Q4 2019 Earnings Call
[music].
Greetings and welcome to the strata skin Sciences fourth quarter and fiscal year 2019 earnings call.
At this time all participants are in listen only mode. A question and answer session will follow form a presentation.
If anyone should require operator assistance during the conference. Please press star zero, our new telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the call over to your host Matt Giteau with lifestyle advisors. Thank you you may begin.
[music].
Thank you operator, and good morning, everyone. Thank you for participating in today's financial earnings Conference call for the company's fourth quarter and your ended December 31st 2019, leading the call today, well be Dolev Rafaeli, President and CEO struck skin joining him today, well be bad Hill, Chief Financial Officer truck.
Early this morning, Strat issued a press release announcing its financial results for fourth quarter and your ended December 31st 2019, a copy of this release can be found on the Investor Relations page of the company's website.
Before we begin I'd like to remind everyone to comment cigars remarks about future expectations plans and prospects constitute forward looking statements for purposes of the safe Harbor provisions under the private Securities Litigation Reform Act that make 95 these days.
Clued, but are not limited to our plans objectives expectations intentions and other statements that containing the words such as expects contemplates anticipate plan intend believe assumes predicts and variations of such words or similar expressions that predict where indicate.
Further event or trends that you're not really sure. This historic matters. These statements are based on our current beliefs or expectations and apparently subject to significant known and unknown uncertainties and changes in certain circumstances, many of which are beyond our control there could be north church at their beliefs execution will be achieved.
Actual results may differ materially for our beliefs or expectations due to financial economic business competitive market regulatory and other political factors are global and Dennis events, such as the current coop at 19 condemning affecting the medical device industry, given the uncertainties affecting the companies in the medical device industry.
Any or all companies forward looking statements may prove to be incorrect. Therefore, you should not rely on such factor or any forward looking statements. In addition, more specific risks and uncertainties facing the company are set forth in the company's reports on form 10-Q, 10-K with Securities and Exchange Commission shot to encourage you to carefully review.
I would consider disclosures and.
FCC filings, which are a bell at www Dot Betsy Si dot Gov and all the company's website as a reminder, this cold beer recorder would be available for audio rebroadcast on shrubs website for the more the content of the conference call contains time sensitive information that is accurate only as of the date of the light.
Broadcast March 17, 2020 shot undertakes no obligation to revise or update any statements to reflect events or circumstances. After the date of this call with that I would like to turn the call over to Dolev, Rafaeli, President and CEO straw dog.
Thank you, Matt and good morning, everyone and welcome to our 2019 fourth quarter and year end, earning call.
We're all very happy to be here or first earning update call. Since November 2018, 18, when we started a link the restatement process.
Through this process. We have remained focused on the execution of our strategy in a and are pleased to share with you today are very strong 2019 financial and operational results.
We have worked very hard on turning around the business and I'm very proud of the entire team and thank them for their hard work.
Clearly.
The world today looks very different than it did a week ago and while the markets are volatile I'll just say the least we have not taken our eyes off the ball in terms of our business daily we're evaluating instructions from local state and federal government authorities as deal.
The effect our operations.
All of our back office operations are already or able to transition to working remotely.
Our field, including all of our supporting services have been impacted at varying levels as social dispensing and closures are reflected with our individual partner clinics across the country.
We're doing everything we can to continue to operate our business as normal as possible, but recognize that there is some uncertainty and our managing our cash flow and implementing cost containment strategies accordingly.
Let me know take a look at our business and how it grew in 2019.
In looking at all of our key metrics, including revenue growth recurring revenue growth installed base and margins, we have seen growth across the board.
All of this is a direct result of the laser focused strategy, we put in place in 2018 after the refinancing and change in management.
The last six quarters have been devoted to executing turnaround of the company, which included putting the company on a strong financial footing by completing a 17 million dollar financing in 2018.
Strengthening our board and management team.
Cleaning up our kept people.
We also completed a refinancing of our debt.
With a commercial bank when renewed annually, providing us with a significantly lower cost of capital for the years to come in 2020 alone we will save over $700000 in interest expenses.
These steps.
Which have provided us which have provided our record margins clean cap table and a strong balance sheet put us in a solid position to whether the current storm and to support our fundamental growth initiatives once our partner clinics get back to business.
Long term, we are focused on executing on our three pillars of growth.
Direct to consumer strategy, expanding our installed base and adding strategically through acquisitions.
Let me dive a little deeper into each of these areas.
First to our investment in our direct to consumer or DTC advertising for.
Many of you may remember our historical success with this strategy.
And we're gratified to see success with this approach again.
There is a certain leg effect in DTC activities. So we are just now seeing the results of the investments. We made late last year in 2019, we increased our new patient count by 50%, adding 6000, new patients receiving treatments with.
Physician partners.
Fair to 4000 patients in 2018.
Overall in 2019, the number of new patients receiving treatment with our XTRAC system was up 21% to 22000 patients from 18000 patients in 2018.
