Apyx Medical Corp (APYX) 2020 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Second Quarter of Fiscal Year 2020 Earnings Conference Call for Apyx Medical Corporation. (Operator Instructions)

Please note that this conference is being recorded and that the recording will be available on the company's website for replay shortly.

Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our most recent annual report on the Form 10-K filed with 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 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 conference over to Mr. Charlie Goodwin, Apyx Medical's President and Chief Financial Officer. Please go ahead, sir.

Thanks, operator. Welcome, everyone, to our earnings call for the second quarter of 2020. I am joined on the call this morning by Tara Semb, our Chief Financial Officer.

Let me provide you with a quick agenda for today's call. I'll begin with a review of our revenue results for the second quarter, including a summary of the impact of the COVID-19 pandemic on our second quarter results. Following this discussion, I will provide you with an update on our recent operational highlights and progress we have made on the 4 initiatives we are pursuing as part of our longer-term growth strategy. Tara will then provide you with a detailed review of our second quarter financial results. Following Tara's remarks, I'll conclude by sharing some thoughts on our near-term and long-term outlook before we open the call for questions.

With that, let's get started with a review of our revenue results. We reported total revenue of $4.3 million for the second quarter of 2020, representing a decrease of 35% year-over-year. From a geographic standpoint, our total U.S. sales for the second quarter of 2020 decreased 25% year-over-year to $3.4 million while our total international sales decreased 57% year-over-year to $0.9 million.

In terms of revenue performance in each of our business segments, in our Advanced Energy business, sales decreased 46% year-over-year to $2.9 million. In our OEM business, sales increased 10% year-over-year to $1.4 million. The sales growth in our OEM business was driven by higher sales to our legacy OEM customers compared to the second quarter of 2019 due to the timing of orders. As anticipated, the revenue performance in our Advanced Energy business was significantly impacted by the COVID pandemic and the actions taken to slow its spread. As discussed on our first quarter earnings call, the vast majority of procedures performed with our Helium Plasma Technology are elective.

During the second quarter, many of our cosmetic surgery customers around the world continued to be affected by government actions requiring elective procedures to be postponed and nonessential businesses to close temporarily, which resulted in slower adoption and utilization. Specifically, the 46% decline in total Advanced Energy revenue in Q2 was driven by a decline in generator sales of 60% year-over-year and a decline in handpiece revenue of 15% year-over-year.

While Q2 was undoubtedly challenging, we were pleased to see improving trends in each month as we progressed through the quarter. We saw the largest impact from COVID in April, with total Advanced Energy sales decreasing 93% year-over-year, driven by declines in both the U.S. and OUS markets. In the U.S., where nearly all Renuvion procedures are performed in outpatient facilities, such as doctors' offices and surgery centers, we estimate that virtually all of our customers' offices were temporarily closed throughout the month of April as a result of state and local restrictions.

After a difficult month in April, signs of recovery and trends started in May. Specifically, in May, we were encouraged to see many of our U.S. surgeon customers reopen as restrictions on elective procedures and nonessential businesses begin to be lifted in various regions across the U.S. As of the end of May, we estimate that roughly 70% of our U.S. customers had reopened. As U.S. practices reopened, our customers were focused on rescheduling postponed or canceled procedures from late March and April. Many also reported building strong pipelines fueled by successful implementation of virtual consultations while offices were closed.

We saw procedure activity increase steadily in May and June, and we're particularly encouraged to see utilization-based demand for our Renuvion handpieces follow. Specifically, Renuvion handpiece demand increased nearly 80% year-over-year in the month of June. In one of the most challenging quarters for our medical device manufacturers, especially those with elective procedure exposure, the number of Renuvion handpieces sold in the United States declined less than 2% year-over-year.

The utilization-based demand for Renuvion handpieces continues to demonstrate that our system is not one of the many examples of the aesthetic market technologies that are adopted and rarely used. Instead, the continued demand for our handpieces is the clearest example that our cosmetic surgery customers have incorporated Renuvion into their practice, value the strong clinical efficacy and compelling patient outcomes and appreciate the strong return on investment that the system offers to cosmetic surgery practices.

