Apyx Medical Corp Q4 FY2020 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year 2020 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 that 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 those identified in the Risk Factors section of our most recent annual form 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 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.

Thanks, Kevin. Welcome, everyone, to our fourth quarter and full year 2020 earnings call. I'm joined on the call this morning by our Chief Financial Officer, Tara Semb. Let me provide you with a quick agenda for today's call. I'll begin with a review of our strong fourth quarter revenue results. Following this discussion, I will provide you with an update on the operational progress we made during the quarter on our four initiatives we are pursuing as part of our longer-term growth strategy. Tara will then provide a detailed review of our fourth quarter financial results and an overview of our 2021 financial guidance, which we introduced in our press release this morning. I will conclude with some additional thoughts on our near-term areas of focus and long-term outlook as we enter 2021. We will then open the call for questions. With that, let's get started with a review of our Q4 revenue results. We were extremely pleased to report total revenue of $11.5 million for the fourth quarter of 2020, an increase of 37% year-over-year. Our total revenue results came in slightly above the high end of the preliminary range we provided in January and greatly exceeded our expectations for the fourth quarter. Recall that at the time of our Q3 earnings call, we expected total revenue to decrease year-over-year in the fourth quarter. We were very pleased with the revenue results we delivered this quarter, especially given the continued challenges related to COVID in our primary markets around the world. By geographic region, our total U.S. sales for the fourth quarter of 2020 increased 18% year-over-year to $6.6 million, while total international sales increased 74% year-over-year to $4.9 million. And by business segment, our Advanced Energy sales increased 44% year-over-year to $9.9 million, and our OEM sales increased 4% year-over-year to $1.6 million. Our impressive Advanced Energy segment performance was largely driven by strong sales of our handpieces, which grew 78% year-over-year coupled with a 25% year-over-year increase in sales of our generators. It's important to note that the 78% year-over-year growth we saw in global sales of our handpieces was primarily driven by strong demand, both domestically and internationally. Looking at our Advanced Energy sales performance more closely, in the U.S., we saw handpiece sales increased 80% year-over-year. Our U.S. handpiece sales were primarily driven by strong utilization-based demand from our existing surgeon customers. Nearly all of our existing U.S. customers were open and active throughout the quarter. After working through their case backlogs during Q3, many reported they continue to see increased patient volumes throughout the fourth quarter, reflecting strong underlying procedure demand. While our access to prospective new customers improved during the fourth quarter, the capital equipment environment in the U.S. remains challenging. As a result, U.S. generator sales declined high single digits on a year-over-year basis in the fourth quarter. Outside the U.S., international sales were the largest driver of the upside that we saw in our Advanced Energy business during the fourth quarter. I'm pleased to report that we saw year-over-year growth in international sales of both handpieces and generators, which increased 75% and 88%, respectively, in Q4. Our handpiece growth was surprisingly strong given the environment, fueled in part by orders from our distributor in Brazil. However, even excluding that demand, our international handpiece sales increased 45% year-over-year. Importantly, our growth in international sales of generators was predominantly fueled by orders from countries that we entered over the first nine months of 2020, most notably, orders from our distributor in Brazil. Overall trends in our international Advanced Energy business remain difficult to generalize, given that the pace of recovery continues to vary by both region and country. Our performance in Latin America during the fourth quarter was bolstered by strong sales in Brazil, and we saw pockets of strength in the Middle East, while performance in Europe, Canada and APAC regions continued to lag. Turning to a discussion of our operational progress. We complemented our strong fourth quarter sales performance with notable progress on our four strategic initiatives to position Apyx Medical for long-term growth in the cosmetic surgery market. Starting with our first initiative to pursue specific clinical indications that will enable us to market and sell Renuvion for new targeted procedures, we were pleased to achieve multiple milestones during the fourth quarter with respect to our two IDE clinical studies. As a reminder, we are conducting these studies to support the pursuit of new indications for the use in dermal resurfacing and skin laxity procedures. In early November, we completed patient enrollment in our clinical study, evaluating the use of Renuvion technology for dermal resurfacing procedures. Following the completion of enrollment, our team has been focused on completing the 90-day follow-up visits for the enrolled patients and collecting, aggregating and analyzing the data from this study with the goal of submitting our request for 510(k) clearance by the end of May 2021. We also submitted one month safety data to the FDA from Phase 1 of our IDE study, evaluating the use of Renuvion in skin laxity procedures in the neck and submental regions. After reviewing the safety data, the FDA concluded that we met the requirements, completing the Phase I portion of the study. On November 23, we announced that the FDA approved our supplement enabling us to move forward with Phase II of this study. Our approved supplement included changes to the treatment protocol based on feedback from our investigators during Phase I as well as an updated statistical analysis plan and an increase in the number of investigational sites. I am pleased to report that we initiated enrollment in Phase II in December as anticipated, and we will continue to expect to complete enrollment in the third quarter of 2021. In terms of our OUS regulatory strategy, we continue to pursue regulatory clearance of our Helium Plasma Technology in new countries, with the goal of expanding our global commercial footprint. During the fourth quarter, I'm pleased to report that our regulatory team was able to obtain new product registrations in four new countries in Latin America and Eastern Europe. We do not expect these four countries to contribute materially to our performance in 2021, but remain pleased by our rapid pace of progress in obtaining new product registrations despite the global disruptions due to COVID. Turning to our second strategic initiative. We continue to expand our portfolio of clinical evidence for Renuvion with several new publications during the fourth quarter. On October 20, we announced the publication of two peer-reviewed articles, which were both featured in the journal, Dermatological Reviews. Each publication included data on our Renuvion technology from multiple retrospective chart review studies. One evaluated the independent use of Renuvion for subdermal coagulation in the neck, while the other evaluated its use in combination with liposuction for subdermal coagulation in various parts of the body. On October 26, another peer-reviewed article was published in the Aesthetic Surgery Journal Open Forum, which focused on the use of Renuvion for subdermal coagulation following the contouring of the upper and middle back regions with ultrasound-assisted liposuction. We were also pleased to see two additional publications during the quarter in the Biomedical Journal of Scientific and Technical Research, which focused on the use of our technologies in areas outside of cosmetic surgery procedures. Collectively, these publications continue to bolster our portfolio of evidence supporting the risk-benefit profile of our technology when used across multiple areas of the body. With respect to our third strategic initiative, enhancing physician and practice support for our cosmetic surgery customers in lieu of in-person events, our team continued to organize and conduct educational programs virtually. In the U.S., we hosted four virtual physician education events which were similar in format to our in-person physician mentoring programs. These virtual events drew attendance from approximately 60 physicians. Outside the U.S., we hosted two virtual training sessions to educate some of our distributors on the features and benefits of our Helium Plasma Technology. Our team continued to develop new marketing materials, which are now available for our existing Renuvion customers to use via our online marketing portal. On our fourth and final strategic initiative, improving our manufacturing capabilities and efficiencies, our efforts to reduce the per unit manufacturing cost of our Advanced Energy products continues to demonstrate progress as a result of the expanding commercial adoption of our APR handpiece. Following the launch of our APR handpiece in early 2020, we have focused on introducing this next-generation product to our existing customer base. I'm pleased to report that by the end of 2020, nearly all of our North American customers had begun using our new handpiece for a portion of their procedures. Importantly, the adoption of our APR handpiece was the primary driver of the improvement that we saw in our total gross margins during the fourth quarter which increased approximately 80 basis points year-over-year. In summary, as a result of our strong sales performance in Q4, in spite of the continued headwinds created by the COVID pandemic, we were ultimately pleased to see sales decline by only 2% for the full year after experiencing a 24% decline in year-over-year sales during the first half of 2020. As Tara will discuss further, we complemented our exceptional sales performance during the fourth quarter with strong year-over-year improvements in our total gross margins, net loss and adjusted EBITDA. And lastly, we continue to drive important progress on all of our long-term strategic initiatives. The impressive financial and operating performance that we achieved is a direct result of our team's execution and their dedication to supporting our customers and their patients. I'd like to congratulate them on a great quarter and a strong conclusion to a very challenging year. With that, let me turn the call over to Tara to discuss our fourth quarter financial results and 2021 guidance. Tara?

