Apyx Medical Corp (APYX) 2015 Q2 法說會逐字稿

Good afternoon and welcome to the Bovie Medical Corporation second-quarter 2015 earnings conference call. (Operator Instructions) Hosting today's call will be Rob Gershon, Chief Executive Officer of Bovie Medical Corporation. (Operator Instructions) Please note this event is being recorded.

Before we begin I would like to make the following Safe Harbor statement. Today's call will relate to Bovie's second-quarter 2015 earnings results and will contain forward-looking statements regarding predictions about future events. Forward-looking information is subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. The Company assumes no obligation to update or supplement any forward-looking statements whether as a result of new information, future events, or otherwise.

With that I would like to turn the call over to Mr. Rob Gershon. Please go ahead, sir.

Thank you, Denise, and good afternoon, everyone. We appreciate your participation in today's call to review our second-quarter operating and financial results and discuss new developments at Bovie Medical.

With me today is our interim CFO, Jay Ewers, and our Chief Commercialization Officer, Jack McCarthy. At the end of our prepared remarks, all three of us will be available to answer questions.

This was a solid quarter for Bovie in terms of overall performance. Revenues increased by almost 5% year-on-year and showed strong sequential improvement over first-quarter levels, thanks in part to the progressive pickup in OEM contract revenues that we had anticipated.

J-Plasma sales were $170,000 for the second quarter, significantly ahead of last year's level but below our expectation. This was due to the increasingly long hospital Value Analysis Committee, or VAC, approval process, which now takes from three to nine months; and even after the product is approved, the paperwork is such that the first purchase order can take another month or so to receive.

This evolving and elongated sales cycle is not unique to Bovie. It is industrywide and being experienced by nearly all medical device companies regardless of size. Fortunately, there are several key data points that confirm that this quarter's lower-than-expected sales were the consequence of a timing issue.

First, in the month of July J-Plasma shipments were $237,000, representing a very strong start to Q3. In fact, most of this revenue was derived from recurring orders, as we have now reached a point of having daily J-Plasma sales. While we do not plan to make a practice of reporting monthly J-Plasma sales, we consider this an important element in our discussion of Q2 results.

Second, we received 42 scrub purchase orders, or scrub POs, in the first six months of this year compared to just six in all of last year. Scrub POs are payments for product used by surgeons while the product is still under VAC review and, as such, represents an early indication of future sales trends.

Third, there were 76 surgeons using J-Plasma at the end of the second quarter, up from 41 at the end of the first quarter. In fact, every surgeon that has entered our sales funnel has either turned into an active user or is still in the process of trialing. The fact that no surgeon who has trialed the product has rejected adoption is unprecedented.

And fourth, in the second quarter we saw a 42% sequential increase in generators in use, which speaks to the progressive adoption of our technology.

Taking all of this together, it is clear that J-Plasma is gaining traction, and we are very bullish about the growth prospects in the second half of this year. There is a robust pipeline for the accelerated commercialization of J-Plasma that we are developing systematically through a broad range of initiatives.

For example, at the end of the second quarter, J-Plasma had been approved by 42 VACs and was under review by an additional 46, bringing the total to 88 VACs that have approved the product or are in the process of approving it. It is noteworthy that our acceptance rate to date has been 98%, with one VAC rejecting it but reconsidering it now; so with nearly a perfect batting average, our VAC acceptance rate remains very high.

We are taking whatever steps we can to reduce the sales cycle, including the July launch of a VAC pack sales tool that, based on our experience, organizes all the relevant materials VACs tend to need for approval in one easy-to-use format. Also, independent white papers help facilitate the VAC approval process. The latest one was published last week on the economics of treating female chronic pelvic pain, which affects 15% to 20% of reproductive women; and it concludes that, quote: J-Plasma enables improved patient outcomes at a lower cost than other available devices. End quote.

Additionally, we are working towards selling deeper into existing accounts. This is why we will now be reporting generators in use as a key metric that will eventually replace the number of ordering accounts. Given the longer sales cycle, we are directing our sales organization to focus on selling more products to existing accounts, while simultaneously bringing on new accounts.

