Apyx Medical (NASDAQ:APYX) announced its Fourth Quarter and Fiscal Year 2023 financial results, revealing a 16% increase in Q4 revenue to $14.7 million, primarily driven by sales in Advanced Energy products and OEM products.
Despite the revenue growth, the company fell short of their Advanced Energy revenue guidance for the quarter. The full year saw double-digit revenue growth, and the company launched new products, including the Renuvion Micro Handpiece. Apyx Medical also reported a net loss attributable to stockholders, which increased by 59% to $9.6 million.
Looking ahead, the company expects total revenue for 2024 to be between $49.7 million and $52.9 million but anticipates a challenging capital equipment market in Q1 2024.
Key Takeaways
- Q4 revenue increased by 16% year-over-year to $14.7 million.
- Advanced Energy sales growth, particularly from U.S. customers.
- International sales of generators rose over 80%, while handpiece sales declined by over 15%.
- The company missed its Advanced Energy revenue guidance for Q4.
- Gross profit rose by 8% to $8.9 million, but gross profit margin decreased.
- Operating expenses increased by 4%, and loss from operations decreased by 3%.
- Net loss attributable to stockholders increased to $9.6 million, up by 59%.
- The company expects 2024 revenue to be between $49.7 million and $52.9 million.
Company Outlook
- Anticipates total revenue for 2024 to be in the range of $49.7 million to $52.9 million.
- Expects a 40% decrease in Advanced Energy revenue in Q1 2024 compared to Q4 2023.
- Forecasts a challenging market in Q1 2024 with improvements in the second half.
- Projects a gross margin of around 61% for 2024.
Bearish Highlights
- Missed Advanced Energy revenue guidance for Q4.
- Decline in gross profit margin due to product mix and lower average selling prices.
- Increased net loss attributable to stockholders by 59%.
- Challenging capital equipment market expected in Q1 2024.
Bullish Highlights
- Achieved double-digit revenue growth for the full year of 2023.
- Launched new products and expanded marketing efforts.
- Strengthened balance sheet and enhanced team.
- Handpiece business expected to remain strong throughout the year.
- Potential long-term tailwind from GLP-1 drugs for weight loss.
Misses
- Advanced Energy revenue fell short of the guidance.
- Gross profit margin decreased due to changes in product mix and lower selling prices.
Q&A Highlights
- The company will continue to drive awareness of Renuvion to both consumers and physicians.
- Awareness of the technology is increasing through word of mouth.
- Doctors appreciate the company's clearances and evidence-based medicine but are hesitant to make capital purchases due to market conditions.
Apyx Medical Corporation has navigated a year of growth and challenges, with a significant increase in Q4 revenue but a miss in their Advanced Energy revenue guidance. The company is focusing on market expansion and maintaining a strong balance sheet, with sufficient capital to fund future initiatives.
Despite a challenging market, particularly in Q1 2024, Apyx Medical remains optimistic about the long-term potential of their products and market position.
InvestingPro Insights
Apyx Medical Corporation (APYX) has shown resilience with a 16% increase in Q4 revenue and double-digit growth over the full year. As the company navigates the challenges ahead, particularly in the capital equipment market, it's crucial to consider various financial metrics and market signals.
InvestingPro Data provides a deeper look into the company's financial health and market performance. With a market capitalization of $64.09 million and a revenue of $50.3 million over the last twelve months as of Q1 2023, APYX has demonstrated its ability to generate sales.
Still, the company's negative P/E ratio of -3.61 indicates that it is not currently profitable, aligning with the forecast that analysts do not expect profitability this year. Additionally, the gross profit margin stands at a robust 65.75%, suggesting that while the company is not profitable, it maintains a strong ability to control costs relative to its revenue.
InvestingPro Tips highlight several critical aspects for potential investors and current shareholders. APYX holds more cash than debt, which is a positive sign of financial stability. This is crucial for the company as it anticipates a challenging Q1 2024. Moreover, the stock is trading near its 52-week low and the RSI suggests it is in oversold territory, which could indicate a potential buying opportunity for investors looking at long-term prospects.
