Q1 2022 Apyx Medical Corp Earnings Call
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Hello, and welcome ladies and gentlemen to the first quarter.
F 2022 earnings 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 current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated including without.
And those identified in the risk factors section of our recent annual report for them.
10-K filed with Securities and Exchange Commission on 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 non-GAAP financial measures.
Conciliation 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 press.
Didn't and Chief Executive Officer. Please go ahead Sir.
Thanks, Operator, welcome everyone to our first quarter earnings call I'm joined on today's call by our Chief Financial Officer terrorism.
Turning to a quick agenda of what we intend to cover today.
Begin by discussing our first quarter revenue results and the drivers of our performance.
I'll then provide you with an update on the recent developments following the FDA safety communication that was posted in mid March.
I'll briefly review some of the recent operational highlights, including an update on the status of each of our five 10-K submission.
Terry will discuss first quarter financial results in detail and review our financial guidance for 2022, which we updated in our earnings press release today.
After terrorists commentary I'll share some thoughts on our outlook and focus areas for the remaining months of 2022 before we open the call for Q&A.
Starting with a review of our first quarter revenue results.
Total revenue increased 45% year over year to $12 $5 million exceeding the expectations of $10 5 million to $12 million, which we shared in our Q4 earnings call.
Our total revenue growth was primarily driven by advanced energy sales, which increased 41% year over year to $10 8 million.
OEM sales contributed to our growth as well, increasing 72% year over year to $1 7 million.
Within our advanced energy business strong global Handpiece demand was by far the largest contributor to our year over year growth in Q1, with handpiece sales, increasing by more than 80% year over year.
We were also pleased to see that Handpiece sales growth was driven by strong sales in both U S and international customers.
As a reminder, our hand piece sales growth is an important indicator of the utilization that we are seeing from our existing surgeon customers, reflecting the underlying demand for our helium plasma technology.
With respect to our advanced energy generator sales our performance during the first quarter was more modest.
[noise] generator sales increased 2% year over year with strong growth in sales to our international customers moderated by year over year decline in sales to U S based surgeon customers.
As we had anticipated sales of our advanced energy generators to new customers, particularly in the U S were significantly challenged by the disruption following the safety communication posted to the F. D. A website on March 14th.
The FDA safety communication warned against the use of our advanced energy devices.
For specific intended to improve the appearance of skin through dermal resurfacing or skin contraction.
As a reminder, our products are cleared for general use and cutting coagulation and ablation of soft tissue during open and laparoscopic surgical procedures and we market them in accordance with this indication.
To be clear our advanced energy products remain on the market with their existing F. D. A five 10-K clearances and we continue to market and sell them for their existing clinical indications, while advancing our regulatory strategy to pursue clearance for new.
Vic indications related to our target procedures.
With that context as a backdrop, let me take a minute to review the recent developments related to the FDA safety communication and provide you with an update on our progress since our Q4 earnings call.
Remember as required by FDA regulation, we routinely submit to FDA medical device reports or M. D ours for serious adverse events reported to apex.
We submit M D ours, when we receive an adverse event report that reasonably suggest that one of our devices may have caused or contributed to a serious injury.
We submit an M D or even if the event may have been caused by user error or if another device was also identified as a possible cause in the report.
As we discussed on our fourth quarter earnings call in March we believe that the Fda's decision to post this safety communication was due in part to the increase in the absolute number of M. D ours for our advanced energy products in 2021 compared to 2020.
With 32 M D r's involving the use of our advanced energy products for sub dermal coagulation in 2021 compared to 15 in 2020.
Our products have been used for sub dermal coagulation and over 150000 procedures globally since 2017, which represents an MTR rate of 0.06%.
In 2021, this rate declined representing approximately 0.0 or 4% of global procedures.
In addition, our investigation of the 32 <unk> reported for sub dermal coagulation in 2021 showed that the events were either not attributable to our advanced energy device, where we are within the scope of the existing clinical risks included in our product labeling.