One generator tends to support up to two surgeons using J-Plasma on four cases a week. Thus, as J-Plasma usage increases in a given account, so will the number of generator sales.

At the same time, we are using better targeting methods to make sure we are allocating our resources to the top-tier surgeons and hospitals that are performing high volumes of relevant patient procedures. Also, we are branching out with respect to targeted markets, as it is clear that J-Plasma is addressing an unmet need and is being recognized by top-flight surgeons in a broad range of specialties for its precise dissection, coagulation, and ablation capabilities.

Based on the tangible interest that J-Plasma has garnered with surgical opinion leaders, we are expanding our target specialties over time to include cardiovascular, cardiothoracic, and urology. To facilitate this rollout to new specialties, we have established a Medical Advisory Board which we expect will have six to nine surgeon members.

The first member is Dr. Vip Patel, a world-renowned urologist and leader in robotic surgery, who is the Medical Director of the Global Robotics Institute and the Urologic Oncology Program for the Florida Hospital Cancer Institute. Dr. Patel was quoted in today's earnings release on J-Plasma's potential to be of tremendous benefit to patients undergoing surgery for prostate cancer, as well as it being one of the most significant innovations in energy in more than a decade. We are honored to have Dr. Patel on our Medical Advisory Board, and we expect to have news on additional members in the coming weeks and months.

Lastly, we recently signed on two new integrated delivery networks, or IDNs, as customers. With contracts in place at these hospital systems, we now have the ability to sell into their combined 21 member hospitals.

Again, the sales cycle can be long, because each member hospital has a VAC process; but these networks provide us access to a broad base of potential surgeon users. IDNs important to our overall strategy, and the fact that we have secured contracts with the first three targeted IDNs is another data point illustrating broad-based acceptance of this transformational technology.

On a parallel track with the commercialization of J-Plasma are our efforts to build out the core business. In today's earnings release we mentioned two new products that launched in the second quarter, and we expect to continue to expand our product portfolio both organically and through business development relationships with other manufacturers.

In fact, we have created a strong cadence of product launches that will occur throughout the balance of the year and beyond. We will continue to leverage the Bovie brand, as it is well regarded and well recognized, giving us the ability to enter adjacent markets and expand internationally.

Finally, our OEM contract work continues its progressive growth and is expected to show positive year-on-year sales comparisons in the second half of this year. This is another lever that we used to further increase our core business at a sustainable pace.

At this point, I will turn the call over to Jay Ewers for a financial review of second-quarter results. Jay?

Thank you, Rob. Revenues for the second quarter of 2015 showed positive growth from a year ago, up 4.7% to $7.3 million, led by strong growth in the sales of electrodes and benefiting from higher J-Plasma sales. Gross margin for the quarter was 43.2% compared with gross margin of 39.2%, adjusted for an inventory write-down in last year's second quarter.

A more favorable product mix was a key factor in higher gross margin. We see gross margin continuing at about these levels for the next few quarters and then expanding as J-Plasma sales ramp.

Operating expenses for the second quarter of 2015 were $4.7 million, down slightly from the first quarter, but up from $3.6 million in the year-ago quarter. Approximately 55% of this increase in OpEx is directly tied to the ongoing rollout of J-Plasma.

Providing more detail on this quarter's operating expenses, our R&D expenses totaled $505,000, up from $318,000 in the second quarter of 2014. We have significantly increased our R&D capability in the last 18 months, including adding to headcount. The strengthened R&D program has directly contributed to recent innovations in J-Plasma, including the development of a pistol grip in Bovie Ultimate.

Professional services totaled $313,000, from $287,000 in the comparable quarter in 2014. Salaries and related costs were $1.9 million, up from $1.4 million. As in previous quarters, this increase reflects the growth of the organization and particularly the expanded direct sales team for J-Plasma.

SG&A for the second quarter was $2 million, up from $1.6 million in the year-ago quarter. This increase was tied to the ongoing J-Plasma commercialization effort, including higher expenses for advertising and marketing, travel and training programs, as well as variable compensation tied to increased sales.

As we stated in the call for the first quarter of 2015, we expect our current level of operating expenses to remain relatively constant for the rest of the year. The one major variable will be commissions tied to higher J-Plasma sales.