For those looking to delve deeper into the financial nuances of Apyx Medical Corporation, there are additional InvestingPro Tips available at https://www.investing.com/pro/APYX. Currently, there are 11 more tips that provide insights into the company's performance and stock valuation. To access these valuable tips and make more informed investment decisions, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Apyx Medical Inc (APYX) Q4 2023:
Operator: Hello, and welcome, ladies and gentlemen to the Fourth Quarter and Fiscal Year 2023 Earnings Conference Call for Apyx 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 note that this conference call is being recorded, and the recording will be available on the company's website for replay shortly. Before we begin, I'd 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 non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I will now turn the call over to Mr. Charlie Goodwin, Apyx Medical's President and Chief Executive Officer. Please go ahead, sir.
Charles D. Goodwin: Thanks, operator and welcome, everyone to our fourth quarter and fiscal year 2023 earnings call. I'm joined on today's call by Matt Hill, our Chief Financial Officer. Before we delve in, let me provide a quick outline for the call. First, I'll discuss our quarterly revenue performance as well as some of the notable operational progress we made during the fourth quarter. Matt will then review our quarterly financial results and our 2024 fiscal guidance, which we introduced in today's earnings release. I'll conclude by sharing some additional thoughts on our outlook and priorities for 2024 before we open the call for questions. With this as a backdrop, let's begin with a review of our fourth quarter revenue results. Total revenue in the fourth quarter increased 16% year-over-year to $14.7 million. Our total revenue growth was predominantly driven by sales of our Advanced Energy products, which increased 15% year-over-year to $12.1 million. However, we also saw strong contributions from sales of our OEM products, which increased 22% year-over-year to $2.5 million. Turning to a more detailed discussion of the growth drivers in our Advanced Energy segment. From a product standpoint, our advanced energy sales growth was driven by double-digit growth in sales of both generators and handpieces, which increased by more than 25% and 10%, respectively. And from a geographic standpoint, the majority of our Advanced Energy sales growth was driven by sales to our U.S. customers. In the U.S. specifically, our Advanced Energy sales growth was fueled primarily by sales of our handpieces which increased by more than 35% year-over-year, reflecting an uptick in utilization-based demand. We also saw double-digit growth in U.S. generator sales, which increased by more than 15% year-over-year. Our U.S. generator sales growth benefited from sales of our next-generation generator system, the Apyx One console to existing customers. As a reminder, when we launched this new generator system at the beginning of 2023, we introduced an upgrade program for our existing users, enabling them to trade in their prior generation system to obtain discounted pricing on the Apyx One. Meanwhile, sales of our generators to new U.S. customers decreased slightly year-over-year as demand for capital equipment in the cosmetic surgery market continued to be impacted, which I will discuss in further detail shortly. With respect to our Advanced Energy sales growth outside the United States, international sales of our generators increased by more than 80% year-over-year. This performance was largely offset by sales of our handpieces, which decreased more than 15% year-over-year. In summary, the 15% year-over-year growth that we saw in Global Advanced Energy revenue was driven by double-digit growth in sales of both generators and handpieces due to growth in global generator sales and U.S. handpiece sales. As we shared in our preliminary earnings release in January, our Advanced Energy sales performance fell short of the guidance we provided on our third quarter earnings call, which had called for Advanced Energy revenue in the fourth quarter of at least $13.3 million. Relative to our expectations, we were pleased with our handpiece sales performance in the fourth quarter. We saw the strong sequential improvements relative to the third quarter, which was consistent with the guidance-related assumptions that we articulated on our last earnings call. With respect to generator sales, as a reminder, during the third quarter we observed softness in the overall market for cosmetic surgery capital equipment with more prospective customers delaying capital equipment purchases citing broader macroeconomic uncertainty and high interest rates. Our team moved quickly to expand our support for prospective surgeon customers, introducing additional financing options in September to provide them with further financial flexibility. As we shared on our last earnings call, our guidance has assumed that the capital equipment environment would remain similarly