Q3 2020 STRATA Skin Sciences Inc Earnings Call
We thank you for your patience and we ask that you. Please remain on the line.
[music].
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Greetings and welcome to the strata skin Sciences third quarter 2020 earnings conference call. During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone.
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As a reminder, this conference is being recorded Tuesday November 10 2020.
I would now like turn the conference over to Lee Sabal Investor Relations. Please go ahead.
Thank you and good morning, everyone.
Earlier today, so I didn't really financial results for the quarter ended September 30 2020.
Copy of the tough choices available on a base on site.
Before we begin I would like to remind everyone that comments in various remarks about future expectations plans and prospects constitute forward looking statements.
Which is at the Safe Harbor provision under the private Securities Litigation Reform Act of 1995.
Let's include but are not limited to our plans objectives expectations and intentions.
Other statements that contain words, such as expects contemplates anticipates plans intends believes assumes predicts and variations of such words or similar expressions that predict or indicate further events or trends such as that relate to the dark matter.
These statements are based on our current beliefs or expectations and are inherently subject to significant known and unknown uncertainties and changes in circumstances, many of which are beyond our control there can be no assurances that our beliefs or expectations will be achieved.
Actual results may differ materially from our beliefs or expectations due to financial economic business competitive market regulatory or other political factors or global pandemic events.
Such as the current COVID-19 pandemic give.
Given the uncertainties affecting companies in the medical device industry or any or all of the company's forward looking statements may prove to be incorrect. Therefore, you should not rely on any such factors supporting statements.
In addition, more specific risks and uncertainties facing the company are set forth in the company's reports on form 10-K, and 10-Q filed with the assay sales.
Try to encourage you to carefully review and consider the disclosure soundness.
And its SEC filings, which are available at that that does everything you've.
Got it got it and on the company's website.
As a reminder, this conference call is being recorded and will be available for audio rebroadcast on stride its web site.
Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast November 10th 2020.
That undertakes no obligation to revise or update any statements to reflect events or circumstances. After the date of this conference call.
Leading the call today will be Dr., Dolev, Rafaeli, president and CEO, joining him will be that hill CFO with that I would now like to turn the call over to Douglas.
Thank you Lisa and good morning, everyone and welcome to our third quarter earnings call.
We hope your your remaining safe and healthy.
First lets acknowledge that these past quarters.
Dealing with COVID-19 have been challenging for everyone and I. Appreciate your continued support and interest in stride.
Today, I will start with an overview of our third quarter financial results, followed by an update on the execution of our strategic.
Parties to drive recurring revenue and on the progress we have made on these initiatives.
Following my remarks, I'll turn the call over to Matt to cover our financial results in more detail well.
Well then open the call for your questions.
Overall the.
The positive recovery trends, we began to see as we exited Q2 persisted throughout Q3 and an increase in an increasing number of clinics began accepting patients and using their treatment inventory.
Total revenue for the third quarter was 5.6 million and importantly, we delivered 37% sequential growth.
In recurring revenue.
One of our key metrics driven by our teams resilient efforts.
We were also successful in activating 254 accounts that were previously inactive in the second quarter due to cool.
Internationally.
We experienced similar reopening trends in our leading non U.S. markets of China, Japan, South Korea, and the middle East into.
International revenue was up 33% overall.
Third of which was attributed to recurring revenues, reflecting the impact of our strategy to convert business where relevant to our unique recurring revenue model.
As a reminder, in the third quarter of 2019, we transition South Korea to recurring revenue and just recently, we announced a recurring distribution model in Japan.
While we anticipate trading off short term capital sales, we expect to reap the benefits of higher margins continuing to your revenue and cash flow over the long term.
We expect to see the initial games based on the Japanese agreement and this transition beginning in the fourth quarter.
Our continued attention to try to operation operational control resulted in higher cash flow from operations that allowed us to invest in the relaunch of increasing number of individual partner clinics as they were ready to reopen.
We ended the third quarter with an installed base of 837 recurring revenue extract devices.
<unk> 813 in the U.S. and 24 international placements.
Up from 789 in 17 in the second quarter, reflecting a strong return to the momentum we had pre Corbett expanding store base.
The gross domestic expansion.
Was driven by an acceleration in the comebacks, which as a reminder, our comp competitive wins of current owners of.
Competing excimer lasers.
Addition.
With the acceleration of placements with private equity backed <unk> dermatology clinic groups. We are on track to surpass 860 devices by the end of 2020.