Our operating loss for the quarter was $1.5 million, compared with an operating loss of $1.7 million in the second quarter of 2014.

Turning to below-the-line items, as we discussed in our last results conference call, the conversion of the Great Point Partners preferred shares to a similar security without warrants and certain preferences has reduced the volatility in our below-the-line expenses significantly. This quarter, we recorded a noncash gain of $90,000 related to mark-to-market accounting for placement agent warrants, compared with a noncash gain of $1.5 million in the year-ago quarter.

On a GAAP basis, and our net loss for the quarter was $1.5 million or $0.06 per diluted share, compared with a loss of $0.07 per diluted share in the second quarter of 2014.

Turning to the balance sheet, we ended the quarter with $14.1 million of cash, compared with $15.4 million at the end of the first quarter. This strong cash position combined with the positive performance of our core business gives us the resources to support J-Plasma throughout the commercialization process.

With that I'll turn the call back to Rob.

Thanks, Jay. We are looking ahead to a strong second half in both our core business and in sales of J-Plasma. Core business growth should benefit from an expanded product offering, continued traction in markets like animal health, and new relationships with international distributors. Additionally, we expect to see a significant ramp-up in the OEM business as several contracts entered the production phase.

With respect to J-Plasma, the business metrics we discussed earlier in this call point to a very strong second-half sales growth, and we have seen the initial evidence of this in July shipments. While we have reset our initial revenue targets based on the timing issues that impacted Q2, we still expect to achieve a solid annualized sales run rate heading into 2016. Additionally, we expect to exit 2015 with approximately 100 generators in use and 200 surgeons using J-Plasma.

Denise, at this time, let's open the call to questions.

(Operator Instructions) Dave Turkaly, JMP Securities.

You did a good job of explaining it on the call, but just to be clear, obviously you have a timing delay here. But in terms of your enthusiasm for the product, J-Plasma, and given even the expanded areas you expect to bring it, no change in the long-term outlook; would that be a fair way to summarize (multiple speakers)?

Yes, absolutely. Our enthusiasm and conviction has never been higher. There's just no question about it.

When you look at some of the other areas you plan on bringing it, can you -- I don't know, I guess walk us through. Is there incremental salesforce? How are you going to tackle some of these newer areas?

Sure. Let me -- I'll go ahead and start and certainly invite Jack to chime in with any additional thoughts. It has always been our vision to focus our sales organization on our initial targets first; and once we gain a level of momentum, we've always talked about our secondary list of targets, which has been in all of our investor decks over the past year or so.

We plan on deploying the existing resources to these new specialties at this time. And we will begin to ramp the salesforce as the revenue continues to ramp.

So that part of the strategy has not changed. We've always envisioned this expansion into the other areas.

Dave, I'll expand upon that as well. When we recruited our current sales team, we've recruited professional sales reps with multiple years of experience, on average about 15 years per rep. And most of these reps have come from larger companies that have vast experience in multiple specialties. So they are quite capable of going from GYN to the other specialties.

Great. I guess as you looked at those, as a last one, if I could --

Sure.

-- what indications are you most excited about? Obviously, in gynecology we know there are some really specific areas where this seems to work amazingly well. As you look at some of these new areas you're heading into, is there one you would highlight as particularly -- where J-Plasma might be superior or particularly strong versus what's used today?

Yes. I'm going to go ahead and turn it over to Jack to provide some specific color, but we are particularly excited about the urology space, which I could expand upon in a moment, and the cardiothoracic and cardiovascular. So Jack, why don't you talk about the cardio space first?

Yes. Cardiovascular, we've done some early cases in pediatric cardiovascular and the outcomes have been very favorable. The surgeons are very pleased with the level of energy; they prefer the safety aspect of it; it's also faster than their current means. And they're using it a lot for dissection and cutting through adhesions.

And in pediatric cases and many times they are phased procedures, so they have several different procedures over time, so there's a lot of adhesions that are formed. Our technology is ideal for going through adhesions, so they really like that.

In addition there are some other potential benefits to the energy around the heart, reducing arrhythmias. So there is a lot that we still have to study, but the early cases are very favorable for that.