challenged in the fourth quarter. However, we expected to see sequential growth in generator sales from Q3 to Q4 as the fourth quarter has traditionally represented our seasonally strongest quarter of the year from a generator sales perspective. The capital equipment environment in the fourth quarter proved to be more challenging than we had anticipated with more prospective customers delaying investments given continued concerns related to broader macroeconomic uncertainty as well as the financing environment. As a result, generator revenue growth in the fourth quarter was essentially flat relative to the third. Ultimately, we managed to generate significant year-over-year growth in our Advanced Energy business in spite of these headwinds. With global generator sales increasing by more than 25% year-over-year, fueled by growth in the U.S. and internationally. Our sales performance in the fourth quarter enabled us to return to double-digit revenue growth on a full year basis in 2023. And in addition to our revenue performance, our continued focus on controlling our expenses, positions us to deliver improvements in our annual net loss attributable to stockholders and adjusted EBITDA loss of 19% and 13%, respectively, along with significant reduction in cash used in operations this past year. Turning to our fourth quarter operational highlights, we made notable progress in several key areas during the quarter, introducing new products, raising awareness in the market, strengthening our balance sheet, and enhancing our team. From a new product standpoint, we completed the limited market release of our Renuvion Micro Handpiece during the initial weeks of the fourth quarter, which provided us with important feedback to enhance our surgeon training protocols. In late November, we initiated our full U.S. commercial launch of the Micro Handpiece, consistent with our stated goal of launching by year-end. During the initial weeks following the launch, we have been pleased to see that the response from our U.S. customers has been consistent with the feedback obtained during our limited market release. As a reminder, our Renuvion Micro Handpiece features a smaller profile instrument shaft with a diameter that is half the width of our Renuvion APR Handpiece. Surgeons have shared that the device's smaller profile make it ideal for accessing and delivering energy, contracting the soft tissue in more delicate and sensitive areas of the body. In addition to completing and expanding the capabilities of our existing product offering, remember that our Renuvion Micro Handpiece is only compatible with our latest generation generator system, the Apyx One console. In addition to the Apyx One's enhanced features, the Renuvion Micro Handpiece represents another important benefit to adopting our next-generator -- next-generation generator system. In addition to introducing the Micro Handpiece, our team remained focused on educating the market about the strong safety and efficacy profile of our Renuvion technology as well as our latest FDA clearances with specific clinical indications for use. We participated in seven medical meetings and trade shows during the fourth quarter, the highlight of which was the ASPS Plastic Surgery Meeting hosted in late October. Our programming at the event featured an educational session led by three surgeons, which drew attendance from approximately 60 clinicians. We also hosted our second Latin America users meeting during the fourth quarter with panel discussions and presentations from 27 speakers, including some of the most successful surgeon customers. This event was attended by more than 130 clinicians from 14 countries. Ultimately, our Renuvion technology was featured in approximately 40 podium presentations at medical meetings and other industry events during the course of the fourth quarter, helping to broaden the awareness of our technology and its capabilities in the medical community. And at the patient level, we continue to develop our DTC initiatives, launching a new campaign near the end of the year that emphasizes Renuvion's role in body contouring procedures, with materials illustrating the real results obtained by Renuvion patients. We also made important progress in our efforts to enhance our sales, marketing and executive leadership teams with the addition of key personnel. As we shared last quarter, we conducted a strategic reorganization of our sales and marketing team during the fourth quarter. On the sales side, we implemented several planned departures within our team of direct sales reps in the U.S. and expanded the territory of some of our top performers to improve the overall productivity of our sales team. Internationally, we also brought in new leadership to manage our distributor relations in East Asia. From a marketing perspective, we hired a new head of marketing with extensive experience in developing and managing direct-to-consumer advertising campaigns for medical device and other healthcare companies and most recently, we added a new Senior Director of Marketing, who