This impressive achievement was driven by our internal teams handling over 250000 phone calls generating approximately 48000, new patient leads in 2019, a growth of 118% in Leeds.
Recently, K wells pointed out that immunosuppressive medications for the treatment of psoriasis.
Pose risk to patients in light of the disease of disease, such as pulpit 90, our DTC campaign has evolved in the last few days to point out the safety of narrow band you VB or XTRAC in treating these conditions without imposing systemic risks.
Also helping to add to our new patient count was our active pursuant pursuit of expanding extract fuse beyond just <unk> just the psoriasis indication.
With a total available market of 35 million patients for all XTRAC indications eightmillion, which are psoriasis patients our ability to drive patient awareness.
And.
Interest to facilitate the insurance benefits creates tremendous value for physician partners.
The work of our dedicated in house insurance reimbursement team.
Has resulted in appraised benefits for 86% of old prospective patients and 96% approved benefits for psoriasis patients.
In doing the work we have expanded the number of non psoriasis patients receiving treatment by 50% as compared to 2018.
We anticipate these trends will continue as we create tangible value for our physician partners.
2019 has proven that spoke focusing on our recurring revenue business has resulted in a gross margin of over 70% for the year and over 76% in Q4, 2019 as compared to 64% than 65% in gross margin.
In 2017 in 2018, respectively.
The unique model, which builds upon hundreds of individual accounts is truly recurring and less the traditional medical device customer concentration risk.
We also anticipate these trends to continue.
Turning to our second pillar of growth expanding our installed base.
We also saw improvements here during 2019 domestically, we placed 140 systems into physician clinics and removed 66 underperforming accounts for a net adds of 74 new systems. We ended the year with 820 devices in our domestic instead.
All base.
By removing.
Our systems from the underperforming accounts, we were able to increase our quarterly revenue per device or same store sale to nearly $8000 in Q4 2090.
We grew our installed base by turning to to immediate sources. The first is converting current owners of excimer laser into recurring revenue partners, which we call comebacks and the second is increasing market share in large group clinics.
For current owners of excimer lasers, there was a pool of three to 400 clinics, where they have already learned to use the technology has a patient base and have a need for our value added services, which is where we thrive because these are services only strata can offer into.
2019, we achieved 19 come back as compared to 15 in 2018 and four in 2017.
The other March larger source of growth in our installed base is with large group clinics owned by financial sponsors. During 2019, we increased our presence in these clinics and now are in 221 of these clinics up from 86 a year ago.
This growth comes from our success in establishing strategic agreements with the clinic, coupled with the with their success in expanding through acquisitions, thereby expanding the number of extra partners.
These two sources will continue to be the focal point of our clinic expansion strategy through 2020.
Internationally, while we kept our dominance in Japan, China, and the Middle East with continued capital equipment sales, we announced in July two south of 2019 that our South Korean market in which we have been active for over 12 years, we'll start transitioning into.
To a recurring revenue model similar to the U.S. in the first six months of operation 10 systems have been placed in country.
Well this transition will reduce our short term topline capital sales. It will ultimately provide long term higher revenue and margins.
We strongly believe in the long term growth of all of our markets, but are seeing short term disruptions in these markets caused by the spread of the buyers.
Finally to our third pillar of growth.
Acquisition strategy.
We continue to focus on accretive acquisitions, which will be which will benefit from our platform shred offers unique opportunities to add complementary businesses.
We have deep capabilities, including an in house call Center, we have a multifaceted salesforce and an amazing insurance reimbursement support team.
All of these together create what we believed to be an attractive opportunity for potential partners.
In support of our growth.
Pillars, we continue to invest in DTC advertising, which was 1.9, which which was $1.9 million in 2019 compared to $1.2 million. In 2018. This does not include an additional $800000 inpatient copay support compared to $600000 into.
2018.
As we look forward, we anticipate continued continuing supporting our growth by increasing the DTC spend when practical and planned on expanding our domestic market sales team at the appropriate time.
We're also continuing to improve on our products.
This year, we took significant technological steps forward in dispensing the XTRAC system and its components from all of our competitors in every market.
For example, we recently announced the receipt of the five 10-K clearance for the momentum platform. This is our third platform five stinky issued by the FDA for the XTRAC device.
By comparison, our only domestic competitor is on the market with a device that received its five 10-K in 2006 and is predicated on the XTRAC AOL 7000 platform, which was cleared in 2004.
Because of our advanced system XTRAC is that the cold you have choice in hundreds of peer reviewed clinical studies published over the past 20 years domestically. There is no clinical study published using any other competing excimer laser for dermatology purposes.
In summary, we are grateful to see our strategy coming to fruition.
Well, we know the world is uncertain at the moment, we know our strategy can improve revenue and recurring revenue growth and improved margins. We will look for every opportunity to launch a new technology launch new technology mix and expand all markets. We're fortunate to have a solid balance sheet.
To carry us through this time.
When we have analyzed our domestic regions recurring revenue performance at the end of February 2020, we have seen year over year growth on year to date sales trending at double digit growth.