Importantly, 14 of these 32 M. D. Ours were performed by physicians that had not yet been trained by our global clinical team of skilled nursing staff.
In February we provided the Fda's post market team with data related to our adverse events M. D r's promotional items and training for our advanced energy products.
In our communication with the FDA on March 11th when we were notified about the intention to post the safety communication. It was our understanding that the FDA post market team had not completed their review of this data.
Following the FDA safety communication, we requested a meeting with the Fda's post market team to discuss the safety communication and R. M D. Our data.
I am pleased to report that this meeting was held on March 29th.
During the meeting our regulatory and clinical team presented a detailed analysis of our MTR data to clarify the reported adverse events and provide important context.
On April 1st we received feedback from the FDA with requested revisions, including changes to certain messaging on our website.
Labeling and training materials.
The requested revisions reaffirmed our belief that the FDA is focused on the use by surgeons of our advanced energy products outside the general indications for use for which they are currently cleared.
Surgeons may lawfully do so, but the FDA has requested stronger statements in our labeling to warn of any specific procedure intended to improve the appearance of skin.
Has not yet been reviewed or cleared by the agency.
The FDA also asked us to remove instances of language or imagery that might imply intended use outside of the cleared general indications.
We submitted our response to the FDA and have incorporated the requested revisions.
Apex medical remains committed to product safety patient safety surgeon education, and training and customer support.
We support the agency's focus on ensuring that clinicians and their patients understand the safe and proper use of our products for their current clinical indications for use.
In addition to our engagement with the Fda's post market team.
We have remained focused on securing 500 10-K clearances for new specific clinical indications, enabling us to market and sell our advanced energy products for use in target procedures.
Let me take a minute to provide you with a brief update on these efforts.
Beginning with our strategies to obtain two 500 10-K clearances to market and sell renew V on for the use in dermal resurfacing procedures.
As a reminder, we submitted our first five 10-K submission to obtain a specific clinical indication for treating wrinkles and write tides in 2021.
The submission is supported by safety and efficacy data from our U S. IDE clinical study evaluating our helium plasma technology for dermal resurfacing procedures.
I would encourage you all to review the results of this study which were published in a peer reviewed article in the journal lasers in surgery and medicine in February .
After submitting this five 10-K in 2021, we have continued to engage with the agency to address their questions and provide any additional data during their review of our submission.
Most recently in late April we received feedback from the FDA on our five 10-K submission and had a call with the FDA pre market review team to discuss this feedback which included proposed modifications to the treatment protocol as well as a request for information.
<unk> related to the usability testing of our device.
We submitted our response to the FDA in early May accepting their proposed modifications and providing the requested usability information.
Turning to our second five 10-K submission for dermal resurfacing.
On February 17th we announced a new five 10-K submission, which is intended to obtain a general indication for dermal resurfacing procedures.
In April we received a response from the FDA and our when were working to address their questions as part of the standard 500 10-K review process.
Lastly, our clinical and regulatory teams made strong progress during the quarter and preparing our 500 10-K to obtain an indication to market and sell our renewed on APR handpiece for the used to improve the appearance of lax or loose skin.
In the neck and Submental region.
These efforts proceeded faster than anticipated and we were pleased to announced the submission of this 500 10-K on April 4th.
This five 10-K submission is supported by safety and effectiveness data from our U S. IDE clinical study evaluating the use of renewable beyond technology in the neck and sub mental region to improve the appearance of lax or lose skin.
We look forward to receiving a response from the FDA within their stated goal for all 500 10-K submissions of the first 60 days post submission.
I would like to thank our regulatory and clinical teams as well as our advisors investigators and study participants for helping us to make this progress possible. We look forward to continue engagement with the FDA in order to facilitate their review of these three five 10-K submission.
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Before I turn the call over to Tara I would like to provide a more extensive update on our team's effort to engage with our existing customers. Following the FDA safety communication.
Our team has been focused on proactively engaging with our U S surgeon customers and distributor partners outside the U S to address the safety communication answer related questions and provide information about the safety profile of our products.