joins our team with over a decade of experience in the medical device industry, including significant experience in the cosmetic surgery space. In addition to this key talent, we were pleased to announce the appointment of Matt Hill as our Chief Financial Officer. Matt joined our Executive Leadership Team with over 30 years of financial and operational experience, more than 20 years of his career have been devoted to the life science industry, where Matt has served as CFO of four publicly traded companies most recently at PDS Biotech and Strata Skin Sciences (NASDAQ:SSKN). I'd like to take the opportunity on today's call to welcome Matt and the other new members of the Apyx Medical team. Lastly, we enhanced our balance sheet condition and financial flexibility. We entered into a new five-year agreement with Perceptive Advisors for a facility of up to $45 million in senior secured loans, providing us with $37.5 million of proceeds at closing. We used approximately $11 million of these proceeds to satisfy all obligations under the prior credit agreement as well as approximately $2.7 million of transaction fees and other expenses related to the transactions. We were pleased to leverage the progress we've made as an organization over the course of 2023 to negotiate this new facility, which expanded our access to capital and at more favorable terms. In summary, 2023 as a whole proved to be an important transitional year for Apyx Medical. We set out with four stated strategic objectives. First, to secure additional clinical indications for use addressing the remaining limitations of the FDA safety communication and improving our ability to market our technology. Second, to enhance our new product portfolio. Third, to expand our portfolio of clinical evidence supporting the use of our products. And fourth, to manage our expenses while driving progress towards profitability. I'm pleased that our team was able to accomplish each of these four objectives during the course of the year. With the progress made on all of these fronts, we believe that we are well positioned to expand our presence in the global cosmetic surgery market and with $44 million of cash and equivalents at year-end, we believe we are sufficiently capitalized to fund our initiatives as we continue to target achieving sustainable and profitable growth in the future. Matt will now review the fourth quarter financial results in more detail, along with our financial guidance for 2024, which we introduced in today's release. Matt?
Matt Hill: Thank you, Charlie. I'm excited to join the Apyx Medical team during this important stage in the company's development and look forward to continuing to building on the progress made in the recent years. Given that Charlie has discussed our revenue results, I will begin at the gross profit line. Unless noted otherwise, all references to fourth quarter financial results are on a GAAP and year-over-year basis. Gross profit for the fourth quarter of 2023 increased $0.7 million or 8% to $8.9 million. Gross profit margin was 60.9% compared to 65.3% in the prior year period. The decrease in our gross margin was driven primarily by changes in the product mix within our Advanced Energy segment as well as lower average selling prices due to changes in our customer mix, higher material and inbound shipping costs to manufacture our inventory, and additional reserves on inventories as a result of lower-than-expected sales. Operating expenses increased $0.5 million or 4% to $14.7 million. The increase in net operating expenses was primarily driven by selling, general, and administrative expenses as well as salaries and related costs, which increased by $0.9 million and $0.2 million, respectively. These increases were offset partially by professional services expenses, which decreased by $0.6 million. Loss from operations for the fourth quarter of 2023 decreased $0.2 million or 3% to $5.8 million. Total other expense net was $3.8 million compared to income of $19,000 in the fourth quarter of 2023. The change was driven by $3.1 million in expenses recognized in the fourth quarter of 2023 related to the extinguishment of our prior credit agreements. Along with increased net interest expense related to our outstanding debt obligations as we had no outstanding borrowings in the prior year period. Income tax expense decreased $0.1 million or 42% to $0.1 million in the fourth quarter of 2023. Net loss attributable to stockholders increased $3.6 million or 59% to $9.6 million or $0.28 per share in the fourth quarter of 2023 compared to $6 million or $0.17 per share in the fourth quarter of 2022. Adjusted EBITDA loss increased $0.6 million or 14% to $4.7 million compared to $4.1 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. For the three months ended December 31, 2023, cash used from operating activities was $2.2 million compared to $4.5 million in the prior year period. The decrease was driven primarily by improvements in our working capital. As of December 31, 2023, we have cash and cash equivalents of approximately $44 