Putting us within reach of our goal of an installed base of 1000 devices by the end of 2021.
To highlight the value of achieving.
Oh.
The volume achieved in bringing back these accounts I'd like to give a recent example of the three clinic come back in the southeast.
As a partner clinic from 2015, we were successful in helping them generates approximately 2400 procedures that resulted in annual revenue of over $400000 for the clinic and $134000 for strata during 2000.
16 alone.
2017, the account purchased excimer devices from a competing company, eliminating the advertising and patient contact components provided by strategy.
By the end of 2018 their business was reduced by over 50% due to loss of patients.
In 2019, they returned as strata customer, becoming a comeback accounts.
The result was double digit growth in their excimer business and over $80000 of recurring annual revenue to strata by year end of 2019 people.
Importantly.
This improvement in both our recurring revenue coupled with a return to positive placement cadence highlights a direct correlation between the recovery in a pent up patient demand for our procedures.
Moreover.
Alongside these positive trends, we wanted to provide you with another financial measure that we track to monitor our domestic recurring business, namely our gross domestic recurring billings a non-GAAP metric.
Our gross domestic recurring billing expanded by a 155%, bringing the overall third quarter actual.
To 74% of the same measure in the third quarter of 2019.
From 30% in the second quarter.
However, we saw a continuation of this improvement trend.
Our gross domestic building up to 97% of October 2019.
More specifically, we saw one of our four regions the southeast in excess of a 100% and two other regions the northeast and Midwest in excess of 90% of October 2019 gross billings.
With the West region not far behind.
With the west and the northeast having had longer and deeper pandemic impacts we are very satisfied in the progress made there and anticipate as those reagents become fully open they will be well on their way to exceeding 2019 levels.
Based on the dynamic of these measure measures as we look ahead, we see a path to a normalized 2019 activity rates.
At the same time, we continue to face uncertainty with COVID-19 cases spiking in hot spots and regional unpredictability.
Through this period, we remain cautiously optimistic about the near term and continue to actively monitor the situation.
Turning next to our other growth objective I'll start with direct to consumer advertising or DTC.
After shifting our efforts in March to preserve cash in the height of the fundamentals we resumed DTC advertising in mid August and expect to continue to ramp up our investments in this initiative to support our partner clinics and increase the number of engage patients.
During the fourth quarter.
Which is traditionally the highest quarter of the year.
Preceding the reset of insurance benefits and deductibles at.
At year end.
We plan to return to 2019 quarterly DTC advertising levels by the first quarter of 2021.
Shifting to our patients outreach program.
The reopening of inactive accounts was driven by a combination of patient confidence in returning to elect to electric cheap to elective care and in large part aided by the impact of our patient outreach program.
As a reminder.
As states were starting to exit Lockdowns.
We leveraged our in house full center and rallied together to contact thousands of patients on behalf of over 300 partner clinics. As this effort continues into the fourth quarter. We believe that we will be able to cover the majority of partner clinics that are interest.
Got it and you know our outreach.
Transitions are transitioning to clinical achievements and accomplishments on the reimbursement front.
In October we announced the Cigna issued a new medical coverage policy for excimer laser therapy for previously uncovered did like.
For those of you or not familiar the legato is a medical condition that causes the loss of pigmentation into skin that results in white patches affecting 1% to 2% of the U.S. population with darker skin skinned patients affected more severely.
We are pleased to see that XTRAC treatments for good long ago was accepted as medically necessary by Cigna.
We have started patient outreach for those seeking a covered patients afflicted with this condition as well as reaching out to form dermatologists well this change.
The fruit this further expands our available markets.
A single patient can be worth up.
Can be worth as much as $38000 to the physician over 52 weeks of treatment.
In November we announced the publication of peer reviewed health economic study entitled.
Therapies for psoriasis clinical and economic comparison.
In the November 2020 issue of the journal of drugs in dermatology.
Our extra excimer laser and are often optimal therapeutic dose treatment protocol, you look utilizing the multi micro dose or M. D. Diagnostic chip were found to deliver the fastest results with the fewest adverse adverse events at the most.
Economical cost of all treatments analyzed including topical traditional UBI biologic and systemic therapies.
In addition patients treated with our extra excimer laser and extract with MD had fewer actual treatment days compared to all other.
Modalities.
It was also the only therapy, where patients achieved remission without a maintenance therapy.
