Q4 2020 STRATA Skin Sciences Inc Earnings Call
Greetings and welcome to strata skin Sciences fourth quarter 2020 earnings conference call. At this time, all participants are in a listen only mode.
And answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Leigh Salvo you may begin.
Thank you and good afternoon, everyone earlier today straddle released financial results for the quarter ended December 31, 2020, a copy of the press release is available on the company's website.
Before we begin I would like to remind everyone that comments and various remarks about future expectations plans and prospects constitute forward looking statements for purposes of the safe Harbor provision under the private Securities Litigation Reform Act of 1995.
These statements include but are not limited to our plans objectives expectations intentions and other statements that contain the words, such as expects contemplates anticipates plan.
Intend believe assumes predicts and variations of such words or similar expressions that predict or indicate further events or trends, but do not relate to this historic 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.
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.
Given the uncertainties affecting companies in the medical device industry any or all of the company's forward looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward looking statements in.
In addition, more specific risks and uncertainties facing the company are set forth in its reports on form 10-Q, and 10-K filed with the FCC.
Strata encourage you to carefully review and consider the disclosures found in its SEC filings, which are available at the.
SEC that Gov and on the company's website.
As a reminder, this conference call is being recorded and will be available for audio rebroadcast on <unk> website.
Furthermore, the content of this conference call contains time sensitive information, but it is only accurate.
As of the date of the live broadcast March 24th 2021.
<unk> 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 Bob Moshe President and CEO, joining him will be Matt Hill, Chief Financial Officer with that I would now like to turn the call over to Bob.
Thank you Lee and good afternoon, everyone welcome to our fourth quarter 2020 earnings call. We hope everyone is remaining safe and healthy.
I'm really excited to be dissipating in my first call as CEO of strata skin Sciences. It is an honor to have the opportunity to lead this company I. Thank the board for their confidence in my leadership skills experience and the dermatology industry and track record of building growth companies.
Strata has always been a stronger has always had a strong reputation and history of being a reliable partner in dermatology with excellent self service oriented staff and best in class technology would extract eczema laser.
Extract has been shown in more than a 150 peer reviewed clinical <unk> to be the safest and most effective treatment on the market for psoriasis, vitiligo and atopic dermatitis skin diseases that impact more than 31 million people in the U S. Today, there was a significant value proposition would extract and I'm confident our unique business model can drive sustained growth.
Before we review our fourth quarter performance I wanted to take a moment to acknowledge the challenges faced this past year with COVID-19, and express our gratitude to everybody on the frontline dedicated to keeping us safe and helping us to recover from this pandemic I also want to thank the strategy for your unwavering commitment to our mission.
Our improving performance. Despite COVID-19 is a testament to the team's ability to step up and delivered through unprecedented hardships. Thank you.
Turning briefly to our financial summary.
Total review total revenue for the fourth quarter was $6 $7 million or $24 five per cent decline over the fourth quarter of 2019, and a 19, 7% increase compared to the third quarter of 2020.
Recurring revenue for the fourth quarter was $5 million or 22, 7% decrease over the fourth quarter of 2020, and a 34, 2% sequential increase over the third quarter of 2020.
While we are encouraged by the positive recovery trends in the U S. In the third quarter and early part of for the fourth quarter supported by the gross domestic recurring billings at 97% of previous October in the Middle of November with COVID-19, resurgence isn't associated Derm office staffing challenges, we began experiencing reduced volumes which have.
Persisted into the first quarter of 2021.
Internationally, our leading O U S markets, South Korea, Japan, China, and the Middle East experienced similar variability as in the U S. Notably in the fourth quarter, we broadened our presence in Japan through expansion of our distribution agreement and most recently in China shifting the business from Quintin.
Sales to recurring revenue similar to the success measures taken in South Korea.
To continue to drive and validate our unique recurring revenue model in these countries with the goal of increased momentum and extract sales and improve margins over the long term.
We exited the fourth quarter when installed base of 860 recurring revenue extract devices, including 832 in the U S and 28 international placements 27 of which have been placed in South Korea and one in Japan.
Turning next to recap our recent business highlights.
As announced last October we were pleased to see that sitting there issued a new medical coverage policy for eczema laser therapy that included the treatment for vitiligo as medically necessary.
Following this positive coverage announcement, we began an outreach program to advise cigna covered patients afflicted with vitiligo and dermatologists at this important coverage update.
We believe this change could encourage patients who had previously not sought treatment due to lack of insurance coverage to seek treatment or to return to dermatology offices to manage their condition.
Last November we announced the publication of a peer reviewed health economic study entitled therapies for psoriasis clinical and economic comparisons and then November 'twenty 'twenty issue of journals of drugs in dermatology.
As a reminder, our extrapolation excimer laser was found to deliver the fastest results with the fewest adverse events at the most economical cost of all treatments analyzed including topical traditional UV therapy, biologics and systemic therapies. Additionally, patients treat with strength excimer laser.
Had fewer actual treatment day as compared to all of the modalities. It was also the only therapy, where patients achieved remission without a maintenance therapy.
We also announced the introduction of home by X track and at home treatment for patients who do not qualify for in office treatments. This approach leverages, our DTC advertising to identify patients who do not have access to a local provider well we're out of pocket costs or potentially an issue while still in the early innings of a pilot pro.
Graham we believe this junk offering could support a comprehensive patient journey and a meaningful solution for patients who cannot receive our extract treatments in the clinical setting.
Turning to our outlook for 2021.
While the dermatology market saw a nice recovery in Q3 and the early part of Q4 2020, well, we have experienced and validated with our customers is that offices are still not operating at pre COVID-19 levels in Q1 of 2020 one.
They had not fully staffed and thus are not yet able to offer their comprehensive suite of services that were available prior to the pandemic. We believe with more widespread vaccinations that dermatology offices will return to pre COVID-19 capacity as we move into the second half of 2021.
In the near term. However, we expect the impact of Covid will continue to be a meaningful headwind on our business with a continuation of a regional variability as dermatology clinics reopen from shutdowns, but face potential shortages in staff and resources.
Encouragingly these continued to be a steady interest this year.
Seems to be a steady increase investments in dermatology and the market dermatology market Big pharma has entered this space with biologics and new topical drugs, which while effective are higher priced than traditional topical and oral treatments. These new therapies are indicated for psoriasis atopic dermatitis and in some cases are seeking an indication.
Patients with vitiligo.
These investments are spreading awareness with respect to the potential treatment, which we believe has the potential to drive more patients to seek treatment from a dermatologist and further to raise awareness of extract as a potential treatment option.
With reimbursement and access challenges with these alternative therapy therapies, we believe that patients and physicians will turn to extract based on its safety efficacy and cost benefits.
To that end, we're rolling out marketing initiatives to dermatologists to demonstrate the clear value proposition of our extract solution.
We will be further training our representatives. So they can improve the experience of clinics and dermatologists, which we believe will lead to more effective partnerships and a return of dormant accounts to active recurring revenue generating accounts.
As part of these average we plan to optimize our comprehensive support services to ensure that we are delivering to the needs of our patients and partner clinics.
In closing I believe that we have a tremendous opportunity to further expand and extend the value proposition of extracting the dermatology market today and once the headwinds from this pandemic are behind US returned to stable predictable long term growth.
My initial priorities include evaluating our current situation opportunities and trends impacting the broader market with particular attention on our sales and marketing strategy, we can make the most efficient and effective improvements.
I plan to continue personally engaging with customers over the coming weeks to understand their needs and how we can improve our partnership. In addition, we have some exciting launches planned for the second half of the year I don't want to be sure. We are well prepared to successfully introduce them to the market.
Moreover, our international business presents a valuable opportunity to expand our placements contributing to growth going forward.
I am encouraged that we have an opportunity to drive additional growth and utilized through that channel.
We look forward to the months ahead to web to update you on our progress.
I'd like to now turn it over to Matt Hill for a closer look at our fourth quarter.
Thank you Bob I welcome you to the strategy team and look forward to working with you further.
Yeah.
Looking at the financials revenues for the fourth quarter of 2020 were $6 $7 million or $24 five per cent decrease as compared to revenue was $8 $9 million for the fourth quarter of 2019 and up 19, 7% from the third quarter of 2020, reflecting the general shutdown staffing issues.
And restart of partner clinics to the COVID-19, pandemic and the fourth quarter.
Recurring revenues for the fourth quarter of 2020 were $5 1 million a 22 seven per cent decrease as compared to $6 $6 million for the fourth quarter of 2019 and up 32, 4% from the third quarter of 2020.
Equipment revenues for the fourth quarter of 2020 were $1 $6 million, a decrease of 29, 5% as compared to $2 $3 million for the fourth quarter of 2019.
Overall revenues continued to be negatively impacted by the COVID-19 pandemic with continued office closures and staffing issues in the dermatologist office. In addition, our equipment revenue will be impacted in the shorter term by our transition from the capital equipment model to the recurring model internationally, but we anticipate higher raw.
Revenues and margin in the longer term as our partners drive in country placements.
As we discussed last quarter and included in our press release. This afternoon, we provided information on a non-GAAP measurement described as gross domestic recurring billings, which represents the amount invoiced to our partner clinics when treatment codes are sold to the physician.
It does not include normal GAAP adjustments, which are 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.
Other adjustments for co pay and other discounts we felt that this was an important disclosure in light of the COVID-19 pandemic and to assist in understanding our business and to more effectively view trends that we're seeing with our business.
We also want to 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 impact each subsequent quarter.
Deferred revenue added to the third fourth and first quarter of 'twenty, a third fourth quarter of 'twenty and first quarter of 2021 were $500001 $4 million and $1 $8 million respectively.
Meeting our recurring revenue in the fourth quarter was reduced by approximately $400000 deferred recurring revenue in and out of each quarter of 2019.
Had remained steady at approximately $2 million.
For the perspective on the impact to Q1 2021, we added that as previously mentioned $1 $8 million from Q4 2020 into Q1 2021.
In the prior year, we added $2 $3 million from Q4 2019 into Q1 2020. Therefore, if you do the math, we started day, one 2021 $500000 below recurring revenue than in the comparable quarter of 2020.
This combined with the Covid related headwinds and transition of equipment sales. We noted earlier are expected to have a negative impact on Q1 2021 revenue.
Gross domestic recurring billings for October November and December $2021, 6 million, $1 5 million and $2 3 million respectively.
Our total gross domestic recurring billings for the fourth quarter of 2020 were $5 4 million as compared to $6 $9 million in 2019, and $4 $7 million in the third quarter of 2020.
Overall gross profit for the fourth quarter of 2020 was $4 $5 million or 67, 6% of revenues as compared to $6 $1 million or 68, 8% of revenues for the fourth quarter of 2019 gross profit was up 10, 1%.
From the third quarter of 2020.
Gross profit from recurring revenues for the fourth quarter of 2020 was $3 $8 million or <unk> 74, 4% of revenues as compared to $5 million or <unk> 76, 5% of revenues in the fourth quarter of 2019.
Gross profit from recurring revenue was up 10, 1% from the third quarter of 2020 the.
The primary reason for the decrease in gross profit in the fourth quarter of 2020 as compared to the same period. In 2019 was the result of lower recurring sales due to the COVID-19 pandemic on applied costs, partially offset by lower depreciation expense.
Engineering and product development costs for the fourth quarter of 2020 were $324000 as compared to $214000 for the fourth quarter of 2019 as the result of timing of certain engineering projects.
Selling and marketing costs for the fourth quarter of 2020 were $2 $6 million as compared to $3 $1 million per the fourth quarter of 2019, primarily due to the downturn in business as a result of the COVID-19 pandemic. The company has managed this cost with lower trade show costs travel costs compensation costs and direct to consumer advertising costs.
We plan to steadily increase DTC spend in sales head count in order to fuel the growth at our partner clinics and serving the growing installed base respectively.
General and administrative costs for the fourth quarter of 2020 were $1 $9 million as compared to $2 $9 million from the fourth quarter of 2019.
As a result of lower legal consulting and accounting fees incurred in 2019 with the company's restatements.
Other expense for the fourth quarter of 2020, it was approximately $20000 compared to $500000 for the fourth quarter of 2019 as a result of lower interest expense and additional costs in 2019 for the extinguishment of our long term debt.
Net loss for the fourth quarter of 2020 was $400000 or loss of one per basic and diluted common share as compared to the net loss for the fourth quarter of 2019 of $500000 or a loss of two cents per basic and diluted common share at December 31, 2020, cash and cash equivalents and restricted cash was <unk> 18.
$1 $1 million, we continue to manage our cash prudently and we'll make investments where we expect to see a return and to drive growth for the business.
In summary.
While we cannot predict when this pandemic will end we remain confident that we are prepared to manage through these uncertain times.
And now Bob and I would like to turn the call back to the operator for Q&A.
And at this time, we'll be conducting a question and answer session.
I'd like to ask a question please press star.
One on the telephone from that.
A confirmation tone will indicate your line is in the question queue. You may start to like to remove your question from the queue from participants using speaker equipment. It may be necessary to pick up your handset before Christmas turkeys one moment, please while we poll for questions.
Our first question is from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Oh, Hi, Bob how are you Jeff Jeff.
As far as just a few questions for you. So person as you spoke about the recurring revenue from our side effects Q4 into Q1 'twenty 'twenty. One could you talk about what that looks like into the second quarter from 21 and beyond or hypothesis relation with us what that may look like.
Yeah I think.
We certainly are seeing that the derm offices are open Jeff what we're not seeing is the return of patients to pre COVID-19 levels.
And that and the fact that some of these offices have not fully staffed yet, but my feeling is that as more and more folks get vaccinated I think those numbers are going to increase.
On both accounts I think youll see more patients seeking treatment that they hadn't sought you know in the last several months because of the Covid and I also think that the officers will be hiring back staff and getting more of the full complement of treatments that they typically offer so I'm encourage going forward I think there are some headwinds that we are.
Still facing but as folks get vaccinated I think we'll start to get out of that mess.
Okay got it and then secondly from me isn't a housekeeping or anything but could you walk us through our domestic and international revenue.
For.
Q4 please.
For sure.
Yes, I can walk you through our domestic and international revenue for.
For the year and then we can just.
Subtract out.
The balance from Q3 to get Q4, so looking at our revenue from domestic.
Domestic and as you know that we've been growing the.
International revenue with the recurring revenue so we're starting to see an uptake in that revenue.
Which is a positive sign as we get as we had 28 placements that were placed in.
That were placed internationally in our first one was placed in Japan.
So give me one second.
Jeff So looking.
Let's see my apologies, Jeff Let me give me one second.
No that's okay, I can jump on them, but I don't know.
Yeah.
We'll make sure that you get that that is part of our of our 10-K filing and I'll make sure you got it.
And then lastly from me could you talk a little bit about your prepared remarks as far as our second half launches are you, referring to a new equipment or new channels or modifications to our current therapy.
Good question actually a little bit of all of it we certainly are looking at.
Expanding our international footprint, I think theres, an opportunity there and you know we're in the process of identifying countries that offer the greatest return for our time and effort to get into there but.
But yes, I think that's one two we do have some upgrades coming to our lasers. So that'll be an important launch for us in the second half and then we're also looking at.
Other opportunities to grow the indications that we have a bit of legal I think there's a real opportunity going forward, maybe has not been fully capitalized here in the company and I think that's something that we can put more attention to what our sales and marketing efforts.
Okay and can you give any sense of what part of a little while ago signals.
From a responsible for as far as your Payor pool.
Significant yet currently coverages around 76% of all of the claims that go in and so it's pretty good I mean, I think it can be better obviously, we had the good success with sitting here I would like to reach out to some of the other payers and see if we can get it in a similar type of acceptance that we have which day.
And that would be.
He'd been greater opportunity for us so.
Right now the coverage is good but we want to make it better.
Okay perfect got it thanks for taking the questions.
Our pleasure.
And again as a reminder, if anyone has any questions you May press star one on your telephone keypad doing so will ensure that you join the question queue.
Our next question is from Suraj Kalia with Oppenheimer. Please proceed with your question.
Good afternoon, Bob Matt can you hear me all right.
Yes, Raj how are you doing today.
Hey, Bob.
Welcome aboard and I wish you all the success.
So Bob a lot of information has been provided and given that this is your first called I don't want to go into too much into weeds, just I'll just relegated to two questions.
One let me start out on a macro level.
Admittedly, Bob you're still getting your arms around it but you've been in the space long enough and I'm sure you've already.
Sort of done some level of reconnaissance.
But do you see a demand problem or a supply problem.
And by that I mean are you guys doing everything you can and.
And you know the.
And the demand curve, you know needs to develop over time or are you constrained in certain way feet on the ground advertising something whatever that could shift the supply curve from your side.
Good question.
Yeah, I don't I don't see it that way.
Think what as I looked at this suraj when I came on board as the company has transitioned from a capital sale model to a recurring model, which is one of the things that attracted me to it.
It's more of a drug sale, if you think about it.
Spent a lot of my career and selling drugs to dermatologist in the way you're successful there's building relationships and frequency you need to begin those offices on a regular basis you need to do the complete office call and really get to know and partner with those with those dermatologists and I think we can do a better job here and that's why I'm really <unk>.
Focus on our sales and marketing execution right now.
I think there are some tweaks that we can make some additional training to our sales force.
Which will help us drive demand and net recurring business to me that's priority one.
It's certainly we don't want to lose track of more placements in achieving our goals there, but really for me. It's all about driving the recurring business, because that's really going to sustain the growth going forward.
Got it but let me go down to the company specific.
Issue and I'll kind of keep this as a two part.
I'm, giving you the benefit of doubt in terms of you know relatively little time to have a look at everything ordered any pressing operational issues company specific that you have identified that and I'm.
Not talking about COVID-19 that require immediate attention. That's one part and the second part is is this something that we can do to improve patient retention operationally.
To make them come back for their full treatments rather than running for the next new patients to bring on the roster. Thanks for taking my questions and congrats again.
Thank you Suraj.
To answer your first question.
No no nothing that I.
I would call a surprise obviously.
Obviously I did my due diligence before I came on board and.
Everything was as I expected and even in better shape in some cases so.
So I don't see any major issues to address at this point.
As far as your second question and recurring customers again, I think that really starts with the dermatologists. The dermatologist did not want to give up patients.
That's been a trend that they've been dealing with now for the last several years because of Pbms and managed care payers.
Sometimes lose patients to general practitioners and they try to keep patients just like everyone else. So.
Again, that's back to the relationship building the partnership and I think if we can.
Yep.
Be sure that the dermatologist and the complete office understands the duration of therapy that needs to take place for extract to be effective then I think we'll be able to keep those patients and bring them back because we know that it's effective we know that it's safe and we know that that that the patient doesn't need as much follow up as they do the typical topic.
Treatments and Theyre expensive. So I think we have a lot of good benefits and features and benefits that we can present to the dermatologists and again thats something that we want to make sure our reps are doing on every call.
Thank you.
And we have reached the end of the question and answer session I'll now turn the call over to Bob Marshall for closing remarks.
Oh, great. Thank you.
Again, Im just very excited to be here and looking forward to further updating you about our advances in the future in the meantime, they would hope everyone will please remain safe and hope they have the good happy evening evening. Thank you.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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