The changes through March and the time, it will take regions to recover will be difficult to predict.
We see our first quarter recurring revenue growth with final revenue ranging from 5.7 million to 5.9 million.
And overall sales in the range of 6.4 million to 7.1 million, including several non U.S. orders that might be delayed into the second quarter.
I would like now to turn the call over to match Hill for a review of our fourth quarter and 2019 financial results met.
Thank you Dylan.
First I would like to say, we hope everyone is staying safe and healthy.
And now looking at the numbers.
While in 2019 presented its challenges those challenges did not impact the focus of the operations and salespeople executing the business plan its strategy, which is reflected in our 2019 numbers.
With respect to the fourth quarter 2019 revenues for the fourth quarter of 2019 were 8.9 million up 11.2% as compared to revenues of 8 million for the fourth quarter of 2018 recurring revenues for the fourth quarter of 20 that team were 6.6 million up 12% as compared to 5.9 million for the for fourth quarter.
2018.
Quipping revenues for the fourth quarter of 2019 were 2.3 million up 9% as compared to 2.1 million for the fourth quarter 2018.
The increase in recurring revenue was the direct result of an increase in direct to consumer advertising spend providing increased patient flow to our partner clinics and an increase in the worldwide installed base of 84 placements in 2019.
Gross profit for the fourth quarter of 2019 was $6.1 million or 68.8% of revenues as compared to 5.3 million or 65.7% of revenues for the fourth quarter 2018.
Gross profit for recurring revenues for the fourth quarter of 2019 was $5 million or 76.5% of revenues as compared to 4.2 million or 71.4% of revenues. This increase in the gross profit is the result of lower depreciation on placement and increases in utilization would drive incremental mark.
On the largely fixed costs of the installed base.
Selling and marketing costs for the fourth quarter of 2019 were $3.1 million an increase of.
Point 2 million as compared to $2.9 million for the fourth quarter of 2018, as a result of higher head count and direct to consumer advertising.
General and administrative cost for the fourth quarter of 2019 or $2.9 million, an increase of point 7 million as compared to $2.2 million for the fourth quarter of 2018 as a higher result, as a result of higher legal and accounting costs, which were the final costs associated with our previously disclosed delinquent filings and.
Stock compensation expense.
Research and development costs for the fourth quarter 2019 and 2018.
Point $2 million in each period.
Other expense for the fourth quarter of 2019.
Was.
Half a million dollars as compared to the other income.
Point $1 million for the fourth quarter of 2018, primarily as a result of loss on extinguishment of debt in the fourth quarter of 2019.
And licensing income in the fourth quarter of 2018.
Net loss for the fourth quarter of 29 team was half a million dollars or two cents per basic and diluted common share as compared to net income for the fourth quarter of 2000 $18.3 million or one cents per diluted common share.
I will also briefly discuss the full year 2019.
Revenues for 2019 were $31.6 million up 11% as compared to revenues of $29.9 million for 2018.
Recurring revenues for 2019 were $23.7 million up 12.6% as compared to $21.1 million for 2018.
Equipment revenues for 2019 were $7.9 million as compared to $8.8 million for 2018.
Gross profit for 2019 was $20.3 million or 64.2%.
Of revenues as compared to $17.1 million.
Were 57.3% of revenues in 2018.
Gross profit for recurring revenues for 2019 was $16.7 million or 70.3% of revenues.
As compared to $13.7 million or 65%.
Revenues.
Selling and marketing cost for 2019 were $12 million, an increase of $1.4 million as compared to the 10.6 million for 2018 general administrative cost for 2019 were $10.3 million, an increase of 1.5 million as compared to 8.8 million for 2018.
Research and development costs for 2019 were $1 million, a decrease a point 1 million as compared to 1.1 million for 2018.
Net loss for 2019 was $3.8 million or 11 cents per basic and diluted common share.
As compared to $4 million 4.15 per se or 15 cents per diluted common share.
Cash and cash equivalents and restricted cash was $15.6 million compared to $16.5 million as of December 31, 2018 in 2019, we incurred approximately $2 million relieved to our previously disclosed liquid filings.
And paid out $700000 in the.
In associated with the debt refinancing.
Accounts receivable increased to $4.4 million at December 31, 2019, as compared to $3.4 million at the end of 2018 in December 2019, we had $1.1 million more billings than in 2018 in the same up in 2018 and in Q4, we had 45 more placements then.
Then in 2018, we provide extended terms to these partner clicks in order to assist them getting their XTRAC business up and running dsos when adjusting for placements is similar to 2018.
We are pleased at year end, we were able to refinance our high interest debt with a lower interest commercial bank and are evaluating other financial instruments to further enhance our cash position.
EBITDA for the year ended December 31, 2018 was $3 million compared to $3.7 million for 2018.
2019 includes previously discussed $2 million for the delinquent filings.
At December 31, 2019, we had 32.932 million 773 shares outstanding.
And.
Now have 33 million 714362.
Million shares outstanding as of today with the final conversion of the series C preferred stock into common stock.