Turning to a brief discussion on our Advanced Energy business outside the United States. Unfortunately, the COVID-related business disruption in our primary markets was more pronounced than what we experienced in the U.S. during the second quarter. It is hard to characterize the relative improvement of our OUS business overall as the pace of recovery outside the U.S. has varied depending on the region. April was a very challenging month as a result of COVID-related restrictions on elective procedures. We did see business trends improve during the quarter, with May better than April and June showing a very modest improvement in business trends compared to May.

While the OUS environment was extremely challenging in Q2, the progress we made towards one of our strategic growth initiatives in Q2 helped offset some of the COVID-related headwinds in the quarter. As I will discuss in more detail in a minute, we recently secured a new product registrations authorizing the sale of our Helium Plasma Technology products in 5 new countries. We shipped initial orders to 2 of these countries, Brazil and Australia, which helped offset some of the year-over-year decrease in our international Advanced Energy sales in Q2.

Simply stated, Q2 was a difficult quarter for our business, as anticipated, given the fact of COVID-19. April represented a very challenging start to the quarter for our global Advanced Energy business, with total global Advanced Energy sales declining 93% year-over-year. In the U.S., we saw material improvement in business trends the latter half of the second quarter. While we were encouraged by the 80% growth in handpiece sales we saw in June, they were only partially offset the challenging capital equipment environment, and our U.S. sales were down 30% for the month of June. Outside the U.S., Q2 was particularly challenging, but we were pleased to see the impact of COVID offset partially by the initial orders to Brazil and Australia.

We were certainly happy that the quarter ended on such -- on a much stronger note than where it began. However, our total Advanced Energy sales for the month of June still declined 18% year-over-year and demand trends for generator adoption in both the U.S. and in our primary OUS markets reflect a market that is in the very early stages of recovery.

Turning to a discussion of our operational progress during the second quarter. Despite the COVID-related disruption experienced during the second quarter, we continue to make progress with respect to the 4 strategic initiatives we are pursuing to position Apyx Medical for long-term growth in the cosmetic surgery market. I'll take a moment to review our recent progress with respect to each.

Starting with our first initiative: To pursue specific clinical indications that will enable us to market and sell Renuvion for new targeted procedures. In the U.S., as a reminder, we are conducting 2 IDE clinical studies designed to support our pursuit of new indications for use in dermal resurfacing and skin laxity procedures. As discussed on our Q1 call, clinical trial activity across the U.S. was significantly impacted by the disruption created due to COVID-19 beginning in March. Up to that point, enrollment in both of our IDE clinical studies had been progressing, but was paused as a result of the COVID-related disruption.

In response, our clinical team was focused on working closely with the investigators from both studies to help mitigate the impacts of this disruption. Once restrictions on elective procedures were lifted in May, we were pleased to resume our efforts in both clinical studies. Despite the COVID-driven delay, things are progressing now in both our IDE dermal resurfacing study and in Phase I of our IDE skin Laxity study, which is focused on 1-month safety data.

Outside the U.S., our regulatory strategy has focused on expanding our commercial footprint by obtaining regulatory clearance for our Helium Plasma Technology in new countries. As part of this strategy, we are focused on owning the product registrations in the countries that we enter. Our team continued to make important progress on this front during the second quarter. As a result, on June 22, we were excited to announce that we received regulatory approval to market and sell our products in 5 new countries: Australia, Brazil, Israel, Taiwan and Thailand.

While we expect the addition of each of these countries to benefit our longer-term growth profile, it's important to note that Brazil represents the second-largest cosmetic surgery market in the world, both in terms of total number of procedures performed and the number of surgeons. During the second quarter, we shipped initial commercial orders to our distributors in Australia and Brazil, and we expect to ship initial orders to the remaining 3 countries during the second half of the year.

In connection with our second strategic initiative, we continued our efforts to expand our portfolio of clinical evidence supporting the use of our Renuvion technology. In April, we published a manuscript, discussing the results of our first U.S. IDE study on dermal resurfacing in the peer-reviewed journal, Lasers in Surgery and Medicine. In addition to this publication, our team continues to make progress on additional clinical manuscripts and we expect to complete and submit multiple manuscripts for publication during the second half of 2020.

