Apyx Medical Corp Q4 FY2021 Earnings Call

Please standby. Good morning, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year 2021 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. This includes, without limitation, those identified in the risk factors section of our most recent annual report on Form 10-K to be filed with the Securities and Exchange Commission. 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 because 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. Charles Goodwin, Apyx Medical's President and Chief Executive Officer. Please go ahead, sir.

Thanks, Operator. Good morning, everyone, and welcome to our fourth quarter and fiscal year earnings call. I am joined on this morning's call by our Chief Financial Officer, Tara Semb. Turning to a quick agenda of what we intend to cover today. I'll begin by discussing our revenue results for the fourth quarter and the key drivers of our performance, followed by an overview of the financial and operational progress that our team made in 2021. I'll then provide some additional commentary on the recent FDA announcement related to our Advanced Energy products. Tara will cover the fourth quarter financial results in detail and review our financial guidance for 2022, which we introduced in our earnings press release this morning. Following Tara's commentary, I'll share some thoughts on our outlook and key areas of focus for 2022 before we open the call for questions. With that, let's get started with a review of our fourth quarter revenue results. We're very proud to report that total revenue of $16.8 million in the fourth quarter of 2021, representing 47% growth year-over-year. Our total revenue growth was driven by Advanced Energy sales that significantly exceeded our expectations, increasing 52% year-over-year to $15 million, while the OEM sales increased 13% year-over-year to $1.8 million. Looking at our Advanced Energy results more closely, our outperformance in the fourth quarter was fueled by stronger-than-anticipated sales of both our Advanced Energy generators and handpieces in the U.S., reflecting strong new surgeon customer adoption and strong utilization by existing surgeon customers. Specifically, we saw Advanced Energy sales in the United States increase by more than 100% year-over-year with the U.S. generator and handpiece sales growth in excess of 120% and 90% year-over-year respectively. From an execution standpoint, our sales team did an impressive job of engaging with potential new customers in the U.S. and continuing to capitalize on the strong underlying demand that we have seen for our Helium Plasma Technology in recent years. We were also pleased with our Advanced Energy performance internationally, where we saw a strong utilization-based demand from our global customer base in key markets, resulting in international handpiece growth of approximately 40% year-over-year. Looking back on 2021, our performance in the fourth quarter enabled us to solidify 2021 as a year marked by impressive progress, both financially and operationally. We delivered total revenue growth of 75% for the full year 2021 with Advanced Energy sales growth of 93% and relatively flat growth in our OEM business as expected. From a geographic standpoint, we were also pleased to see that our total revenue growth was driven by strong global growth with U.S. and international sales, each increasing 75% year-over-year in 2021. We believe our 2021 revenue results offer strong evidence that we are executing well with respect to our commercial strategy and continuing to increase our share of the more than $3 billion global cosmetic market. We sold nearly 50% more generators to new surgeon customers in 2021 than in 2020, including growth of more than 100% in the number of generators sold to new surgeon customers in the U.S. this year. Our continued success in raising awareness among clinicians of Renuvion's differentiated features and benefits is clearly demonstrated in our strong adoption trends this year. Importantly, while we are proud of the market share gains we delivered in 2021, we are even more excited about the strong utilization trends we have seen from both new and existing customers around the world. Simply stated, demand for Renuvion handpieces from our surgeon customers drove strong sales in 2021 and global handpiece sales represented the largest contributor to total Advanced Energy growth this year. Our strong commercial execution and impressive revenue growth in 2021 allowed us to achieve important improvements in our profitability profile. Specifically, we delivered approximately 600 basis points of gross margin expansion, reduced our adjusted EBITDA loss by 42%, and lowered our cash burn by 35% compared to 2020. From an operational standpoint, this past year, our team continued to drive important progress on each of the following four strategic initiatives we have discussed on our earnings calls over the past few years. One, advance our regulatory strategy to obtain specific clinical indications for our targeted cosmetic surgery procedures. Two, expand the portfolio of clinical evidence for our Renuvion technology in the cosmetic surgery market. Three, enhance physician and practice support for our cosmetic surgery customers. And four, improve our manufacturing capabilities and efficiencies. Touching on our progress with respect to each of these initiatives. In 2021, we continued to advance our U.S. regulatory strategy to secure clinical indications for our two targeted procedure categories in the U.S. Specifically, we submitted a 510(K) for a specific clinical indication, the clearance of which will enable us to market and sell Renuvion for use in dermal resurfacing procedures, and we completed enrollment in the IDE study intended to support our pursuit of an indication for the use of Renuvion in skin laxity procedures. Internationally, we secured registrations to sell our Advanced Energy products in 10 new countries, including two countries in the fourth quarter. In terms of clinical evidence generation, the portfolio of clinical evidence for our Renuvion technology continued to expand. In 2021, we saw seven new peer-reviewed clinical articles published in journals such as the American Journal of Cosmetic Surgery, the Journal of Cosmetic Dermatology, and the Journal of Aesthetic and Reconstructive Surgery. These publications further strengthened the compelling body of evidence that we have established for our technology over the last four years, which includes a total of 38 clinical publications. Our physician and practice support efforts in 2021 resulted in