Q3 2021 Apyx Medical Corp Earnings Call
Yeah.
Please standby.
Good afternoon, ladies and gentlemen, and welcome to the third quarter of fiscal year 2021 earnings conference call for Apex Medical Corporation.
At this time, all participants have been placed in a listen only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. Please.
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.
And 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.
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 apex, Medical's, President and Chief Executive Officer. Please go ahead Sir.
Thanks, Hector and good afternoon, everyone and welcome to our third quarter earnings call. Joining me on the call. This afternoon is our Chief Financial Officer Tara Sam.
Turning to a quick agenda of what we intend to cover today.
I'll begin with a review of our third quarter revenue results and the key drivers that contributed to the strong performance we saw.
I'll then provide an update excuse me of our third quarter operational progress with respect to the four strategic initiatives, we are pursuing to enhance our long term growth in the cosmetic surgery market.
Tara will discuss our third quarter financial results in detail and review our financial guidance for 2021, which we updated in our earnings press release. This afternoon.
Then I will share some additional closing thoughts on our outlook before we open the call for questions.
With this agenda in mind, let's start with a review of our revenue results.
In the third quarter, we delivered $11.8 million in total revenue, representing 70% growth year over year.
Our U S revenue increased 52% year over year to $7 $9 million and international revenue increased 125% year over year to $3 $9 million.
By segment, our total revenue growth was almost exclusively driven by sales of our advanced energy products, which increased 88% year over year to $10 $3 million, while sales in our OEM business increased 3% year over year to $1.5 million.
Yeah.
Looking at the results in our advanced energy segment.
Our advanced energy sales growth exceeded our expectations for the quarter driven primarily by strong growth in global sales of our hand pieces, along with demand for our generators in the U S.
Global sales of our hand pieces increased more than 100% year over year. We were pleased to see that this growth was diversified with strong contributions from sales to both our U S customers and international distributors, reflecting strong utilization based demand.
And for our global customer base.
The greater than 100% increase in global Handpiece sales in Q3 was especially notable given the emergence of the Delta variant during the third quarter and the return of the typical seasonality that we experience each year as surgeons tend to take vacations in the latter months of summer.
Global sales of generators increased more than 70% year over year, driven primarily by strong demand for our renew me on generators from new customers in the U S cosmetic surgery market.
The process of engaging with potential new customers in the U S has continued to improve since the onset of the pandemic due in part to our virtual engagement efforts and the resumption of industry trade shows.
As a result in the third quarter, we saw double digit growth in U S generate yourselves on a quarter over quarter basis.
Internationally, while we experienced growth in generator sales on both a year over year and quarter over quarter basis. Our performance was relatively more modest in comparison to the U S. As the global capital equipment purchasing environment continued to be affected by COVID-19.
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Our international generator sales growth was driven largely by sales to distributors in key geographies, including in Brazil and Taiwan.
In summary, we were very proud to deliver another quarter of stronger than anticipated sales performance in our advanced energy business driven largely by growth in our global Handpiece at U S generator sales, reflecting solid utilization and adoption trends of our helium.
<unk> technology.
We were also pleased to complement our sales performance with 13% year over year improvements in both our net loss attributable to stockholders and our adjusted EBITDA loss.
Moving to third quarter operating highlights we continue to drive progress with respect to our four strategic initiatives intended to position <unk> medical for sustainable long term growth in the cosmetic surgery market.
Let me take a minute to update you on each of them beginning with our regulatory strategy in the U S and internationally.
In the U S. We remain focused on obtaining specific clinical indications for our targeted cosmetic surgery procedures, specifically dermal resurfacing and the treatment of skin laxity.
Beginning with our pursuit of an indication for dermal resurfacing procedures.
Following the submission of our 500 10-K premarket notification to the F. D. A on May 28, we have continued to engage with the agency to facilitate their review of our application.
With respect to our pursuit of an indication for skin laxity procedures in early August we completed patient enrollment in the second phase of our I D. E study evaluating the use of renewable beyond in skin laxity procedures in the neck and sub mental region, we continue to anticipate submitting.
Our five 10-K premarket notification to the FDA for this indication in the second quarter of 2022.
Outside of the U S. We continued our efforts to obtain registrations for our advanced energy products, enabling us to commercialize new countries in the future.