We also anticipate very good results in cardiothoracic. Right now we're working with some thought leaders on developing the right procedures, so I'll hold off on commenting on those; but early indications are that's going to be another really big space for us as well.

Yes, and I'll talk a minute about urology. You heard during our prepared comments that Dr. Vip Patel has joined our Medical Advisory Board. I've been working quite closely with Dr. Patel for the last several months as he has been really educating us as a Company as to the areas that he believes J-Plasma has the potential to really transform several procedures, especially the radical prostatectomy.

So it's way too early to comment very specifically on it, but for those of you unfamiliar with Dr. Vip Patel, it's probably worth doing some research. He is the number-one robotic surgeon from an experience perspective in the world, with over 8,500 cases.

I have been in the room with them for many, many days of cases, and he really see some pretty significant potential. So stay tuned, as he continues to investigate and work with us, for much more details.

But you asked what we're excited about: those are the big three next areas. And of course none of this takes our attention away from our primary target that has been the focus since the launch of J-Plasma. So this is being done without detracting from our momentum within GYN and plastics.

Great. Thanks a lot for all that color.

Charles Haff, Craig-Hallum.

Okay, so on the OEM business in the second half of 2014, what were those revenues?

Yes, Jay, why don't you comment?

Sure. $697,000, Charles.

Okay; and your comments on the prepared remarks were that you expect them to be above that level in the second half of 2015, correct?

Yes, that is correct.

Okay.

Yes, and it's because of -- why are we so certain of that? It's because of where we are in the process of production. Some of these contracts go from a development phase which has a set amount of revenue, and then the uptick in revenue comes when we move into production. So it's fairly predictable, and that's why we commented on what the second half looks like.

Okay. Jay, what was the diluted share count at the end of the second quarter, please?

Sure. The diluted share count was 24,435,000.

Great, thank you. Just for a minute on the VAC process, I understand that the process is being a little bit extended for all companies, and yours in particular at three to nine months. What are some of the strategies?

I heard you talk about the VAC pack. Obviously, you're moving into some other specialties like cardiology and -- or cardiovascular and cardiothoracic and urology, which tend to have significant influence with the VACs. Can you talk a little bit about how having those specialties trying out J-Plasma maybe helps or maintains the VAC timeline that you're forecasting of three to nine months?

Yes, sure. It is -- three to nine months is a wide range, but it's an appropriately wide range because it is so dependent on the surgeon champions and their influence at hospitals, which as you know, Charles, is becoming less and less across the board. There was one time that the surgeon was king and the process was short; now there are so many checks and balances in place it tends to be this elongated process.

So our approach to shorten it is to have a multiprong approach. We have our surgeons, and a diversified group; so our thought process is: if multiple specialties are asking it, it just makes the job at the hospital easier and it could potentially streamline the process.

Also, we mentioned in our prepared comments that we launched the VAC pack. What we really love about this VAC pack -- and it's taken us a while to get it fully developed so that it really resonates with the VAC committees -- is essentially assembling all of the questions. Because we have so much experience, having gone through so many of these, assembling all of the information in the format that they need to quickly get to the information they need to make a decision. So those are two of the steps that we've taken.

And, Jack, I don't know if you want to add other steps to help shorten that sales cycle, the VAC process.

Absolutely. Rob had commented earlier about our success with three IDNs, and that's another strategy that we're employing to reduce the sales cycle. So it's a top-down, bottom-up approach where we create demand at the surgeon level with the reps in the field, and through the management team we call on the IDNs and supply chain personnel to ensure contracts so that the sales process is streamlined. So that when the rep gets the doctor to the VAC, there are contracts in place, pricing is set, and it just streamlines the process.

Okay, great. Just to clarify --

Charles, I'm sorry to interrupt. One other thing just came to mind. Something else that really resonates with the VAC committees -- and this one takes a little time, but we've commented on this publicly for quite some time -- is clinical studies and clinical papers.

Now, these are different from the white papers. Of course we're moving forward on the white papers.

But the clinical papers that -- over time as you follow patients -- have a very influential effect. Now, of course, when you're in the early innings, and you don't have the six or eight months to follow patients. They don't expect you to have it that; but itself makes the process a little bit longer.