the development of 14 physician mentor programs for nearly 600 attendees and our first multi-day users meeting, featuring informative presentations from our top surgeon users. We also hosted 13 educational training sessions for our international distributors as well as multiple KOL podium presentations at academic conferences and trade shows. And lastly, from a manufacturing initiatives standpoint, we improved our existing handpiece production capabilities and began manufacturing handpieces at our Bulgarian facility, enabling us to nearly double our existing handpiece manufacturing capacity. We also continued to introduce our APR handpiece to our existing international markets, driving improvements in our overall handpiece gross margins. Stepping back for a moment, since 2018, these four strategic initiatives have been our primary focus as we endeavored to enhance the company's foundation to support sustainable long-term growth in the cosmetic surgery market. Over the last four years, we have built a solid foundation for future growth and we look forward to capitalizing on the benefits of our multiyear progress towards these strategic initiatives in '22 and beyond. Before turning it over to Tara for a discussion of our financials and guidance, I'd like to provide some context on the recent FDA safety announcement made this past Monday. I'll begin with some background information on our safety reporting and compliance program as a medical device manufacturer. As part of our program, we routinely submit medical device reports or MDRs in order to report serious adverse events to the FDA. These MDRs are submitted when we receive an adverse event report that reasonably suggests one of our devices may have caused or contributed to a serious injury. These MDRs are often submitted before it is confirmed that our device caused or contributed to the injury. They're also submitted in situations where the event was caused by user error and in situations where another device has been identified as a possible cause. With this backdrop, in February, we were contacted by the FDA. Through MDRs, they were requesting our assistance to complete an evaluation of post-market safety concerns with our Advanced Energy devices. After clarifying the request with a member of their team, we provided the FDA with data for adverse events, MDRs, promotional items, and training for our Advanced Energy products for the request for the last five years beginning with 2017. On Friday, March 11th, we were informed that they intended to publish a Safety Communication which was posted to the FDA website on Monday, March 14th. The FDA Safety Communication warns against the use of our Advanced Energy devices for procedures intended to improve the appearance of skin through dermal resurfacing or skin contraction. As a reminder, our products are cleared for general use in cutting, coagulation, and ablation of soft tissue during open and laparoscopic surgical procedures, and we market them in accordance with this indication. To be clear, all our Advanced Energy products remain on the market and we intend to continue marketing and selling them for their existing clinical/indications for use, most commonly for subdermal coagulation. Importantly, we do not promote our products in the U.S. for dermal resurfacing or skin contraction and will not do so until we received clearance from the FDA. Apyx Medical takes the safety of our customers and their patients very seriously. We understand that the FDA's decision to post the safety communication was based on an abundance of caution for patients, and we support the agency's focus on ensuring that clinicians and their patients understand the safe and proper use of our products. We believe that the decision to post the safety communication was due in part to the increase in the absolute number of MDRs reported for our Advanced Energy products in 2021 compared to 2020. Specifically, the MDR data that we provided to the FDA team showed that there were 90 MDRs involved in the use of our Advanced Energy products for subdermal coagulation since the beginning of 2017, 32 of which occurred in 2021 as compared to 15 MDRs in 2020. In terms of the rate of occurrence of these MDRs, our products have been used for subdermal coagulation in 150,000 procedures globally since 2017, which represents an MDR rate of 0.06. Importantly, while the 0.06 MDR rate since 2017 is low, the rate of MDRs has declined over this period and represented approximately 0.04% of global procedures in 2021. Looking more closely at the 32 MDRs reported for subdermal coagulation in 2021, investigations showed the events were either not attributable to the device or the events reported were within the scope of the existing clinical risk included in our product labeling. 14 of these 32 MDRs were performed by physicians that had not yet been trained by our global clinical team of skilled nursing staff. This underlines the importance of our continued outreach to all of our customers and that all surgeons receive our training and fully adhere to our safe and effective use guidelines, which were designed by our medical advisory board to further ensure patient safety. Based on our latest interaction last Friday, it is our understanding that the FDA's post-market team had not completed their review of the MDR data that we provided in response to their February request. The FDA has accepted our request for a meeting with the post-market team and we look forward to working with them to provide any needed assistance as they complete their review. Following our press release Monday morning, our team has engaged with the majority of our top users in the U.S. and distributor partners outside the U.S. to answer questions related to the Safety Communication. Apyx Medical is proud of our commitment to product safety, patient safety, surgeon education and training, and customer support. Based on the feedback we have gathered this week, we believe that any potential disruption related to the FDA Safety Communication will be transitory. We will continue to evaluate what effects, if any, the FDA Safety Communication will have on our business and results of operations. We continue to believe in the long-term outlook for Apyx Medical to remain compelling. Looking ahead, we will continue to support our customers while working with the FDA to address any questions about the post-market safety profile of our products. As I will discuss later in my remarks, we will also look forward to continuing to engage with the FDA in support of our pending 510(K) pre-market notifications, which remain under review.