We would like to think the team of renowned physicians that assisted in the study.
Turning to our strategic goals in mid 2018, we identified several key strategies that could lead to significant improvement in Stratasys business.
At that time, no one four saw the dramatic and widespread impact of the COVID-19 pandemic and while we necessarily made a number of adjustments to our operations and short term resources allocation earlier. This year, we have two newest continuously kept.
Hi on our longer term growth plan and not wavered from those initial goals.
As a recap we are focused on expanding our recurring revenue installed base domestically and internationally.
At the same time we.
We are driving the utilization of each of these devices through patient outreach DTC advertisement expended include indications and increasing insurance coverage. We believe these initiatives. We believe these initiatives will generate topline growth expand.
Margins and increased cash flow from operations.
Allowing us to achieve profitability and market expansion.
In closing we have turned the quarter supported by the strength of our core fundamentals and focus on our initiatives and look forward to delivering meaningful sustained growth over the long term I would like now to turn the call over to Matt Hill for a closer look.
At our third quarter financials, Matt.
Thank you Dylan Red.
Revenues for the third quarter of 2020 were $5.6 million, a 25% decrease as compared to revenues of $7.5 million for the third quarter of 2019 and up 39% from the second quarter of 2020 roughly.
Reflecting the general shutdowns and restart a partner clinics over the last two quarters due to the COVID-19 pandemic right.
Recurring for the revenues for the third quarter of 2020 or $3.8 million, 36% decrease as compared to $6 million for the third quarter of 2019.
Up 37%.
From the second quarter of 2020.
Equipment revenues for the third quarter of 2020 were $1.8 million.
An increase of 19%.
As compared to $1.5 million for the third quarter of 2019. The increase was the result of the two.
Timing of certain sales of units into Asia, and a better comparability between the quarters since our implementation of recurring revenue revenue model in Korea in the third quarter of 2019.
As we discussed last quarter and included in our press release issued this morning.
We provided information on a non-GAAP measurement described as gross domestic recurring billings, which represents the amounts invoiced to partner clinics, what treatment codes are sold to the physician.
It does not include normal GAAP adjustments were deferred revenue from prior quarters recorded as revenue in the current quarter. The deferral of revenue from the current quarter recorded as revenue in future quarters adjustments for co pay and other discounts. We felt this was an important disclosure in light of the COVID-19 pandemic to assist in understood.
During our business and to more effectively view the trends that we're seeing in our business.
We also wanted to profit provide transparency with respect to deferred revenue.
Since we defer a portion of our GAAP recurring revenue into future quarters a decrease.
In deferred revenue can impact each subsequent quarter.
Deferred revenue added to the second third and fourth quarters was $1.5 million $500000 and $1.4 million respectively, meaning.
Meaning our current are meeting our recurring revenue was reduced by nearly $900000 in Q3.
For recurring revenue in and out of each quarter of 2019 was approximately $2 million per quarter.
Gross domestic recurring billings for July August and September 1.4 million 1.6 million and $1.7 million, respectively. Our total gross domestic recurring billings for the third quarter.
Were $4.7 million.
As compared to $1.8 million in the second quarter, representing an increase of approximately 155%.
Overall gross profit for the third quarter of 2020 was $3.2 million or 57.5% of revenue as compared to $4.6 million or 61.8% of revenues for the third quarter of 2019 gross profit was up 8.8% from the second quarter of 2020.
Gross profit for recurring revenues for the third quarter of 2020 was $2.5 million or 64.3% of revenues as compared to $4 million or 67.2% of revenues in the third quarter of 2019.
Gross profit for the recurring revenues was up 13.1% for the second quarter of 2020.
The primary reason for the decrease in gross profit in the third quarter of 2020 as compared to the same period. In 2019 was a result of the lower recurring sales to the COVID-19 pandemic fixed costs and lower production.
Engineering and product development costs for the third quarter of 2020 were $411000 as compared to $249000 for the third quarter of 2019 as a result of Sir.
Engineering projects.
Selling and marketing costs for the third quarter of 2020 were $2.1 million as compared to $2.9 million for the second quarter for the third quarter of 2019, primarily due to the downturn in business as a result of the COVID-19 pandemic. The company manages costs lower trade show cost travel cost compensation costs.
And direct to consumer advertising costs.
We plan to steadily increase DTC spend and the sales count headcount in order to fuel the growth at our partner clinics and serve the growing install base respectively.