I would like to conclude was saying that we're pleased with the company's performance in 2019, we're setting plans in place to handle the impact of the current of buyers and our facilities in Horsham, PA and Carlsbad, California, as well as for our sales and service team and keeping our employees safe.
This time, we cannot predict the impact will have on the business as a company and a community we will whether through this and after that we look forward to a strong 2020.
Now I'd like to turn the call back to deliver thank you, Matt operator lets open the call Fourq Una.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one of your telephone keypad a confirmation Tom will indicate your line is in the question can you press start to if we'd like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keith.
Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Hi, Delevering back can you hear me okay.
Yes, Jeff Good morning, how are you good morning.
So Forfar, just real briefly I want to roll through so.
Margins for the quarter were very strong for Q4.
How should we think about going forward I think we were previously thinking going toward the 62 and change range for 2000 each one.
And it looks like Q4 was are close to 69% so.
We expect some pull through on those margins or pull through from the 64.2, averaging 29 gene into this year.
Jeff Great question, and I will I will start by saying our answers are going to be.
Cautious because of the because of where we are with the with the covered 19 situation.
Margins are strong because recurring revenue went up as recurring revenue goes up.
Margins, we would go up as I said in my prepared remarks, we see Q1 trending up in recurring revenue on track to be on the range of double digit growth.
[music].
The numbers are based on where we stood.
A couple of days ago. When we prepared these remarks that is the end of February and half of March as we know things are happening across the country and clinics are shutting down now.
The impact of that.
Once we are beyond that would would mean to that clinics will get back on line and their decision to get back on line is going to be guided by governments not by us, but once they are back online their patients are already beyond.
Beyond the reestablishing their benefits. So we're beyond Q1, and we we hope that this would as.
Traditionally is in Q2 mean, a bounce in revenue as compared to Q1 and because of our larger installed base and the DTC feed through.
A bounce compared to Q2 2019, having said that we don't know when this is going to happen. We don't know if it's going to take a week or three months.
And at that point in time will be better equipped to talk about margins.
The the margins that we see in Q4 are an indication of the revenue per device.
And the number of devices out there as compared to the overall.
<unk> expenses in the company the the expenses.
The breakeven expense for the devices did not change it actually is trained trending down so.
You might assume your assumptions in return in regards to the.
Gross margin, but we do see the trend of gross margin strengthening across stuff as we look forward as something that is built into our models.
Okay got it.
Can you talk about you spoke about a little bit some percentages as far as a.
Outside of your.
Your core segment.
For psoriasis, your non cirrhosis patients and the percentage of sorry, but that business is on all four on fits Lago or there's some other indications that.
You've heard physicians are using the lives are for.
Yes, just one minute will pull the numbers out, but the DS specific distribution of of of patients outside of psoriasis are given in our investor deck.
And.
I'm pulling the deck right now, but our our numbers on.
While our numbers on.
The overall percentage of psoriasis patients.
Went slightly down because we increased other indications.
The overall split now is about is about 60 40, we're about 60% of the patients are so why is 40% our non psoriasis.
And that is reflected in our in our Dick.
I'll pull up the numbers what address the next question will holdings and specific okay, and I'm not when will we see the K and could you also.
Talk a little.
About the give us the domestic number and the international numbers for Q4 gross I think we're estimating around 85 in 15.
And on that for us.
Sure. So it is our.
Intention on filing the.
10-K today.
And with respect to so what changes you're going to see in the international numbers in Q4.
We will be the fact that are the agreement we signed with.
Korea.
He is now where you're going to start seeing the growth of.
You'll start seeing the growth of.
Our recurring revenue coming out of international now.
So we've got and then in the K you also see our projected.
Amount of revenue that we're going to be seeing from out of that country as well and that's going to grow overtime as we make more placements into Korea.
So yes, we're looking about that 80 515.
As we expand in Korea, depending on how this cobot 19 works in Korea is as things start to level off we're hopeful that we'll see.
I see growth in that recurring revenue high margin area.
Just going back to your your previous question on page 10 of the Investor presentation, we have the new patient acquisition by indication.
And in 2019, we've.
Weve added 21989, new patients, which.
61%. This alliance is 28% has been legal and 11% is is other and other includes mostly a topic dermatitis and and some other minor things.
Okay got it just couple of more could you talk about the momentum platform and our what that entails was on a separate which had an additional five 10-K and what's different on that as far as power variability.
Frequency.
And change as far as.
Hand piece and or.
So the generator.
Absolutely. Thank you great question.
The momentum platform is the third platform.
Clearance of we have.
The first one was early in 2000 for the second one was in 2011 and that was the the velocity platform and which is.
Now most of the systems out there and the third one is the momentum a precursor to the momentum was the S. Three that we launched.
A year ago.
In order to test some of these new technologies.
The the full platform clearance with the FDA is about three pages long of different features I will focus on on a few of them that are relevant for us and why there. They are important for us the system allows for.
Higher power and faster treatment, then as compared to the previous systems and that is.