Thanks, Charlie. Good morning, everyone. I will begin my review of our financial performance at the gross profit line since Charlie covered our revenue results. Gross profit for the fourth quarter of 2021 increased $4.4 million or 58% year-over-year to $12.2 million. Gross profit margin was 72% compared to 67% in the prior-year period and represented a record gross margin for the company. The increase in gross margin in Q4 was driven by sales mix between segments, improved handpiece margins due to continued manufacturing efficiency initiatives, the introduction of newer product models as we obtain registration in various markets, and higher production volumes. The year-over-year increase in gross margin this quarter was partially offset by higher inbound shipping costs related to the expedited sourcing of key component raw material inventories. Operating expenses increased $4.1 million or 42% year-over-year to $13.8 million. The increase in operating expenses year-over-year was driven by a $3 million increase in selling, general, and administrative expenses, an $8.7 million increase in professional services, and a $0.4 million increase in salaries and related costs. Loss from operations for the fourth quarter of 2021 decreased $0.4 million or 18% year-over-year to $1.7 million. We delivered strong operating leverage in Q4, driven by solid operating expense management, with our only variable commission expenses coming in higher in Q4 as a result of the better-than-expected sales results in the period. Total other loss net was $0.2 million compared to total other income of $0.1 million last year. Income tax expense was $0.1 million compared to an income tax benefit of $0.4 million in the fourth quarter of 2020. Net loss attributable to stockholders was $2 million or $0.06 per share, compared to $1.5 million or $0.04 per share for the fourth quarter of 2020. Adjusted EBITDA loss for the fourth quarter of 2021 was $0.3 million compared to an EBITDA loss of $0.7 million in the prior-year period. As a reminder, we provided a detailed reconciliation from our net loss attributable to stockholders to non-GAAP adjusted EBITDA loss in our press release this morning. As of December 31, 2021, the company had cash and cash equivalents of $30.9 million compared to $41.9 million as of December 31, 2020. Turning to our review of our financial guidance, which we introduced in our earnings press release this morning. For the 12 months ending December 31, 2022, we expect total revenue in the range of $50 million to $63 million, representing growth of 3% to 30% year-over-year. Our total revenue guidance range assumes that Advanced Energy revenue has growth of 1% to 30% year-over-year to $43.5 million to $56 million, and OEM revenue growth of approximately 18% to 27% year-over-year to approximately $6.5 million to $7 million. With respect to our Advanced Energy revenue, our guidance assumes growth in the U.S. is driven by contributions from Renuvion sales related to its use as a subdermal coagulator following liposuction procedures, and growth outside the U.S. is driven by demand in existing international markets. The low end of our Advanced Energy revenue range reflects the potential impacts on new customer adoption and on procedure-related demand for handpieces because of the recent FDA Safety Communication. In terms of our profitability guidance for fiscal year 2022, we expect net loss attributable to stockholders in the range of $21.1 million to $12.1 million and adjusted EBITDA loss in the range of $12.3 million to $3 million. Our formal guidance for 2022 incorporates the following considerations for modeling purposes. First, gross margins of approximately 62% to 67% this year compared to 69% last year, driven primarily by revenue mix shift between our Advanced Energy and OEM segments and geographic mix within our Advanced Energy segment. The inflationary headwinds in our cost of goods sold compared to prior-year and incremental costs related to manufacturing capacity that was previously attributable to our core segment and transition services agreement with Symmetry Surgical. Second, operating expenses are expected to increase in the range of 9% to 14% year-over-year. Third, net interest and other income of approximately $650,000 in 2022 compared to an expense of approximately $400,000 in 2021. Fourth, income tax expense of approximately $450,000 compared to $380,000 last year. Lastly, we expect non-cash depreciation and amortization of approximately $1.2 million, non-cash stock-based compensation expense of approximately $7.25 million, non-controlling interest of approximately $212,000, and weighted average diluted shares outstanding of approximately 34.6 million shares. With that, I'll turn the call back to Charlie for closing remarks.

