Greetings. Welcome to the Apyx Medical Fourth Quarter and Full Year 2024 Conference Call. At this time, all participants will be in the listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jeremy Feffer with Investor Relations. Jeremy, you may begin.

Thank you and welcome everyone to our fourth quarter and full year 2024 earnings call. Representing the company on the call are Charlie Goodwin, Chief Executive Officer, and Matt Hill, Chief Financial Officer of Apyx. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including, without limitation, those identified in the risk factors section of our most recent annual report on Form 10-K, our most recent 10-Q filing, and the company's other filings with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles, or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Charlie Goodwin, Apyx Medical's President and Chief Executive Officer. Charlie, please go ahead.

Thank you, Jeremy. And thank you all for joining us today. Per our usual format on these quarterly calls, I will be providing a review of our performance in the fourth quarter and full year 2024 and then I will turn the call over to Matt for a review of our fourth quarter and full year 2024 financial results as well as our full year 2025 guidance. We will then open the call for questions. Let me start with a review of our fourth quarter performance. We reported total revenue of $14.2 million for the quarter, a slight decrease of 3% compared to $14.7 million for the same period last year. Looking at this by segment, sales of our advanced energy products exceeded our expectations for the fourth quarter at $12.1 million, which is essentially flat year-over-year. To this point, we were pleased to report that the advanced energy segment grew 30% compared with the sequential third quarter of 2024. This reflects the stronger sales of single use handpieces and the improved capital equipment sales in the second half where we more than doubled the unit shipped. While it's too early to say that two quarters of data make a trend, we are encouraged by this momentum and are hopeful that we can build on it as we move into 2025. The softness in the aesthetic space throughout the last 18 months is not specific to our business as companies face similar challenges due to the macroeconomic environment and the rapid adoption of GLP-1 drugs for weight loss. We believe the use of GLP-1s has caused patients to delay aesthetic treatments as their discretionary funds have been diverted to paying for GLP-1 drugs. These drugs can range in price from about 300 for compounded versions and up to $1,800 a…

Thanks Charlie. Before I get started, please note that all references to fourth quarter and full year financial results will be on a GAAP and year-over-year basis unless noted otherwise. As Charlie mentioned, total revenue for the fourth quarter '24 decreased 3% to $14.2 million compared to $14.7 million in the prior year period. Revenue for the Advanced Energy segment was flat at approximately $12.1 million as a result of increased sales of new generators and single use handpieces in the U.S. and customer upgrades to the Apyx one console internationally. These increases were offset by a lower average selling price of generators to domestic customers, fewer domestic customer upgrades to the Apyx One Console and a decrease in international sales of new generators. OEM segment sales decreased 16% or approximately $0.3 million for the fourth quarter of '24 when compared to the fourth quarter of '23. The decrease in OEM sales was due to a decrease in sales volumes to existing customers. Domestic revenue increased 1% year-over-year to $10.6 million and international revenue decreased 8% year-over-year to $3.7 million. Gross profit for the fourth quarter '24 increased to $9 million compared with $8.9 million in the prior year period. Gross profit margin for the fourth quarter '24 was 63.0% compared to 60.9% in the prior year period. The increase in gross profit margins was primarily attributable to changes in both product mix and geographic mix within the Advanced Energy segment, with domestic sales comprising a higher percentage of total sales. This increase was partially offset by a decrease in the average selling price of generators to domestic customers and customer mix within the OEM segment. Operating expenses decreased to $12 million for the fourth quarter '24 compared to $14.7 million in the prior year period. The decrease in operating…

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question today will be coming from the line of Matthew O'Brien with Piper Sandler. Please proceed with your questions.

Morning. Thanks for taking the questions. Matt, I just wanted to confirm, you said 60% gross margin for '25 here?

Yes, sorry. Yes, great question. Yes, we're looking at similar margins that we had for '24 into '25 at around 60%.

Okay. I'm just assuming there's probably some waiting from the I don't know if it's the AYON launch or I'm just guessing, or just try to figure out why that wouldn't recover, just given the proportion of revenue coming from Advanced Energy versus OEM, especially, domestically?

So, when you look at our gross margins, you're absolutely right. There's a, it depends on many things, which include geographic mix, product mix, and then segment mix. And, what we're looking at for '25 is that, the current trends that we saw in '24 will continue into '25, which puts our estimated gross profit about at that, around that 60% mark.

Got it. Okay. Thanks for that. And then Charlie, on AYON, just the timing, getting moved up here by 90 days, congratulations on that. What are you assuming, if anything, in the guide for the back half for AYON? And then how should we think about, your interest level or options in terms of accessing that product from a just outright capital purchase versus leasing kind of arrangement? How should we think about that?

Yes. So Matt, if you remember when we gave the guidance, we gave the guidance when we pre announced in January to what it was going to what it was going to be. And we had predicted that we wouldn't file AYON until the end of the first quarter. And so quite frankly, we haven't updated anything in our guidance for that for the 90 days earlier. And the reason for that is, look, we still predict that we will have approval in the first half of the year, but obviously we don't have approval as we sit here right now today. And then when we do launch it in the back half of the year, we will have a soft launch like we always do with capital equipment to make sure that everything's working the way it's supposed to and all of that stuff. And so, the amount of revenue that is associated in our original budget for AYON is obviously not very big because of all of those factors. So, depending on when we get approval, depending on all of those things, we'll be able to update as the year goes on of what we think that AYON is going to do to the revenue. Okay, that's number one. Number two for your second question is we actually believe that AYON will be something that all doctors are all surgeons are going to want to have in their operating room. Like we said, we've taken every technology that is available today and we've upgraded that technology. We've made it state of the art. And then we've put everything together where the workflow and the efficiencies and everything else that go along with having a standalone system that is just for body contouring and all surgical procedures is something that exists everywhere else in surgery, but it doesn't exist in plastic surgery. And so, we think that this is going to have a great value proposition for the doctors. As far as how they are going to be able to acquire it, there's a couple things. Obviously, they'll be able to buy it outright, they'll be able to lease it, they'll do all of those things. What we will do is we've always tried to take very good care of our existing customers first. So, everybody today that has an Apyx One generator and has already upgraded and done all of those things will have the opportunity to get special pricing if they want to buy it for a limited time right away. And then we will then obviously take back competitive technologies in trade to make sure that we're getting AYON into every OR that is out there. And so we've got a lot of programs that we'll be rolling out over time. A lot of things to show doctors that this is going to be a tremendous value for them to get involved with this technology and this system.

Got it. Thanks so much.

Our next questions come from the line of Matt Hewitt with Craig Hallum. Please proceed with your questions.

Good morning. Thanks for taking the questions. Maybe the first one, you noted that the success that you had in the DTC campaign, I'm just curious, kind of what were the changes that were implemented and how do you see that playing out in '25?

So, I think it's, you got to go back and remember that we didn't actually start doing our direct-to-consumer campaign until the middle of '23 and that's when we got the clearance for Renuvion, used after liposuction in body contouring as treatment for loose and lax skin. Okay. So that's when it actually started. And quite frankly, our first foray into that, the first back half of '23, we actually didn't have the right partner and really didn't have the best message. In January of '24 we actually brought in a new PR partner that has been doing a tremendous job for us and we actually started rolling out the first programs of that in April of '24. So, we actually, as we sit here today, actually haven't been doing this direct-to-consumer for almost even a year yet. And so, the results that we have seen from the campaign, the results that we have seen that we are doing have just crushed every metric that we had before. And the fact of the matter is now is because of the adoption of GLP-1 drugs and because of the need of these patients that are losing 15% to 20% of their body weight. We are a incredible treatment for loose and lax skin and we're the only FDA approved treatment for that. And the real answer is because of the amount of weight loss that they are going to have, that they are going, most of those patients are going to benefit from a surgical intervention. And we don't believe that many of the previous non-invasive therapies are going to be able to help with that much skin laxity. That the message is really resonating with consumers, influencers, doctors, everybody else is that this change has really been good for us from a direct-to-consumer point of view. And so I think those are some of the main changes. Some of it was on us not having the right partner, and some of it is just what's going on in the marketplace.

That's great. And then I guess shifting gears a little bit, obviously it remains a challenging market, but it seems like you are doing better domestically than you are internationally. Is there anything that you can learn or that you can take from some of the improvements that you're implementing in the U.S. to the external markets? And what could that mean for an upside perspective for '25? Thank you.

