Hello, and welcome, ladies and gentlemen, to the Second Quarter of Fiscal Year 2024 Earnings Conference Call for Apyx Medical Corporation. At this time all participants have been placed in a listen-only more. 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 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 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 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's President and Chief Executive Officer. Please go ahead, sir.

Thanks, operator, and welcome, everyone, to our earnings call for the second 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 discuss our revenue performance in the second quarter and some of the highlights from our recent operational progress. Matt will review our Q2 financial results and full year guidance, which we updated in our earnings release today. I'll then share a few closing thoughts on our outlook and priorities for the balance of the year before we begin Q&A. Starting off with a review of our quarterly revenue results. In the second quarter, total revenue decreased 10% year-over-year to $12.1 million. By segment, sales of our Advanced Energy products decreased 17% year-over-year to $9.8 million, offset in part by sales of our OEM products, which increased 29% year-over-year to $2.4 million. We were pleased to see OEM sales that exceeded our expectations for the second quarter, driven primarily by stronger-than-expected sales to several customers. Looking at the performance of our Advanced Energy segment in further detail. As we had anticipated and communicated in the expectations shared on our last earnings call, our Advanced Energy performance in the second quarter continued to reflect the challenging environment in the cosmetic surgery market that we and other companies have experienced since the middle of last year. Most notably, the market for capital equipment purchasing remains soft as prospective customers continue to delay purchase decisions given concerns about the broader macroeconomic environment. As expected, this continued to impact global generator sales throughout the second quarter, which drove the year-over-year decrease in Advanced Energy revenue. In spite of this challenging environment, we were pleased to drive strong growth in sales of our handpieces fueled by demand from…

Thank you, Charlie. Since Charlie already covered our revenue results, I will begin at the gross profit line. All references to second quarter financial results will be on a GAAP and a year-over-year basis, unless noted otherwise. Gross profit for the second quarter of 2024 decreased $1.8 million or 19% to $7.5 million. Gross profit margin was 61.7% compared to 68.4% in the prior 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 geographic mix within our Advanced Energy segment with international sales comprising a higher percentage of total sales compared to the prior period. Operating expenses decreased $0.2 million or 1% to $13 million, reflecting our continued emphasis on controlling costs. The decrease in operating expenses was primarily driven by selling general and administrative expenses and salaries and related costs, which decreased $0.5 million and $0.2 million, respectively. These decreases were partially offset by professional service expenses and research and development expense, which increased by $0.5 million and $0.1 million, respectively. Loss from operations increased $4.3 million or 349% to $5.5 million. It is important to note that the loss from operations in the second quarter of 2023 included a $2.7 million gain related to the sale-leaseback transaction of our Clearwater property that was completed during the period. Excluding that gain from our sales leaseback transaction in the second quarter of 2023, our loss from operations increased $1.6 million or 41%. Total other expense net was $1 million compared to income of $0.3 million in the second quarter of 2023. The change was driven primarily by increased net interest expense related to our outstanding debt obligations in the second quarter of 2024 as we had lower…

Thanks, Matt. Based on the trends observed in the first half of 2024, our updated Advanced Energy revenue guidance assumes the challenging capital equipment environment in our industry will continue through the balance of the year, impacting sales of our generator systems. As I mentioned earlier, we were pleased to drive strong handpiece sales during the second quarter with sales growth that exceeded 20% year-over-year, both in the U.S. and internationally. We expect continued growth in handpiece sales over the second half of 2024, fueled by demand from both new and existing users of our technology. Specifically, our updated guidance range now assumes low double-digit growth in global sales of our handpieces, which will help to significantly offset the impact of slower generator sales in 2024. With respect to our OEM segment, we are raising our 2024 revenue guidance to reflect our strong sales in the second quarter. Our updated guidance range continues to assume nearly $4 million of OEM revenue in the second half of 2024 with more normalized customer ordering and order fulfillment. When thinking about our revenue on a quarterly basis in the second half of 2024, remember that the fourth quarter tends to be the seasonally strongest quarter of the year in our Advanced Energy segment. The third quarter typically tends to be seasonally slower than the second and fourth quarters due to summer vacations during this period. Looking ahead, our team remains focused on executing our growth strategy by continuing to raise awareness of Renuvion and educate surgeons and patients about the outcomes that can be achieved with our technology. We have also conducted a strategic review of our business together with our new Chairman, evaluating ways to enhance our growth in order to further unlock value for our shareholders. In tandem, we continue to…

Thank you. [Operator Instructions] And our first question will come from Matt Hewitt with Craig-Hallum. Your line is open.

Good afternoon, thanks for taking the questions and congratulations on the handpiece sales. And I guess I'd like to start off there. So you're still seeing strong growth with your handpiece and obviously, some of that is just the users driving better adoption. But I'm curious, as you look at the procedures, where this is primarily being utilized, can you attach a percentage of that to the GLP-1s? Or what do you think is the one or two primary drivers on the utilization side?

Yes, thanks for the question, Matt. And as we said in our prepared remarks, those -- we were very happy with our sales performance of our handpieces and it was largely consistent with our expectations in our budget that we had for the year. And we had global growth of over the 20% that we saw. And we did see strong demand from our base. And yes, some of it is because some of the GLP-1 patients are starting to come in and need treatments for their lose skin. There's no question about that. And so we're happy with that performance. And as we mentioned, we plan on having double-digit growth in handpieces for the entire year.

Well, that's great. And then maybe shifting gears a little bit. New geographies, is there any opportunity for you to add a new geography or two yet this year? Or has that kind of been put on the back burner given the environment? Thank you.

Yes, no worries. As we've mentioned before, the two markets that we're not in are the significant markets are South Korea and China, and we've got registrations into both of those countries. And so as soon as we obviously get news on that, that would be something we would let you know.

Got it. Great. Thank you.

Thank you.

[Operator Instructions] Your next question comes from Frank Takkinen with Lake Street Capital. Your line is open.

Thanks for taking my question. I'll also start with one on handpieces. I'm not sure if you parsed it out as potentially intentional. But maybe can you talk about U.S. versus international. I think I saw both were strong, but was one stronger than the other? And does that give you any insight into maybe capital equipment sales coming back if either those geographies were stronger than the other?

Yes. Look, both U.S. and international were both up more than 20% year-over-year for handpieces. So they both had very nice performances. When you're talking about the capital environment, we still see that it is challenged, and our guidance assumes that it will remain challenged throughout the rest of the year here in the U.S. That's basically how we see -- how we have it in our guidance.

Okay. Fair enough. And then one more specifically on guidance, I heard the comments about seasonality in Q3, typically stepping down. With that context in mind, it does imply a pretty good step up to Q4 also in line with regular seasonality. What's contemplated from a macro perspective in stepping back up into Q4 and what seems to be pretty solid year-over-year double-digit growth for Q4?

Yes, you're correct. Our guidance does imply a stronger year-over-year growth in the second half of 2024 compared to the first half of 2024. As a reminder, we talked about that the challenging environment in the cosmetic surgery really began in the back half of 2023. And with that in mind, our fiscal year 2024 guidance has always assumed a stronger year-over-year growth in the second half versus the first half.

Okay. Thanks for taking the questions.

Your next question comes from George Sellers with Stephens. Your line is open.

Hi, good afternoon and thanks for taking the questions. Apologies if I've missed this in the prepared remarks, but I was just curious, within system sales, how much of that was from new customers? How many systems are you placing with new customers versus practices that already have experience with Renuvion that are maybe upgrading to Apyx One?

Yes. Now that's a good question. We didn't break that actually out in the prepared remarks, so you didn't miss it at all. But I would say the vast majority of the quarter was new customers that are adopting the technology. We always have doctors that are expanding their practice and adding more things. But typically, for us, the vast majority of sales of capital in any given quarter are to new customers.

Okay. Got it. That's helpful. And then also on -- in a similar vein, just curious with the customers who have upgraded to Apyx One or the new customers who bought Apyx One, have you started seeing any acceleration in utilization with the micro handpiece or greater demand from a patient perspective with the micro handpiece? Is that a piece of what's driving the strong growth in handpieces?

So the micro definitely is all of new micro sales or growth because there's no comparison for those in the past. So there's no question that, that is a part of it. But remember, the micro is just there for small areas of the body, the face, the hands, the knees, the labia areas like that. The big driver of the growth for the handpieces is still on the body contouring handpieces. That's still the biggest driver that we see. But obviously, it's incremental growth anytime somebody picks up the micro handpiece.

Okay. Great. Thanks for that color. I’ll leave it there.

Thank you.

We are currently showing no remitting questions at this time. That does conclude our conference for today. Thank you for your participation, and have a wonderful rest of your day.