Thanks, Tara. Turning to our full-year 2022 revenue expectations for our Advanced Energy business. Our guidance calls for Advanced Energy revenue growth of 1% to 30% year-over-year with Advanced Energy sales growth at the midpoint of approximately 14% in the U.S., and approximately 19% internationally. Our full-year 2022 guidance range reflects our expectations for the continued utilization and adoption of our technology, as well as the potential impacts related to the FDA safety communication. Let me provide you with some additional thoughts on our supporting assumptions to help you evaluate our growth for the full year. First, our full-year revenue guidance assumes that our Advanced Energy business handpiece revenue will represent the largest driver of our total Advanced Energy revenue growth again in 2022, reflecting the strong utilization-based demand we expect for our Renuvion handpieces. The high end of our full-year revenue guidance represents our original growth expectations for 2022, based on a continuation of the growth drivers over the last few years. Specifically, strong utilization and adoption by existing and new customers as we continue to increase our share of the over $3 billion global cosmetic surgery market. Importantly, the high end of our guidance range also assumes contributions from the initial commercial launches for new clinical indications in dermal and skin laxity categories, based on our current target of receiving these FDA clearances by the end of the third quarter. While the 30% growth implied by the high end of our guidance range reflects the continuation of above market growth for our Advanced Energy business in 2022, the low end of our 2022 revenue outlook reflects potential impacts on new customer adoption and procedure-related demand for handpieces as a result of the recent FDA safety communication. Specifically, the low end of our 2022 total revenue outlook assumes our total revenue declines in the low single digits year-over-year in the first half of 2022. The low-single-digit decrease in total revenue is expected to be driven by high single-digit decline in Advanced Energy revenue, offset partially by OEM revenue growth of approximately 48% year-over-year. For the first quarter of 2022, we anticipate total revenue in the range of $10.5 million to $12 million. This total revenue range represents growth of 22% to 39% year-over-year, driven by Advanced Energy growth in the range of 18% to 36% year-over-year and OEM growth in the range of 53% to 63% year-over-year. Our Q1 growth expectations show that we are off to a strong start in 2022. In our Advanced Energy business, we have seen a continuation of the strong momentum we experienced in the fourth quarter, despite the challenging operating environment related to Omicron. Meanwhile, our OEM business is benefiting from stronger demand from both Symmetry Surgical as well as other OEM customers. While it is not our typical practice to provide quarterly guidance, we thought it would be helpful to share additional color on our revenue expectations over the first half of 2022 as the underlying assumptions supporting the low end of our 2022 outlook reflect a pronounced decline in our growth trends in the second quarter. The decline in growth trends in Q2 is based on our moderated expectations for utilization-based demand for handpieces and new customer adoption because of the recent FDA safety communication. Importantly, we believe this represents a conservative near-term outlook. We are laser focused on engaging with existing customers and continuing to leverage our strong portfolio of clinical validation, real-world evidence, and KOL support for our Advanced Energy products. As I mentioned earlier, our Advanced Energy products remain on the market, they continue to retain their existing FDA 510(K) clearances, and we intend to continue marketing and selling our products for their existing clinical indications. For the avoidance of doubt, we are confident in our ability to deliver the low end of our guidance range and set our guidance in a fashion, in an effort to be appropriately conservative during this admittedly challenging time for our business. We view any potential disruption from the FDA Safety Communication as transitory. We will continue to evaluate the effects, if any, that the FDA Safety Communication will have on our business and results of our operations. We continue to believe the long-term outlook for Apyx Medical remains compelling. Looking ahead, our team made considerable progress in recent years on the four strategic initiatives. And as a result, we are well-positioned for long-term growth. With this in mind in 2022, we are focused on the continued execution of our commercial strategy including: raising awareness and adoption of our innovative Helium Plasma Technology, driving strong utilization from existing customers, and increasing our share of the more than $3 billion global cosmetic surgery market. In addition, we aim to capitalize on our multi-year regulatory initiatives by securing new U.S. regulatory clearances in 2022 to further expand our annual addressable market opportunity. We remain actively engaged with the FDA to obtain 510(K) clearance for indications related to dermal resurfacing and skin laxity procedures. With respect to our focus on dermal resurfacing procedures, our 510(K) pre-market notification intended to obtain a specific clinical indication for treating wrinkles and Rhytids remains under review by the FDA. Last month, we also announced the submission of an additional 510(K) to obtain a general indication for the dermal resurfacing procedure category, and we are continuing to engage with the FDA to facilitate their review process for both submissions. Lastly, our clinical and regulatory teams have made strong progress in preparing our 510(K) to obtain an indication for skin laxity procedures. These efforts have proceeded faster than anticipated, and we now expect to complete and file this submission at the end of March ahead of our prior plan. In conclusion, our team is committed to increasing the global awareness, adoption, and utilization of our Helium Plasma Technology in 2022 and beyond. We expect to leverage the multi-year progress we have made to deliver strong, sustained growth, and drive towards profitability. I'd like to congratulate our entire team on the exciting progress we made in 2021 and thank them for their dedicated efforts as we continue to revolutionize the way cosmetic surgery procedures are performed. I'd also like to thank our surgeon customers, distributors, and shareholders, along with everyone on today's call for their continued support of Apyx Medical. With that, operator, let's now open the call for questions.

