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Edited Transcript of BVX earnings conference call or presentation 7-Aug-19 8:30pm GMT

Q2 2019 Apyx Medical Corp Earnings Call

CLEARWATER Aug 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Apyx Medical Corp earnings conference call or presentation Wednesday, August 7, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charlie Goodwin

Apyx Medical Corporation - President and CEO

* Tara Semb

Apyx Medical Corporation - CFO

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Conference Call Participants

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* Matt Hewitt

Craig-Hallum Capital Group - Analyst

* Kyle Bauser

Dougherty & Company - Analyst

* Russell Cleveland

RENN Capital Group, Inc. - Analyst

* Jeffrey Bernstein

Cowen Prime Advisors - Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the second quarter of fiscal year 2019 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 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 those identified in the risk factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission, as well as our most recent 10-Q filing.

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.

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [2]

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Thanks, Julie. Welcome, everyone, to our second-quarter fiscal year 2019 earnings call. I am joined on this afternoon's call by our Chief Financial Officer, Tara Semb.

Let me provide you with a quick agenda for today's call. I'll start with an overview of our second-quarter revenue performance and the drivers of our growth during the period. Then I'll provide you with an update of our recent operational progress with respect to the four strategic initiatives that represent key components of our longer-term growth strategy.

Tara will then discuss our second-quarter financial results in greater detail and review our fiscal 2019 guidance, which we updated in our earnings press release this afternoon. I'll then conclude today's prepared remarks with some additional closing thoughts on our outlook before we open the call to questions.

At the end of Q2 2019, we reported total revenue of $6.6 million, representing 78% growth year-over-year. Our total revenue growth in Q2 was driven by performance in our Advanced Energy business, reflected by strong global demand for our Renuvion cosmetic technology.

As a reminder, we're focused on driving growth in our Advanced Energy business by increasing the adoption and utilization of our Renuvion generators and handpieces in the US cosmetic surgery market; satisfying the increasing demand we are seeing from our o-US distributors; and improving our coverage and penetration of key o-US markets by entering into new distributor partnerships.

Our continued execution with respect to each of these items during the second quarter resulted in Advanced Energy sales of $5.3 million, an increase of $2.2 million or 69% year-over-year. We also saw impressive growth in our OEM business, which increased by $721,000 or 125% year-over-year. Our OEM growth was primarily driven by contributions from our electrosurgical generator and supply agreement with Symmetry Surgical, which we entered into in August of last year as part of the divestiture and sale of the Bovie core business and brand.

Turning to a review of our revenue performance by geography, during the second quarter, our US sales increased by $1.6 million or 53% year-over-year. US sales were primarily driven by a 33% increase in Advanced Energy sales and a 147% increase in our OEM sales. Our Advanced Energy growth benefited from growth in sales of our Renuvion generators as well as strong utilization-based demand.

We were particularly pleased with our US performance, given the challenges that we faced early in the second quarter. After a tough and distracting series of events in April, we rebounded in May and June to post very strong results overall for the quarter. I commend our team for staying focused on execution despite the disruption early in the quarter.

We also saw strong growth outside the US with total international sales increasing $1.3 million or 177% year-over-year. Our international growth was driven primarily by strong utilization-related demand for our Renuvion generators and handpieces from distributors in our existing o-US markets. We entered two new countries in the second quarter, which contributed very modestly to growth year-over-year. But the overwhelming majority of our international growth was from distributor relationships that we formed in 2018, and, to a lesser extent, in early 2019.

Turning to an update of our operational progress with respect to our four strategic initiatives. As I've shared with you on prior earnings calls, we're focused on the following four strategic initiatives to position Apyx Medical for long-term growth in the commodity surgery market.

Number one is formalize our regulatory strategy to pursue specific clinical indications that will enable us to market and sell Renuvion for our targeted procedures. Two, to [cure] new clinical evidence demonstrating the safety and efficacy of our Renuvion technology. Three, enhancing physician and practice support for our cosmetic surgery customers. And four, improving our manufacturing capabilities and efficiencies.

Starting with our first strategic initiative, formalizing our regulatory strategy. In the US, we're focused on pursuing clinical indications that will enable us to market Renuvion for targeted procedures in the US cosmetic surgery market. The initial procedure that we have been focused on is dermal resurfacing, and I am pleased to report that we have made substantial progress.