million compared to $10.2 million as of December 31, 2022. Turning to a review of our 2024 financial guidance, which we introduced in our earnings press release today. For the 12 months ending December 31, 2024, we expect total revenue in the range of $49.7 million to $52.9 million, representing a decrease of approximately 5% to growth of approximately 1%. Our total revenue guidance range assumes Advanced Energy revenue of $41.6 million to $44.6 million representing a decrease of approximately 4% to growth of approximately 3%. And OEM revenue of approximately $8.1 million to $8.3 million representing a decrease of 10% to 7%. In terms of our profitability guidance for fiscal year 2024, we expect a net loss attributable to stockholders of approximately $26.5 million to $24.3 million compared to $18.7 million in 2023. The low end of our formal financial guidance for net loss attributable to stockholders assumes the following for modeling purposes. First, gross margins of approximately 61% this year compared to 64.5% last year. The year-over-year decrease in gross margins is primarily driven by changes in revenue mix, with roughly half attributable to changes in revenue mix within our OEM segment and the other half attributable geographic revenue mix in our Advanced Energy segment and the full year of impact of incremental rent expense related to our sales leaseback for our Clearwater facility, which occurred in 2023. Second, total operating expenses of approximately $52 million, down approximately 3% year-over-year. Third, GAAP net interest expense of approximately $4.1 million compared to $1.6 million in 2023. And fourth, the low end of our net loss guidance range also assumes income tax expense of approximately $2 million compared to income tax benefit of $2.4 million last year and a non-controlling interest benefit of approximately $0.2 million. Lastly, at the low end of our net loss range, we expect cash used in operations in 2024 were approximately $19 million compared to normalized cash used in operations of approximately $13 million in 2023, excluding the onetime tax benefit. The year-over-year change in cash used in operations is driven by the change in net loss offset by improvements in our working capital. With that, I'll turn the call back to Charlie for closing remarks.
Charles D. Goodwin: Thanks, Matt. Our total revenue guidance for 2024 reflects a different near-term growth profile as we navigate the continued challenges in the cosmetic surgery capital equipment environment, and we return to a more normalized ordering from our OEM customers. With respect to key assumptions of our Advanced Energy segment, while the environment remains challenging, we are pleased that customer utilization remains strong and we expect growth in sales of our handpieces driven by demand from both existing customers and new users globally will help offset the impact of slower generator sales in 2024. Our full year Advanced Energy revenue range assumes that capital equipment adoption trends in the first half of 2024 remains similar to what we saw in the second half of 2023. We expect to see improving trends in the second half of this year. For avoidance of doubt, our first quarter is challenged by the impact of this dynamic, along with the seasonal purchasing patterns that we have experienced in prior years. To that end, while we expect positive momentum in our generator pipeline over the balance of the first quarter, the low end of our full year Advanced Energy revenue range assumes approximately 40% decrease in the first quarter compared to the fourth quarter of 2023. Despite the continuation of this challenging market environment over the near term, we believe we are better positioned than we have ever been and the level of regulatory, clinical and customer support for our technology has never been higher. Moreover, we believe the longer-term outlook for our addressable market remains compelling. According to the latest global survey report of the International Society of Aesthetic Plastic Surgery, liposuction procedures grew 21% year-over-year to an estimated 2.3 million in 2022 and continue to be the number one aesthetic surgical procedure globally. We believe the cosmetic surgery industry’s focus on body contouring, customizable procedures that target specific fat deposits, engaging in fat transfer, and addressing skin laxity represents an important long-term tailwind for our business. As a reminder, we believe our Renuvion APR handpiece is the only technology with FDA 510(k) clearance for the coagulation of subcutaneous soft tissues following liposuction for aesthetic body contouring. And we believe social and cultural dynamics, including the role of social media, the increasing acceptance of minimally invasive cosmetic procedures across a broader portion of the population and the increasing adoption of GLP-1 drugs for weight loss will play an important role in driving demand for technologies that demonstrate success in coagulating and contracting soft tissues for aesthetic purposes. As I mentioned earlier, the progress