Apyx Medical Corporation
Q1 2020 Earnings Call Transcript

Published: 13 May 2020

[Operator:]

Good morning, ladies and gentlemen, and welcome to the First Quarter Fiscal-Year 2020 Earnings 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 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 as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.I would now like to turn the call over to Mr. Charlie Goodwin, Apyx Medical's President And Chief Executive Officer. Please go ahead, sir.

[Charlie Goodwin:]

Thanks, operator. Welcome, everyone, to our earnings call for the first quarter of 2020. I am joined on this call this morning by Tara Semb, our Chief Financial Officer. Let me provide you with a quick agenda for today's call.I'll begin with our review of Q1 results and the factors that impacted our performance during the quarter. I'll then turn toward a broader discussion of the business and disruption that we have experienced as a result of the COVID-19 pandemic as well as the actions we have taken in response. Following this discussion, I will briefly review and provide updates on the four strategic initiatives we are pursuing as part of our longer-term growth strategy. I'll conclude by sharing our current thoughts on the continued business disruption due to COVID-19 and our long-term outlook.Tara will then provide you with a detailed review of our financial results for the first-quarter 2020 before we open the call for questions. With that, let's get started with a review of our financial and operational performance during the first quarter. We reported total revenue of $5 million, representing an 11% decline year over year. Our first quarter total revenue results came in at the low end of our guidance range of $5 million to $5.6 million that we provided as part of our fourth quarter earnings report on March 16, 2020.Despite revenue results that were at the low end of our guidance range, we delivered net loss and adjusted EBITDA results that far exceeded the guidance ranges we provided on our Q4 '19 earnings call. These results were driven by two things

[Tara Semb:]

Thanks, Charlie. The discussion of our financial results today includes restatements as well as revisions to our historical financials as reported in our 10-K filed on March 31, 2020 and 10-Q as filed on May 8, 2020. We have updated the related reconciliation table with these items, which is available on the Investor Relations page of our website. Given the detailed discussion by Charlie on our revenue performance, I will begin my review of our first-quarter financial results across the rest of the P&L.Gross profit for the first quarter of 2020 decreased $0.6 million or 16% year over year to $3 million. Gross profit margin for the first quarter of 2020 was 59.7% compared to 63.3% last year. The primary drivers of the change in gross profit margin were product mix within both our Advanced Energy and OEM segments, revenue mix between our segments and geographical revenue mix, offset by improved product margins in our Advanced Energy segment as a result of our continued manufacturing efficiency initiatives. Operating expenses for first-quarter 2020 increased $1.2 million or 13% year over year to $10.5 million compared to $9.3 million for the first quarter of 2019.The year-over-year change in operating expenses was driven by a $0.8 million increase in selling, general and administrative expenses, a $0.3 million increase in professional services and a $0.3 million increase in R&D expenses. These increases were offset slightly by a $200,000 increase in related salaries and related costs. As Charlie mentioned earlier, our proactive efforts to reduce our operating expenses reflect strong execution, specifically in response to the COVID pandemic, we identified more than $1.5 million and operating expense reductions compared to what was implied by our Q1 guidance. Loss from operations for the first quarter of 2020 was $7.5 million compared to operating loss of $5.7 million last year.Net loss for the first-quarter 2020 was $2 million or $0.06 per diluted share compared to a net loss of $5.6 million or $0.17 per diluted share for the first quarter of 2019. Our net loss for the first quarter of 2020 was significantly lower than the guidance range provided on our fourth quarter earnings call. In addition to the notable progress we made in reducing our operating expenses in the first quarter, we also benefited from a GAAP tax benefit in the period. As detailed in our press release this morning, on March 27, 2020, the U.S.government enacted the CARES Act to provide relief from the coronavirus pandemic. The CARES Act includes a net operating loss carryback provision by which the company recognized an income tax benefit of approximately $4.9 million in the first quarter of 2020 and expects to receive a cash tax refund of approximately $3.7 million by the end of 2020. Together, the significant reduction in our operating expense profile and this provision in the CARES Act will help mitigate the financial impact of the COVID-19 pandemic. First-quarter 2020 adjusted EBITDA loss was $5.8 million compared to an adjusted EBITDA loss of $4.6 million last year.As a reminder, we provided a detailed reconciliation from GAAP net loss to adjusted EBITDA in our press release this morning. As of March 31, 2020, the company had cash and cash equivalents of $51.4 million compared to cash and cash equivalents of $58.8 million as of December 31, 2019. The company had working capital of $63.6 million as of March 31, 2020, compared to $64.4 million as of December 31, 2019. Lastly, as mentioned in our earnings press release this morning, given the challenges and uncertainties posed by the ongoing global COVID-19 pandemic, the Company will not be providing full year 2020 financial guidance on today's call.Assuming a more normalized business environment prevails at the time of our second quarter results conference call in August, we plan to provide updated expectations at that time.With that, I'll turn the call back to Charlie for closing remarks. Charlie?