We sent a letter.
To our entire U S customer base and reached out proactively to our customers and international distributors either over the phone or via email.
We estimate our team has spoken with all of our existing U S customers and international distributors.
Our team has been focused on spending as much time with our customers as needed to have their questions answered.
To this end, we also created and shared additional resources with our customers and distributors, including a letter from our medical Advisory Board and overview of the post market safety profile of our technology and.
And a summary, comparing the adverse events rates of our advanced energy products with other medical devices that our customers may be familiar with.
I am very proud of our organization for the direct way that they have handled this communication, which is consistent with our focus on supporting our customers, making sure. They are comfortable with the appropriate use of our products and their understanding of the products risk profile.
We have also been pleased with the strong support we have received from many of our customers and their passion for our helium plasma technology.
Lastly in late March and late March we held our second annual users meeting, which provided another timely opportunity for engaging with our customers.
As a reminder, our users meetings are designed to provide an environment for our surgeon customers to learn from each other by first sharing their experience advice and techniques.
This was our first year, having the event in person and the agenda featured two days of programming.
Over 200 physicians came together to exchange scientific information on their clinical experiences with renewed beyond.
Stepping back while we continue to carefully evaluate the effects of the FDA safety communication on our business. We continue to believe that disruption related to the FDA safety communication will be transitory and that our long term outlook remains compelling.
Let me now turn it over to Tara to review, our first quarter financial results and our 2022 guidance Tara. Thanks.
Thanks, Charlie.
Charlie covered our revenue results I will then begin at the gross profit line.
Gross profit for the first quarter of 2022 increased $2 4 million or 40% year over year to $8 2 million.
Gross profit margin was 66% compared to 68% in the prior year period.
The decrease in gross margin in Q1 was driven by sales mix between segments product and geographic mix within our advanced energy segment and higher cost to manufacturer inventory as we continue to experience increased shipping costs.
The year over year decrease in gross margin. This quarter was partially offset by the mix of newer product models as we obtain registration and introduce these products into the various markets that we serve.
Operating expenses increased $3 5 million or 33% year over year to $14 1 million.
The increase in operating expense year over year was driven by a $1 $7 million increase in selling general and administrative expenses.
$9 million increase in salaries and related costs and $8 $8 million increase in professional services expenses.
The increase in selling general and administrative expense and professional services was primarily driven by the return of in person internal training events and Tradeshows.
As well as our in person users meeting in 2022.
Loss from operations for the first quarter of 2022 increased $1 1 million or 24% year over year to $5 9 million.
Total other loss net was $27000 compared to $1 million last year.
Income tax expense was <unk> $1 million consistent with the first quarter of 2021.
Net loss attributable to stockholders was $5 9 million or <unk> 17 per share compared to $4 9 million or <unk> 14 per share for the first quarter of 2021.
Adjusted EBITDA loss for the first quarter of 2022 with $4 million compared to adjusted EBITDA loss of $3 4 million in the prior year period.
As a reminder, we provided a detailed reconciliation from net loss attributable to stockholders to non-GAAP adjusted EBITDA loss in our earnings press release.
As of March 31, 2022, the company had cash and cash equivalents of $26 2 million compared to $30 9 million as of December 31, 2021.
Turning to a review of our 2022 financial guidance, which we updated in our earnings press release today.
For the 12 months ending December 31, 2022, we expect.
Total revenue in the range of $52 5 million to $59 million, representing growth of 8% to 22% year over year.
This compares to our prior range of 50 million to $63 million or growth of 3% to 30% year over year.
Our total revenue guidance range assumes advanced energy revenue growth of 7% to 21% year over year to 46 million to $52 million compared to our prior range of $43 5 million to $56 million.
Our growth of 1% to 30% year over year.
And OEM revenue growth of approximately 18% to 27% year over year to approximately six $5 million to $7 million.
Unchanged compared to our prior guidance range.