With respect to our third strategic initiative: Enhancing physician and practice support for our cosmetic surgery customers. During the second quarter, we shifted our approach to educational programming and began hosting events virtually for the benefit of both current and prospective customers around the world.

In the U.S., our sales and marketing and field clinical teams hosted 4 virtual physician education events, which drew close to 200 physician attendees. These events included webinars, where our leading physician customers discussed a variety of topics, including the factors that drove their decision to adopt Renuvion, their experience with the technology, their strategies for marketing the technology and their thoughts on pricing and return on investment.

Outside the U.S., our team hosted continuing educational training sessions on J-Plasma and Renuvion with our current international distributors. They also conducted calls with groups of international prospects interested in learning about Renuvion technology.

Lastly, let me briefly discuss our fourth strategic initiative: Improving our manufacturing capabilities and efficiencies. Our work to identify and implement new lean initiatives continues to progress and remains an important area of focus for our organization, helping us realize continued improvements over the coming years. As a reminder, one of our focus areas with respect to this initiative has been to implement new process improvements in order to reduce the per unit manufacturing cost of our Advanced Energy products. We have begun to see early evidence of these activities in the form of improving handpiece margins.

Given our progress towards this initiative, we continued to move forward with the APR handpiece as our primary Renuvion handpiece. While this decision resulted in a near-term P&L impact related to the write-down of prior-generation handpiece inventory in Q2, we expect considerable contributions to our longer-term profitability as the APR handpiece becomes a larger portion of our total handpiece sales going forward. This is a clear example of how the progress we are making towards our strategic initiatives is enhancing our long-term growth and profitability profile.

Stepping back, despite the impacts of COVID pandemic, I am very pleased with our company's financial and operational performance this quarter and the excellent job done by our team under these challenging circumstances.

With that, let me turn the call over to Tara to discuss our second quarter financial results and comments made in our earnings press release this morning. Tara?

Thanks, Charlie. I will begin my review of our financial results across the rest of the P&L as Charlie covered our second quarter revenue performance in detail.

Gross profit for the second quarter of 2020 decreased $2.6 million or 55% year-over-year to $2.1 million. Gross profit margin for the second quarter of 2020 was 48.7% compared to 70.3% last year. Our GAAP gross profit in the second quarter of 2020 was impacted by inventory write-downs during the period. We reassessed our forecasted product mix due to COVID-19, increased the availability of our newest -- newer handpiece designs and benefited from earlier-than-expected completion of product registrations in certain international markets. As a result, certain products were reduced to a lower carrying value and some components were also written off as it was determined to cease further production of these models. This resulted in an increase in GAAP cost of goods of approximately $0.4 million during the second quarter of 2020.

Excluding the increase in cost of goods related to inventory write-downs, the year-over-year change in gross profit margin for the 3 months ended June 30, 2020, was driven by product mix within both our Advanced Energy and OEM segments, revenue mix between our segments, geographical revenue mix and improved product margins in our Advanced Energy segment as a result of our continued manufacturing efficiency initiatives.

Operating expenses for the second quarter of 2020 decreased $0.8 million or 9% year-over-year to $8.3 million compared to $9.1 million for the second quarter of 2019. The decrease in operating expenses year-over-year was driven by a $0.8 million decrease in selling, general and administrative expenses and a $0.1 million decrease in salaries and related costs, partially offset by a $0.1 million increase in research and development expenses.

Importantly, the decrease in operating expenses reflects our initiatives to control cost and reduced our discretionary spending in response to the impact of COVID-19 on our financial condition. Specifically, our operating expenses decreased 21% quarter-over-quarter as a result of our proactive efforts to control costs in the more challenging operating environment.

Loss from operations for the second quarter of 2020 was $6.2 million compared to operating loss of $4.4 million last year.