After withdrawing our initial 510(k) application for dermal resurfacing procedures on March 29, we committed publicly to developing a new 510(k) submission for this clinical indication as quickly and methodically as possible, and engaged the help of external resources to advise us on the best path forward.

Our clinical and regulatory teams worked diligently during the second quarter to develop a new clinical protocol and secure the necessary support that would enable us to prepare a new IDE application. I'm pleased to report that on July 23, we submitted the IDE application for our new dermal resurfacing trial, and we are currently awaiting the Agency's response and feedback on the materials we submitted.

Once we receive and incorporate the Agency's feedback and obtain the IDE approval, we expect to initiate a new clinical study to evaluate the use of Renuvion in dermal resurfacing procedures. The results of this trial would be intended to support the creation of a new application for 510(k) clearance.

As discussed on prior earnings calls, our pursuit of new clinical indications for Renuvion has not been limited to our focus on dermal resurfacing. We have also identified other potential clinical indications where we believe our Renuvion technology would address important unmet clinical needs within the US cosmetic surgery market.

To that end, we are happy to announce that the indication we intend to pursue will be the treatment of skin laxity via the subdermal use of Renuvion in the neck. We intend to begin building clinical support for our pursuit of this indication in the coming months. Specifically, we expect to conduct a feasibility study consisting of approximately 20 patients to evaluate the safety profile of Renuvion in these procedures.

I am very excited to announce that we obtained our IDE approval for this study on July 25, and expect to begin enrolling patients by December.

In terms of our o-US regulatory strategy, Apyx Medical is focused this year on expanding our geographic footprint by obtaining regulatory clearance for our technology in new countries, particularly those with large and growing cosmetic surgery markets. In doing so, it is important to us that we own the product registrations in the countries that we enter. During the first quarter, we entered Canada and Mexico.

As discussed on prior calls, our fiscal 2019 guidance assumes growth will be driven by penetrating into existing countries as we service utilization-based demand. To the extent that we enter new countries that we believe may be material contributors to our growth profile this year, we will announce them and incorporate them into our updated guidance expectations accordingly.

In recent months, we've also made important additions to the Apyx Medical team to further bolster our regulatory affairs capabilities and support the development of our long-term regulatory strategy. In July, we appointed Dr. Libet Garber as our Director of Global Regulatory Affairs. We recruited Dr. Garber from the FDA, where she worked for 10 years as a master scientific reviewer, leading the review of over 700 FDA submissions. Prior to her tenure with the FDA, she also worked as an electrical engineer at Johns Hopkins University Applied Physics Lab in Maryland and as a researcher in several engineering laboratories.

Dr. Garber will help develop our regulatory strategy and direct the day-to-day regulatory activities for all Apyx Medical sites. She will also support the planning and design of all clinical studies required as part of our strategy to pursue and obtain new regulatory clearances.

I'm also excited to announce the appointment of Minnie Baylor-Henry, the newest member of our Board of Directors. Miss Baylor-Henry joins our Board with over 20 years of regulatory and affairs, and will be chairing a newly formed Regulatory and Compliance Committee. Among her many career highlights, Ms. Baylor-Henry spent over 15 years working in regulatory affairs for Johnson & Johnson and was ultimately promoted to Worldwide Vice President of Medical and Regulatory Affairs in the company's medical device division. She also spent eight years with the FDA.

Turning to our second strategic initiative. In addition to the studies we intend to pursue in support of our regulatory strategy, we're also focused on securing new clinical evidence demonstrating the safety and efficacy of our Renuvion technology in cosmetic surgery procedures. In the near term, our clinical team has been working on a retrospective clinical study examining the subdermal use of Renuvion in liposuction procedures, which we expect to publish during the second half of 2019.

I am pleased to report that we completed and submitted the manuscript of this study during the second quarter, and recently received confirmation that it has been accepted for publication in the open access Journal of Plastic and Reconstructive Surgery. The publication timing has not yet been confirmed, but we're looking forward to sharing additional details with you once the study becomes publicly available.

On July 15, we announced the appointment of four new members to our Medical Advisory Board with extensive expertise in plastic and cosmetic surgery: Dr. Brian Kenney, Dr. Paul Ruff, Dr. Richard Gentile, and Dr. Edward Zimmerman. With the addition of these four professionals to our existing board, consisting of Dr. Diane Duncan and Dr. Jack Zamora, we believe we have established an impressive team of advisers to evaluate and inform our clinical strategy, including the design of clinical trials to support our pursuit of new regulatory clearances.