So to that end we have -- and have for quite some time -- clinical studies that are underway that we expect will help shorten this sales cycle really in 2016, because the patients have to be filed for the postoperative analysis and data. So that is also in the works.

Okay, thanks. Just to clarify on the IDNs, is it three IDNs with 21-member hospitals or two IDNs with 21-member hospitals?

Today we talked about two that had 21 hospitals. And there's a third IDN as well that has 12 hospitals.

Okay, great; thanks, Jack. Then in terms of the generators in use, appreciate you giving additional color with that metric. So you ended the quarter with 34, and your goal is to end the year with 100. That's a pretty significant ramp.

Can you help us get comfort with that significant ramp? Are these -- give us some color around are these Ultimate, or GS100s, or a combination? Just help us understand how you expect that hockey stick and the conviction that you have with the 100 by the end of the year.

Yes, absolutely. The 100 is what we're approximating. We do believe we have a path to 100.

It will be a mix of Bovie Ultimates and the GS100s. We're actually expecting probably more Bovie Ultimates than GS100s. But nonetheless, this is why we shifted our strategy, adjusted our strategy, a bit to sell deeper into existing accounts.

So why do we have such conviction? Because as J-Plasma usage increases in an individual account, word spreads pretty quickly. It actually goes pretty viral internally within a hospital.

So as there is increasing demand and a VAC process that has already been concluded, we feel that we can accelerate that ramp in the existing accounts. Now having said that, we are not taking our eye off of adding new accounts. That is still a critical part of our strategy; but selling deeply and widely in our existing accounts is in part how we're going to get to our goal of 100 by the end of the year.

Charles, I would add, again, with the 34 that we have there's 88 in process. We've got VAC approvals for 42, and VACs in progress of 46. So there's a total of 88 that are in process right now that will show us a pathway to 100.

Okay; sounds good. Then my last question is on the cardiovascular opportunity. I understand with the previous questioner you didn't want to get into too much granularity on the electrophysiology possible opportunity there. I assume that's in AF. That tends to be a different call point than what you have right now.

Have you thought about or considered pursuing a partner strategy, a distribution strategy if you move forward with this electrophysiology opportunity? Or how should we think about from your resource standpoint and your sales expertise, how would you maximize that opportunity? Thanks.

Yes, thanks for the question. It's a great question, and the space of cardiovascular is different, obviously, than GYN and so forth.

Our plan -- one-third of our sales organization today is trained in cardiovascular and cardiothoracic. We are putting together significant training materials to train the balance of our salesforce.

So the way we envision this going and in fact the way it is going is we will first deploy a third of our salesforce that's fully trained. Then we will deploy the balance of the salesforce over time.

And as we do this, that third who has very, very deep and wide experience in this space and really owns so many of the critical relationships in this space, they will serve to ensure -- because cardio is a different animal -- they will serve as proctors as we roll out or as the balance of the salesforce comes through their learning curve.

Okay. Have you evaluated or considered a partnering strategy with the EP call point? Or are you pretty firm that you'll be able to go direct here to be successful?

Right now, again, our focus is in cardiovascular. EP is, like you said, a different call point and we don't have enough trend or experience in it right now to even comment on what our plans might be there.

Okay. Thanks a lot, guys.

(Operator Instructions) Yitz Jacobovitz, AIGH Investment Partners.

Hi, Rob and Jack. Quick question on this quarter's J-Plasma. It sounded like from your commentary that most of that was recurring revenue of disposables. Am I understanding that correctly?

For this past quarter -- so here's the deal, Yitz. Thanks for your question. We don't report the breakdown between generator sales and handpieces.

Having said that, though, the July number, which is a number that is in excess of all of last quarter, what we're so encouraged by is that July number is made up in large part to recurring orders. I referenced during the prepared remarks that the -- I'm sorry; I lost my train of thought for a second there.

These are mostly recurring orders for July and I referenced that we were at the point -- and it's a milestone really -- of daily sales. And that's what gives us so much confidence in the strategy that we are executing is working.