Income tax benefit in the second quarter of 2020 was $1.5 million compared to income tax expense of $76,000 in the second quarter of 2019. In the second quarter of 2020, we benefited from a GAAP tax benefit related to the CARES Act, which was enacted by the U.S. government to provide relief from the coronavirus pandemic. As discussed on our Q1 call, the CARES Act includes a net operating loss, or NOL, carryback provision, from which we expect to receive a cash tax refund of approximately $3.7 million by the end of 2020. We recognized an income tax benefit of approximately $1.4 million in the second quarter of 2020, which reduced our GAAP effective tax rate.

Net loss for the second quarter of 2020 was $4.7 million or $0.14 per share compared to a net loss of $4.3 million or $0.13 per share for the second quarter of 2019. Second quarter 2020 adjusted EBITDA loss was $4.9 million compared to an adjusted EBITDA loss of $3.6 million last year. Excluding the increase in cost of goods related to inventory write-downs in the period, our adjusted EBITDA loss increased only 22% over year -- year-over-year compared to a 35% decrease in total revenue year-over-year. Our Q2 adjusted EBITDA loss decreased 23% quarter-over-quarter, which represents the company's proactive efforts to lower our OpEx during the challenging operating environment. As a reminder, we provided a detailed reconciliation from GAAP net loss to adjusted EBITDA in our press release this morning.

As of June 30, 2020, the company had cash and cash equivalents of $46.2 million compared to cash and cash equivalents of $58.8 million as of December 31, 2019. The company had working capital of $60.2 million as of June 30, 2020, compared to $64.4 million as of December 31, 2019.

Lastly, as mentioned in our earnings press release this morning, given the ongoing challenges and uncertainties posed by the global COVID-19 pandemic, the company will not be providing full year 2020 financial guidance on today's call. Assuming a more normalized business environment prevails at the time of our third quarter results conference call in November, we plan to provide updated expectations at that time.

With that, I'll turn the call back to Charlie for closing remarks. Charlie?

Thanks, Tara. As Tara mentioned, the timing of returning to normalized operating environment remains highly uncertain. Given this uncertainty, in July, we continued to monitor the business trends and solicit feedback from our customers to determine the ongoing impacts of the pandemic. We saw promising trends in the market, where nearly all of our existing customers were open as of the end of June.

The feedback we received from our U.S. customers in July indicated that they were very busy working to accommodate the backlog in cases caused by the COVID pandemic. Accounts have reported extending their office hours or adding additional days to their schedule in order to accommodate these cases. Interestingly, some accounts that perform consultations virtually during the second quarter mentioned that they have continued this practice to some extent in order to free up more of their time in the office to perform procedures. By all accounts, July was a very busy month, and for our clinician customers in the U.S., fueled by strong backlog of cases that were rescheduled from late March and April and a strong pipeline of procedures.

While procedure volumes have been challenged in some areas of the country that are COVID hotspots, overall, we continue to see strong demand for our Renuvion handpieces from customers in the U.S. cosmetic surgery market in July.

On the capital equipment front in July, we saw some initial signs of improving generator adoption in the U.S. However, the recovery in capital equipment purchasing remains in the early stages overall, and the timing and cadence of the recovery in the capital equipment demand remains uncertain.

Outside the U.S., in July, we saw some limited improvements in handpiece demand and pockets of relative strength in some regions. However, the demand for handpieces in our primary markets continues to lag behind the trend seen in the U.S., and the overall purchasing environment for capital equipment remains in the very early stages of recovery.

We appreciate the high level of focus from the investment community on understanding how companies are faring in the early stages of the recovery from the global pandemic. In the interest of transparency, we are providing current quarter details that we otherwise would not include in our quarterly disclosures. To that end, in addition to the commentary on the business trends that we have seen in the first month of Q3, we are also reporting that our Advanced Energy sales in July increased 35% year-over-year, driven by strong growth in the U.S. and negative growth outside the U.S.

We are obviously pleased that our year-over-year Advanced Energy sales trends reflect growth in July compared to declines in June. However, we would highlight that this growth performance benefited from a softer prior year growth comparison. More importantly, we are still uncertain as to how much of the recovery in our sales trends has been driven by backlog-related purchasing versus a true reflection of a return to a more normalized operating environment, which is the key leading indicator for sales of generators going forward. At this point, we believe it is more likely the former, and thus, we remain cautiously optimistic that we will see continued improvement in our Advanced Energy business trends as we progress through the second half of 2020 with hopes of returning to year-over-year growth in the fourth quarter.