[Charlie Goodwin:]

Thanks, Tara. I'd like to close by once again thanking our employees for their resilience and dedication they've shown under very difficult circumstances during these past months. Based on our response to COVID-19, I'm convinced we have a strong team here at Apyx Medical that can weather any crisis. I'd also like to thank our distributors, customers and shareholders for their continued support and those on the call for their interest in Apyx Medical.With that, operator, let's now open the call for questions.

[Operator:]

Thank you. [Operator instructions] And our first question will come from Kyle Bauser with Dougherty & Company.

[Kyle Bauser:]

Charlie, Tara, thanks for taking the questions here. So from what I'm seeing, the cosmetic practices that are opening back up have been incredibly busy. So adding shifts on Saturday, coming in early during the week, etc. And according to the CDC, it looks like almost half the states have reopened for elective procedures. So, I know it's early, and there's a lag associated with cosmetic practices, as you talked about. But just curious if you've seen the same sort of heightened demand from any of your Renuvion users that have opened back up?

[Charlie Goodwin:]

Yes. Look, it's obviously not our standard practice to give color on current quarter trends, but we recognize the need for clarity and transparency as much as we can. We have started to see hand piece demand pick up in the second half of April. So if you look at the first two weeks of April, we did absolutely no business, and we've seen very small demand pick up in the second half of April. And overall, in April, sales were down 90% year over year. As we move into May, you are correct. We are starting to see a lot of these restrictions lift, and we are hearing from our customers that they, during the closures, were doing virtual consultations, were doing a lot to get their businesses ready to when they could open the doors that they did have a lot of demand. And so we are starting to -- we are hearing the same trends from them, but we'll see how this plays out as it's unfolding, obviously, right now.

[Kyle Bauser:]

Got it. That's helpful. And I know things have slowed down temporarily. But on the supply side of things, can you provide some more color around the lean initiatives that Lauren and Craig have been working on and how things have been going to modify manufacturing to support the higher handpiece volumes once things ramp up again?

[Charlie Goodwin:]

Yes. The good news for us is that we have been deemed, obviously, an essential business this entire time, and we focused a lot on protecting the health and safety of our employees, number one, by making sure that they had the implementation of smaller shifts, they've protective clothing that we're making them where and then we basically shut down the manufacturing facilities to where only manufacturing can be there and all other nonessential people have been asked to work from home. And one of the things that we talked about in the gross margin that we had just mentioned is that we did see already improved product margins in our Advanced Energy segment as a result of these manufacturing efficiencies. So we have not stopped doing that.And we have not stopped any investment in that area as that is obviously key for us as we go forward, and we get back to the strong growth that we had over the last two years that, that will help us in years to come from a gross profit side of things.

[Operator:]

Your next question will come from Matt Hewitt with Craig-Hallum Capital.

