Hello, and welcome, ladies and gentlemen, to the First Quarter of Fiscal Year 2024 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 and 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 the General 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 earnings press release on the Investor Relations portion of our website. I would now like to turn the floor over to Mr. Charlie Goodwin, Apyx Medical President and Chief Executive Officer. Please go ahead, sir.

Thanks, operator, and welcome, everyone, to our earnings call for the first quarter 2024. I'm joined on today's call by Matt Hill, our Chief Financial Officer. Let me provide you with a brief outline of today's call. I'll begin with a discussion of our first quarter revenue performance and some of the important areas of operational progress, our team has made to date this year. Matt will then review our quarterly financial results and guidance for 2024, which we reaffirmed in our earnings release today. I'll then conclude our prepared remarks with a brief discussion of our outlook and priorities for 2024 before we open the call for questions. Now let's get started with a review of our revenue results. In the first quarter, total revenue decreased 16% year-over-year to $10.2 million. The decrease in total revenue growth was driven by sales of our Advanced Energy products, which declined 23% year-over-year to $7.5 million. This was offset partially by growth in sales of our OEM products, which increased 14% year-over-year to $2.8 million. Turning to a more detailed discussion of our performance in our Advanced Energy segment. Our first quarter Advanced Energy results were largely consistent with our expectations outlined in our most recent earnings call in late March. As a reminder, we had expected continued softness in the market for cosmetic surgery capital equipment purchasing similar to what other companies in our industry have been facing since mid-2023. The dynamics observed during the first quarter remain consistent with these expectations. Specifically, our team continued to see prospective customers delaying investments in new capital equipment mentioning broader macroeconomic uncertainty, along with concerns about the financing environment and high interest rates. With this as a backdrop, the year-over-year decrease in Advanced Energy segment sales during the first quarter was predominantly driven…

Thank you, Charlie. Given that Charlie discussed our revenue results, I will begin with the gross profit line. Unless noted otherwise, all references to first quarter financial results are on GAAP and a year-over-year basis. Gross profit for the first quarter of 2024 decreased $1.6 million or 21% to $5.9 million. Gross profit margin was 58.1% compared to 62.4% in the prior year period. The decrease in our gross margin was driven primarily by changes in the sales mix between our 2 segments with our OEM segment comprising a higher percentage of total sales and by geographic mix within our Advanced Energy segment with international sales comprising a higher percentage of total sales compared to the prior year period. As Charlie mentioned, we were pleased in the reduction in our total operating expenses of $0.6 million or 5% to $12.6 million, reflecting our continued emphasis on controlling costs. The change in operating expenses was primarily driven by selling general and administrative expenses, professional service expenses and salaries and related costs, which decreased by $0.4 million, $0.2 million and $0.2 million, respectively. These decreases were offset partially by research and development expenses, which increased by $0.1 million. Please note our operating expense in the prior year period included a reclassification of $150,000 from salaries and related costs into research and developing expenses to better align senior leadership team costs and expenses with the areas that they lead. This will continue in coming quarters. Loss from operations for the first quarter of 2024, increased $1 million or 18% to $6.6 million. Total other expense net was $0.9 million compared to $0.2 million in the first quarter of 2023. The change was driven by an increase in net interest expense related to our outstanding debt obligations in the first quarter of 2024 as…

Thanks, Matt. The reaffirmation of our 2024 guidance reflects both our performance in the first quarter which was consistent with our expectations as well as our outlook and key assumptions for the balance of the year, which remain unchanged. Our guidance continues to assume slower generator sales in 2024, given the challenging capital equipment environment in the cosmetic surgery market. Specifically, we continue to expect that this challenging environment will persist throughout 2024 with modest improvement in trends in the second half of the year. Our guidance also continues to assume that the impact of slower generator sales in 2024 will be offset either fully or partially by year-over-year growth of sales of our handpieces, driven by demand from both existing customers and new users. With respect to our OEM segment, our guidance continues to reflect a return to more normalized ordering from our OEM customers in 2024. Lastly, it's important to note but the second and fourth quarters of each year are typically when we see the highest quarterly revenue in our Advanced Energy segment given the seasonal trends we have experienced historically. Stepping back, as we continue to navigate this difficult near-term environment, our team continues to focus on leveraging the recent operational achievements I discussed earlier to expand awareness and build momentum in the cosmetic surgery market. With more than $37 million of cash and cash equivalents at quarter's end we believe our financial resources enable us to pursue our strategic initiatives. As I mentioned earlier, controlling costs remain an important priority for our organization and we continue to evaluate opportunities to preserve capital as we execute our growth strategy. Looking ahead, we remain focused on capitalizing on our multibillion-dollar addressable market opportunity as well as the favorable longer-term tailwinds in our industry, including demand for body contouring procedures, the adoption of GLP-1 drugs for weight loss, and the increasing social acceptance of minimally invasive cosmetic procedures. Once the market environment improves, we believe Apyx Medical will be uniquely positioned to benefit from these important tailwinds to drive strong, sustained growth and value creation over the coming years. I'd like to conclude by thanking our employees and distributor partners for their efforts in the past quarter as well as our customers and shareholders for their support. With that, operator, let's now open the call for questions.