With respect to near-term outlook for our international Advanced Energy business. As discussed, it remains highly uncertain and we are hoping to see trends improve over the second half of 2020, such that the business trends improve enough by year-end to begin returning to growth year-over-year in early 2021.

Ultimately, while the timing of a return to a more normalized environment remains highly uncertain, we are well capitalized to weather the ongoing effects of this pandemic and well positioned to execute our growth strategy as the recovery progresses. We have been proactive by controlling our costs by reducing discretionary spending, implementing hiring freezes and delaying investment in certain R&D projects and clinical studies until they can be efficiently pursued under a more normalized environment. The resulting environment in our operating expense profile was a material contributor to our financial performance during the second quarter and is expected to benefit our results in the second half of the year as well.

At the same time, given our strong balance sheet condition, we have continued to invest in areas of our business that represent key elements of our growth strategy. Most importantly, we continue to maintain the size of our sales team, which remains focused on engaging with both existing and potential customers, using virtual means when necessary. We also continue to invest in our 4 strategic initiatives that I discussed earlier, which will position us to drive long-term growth in the cosmetic surgery market by facilitating the broad-based adoption of our technology.

As we enter the second half of 2020, our organization continues to demonstrate their ability to support our customers and execute our long-term strategy despite the ongoing challenges of the COVID pandemic. Going forward, we will remain intently focused on these objectives as we position Apyx Medical to return to our prior track record of growth.

With an estimated $1.5 billion addressable market opportunity in the U.S. alone and recently expanded addressable market opportunities outside the U.S., we continue to believe we are uniquely positioned longer-term to drive sustained growth for many years to come. As the post-COVID recovery takes shape, we look forward to continuing to expand our market share and elevate the global cosmetic surgery market with our transformational Helium Plasma Technology for the benefit of our surgeons, patients and shareholders.

In closing, I'd like to offer a special thanks to all of our employees for their hard work, flexibility and commitment to our success, which makes me proud to be a member of the Apyx team. I'd also like to thank our distributors, customers and shareholders for their continued support and those on this call for their interest in Apyx Medical.

With that, operator, let's now open the call for questions.

(Operator Instructions) And our first question will come from Matt Hewitt of Craig-Hallum.

First one, is there any way to -- and I know April and May, it's probably not worth getting in too far into that. But when you look at June and July, where you are seeing pretty rapid recovery, is there any way to parse out how much of that was working through backlog of procedures that have been canceled versus new demand?

Yes, Matt. In April, like we mentioned, virtually all the customers were closed. We started to see recovery in May. And customers were doing virtual consultations and getting their practices back to order. And as we got into late June, nearly all the customers were open as of June. And the activity in the offices in June and particularly July have been very strong.

And we were obviously, in June, encouraged to see the utilization demand up nearly 80% year-over-year. And those trends were still strong in the month of July. And in one of the most challenging quarters of med tech history, our handpiece growth was just down 2% year-over-year.

And so we continue to see that they're very busy, but we're just unsure at this point in time, and that's why there's a little uncertainty as we go forward here into the third quarter, about whether this is real demand or just driven by the backlog. The great thing is, is that the -- that our customers are extremely busy, and we just need to continue to see if that will continue or not. And at this point in time, I don't know that we've got a great answer for you there.

That's all right. I understand. And maybe a follow-up question. Regarding the capital equipment, obviously, there's some delays there in purchasing, completely understandable. What do you think will be the trigger, both domestically and internationally, for those customers just come back and start buying capital equipment? Is it -- is it just simple dollars in the sense, when they've gotten through their backlog and they feel comfortable that things are going to stay open? Or is there something that you could do maybe from a marketing perspective to help them adopt the technology a little bit earlier?

Yes. So look, we obviously have a lot of programs for them right now to help them. But I think the bigger issue for them, quite frankly, is just what do they think is going to happen with the virus in the back half of the year. And I think it's as simple as that. We've got lots of programs that we can help them adopt our technology, if necessary, but I think they, in their minds, each person's individual, they would like to have some form of confidence about what the virus is going to do in the second half of the year because obviously that affects their business in a great way, whether they're going to make a capital investment or not.