General and administrative costs for the second quarter of 2000 $21.9 million as compared to $2.2 million for the second quarter of 2019, as a result of lower audit legal and consulting costs in connection with a change of orders in 2019, partially offset by higher insurance and stock compensation costs.
Other expense for the third quarter of 2020 was $21000 compared to $153000 for the third quarter of 2019 as a result of lower interest expense due to the refinancing of our long term debt in December 2019, we will evaluate our cash secured note payable prior to year end.
Net loss for the third quarter, 2020 was $1.3 million or loss of four cents per basic and diluted common share as compared to the net loss for the third quarter of 2019 at $860000 or a loss of three cents per basic and diluted common share.
At September 32020, cash cash equivalents and restricted cash was $18.5 million and increased $3 million from December 31 2019.
We continue to conserve cash and are operating at a lower cost structure as we've eliminated many temporary workers reduced and reduced DTC advertising spend and other discretionary costs.
Again.
We will plan to steadily increase DTC spend in order to fuel the growth for our partner clinics.
We ended the quarter with $11.1 million in unrestricted cash the company generated positive cash flows from operations in the quarter at this point with the cash on hand, the trends of sales, we do not foresee any liquidity issues to support our business and growth in.
In summary, while we cannot predict when this pandemic and remain confident that we are prepared to manage through these uncertain times and now I would like to.
Turning the call back over to Doug.
Thank you, Matt operator lets open the call for Q and a.
Thank you if you'd like to register a question. Please press the one followed by the four on your telephone you will hear a threed tomo from chip knowledge here request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by the way.
One moment please for the first question.
And our first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Good morning, given that this is Doug.
Hi, This is actually destiny on for John today, I, just have three or four questions I'd like to Renteria first.
Firstly could you discuss the trends you're seeing.
And the dermatology space any insight into the current backlog if any and then could you perhaps talk a bit about scheduling trend.
In terms of both volume and patient interest in other words are are you calling care patients calling to schedule or is this.
Interest being generated by your patient outreach program.
Good morning, Destiny and thank you great question.
So let's talk about the above the the process prior to COVID-19 about two thirds of the patients that are in treatments were generated within the clinics and about one third of the patients came through our DTC efforts. So in 2019 as a whole or out.
Out of 23000, new patients in the.
In the in treatment about 6000 were generated by us and and the balance is about 16000 were generated by the clinics.
What we have seen over the past few months was with April marking the.
No point was a low point in the in pace.
Patient scheduling.
What do you call patient scheduling which is patients in.
Being considered for treatment in the in the clinics and the way we see this is we see the.
What we call the rdx.
Charts Rds is our own internal system that monitors the insurance requests we have discussed this in the previous earning call.
And we have seen that low point in April which has seen expire.
Expanded and is.
Making very good progress to getting back to normalized run rate and what I call normalized run rate is what we have seen in 2019 the whole year.
This is true.
On average however, when you look at the country, we operate in four regions and as we pointed out the southeast and the Midwest or the.
Where the fastest to rebound and to get out of this in in these areas we see.
What could be characterized as pent up demand I'll get back to this in a second because we were running it at numbers that are higher than 100% in two of 2019.
The northeast.
Was the northeast and the west where the the ones most affected and while the west rebounded earlier it it rebounded to kind of a steady level not not not not a V shape, but going up slowly and then.
Then stabilizing and the northeast.
Longer time to rebound.
Mostly because these are metro areas and and it takes time for patients.
Patients to be back their offices to open and staffing to to happen.
The the scheduling of patients happened because of a collection of three factors. One is the the patients want to be there and and they want to be treated and there was actually no region. We have seen the issue of patients wanting to be in the office.
And as I said, I promise to get back to pent up demand.
We cannot we cannot over treat towards the physicians cannot over treats its not a situation where a patient is being treated.
Twice because he wasn't there for two months.
The patient is being treated.
At the same protocol that they paid us patients are treated the same protocol the retreat. The before however, there are more patients being treated and the reason for that is by and large the the.
Driving more patients into.
[music].
Alternative tweak.
Treatments, we are being one of them away.
Away from from Immunosuppressant drugs, and we have discussed that in in previous earning calls so.
This is.
Most probably what is driving the pent up demand we see in some areas, where we reach numbers that are significantly higher than two.
2019, without having the the tailwind of our DTC.
Advertisement.
We believe that our DTC advertisement is going to introduce new patients ones that we're not aware of the solution ones that were not aware of of a solution that is not immune immune suppressant or one in the in the case of it like doing cigna ones that were not aware of the.
Of the insurance coverage for their specific condition.
The these patients need to be need to be welcomed by an open clinic that has providers and and is fully staffed for for treatment and I covered that in the in my prepared remarks.
We have seen during the second quarter, we have seen a large number of clinics that either did not open.
Or did open, but just with the physician services whether.
Partially in person and partially.
Virtual.
But they were understaffed and were not able to able to provide services as I as I described in my prepared remarks, we were.
Able to to reactivate.
Hundreds of clinics.
In which the the physician decide to not only to open his clinic, but also to staff. The procedures was able to bring the staff back and start the procedures and as I said in the beginning having the patients was was not an issue the patients or are there and we're there.
Outreach played a very important role in this real.
Reopening.
Because when clinics were reopened.
They reopened with an open slate they had the it was it was like a chicken and egg question for them because once they staff the procedure. They had no patients and us offering outreach and we have we have outreached to thousands of patients.
Provided the the announcement to the patient, which would something that the physicians to clinics were not staffed were not capable of doing and.
If you if you just run the numbers you are talking about dozens of patients per clinic that were reached out. So you take you take many many thousands divide this by the number of clinics over 300, we outreach too and you will see that we've we've reached out to dozens of patients on behalf of each clinic. These patients were paid should patients that were already.
In treatment or considered or have seen a physician and were.
ER, where were consulted have consulted with the physician and were prescribed prior to cope with hitting us. So these were all patients known to the clinic, we have already verified there.
Insurance benefits and they were sitting at home one thing to be treated and by us outreaching to them. We let them know the clinic is open doctors, who is able and ready to take you and this allows us to schedule. Many many appointments at a percentage that is much higher than our usual.
You see approach because in a DTC approach, we we discuss with where the patient that that hasn't heard about this before was not consulted with the physician and we still need to verify their benefits I hope I answered. Your three part question you know.
You did you actually answered my second question as well, so I'll jump down to the start and then I'll get back in queue, but I'm.
Im just circle back to your comments about the coverage by segment for the Lago and I'm wondering what impact you think that that could have maybe just at a higher level.
On revenue revenues in 2021 and beyond and then if you could kind of discuss the speaking recipes patients relative to psoriasis patients given that the number of treatments is typically higher.
Maybe just discuss that a bit thank you.
About.
Very good question again so.
So let me let me provide a short background the three CPT codes that we use.
Which were which were written by by CMS about 15 years ago.
Even though they provide if you if you read the code even though they provide.
The the coverage for treatment of of dermatological conditions that are caused by.
Bye.
The diseases that are.
Caused by the immune system or on the auto immune system.
These codes includes a comment that says.
In parenthesis psoriasis settlement of the insurance companies have in their guidelines looked at this and said we cover all auto immune disease conditions. Some insurance companies looks at this and said we provide coverage only to some.
Auto immune diseases in.
An example, psoriasis.
And some insurance companies are instructed the the physicians win win filing for reimbursement.
To use other CPT codes, which are more general dermatology procedures.
I can provide further details off line, but but the CPT numbers are not really important here whats important was that if you look at our investor deck.
Our success rate to obtain.
Insurance benefits for patients inbound on DTC was in excess of 96% for psoriasis patients.
And was only 76% for bid lag of patients.
And that was because of the complexity of the coverage by the different insurance companies now we deal in our in our reimbursement team.
Which is supporting our partner clinics, we view with over 600 pairs and each one of them has a different policy, so seemed a leading pay or move forward and adopt a very wide very inclusive.
Medical necessity of guideline that not only provides full coverage to rely go it to the to the extent that if a physician decided that the treatment is necessary four times a week 52 weeks a year that would be covered by the answer.
Once company at the full rate.
Oh, it was very important because as I pointed out in my prepared remarks. This this disease impact.
More.
People have darker skin and and they have seen they have seen that impact of of being.
Getting less.
Economic benefits from the insurance companies overtime and I do believe that is that as time moves on this very wide policy change by Cigna is going to be adopted by the by the other payers as well if it was not adopted until now.
The the Lego patients are more more the probability is much higher for them to stay in treatment because they see results that are not only short term in terms of getting that to remission and then a couple of months later they are back in with the disease state as it is with the wisest patients but it's.
It's oh.
It.
Through the treatment not only brings into remission, but also re pigments their scale their skin, which means that they have less social impact on their day to day life.
And that's very important for them and we see them staying in treatment much longer showing much less a frustration and that coupled with the fact that it's fully covered by the insurance is going to make life easier for the physicians using this and the patients seeking that that procedure over the years.
We have even though this was covered by many insurance companies, we have not pushed.
Pushed the Vin lygo indication as strong as we have pushed the psoriasis indication.
Because of that that discrepancy in coverage policies between summarizes Lego and again once again, if you look at our at our Investor deck, you will see the difference and economic benefits, 76% to the legal 96% to psoriasis, but you'll also see that we were driving a much smaller number.
A bit like a pace, we allocated a very small portion of our DTC advertisement to.
To be legal because of that reason, because we were losing a bigger percentage of them in the in the insurance.
The insurance benefit.
Office.
By by having.
The ability to drive more patients and be sure that the the benefits are going to be covered we will be turning to more than likely patients on the one hand, and I discuss that and ER and that's going to be a trend moving forward. We are we are outreaching to patients and we are up reaching to two physicians not only to update them up.
The coverage, but also to provide them further training because not because not all of them were provided we're providing these these procedures, but but.
But more than that.
We believe that that this procedure or the.
The advertisement for this procedure is going up is going to be less costly for us in the in the DTC spend now that belief is not just a belief its founded in our in our experience through 2019, when we advertised and we have seen our cost per lead for a bit like a patient being much lower than the cost per lead for it. So.
Hi suspicions.
Version being higher cost per acquisition being much lower and that drives to a more reasonable advertising spend so I've I've explained the reason why we did not go very strong on the legal before why were going to be going stronger now but.
But a reminder, in my prepared remarks, I said, we're on a path to Cigna is one.
Is one in a in a process of several so it's going to take time.
Okay got it thank you.
You're welcome and thank you.
Our next question comes from the line of the menu I Love Banquette de Witt hate seat.
Wane right.
Please proceed with your question given Willa.
Hi, good morning, guys.
My question.
Oh I apologize my line was breaking up and it'll be telling you may have addressed a couple of disappointing.
Any of them, but.
So I was wondering like given deal if I think situation. Colby then if any impact it is having on gifts and geography.
Provide little more color on your more recent Snowpack bullets, you SJ August opening and closing.
And then what are you seeing it on the floor in the current situation.
On mobile apps west geographies as well.
Okay. So I'll I'll. Thank you. Good question I'll provide some color and then Matt is going to provide some more numbers around that that discussion.
We we operate domestically in four regions and as I covered in my prepared remarks.
The the southeast was the fastest to rebound and is operating at levels that are above 2019 levels and that is without without any benefit.
Provided by our DTC advertisement so there there double digit above.
Above 2019 without us providing any support.
In the in the form of sending their patients the.
The Midwest is not far behind the northeast and the Western region, both heavily impacted by pandemic and and the impact stay there for longer mostly in in the Metro areas, New York City, Boston, New England.
Seattle, Washington, San Francisco.
The L. a county.
These these areas were not only impacted heavier they were impacted for a longer time.
It took longer for the office is to open.
Once the offices are open it takes longer for the office is to re staff and once they re staff it takes longer for the offices to offer the full suite of of services they were offering before.
We have discussed the numbers in Q in our Q2 earnings call and we have discussed.
A metric that we call.
Non non-GAAP recurring billings and that is actually the revenue the voices that come out every every day or every month.
And these reflect the actual purchases of treatment codes by the physicians.
And Matt has discussed the conversion of that metric into GAAP revenue as this gets deferred out but we have we have discussed the these numbers.
During our Q2 earnings call and then today and what we have seen is that why April was the lowest point every month following that we have seen very strong double digit growth in.
In a recurring billings, which means more and more clinics were providing more and more procedures.
And as more and more clinics were activated.
And more and more clinics work that activated have consumed all of their existing treatments cold inventory that they had at the end of Q1 or at the beginning of Q2, and we are ready to reorder and use this treatment coat.
We have provided in the prepared remarks, the numbers for the third quarter and up in the third quarter, we have as a whole we've operated at 70% of of the third quarter of 2019, but once again, if you look at the details every month was a progression over the previous month.
And then Weve provided another month into the fourth quarter October in which we were just short of 100% in comparison to October 2019, we were at 97% to October 2019, No. New reminder, and met is going to cover this in his poor.
Non of answering this question.
These numbers do not translate one to wanting to get revenue as they get a deferred out the other part of that I've I've discussed in an answer to a previous question was the.
What we see in the market in terms of the of the patients. So we see more patients or more patients coming in as reflected in in the number of calls we see in our call center, whether its DTC advertisement that weve restarted in the in the middle of August, which our inbound calls or outreach calls which are done too.
Patients of partner clinics, and we have done many many thousands of calls to over 302 patients over three other clinics.
And we see the willingness of patients to go back into treatment again provided that the clinic has opened the physician is there and his staff to to see them and operate and I'll finish my comments and turn it over to Matt by saying that in my prepared remarks, I said that we do anticipate.
Unless there is a resurgence in certain areas to get back to an average of 2019.
[noise] billing number.
By the end of this year as we see as we see these areas a rebounding Matt please.
So it's a good question. Thank you very much what will what all the way our approach. It. This way we will discuss the dog domestic gross billings first and then we'll talk a little bit about international. So when you look at domestic gross billings in Q2 were most clinics.
Were shut down as evidenced by the fact that Weve opened over 250.
Inactive accounts indicate in Q3, so we had approximately $1.8 million total gross billings.
Now when you compare that to July of 1.4 August of 1.6 and September 1.7.
You know, we nearly had the entire Q2.
Gross billings in the first month of Q3.
So what we're seeing there is positive trends returning to our business.
As these partner clinics open up.
What you need to remember and consider is that we entered Q3.
With $500000 of deferred revenue from Q.
Q2 coming into Q3, so when you look at our press release, what you'll find is a reconciliation between the $4.7 million, we had in gross billings down to the GAAP revenue of 3.8 million.
In.
Domestic recurring billings.
We also had $1.4 million coming out of the quarter into Q4 normally that numbers.
To around $2 million. So our expectation is if we can get back to.
We can get back to 2019 gross billing levels, we should begin to defer let's get back to that $2 million, a deferral them out and it really depends on the timing of the calculations and all those calculus.
Calculations, we do here, but.
What you need to be aware of it if I'm coming into Q4 with $1.4 million and I exit Q4 was a deferred revenue up $2 million that there will still be an impact on our on our gross billings to GAAP revenue calculations now looking internationally.
Signing the J Mac contract.
Shows Japan's interest in opening back up and moving to the recurring revenue model seven additional placements in Korea again positive we're seeing growth in our international recurring revenues as well as in our equipment sales.
But the expectation is that still has said in his prepared remarks that as we grow the recurring revenue were going to sacrifice some short term capital sales I.
I hope that answered your question.
Yeah got it that's very helpful. Thank you.
Maybe another question regarding.
The publication of getting the data.
On the call economic benefits are back stock.
I was wondering if you can give us either so now you can bet that that HD data as possible.
For full petition contacts that now in any situation and maybe.
Any thought on that.
So people can you know oh, okay.
Sales and happen again more frequently.
Thank you great question leveraging this data has.
Two parts to large parts. One one is the one is more imminent and the other is much longer term I'll start with the one that's more imminent the by showing that this the procedure is faster.
To get to to the endpoint and all other procedures get to the same endpoint, but we get there faster is less expensive to the payer is ER is the only one that is profitable for the physician has no side effects for the patients.
And he is the only one that.
Gets the patient to remission and while the patient is in remission. There is no maintenance. So there is no need to go and see the doctor or take any any maintenance medication or any meant to maintenance procedure.
It's very important for all the the trains that we started seeing.
Domestically.
With with.
With regional payers moving towards a.
Capitated plans or plans were there the the the clinics are being paid for managing patients outcome versus paying per procedure.
We already have.
We already have a number of of partner clinics that are that are part of of groups that are participating in in managed healthcare or in Capitated plans.
And that's that's important for them because if they can provide the procedure and its going to cost them less and they they then then its good it will cost them less not the insurance company, but it would cost them less while they're being paid more like the the insurance companies. If they can do that coupled with a faster outcome for the patient and a less side effects.
Ah impact where the patient that would be good for them.
Examples where that would be a that we work with with one of the largest when.
One of the largest groups in in the us in in in the West that that has multiple clinics and hospitals and they use. This we work with a one one of the largest group of dermatology clinics in the eastern they have clinics to do that I'm not going to go into specific.
Names for obvious reasons.
What's important for them imminently longer term.
As we see the.
The reimbursement landscape changing and more focus is being put on.
On the cost of providing a solution for the patients being able to provide the lowest cost outcome is very important now that is true domestically.
We have seen at the beginning of that trend with the A.C.A. in 2011, and then the trend has stopped I believed that the recent political changes are going to reignite. The the approach of looking at overall patient cost in multiple indications, we do see that.
With with with with plans that are fully covered like Kaiser where they look at the overall cost of patients versus the individual procedure.
So that that is in domestic markets internationally. It is very important because.
Because in in all the markets we operate.
The the the big competition is the cost.
In three of the four markets are in in Japan, and South Korea and in the Middle East our procedures are covered by the national health plans and by but by that I mean that there's there's a long trend of.
Adding coverage and expanding or being pushing more procedures towards towards towards excimer and away from away from pharmaceuticals.
The we have discussed this in the previous earning call, where Japan has updated its a reimbursement and and we are seeing an expansion of reimbursements happening in South Korea as well.
But but not only in these markets and not only win win National Health insurance is paying having a solution that faster to remission.
Which would mean that even a clinic like in China, where procedures are done out of pockets.
It means that they can get the patients faster to remission in China, It's mostly rely go and they can get them faster to remission.
With no side effects.
And this is very important for them. So in all of the markets. We operate the outcomes of the of this study. The fact that it's it was done independently that was published in the peer reviewed journal is important and it's being used in different ways and I tried to cover some of them both.
Those close range and then longer term.
Got it that's very helpful. Thank you very much.
Yes.
As a reminder to register for a question that is a one followed by the four on your telephone.
And our next question comes from the line the Ceragon Kalia with Oppenheimer and company. Please proceed with your question.
Good morning, Dolev Good morning, Matt Hope, everyone is saying how many.
Good morning to us.
So go live I know, it's been a long call I'll I'll save the.
George you if my questions for a follow up.
Average revenues recurring revs per system for quarter, My math is suggesting about 4500 approximately.
Am I close.
Yes, little higher about almost 4600.
Okay fair enough.
Dolev Howard discussions with PE owned clinics going.
Great question, let.
Let me, let me try and again provide some background for those that do not don't have the details. We we ended 2019 with about 221 of our partner clinics being being in what we call a pea owned.
Groups of clinics.
And as I have discussed in the in the second quarter, earning call and I I was answering the question.
We see different trends coming out of coal that.
The.
The ER there are some that are exiting quoted much stronger than they entered calls it because they they're taking advantage of the situation and expanding rapidly and adding clinics rapidly and there are some that took a big blow.
And are slow to recover some of them might not recover specific clinics or specific groups.
We.
We as you can see from the expansion in placements.
Even though we did not go into details or some of that was into groups. Some of that was into individually owned clinics.
Regardless of whether this was a comeback or not we had we had major come back so major win backs from competition.
Were owned by private equity groups.
Diesel. They appreciate the fact that we can drive their results and a part of the a nine inch.
Nine comebacks, we had in the in the quarter.
We're.
We are.
Part of the world clinics in a private equity backed group, where they could see that.
It's worthwhile for them to give us clinics that are already operational because we can significantly increase the the business there and they see this across the board with the other clinics that are involved rural whether it was by by driving them through the end of Q1 2020 or by helping them to get out of where we are.
Were they were at the low point in April.
Using our outreach.
The board. So they were they were very very much involved these private equity backed clinics very much involved in our patient outreach initiative.
Got it and final question I'll hop back so don't live in this time of Covance.
Logic would dictate fewer sessions with equivalent levels of remission, they would be appealing to that would be good selling point right. So can you update us on that Andy adoption in the field. If you know if we are at a critical threshold or any color there would be great folks. Thank you for taking my question.
Yes.
Great question I.
I would reserve the the update on Mt. A usage to a point where it passes the the critical threshold I did cover the the MD partially through the a discussion of the the clinical study published Oh, we do see the M.D. as a whole is.
As an approach as a diagnostic tool and the ability to offer less procedures as as a way for the.
Clinics to offer better service for their patients.
And lower cost for the payers and better retention for the patients we do see adoption in multiple clinics of the of the approach, but but as I said before once it gets to a critical threshold, we will provide separate updates.
Operator.
Dr. Rafaeli there are no further questions at this time I'll turn the call back to you for closing remarks.
Thank you operator, and thank you everyone for joining US today, we look forward to updating you again in our next quarter. Thank you.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.
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