made by our team in 2023 enhanced our strategic and financial positioning with new clinical indications, new products, increased market awareness for Renuvion's safety and efficacy, and improved balance sheet and financial conditions. In 2024, we are focused on building on this progress by continuing to position Renuvion for future success by educating the market to drive awareness and adoption of Renuvion, leveraging and expanding our compelling portfolio of clinical evidence, and supporting both our U.S. customers and international distributors. With $44 million in cash and equivalents at year-end, we believe we have sufficient capital to execute our strategy, and we continue to manage our resources effectively and invest strategically as we pursue our strategic initiatives. As market conditions improve, we look forward to capitalizing on the multibillion dollar addressable market opportunity as well as the favorable long-term tailwinds in our industry by helping surgeons and patients appreciate Renuvion's ability to achieve their desired outcomes. And importantly, we remain focused on delivering sustainable and profitable growth in the future. I'd like to conclude my remarks today by congratulating the entire Apyx Medical team for their accomplishments this past year, which were made possible through their hard work and dedication. Thanks as well to our distributor partners, customers and shareholders for their support. With that, operator, let's now open the call for questions.
Operator: Thank you. [Operator Instructions]. Our first question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed with your question.
Frank Takkinen: Great, thanks for taking the questions. Was hoping to start by asking a little bit more about the guide, you gave us a lot of different pieces to kind of model up the sequential cadence of revenue. I think the implied number for Q1 is in the high $8 million range to get to that 40% down quarter-over-quarter. But back us into a pretty good sequential ramp throughout the year. So maybe talk about how you envision this playing out, are you starting to see some of the capital equipment overhang lift and you expect that to accelerate to the back end of the year, is the funnel indicating that this should allow you to accelerate into the back end of the year, just maybe give us a little bit more color on the assumptions around how you ramp through 2024?
Charles D. Goodwin: Yes. Thanks, Frank. Appreciate the question. We believe that the capital equipment purchasing environment continues to be challenging. And really, we have not seen any evidence of sustained improvement so far in Q1, okay. And in the interest of transparency, we said at the low end of our full year revenue guidance contemplated a roughly 40% decrease in Advanced Energy in Q1 versus Q4 of 2023. And we always see that seasonal quarter-over-quarter decline from Q4 to Q1. It's typically about 30% but because of the capital equipment environment, we've brought it down to 40%. And our expectations for Q1 also reflect continued headwinds in this capital purchasing environment that we have there. And as we look out the year, we would see the back half getting a little bit better, but we still see headwinds over the year. We're not forecasting a change or when that's going to really change in the back half. We still believe that our handpiece business is strong, and that will continue to be strong throughout the year. But from a capital purchasing environment, we're not forecasting a huge turnaround this year.
Frank Takkinen: Okay. That's helpful color. And then maybe for my second one, just an update on the GLP-1 dynamic. I know we've talked about it in many of the previous calls and how it's a longer-term tailwind. Is there any chance that it's potentially is causing a little bit of an air pocket right now as those who are on GLP-1 work through the treatment regimen, and then they may become a candidate for skin tightening 6 to 12 months after starting the treatment or is the overhang you're seeing strictly related to the capital equipment market?
Charles D. Goodwin: Yes. So if you look at what we did, Q4 from a procedure perspective was exactly what we thought and handpieces were up strong, especially in the U.S. But based on the feedback we've heard from surgeons, we continue to believe that this represents a very long -- huge long-term tailwind. And first, if you remember from the GLP-1 drugs, most of those patients were not candidates for Renuvion because of their BMIs before. And so this brings in a whole bunch of new candidates into the funnel. And yes, they do need to lose the weight before they have body contouring, but we're actually starting to see now that these patients are even more inclined to have aesthetic procedures than the traditional patients because they've been through this journey. And there could be some type of lag in -- because they have to lose the weight and have to do that. There's no question about it. But we think in 2024 we will start to see a lot of these patients come through the door.