In July, we also appointed a Senior Director of Clinical Affairs, Ms. Kari Larson, who will develop and manage our clinical research activities and support the development of our longer-term clinical strategy. Ms. Larson has spent over 15 years of clinical [resources] experience working with both healthcare companies and clinical sites. Importantly, she has developed and managed clinical affairs teams and directed clinical research activities at three aesthetic medical device companies: Lutronic, Ulthera, and MyoScience.

With respect to our third strategic initiative, enhancing physician and practice support for our cosmetic surgery customers: we continue to make great progress in developing our training and support for both new and prospective surgeon customers. During the second quarter, we continued to host physician mentor programs, or PMPs, which were attended by both potential surgeon customers in key locations across the US. These PMP events include educational sessions and live cases performed by our consulting surgeons.

The primary goal of our PMPs is to provide surgeons with the ability to learn directly from their peers in formal educational settings. They've proven very effective in helping us engage with prospective customers, and ensure that we are delivering high-quality training across the country.

To assist in our training efforts, we have also created a small team of clinical specialists charged with supporting our sales team. Following the sale of one of our Renuvion generators, our clinical specialists work closely with the new surgeon customer to deliver one-on-one training and provide support during their first cases. By ensuring that our new customers are well-trained on the use of Renuvion, we believe our clinical specialists are able to encourage strong utilization of our technology while also allowing our reps to spend more of their time pursuing new business.

In addition to pursuing -- improving our surgeon training efforts, we also continue to expand our marketing support for the Renuvion brand. During the second quarter, we provided new patient-focused marketing brochures to our surgeon customers that feature before-and-after photos. We have also received positive feedback from our surgeon customers on the first series of patient-focused Renuvion marketing materials, which we introduced during Q1.

And lastly, in connection with our fourth strategic initiative, our Director of Global Operations for Advanced Energy, Laura Iversen, and her team continue to make progress in improving our manufacturing capabilities and efficiencies. She is currently pursuing several new lean initiatives with the input of our Board member, Craig Swandal. Additionally, we have identified areas to improve the manufacturing cost of our handpieces. We expect to see these improvements [evident] themselves in our financial results as we continue to sell more handpieces.

In addition to our recent progress with respect to our fourth strategic initiative, I'd also like to congratulate our regulatory and R&D teams on an important achievement. On Monday, we announced that we received FDA 510(k) clearance for the next-generation version of our J-Plasma precise laparoscopic handpiece. In recent years, we've received feedback that surgeons in the o-US market were interested in an upgraded version of our J-Plasma precise handpiece for laparoscopic procedures that would enable them to utilize our Cool-Coag feature.

As a reminder, Cool-Coag is a feature that enables our surgeon customers to deliver standard monopolar energy and a non-contact helium plasma spray called plasma beam coagulation, in addition to our precise J-Plasma energy in a single handpiece. This feature is particularly helpful when surgeons need to coagulate a wide area of tissue.

In response to this surge in demand, we leveraged our expertise in research and development and manufacturing to create this next-generation version of our J-Plasma precise handpiece. In addition to incorporating our Cool-Coag technology, this next-generation handpiece is also 39% lighter than its predecessor for improved ergonomics.

We're pleased to have enhanced our offering for laparoscopic surgical procedures, and we expect to begin a limited launch of this handpiece by the end of third quarter. Importantly, the J-Plasma precise handpiece for laparoscopic procedures will be commercialized in the European market, where many of our European distributors sell both our Renuvion and J-Plasma products, which we believe are used in a variety of surgical procedures.

Stepping back, as I mentioned earlier in my prepared remarks, I'm very pleased with our Company's performance during the second quarter. Despite the unfortunate setback we experienced with the withdrawal of our initial 510(k) submission for the dermal resurfacing at the end of March, our team has done an excellent job of exemplifying our core values under difficult circumstances: working together, challenging the status quo, and going the extra mile to create new opportunities for our Company.

I am also very pleased with the incredible talent that we have added to our team as we continue our journey towards becoming the world's leading innovator in unique energy solutions for the cosmetic surgery market.

With that, let me turn the call over to Tara to discuss our second-quarter financial results in greater detail and review our fiscal year 2019 financial guidance, which we updated on this afternoon's release.

Tara?

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Tara Semb, Apyx Medical Corporation - CFO [3]

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Thanks, Charlie. As a reminder, our results are reported on a continuing operations basis for the period ending June 30, 2019. Any financial impacts related to the divestment and sale of our core segment appear in our financial statements as discontinued operations and are excluded from the commentary that follows.

Total revenue for second-quarter 2019 increased $2.9 million or 78% year-over-year to $6.6 million compared to $3.7 million last year. By business segment, total revenue growth in the second quarter was driven primarily by Advanced Energy segment sales, which increased $2.2 million or 69% year-over-year to $5.3 million.

Total revenue growth in Q2 also benefited from growth in sales from our OEM segment. OEM segment sales increased $721,000 or 125% year-over-year to $1.3 million in the second quarter of 2019, driven primarily by the sales of generators related to our 10-year manufacturing and supply agreement with Symmetry, entered into as part of the divestiture of the core business last August. Advanced Energy and OEM sales represented approximately 80% and 20% of total revenue in the second quarter of 2019, respectively, compared to 84% and 16% in the prior-year period.

Revenue in the United States increased approximately $1.6 million or 53% year-over-year to $4.5 million, and international revenue increased approximately $1.3 million or 177% year-over-year to $2 million. International revenue represented approximately 31% of total sales in the second quarter of 2019 compared to 20% in the second quarter of 2018.

Moving down the P&L. Gross profit increased approximately $1.9 million or 76% year-over-year to $4.5 million compared to $2.5 million for the second quarter of 2018. The increase in second-quarter 2019 gross profit was driven primarily by strong sales in the Company's Advanced Energy segment. Gross margin for the second quarter of 2019 was 68.1% compared to 68.7% last year. The change in gross margin this quarter was primarily due to revenue mix by product and geography in our Advanced Energy segment, and higher OEM sales as a percentage of total revenue this year.

Operating expenses for second-quarter 2019 increased $3.5 million or 63% year-over-year to $8.9 million compared to $5.5 million for the second quarter of 2018. The year-over-year change in operating expenses was primarily driven by a $1.5 million increase in salaries and related costs; $1 million increase in professional services; and an $870,000 increase in selling, general, and administrative expenses.

Loss from operations for the second quarter of 2019 was $4.5 million compared to operating loss of $2.9 million last year. Net loss from continuing operations for second-quarter 2019 was $4.3 million or $0.13 per diluted share compared to a net loss from continuing operations of $2.9 million or $0.09 per diluted share for the second quarter of 2018.

Second-quarter 2019 adjusted EBITDA loss was $3.5 million compared to an adjusted EBITDA loss of $2.4 million last year. As a reminder, we have provided a detailed reconciliation from GAAP net loss to adjusted EBITDA in our press release this afternoon.

As of June 30, 2019, the Company had cash and cash equivalents of $67.4 million and no short-term investments compared to cash and cash equivalents of $16.5 million and short-term investments in US Treasury bills of $61.7 million as of December 31, 2018. The Company had working capital of $74.1 million as of June 30, 2019, compared to $81.8 million as of December 31, 2018.

Turning to a review of 2019 financial guidance, which we updated in our earnings press release this afternoon. For the 12 months ending December 31, 2019, we now expect total revenue in the range of $26.5 million to $27.5 million, representing growth of 59% to 65% year-over-year. This compares to the Company's prior total revenue guidance range of $25.5 million to $26.5 million.

Our updated 2019 total revenue guidance assumes Advanced Energy revenue in the range of approximately $21.5 million to $22.5 million, representing growth of 65% to 72% year-over-year. This compares to our prior Advanced Energy revenue guidance range of $20.5 million to $21.5 million. The $1 million increase in this range is driven by our stronger-than-expected performance during the second quarter, and higher growth expectations from international countries over the balance of 2019. Our OEM revenue remains unchanged at approximately $5 million, representing growth of 38% year-over-year.

In terms of our profitability guidance for fiscal year 2019, we expect GAAP net loss in the range of $22.4 million to $21.4 million compared to our prior guidance range of net loss in the range of $23.5 million to $22.5 million. Roughly half of the $1.1 million improvement in our fiscal 2019 net loss guidance range versus our prior guidance is driven by the higher revenue growth expectations, and the other half from higher gross margin assumptions for fiscal 2019.