The next question is from Matthew O'Brien of Piper Jaffray.

Maybe just a little bit more on some of these hotspots. I'm curious how your customers are adjusting right now to mitigate the risk of any potential impact of some of these outbreaks that we're seeing around the country. I mean, it's some pretty big states. So what are they doing to make sure that we don't go through another big round of shutdowns?

And then those virtual events that you talked about, this 200 individuals that you saw. How many of those were new versus existing customers?

Yes. So for the hotspots, look, the big advantage that we do have, where these procedures are done, is they're done in the doctor's office setting or in a small surgery center that they typically own. And so fortunately, for us, the patients in the United States anyway, aren't having to go into a hospital and be subject to that. And so the good news for our clinicians is that they control the environment and can space out patients appropriately, whether they have them wait in their car until the next one comes in. It totally depends on the clinician, the state, the guidelines, all of that kind of stuff, so it's a little bit all over the board. But the good news is, is that they themselves have control over how they keep their patients safe. And from what we understand, the vast majority, obviously, are doing a great job, if not all of them. We haven't heard anything of the contrary for that.

So that is an advantage that they can that they can do that, and they're in control of these situations themselves and aren't having to rely on bigger institutions, where there's a lot more people and all of that kind of stuff. So that part is encouraging from our side.

As far as the 200 clinicians and how many of them are brand new versus not, I would say the vast majority of them are new prospects or new clinicians. For the types of events that we've been having, to have a customer that already owns the technology on there to listen to it, there's not a lot that they're going to get from these type of events. And so the 200 that we were speaking to there, for the most part, the vast majority of them would be new clinicians.

Okay. That's really helpful. And then as a follow-up, you talked about these 5 new countries. Obviously, Australia and Brazil are large opportunities. I think Brazil is generally soft right now. So can you talk about how, if you can, to sum up the opportunities of those 5 new countries? How big would all 5 of those be? And then when can they be meaningful contributors from a recurring revenue perspective? I know you had some onetime sales here, and there are some stock-in sales here in Q2, but more contributors from a recurring revenue perspective.

Well, look, as I mentioned before, Brazil is the second-largest cosmetic surgery market in the world, both in terms of procedures and physicians. The big question is, is that all of them are going to be contributors as we go forward. The real question is what's happening with the virus in each one of those areas. And so from that perspective, we're basically saying that they're probably not reoccurring revenues until 2021 with respect to just what's happening in the virus in a lot of those different areas.

We did ship, as I mentioned, Brazil and Australia in Q2, and we do expect to ship initial orders to the remaining 3 countries during the second half of the year. But unfortunately, different things are happening in each of those markets with respect to the virus. And so that will determine when those really start to kick in and really become recurring revenue on a regular basis.

The next question is from Dave Turkaly of JMP Securities.

Charlie, we spoke a bit about the doctors and their practices being reopened, so thanks for all that color. Just curious about the actual customers or patients. I'd love to get your current thoughts on sort of their mindset. You mentioned that these are mostly outpatient or office procedures. But we talked about maybe people having some downtime and being willing to get a procedure done. I'm just curious as to what you're seeing or hearing from -- maybe even from the patient base out there. Are things improving? And I guess, do you expect that to hold?

Yes. By all accounts, all our customers in the month of July were busy. And in some regards, they said it was the busiest July that they've ever seen. As far as do I expect it to hold? I think it's in the early stages right now and I think it's tough and demand remains uncertain. And so that is why in the remarks, that we said we hope for quarter-over-quarter growth in the fourth quarter.

We were obviously extremely pleased by July, to be able to grow our business 35% year-over-year. But the big question is what happens to demand and what happens in the back half of the year? And as we sit here today, we're extremely excited and cautiously optimistic about what that looks like going forward. But I don't have the answer to that.

I do know that there was an article just published in Barron's that talked about cosmetic surgery just going crazy right now. But who knows if that lasts, who knows if -- there's a whole bunch of factors in there, and it just remains uncertain.