Our steady pace of progress on this front in recent years positions us well to facilitate the global adoption of our helium plasma technology over a multiyear period.
Yeah.
Moving to our second strategic initiative, expanding the portfolio of clinical evidence for our renewable on technology in the cosmetic surgery market.
During the quarter, we saw a notable independent we.
We saw notable independent peer reviewed clinical publication during the third quarter.
The article was published in the American Journal of cosmetic surgery in July and discussed the result of a five subject retrospective study.
All five subjects received liposuction in one arm and liposuction combined with renewed me on on the other arm the.
The evaluated.
Were blinded to which arm received liposuction combined with three new beyond and the results from each arm were compared in order to evaluate <unk> efficacy in managing skin laxity when used in combination with liposuction compared to liposuction alone.
The researchers found that six months post procedure four of the five subjects demonstrated significant improvement in contour and laxity in the arm that received lifeboats section combined with renewables.
With respect to our third strategic initiative, enhancing physician and practice support for our cosmetic surgery customers.
Working with several of our top surgeon users. Our team continued to develop organize and host physician mentor programs or P. M p's, providing our new and existing surgeon customers with opportunities to learn how to use and market renewed beyond directly from their peers.
We hosted three P. M P events during the quarter, which were attended by over 130, clinicians that participated either virtually or in person.
Our team hosted two virtual training sessions for our newer international distributors in order to improve their ability to educate and support the surgeon customers in their local markets.
In addition to these efforts we participated in eight in person industry conference and trade shows while attendance at these in person events was roughly 50% to 75% below pre COVID-19 levels. We have been pleased to resume hosting in person podium presentation.
<unk> and other educational events, enabling us to engage and educate potential new surgeon customers.
We also continue to expand the educational and marketing materials available on our existing surgeon customers.
Here our online portal.
Lastly, regarding our fourth and final strategic initiative to improve our manufacturing capabilities and efficiencies. We continue to facilitate the commercial introduction of our APR handpiece.
First product to benefit from our manufacturing teams effort to reduce the per unit manufacturing cost of our advanced energy hand pieces.
Our team remains focused on bringing this product to our international customer base by securing the requisite product registrations in each country, where our O U S distributors operate.
We began this multi year effort in 2021 and expect it will drive material improvements in our Handpiece gross margins over time.
And lastly, we made progress in expanding and improving our handpiece production capabilities in both our Bulgaria in Clearwater facilities, most notably we began manufacturing hand pieces at our Bulgarian facility during the third quarter and we believe this facility will allow us to nearly double.
Our existing Handpiece manufacturing capacity.
By continuing to advance these four strategic initiatives, we are laying the groundwork for our future success.
Tara will now review the third quarter financial results and updated 2021 guidance Tara.
Thanks, Charlie and good afternoon, everyone.
Thanks, Charlie covered our revenue results I will begin at the gross profit line.
Gross profit for the third quarter of 2021 increased $3 $3 million or 70% year over year to $8 1 million.
Gross profit margin was 68% unchanged year over year.
Operating expenses increased $2 $9 million or 32% year over year to $12 million.
The increase in operating expenses year over year was driven by a $1 9 million dollar increase in selling general and administrative expenses.
$7 million increase in salaries and related costs.
$8 $2 million increase in professional services and a 1 million dollar increase in research and development expenses.
Loss from operations for the third quarter of 2021 decreased <unk> $4 million or 9% year over year to $4 million.
Income tax expense was <unk> $1 million compared to an income tax benefit of $7 million in the third quarter of 2020.
Net loss attributable to stockholders was $4 $2 million or <unk> 12 per share compared to $3 $7 million or 11 cents per share for the third quarter of 2020.
Adjusted EBITDA loss decreased <unk>, 4 million or 13% year over year to $2 $7 million.
As a reminder, we provided a detailed reconciliation.
From a net loss attributable to stockholders to non-GAAP adjusted EBITDA loss in our press release this afternoon.
As of September 32021, the company had cash and cash equivalents of $39 million compared to $41 9 million as of December 31, 2020.
Turning to a review of our 2021 financial guidance, which we updated in our earnings press release. This afternoon.
For the 12 months ending December 31, 2021, we now expect total revenue in the range of $44 million to $45 million representing growth of 59% to 62% year over year.
This compares to our prior guidance range, which assumes growth of 46% to 54% year over year.