Yes. So, if you look at why we think the U.S. is doing better relative to outside the United States, it has to do with the early adoption of GLP-1 drugs, quite frankly. And those drugs will be adopted everywhere in the world. The United States isn't the only nation that likes its food and consumes too much alcohol and all of that good stuff. So those drugs will make it all over the place. And we expect similar type results, throughout the rest of the world, because we believe that surgery is going to be the key to take care of the needs that this specific group of patients has. There was always a group of patients that needed surgery and benefited from surgery, but now that group, because of the laxity in the skin, is just continuing to grow. And it, and it will force however long these drugs stay in vogue, if you will. And quite frankly, there's a lot of people that think that these drugs will be part of people's daily routines for sometimes the rest of their lives. So, we don't see that changing. And quite frankly, we've always believed that surgery is really the thing that provides durable and transformational results in the aesthetic space. And our focus has always been on that. We think that we can become the most dominant, dominant company in surgical aesthetics. And our partnership with aesthetic surgeons is something that we look forward to for many years. Not only do we have a clinical team, not only are we marketing directly to consumers, but we've got a huge vested interest because of our consumable and disposable business to have them help grow their surgical practices. If they're doing better, we're doing better. And so, we're aligned perfectly from that scenario. And we think that disruption in the marketplace, to your point, it is a tough market, has been being caused by the GLP-1 drugs. And we think because of that major disruption, that there are going to be companies that have the right technologies and products to treat those patients. And there's going to be other companies that don't have the right technologies to be able to treat those patients. And we think that we're at the forefront of that.

That's great. Thank you.

Thank you. The next question is from the line of Sam Eiber with BTIG. Please proceed with your question.

Hi, good morning. Charlie and Matt, appreciate you taking the questions this morning. Maybe I could just follow up on that last point you were making and maybe get your thoughts on what you're hearing or what you're seeing from accounts that maybe have started to adopt GLP-1s versus those who haven't. And if you're getting that pull through on utilization for Renuvion at this point?

Yes, look, I think that, you know, one of the things that we saw in the fourth quarter in particular was handpiece growth again in the United States. And I think that we had said that it would grow low double digits for the year and in fact it did. And it was, it was actually a little bit higher in the fourth quarter than that. So, we are seeing that from our usage data and quite honestly, to have, to have our consumables in the United States grow low double digits in an incredibly different difficult aesthetic environment I think speaks volumes to just that. Without me saying it, it's being backed up in the numbers. And that now is over 60% of our total advanced energy revenue. And so that focus and that drive and those patients coming in to have their loose and lax skin treat is something that our doctors are seeing. Their surgical practices are, are good, they're solid, they're busy. And a lot of the disruption that happened in '24 from a revenue perspective for the offices was because of the non-invasive procedures were down almost a third. So, we think that surgery is going to remain strong and we think that the doctors that are talking to these patients, focused on these patients and bringing these patients in, their practices have never done better. '24 was the best year that they ever had. And we think more and more doctors obviously are moving to how they're going to deal with these patients and the offerings that they're going to have for these patients. And they're having to treat these patients differently because of the amount of laxity that is, that is out there. So they're using combination procedures, they're doing all different kinds of things. And we're seeing this change happen within the aesthetic space. And that's why this aesthetic space has been disrupted the way that it has is because everything is having to evolve and to morph to be able to address this huge patient population that is out there.

Yes, yes, it makes a lot of sense. And maybe just as my follow up here, where are we maybe in terms of the upgrades for the Apyx One Console? Just want to understand if the majority of majority of customers are now in the new system or if there's still more where customers love to be converted here?

Yes, that's a good question. So, we are, previously before AYON, the only reason that you would potentially need to upgrade to the Apyx one generator is if you wanted to use the micro handpiece. And that was more important to doctors that were doing a lot of fine features, facial work, all of those types of things. The vast majority of our customers focus on the body and everything else. And so there wasn't a huge incentive for them to upgrade to the Apyx one. Now that AYON is here, now obviously the Apyx one generator is the brains of the AYON system. And as I mentioned earlier, one of the things that we have always tried to do is to make sure that we're taking care of the people who have been our best customers. And so for the customers that have an Apyx one or that are going to upgrade to an Apyx one before the launch of AYON, we will give them the best pricing to upgrade to AYON once it is available. And so we have a long ways to go for people that would need to upgrade to the Apyx one.

Very good. Thanks for taking the questions.

Thank you. At this time, I'd like to turn the floor back to Charlie Goodwin for closing remarks.

Thank you. Thank you everyone for attending the call. We appreciate your support and we look forward to keeping you updated on our progress as we progress throughout the year. Thanks a lot.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.