[Matt Hewitt:]

Good morning and thank you for taking the questions. Maybe the first one, attendance at the virtual events that you started to host when the Stage 1 and 2 lockdown mode, what did that look like relative to maybe some of the prior events that you had hosted? Obviously, those were more in person. But maybe talk a little bit about the makeup of those virtual events. Was that attracting a larger volume than you maybe would have seen given that these physicians were now essentially waiting for their businesses to reopen?

[Charlie Goodwin:]

Yes. I think that's a very good point. Whether we were doing events either at trade shows or our PMP programs. Obviously, those are limited by the number of people that travel to there or tend to go to that lecture at the show or at our PMP, we're limited by the number of doctors that somebody's facility can host at a given time. Obviously, virtually, you don't have any of those restraints and people were at home. And in some cases, looking for things to do themselves. And so our virtual events were very well attended. And the last one that we just did just this last week, I think we had 123 participants, clinicians that were on the call. So obviously, that is much larger from a magnitude of at least 10x that we would get at a PMP event. So yes, they were very well attended.

[Matt Hewitt:]

Well, that's great. And then as a follow-up question, looking internationally, one of the growth opportunities you've previously talked about is expanding Renuvion internationally. How has coronavirus, COVID-19, how has that impacted your ability to get the device approved in other countries? And how quickly do you think that those processes can open back up? Thank you.

[Charlie Goodwin:]

Yes. Obviously, I hate to start out, it depends. It depends on what's going on with each one of the countries. But as far as a registration point of view, we haven't seen anything that has been too much of a problem in any of the countries that we're working in and trying to get registration on as we move forward. So we still remain confident that we will be able to get the registrations in the timelines that we had proposed, give or take a month or two at the most. But other than that, not much has been really impacted that we have seen so far on that.

[Operator:]

[Operator instructions] Our next question is from Matt O'Brien with Piper Sandler.

[Jerome Day:]

Hi, guys. Good morning. This is Jerome for Matt. Just from a customer perspective, I just was wondering if you have any sense for what percentage of your customers' offices that are open today? And then maybe could you speak to the economics of Renuvion that product to the practices relative to some of the other products and services that they provide?

[Charlie Goodwin:]

Yes. Well, the first thing is that substantially, the Renuvion procedures are all performed in outpatient facilities, so the offices and the surgery centers. So from doctor having control of their own environment and the patients, hopefully feeling safe coming into a smaller thing. We think that, that is a positive for us going forward.We're encouraged so far from the initial activities in May of lifting the shelter in place. But it's really hard to have what percentage are open because everything is different from a state and local and then just the clinician being ready to go on. So we are seeing these restrictions lifted over the last two weeks, and we are encouraged by that. And we expect these surgeons to get going as quickly as they can because they are small business owners, and they've got staff and they've got a business to run.And so we're confident that once each state, respective state lifts the restrictions that they will get back to work as soon as they possibly can.

[Jerome Day:]

Okay. That's very helpful. And then on the clinical trial front, the skin laxity and dermal resurfacing. I understand you said it's difficult to estimate when you're going to resume there.I think other Meditech companies have been kind of citing somewhere around the 6-month delay for a lot of the clinical trials. Is there any reason to think yours maybe a little bit faster, slower? And then, I guess, is there anything that we need to be thinking about as far as — aside from just enrollment, but as far as patient follow-up or anything that could have the potential to have it pushed out a little bit more than that?

[Charlie Goodwin:]

I have no comment on what other companies are doing, and I don't know about that. Ours is really a function of our clinicians opening up their practices again. And being able to enroll patients. We were doing some virtual follow-up on some of our clinical studies, but I don't know how effective that is at this point in time.And so once we get these guys back and going again and they can see the patients in person, we'll be able to have a much better idea of what that time frame is. It's just really hard to — I just can't give a time frame at this point in time.

[Operator:]

Thank you. As we are currently showing no participants in the queue, that does conclude our conference for today. Thank you for your participation.