[Operator Instructions] And our first question comes from Matthew O'Brien from Piper Sandler.

This is Phil on for Matt. I was just hoping to start with a little bit more color on the guidance. As it relates to the sequential ramp implied over the remaining quarters, what gives you confidence there? Are you starting to see some of the capital equipment overhang lift and could this accelerate in the back half of the year?

Yes. So, obviously, we introduced our fiscal '24 guidance in late March, and that included our assumptions for the operating environment for the entire year. And nothing has changed in that operating environment over the last few weeks of Q1. So with respect to what we have seen so far in April, we're not providing inter-quarter updates. The capital equipment environment still continues to be challenging, and our guidance continues to assume modest improvements in capital in the second half of the year. And as I stated in the prepared remarks, typically, second quarter and fourth quarter are much better from a seasonality perspective. So it is what we talked about at the last call, and it's right in line with what we've been expecting all year.

That's helpful. And then just shifting gears, an update on the GLP-1 dynamic. I know you've talked about it on many previous calls, but are these patients really in your funnel yet to be treated? Or perhaps are we still waiting on these patients to finish out their weight-loss journeys?

Yes. I think that when you look at the challenging macro environment right now, part of that story is the GLP-1s, where you have patients that are on -- at different time intervals, if you will, on that weight loss journey. And a lot of those patients are waiting to get to their ideal weight in order to have that procedure done. And quite honestly, it depends on the practice, it depends on where they have been along this journey. We have practices that have patients coming in from that funnel because they've been out in front of this for over a year now. And we've got other practices that are just getting involved in this, and it's -- they're still waiting for a lot of those patients to come through. And so it is -- it is part of this macro environment that we have right now in the aesthetic space, this disruption with the GLP-1 drugs. But the point is, is that most of these patients are going to come through this funnel and a lot of these patients are going to be seeking body contouring procedures, to take that last step. And so we think that this is a tremendous long-term tailwind for our technology, and it is just something that we've got to get through right now.

And our next question comes from Frank Takkinen from Lake Street Capital.

Great. I've got 2, and I'll ask them both upfront. First, on the alternative selling model, I think you kind of referenced some financing options or different unique ways you can get equipment into customers that may be reticent to purchase. Maybe talk a little bit about that and if there's a broader strategic rationale for going to just a straight placement model where you're placing that equipment free but charging a little bit more on the disposable side just to start to reaccelerate those placements. And then two, on OEM. Can you just call out if there was any stocking orders or any inconsistencies with that Q1 print and how we should think about the rest of the year?

Yes. No, no problem, Frank. As far as the acquisition models that we have for doctors to acquire the capital, we will be selling the product, and we've got a lot of different options for the doctors. Obviously, we've got straight purchase, which is something that we've always had. We've got leasing options where we can help them with the interest rate, if that is a route that they want to go. And then we have our subscription partner that is MedShift that we can use to do that. We don't believe that placing generators is an option for us, and we will be selling generators along those -- along those 3 lines. And we believe that those 3 options give the customer adequate room or adequate choices in order to acquire the technology and so we will stay with that. As far as the OEM guidance goes, we reported $2.8 million of OEM in Q1 that was in line with our expectations. Our 2024 guidance continues to assume a roughly high single-digit decrease in OEM sales year-over-year. The low end of our guidance is roughly $4 million in both the first and the second half of the year. There obviously is some fluctuation in the year-over-year growth rates in a given quarter. And that's just the lumpiness of our ordering partners of when they want to place their orders.