Thanks, Charlie. I will begin my review of our Q4 financial results by continuing down the P&L. Gross profit for the fourth quarter of 2020 increased $2.1 million or 38.4% year-over-year to $7.7 million. Gross profit margin for the fourth quarter of 2020 was 67.2% compared to 66.4% last year. The year-over-year increase in profit margins was driven in part by product mix within our Advanced Energy segment as well as improved product margins in our Advanced Energy segment due to our continued manufacturing efficiency initiatives and the introduction of new products, including the APR handpiece. The increase in profit margins was offset partially by product mix within our OEM segment and geographical revenue mix due to international sales growth outpacing domestic sales growth. Operating expenses for the fourth quarter of 2020 decreased $1.8 million or 15.4% year-over-year to $9.8 million compared to $11.5 million for the fourth quarter of 2019. The decrease in operating expenses year-over-year was driven by a $1.2 million decrease in professional services, a $0.9 million decrease in SG&A expenses and a $0.2 million decrease in R&D expenses, partially offset by a $0.5 million increase in salaries and related costs. The year-over-year decrease in operating expenses reflects the continued benefits from our initiatives to control costs and reduce our discretionary spending early in 2020 in response to the impact of COVID-19 on our financial condition. Loss from operations for the fourth quarter of 2020 was $2.1 million compared to an operating loss of $6 million last year. Income tax benefit for the fourth quarter of 2020 was $0.4 million compared to approximately $0.4 million in the fourth quarter of 2019. Net loss attributable to stockholders for the fourth quarter of 2020 was $1.5 million or $0.04 per share compared to $5.4 million or $0.16 per share for the fourth quarter of 2019. Fourth quarter 2020 adjusted EBITDA loss was $0.7 million compared to $4.8 million last year. As a reminder, we provided a detailed reconciliation from GAAP net loss to adjusted EBITDA loss in our press release this morning. As of December 31, 2020, the company had cash and cash equivalents of $41.9 million compared to $58.8 million as of December 31, 2019. As of December 31, 2020, the company had working capital of $56.9 million, including our expected tax refunds of approximately $7.5 million that the company anticipates receiving during 2021 related to the net operating loss carrybacks resulting from the 2020 CARES Act. Turning to a review of our 2021 financial guidance, which we introduced in our earnings press release this morning. We expect total revenue in the range of $36.7 million to $38.7 million, representing growth of 32% to 40% year-over-year compared to total revenue of $27.7 million in fiscal year 2020. Total revenue guidance assumes Advanced Energy revenue in the range of approximately $32.3 million to $34.3 million, representing growth of 45% to 55% year-over-year compared to Advanced Energy revenue of $22.2 million in fiscal year 2020. The Advanced Energy revenue range assumes that U.S. growth is only driven by contributions from renewing on sales related to its use as a subdermal coagulator following liposuction procedures and that international growth is driven primarily by demand in existing international markets. OEM revenue of approximately $4.4 million, representing a decline of 20% year-over-year compared to $5.5 million in fiscal year 2020. In terms of profitability guidance for fiscal year 2021, we expect a net loss attributable to stockholders in the range of $18.4 million to $20.7 million compared to $11.9 million in fiscal year 2020. And we expect adjusted EBITDA loss in the range of $12 million to $14.6 million compared to adjusted EBITDA loss of $14.5 million in fiscal year 2020. As a reminder, we have included a full reconciliation from GAAP net loss to non-GAAP adjusted EBITDA loss in our earnings press release this morning. In addition to our formal financial guidance for 2021, we are providing some considerations for modeling purposes. First, our total company revenue growth will be driven exclusively by our Advanced Energy business, which at the midpoint of guidance range assumes growth of 50% year-over-year, more than offsetting the 20% decline we expect in OEM sales in 2021, driven primarily by COVID-related recovery trends and the impact on demand from our OEM customers. Second, the 50% growth at the midpoint in our Advanced Energy business this year will be driven by strong growth in both U.S. and international markets. However, we expect roughly 60% growth in sales to U.S. Advanced Energy customers and roughly 35% growth in sales to international Advanced Energy customers. Third, we expect gross margins in the range of 69% to 71% this year compared to 63.2% last year, driven primarily by continued mix benefits by segment, by geography and by product, specifically our continued manufacturing efficiency initiatives for our handpieces, including the APR handpiece. Fourth, we expect GAAP operating expense to increase approximately 22% year-over-year, driven by mid-single-digit growth in our normalized operating expenses, which excludes roughly $4.3 million of COVID-related expense reductions including discretionary, travel and entertainment and other compensation-related expenses that benefited our 2020 GAAP operating expense, plus incremental stock-based compensation expense in 2021 of approximately $1.3 million and approximately $500,000 of initial expenses related to our joint venture partnership in China which we established last year. Fifth, net interest and other expense of approximately $150,000 in 2021 compared to a benefit of approximately $700,000 last year. Sixth, income tax expense of approximately $180,000 in 2021 compared to an income tax benefit of $7.5 million in 2020, which included the aforementioned net operating loss carryback tax benefit from the 2020 CARES Act. Finally, we expect non-cash depreciation and amortization of approximately $700,000, non-cash stock-based compensation expense in a range of $5.2 million to $5.5 million and weighted average diluted shares outstanding of approximately 35 million shares. In addition to our formal financial guidance for 2021, while it is not our practice to provide quarterly guidance, given that we are reporting in the last week of the fiscal first fiscal quarter of 2021, we thought it would be helpful to share a range of expectations for total revenue in the interest of transparency. We anticipate total revenue for the first quarter of 2021 in the range of $7.8 million to $8 million, representing growth of 55% to 60% year-over-year. This total revenue range assumes Advanced Energy revenue in the range of approximately $6.8 million to $7 million, representing growth of 71% to 76% and OEM revenue of approximately $950,000, representing a decrease of 6% year-over-year. With that, I'll turn the call back to Charlie for closing remarks. Charlie?