With respect to our advanced energy revenue guidance.
Our guidance range reflects the potential impacts in the U S and new customer adoption and Im procedure related demand for hand pieces as a result of the FDA safety communication.
Second our guidance range continues to assume contributions from the initial commercial launches for new specific clinical indications and dermal resurfacing and skin laxity procedures.
Based on our target of receiving these FDA clearances by the end of the third quarter of 2022.
And third our guidance range continues to assume that growth outside the U S is driven by demand in existing international markets.
In terms of our profitability guidance for fiscal year 2022, we expect net.
Net loss attributable to stockholders in the range of 19% to $14 7 million.
Compared to our prior range of $21, one to $12 1 million.
And adjusted EBITDA loss in the range of $10 1 million to $6 $4 million compared to our prior range of 12, 3% to $3 million.
Our formal guidance for 2020 to incorporate the following considerations for modeling purposes.
First gross margins of approximately 66% to 68% this year compared to our prior expectation of approximately 62% to 67% driven primarily by revenue mix shifts between our advanced energy and OEM segment and.
In product and geographic mix within our advanced energy segment.
Inflationary headwinds in our cost of goods compared to prior year.
And incremental costs related to manufacturing capacity that was previously attributable to our core segment and tranches and services agreement with symmetry.
Second operating expenses to increase in the range of 12% to 14% year over year compared to our prior expectation of 9% to 14%.
Third net interest and other income of approximately $600000 from 2022.
Fourth income tax expense of approximately $600000 and lastly, we expect noncash depreciation and amortization of approximately $1 2 million.
Noncash stock based compensation expense of approximately $7 million.
Noncontrolling interests of approximately $150000 compared to our prior expectation of approximately $212000 and weighted average diluted shares outstanding of approximately $34 6 million shares.
Lastly for the second quarter of 2022, we anticipate total revenue in the range of 10 to $11 $9 million.
This total revenue range represents a decline of 11% to growth of 6% year over year.
In our advanced energy business, we expect a decline of 17% to growth of 1% year over year, and we expect OEM growth in the range of 39% to 49% year over year.
With that I'll turn the call back to Charlie for closing remarks.
Thanks, Tara despite the significant challenges we have faced in recent months. We are pleased by our performance and the impressive engagement and support we have seen from our fellow apex employees as well as our distributors and customers.
Our stated expectations for our advanced energy sales performance in the second quarter reflect our improved outlook for this business in the near term.
We have updated our outlook for total revenue in fiscal 2022 based on our better than expected results in the first quarter and our growth expectations for the second quarter and second half of 2022.
We continue to believe that that.
Advanced energy Handpiece revenue will represent the largest driver of our total advanced energy revenue growth again in 2022, given the strong utilization based demand we expect for our renewed on hand pieces.
As I mentioned earlier, our advanced energy products remain on the market.
They continue to retain their existing FDA 500, 10-K, clearances, and we intend to continue marketing and selling our products for their existing cleared clinical indications.
We believe that the disruption related to the FDA safety communication will be transitory and that the long term growth for apex medical remains compelling.
With this in mind, our team remains focused on engaging with existing customers to facilitate utilization raised.
Raising the awareness and adoption of our innovative helium plasma technology and.
And securing new specific 500, 10-K clearances to further expand our annual addressable market opportunity.
We believe that our continued execution on these strategic initiatives will position apex medical to achieve strong sustained growth and progress towards profitability.
I'd like to thank our employees surgeon customers distributors and shareholders along with everyone on today's call for their continued support of <unk> medical.
With that operator, let's open the call for questions.
Thank you if you would like to ask a question. Please.
Please signal by pressing star one on your telephone keypad.
If you are 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 question.
I'd like to ask additional questions.
But you did add yourself to the queue again by pressing star one.
And our first question will come from Matt Hewitt with Craig Hallum Capital Group. Please proceed.
Good morning, and thank you for the detailed update and for taking our questions. My first question is with the conversations that you've had with your installed base so with your user.