We are at the point of daily sales, so most of that revenue is recurring revenue from existing customers, and then our pipeline is full as Jack alluded to before, with the VACs in process and the VAC approvals. So that's -- I think that answers your question.

So out of the $237,000, you're saying most of that is recurring, meaning handpieces?

Yes, it's recurring orders as we expand J-Plasma into existing accounts. While -- again, we don't break down the specifics, but I will tell you that the vast majority is from the recurring orders of handpieces, not big pops from multiple generators. That's again what gives us such conviction that our strategy is working.

Okay. Yes, that is amazing. In that case, if you do, like you're guiding to, sell a decent amount or place a decent amount of new generators, which you need to do to hit your numbers, that would be layered on top of that. And you could have a really nice Q3, basically, if things go as planned.

Yes. Yes.

Okay, great. Thanks.

We think about it the same way.

Perfect, thank you.

Jeff Stockstill, Newport Coast Securities.

Listen, I apologize; I was on another call so I missed your opening comments. But overall your revenue is in line with my model, and you beat me on the bottom line, so those to me look like good numbers.

My first question -- I've got two questions -- my first question is on the J-Plasma. We were talking about, I want to say, a $10 million revenue run rate at the end of this year. Is that still a number that's targeted, or has that number been moved down a little bit?

Yes, you know, this is a snapshot in time. So as I indicated in the prepared comments -- I know you didn't hear all of them -- is -- the longer sales cycle does have us a bit behind our initial target. So in a snapshot of time we're coming down a little bit.

You could do the math. We've come down to expecting 100 generators in use; and then the same math applies, so that would be two surgeons per generator doing four cases a week. And if you do all of that map it comes out to about $7.8 million.

Now that's a snapshot in time. We do expect that things could change. As things accelerate, those numbers could change quite significantly.

Okay, excellent. No, I mean the technology is still the same and the investment thesis is still the same. One quarter doesn't make a trend, and one quarter is not an investment when you look at what this could do for three to five years.

My second question -- and you know this much better than I. But is there any risk, and if so, how do you manage that risk, that you might be diluting the focus of your salesforce as they go on these different clinical call points?

Yes, that's a great question. This is something that the leadership team here at Bovie spend an awful lot of time contemplating. We have communicated really from day one that we're going to focus on our initial targets first; and once we gain the requisite momentum in those targets, we will get to the second targets, because we want our salesforce to be focused.

We've reached that point in time where the longer sales cycle -- one positive outcome is it does allow us -- it frees the time of the sales rep to start focusing on other initiatives. As we focus on the very same accounts but with different targeted specialties it has that effect, as I alluded to in one of the earlier questions, of our multiprong approach of having multiple specialties approaching the same VACs, that we do expect to shorten the sales cycle, which remains three to nine months.

But if we could be on the shorter end of that range that's what we are attempting to do. So I do not believe this at all takes the focus away from our strategy. We've just reached the milestone that the time is right to do it now.

Okay. Outstanding and thanks for taking the time to answer my questions and keep up the good work, guys. Take care.

Charles Haff, Craig-Hallum.

Hi, thanks for taking my follow-up question. I wanted to ask you a little bit about the urology opportunity. Obviously, having Dr. Patel involved is a huge win for your Company.

I'm just wondering if you have discussed this opportunity or if other urologists tried doing what Dr. Patel has done here in radical prostatectomy. I assume that this would -- the approach that he has used, and correct me if I'm wrong, is through the access port. But I'm wondering if you have talked about anything with Intuitive Surgical or others to maybe add J-Plasma to the arms of the da Vinci robot?

Yes, great question; thanks. Very thoughtful question. With respect to Dr. Patel, this is fresh off the press. This is brand-new news. He is the only urologist at the time that we're working with, and he is just starting to get -- he just started using J-Plasma first in a live animate setting and in a cadaver lab and starting to use it on patients.

So way too early to talk about his experience, and so stay tuned. We'll certainly keep everyone informed on that progress, because it is very, very important.

The use right now -- now, Dr. Patel is not the only doctor, the only surgeon using it on the da Vinci robot. There are GYNs that are also using it.