Got it. And I don't know if I've asked you this in the past, but for your Advanced Energy specifically, is there a median age that you've talked about in terms of the patients that are seeking therapy there?

Well, I don't know if there's a median age, but we've done ages from -- well, we have, and our customers have done ages from 20s to 80s. And so if you're going to probably pick a median age, it probably fits in that 45 to 60 age group, is probably the sweet spot for skin tightening, if you will.

Got it. And just quickly, you mentioned the sales team was held steady. I wondered if you maybe care to share any details of that sales force, like the size and either maybe just even domestically?

Yes. The size hasn't changed from the beginning of the year. We haven't made any changes in our size. And I, quite honestly, don't have the exact number on the top of my head of how many we have because we haven't changed it in -- since the end of last year. And I think we're -- I don't even want to give you the number. I know we're 30-some direct people, but I don't know what the exact number is right off the top of my head.

The next question is from Kyle Bauser of Colliers Security.

Maybe I'll start off with the skin laxity trial. So as you mentioned, 2 phases, the first phase is 20 patients evaluated for safety, I think 1 month follow-up. And then you can proceed with the subsequent 32 patients, with all 52 evaluated for efficacy. Can you just talk about the status of the trial and the first phase of this for that initial 20 patients and kind of where we are?

Yes. So look, we're not going to give specific updates on where we are. But as I mentioned, all the activity was impacted by COVID. But thank goodness that all of our sites are back up and running, and we're making progress towards that. For that study in particular, the next milestone that we would give out is after we have received approval to begin Phase II of that study. That's the next phase of that study. And until then, we're working towards that goal of being able to proceed to the Phase II of that study.

Okay. That's helpful. And I know capital equipment sales were pretty minimal in Q2 given the shutdown, practices just aren't putting up the money for capital equipment right now. But it would -- therefore, seeing the value proposition that your partner, Medshift, provides, it would be pretty compelling right now since practices can just do a monthly subscription and get access to these. Does this model maybe seem more interesting right now to customers since they don't have to buy the capital equipment? Or is it too early to tell?

Yes. No. Look, it is a very good model. Medshift is, they're a very good partner for us. And it is a another way for our customers to adopt that technology, and it's a way that we always have offered that. And so as I mentioned before, we have outright capital purchases, we have leasing programs, we have the Medshift program. And so we definitely try to make it as easy on the practice and tailor an approach to the practice to have them adopt the capital as whatever fits best into their business model. And so it's wonderful to have Medshift as a partner for that. And yes, it is a good approach.

The biggest thing, though, it still has -- the customers still have to have confidence that they're going to be able to stay open and get a return on that investment. And I think that's really still the biggest thing and the reason why there is -- why we're cautiously optimistic about the second half is, just because of -- we obviously don't have control of the virus.

Appreciate the color on the favorable trends in July here.

(Operator Instructions) Our next question comes from Russell Cleveland of RENN Capital.

And the question is on the cash refund. Will we be getting actually $3.7 million, and that will add to our cash? Or are we already showing that in our cash balances?

Yes. No, that's a good question. Go ahead, Tara.

Yes. Yes. That's -- it's approximately $3.7 million. It's an actual refund because we'll be carrying back the loss to 2018 when we paid income taxes.

So we're going to get $3.7 million more this year, which is, of course, a big help to us.

Correct.

Question. Many were...

Russell, hold on 1 second. I'm sorry to interrupt. Not only will we get $3.7 million back this year, but then we'll get -- depending on what our losses are for this year, we will get another chunk of it back the following year, too.

Okay. So cash drain is not as bad as we think. That's the point.

Correct.

I -- my other question is, many were surprised that Brazil was the #2 cosmetic country. What other countries are, say, in the top 5 or top 10? Do you know that?

Yes. The 2 biggest ones that we do not have registration in right now are China and South Korea.

They're in the top 5?

They are. They're both in the top 5, and we don't have business in either one of those. Our products aren't registered there yet.

Are we going after those markets? Or is it a regulatory problem?

No. We have strategies for both of those markets, yes.

That does conclude our conference for today. Thank you for your participation.