Very important for four clinics, mostly outside of the U.S., where the throughput or than the number of patients being treated today is very large just in comparison, our average clinic into us tweets about 450.
Procedures, a year, where the average clinic in.
China treats anywhere between 804 at public hospital.
Patients a month or.
Two 2004, a private clinic.
Per month, so we're talking about.
A factor of 10 or so in the number of patients are treating.
And in South Korea lies somewhere in between the us in China. So we need we need much faster systems. That's one big change the second big change is the.
Is the user interface, we started the incorporating this into the three.
And we needed.
The.
Get the the.
FDA clearance on the integration of that have that user interface, where the user interface.
Allows doctors to maintain patient information on treatment that is zone based versus versus dose based so traditionally we were counting how much the patient was treated but we were not maintaining where the patients were treated and as we expanded the usage and X.
And the size of the lesions and expand the usage across patients both domestically and outside of the U.S., we need the ability to maintain that information and and in the future be able to communicate with with more systems. The third large change that is incorporated in that system is what we call.
As sealed system.
We we incorporated.
A new technology that allows us to use much less gaz.
I guess consumption in the field system.
Platform is approximately 80% less than what the old system uses.
In in.
In the if we look at this through numbers are domestic.
The gas consumption per year is about $1 million. So if we could.
Change all of the systems overnight and if that didn't cost us anything we would save 800000, all as the year just on gas consumption.
We're not planning on doing this we are changing them as they get refurbished and being shipped out for the market.
However, we are and we have been shipping every single unit, we ship outside of the US we'd the seal system for the last.
Since July of 2019 for the less.
Eight months or nine months, because we are responsible for the gas consumption on these systems as we are in the west and the cost of the Gaz outside of the U.S. is more than double what it is in the U.S. So as we move along this is going to save us.
A lot of a lot of money. In addition to that Theres as I said about three pages of different features that that were approved into system and as I pointed out in my prepared remarks.
We we are distancing ourselves from the competition, we have only one competing.
Technology or company in the in the domestic us market, we have competing companies in other markets.
They are all basing and predicating their devices on.
Two generations ago, the domestic us markets system is is predicated than it has its clearance in 2006 and is predicated on our 2004 510, k. so by by creating that distance, we when we come to our physician partners. We say not only you get all of these support service.
Susan we we help you get the patients, but you also get the best technological.
Platform out there and and we carry the cost for that and I think in a time like this when Colby 19 happened.
Theres going to be more people listening knowing that the other option is that they pay for this.
So I think it answered your question.
Okay and one more for me if I may.
You heard a lot of just recently around.
Orthopedics and cardiology.
I agree to return more with most recent operating rooms, having been re dedicated to the management of emergencies, all non urging procedures Rabo block.
Are being held off so probably are down 80%.
Plus.
Those markets are you seeing.
Downshift.
Most recently or are you seeing a a kind of a full stop or full deceleration as far as.
The domestic business any commentary there that does it from me. Thank you.
It's a it's a great question because I could give you a different answer everyday of the last week.
As of as though last Friday.
We have seen no acceleration.
In our markets and I, we gave you the the the numbers as we see them to the end of Q1.
And that is mostly driven by the fact that we we defer out most of.
Most of the revenue in March so it's easier for us to give a and outlook to what how Q1 is going to look like.
We do see in the last two days or three days over the weekend and Monday and today, we see.
We see changes mostly in places where the states are declaring non essential businesses to be shut down.
It started happening in California.
At the end of last week.
As of yesterday, San Francisco is on on locked down.
On the other hand in southern California business is still close to usual.
It happened in the northeast on Monday Weird, that's why states as declared non essential business closures up until Monday, we had business as usual.
And then in some parts of the country. They don't even know covert 19 exists.
Yes, and that will probably change over the next few days.
The the offices are communicating both with their patients as well as with us.
We get some of that communication.
And and I think it's a it's an evolving event.
These are elective procedures and people would choose to stay home mistake, if they had the choice.
The other hand.
And more interestingly as I pointed this out in my in my comments.
We see more and more of the.
Physicians and and and relevant coelce pointing out that.
Biologics and systemic drugs immunosuppressant.
Treatments might or should be considered by the individual patient and the individual doctor.
As is our these fit now or are these fit at all in in light of viral diseases that would.
We will impact the patients.
We can't measure the impact of that right now because because we're looking at the downtrend in the clinics, but I believe this was going to have a long term effect as as the market and the approach towards Immunosuppressant.
Treatment is going to is going to evolve.
Perfect. That's those are for me thanks for taking the questions.
Thank you Jay Thank you.
Thank you. Our next question comes from line of Joe Pantginis with H.C. Wainwright. Please proceed with your question.
Hey, guys good morning.
Kudos for everything that you've been putting in place that are now seeing real effect in 2019 for the business.
Obviously my first question is still a little bit of a follow on and obviously there are a lot of unknowns.
As as these cities in areas start to open up again.