Surgeons I'm, just curious what's you're hearing from them.
Procedure volume standpoint.
Has this impacted or maybe.
What types of questions are they getting from patients what types of questions are they asking you regarding that safety communication any additional color would be helpful. Thank you.
Yes, Thanks, Matt.
First I want to say that our sales team has done a great job in engaging with customers to address the FDA safety communication and answer all their questions and I'm very very happy with the job that they have done.
As I mentioned in the call they have spoken with all of our U S customers.
And.
And international distributors, and we're spending as much time with these customers to answer all of their questions and to make sure that they've got what they need.
We've also been very pleased with the level of support that we're seeing from the majority of our customers, which really speaks to their belief in our technology and the technology safety profile and this has obviously been a significant challenge, but we believe we're managing and supporting our customers as effectively as as possible.
And the response from the customers as a whole is as to their utilization and continued support of the technology is as it has been remarkable and been great.
Thank you for that and then maybe shifting gears with this question a little bit for tear up on the supply chain side.
Are you seeing any impact there on the ability to obtain.
And pieces or whatnot and I guess the another component of that is the inflationary pressures. You mentioned you are seeing some of that particularly on the shipping side are you able to pass those through to the customer or are you, taking a little bit of a hit on that thank you.
Yes, I mean, I think that the team does a great job in managing the component the flow of component.
For our products, we have faced challenges like every company with with availability mostly of chips, but the team has continued to work on securing those.
As you saw we had purchase commitments at the end of the quarter and our <unk> reported $7 5 million. So we do have purchase commitments out for the year for those components.
As far as inflation I mean, we've really seen so far the bulk of it has been related to the shipping costs.
And not seen too much related to the components, but obviously as those.
That environment continues.
To go up as far as inflation, we could see that further on in the year.
But so far it has not had a material impact.
Got it alright, thank you.
Okay.
As a reminder, this star one on your telephone keypad, if you would like to have a question.
We'll pause for a brief moment to any final questions.
And we do have a follow up from that.
Okay, Great and then.
I think.
You mentioned that your guidance does contain the potential for approvals starting in Q3, if I heard you correctly.
How should we be thinking about that guidance.
The contribution from those future approvals as we look at the back half of the year does that.
If you remove that would you still hit the lower end of your range any color there would be helpful.
Yes, we're not going to break out the cancer patients specifically to the 2022 sales, but we would expect it would be relatively modest because again, we're anticipating assuming clearances by the end of the third quarter.
Got it alright. Thank you and then maybe one last one here kind of going back to all the.
It sounds like a great job getting to all of your customers, particularly here in the U S.
I guess two part question. This one is there any incremental costs that we should be thinking about.
To kind of get not only get to those.
But actually having those conversations and sending out the letters are dealing with all of that that maybe hit here in Q2.
That could potentially fall off Q3, and beyond and then secondly.
How is your sales team managing.
The <unk>.
<unk> got the calls to make to existing holders our users to make sure that they're comfortable with the communication from the FDA, but then theyre also needing to be out actually selling.
The device I'm just curious how the how that process is going thank you.
Yeah to answer your first question I don't know that Theres really anything specific other than the drivers of the cost that <unk> had already talked about in the quarter like having the users meeting in person and having more in person events compared to the last quarter. So are compared to the prior year's quarter. So thats really.
The big driver and increase the expenses, there and Thats that's already there as far as a time perspective from our sales organization. It does remain challenging.
And especially in the back half of March when this first happened because during that time, our focus was on our existing customers and making sure that they were comfortable and had everything that they need and as we've gotten farther away from that safety communication, obviously and got people comfortable it is obviously allowed more time.
<unk> for the reps to go out and talk to new prospects and new customers, but we will always prioritize our existing customers first and make sure that they're that they're comfortable and have everything that they need and then obviously.
Go seek potential new targets.
Understood great. Thank you.
We are currently not showing any more questions. At this time that does conclude our conference for today. Thank you for your participation.
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