The updated total revenue guidance range assumes advanced energy revenue growth of 76% to 80% year over year.
This compares to our prior guidance range, which assumes growth of 62% to 71% year over year.
The updated advanced energy revenue guidance range continues to assume U S growth is only driven by contributions from removing on sales related to its use as a sub dermal coagulator following liposuction procedures and international growth is driven primarily by demand in existing and international market.
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Our updated total revenue guidance range also assumes an OEM revenue decline of approximately 9% year over year compared to our prior guidance, which assumed a decline of approximately 16% year over year.
In terms of profitability guidance for fiscal year 2021, we now expect.
Net loss attributable to stockholders in the range of $17 eight to $17 2 million. This compares to our prior guidance range of $19 $3 million to $18 million.
And we expect adjusted EBITDA loss in the range of 11, six to $10 $7 million. This compares to our prior guidance range of $13 1 million to $11 $5 million.
Our formal financial guidance for 2021 continues to incorporate the following considerations for modeling purposes.
First we assume our total company revenue growth for the full year 2021 period will be driven exclusively by our advanced energy business.
We expect strong advanced energy growth both in the U S and internationally and the midpoint of our advanced energy guidance now assumes 80% growth year over year and sales to U S customers and 70% growth in sales to international customers in 2021.
Second we now expect gross margins of approximately 68% this year compared to 63, 2% last year, driven primarily by continued mixed benefits by segment by geography and by product.
Third we continue to expect GAAP operating expense to increase approximately 25% year over year, driven by 9% growth in our normalized operating expenses.
Fourth we expect net interest and other expense of approximately $430000 in 2021 compared to a benefit of approximately $700000 last year.
Fifth we expect income tax expense of approximately $350000 compared to an income tax benefit of $7 $5 million last year, which was driven by a net operating loss carry back tax benefit from the 2020 Cares Act.
And lastly, we expect noncash depreciation and amortization of approximately 800 to $900000 noncash stock based compensation expense and a range of approximately five 1% to $5 $2 million.
Non controlling interest of $50000 and weighted average diluted shares outstanding of approximately 34 to 35 million shares with that I'll turn the call back to Charlie for closing remarks.
Thanks, Tara in Q3, we were pleased to deliver another quarter of performance that exceeded our expectations driven largely by the impressive execution across our entire team.
An overall improving environment globally, particularly in handpiece demand and an improving capital equipment environment in the U S.
As we look ahead to the remainder of 2021, we expect to see continued strength in both global Handpiece sales in U S generator sales.
Our updated 2021 revenue guidance range incorporates the better than expected performance in Q3 as well as an updated growth expect expectations for Q4.
We have increased our expectations for handpiece demand from both U S and O U S customers and have increased growth expectations for generator demand from U S customers based on the continued recovery in the U S capital equipment market.
Our guidance continues to reflect that the O U S capital equipment environment remains relatively more challenging and thus our Q4 growth expectations are unchanged versus prior guidance.
Building on our recent momentum we look forward to bringing 2021 to a strong conclusion as we increased global awareness adoption and utilization of our helium plasma technology.
By executing our growth strategy and leveraging our solid balance sheet, we aim to expand our share of the multibillion dollar global cosmetic surgery market.
Intimately we believe we have the team the technology and the strategic focus to emerge as the most disruptive cosmetic surgery company over time.
We remain dedicated to achieving this goal and look forward to updating you on our future progress.
I'd like to conclude my remarks today by thanking everyone at apex medical for their efforts in the recent months, which made our success this past quarter possible.
I'd also like to thank our customers distributors and investors for their support.
With that operator, let's now open the call for questions.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow up if you'd like to ask additional.
Questions, we invite you to add yourself to the queue again by pressing star one.
And our first question comes from Dave <unk> with JMP Securities. Please proceed with your question.
Thanks, Good evening.
Charlie I wouldn't normally ask your question sort of about how the quarter progressed, but hear me out here a lot of your competitors have talked about.
Having challenges maybe early on July August because the Delta and then coming out better or the exact opposite challenges more.
Towards the end of the quarter and then coming back in October It doesn't look like you saw anything but I just want to ask you as the quarter progressed, I mean, where are you.
This strong across the board and where they're really I guess essentially no impact that you saw from Delta.
Well so.
Our Q3 performance reflects an improving environment, specifically in the United States, but particularly in handpiece demand globally, and improving capital equipment in the U S. We saw globally strong utilization based demand for our hand pieces.
And our customers are reporting no shortage of demand from the patient side requesting these procedures.
U S generator sales were up double digits quarter over quarter in Q3, and it actually became easier for us to engage with potential new U S customers as industry trade show events, where we're back open again.
And outside the United States, the environment varies by country by country, but overall, we still did see strong growth in our.
<unk> hand pieces and capital outside the United States. It remains.
Impacted by Covid in various regions, however, even outside the United States, we still delivered year over year and quarter over quarter growth in our generator sales in Q3 so.
Yeah, we had a we had a very good and a very strong quarter.
I guess the uptick in your <unk> guidance indicates you don't see it slowing down but.
I guess I'd just love to get your thoughts on early on in the pandemic. We said Hey, maybe people are home and they're going to get a procedure done and that's why they at the time off and now that people are coming back.
Still doesn't seem to have slowed anything down so.
I mean do you think it's the cosmetic market overall are you guys just executing really well on those initiatives. Thank you.
Yeah.
The thing that we really do see as demand for this technology and this procedure on a global basis, and so customers are coming in and wanting this and obviously our clinicians are performing this.
At a high level.
And so we're very excited about the quarter that we just had in the fourth quarter, there were going into but but.
I don't know if it's just the market or our technology or a combination of both but we're very happy with the situation that we're in.
Thank you.
Our next question comes from the line of Matthew O'brien with Piper Sandler. Please proceed with your question.
Afternoon, Thanks for taking the questions.
So as you I.
I guess.
Thanks, Thanks, Charlie So help me reconcile a little bit your commentary on international.
As I looked at the performance here was really strong again.
With the capital you know.
Commentary it sounds like things are a little bit lumpy I know the handpiece growth has been phenomenal, but what I'm really trying to get at Charlie is that this business has been growing very quickly over the last several years I know, it's still smaller than your overall.
Domestic franchise, but Ken those too and the Delta between those two continue to narrow in terms of how big the international businesses, and then kind of dovetailing off of that with the generator growth you've seen in Q2, which I know easy comp, but also here in Q3.
Domestically, how do we think about the growth of.
The translation of Handpiece growth domestically based on the generator growth, we've seen as we head into 'twenty two.
So.
If you look at if.
If you look at our total.
Guidance that we gave we increased by $3 $4 million on the low end and $2 four in the high end and that was driven by better than anticipated.
Growth in Q3, and then we updated our expectations for Q4 and the reason for that is that we see increased demand both in the U S and the O U S for hand pieces for the procedure volume and weak we would expect that to keep.
Strong obviously, both in the United States and outside the United States.
We increased our growth expectations for generator demand in the U S and the O U S capital equipment remained unchanged and our guidance. There is just reflects cautious optimism because there are still parts of the other parts of the world that are being affected by <unk>.
A bit more.
Our growth, though outside the United States for generators was still up year over year and quarter over quarter. It just wasn't as it just wasn't as much as the United States. So we still did see growth outside the United States, but just not to the level that we're seeing it in the United States.
<unk>.
Okay. Okay.
I'll leave it there although I do think your international business versus Q3 of 19 has essentially doubled so versus what we've seen domestically. So thats why im kind of wondering about the growth trajectory, there, but moving over to dermal resurfacing.
I know you submitted in May I'm, just curious I didn't really get a full update on here a full update as far as where you're at with the agency, but chatting with them.
Is there a reset on the clock or should we still expect approval here fairly soon.
Yeah. Unfortunately, we're engaging with the FDA and we're talking we're working with them, but as far as predicting when that is going to be your guess is as good as mine.
We told you that we would when we submit it and we'll tell you obviously when we get it but.
Opposed to that it's tough to predict when when it will actually happen. So all I can tell you right now is that we're still engaging with them to facilitate that the application and as soon as we know you guys or not.
And sorry, just to follow up there a little bit Charlie have asked for more information is there anything thats kind of deviate from normal course here well its always an interactive process and they always ask for various levels of information and so we're just still working through that process with them.
Got it thank you.
Yep.
Our next question comes from the line of Carl Bowser with Colliers Securities. Please proceed with your question.
Hi, Charlie Tara Great results here and thanks for all the updates.
So clearly we're already seeing some incredible growth with sub dermal coagulation or continued growth.