So to answer your question with respect to the auxiliary port, yes. Currently in its configuration, the product can be used in the auxiliary port. That is what Dr. Patel is doing and others using it in robotic surgery.

With respect to -- so robotic surgery is very, very important. As you think about our target surgeons, especially the GYNs and urology, many, many of the procedures are done robotically. So we certainly have an initiative to further develop configurations of J-Plasma specifically for the robot.

At this time we are not limiting those configurations to one manufacturer. In fact, just -- was it last week or the week before? Jack and I, along with our ahead of R&D, Shawn Roman, attended a conference in Washington, DC, that was an FDA workshop. And in attendance I think was every single robotic company that either have a product approved, which there are two, and then the others.

Our thought process at this time is not to limit ourselves to a configuration for one robot, but to work with all robotic companies.

Okay, thank you. Then a question for you on Colpo-Master and Freezpoint.

Yes.

You mentioned that you were launching those products. Did you need specific approval for those products?

Or can you describe those products a little more? Are they J-Plasma products? Or just help us understand those a little bit better.

Yes. Absolutely. Yes, and I know why there might be some confusion, because these products coincidentally are focused on GYN and dermatological procedures.

These have nothing at all to do with J-Plasma. This has to do with our core business, and these are physician office-based practices. So the colposcope and which the Colpo-Master is the brand name -- but a colposcope is really used in the GYN's office after a Pap smear.

This particular scope is used to gain greater visualization. So that is in -- and this is one that we've partnered with another manufacturer and are marketing it under the Bovie name, again for the office-based practitioners, core business, not J-Plasma.

Freezpoint, same thing. Freezpoint is used for cryosurgery. This is where you use extreme cold temperatures to remove skin lesions.

These are used by dermatologists, by primary care surgeon -- or primary care physicians, to do light dermatological skin procedures that require cryosurgery. That, too, is being marketed under the Bovie name and manufactured by another -- by a partner manufacturer of ours.

Okay, so in terms of Bovie salespeople, are Bovie salespeople calling on the offices to sell these two products?

No, not one. In fact, all of our products through the core business is sold through our distribution partners. These are the large distributors that call on office-based practitioners, such as PSS, McKesson, Henry Schein, and Owens & Minor, those folks. So these are all distributor-based sales, no direct sales reps.

Okay. My last question is regarding cardiology -- or I should say cardiovascular and cardiothoracic. Can you characterize how many procedures or how many physicians have tried to use J-Plasma in those indications or in those areas? To give us a sense for how far down the road you may be there.

Yes, great question. We're in the early stages, and it follows a predictable sequence of events, whether it's in the cardiovascular, cardiothoracic, or urology.

And the sequence of events are just this. We work with these surgeons -- and by the way, these are world-renowned surgeons, real thought leaders in their respective areas -- we first work with them to develop the clinical protocols in an animate lab setting. We then take those clinical protocols and translate them into the OR on live patients.

For cardiovascular, since you asked about that, we're working with two surgeons where we have a few weeks of cases under our belts. I don't know the exact number of cases, but we've already established the clinical protocols, which have to do with the settings of J-Plasma.

And we've translated those into the OR for live cases; I think most of the cases are pediatric cases. And as Jack alluded to before, in the very early innings of this, it looks promising. We're seeing some very promising outcomes.

So it's a little early to report, but as soon as we have more definitive things to report we will. And this is the right sequence of events to follow, because you have to ensure that it's safe and you want to ensure that it really makes a big difference, that it's a game-changer. And so far so good.

Okay, so two on the cardiovascular, pediatric cardiovascular side. How many docs on the cardiothoracic side?

(multiple speakers) two. Go ahead, Jack. I'm sorry. So we have two surgeons that have the experience on the cardiovascular. How many on the cardiothoracic?

On the cardiothoracic, we're in the lab phase of it right now. We're working in the animate lab trying to come up with the proper settings for the tissue effect that they're looking to gain in the procedures of interest. So right now we are not in live cases with patients at this point in time.

Okay, great. Thanks for your help.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Gershon for any closing remarks.

Thank you, Denise. Thank you, everyone, for participating in today's call, and we look forward to keeping you informed on our progress.

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.