Hello and welcome, ladies and gentlemen, to the First Quarter of Fiscal Year 2023 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 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 without limitation those identified in the Risk Factors section of our most recent Annual Report on Form 10-K, 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 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, and welcome everyone to our first quarter 2023 earnings call. I am joined on today's call by our Chief Financial Officer, Tara Semb. Let me provide you with a brief outline of what we intend to cover today. I'll begin with the review of our revenue results and the factors that contributed to our sales performance in the first quarter. I'll then share an update on our operational progress made during the first quarter and in recent weeks. Tara will discuss our first quarter financial results in detail as well as our financial guidance for 2023, which we updated in our earnings release today. I'll then conclude with some additional thoughts on our outlook and strategic priorities for the remainder of 2023, before we open the call with questions. With that, let's begin with the review of our Q1 revenue results. In the first quarter, our total revenue decreased 3% year-over-year to $12.1 million, exceeding the high-end of our expectations that we shared on our fourth quarter earnings call by approximately $900,000. Our stronger than anticipated total revenue performance was largely driven by Advanced Energy sales, which decreased 10% year-over-year to $9.7 million, exceeding the high-end of our expectations by approximately $700,000. OEM sales increased 46% year-over-year to $2.5 million and approximately $200,000 higher than we had anticipated. Looking ahead at our Advanced -- looking at our Advanced Energy sales performance in more detail, as anticipated during the first quarter, we continue to experience disruption in global sales of our Advanced Energy products due to the medical device safety communication that was posted by the FDA in March of 2022. The 10% decrease in sales in our Advanced Energy products was driven by global sales of generators and handpieces, which both decreased by more than 10% year-over-year. While…

Thanks, Charlie. I will begin my review of our first quarter financial performance at the gross profit line since Charlie covered our revenue results. Gross profit for the first quarter of 2023 decreased $0.6 million or 8% year-over-year to $7.6 million. Gross profit margin was 62.4% compared to 65.8% in the prior year period. The decrease in our gross margin was driven primarily by changes in the sales mix between our two segments with our OEM segment comprising a higher percentage of total sales and product mix within our Advanced Energy segment. These headwinds to our gross margin performance were partially offset by geographic mix within our Advanced Energy segment with domestic sales comprising a higher percentage of total sales. Operating expenses decreased by $0.9 million or 6% year-over-year to $13.2 million. The decrease in operating expenses year-over-year was primarily driven by professional services expenses, selling, general, and administrative expenses, and salaries and related costs, which decreased by $0.5 million, $0.2 million, and $0.1 million respectively. Loss from operations for the first quarter of 2023 decreased $0.26 million or 4% year-over-year to $5.6 million. Total other loss net increased $161,000 to $188,000. Income tax benefit was $2.3 million compared to an income tax expense of $70,000 in the first quarter of 2022. Net loss attributable to stockholders was $3.5 million or $0.10 per share compared to $5.9 million or $0.17 per share for the first quarter of 2022. Adjusted EBITDA loss for the first quarter of 2023 was $4 million unchanged compared to the prior year period. As a reminder, we provided a detailed reconciliation from net loss attributable to stockholders to non-GAAP adjusted EBITDA in our earnings press release. As of March 31, 2023, the company had cash and cash equivalents of $16.3 million compared to $10.2 million as…

Thanks, Tara. In summary, we're pleased with our strong start to 2023, from both a financial and operational perspective. Given the performance and progress achieved by our team during Q1, we are raising our full-year revenue guidance and now expect to deliver revenue growth in sales of our Advanced Energy products of 39% to 47% year-over-year. With multiple tailwinds to our growth, including the four 510(k) clearances we've secured over the last 12 months, and the most recent update made to the safety communication, as well as the commercialization of our Apyx One Console, we continue to expect strong contributions from improving generator and handpiece sales in the U.S. along with improving handpiece trends internationally as we progress through 2023. Based on the latest industry data, we estimate the market opportunity for Renuvion technology in the cosmetic surgery market is nearly $3 billion in the U.S. alone including an annual opportunity in excess of $700 million based on the number of procedures performed each year. Looking ahead, we remain committed to maximizing the potential growth opportunity in front of us by educating the U.S. cosmetic surgery market, supported by our direct-to-consumer marketing and our clinical support by our medical affairs team, and empowering our international distribution partners to do the same while delivering progress with respect to our remaining strategic initiatives for 2023. First, to enhance our Renuvion product portfolio by bringing new technologies like our Apyx One Console to the market. Second, to expand our portfolio of clinical evidence supporting the use of our products. And third, to manage our expenses and drive progress towards profitability. By doing so, we will continue to establish Renuvion as the leading technology for our targeted indications, bringing innovation to the global cosmetic surgery market for the benefits of all of our stakeholders. In closing, I'd like to thank our employees and distributors for their efforts and achievements during the first quarter, as well as our customers, investors, and those on today's call for their support. With that operator, let's now open the call for questions.

Thank you. [Operator Instructions]. Our first question comes from the line of Matthew O'Brien with Piper Sandler. Please proceed with your question.

Good morning. Thanks for taking that question. Just maybe Charlie for starters on the guide for the year, obviously good uptake of the new generator but there's a pretty steep ramp still throughout the course of the year. I know you've got all the education, but again, there's a lot of reeducation that's going to need to go on. So can you just talk a little bit about your confidence in getting to the full-year guide and maybe bear within that question, talk maybe a little bit about April, if you don't mind, as far as what you're seeing that gives you the confidence especially on the Q2 side?