Frank Takkinen: Perfect, that’s helpful color. I will step down, thanks for taking the questions.
Operator: Thank you. Our next question comes from the line of George Sellers with Stephens Inc. Please proceed with your question.
George Sellers: Hey, good morning. Thanks for taking the questions. Maybe to start with the gross margin piece, could you just break out the drivers to that OEM gross margin headwind, is this inflation or weaker pricing or some combination of those two? And then how should we think about this on a go-forward basis as a weaker OEM gross margin contribution, the new normal?
Charles D. Goodwin: Yes, that's a great question. I'm going to give that over to Matt and have him walk you through the puts and takes of the gross margin.
Matt Hill: So let's talk about -- by the way, thanks for your question. Good question. We analyze the gross margin very carefully. From a perspective of Q4, our gross margins in Q4 were down to 60.9%. A little more than half of that was related to inventory cleanup at year-end for some slow-moving inventory with additional reserves, and the remainder was associated with -- primarily with mix -- product mix in our AE segment, both product and customer mix. And then in the environment that we're in, we saw some additional material and shipping costs. Now as we look out into 2024, what we're looking at right now is our low end of the guidance assumes gross margin is about 61% in 2024. And the year-over-year margin largely reflects the headwinds related to our anticipated revenue mix. So most of that is going to be revenue mix within our OEM and the other half is going to be a full year impact of rent expense associated with that sale leaseback that we did in 2023. And it will be some geographic revenue mix in our Advanced Energy segment.
George Sellers: Okay. That's really helpful. Thank you for that color. Switching gears, a little bit to the Advanced Energy piece. I'm just curious, could you remind us where you are in converting existing customers to the Apyx One and then when that discounted program will end?
Charles D. Goodwin: So we are pleased with the progress that we've made this past year in upgrading existing users. Our recently launched Micro Handpiece represents another benefit to adopting Apyx One and for practices though, that are focused on those procedures. And we still see significant room to expand adoption across our existing user base in 2024. That said, our guidance still implies that our generator sales will be slower due to the challenging environment because, obviously, those doctors have to have a capital purchase also. And remember, it's only going to be the doctors that want to use the Micro Handpiece that will be the ones that we'll be adopting first, the ones that are doing a lot of body work, they don't -- and not going to use the Micro right away, they wouldn't need to adopt right away. So we still see these trends as being a little bit slower in 2024 also.
George Sellers: Okay. Okay. Got it. And then as you think about the rest of 2024 and into 2025 as well, is the Micro Handpiece and the other new technologies that you all have in the pipeline are those sort of the key drivers to getting existing customers and then also new customers to adopt the Apyx One or is the improved technology of the Apyx One driving new user adoption as well?
Charles D. Goodwin: Yes, the new user adoption will be primarily Apyx One for new users, but the growth in our handpieces as a whole is going to be a driver for us in 2024 and 2025 and beyond. Remember, there's 2.3 million liposuction procedures that are done on a worldwide basis every single year. And we've got a long ways to go to make Renuvion the standard of care for liposuction. So the handpieces whether they're Micro, whether they're for the body, whether they're for everything else, that still remains a huge driver of our business as we move forward from 2024 and for many years to come.
George Sellers: Okay, great. I will leave it there. And thanks again for taking the questions.
Operator: Thank you. Our next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group. Please proceed with your question.
Matthew Hewitt: Good morning, thank you for taking the questions. Maybe just a follow-up on your last response there, Charlie. Given the tough macro environment, particularly with the higher interest rates, is there anything that you could do from a pricing perspective that would drive generator sales over the near term? Obviously, you're seeing the utilization grow, but getting those generators into the practices hands, I think, is the key here. And I'm just wondering if there's something you could do from a pricing perspective to encourage and kind of motivate the purchase and get those boxes in place?