Anticipate or are you concerned about any impact about elective type of procedures and seeing a bit of a lag there and then more my more concrete question.
Can you provide any more detail with regard to the cost containment strategies that you are looking to implement thanks.
Good morning, Joe I'll answer the first part met is going to answer the second part.
As as these areas will open we're going to be faced with patients that are frustrated and have their conditions.
Either existing conditions or relapse or.
Recurrence of their conditions and they want treatment.
And and we would also be faced with.
With physicians that have.
Limited or shut down their clinics for a period of time and I hope that period of time is gonna be short and I believe that what's going to happen is that the patients existing patients in treatment, they're gonna be immediately rescheduled back into treatment and that's been theres going to be a bounce back there.
Doctors are going to be backed up with new patients and.
All the new patients that were scheduled for the time to clinic is close would have to be pushed into the future. There's a secondary impact there.
And.
And.
Because that because the clinics are equipped with the technology and our our staff is in the field.
I believe that as soon as we can reopen the we're gonna be business as usual and probably faster than business as usual. We just don't know when this is going to happen.
They do there's a big difference between what we do in recurring revenue and what traditional medical device companies in capital equipment do we don't need to go in hunt for the new acquisition, we need to.
Make sure that win.
They are there to open their office and they turn on the device. We are there if they need to make sure that the voice works and we need to make sure that when they are there to open up their office and they have patients that need to verify benefits. Our insurance team is back in the office and we need to make sure that when patients are calling in.
There is somebody answering them on our.
Our call Center.
And we're taking care of all of these as we transition into the event and we're making sure that.
That's as we transition out of the event, we will be able to turn them back on as soon as they turned back on I believe that because of the nature of our business domestically are.
Time to wake up in these regions is gonna be much faster than a traditional capital equipment.
Business. However, we're still waiting to see when when we.
When governments are going to open up these markets too for business and met there's going to talk about cost containment and what do we do now in terms of making sure our our team stays.
Healthy unsafe and and so and we we maintain as much as we can the capacity we have to be able to turn this back on as soon as the markets come back.
Thank you still left.
So Joe the way, we look at as we burned about $900000 and cash in 2019. This that included nearly $2 million in cash paid out for the legal and accounting.
Associated with our delinquent filings, an additional $700000 associated with.
The pay off of the high interest debt.
Right now we are implementing.
Cost containment strategies to manage our cash.
We have built up inventory over the last couple of months. So we're protected and we'll start to reduce.
Inventory spend now that we've we've got a stock of finished goods.
We are reducing their discretionary spend such as in the areas of advertising and marketing.
And then in the individual territories Dolev said as as certain areas are not being impacted in at this point having her.
It seems like they haven't heard of cobot 19.
It will be business as usual for us it will drive that business, there and we'll manage and protect our employees in those areas that have been shut down, but we'll have everybody on the bench ready to go as soon as.
As soon as this this passes in those areas from perspective of protecting our employees. We are the back office and my team.
Has been set up so that they can there are either already working at home or.
We are prepared and tested for them to work at home between phone systems and telecommunications.
We are prepared to do that we're working with calls about as well for our call Center people to do the same thing and we've tested that we can get those we can take those calls.
So.
We want everybody to be safe.
These are unprecedented times.
But it's clear that we can you everyone will the community and the company will manage through this.
And Joe just to add on this.
Just to add on on this.
Our average lead time for putting a patient into an appointment as of last month was four weeks. So bye bye.
By shutting down.
Advertisements span.
What we're doing is we're creating a window in which we're still dealing with the lead to.
Database, we have but we're not creating new leads.
And we are scheduling them, if the offices will take them and were rescheduling them, if the offices would not take them.
As time.
Progresses, and we see how long this event is going to be in different markets. We will act.
Accordingly to help them to reschedule enough not lose that assets, which is an asset for us. It's an asset the patients which is an asset for us it's an asset for the partner clinics and it's an asset for the patients themselves.
Of course, no. Thank you all for the additional details guys and good luck. Thanks a lot.
Thank you.
Thank you. Our next question comes from line, especially at with Oppenheimer. Please proceed with your question.
Good morning, Dolev Condoning, Matt.
Good morning, So it's still a bunch of questions have already been asked and let me see if I can thread the needle on some others.
Can you help us to reconcile dealt 10% to 12% increase and recurring reps in Q4, and a 0.7% increase in revenue per system.
Given the pre Corona virus.
Timeframe.
For for the for these numbers, maybe you can just kind of walk us through the puts and takes and.
Help US guide how do we should think for the quarter smelting ahead.
Yeah. The the average revenue for the four devices calculated as the revenue per device.
Oh, sorry, returning revenue divided by the number of devices at the end of the quarter at the end of Q4 2018, we had.
746 devices.
At the end of Q4 2019, we had 820 devices domestically, we had 10 devices.
Outside of the U.S., that's 830, the recurring revenue as it is it as reported in our financials includes the revenue for both.
The domestic market and then on the the owe us market.
The the way that the recurring revenue is accounted for is that we take credit for the revenue.