And our next question comes from Matt Hewitt from Craig-Hallum Capital.

Maybe first up, if we could dig in a little bit on some of the geographies. It sounds like you're seeing some better -- or better performance in a few OUS geographies. Could you talk a little bit about what's driving that and whether that's sustainable?

Yes. So our AE sales OUS were stronger than the U.S., number one, but the results still varied by country and by region. And we did call out 2 areas, if you will. Well, actually, it's a couple of areas, but Europe, Middle East and Africa, and APAC were strong demand from our distributors. And I think that the -- when you ask if it's sustainable, I think it was still in line with what we expected, but it is nice to see that strength in those markets and we've made some changes in APAC and we've been spending more time in Europe and the Middle East and doing a lot of the E&Ps and things like that. And those things are starting to pay dividends. And so, we would expect continued strength in those areas for the rest of the year, but that is already factored into our guidance for the year.

Got it. And then shifting gears a little bit. On the gross margins, I heard your comments regarding roughly 61% in the year. As you're seeing the strong utilization trends here, -- is it -- remind me, but I think there's some volume benefit that you'll get on the handpieces from a margin perspective. Are you seeing that? Or should we expect to see that as the year progresses? And maybe talk a little bit about the margin from.

Well, I think that Matt can answer specific questions on the margin, but the low end of our guidance still assumes gross margins of 61%. So that hasn't changed. And I think as Matt outlined, it was really -- in the first quarter here, it was really become -- OEM was a higher percentage of the total revenue, and then it was geographical mix within the AE segment. But when we're talking about handpieces and things that we've talked about in the past with that, Matt, remember that there's still a lot of areas outside the United States where the APR handpiece is still not registered and still not the predominant thing. And as we migrate more people to the APR, obviously, that will have a positive impact over time too. But all of this is factored into the guidance that we gave for the gross margins for the year.

[Operator Instructions] Our next question comes from George Sellers from Stephens.

Maybe on the operating expense, side of the house. I heard your guidance about expecting a decline of 3% for the year. But you also talked about some increased DTC spending, it sounded like. So, maybe can you just flesh out some of the quarterly cadence for that OpEx decline when we should see maybe an increase of DTC spending? And maybe what some of the areas you'll be pulling out operating expenses from.

So thanks for the question. The low end of our '24 guidance continues to assume approximately $52 million of OpEx like we said -- and you said as well, a decrease of approximately 3% year-over-year. So where we continue to focus our spending is investing in R&D to support our future growth initiatives, our -- those costs will be offset by lower SG&A salary-related costs of professional services, where we will -- we are allocating costs into the DTC in order to get that message out and ensure that we are achieving the goals that Charlie discussed as part of his prepared remarks.

Yes. And George, if I could just jump on that for a second. On the back end of that is, as with most small medical device companies, the first quarter from an expense point of view is always 1 of the highest, and you start to have some things flatten out or even out as we go forward. So that $52 million that Matt just talked about, that has the increased DTC spending in it.

Yes. Okay. That's helpful. And then maybe on the macro side of it and specifically thinking about your handpiece revenue, it sounds like that declined a little bit in the quarter. Just curious how the underlying market performed in terms of liposuction procedure volumes and now handpiece sales compared? And then with your guidance assuming growth in handpiece revenue throughout the year, can you just help us parse out what that implies for the sequential increase in handpieces and what that assumes for the underlying macro in terms of the procedure side of it. So not the generator sales, but more on the procedure side?

Yes. And as we said in the prepared remarks, both generators and handpieces were in the range of expectations for the quarter, okay, so both of them were there. And global sales of our handpiece, as you pointed out, decreased modestly on a year-over-year basis. And again, that was expected and contemplated with our expectations that we provided on the Q4 call. We still continue to expect, though, a year-over-year growth in handpiece sales in 2024 which will help offset the slower generator sales either fully or partially. So we do expect growth. It's just sometimes when you look at it on a quarter basis, it's different. And if you remember, in Q4, we had actually really strong growth in our handpieces. And so it's -- we'd still expect growth year-over-year.

And at this time, this concludes our question-and-answer session. I would now like to end the call. Thank you all, and have a wonderful day.