Thanks, Tara. As we enter 2021, we remain optimistic about the prospects of our Advanced Energy business and are confident in our ability to achieve growth in the range of 45% to 55% year-over-year. Specifically for Q1, we continue to see strong utilization of our handpieces in the U.S., along with international demand from distributors, despite the recent surge in COVID cases. The capital equipment environment, however, is still impacted, and the recovery's pace and timing remain uncertain both domestically and internationally. It's important to note that we experience seasonality in capital equipment purchasing trends, with first quarter generator sales typically being the smallest portion of our annual sales. Looking ahead, with strong global demand for our Advanced Energy handpieces, an expanded international distribution network, and ongoing clinical and regulatory progress, Apyx Medical is well-positioned due to our focused execution in 2020. Moving beyond the first quarter, we look forward to recovering from COVID's effects while continuing to carry out our four strategic initiatives to enhance opportunities in the coming years. Over the next few years, we believe Apyx Medical is set to deliver strong, sustained growth and improved profitability in a global multi-billion dollar market, supported by a strong balance sheet and differentiated technology backed by growing clinical evidence. I want to emphasize our appreciation for the support from our employees, customers, distributors, and investors as we work to elevate the cosmetic surgery market and help surgeons and their patients achieve the desired results. Now, operator, let's open the call for questions.

Our first question today is coming from Matthew O'Brien from Piper Sandler.

I guess, Charlie or Tara, based on what you just said about Q1 here and then what we saw in Q4, I mean, you did really well in Advanced Energy, about $10 million. Can you talk about some of the benefit that you saw in Q4? And then when I net out what you said about Q1, Advanced Energy from the guidance for the year, it assumes about $8.5 million for each of the last three quarters, which is below what you did in Q4. So it just feels like that's somewhat conservative, again, given all the momentum globally. What are we missing as far as that kind of run rate for the last three quarters of the year in Advanced Energy that would be at that kind of lower level versus what you just printed in Q4?

Well, hi, Matt, thanks for the comment. The first thing, remember, is there's always the seasonality in Q1. Q1 is always our lowest quarter, especially for capital sales and generator sales. And that seasonality did not change at all as we're sitting here today. So there's usually about a 20% to 30% decline in that seasonality from Q4 down to Q1. And so, we would expect Q1, obviously, to be our lowest number in the year.

Okay. Sorry, just to follow-up, and I didn't ask the question real well. You did $10 million in Advanced Energy in Q4, which is great. You're guiding to 32 to 34 for the year. And so it's well below that annualized rate and I get it at Q4, so it's better than normal. It just seems like it's a conservative outlook for the Advanced Energy business given all the momentum. Is there something new customers, CapEx that you really are trying to call out here? Or are you just trying to be conservative with that number based on what happened in Q4?

The 37% decline, we did 9.9 in Q4, and then we guided to Advanced Energy in Q1 of 6.8 to 7. So it's right in line with that 30% decline that we typically see from the normal seasonality of our business.

Got it. Okay. We'll follow-up offline. And then, secondly, the international strength was really good to see. And I know this has been a domestic story for a while here, but can you just talk about what you're seeing? And I think it was five new countries and one of them was Brazil, obviously, but the strength that you're seeing there? And then how much should international contribute to the story going forward? Because I know it's a big component to a lot of other aesthetic companies.

Yes. So total OUS sales were at $4.9 million, up $2.1 million, which represented that 74% year-over-year growth that you had talked about. And it was obviously much better than our expectations. And we were incredibly impressed by the growth with the strong demand from those customers, especially given the challenges of COVID in some of those markets. And the upside was really driven by a record December. And the largest contributor to that upside was Brazil. They were about half of that, with the other half coming from demand in the Middle East, which actually came back pretty good in the fourth quarter. And then some of the other newer countries that are Thailand and Taiwan, that put in some orders that we had gotten. And so we are very positive on our long-term prospects, especially in Brazil, being the second largest cosmetic market in the world. But if you look at surgical procedures, they actually do more surgical procedures than the United States. I think the only thing that gives us any form of pause in Brazil and one of the things that surprised us in the fourth quarter a little bit, is obviously, they are being ravaged by COVID down there. And how they get past this COVID and what happens once they get past COVID, that's what we're really looking for. And obviously, I don't have a timeline of what happens with COVID down in Brazil, but that's the only reason that we have a little bit of pause. But the international sales, once we get through all of this, will continue to be a driver. But we are only forecasting the growth for this year because of those factors, we're only forecasting international to grow 35% this year.

Next question is coming from Matt Hewitt from Craig-Hallum Capital Group.

What do you think it will take to reinvigorate generator sales? We're seeing some progress with the vaccine, so will further rollout help customers feel comfortable and start buying generators again? Or are there other factors involved?

Yes, I want to clarify that generators are consistently improving. The fourth quarter performed better than the third quarter, which in turn was better than the second quarter. However, they have not yet reached the levels seen before the COVID-19 pandemic. In the United States, this situation is largely influenced by the protocols implemented by offices to ensure safety, which includes limiting the number of new people allowed in. As vaccination rates increase and we return to more normalized events like trade shows, we expect improvements over time, though I cannot specify when exactly this will happen. We are beginning to see some trade shows hosting live attendees, although attendance is still relatively low. We anticipate continued improvement throughout the year, but predicting the exact moment when things will change significantly remains challenging.

Got it. And then maybe on the people side, last year, obviously, with everything that happened, expenses were cut across the board, but it was travel. It was headcount, all sorts of areas. As you look at this year, how should we be thinking about the cadence of ramping those expenses back up, particularly as it comes to the travel and some of the incremental expenses? And then I guess tied to that, what are your plans from a hiring perspective, particularly on the sales and marketing side?

Yes. So let me handle the sales and marketing side first. We're happy with the size of the team that we have today. And so we will continue with that team throughout all of 2021. And Tara will be able to walk you through a very good exercise to show you where the savings were and where we see the growth in expenses. But just figure there's about $4.3 million of COVID-related savings in 2020 that on a normalized basis will go back into the expenses. And then obviously, we've got the IDE studies that we're investing in and getting ready for dermal launches and things like that. So she can walk you through all of that when we talk after it, but she's got the whole thing laid out for you.

Our next question is coming from David Turkaly from JMP Securities.

It's actually Danny on for Dave. Just had a few quick ones. First of all, handpiece demand domestically was very strong this quarter, but we just wanted to ask more about the broader cosmetic surgery market beyond your own company's execution? Are you seeing any market dynamics that might be driving this growth? Do you think there's a higher willingness from patients to undergo these surgeries, given the remote work, more convenient recovery or maybe even additional stimulus? Any color on the more broader market would be fantastic.

Yes, that's a great question, Danny, and I appreciate it. You've highlighted several factors contributing to this situation. We're consistently hearing from our customers that the demand for these procedures remains strong. What stands out is that our particular procedure offers a permanent solution, unlike some of the less invasive options available. People are at home and have the time to recover, and they prefer a more permanent solution over something that doesn’t fully address their needs, which is precisely what our technology provides. The ongoing demand during this period reflects that. We're optimistic about this trend, and customers are also pleased, indicating they expect this to continue.

Great. And then just one follow-up. You mentioned, obviously, in 3Q, you had a bit of a backlog that customers have worked through by August. I may have missed it, but I just wanted to make sure, was there any backlog that you saw being built up in 4Q with the resurgence in COVID? Or just any color around that, or anything you saw would be great.

Yes. No, in the U.S., all our customers were open and working in Q4, and we just continue to see strong demand for those customers. Outside the United States, it's been a little trickier, in that some of the countries have been under lockdown in Q4. And so some countries outside the United States are obviously not as strong as we would like it to be. But obviously, overall strength outside the U.S. was obviously great in the fourth quarter, but we're still being affected by some of those countries, for sure, that are having shutdowns and aren't working at 100%.

Our next question today is coming from Kyle Bauser from Colliers Securities.

Great update. I would like to follow up on the seasonality and the strength you've experienced internationally. In Q4, the sales for Advanced Energy outside the U.S. were nearly equal to those in the U.S., which is impressive considering that a few quarters ago, it was about $1 million compared to almost $5 million in Q4. I'm curious about the trends as we move into Q1. I know there is seasonality, but in Brazil, which is a relatively new market, can you explain whether there was a surge in demand due to pent-up interest after getting clearance in that country? We've seen solid strength; should we expect that to level off somewhat, or is there still significant potential for easy opportunities in that region later this year?

Yes, our preliminary revenue expectations indicated a growth for Advanced Energy of 71% to 76% in Q1. We anticipate around 90% year-over-year growth internationally in Q1, primarily fueled by strong demand for handpieces in existing markets. Additionally, the comparison from last year's Q1 is more favorable due to the impact of COVID in February and March, making it an easier benchmark. For the full year 2021, we are projecting a 35% year-over-year growth internationally. Specifically regarding Brazil, it’s important to note that when doctors from various countries perform procedures, they often share their results on social media, generating increased awareness of the technology. This visibility creates interest in acquiring our technology as we enter the Brazilian market. In a non-COVID environment, we would expect to be achieving even greater results in Brazil than we currently are. We believe Brazil will be a crucial market for us in the future, being the second largest cosmetic surgery market globally, with more surgical procedures performed there than in the United States. However, we are cautious about aggressively pursuing opportunities in Brazil at this moment due to the ongoing COVID situation, as we lack clear insight on how long it will persist. This uncertainty is the only factor that gives us hesitation regarding Brazil, but we remain confident that it will be a significant market for us moving forward.

Got it. No, that makes sense. Agreed. I appreciate that. And then in terms of operating expenses, you gave a lot of nice guidance here. Maybe just more specifically in the professional services bucket, step down a decent amount sequentially in Q4. I know that's related to kind of peer-to-peer trainings. And you said that we're going to a decent amount of incremental expenses coming back into 2021. But how should we think about that bucket? Should that step-up commensurate with the nearly $5 million in extra expenses this year? Any color there would be great.

Yes. I think we have to first look at what the OpEx was in 2020, and we talked about in the prepared remarks that to normalize that, you'd add back about $4.3 million in COVID savings and that it would include that bucket to get to a normalized OpEx of just under $42 million. We're really just looking at an overall year-over-year change to that normalized OpEx amount of 6%, so mid-single-digits. And really, the other two big incremental spend items to consider is $1.3 million in additional stock comp expense. And then we're ramping up activities in our China joint venture. So that's about $0.5 million on top of that. But overall, look at to the normalized 6% year-over-year. And then with the incremental, it's a total of 22.

Our next question is coming from Russell Cleveland with RENN Capital.

Thank you for the positive report and congratulations on navigating a challenging period. My question pertains to the FDA initiatives. We mentioned that the enrollment will be completed in the third quarter. Can you elaborate on what that entails? Are the tests currently ongoing, and are we just bringing in new participants for the study? Please provide some insight regarding the third quarter and these initiatives.

We are conducting two studies: one on dermal resurfacing and another on skin laxity, for which we are currently enrolling patients. The skin laxity study involves 65 subjects across up to eight centers. Enrollment for these subjects began in December, and we anticipate completing enrollment by the end of the third quarter. Following enrollment, there will be a six-month follow-up with the patients, after which we will analyze the data, prepare the necessary submissions, and submit them to the FDA. Regarding the dermal resurfacing study, we announced that enrollment was completed on November 5, and we are now following up with patients for their 90-day assessments. Our objective has always been to submit for a 510(k) by the end of May this year, and we are on track to meet that timeline. Typically, we expect a response from the FDA within 90 days or more after submission.

Well thanks for that clarification. So we’re making progress there on all fronts. So I appreciate that. That’s all I have.

Yes, thank you, Russell. And if I can just make one comment on top of that to the clinical team and our sites, they did a magnificent job in working through COVID and keeping these studies on track and going. And to be able to sit here and tell you that we're on track to do all the things that we talked about having to navigate through COVID is just a testament to all the people that we have involved in this. And so if they're listening, thank you all very much for all your hard work and keeping that going. So thank you.

That does conclude our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

No, thank you.

That does conclude our conference today. We thank you for your participation today.

Thank you.

Thank you.