Q3 2021 STRATA Skin Sciences Inc Earnings Call
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Thank you for standing by this is the conference operator, welcome to the strata skin Sciences third quarter 2021 earnings Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
The joined the question queue you May Press Star then one on your telephone keypad.
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I would now like to turn the conference over to Leigh Salvo with Investor Relations. Please go ahead.
Thank you and good afternoon, everyone. Joining me today are Bob Moshe Chief Executive Officer, and Chris left of it Chief Financial Officer.
Earlier today straddle released financial results for the quarter ended September 32021 copy of the press release is available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Any statements contained in this call, but does not relate to matters of historical fact are relate to expectations or predictions of future events results or performance are forward looking statements. All forward looking statements, including without limitation those relating to our operating trends and future financial performance.
Based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements for a list and description of the rest of the uncertainties associated with our business. Please refer to the risk factors section of our public filings with the SEC, including our annual report on Form 10-K for the year ended December 31 2020.
This conference call contains time sensitive information and is accurate.
Just the live broadcast today November 10 2021.
So having disclaims any intention or obligation except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
Also during this presentation, we refer to domestic gross recurring billings, which is a non-GAAP financial measure.
A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available on the company's earnings release for the third fiscal quarter ended September 32021, which is accessible on the SEC website and posted on the Investor Relations page of Stratas website at Www Dot strata skin Sciences Dot com.
With that I'll turn the call over to Bob.
Thank you Leigh good afternoon, everyone and thank you for joining us for our third quarter 2021 earnings call I'd like to start the call. This afternoon by welcoming our new Chief Financial Officer, Chris less of it.
Who joined Strider in July and was promoted to CFO in early October following the departure of Matt Hill.
The opportunity to work closely with Chris in my prior company and have complete confidence in his ability to lead our financial Department.
Now to our third quarter results, starting with a few financial highlights total revenues in the third quarter increased 37% year over year and 4% sequentially. We were also encouraged to see revenues in the quarter exceed pre COVID-19 levels in the comparable quarter of 2019.
Recurring revenue increased 49% over the third quarter of 2020 and 5% sequentially.
Our strong results are primarily due to continued recovery of the dermatology offices to pre COVID-19 operational levels commercial execution on each of the initiatives. We've identified earlier this year and the shift we are seeing towards improved utilization that drives our recurring revenue model.
The third quarter with installed base of 929 recurring revenue extract devices, including 880 in the U S and 49 International placements. This is up from 889 units total with.
With 848 in the U S and 41 internationally at the end of June.
We're obviously pleased to see the continued growth of our partner footprint here and abroad.
As we noted at the time of our last call. We entered the third quarter in the strongest position since the onset of the pandemic.
With patient visits to the dermatologist office is increasing for the third quarter in a row. While this trend was encouraging mid quarter staffing shortages. Once again began just resurface in some regions as the pandemic spiked with the Delta variant this was especially prevalent in larger metropolitan regions, where we see the majority of our business. Despite the.
These challenges interest in our new extract placements remains strong, especially in group practices. Ultimately we are confident in our position in the marketplace. We believe that when staffing once again returned to a more normalized pattern and we already are seeing some of that today, we have the right mechanisms in place to grow our installed base at a faster rate.
Now to an update on our acquisition of the medical Derm business. We have already made significant headway in transitioning current rock customers to our extract system and recurring revenue model. We continue to expect this acquisition to be accretive to EBITDA in the first quarter of 2022 thus.
Thus far in the first six weeks following closing we've conducted 112 initial meetings with Raj Faros customers to review options. This yielded 13 comeback placements from pharos customers by third quarter and with continued progress into the fourth quarter. We are building an exciting pipeline of faros comeback opportunities that.
We expect will result in migration to extract throughout Q4 and into 2022, representing a tremendous opportunity to further expand our revenue and customer reach.
Turning to our commercial execution initiatives, we are making great progress and believe that strider is well positioned for a strong finish to 2021 and double digit growth in 2022, we recently added a director of business operations, whose responsibilities include centralizing all data sources analytics targeting delivery.
An overview of the business and identifying new opportunities for expansion.
Our investment in direct to consumer marketing continues at 2019 levels DTC marketing has demonstrated historically to have a positive impact on the business and we see that in the increase in rdx charge, which continued to trend above 2019 levels.
Rdx charts of insurance benefit requests for new and existing patients throughout the calendar year and represents patients who have been entered into our system as potential extract patients.
High volume accounts defined as accounts that produce above 40000 in revenue per year remain a focus in key metric. We track. These high volume customers increased in Q3 from 186 to 214 or 15, 7% sequential increase over the previous quarter and contributed approximately three.
$4 million in revenues in Q3, which accounted for 56% of all recurring revenues the.
The continued growth in the number of high volume customers reflects the focus and execution of our sales force and expanding usage and driving recurring revenues with our customers.
Another key metric we track our customers at January one of 2021 that had not yet started producing revenues, bringing these customers back online has been a priority. This year with many of these accounts severely impacted by the pandemic and closed for more than a year.
We started 2021 with 198 extract non revenue regenerating devices by the end of Q2 reduced debt to $1 52 by the end of Q3, we further reduced that number to 69.
While new non revenue generating systems have been added throughout the year. Our goal is to keep the total percentage of non revenue generating devices below 15% of our total U S installed base with an average startup time of 60 days.
Lastly, our new direct dermatology marketing initiatives continues to take shape, we will be providing the sales force with updated selling materials that further highlight the features and benefits of the extra Appalachia.
And the support services, we provide we continue to work with a third party vendor to interact with payers with the goal of improving coverage for the vitiligo indication, which we have discussed in the past is an exciting opportunity for the company in 2022.
We are interacting more directly with Kols and office based dermatologists together further feedback and research that will help fine tune our messaging going forward, we expect direct to dermatologists marketing to be a key driver for the business in 2022, as we continue to seek expanded usage across all indications.
Turning to our international business.
During the third quarter of 2021, we placed eight units outside of the United States All under the recurring revenue model. These additional eight placements brings our total to 49, which is a 104% increase over 2020, the O U S opportunity remains an important element of our overall growth goals with as it relates to potential particularly.
Leave for the vitiligo indication as the treatment protocol for <unk> requires more treatments and psoriasis. This vitiligo opportunity will be a focus as we further expand into additional markets.
In summary, I am pleased with our progress so far this year in building the business back to pre COVID-19 levels and taking important steps to grow our business in 2022 and beyond we have ramped up investment in sales and marketing and focused our sales force on growing usage, while adding additional placements to our installed base.
The raw acquisition gives us over 400, new potential customers, who are sold on the use of eczema lasers and now have limited options going forward. We expect to continue to move more of these accounts the extract model further growing our base and recurring revenues.
Our international business continues to grow and we have targeted additional markets in 2022 and wish to further expand our reach lastly, we are actively looking into additional M&A expansion opportunities and ways to more fully utilize and engage our sales force through the ability to sell complementary products as we have stated before we are.
We can return to 2019 recurring revenue levels by the end of the year, we expect our equipment sales to slightly decline as we move more of our installed base to the recurring revenue model, but are confident this model will lead to improved and sustainable value for our shareholders with that I will turn the call over to our CFO Chris <unk>.
Chris.
Thank you Bob.
Revenues for the third quarter of 2021 were $7 7 million, a 37% increase over the third quarter of 2020, and 4% increase over the second quarter of 2021.
Our third quarter revenue was driven primarily by the improved COVID-19 environment as compared to the same period in 2020 <unk>.
Including a full return of our sales force and an increase in patients returning to dermatologist offices.
Recurring revenues in the quarter were $5 7 million, a 49% increase over the third quarter of 2020, and a 5% increase over the second quarter of 2021.
Similarly, the increase in recurring revenues was driven by the full return of our sales force and an increased patient visits to the dermatologist offices.
Equipment.
Revenues were $2 million, an increase of 13% as compared to $1 8 million for the third quarter of 2020, and an increase of 4% as compared to $1 9 million for the second quarter of 2021.
These results reflect our strategic shift to a recurring revenue model offset by the service contracts assumed from the raw medical acquisition.
As we discussed last quarter and included in our press release issued this afternoon, we provided information on a non-GAAP measurement described as gross domestic recurring billings.
Which represents the amount invoiced to 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 adjustments for co pay and other discounts.
We felt that this was an important disclosure in light of the COVID-19 pandemic to assist in understanding our business and to more effectively view the trends that we're seeing with our business.
We also wanted 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.
Okay.
Non-GAAP gross domestic recurring billings was $5 8 million as compared to $4 7 million in the third quarter of 2020, and $5 5 million for the second quarter of 2021.
Overall gross profit was $5 4 million or 70% of revenues as compared to $3 2 million or 58% of revenues for the third quarter of 2020, and $4 8 million or 65% of revenues for the second quarter of 2021.
Gross profit for recurring revenues was $4 2 million or <unk>, 74% of revenues as compared to $2 5 million or 64% of revenues in the third quarter of 2020, and $3 8 million or 70% of revenues for the second quarter of 2021.
The reason for the increase in overall gross profit was primarily due to the benefit of a full return of the company's sales force driving higher margin recurring revenue.
Engineering and product development costs remained steady at 400000 as compared to 400000 for the third quarter 2020.
400000 in the second quarter of 2021.
Selling and marketing expenses were $3 3 million as compared to $2 1 million in the third quarter 2020, and $3 2 million in the second quarter of 2021.
These expenses were sequentially and annually higher primarily because of the increased investment in our sales and marketing teams and increased investment in our direct to consumer and director determine matala just marketing efforts.
General and administrative expenses were $2 2 million as compared to $1 9 million in the third quarter of 2020, and $2 1 million in the second quarter of 2021.
Net loss for the third quarter 2021 was 521000 or a loss of <unk> <unk> per basic and diluted common share as compared to the net loss for the third quarter of 2020 of $1 3 million or a loss of <unk> <unk> per basic and diluted common share and.
Net income for the second quarter of 2021 of $1 1 million or earnings of <unk> <unk> per basic and diluted common share, which was reflective of the impact of our PPP loan forgiveness in Q2 2021.
Turning to our balance sheet on September 30, we entered into a new credit and security agreement through Midcap Financial Trust that included a senior secured term loan facility of $8 million with favorable financing terms, including interest only payments through September 32024, and extend the maturity date.
On September 32021, we also repaid $7 million note with a commercial bank and $500000 <unk> alone with the SBA.
At September 32021, cash and cash equivalents was $13 1 million as compared to $17 million at June 32021.
In October strata entered into an equity distribution agreement under which we may sell up to $11 million of our shares of common stock and registered at the market offerings.
While we do not have a current need for cash we thought it was prudent to have this vehicle in place should a need arise.
Turning to our outlook for the final quarter of 2021 as Bob noted, we expect our equipment sales to slightly decline as we move more of our installed base to a recurring revenue model.
As such we are confident that we can approach 2019 recurring revenue levels by year end.
With that Bob and I would like to open the call for questions.
Thank you we will now begin the question and answer session.
To join the question queue. You May Press Star then one on your telecom keep it you will hear a tone unleashing your request.
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We will pause for a moment as callers join the queue.
Our first question is from Suraj Kalia with Oppenheimer. Please go ahead.
Hey, Bob Chris can you hear me all right.
Yes, good evening Suraj, how are you Tonight.
Doing well gentlemen, hope everyone is safe and healthy.
So Bob maybe Chris maybe I didn't get the numbers what was the contribution from R&D in the quarter if any.
Okay.
Further Q3.
We.
We moved 13 of their comebacks into our.
Business.
We also assumed deferred revenue from the acquisition.
And we recognized around $336000 worth of that in the quarter.
Got it.
And Bob.
So Jeff roughly a little over $6000.
Recurring reps per system.
Correct.
Currently.
Yes.
Give us a perspective of.
What do you consider your most active accounts.
And how do you see them doing things differently. When you look at the 6000 plus average our recurring revenues per quarter.
Sure.
Yes, good question Suraj.
One of them.
Metrics, we continue to focus on is high volume customers and those are defined as 40000.
<unk> and revenue to us.
Those folks are doing I think that mainly they have gotten over kind of the staffing issues that.
We're still seeing in places like New York, and La <unk>, a little bit still in Boston. So although patients are able to get appointments in some cases, they are waiting a little longer than some of those metro areas. So the ones that have come back on strong.
Really got past that are fully staffed our reps, obviously are focused on them and seeing them every other week.
Really trying to drive that recurring revenue around usage, not only for psoriasis psoriasis, but for vitiligo and even now we're starting to talk even more about atopic dermatitis, particularly foot and hand, eczema or areas, where we're focused so I think.
We continue to.
Salesforce on the recurring revenue model and that driving that usages.
Quarter and into 2022.
Can you hear me.
Sorry, Mike.
Sorry, you're breaking up.
Yes.
Yes.
Just curious if you could expand on that.
Operator could you.
Yes, Im sorry, Suraj. Your line is open bed do you mind, calling Barclays.
Sure.
Hear you. Thank you.
And the next question is from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.
Hi, Bob and Chris how are you.
Hi, Jeff how are you Tonight.
Just wondering so.
I'm curious you gave a little commentary on the <unk>.
Just when you talked about.
The sales force returning so I guess personnel answering their questions as far as how should we think about.
It was strong for the quarter, but it doesn't sound like it's necessarily the new baseline or tick up going forward.
Variable or is it.
Okay.
Yes.
We did have a strong quarter.
Going forward, we think we will sequentially achieve kind of the growth that we saw from Q2 to Q3 for a total revenue perspective.
Okay.
Hey, Jeff it's really in line with what we've been saying from the beginning which is that we expect to get to 2019 recurring revenue levels by the end of the year and we're on target for that.
And that's going to set us up for double digit growth in 2022 and recurring revenue then throw on that the conversions that we're going to get from Ross. So we're expecting good things in 2022, and finishing strong this quarter.
Okay.
Okay got it can you give us a sense of.
What percentage of the business or percent of patients being treated or return for dermatologists were good a long ago.
Yes, so right now it's about $75, 80% of psoriasis another.
Probably 15.
Around vitiligo atopic dermatitis is the smallest portion two reasons one is.
Coverage the coverage for psoriasis is much much better than it is for vitiligo and atopic dermatitis and as we've talked about in the past we have a third party.
Contracted that's working with us to improve coverage with payers for both vitiligo and atopic dermatitis. So that's one and then two with atopic dermatitis with a laser as you know it's a more targeted treatment typically atopic dermatitis presents in a large body surface area. So it's not really a first line therapy for treating.
<unk> eight topics, it's more of a cleaning up or maintenance, if you will particularly we found on.
Hand, and foot eczema, which is where we try to focus the dermatologist when youre thinking about using the laser for atopic dermatitis sell on this opportunity there with that we can grow in those two areas, particularly vitiligo, we've talked about the opportunity coming with topical <unk>.
That will be approved in 2022, and we want to be in a position to grab market share was those vitiligo patients who haven't sought treatment and some time start going back to the dermatologist and looking for treatment or treatment is not only already approved it's safe and effective and we have good clinical studies to support that.
Got it and can you talk about the international business a little bit.
Some of our sales for the quarter what are the top two.
Ontario tours as far as countries.
As your footprint over there as far as us choose yes.
Yes so.
China, Japan, South Korea are really where the majority of the business right now is and if you remember, China and Japan, and we're really kind of new coming on board. So theres still real really some good room to run there and we are excited about the continued growth there placements were up again this quarter, we've been up the last two quarters in.
Placements, we've identified some additional countries in Asia, and the Middle East, where we started registrations. So it will have some new countries coming onboard in 2022 and then we.
We've started to think about expanding into Europe, and Latin America. Those are opportunities there, particularly for vitiligo vitiligo as we've talked about is typically a disease.
People of color and in Latin America.
Opportunity there as there is in Asia to continue to expand with that indication.
Got it and then lastly from me if we could.
So back to Suraj. This question on.
Rob Medical soon.
It was 112 meetings over six weeks of 13 came back to your technology, and then I imagine that the 407%.
Sure.
Continuing on whether you call it deferred revenue for us.
Service.
Thank you.
Yes sure. So if you remember we had two we had 280 on service contracts, where we've completed the acquisition we have.
We had I think about 30 come off in Q3, we have additional 54 coming off in Q4, and then we have another close to 150 coming off in 2022, so that creates a lot of opportunity for us we're building a pipeline.
As fast as we can that business into.
Start a business so.
We don't want to shove it down their throat more or less but they don't have a lot of options. So we want to make a make an incentive a good incentive for the rock customers to come over to Strider and we're incentivising our sales force to make that happen well. So I think we have all the the right triggers in place to have a successful conversion over.
The next several months.
I got it.
Install thanks, Chris.
Our pleasure Jeff.
Once again, if you had a question please press higher than one on your telephone.
There are no further questions at this time I would like to turn the conference back over to Bob My shop for any closing remarks.
Thank you cloudier than just like to thank everyone for joining us on the call today and we look forward to speaking to you again in the near future. Thanks.
This concludes today's conference call you may disconnect Caroline's. Thank you for participating and have a pleasant day.
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