Our first question today is from Matthew Hewitt from Craig-Hallum. Your line is now live.

Good morning and congratulations on the strong finish to fiscal '21 and thank you for the incremental details regarding the safety communication. I guess on that front, Charlie, in your prepared remarks, you mentioned that you have reached out and spoken with many of your existing customers. And I'm curious, what are you hearing from them? What are they saying regarding this communication? And does that give you any sense on how things could turn out here over the very near-term?

Yes. Thanks, Matt. We have, obviously, as an organization, been spending time appropriately reaching out and talking to all our stakeholders and customers about the safety communication. And, obviously, it was a surprise to them just like it was to us. For the most part, the response has been very supportive, very positive. But let's face it, anytime something like this happens, there's a natural reaction. And so fortunately, we have our users' meeting here at the end of the month where we will have 200 of our users together to talk about all of this. Right now, the team is appropriately talking to and taking care of our existing customers, but the feedback so far has been very positive and supportive.

That's great. And then I guess as a follow-up, regarding the 510(k) for dermal resurfacing, I guess to clarify, I think you said that you're anticipating approvals by the end of the third quarter, at least that's what would get you to the upper end of your guidance range. So maybe some contribution from dermal resurfacing and skin tightening or skin laxity in the fourth quarter; is that correct? So dermal resurfacing might take a couple of quarters longer?

We obviously don't know the timing and aren't in control of the timing. Dermal resurfacing could potentially come earlier, but from a conservative point of view, we just put that both would come at the end of the third quarter, that's correct for both.

Thank you, everyone. Our next question is from Matt O'Brien from Piper Sandler. Your line is now open.

Good morning. Thanks for taking the questions. Charlie, just to continue down this path on the communication, what are the next steps from here with the agency? And then how long do you think it's going to take to get through all of your users to communicate with them and make them feel comfortable with where things are at and then get on to getting the sales force back to selling into potential new users?

So, the first thing is right now we're engaged with the Agency on two different fronts. The post-market team is the team that put out the safety notification and we have reached out to them. We want a meeting with them, and they have accepted that; we are trying to work together right now to schedule a meeting date. So that is on the post-market side of things. On the pre-market side of things, we remain engaged with the FDA for our 510(k) submissions, both dermal submissions at this point, and then obviously at the end of this month, we will be submitting the skin laxity 510(k). How long it is going to take for our team to talk to all our users and get them comfortable, we will actually take as much time as we need with them. They have been incredibly important to this company and we are very grateful to have them. I am willing to take as much time as they need to get them comfortable with our technology; once that has happened, then we will continue on with our selling efforts.

