinking about that guidance or the contribution from those future approvals as we look at the back half of the year? Does that -- if you remove that, would you still hit the lower end of your range? Any color there would be helpful.

Yes. We're not going to break out the contribution specifically to the 2022 sales, but we would expect it would be relatively modest, because again, we're anticipating -- assuming clearances by the end of the third quarter.

Got it. All right. And then maybe one last one here, kind of going back to the -- it sounds like a great job getting to all of your customers, particularly here in the U.S. I guess, there's a 2-part question. One, is there an incremental cost that we should be thinking about to kind of not only get to those, but actually having those conversations and sending out the letters, dealing with all of that, that maybe hit here in Q2 that could potentially fall off Q3 and beyond? And then secondly, how is your sales team managing? They've got the calls to make to existing holders or users to make sure that they're comfortable with the communication from the FDA, but then they're also needing to be out actually selling the device. I'm just curious how that process is going.

Yes. To answer your first question, I don't know that there's really anything specific, other than the drivers of the cost that Terra had already talked about in the quarter, like having the users meeting in person and having more in-person events compared to the last quarter, so -- or compared to the prior year's quarter. So that's really the big driver in increased expenses there, and that's already there. As far as a time perspective from our sales organization, it does remain challenging, and especially in the back half of March when this first happened, because during that time, our focus was on our existing customers and making sure that they were comfortable and had everything that they need. And as we've gotten farther away from that safety communication, obviously, and got people comfortable, it has obviously allowed more time for the reps to go out and talk to new prospects and new customers. But we will always prioritize our existing customers first and make sure that they're comfortable and have everything that they need, and then, obviously, go seek potential new targets.

We are currently not showing any more questions at this time. That does conclude our conference for today. Thank you for your participation.