Charles D. Goodwin: Yes. Look, we've obviously talked about programs that we've had to buy down the interest rates for leases and things like that, and we're constantly evaluating what we're doing from a capital perspective in order to make it as easy as possible for new adoption of our generators. And obviously, it's something that we will continue to look out and monitor and drive. And it's obviously a huge focus of the entire organization globally for new customer adoption in 2024. So it's always something that we're evaluating and always something that we're looking at.
Matthew Hewitt: Got it. And then I believe at least historically, you have not factored in additional international clearances in to your forecast. Is that still the case and are there still a few countries out there that you think you're hopeful that you could garner approvals in that could be incremental to your guidance?
Charles D. Goodwin: Yes, our guidance just like always, does not assume any material contributions from any new countries in 2024. As we've talked in the past, the two big ones that we're working on are Korea and China. And I think they're the third and fifth largest cosmetic markets depending on how you look at them or what things you look at. But obviously, until we get those, it doesn't make any sense to talk about them, quite frankly.
Matthew Hewitt: Got it, right, thank you.
Operator: Thank you. [Operator Instructions]. Our next question comes from the line of Matt O'Brien with Piper Sandler. Please proceed with your question.
Unidentified Analyst: Hi, this is Samantha on for Matt. Thanks so much for taking our questions. So you provided a bunch of color on the sales guidance for the year. We were just wondering, what is the higher end of that range you expect and what would it take for you to reach that?
Charles D. Goodwin: So the delta between the high end and the low end of our guidance basically assumes increased generator sales. So it's just us being more successful with generator sales.
Unidentified Analyst: Okay. Got it. Thank you. And then one more on the DTC initiative, I know this has been a really big focus recently, how do you expect this to be a contributor throughout the year?
Charles D. Goodwin: Yes, I think that we will continue to drive awareness, both from a consumer point of view and a customer point of view, physician point of view to the benefits of Renuvion, what they can do for their practice, not only in traditional body contouring with liposuction, but also to help treat the patient population that is going to be coming through their doors that are on the GLP-1 drugs. And that will be something that you will see from a DTC perspective as we start to talk and to educate both groups.
Unidentified Analyst: Perfect, thank you. I know you've mentioned previously that you've had patients come in talking about Renuvion. Are you still seeing that specifically so far early this year?
Charles D. Goodwin: Yes, so the great thing about awareness and a great thing about building on this is, is every day, every week, every year, awareness of the technology becomes more and more. And that word of mouth helps to spread not only from a patient perspective but also from a physician perspective. And so that will be something that will keep building us as we go throughout the years here for sure.
Unidentified Analyst: Great, thank you.
Operator: Thank you. Our next question comes from the line of David Turkaly with Citizens JMP. Please proceed with your question.
David Turkaly: Hey, good morning. Just one quick one. Given all the progress you made with the label, all the sort of expansion you got there. I'm just curious, what are the conversations like with the docs here domestically specifically? I know you mentioned capital challenges, we talked about that. But does it resonate, let's say, vis-a-vis the competition with these surgeons, are they aware of these labels, are they aware that others don't have it, is there anything -- how often does that come up in conversation, any sort of color you can give us in terms of the benefit from all that work you did?
Charles D. Goodwin: Yes. No, it's a great question, and I appreciate the question. And yes, it does resonate with doctors. In fact, the frustrating thing is our pipeline has probably never been stronger than it is right now and it's not a function of doctors saying no or saying they don't want it or they don't -- they want us to go away. It's just come back and see me in a little bit. They're just unsure of what the environment is going to be, and it's -- and they're unsure to make capital purchases in this time. And we're seeing it not just here, it's being seen throughout the industry right now. And that's really the thing. But yes, it does resonate with doctors. And yes, they are appreciative of that. And not only is it just the clearances that we've got but we now have over 92 clinical papers that talk about the safe and effective use of our technology. And I don't know if anybody else in what we're doing that's got even close to that body of evidence. And so all of that stuff, that evidence-based medicine definitely resonates with plastic surgeons for sure.
David Turkaly: Thank you.
Operator: Thank you. We are currently showing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation.
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