Once you're able to market direct to consumers for skin laxity, what what sort of addressable market do you think that opens up in other words, you're already seeing really nice adoption.
With sub dermal coagulation, how do you quantify kind of the incremental opportunity with direct to consumer.
No. That's a great question Kyle Thank you.
Yeah, well look we can continue to keep growing this business.
The way that we're doing it now, but we believe that once we can start talking directly to the consumer about skin laxity.
And what renew Leon can do for them that that is going to dramatically open the market remember right now when we talk about the market opportunity we're talking on.
The back of the 400000 liposuction procedures that are done in the United States, but when we're able to market directly to the consumers. We think that we can take some customers away from other therapies like cool sculpting, we think we can take.
Customers the way that would potentially want to Tommy talk and we think the market probably conservatively just in the United States.
More than doubles of what it is right now and quite honestly it could even be bigger than that and then obviously outside the United States. The market is bigger than inside the United States and so the Tam becomes really big really fast when we can when we believe when we can start to tell the consumers directly the benefits of renew the.
On technology for skin laxity.
Got it that's helpful. Thank you.
And then what's the latest number of field based.
Reps and sales managers and independent sales agencies, and then how do you envision these numbers changing if at all once you do obtain that skin laxity indication.
Yes, so we've held steady with about 40 feet on the street, that's about where we are we haven't had any changes with that but I think that when we were when we would get the skin laxity indication.
We would probably take we would probably add a few reps at that point in time, we definitely wouldn't go from 40 to 80, but we could find ourselves going from 40 to 50 to 55 somewhere in that somewhere in that range, but.
Definitely would would wait until that indication or be there when that indication is here for sure.
Okay, great. Thanks, so much and really encouraging updates thanks Scott.
Our next question comes from Matt Hewitt with Craig Hallum Capital. Please proceed with your question.
Good afternoon, and thank you for taking the questions maybe.
Maybe the first one for me since I just prompted me here and one of the prior questions have you seen any change in demand given some of the headlines regarding cool sculpting I think theres been some.
Press regarding some issues that they've been having with with.
With customers and I'm just curious if that's resulted in any.
Incremental demand for <unk>.
Yes that is really hard to tell at this point in time.
I don't know in the U S. We just have really strong demand being reported from our customer or customers that patients are asking for this procedure. So we know that we've got strong patient demand and I don't know if that's driving it or if it's just.
You know if it's just because people are finding out what renew beyond can do for them.
Got it and then I guess as a follow up.
Given the.
The opportunity in the facility open up in Bulgaria should we expect any impact on gross margins, maybe as we get into 'twenty, two and beyond just from having that facility opened up in manufacturing. Thank you.
That will definitely help gross margins as we move forward, it's a multi year.
Regression that we will have there, but remember Bulgaria is primarily going to be serving the European and middle Eastern markets.
And it is it is part of our manufacturing strategy for sure.
Great. Thank you.
Yep.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Our next question comes from the line of Russell Cleveland with Renn Capital. Please proceed with your question.
Hello Fellows, Thanks, again for the great numbers.
Sensational quarter.
My question part of it was answered earlier about the FDA and the dermal resurfacing.
The phase I call it a face lift.
Give me some indication what how big do you think the market is in the United States for for the face lift and how big is it overseas and again, we're trying to figure out why it's taking so long to clear the FDA, but if you could comment on those those quest.
<unk>.
Yes, so remember that the big part of our business is the skin laxity portion of the business and that's the business that we're currently driving now the dermal resurfacing would be an indication that we would be selling for the very first time. It is being used off label by clinicians today.
But we are not promoting that as a company and it is fully ablative technology and so theres roughly only about 200000 procedures in the United States that would be available for the patients.
Patients that would want that type of therapy and the reason is is that the recovery time is.
As long, but the results are really good.
No.
That's the market there in the United States outside the United States, It's probably about the same size again, a lot of the market has moved to the fractional portion where theres less downtime.
And we've talked about that.
Many times as far as the length of time that it's taking to get this with the FDA I wish I could control that but that is outside of my control and like I mentioned, we will obviously update everybody as soon as we hear from them.
Okay.
Okay. Thanks, again I appreciate the numbers.
Thanks Rocco.
Ladies and gentlemen, we are currently showing no remaining questions. At this time that does conclude our conference for today. Thank you all for your participation.
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