And I'm going to literally speak accounting now we take we take credit for the revenue.
Based on leasing leasing accounting, which means that we spread the revenue over the term of the.
Accounting lease as it is defined by the usage agreements between the company in the.
And the user or some of these agreements have a 30 day out in some of these agreements have 60 days out. So some of them are spread over 30 days, which means that we count the first and second month of the quarter and the when we spread the less month of the quarter over 30 days and some of them are we count the first month in the quarter and then we.
Spread the second third month into the future you will.
You will be able to see that through that the growth in deferred revenue as we as we.
Restated our accounting of 2017 18 in 2018.
Having said that when you add the when you have a large increase in installed base and an increase of.
On an apples to apples comparison Q4, two Q4, an increase of 74 over 746, which is 10%.
Then just in order to be at the same.
Revenue so if I wanted to be at the same revenue per device as in 2018 I had to add 74 times. The same revenue of 2018 on on a recurring base if all of that revenue.
Happen if all of these installations happened at the beginning of the year then it mathematically it's gonna look one way if all of these.
New placements happened at the end of the year is going to look in a different way specifically for Q4, we started Q4 with.
With 36 devices less domestically and five eight and sorry at eight devices less internationally. So we we started Q4 with 44 devices less so by if you take the revenue from these 44 devices.
Separate it out you will see that the everything else went up faster just in order to catch up with adding these devices.
Simply said.
If we if we counted the revenue in the begin if we use.
Systematically if we use the the installed base at the beginning of the quarter you will see of a much faster growth in revenue per device. If we count at the end of the quarter in in the time that we grow the installed base you will see a slower growth we are a consistent in the way we count so we counted at the.
End of the quarter every time the 820 at the end of Q4.
<unk> is is the net number of devices at the end of the quarter and that includes a.
Large number of devices that were installed in Q4, we announced this in a pre announcement back in January where there were 50 units installed in Q4 domestically and 14 removals.
Most of these 50 units as in everything in the quarter happened.
Towards the end of the quarter and their revenue pounds flows into or some of it flows into a into Q1.
I hope that gives you an answer that's that's the mathematics, it's as we grow the installed base the challenge of.
Catching up and then increasing is gonna be bigger.
Dolev.
I know you'll have given the 5.7 to 5.9 as recurring grabs for Q1 6.4 to 7.1 as total so we have some idea about Q1, I guess and I know you'll haven't given guidance per se for Q2, let me ask it comment it from a different angle for the geographies that you don't have said.
Currently at East domestically don't seem to be behaving the same way as others and cobot 19.
Per cent of your business do they represent.
Hi.
So it's a great question, but it's a question that is.
When I answered Jeff before is a question that it is changing daily and we cannot we're not going to give guidance today, that's going to change tomorrow. The the numbers that we saw at the end of February was that the most of our territories.
At the end of February grew by double digits.
Growth some did not.
That was not in effect of a of.
Oh, Cobiz 19, because there was no coping 19 in the country at that time.
But we were very confident that the end of February to say, a double digit growth for the quarter. The the range of 5.7 to 5.9 reflect where we stand as of as of the beginning of.
The end of last week based on the revenue we already have in the way, it's being deferred out into Q2 and the range between 5.75 0.9.
Reflects what we believe is still going to come in between now and the end of the quarter and the portions of that that are gonna be deferred out.
Based on the split of accounts that are 30 days and the split them accounts that are 60 days, we will not be able to provide more detailed.
Guidance for Q2 without knowing.
What regions are gonna be affected.
And for how long.
And so we know from a revenue perspective, we know what the deferral is.
Flowing into Q2, but we don't know when Q2 will start producing revenue domestically as recurring revenue and we don't know.
In the non U.S. markets when.
But the concerns they have about their markets in each market is different.
I would be alleviated and they might move forward we see.
We see China, waking up and and showing needs for things as of yesterday.
And we hope that this is a good sign for the future and and we still see concerns in South Korea, and we see concerns and in in Japan.
Fair enough gentlemen, be safe and thank you for taking my questions.
Thank you. Thank you.
Thank you, ladies and gentlemen, if he'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from line Shawn Boyd with next Mark Capital. Please proceed with your question.
Thanks for taking the question congratulations.
On the fourth quarter numbers show.
Thanks, Good morning.
We've had a bunch of thanks.
Touching a couple.
Growth in place.
In the back half of last year.
Hi.
66 systems that basis.
This properly.
The two quarters.
And that's versus single digits for quarter previously.
It's great.
Yeah.
We should be thinking about growth part of that.
Now I kind of a new level of growth.
The situation, we're all talking about dealing with.
Assuming we get through <unk>.
I'll start to come back to work and recover.
Help us on how we should think about your placements.
Domestic and international.
So, but by putting Cobiz 19 aside.
Coping 19 was not was not the subject. This discussion you would you would've seen 2020.
Growth in placements that would that would use 2019 as a baseline and would grow from that.
We have as you've pointed out 2018, we had no growth in installed base and we were replacing.
Nonperforming or underperforming accounts with performing accounts and in 2019, we started a growing the installed base and.
At the same time growing the.
Average utilization per account and by that growing the gross margin. We do see deep we do see this process accelerating mostly from these two sources of come back and a large clinic groups. The large clinic groups have.
Hum around and we're in discussions with.
There are multiple different groups each one of them multiple clinics.
[music].
It's it's going to be a much easier decision for them now having gone after covert 19 through a.
[noise] supply shock in a demand chalk where now our proposition of we take the risk together with you and then we grow together is gonna be easier for them as.
As you have seen in Q4 out of the.
Out of the.
36 net placements.
That we placed in ER and do include Q4, 50 total placements 14 removals.
A very large portion of these came from the large group clinics.
Because they realize that it's it's in there advantage to work with us and I I believe that this is going to be up and meet you've been stronger trend into the future because decision to make a large capital equipment investment and then.
Try to build your own business.
In comparison to.
Getting the capital equipment, and then getting all of the support to helping to build a business is gonna be a much easier decision our decision to expand on the other hand is gonna be based on our resource availability how much cash we have when we deploy a new clinic there is cashing.
Pulled in deploying the clinic, there's cash involved in in.
In giving them some advertisement there's cash involved in any increasing the the sales team pro rata to their number of clinics.
And we will need to make a decision how fast we want to grow we are comfortable with growing at a gross number of of 50 per quarter as we grew in in Q4 and a.
Net number of 30 35, as we grew in Q4, I don't know how fast or how soon we can get back to that growth rate in light of what we see outside but I've already put the warning signs in regards to covert 19.
Putting the Cobiz 19, aside I believe we believed that there is a sufficient market to grow this fast and there's a patient population to drive to these clinics.
I appreciate that.
Just one more for me.
The equipment sales.
Surprisingly upside a little bit in the fourth quarter great to see.
We all care with recurring revenues more of it.
We'll take that too.
Gross margin.
Sean I'm guessing.
We're now guiding.
Q1 numbers, which just to be clear.
Range.
The potential for push outs on equipment side.
Help me should we go back about a 40% gross margin or something more like the 45% <unk> full year.
Sure.
Matt is going to answer the second half of your question, but the range relates to.
The difference between what we having handing purchase orders and what we have shipped and I'm, referring to the non recurring revenue so I've already explained.
How we got how we have guided Q1 in read in relation to the recurring revenue. We know what has happened up until yesterday and we we make an assumption on what will happen between now and the end of March.
Most of it is gonna be deferred out. So there was a very small range between 5.75 0.9 on the on the nonrecurring revenue we know what has happened until yesterday.
That is we have received the purchase order we have built the the of the product and we have shipped them out.
What we don't know is what will happen between now and the end of the quarter in relation to other demand. We have purchase orders, we have whether we are able to ship them out and in some cases, we literally cannot ship because of China.
In some cases, we cannot ship because we're being told don't ship don't ship. It it's crises time, South Korea and Japan.
And whether this is going to change in in the next in two weeks until the end of the quarter and that's that's the reason for the range. So what decent these numbers are backed by.
Yeah orders that are there that might or might not ship out. The ranges is backed by orders that are there that might or might not ship out this quarter and the demand is there in the market and it might be shifted towards the time that they can take it.
I also need to two.
To point out to the fact that we're still operationally in in our two facilities in California in Pennsylvania as of today Tuesday at 930 am.
I don't know whether the governor of Pennsylvania is going to issue a a a declaration of closure and we do know as of last night that the San Diego County.
[music].
And now its recommendation of closure of non essential businesses, but they're not they're not.
Mandating it yet so we're still operating in in the in the Grey zone, where.
Both facilities are open, but I assume as time moves on this is going to change.
[noise] and Sean the way, we look at the way we look at our margins in capital, which you know is is you know we're more focused on the recurring revenue because of the higher margins and we really we had record margins in that and that business segment in Q4. So we're very.
I'm pleased with what what we've done in that area with respect to the capital.
You know domestically, there's domestically internationally both domestically.
We focus on two areas one is a strategic sales, which are going to be lower margin versus versus hospital sales, which will be higher hospitals don't espouse the recurring revenue model, but.
It's beneficial for us to have our units in those locations because a prestigious odd internationally, our capital margins will be impacted by product mix as well as.
As well as a region mix.
So we anticipate from that perspective going forward.
It's really tough to see with coping 19 on how regionally, it's going to be our margins are going to be impacted.
But we should be falling in that 40% to 45% range is the way I see it.
[noise], depending on the impact.
And sales if if we have to shut down the plant Oh, we put start producing less the inventory there maybe additional costs would flow through.
And the Cogs as part of that.
Okay. Thanks, so much and best of luck.
Thank you very much and you.
Thank you, ladies and gentlemen at this time I'll turn the floor back to management for any final comments.
Thank you all four coming to our Q4 2019 and the annual.
Coal.
And.
And we look forward to seeing you in our next update call. Thank you.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.