Specifically, we now expect 2019 gross margins in a range of approximately 61% to 62.5% this year compared to our prior guidance range of 59% to 61%. The increase in our gross margin range is driven by the stronger-than-expected gross margins we reported over the first half of 2019, and the early benefits of our focus on improving manufacturing efficiencies on our handpiece margins.

While we are pleased to report higher gross margin expectations for 2019, our margins will come in lower than the 64.7% margin we reported in 2018. As discussed on prior calls, the largest driver of the expected decline in gross margins this year is the impact of 12 months of contribution from our manufacturing agreement with Symmetry in 2019 compared to only approximately 3 months of contribution in 2018. Excluding the full-year contribution to total revenue from this manufacturing agreement, our 2019 gross margin would be approximately 65%.

Finally, we have also increased our adjusted EBITDA loss expectation in this afternoon's release. Specifically, we now expect adjusted EBITDA loss in the range of $18.8 million to $17.8 million compared to adjusted EBITDA loss from continuing operations of $11.7 million in fiscal year 2018. This compares to the Company's prior guidance of adjusted EBITDA loss in the range of $19.9 million to $18.9 million.

As a reminder, we have included a full reconciliation from GAAP net loss to non-GAAP adjusted EBITDA in our earnings press release this afternoon.

With that, I will turn the call back to Charlie for closing remarks. Charlie?

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [4]

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Thanks, Tara. In summary, we are very pleased with our performance in the first half of 2019, and we are raising our guidance today to account for our stronger-than-anticipated results in the second quarter. We look forward to driving impressive growth in our Advanced Energy business through the remaining months of the year as we continue to increase our share of the $1.5 billion cosmetic market in the United States, penetrate our existing international markets, and expand our distributor network into new countries.

We will also remain focused on our strategic initiatives that comprise our longer-term growth strategy, and continue to allocate capital appropriately through targeted investments. Based on our strong performance to date, we remain convinced that our current and future opportunities we are pursuing in the cosmetic surgery market will ultimately position us to deliver sustained, profitable growth and strong returns for our shareholders as we establish Apyx Medical as a leader in the cosmetic surgery market.

I'd like to close my prepared remarks today by thanking our employees for their hard work this quarter and their commitment to reshaping what's possible in this market by delivering game-changing solutions to our surgeon customers and improving the lives of their patients.

With that, operator, let's now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Matt Hewitt, Craig-Hallum Capital.

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Matt Hewitt, Craig-Hallum Capital Group - Analyst [2]

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Congratulations on the strong quarter and progress on your strategic initiatives. First question for me, could you give us an update on the size of your sales team today? I think last quarter it was approximately 40, with 28 of them being internal. Where does that sit, and do you have any plans to add to that team as the year progresses?

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [3]

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Yes, so at the end of Q2, we had actually 29 direct sales reps and six independent agencies. So think of it roughly about 40 feet on the street in the United States, and that's -- and we're happy with that size for the rest of the year.

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Matt Hewitt, Craig-Hallum Capital Group - Analyst [4]

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That's great. And then implied within the guidance and just working through some of the initial math here, and given some of the comments you made regarding the IDE submission, some of the clinical data that you're going to be working towards, what kind of a step-up should we be anticipating from an R&D perspective? And is that going to -- is there any timing-related issues there, like where maybe Q3 would be lumpier or heavier than Q4? Just how should we thinking about the back half from an R&D expense perspective?

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [5]

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Yes, you're talking about total OpEx. If you notice that we haven't changed. We're still committed to spending about $40 million to $41 million, but most of that will be in the third and fourth quarter. I think we spent about $18 million in the first half. And the rest will be in the back half of the year.

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Matt Hewitt, Craig-Hallum Capital Group - Analyst [6]

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Okay, that's great. And maybe one last one, if I can. And you commented on this a little bit; but gross margins, obviously a strong quarter there, better than we had expected and up sequentially. You are making some enhancements and improvements there to drive further growth.

How should we be thinking about that over, say, the medium term, over the next 3 to 5 years? Where do you think that can go? Without giving a specific range, but just help us understand where you see that going. Thank you.

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [7]

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Yes, thank you. And obviously the manufacturing capabilities have been a strategic focus since I've gotten here and it's been one of our core building blocks. And over 3 to 5 years, we would not only see this as an expanding revenue story but also an expanding gross margin story. But obviously we're not going to get into specifics at this time, as we're just really in the early stages of starting to see some benefit from that.

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Matt Hewitt, Craig-Hallum Capital Group - Analyst [8]

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Understood. Thank you.

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Operator [9]

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Kyle Bauser, Dougherty & Company.

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Kyle Bauser, Dougherty & Company - Analyst [10]

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Good evening, and some great updates here. Congratulations on the IDE approval for the skin laxity trial. Can you speak a little bit more about this? Will you have a skin tightening claim in it? How many sites will you have for it? And will there be any overlap with these sites and the dermal resurfacing trial?

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [11]

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Yes. So we're not going to get into a lot of specifics today with the skin laxity trial, other than we are very pleased and very excited that we got approval to move forward with these 20 patients. We don't see -- anticipate any overlap between the sites for the skin laxity site at the dermal sites; they will be separate sites. But we're obviously excited that we received IDE approval, and we're looking forward to enrolling patients towards the end of this year.

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Kyle Bauser, Dougherty & Company - Analyst [12]

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Got it. And so you mentioned still about 40 reps, or feet on the street, 29 of which are dedicated reps. So if we do back-of-the-envelope math using your current Advanced Energy run rate, we're looking at maybe $500,000 of sales that a rep is generating per year. What's the goal for rep productivity? And maybe what are your competitors doing? And at what point do you envision needing to add more dedicated reps?

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [13]

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Yes. So I think it depends on obviously how long the rep has been here. And they probably need a good six months to a year to get really up to speed and really start contributing. But after a year you would expect them to generate, in their second year, somewhere around $1 million in sales. So if you think about that as a ballpark, that's a pretty good rule of thumb.

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Kyle Bauser, Dougherty & Company - Analyst [14]

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Got it. And quickly just lastly, I didn't catch it if you did mention it, but I know Mexico and Canada came online in Q1. What were the two new countries in Q2?

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [15]

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Yes. We're not going to -- we had mentioned that we would give out countries if they were material for us. And the countries that we added in Q2 were smaller countries; and they are really not material, and really didn't have any effect in our guidance.

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Kyle Bauser, Dougherty & Company - Analyst [16]

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Okay. Thanks for taking the questions. I'll jump back in queue here.

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Operator [17]

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(Operator Instructions). Russell Cleveland, RENN Capital.

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Russell Cleveland, RENN Capital Group, Inc. - Analyst [18]

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So, graduations on all of the progress here with the FDA, both in the dermal and the other, the throat area. I got a longer-term question here. It looks like we're making a lot of progress in moving the business forward, and we are positioned ourselves. But some kind of indication here, a little longer-term -- I don't want any numbers or anything, but the philosophy.

We have about $67 million -- $60 million. There is a limit to what we can spend and create business. So what's the longer -- give me some long-term here about what we're going to do here to make sure that our financial position remains a really strong, along with growing the business.

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [19]

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Yes. Well, look, we've stated publicly that we are committed to making this a long-term profitable company. And we've also stated publicly that the cash that we have currently is plenty for us to achieve that goal. And so that still remains our goal. We haven't changed from there. We're looking at our investments and we're investing wisely but we're not investing foolishly. And we're making sure that our investments are going to have long-term growth for the Company. And so that still remains our goal, and that hasn't changed.

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Russell Cleveland, RENN Capital Group, Inc. - Analyst [20]

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Great. Well, thanks again and congratulations on the regulatory progress. It's really great. Thanks so much.

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Operator [21]

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Matt O'Brien, Piper Jaffray.

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Unidentified Analyst [22]

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This is Drew on for Matt. Thanks for taking the questions here, and congrats on a nice quarter. On the 510(k) approval this week, how your commentary reads, it sounds a little bit like a pivot a little bit away from the cosmetics market back towards the surgical market. I mean, is that the right interpretation of it at all? And what have you heard (multiple speakers) that prompted you in that direction? And does that open up any new markets that you are not currently targeting?

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [23]

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Yes. So no, that does not represent any pivot or anything like that. We are still 100% focused on the cosmetic surgery market in the United States, and that has not changed. As we have stated before, in Europe, we are actually selling both J-Plasma and Renuvion, because a lot of the Renuvion procedures are done in the hospital. And we had an open device that also -- a J-Plasma open device that had Cool-Coag on it, but we were getting a lot of requests from the surgeons that were doing the procedures to add that for a laparoscopic version also.

So what we did is we took their feedback, we took the R&D team -- it is a core competency of what we do, is to be able to design and manufacture these types of devices. And we just took the strength that we have to add an important tool to the bag for those distributors in Europe.

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Unidentified Analyst [24]

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Okay, that makes a lot of sense. I appreciate the clarification. And then obviously a very good quarter internationally for you guys. I believe you are still working through distributors there. I know you had discussed in the past about some of the larger cosmetic markets, including Brazil, China, South Korea. And I know you added two international markets this quarter. But what are the hurdles mainly to enter those big markets? What's the stopping factor for you guys going after those?

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [25]

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Well, it's not a stopping factor. It's just a time factor in that all of -- any market, it doesn't matter if it's those three -- but any of the markets all have different regulatory requirements that you have to do in order to have your products registered to be able to sell. And it's just going through that process and getting the things done. And so each one is a little bit unique. Each one is a little bit different. And the timing on the different markets is all a little bit unique.

So it's just a matter of us doing the work. And that's one of the reasons that we've invested so much into the regulatory this year is because we've got a lot of these countries that we are going to be going after and getting the registration for. So it's -- each country is a little bit different and we're just working through the process.

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Unidentified Analyst [26]

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Okay, very helpful. Thank you.

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Operator [27]

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(Operator Instructions). Matt Hewitt, Craig-Hallum Capital.

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Matt Hewitt, Craig-Hallum Capital Group - Analyst [28]

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Just a quick follow-up for me regarding the next skin laxity trial. If you are successful and get a label for that, how should we be thinking about market size? And will it be just for the neck, or will doctors have the ability to use that as they see fit on patients? But how should we be thinking about a market size I guess is the big question.

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [29]

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Yes. It's very good question and I appreciate the question, but I'm not going to enter into the answer of that question right now, Matt. And just for the main reason of, look, we've got to go out and get the indication. And once we get the indication, we will totally then update you on all the market size and everything else for it. Obviously we think that it's very important, and we think it has a lot of potential for us.

But until we actually get the indication and until we can actually go out and do that, it doesn't do us a lot of good to talk about. Because remember, we're still a $20 million business in a $1.5 billion opportunity in the United States, and so we've got plenty of stuff to do right now to keep executing and grow our share there. This is just something that we're letting you know that we're doing because we got the approval. And it's something that we're excited about.

But at the end of the day, we need to wait until we get everything done before we really start talking about the opportunity to add on there.

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Matt Hewitt, Craig-Hallum Capital Group - Analyst [30]

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Fair enough. Thank you.

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Operator [31]

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Jeffrey Bernstein, Cowen Prime.

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Jeffrey Bernstein, Cowen Prime Advisors - Analyst [32]

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Just a couple. Glad to hear you are starting to put some lean disciplines in there. And it sounds like you're already going to have some benefit on some redesign of the handpiece. How much low-hanging fruit is there in efficiency overall and manufacturing in particular? I'm only looking for a qualitative kind of answer.

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [33]

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Yes. Look, I think that any time that you are an organization, when you're a smaller organization and you're looking to really be able to scale and grow a business, I think there is some things that you could potentially do, because there's definitely opportunity. And so we've been focused on it. As you know, it takes time, especially with manufacturing and we think we've got the right people in here to help do it. And we look forward over the next 3 to 5 years of seeing the fruits of our labor, for sure.

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Jeffrey Bernstein, Cowen Prime Advisors - Analyst [34]

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And then just on the dermal resurfacing application, part two. Is there any reason to think that this trial would be significantly bigger in terms of enrollment than the prior?

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [35]

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No. I think you could think about it as about the same size and everything else. And obviously we don't have -- we just submitted, so we don't have approval back from the FDA and we don't have their comments yet. So to talk about anything specific really doesn't matter. But you could think of it about the same size.

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Jeffrey Bernstein, Cowen Prime Advisors - Analyst [36]

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Got you.

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Charlie Goodwin, Apyx Medical Corporation - President and CEO [37]

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That's fair.

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Operator [38]

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That does conclude our conference for today. Thank you for your participation.