Okay. And then just wanted to talk a little bit about the sequential commentary from Q4 to Q1. Q4 was a monster in Advanced Energy. And then it is a meaningful step-down, which is implied in the guidance for Advanced Energy into Q1. I don't know if there was some pull forward in Q4 that you saw, maybe on the generator side, but it's a meaningful step-down versus what you've seen over the last several years in Advanced Energy, is there something else going on there, outside of the communication, which again, was just announced a few days ago?

Yes. Remember, Q1 is always our lowest quarter of the year, and it's usually the lowest quarter of the year because of capital, and the fourth quarter is always the highest. There's always a seasonality in this business for that. Even if you look at our Q1 total growth, our growth for Advanced Energy and the guidance we have is anywhere from 18% to 36% growth. So that growth rate is still there; it's just from a numbers point of view, Q1 is always a lower number.

Thank you. Our next question today is coming from Russell Cleveland, from RENN Capital. Your line is now live.

Hello, I have a significant question regarding the FDA. What is the process for removing this? The bureaucracy rarely makes changes. Are we planning to have a near-term meeting to request a change, or what is our procedure with the FDA?

Our procedure right now with the FDA is to have that meeting and make sure that when they issued this warning, they had not reviewed our data. So, we want to ensure that they review the data and are comfortable with it. What the agency does after that, I can't speak to because I don't know what they would or would not do. Our focus is on having the meeting, making sure they review the data, so they know exactly what's going on. Our primary focus is to stay engaged with the pre_market team to get our clearances. That’s what we are focused on right now.

Have you set a date with the FDA for a meeting?

We are working with them to get a date that both parties can meet. Yes, we're in discussions for a date, but there is not a date yet.

Our alternative is to go to court, but what other options do we have? It's strange for the FDA to make this decision without more data, and I find it very unusual. What legal remedies are available to us?

Our focus is on getting our 510(K)s and working with the FDA. I don't know that a legal battle with the FDA is in our best interest since we hope to be working with them for many years to come. We will look at everything, but I don't know that a legal battle is where we want to be focused on at this point in time.

Yeah, of course not. But they've done enormous damage and have to be responsible for this without having all the data and not meeting with the company about this. So, it seems as though we need to take some kind of action here that's different because you just can't do something like this to help ruin the company's stock and everything without consequences. So, I don't know whether the bureaucrats are not thinking or what, but it's very bizarre. The FDA makes mistakes. And the question is, what can we do? We are going to have a meeting with them, but, after the meeting, they rarely want to admit a mistake was made.

I don't know that I can give you any more color at this point in time because until we meet with them and talk to them, we won't know what's going on. For us, it's about focusing on the meeting and our 510(k)s.

Great, thanks. Charlie, to your knowledge, to the pre and post-market teams at the FDA, did they communicate at all?

I'm sure that they do, but there is a pretty good dividing line between the two of them, but I'm sure that they do talk at some point.

So, there's a chance when you meet with the post-market folks, when you have that date, you have that live meeting. I'm assuming it's probably going to be live that anything that comes out of that could impact the pre-market side, I mean, if they agree that the profile is good or not?

I don't think that's necessarily the case. They look at things differently; the pre-market team has data from our IDE studies to evaluate safety and efficacy for new indications for those procedures. Everyone has access to the published data for dermal resurfacing, so that aids in the process as well.

The timing has been a while. I guess when you look at precedent cases where a device warning was issued like this, to your knowledge, are there any legal issues with either hospital administrators or somebody else reading that and saying, hey, do not use this, where they might make the decision and it may not go down to the customers, the surgeons directly, or is that not even a concern?

Every time you go in for a procedure, you should be told what the risks are of the technologies that you're using. Everything in the FDA warning is also in our labeling. So, there's nothing that they said that isn't already labeled. In fact, the data can help them provide a more informed discussion with patients regarding risks.

I wanted to follow up on gross margins briefly. The guidance for this year is a decline to between 62% and 67% compared to last year. I'm interested in understanding how much of this is due to inflationary pressures versus a possible shift between the U.S. and international markets for the Advanced Energy products. Additionally, there is also some impact from OEM contributions. It would be helpful if you could clarify where the main effects are coming from.

I would say first and foremost, it is driven by the inflation, the inflationary environment that we're seeing along with all manufacturers. We're not quantifying that specifically, but between that and the fact that we're winding down our core manufacturing products to symmetry, on the high-end that's about 200 basis points and on the low end, it's definitely mix with AE revenue and the mix of product within Advanced Energy.

Thank you. We're currently showing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation.