Ladies and gentlemen, good morning, and welcome to the Apyx Medical Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeremy Feffer from LifeSci Advisors. Please go ahead.

Thank you and welcome everyone to our third quarter 2024 earnings call. Representing the company on the call are Stavros Vizirgianakis, Executive Chairman of the Apyx Board of Directors, who will participate in the first part of the call; Charlie Goodwin, Chief Executive Officer; and Matt Hill, Chief Financial Officer of Apyx. 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 factor 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 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.

Thank you, Jeremy, and thank you all for joining us today. Per our usual format on these quarterly calls, I will be providing a review of our performance in the third quarter, and then I will turn the call over to Matt for a review of our third quarter financial results and full year guidance. We will then open up the call for your questions. However, before I get started, I would like to have Stavros take a few minutes to address the strategic changes announced this morning at the Board and corporate levels of Apyx, as well as actions taken to strengthen the company's balance sheet. Stavros?

Thank you, Charlie, for having me join you on today's call to address the strategic changes happening at Apyx, along with the financial actions taken, which we believe strengthen the company's balance sheet. First, as announced in the press release issued earlier today, the Apyx Board of Directors and management team have decided to implement an organizational restructuring that is expected to better focus the company's resources and streamline operations. Under the restructuring, Apyx reduced its US workforce by nearly 25%. As part of the reduction, Todd Hornsby, Executive Vice President of Sales and Marketing, will be leaving the company effective immediately. Todd has been a valuable member of our sales team for more than 10 years. We are grateful for his contributions to the company during this time. Under the new structure, Charlie has assumed direct responsibility for the sales organization, in addition to his other duties as CEO. As a reminder, Charlie has decades of experience leading medical device sales teams and is well positioned to support the function. In order to free up Charlie's time, I'm also pleased to announce Shawn Roman has been promoted from his current position of Vice President Research and Development to Chief Operating Officer. Shawn has been with the company since 2015 and is well qualified for his new role. In a moment, Matt will discuss the specifics in regards to the expected cost reduction and one-time costs, as well as how the restructuring is expected to extend our runway into 2027. I wanted to be clear that this wasn't a decision the Board of management took lightly. We carefully evaluated our options and determined that this restructuring was needed to right-size the business. Looking to the future, with the introduction of our game-changing new platform, which will enable the company to…

Thank you, Stavros. The management team and I appreciate your support. The Board's decision to make its own set of cost reductions alongside the corporate restructuring speaks volumes and is a positive signal to the entire team that everyone is committed to bring down costs while utilizing our resources to drive future revenue growth. Moving now to our review of our third quarter performance, we reported total revenue of $11.5 million for the quarter, a decrease of 4% compared to $12 million for the same period last year. Looking at this by segment, sales of our Advanced Energy products decreased 6% year-over-year to $9.3 million. Our year-over-year business was down due to soft generator capital sales. This is not unique to us and have seen other companies in the aesthetic space experiencing the same challenges due to the macroeconomic environment and GLP-1 drugs, which has affected procedural volume. What I am excited to share with you is that in spite of the reduction in the number of surgical procedures in our space, in the third quarter, our disposable handpiece revenue grew 9% overall and 15% in the United States. This year, we are approaching 90,000 units globally and disposable revenue now accounts for more than 60% of our total AE revenue. Our OEM or generator manufacturing business continues to perform well and grow. Going forward, we see even more opportunities for our technology due to the rapid uptake in the GLP-1 drugs and their associated side effects of loose skin. The broader market pressures I referred to are tied to the emergence of GLP-1 drugs, which has resulted in patients postponing aesthetic procedures. We expect these macroeconomic challenges will continue to negatively impact the capital equipment side of our business through the near future. While this market shift has pressured…

Thanks, Charlie. Before I get started, please note that all references to third quarter financial results will be on a GAAP and year-over-year basis unless noted otherwise. As Charlie mentioned, we reported a 4% decrease in total revenue to $11.5 million in the third quarter of 2024 when compared with the $12 million for the third quarter of 2023. This was primarily due to Advanced Energy revenue, which decreased 6% year-over-year to $9.3 million. The Advanced Energy decrease is mostly driven by a lower average selling price of Advanced Energy generators to domestic customers, fewer domestic customer upgrades to the Apyx One Console, and a decrease in international sales of new generators. These decreases were partially offset by increased volume of single-use handpieces domestically and sales of upgrades to the Apyx One Console internationally. OEM segment sales increased 3% for approximately $0.1 million in the third quarter of 2024 when compared to the third quarter of ’23. The increase in OEM sales was due to increases in sales volumes to existing customers. Gross profit for the third quarter of ‘24 decreased $1 million or 13% to $7 million. Gross profit margin was 60.5% compared to 66.6% in the prior year period. The decrease in our gross margin was primarily driven by a decrease in the average selling price of generators, changes in the sales mix between our two segments with our OEM segment comprising a higher percentage of total sales, and changes in geographic mix within our Advanced Energy segment with international sales comprising a higher percentage of total sales. Operating expenses decreased $2 million or 16% to $10.6 million, reflecting our continued emphasis on controlling costs, including the elimination of ‘24 bonuses. The decrease in operating expenses was primarily driven by salaries and related costs, and selling and general…

[Operator Instructions] The first question comes from the line of Matthew O'Brien from Piper Sandler. Please go ahead. Matthew O’Brien: Great. Thanks for taking the questions. And, Stavros, good to reconnect here a bit this morning. Maybe just starting with '25 and the Advanced Energy commentary, Charlie or Matt, just where is this growth, this kind of 7.5% going to come from? Is it really just on the handpiece side of things or do you expect the generator side to start to flatten out and even improve somewhat next year as rates start to fall a bit?

Yeah. So, thanks for the question, Matt. Our budget for '25 assumes that the capital equipment market stays the same that it is right now. To your point, it is not expected to do that. It is expected to get better. But from a budget perspective, that is our expectation that it doesn't get any better and it stays exactly the way that it is now. And so, yes, that growth would come from continued handpiece growth and a little bit from Ayon in the back half. Matthew O’Brien: Got it. And then, can you just talk a little bit more about Ayon and coming to market with such a robust product? First of all, just the development requirements to get that product to market. I mean 510(k) seems like it makes sense, although something as robust as this seems pretty differentiated. So I'm not sure what you anchor it to specifically, but just how that product specifically can catalyze the company late next year and then into '26. Thanks.

Yeah. Thanks for the question. And I'm so happy that we actually get to actually talk about this now because it's been in the development for quite a while, and it's been part of our overall strategy to be the company that all aesthetic surgeons think about for surgery. We think that this is a game changer. We think, combined with the Apyx One generator, that this becomes the heart and soul of every doctor's operating room because quite frankly, there's not a single surgical procedure that they cannot do without this platform now, and it's all integrated into one incredibly nice package. But it is just a 510(k). And I don't want to say anything is relatively simple, but there are predicate devices for all the technologies. And so, that makes it a lot easier when you're going through the 510(k) route. And we actually did a pre-submission already with the FDA to let them know what is coming and already got their feedback. So we feel pretty good that we're on the right path for getting this through the agency in a pretty good length of time. But obviously, it's incredibly exciting for us here at Apyx Medical and something that it's been the hardest thing not to talk about for the longest time now because we've been working on it for a while, obviously. Matthew O’Brien: Got it. Thank you.

Thank you. The next question comes from the line of Matt Hewitt from Craig-Hallum Capital Group. Please go ahead.

Good morning. Thank you for taking the questions. Maybe first up, can we talk a little bit about the environment right now? Obviously, with expectations that rates are going to come down, how are you positioning for this return to growth in 2025, either from a pricing perspective, or are you still actively participating in marketing campaigns? Just how do you kind of position things for growth next year?

Yeah. No, it's a great question. Thank you. Yes, as we talked about on the call, we unfortunately had a 25% reduction in our force this week to lower our cost basis and to basically right-size the organization and get us ready for all of this. But one of the things that we actually are spending more on next year is our direct-to-consumer campaign. It is -- we're starting to see unbelievable metrics from that. The uptick is starting to be really good from the efforts that we're putting in there. And we think that putting more on that and educating patients more about the options that they have for loose skin is going to pay dividends. And as I've mentioned before, it's not just direct-to-consumer, it is also business-to-business, too. And so, that is an area of focus for us as we move into '25 and into '26 to help do this. And so, that is something that we will keep doing.

Got it. And then, regarding the Ayon, just a couple of things. First, it's exciting to hear that you're launching this new product. Will this replace Renuvion? Is it the same generator and then just different attachments? I'm just trying to figure out if there's any risk to maybe cannibalizing a little bit of the Renuvion market. Just help me understand that a little bit better.

Yeah. No, it's a really good question, and it's really important at this point that everybody understands. The heart and soul of the Ayon system, the brains of the Ayon system is the Apyx One generator. The Apyx One generator was designed with this in mind because obviously, we had this in the works too. And so, the Ayon system will not work without an Apyx One. And so, for all the doctors that have already upgraded to the Apyx One, now they could just upgrade the rest of their body contouring offering around that. And for the doctors who have the RS3, they would need to upgrade to Apyx One first for that because the Apyx One is the key. And for all the other technologies that are in Ayon, I think it's important to note this, when we looked at designing this system, we worked with some of the top body contouring doctors in the world to help design this platform. And we have taken everything that is in there and made it better and state-of-the-art. Some of these technologies that are in Ayon had not been enhanced in about 20 years. And you can imagine, with technology, 20 years is antiquated. And so we have not only taken some of the technologies and made them better, but we have taken all of the processes and all of the things that help make the procedure safer, faster, more convenient for the doctor, and then we have put it elegantly into one tower. And so, if you think about space in these procedure rooms, they've got stuff all over the place. This is going to be elegant and all into one tower with state-of-the-art everything that exists in the marketplace today.

That’s super helpful. Thank you, Charlie.

Thank you.

Thank you. The next question is from the line of Sam Eiber from BTIG. Please go ahead.

Hey, good morning, everyone. Thanks for taking the questions this morning. Maybe I can start on the reduction in force and just better understand where some of the reductions are coming from. Is it really across the board? Are you still maybe emphasizing some of the commercial teams? Just want to better understand where that's coming from.

Yeah. It was really across the board of the entire organization. We looked at things that we could live without and focus on the things that we had to have over the next couple of years to get to profitability. And I just want to be clear on that 25%, that was just in the US, the Bulgaria facility stays the same, but that was just a US reduction.

Okay. That's really helpful, Charlie. And then maybe following up on some of the questions for Ayon and specifically the new features, is this something surgeons are necessarily asking for, updated ultrasound and PAL also? Just want to better understand adding all those features and some of the benefits that could drive for Apyx.

The short answer to that is, absolutely. One of the things that they were asking for is to have all of this put together because they've got stuff all over their procedure room and space is limited. But we didn't want to just put it together. We wanted to make the procedure safer, faster, more efficient and everything else. And so when you look at what we have actually done, we have actually made the surgeons and their staff's job easier in almost every way, and this will help drive better patient outcomes. This will help drive more efficiency. This will help reduce the time that is needed for the procedure. And so, there is really nothing that this platform won't help these surgeons out. And our goal, obviously, has always been to have Renuvion be the standard of care for all of these body contouring procedures, and we think that this just tremendously helps in that area.

Great. Thanks for taking the question.

Thank you.

Thank you. The next question is from the line of Ben Haynor from Lake Street Capital Markets. Please go ahead.

Good morning, guys. Thanks for taking the questions. First off for me, on the $4 million in additional cost savings that you mentioned having been identified, how quickly will those be put in place? And do you anticipate there are going to be any additional charges associated with those? And then, do the -- any onetime charges, do those count against the $40 million covenant?

Yeah. No, look, we've got everything. There are no extra onetime charges. And just to give you a level of the cost reductions, the cost reductions just haven't been going on for '25 and '26. I think -- I believe that we finished the end of last year with an operating expense of around $53 million. Matt is nodding his head, my CEO math is correct. And so, we will go all the way from that over the next two years down to no more than $40 million next year. And all of that has been factored into everything. So we've had substantial cost reductions this year, too. We're just carrying it on to another level for next year.

So, that $4 million run rate that will come out sometime in the current quarter and then you'll get the benefit of it as we get into 2025 and beyond?

Yeah, that's correct. So the charges for that $0.6 million that we talked about is specifically related to Q4 in '24.

Okay. Got it. And then, on the change in assumption on Advanced Energy utilization, how does -- or did that change to inform the altered guidance for the remainder of the year? Or is it mostly stay the same on the utilization side and less on the capital side, if that makes sense?

Yeah. No, I understand the question. The utilization and the growth of our disposables is still going to stay. I think we said that we expect to grow disposables low double-digits for the year, and that still remains the same. The softness still is in the capital equipment market.

Okay. Got it. And then, lastly for me, it sounds like this Ayon product is going to be quite the unit. But just curious, if you worry at all about kind of an Osborne effect where prospective customers kind of wait on things until this fantastic new unit comes out. Do you think that, that could impact capital sales as we get into, I guess, the remainder of this year in 2025?

So, are you asking if it's going to hurt capital or potentially help capital?

Well, I would imagine, by the end of the next year, it would certainly help. But in the meantime, do you get folks that maybe would have purchased a unit kind of sitting on their hands waiting for Ayon?

Yeah. I think it's actually just the opposite because remember that doctors have to have the Apyx One in order to be able to use Ayon. And we will prioritize customers that already have the Apyx One to upgrade to Ayon when it becomes available. So what we foresee happening is a lot of our doctors that would want Ayon could upgrade to the Apyx One, start using the Apyx One and continue using Renuvion. And then, when Ayon comes out, we can upgrade the rest of that system. So there is no reason that doctors would wait. And in fact, it's just the opposite. One of the reasons that we wanted to start talking about this, too, is because doctors are always planning their businesses, and we've got people that are opening new practices and doing new things later in the year. We want to make sure that they know that this is an option for them, and when they're looking to replicate their body contouring offering that they would come and talk to us about that. So we don't see it as any hindrance in the short run. In fact, it's probably a net-net positive.

Okay. Got it. Just want to make sure. That’s very helpful. Thanks for taking the questions, guys.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would now hand the conference over to Charlie Goodwin for his closing comments.

Thank you, everybody, for attending the call. We appreciate it very much, and thanks for all your support. Thank you.

Thank you. The conference of Apyx Medical has now concluded. Thank you for your participation. You may now disconnect your lines.