Yes. Thanks, Matt. I appreciate the question. And just so, we are very confident in our ability to deliver our growth of at least 39% and for a few reasons. The first is the recent 510(k) clearances and the FDA updates of the safety communication, which we believe addresses the remaining issues of the safety communication from March of 2022. And secondly, as I mentioned before, the commercialization of our Apyx One generator, which is already demonstrated its ability to contribute to our growth in 2023. And it is a really nice console and a really nice machine and is being -- it's being received very well by both existing and new customers in the U.S. And then third is that we for the first time get to tell this story because of all the 510(k)s that we've obtained and we're still in the early innings of the commercial of the direct-to-consumer launch, but that launch is going to pay dividends for us as we continue to go through the rest of this year. And so -- and we continue to expect especially on the handpiece side of things, things to get better now outside of the United States for the rest of the year also. And all this was already factored into our guidance that we gave at the beginning of the year, and so things are going to how we planned, they're just a little bit better than how we planned and that's how we raised guidance. In regard to April, I appreciate the question, but we're not going to start talking about monthly trends in here. It's all factored into our guidance that we gave through the rest of the year and it's something that we're very comfortable with.

Okay. And so the follow-up questions just on the U.S. obviously the most important of the geographies at this point. Can you talk about just some of the early conversations you're having with clinicians that may have been big Renuvion users slowdown post the safety recar -- safety notice? And just maybe frame up the opportunity like those guys had reduced their utilization by 50%, 60% and we're already starting to hear about them getting back to or thinking about getting back to 100% or 105% and things like that on the handpiece side of things. Thank you.

Yes. I appreciate the question. Remember, especially in the U.S. that we did an incredible job. The team did a phenomenal job of retaining a lot of the -- in fact, almost all of the existing customers. And from a handpiece point of view and from a utilization point of view, it was affected, but it wasn't affected nearly as much as the generator side of things. And so now with the latest indication that we have for use after liposuction, we are actually the only cleared device to be used after liposuction and body contouring procedures. And so if we have people that did slowdown or aren't using it as much, it's obviously an opportunity for us to go back in there and talk to them about that because now if they want to use a clear device for that, we are the only game in town. And secondly, with new prospects and potential new customers that will come on and drive utilization that that this is the only clear device for them also. Also with that, from a utilization point of view, the other large driver of utilization in the U.S. specific is that This is Me campaign and the direct-to-consumer approach that will drive consumers to the doctor's office to ask them for Renuvion technology, which will not only drive incremental usage, it will also drive doctors that don't have the technology to acquire the technology. And so those are all of the dynamics, especially in the U.S. that are -- that we're facing now through the end of the year. And our guidance has always contemplated all of those things. It's just now, it's -- we raised it be -- we raised it by $1 million based on the beat we had in Q1.

Thank you. Our next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group. Please proceed with your question.

Good morning, and congratulations on the strong quarter both from a financial and a regulatory standpoint. Maybe first question regarding the safety communication, so that got updated yesterday afternoon, what has been -- or what's been the feedback from your OUS distributors and customers? Have you been hearing from them that, hey, as soon as you've got this resolved, we're going to be back buying more or maybe help us understand kind of what that OUS ramp could look like now that this is resolved?

So Matt, you got to let me breathe here for a second. We didn't get the update till 3 o'clock in the afternoon yesterday, and most of our OUS distributors are in bed. And then I'm doing this morning, so at least give me a second to figure all of that stuff out. But what our guidance assumes, our guidance assumes for the rest of the year in there is that we would have some stronger utilization trends as the year progresses, but it really doesn't assume a huge pickup in new generator sales outside the U.S. And the reason for that is just as there was some lag, when we got the safety notice outside of the U.S., we just need time to see what is actually going to happen outside the U.S. and so we can give an update later. But I don't have anything for you to answer that question at this point in time just because it's so new.

Understood. And then as far as the increasing guidance, you provide a little bit of color here, but what kind of visibility do you have particularly on the generator side? Do you have obviously you're going to have the pipeline, your funnel but do you have -- are you kind of working off of a backlog? Do you have six-month visibility, nine-month visibility? Just help us understand how you're I guess maybe another way to ask about the comfort with your guidance question.

Yes. So look, we've got all the forecasts for the sales organization in the U.S. They give basically a yearly forecast and then it's updated obviously every quarter. And so we've got insights into that as far as what we think our pipeline is for new customers. And then remember that I mentioned too is what we did not know when we launched the Apyx One is what the uptick would be initially on upgrading existing customers. And if you look at the majority of the beat that we had that was on upgrading our existing customers. And so we would expect that to continue throughout the rest of the year plus we did do better than our guidance had previously expected on bringing on new customers in the U.S. and that was also previously factored into our guidance also. So the visibility that we got is the visibility that we've always had. The part of it that is a little bit new is the upgrade our ability for our new customers.

Got it. And then maybe one last one here and then I'll hop back in the queue. But regarding gross margins, so you did provide a little bit of a discount as a way to encourage customers to upgrade to Apyx One. How much of an impact, if any, was that on gross margins in the quarter? And are you kind of expecting that over the course of this year as you get everyone kind of ramped up on the new generator? Thank you.

Yes. So if you're looking at what the cause was for gross margins to be a little bit lower in Q1, it didn't have anything to do with the upgrades per se. It had more to that OEM was so strong and that that was a larger portion than we had anticipated for that. As far as the upgrade price and the upgrades that we are giving, that's all contemplated in what we're doing and how we're moving forward. So it was really had to do, the difference in gross margins really had to do with OEM and then mix within the Advanced Energy category.

Thank you. [Operator Instructions]. Thank you. We are currently showing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation.