Q4 2021 STRATA Skin Sciences Inc Earnings Call
Greetings and welcome to the strata skin Sciences fourth quarter and full year 2021 earnings conference call.
This time all participants are in a listen only mode. A question 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.
I'll now turn the conference over to your host Leigh Salvo Investor Relations you may begin.
Thank you and good afternoon, everyone.
Joining me today are Bob Moshe Chief Executive Officer and.
Chris.
Chief Financial Officer.
Earlier today straddle released financial results for the quarter ended December 31st 2021 copy of the press release is available on the company's website.
To 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 1995.
Any statements contained in this call, but do not relate to matters that historical fact.
Or 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 are 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.
For a list and description of the risks and 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 31st 2021.
This conference call contains time sensitive information and is accurate only as of the live broadcast today March 21st 2022.
Got it 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.
During this presentation, we refer to domestic gross recurring village, 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 fourth fiscal quarter ended December 31st 2021, which is accessible on the S. T.
C website and posted on the Investor Relations page of stride as website adapt dump strata skin Sciences dotcom.
I'll turn the call over to Bob Moshe.
Thanks, Lee good afternoon, everyone and thank you for joining us for our fourth quarter 2021 earnings call.
I'm incredibly proud of the progress the strider team made throughout 2021, as we navigated an adapted to unprecedented pandemic driven global challenges changes in executive management and several new initiatives that were introduced and executed throughout the year are.
Our many achievements was the result of strong commercial execution that delivered growth from our core extract business and resulted in record quarterly revenue in Q4.
We also expanded our opportunities opportunity through acquisition of the U S Germany.
The U S dermatology business of a competitive platform and to new global markets and fortified our team with highly experienced industry leaders.
Recently, we expanded into the large acne treatment market do another acquisition further setting up 2022, as a transformational year for our business.
I'd like to briefly cover some of our recent financial highlights as well as trends we have seen so far this year.
While we did experience headwinds related to staffing shortages brought on by the Omicron waived late in Q4, we ended the fourth quarter of 2021 at $9 1 million, an increase of 35% over the fourth quarter of 2020.
In addition, we finished full year 2021, with a strong year over year growth of 30% versus full year 2020.
Our recurring revenue from our extract partners continued to increase validating the positive impact of our investment in direct to consumer marketing directed dermatologist marketing as well as our commitment to improving sales force commercial execution.
Despite the pandemic related challenges interest and extract remains strong and we were able to continue to grow our domestic installed base. We exited the fourth quarter with 890 recurring revenue extract devices in place in the U S up from 832 units at the end of 'twenty 'twenty, Inc.
And group practices, where we continue to see a highly leverage able opportunity. We added another 76 devices, bringing our total up to 327 from 251 at the end of 2020.
As we enter 2022, our business was impacted to some degree by the enduring omicron surge into the first half of January particularly in larger metropolitan areas.
Staffing in dermatologist offices and lost days in the field for our sales force due to the virus also had a negative impact on revenues at the start of the new year.
Our first quarter also sees the impact of seasonality as insurance co pays reset for the new year. Despite these factors impacting our U S. Recurring revenue we have seen strong equipment sales and are on track to achieve 18% to 20% year over year growth in the first quarter of 2022.
We are also seeing the benefit of our acquisition of RA Medical's Dermatology business last August as we began to wind tariffs come backs, which are providers, who returned to our extract system and recurring revenue partnership model from device ownership.
Within the first five months since acquisition, our commercial team successfully converted nearly half of raws faros customers with expiring service contracts to extract yielding 30, new placements by year end.
The majority of the remaining Ferro service contracts expire in 2022 and as such we are actively engaging with this highly targeted list of potential new extra customers and are prepared to deliver a smooth transition to our platform.
In early January we were pleased to announce our trends and our acquisition of therapy are actually system from third bancorporation, enabling us to enter the estimated $5 5 billion dollar acting market.
Research shows that 20% to 25% of all visits to the dermatologist for acne and are often treated with prescription drugs that can be costly or difficult to obtain and have significant side effects.
Third clear delivers a combination of vacuum in broadband light for treating acne that has been proven to clear skin rapidly for fast and visible reduction in acne and associated redness.
Improvement experienced by patient drives compliance and repeat visits to complete the therapy.
Theoretically it can be used as a monotherapy or in addition to other topical and oral drugs being prescribed.
We view this asset acquisition is a perfect fit for stratus market expansion goals as we can leverage our current customer base commercial team and worldwide distribution network to drive utilization and the dermatologists office.
We have already started several activities in preparation for the launch including additional market research building inventory investing in sales force training and creating a marketing plan targeted towards potential patients and dermatologists with large populations of that'd be patients.
We continue to anticipate commercial launch in the third quarter of this year. Our sales force is anxious to start promoting and selling this new device and preparing a list of key customers to approach upon launch.
Based on initial conversations we've had with our dermatology customers feedback has been overwhelmingly positive.
On the product development front last month, we announced the commercial launch of extract momentum 1.0, its first U S and its first U S. Installation. This enhanced extract eczema laser technology delivers higher power a fast repetition rate than current models and offers a new user interface and slim design intended to.
To improve the treatment experience, we expect the momentum will become a catalyst for a high volume customers to treat more patients and increased revenues as we roll this device out overtime.
Turning to our international business total revenue for the full year grew 28% over 'twenty 'twenty highlighting the significant traction achieved through our distribution partners.
The O U S opportunity remains an important element in our overall growth goals. We will continue to offer the option of recurring revenue place model as well as equipment sales to provide flexibility in these regions.
We were especially encouraged by the potential expansion opportunity internationally in vitiligo as that indications more frequently treated by X that extract in international markets.
Additionally in January of this year, we announced the expansion into Israel through a partnership would you mail the.
The dermatology and aesthetics portion of tropical a leading distributor in Israel.
This agreement enables us to commercialize it market our extract excimer laser to an additional 300000 psoriasis and 160000 vitiligo patients and is already underway with the first placement early this year.
At the beginning of 2021 identified several areas of focus for the year that included returned to historical investment in DTC marketing, which resumed funding to consumer advertising <unk>.
<unk> re engaging with high volume customers or accounts.
Bringing non revenue generating customers back fall and the impact of the pandemic on their business and supporting our sales organization with improved marketing campaigns that can best drive usage among dermatologists.
We made consistent and notable progress throughout the year first our investment in DTC DTC marketing had the anticipated upside impact on our business.
Rdx charts, which reflect insurance benefit request for new and existing patients throughout the calendar year and represent patients who have been entered into our system as potential extract patients trended above 2019 levels throughout 2021 and are directly tied to our DTC efforts in.
In terms of the number of high volume accounts, producing above 40000 in revenue per year in the fourth quarter. The number of high volume customers was steady at 213 versus 214 in Q3 and up from 186 in Q1.
High volume customers contributed well over 3 million in revenues and accounted for 54% of all revenues in Q4.
Customers will continue to be a focus in 2022 as well as moving all customers up in our revenue tiers throughout the year.
The continued focus on the number of high volume customers reflects the commitment and execution of our sales force and expanding usage and driving recurring revenue with our customers and will continue to be a priority for us going forward.
We also made significant improvement in bringing non revenue customers back throughout 2021 with a goal of keeping 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, we were successful in entering the year 2021 with 15% of our installed base of <unk>.
Revenue in Q4 down from 19% in Q1.
In 2022, we plan to continue to identify placements with customers, who are not producing revenues refurbishing those machines and reselling them to new customers. In Q1, we have already removed 21 devices that will be redeployed to new extra customers.
Lastly, our new director Dermatology marketing initiative is underway. This includes updated sales materials that focus on specific disease states and training to reinforce extracts effectiveness in treating approved indications on every call in.
In addition, we continue to work with third party or third party vendor to interact with payers with a goal of improving coverage for vitiligo and atopic dermatitis.
We are also interacting more directly with Kols and office space Dermatologists to fine tune, our messaging going forward.
Gearing up to participate in several dermatology meetings and to recruit an advisory committee in short we expect direct a dermatologist marketing to continue to be a key driver in 2022 as we further expand extracts usage across all indications.
Before I turn the call over to Chris I wanted to welcome Dr. Patricia Walker to our board of directors.
He is a practicing dermatologists, who has deep experience, leading R&D efforts for several high quality medical device and therapeutic companies as well as for numerous educational institutions. We are excited to have the opportunity to leverage her vast industry experience.
In addition, John Bagdasarian has joined the Strider team as Vice President of professional relations John brings years of experience in dermatology and building advocacy with Kols and dermatology societies within the specialty in this role John will be focused on capitalizing on his relationships with dermatologic foundations Kols and <unk>.
<unk> are key partnerships lastly, stride will be participating in the American Academy of Dermatology meeting in Boston. This week, well, we hope to see some of you with.
With that I will now turn the call over to our CFO , Chris less of its Chris.
Thank you Bob.
Revenues for the fourth quarter of 2021 were $9 1 million, a 35% increase over the fourth quarter of 2020, and a 17% increase over third quarter of 2021.
Our fourth quarter revenue was driven primarily by the continued increase in extract usage as well as increase in equipment sales internationally.
Recurring revenues in the fourth quarter were $6 7 million, a 32% increase over the fourth quarter of 2020, and a 17% increase over third quarter of 2021.
Similarly, the increase in recurring revenues was driven by the continued increase in extract usage as a result of increased emphasis on sales force execution.
Equipment revenues for the fourth quarter were $2 4 million, an increase of 45% as compared to the $1 6 million for the fourth quarter of 2020, and an increase of 19% as compared to 2 million for the third quarter of 2021.
These results reflect an increase due to the more focus on international equipment sales.
As we discussed last quarter and included in our press release issued this afternoon. We provided information on a non-GAAP measurement described this gross domestic recurring billings, which represents the amount invoiced to a 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 adjusted.
Adjustments for Copays 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 are 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.
Decrease in deferred revenue can impact each subsequent quarter.
For the fourth quarter 2021, non-GAAP gross domestic recurring billings was $6 1 million, an increase of 14% as compared to $5 4 million in the fourth quarter of 2020, and an increase of 6% as compared to the $5 8 million for the third quarter of 2021.
Overall gross profit for the fourth quarter was $6 million or 66% of revenues as compared to $4 5 million or 68% of revenues for the fourth quarter of 2020, and $5 4 million or 70% of the revenues for the third quarter 2021.
Gross profit for recurring revenues in the fourth quarter were $4 9 million or 74% of revenues as compared to $4 5 million or 68% of revenues in the fourth quarter of 2020, and $4 2 million or 74% of the revenues for the third quarter of 2021.
The reason for the increase in the overall gross profit was primarily due to the continued increase in extracts extract usage as a result of increased emphasis on sales force execution.
Yeah.
Our gross margins remained strong in the fourth quarter at 66%.
We expect these margins to remain stable in the 65% to 70% range in the coming quarters.
However, some light negative impact as anticipated from the supply chain issues being experienced worldwide.
Net loss for the fourth quarter, 2021 was 849000 or a loss of <unk> <unk> per basic and diluted common share as compared to the net loss for the fourth quarter of 2020, or 443000 or a loss of one per basic and diluted common share and a net loss for the third quarter of 2021 to 500.
21000, or a loss of <unk> <unk> per basic and diluted common share.
Now turning to results for the full year 2021.
Revenues were $30 million, a 30% increase over 2020.
Recurring revenues in 2021 were $22 5 million, a 29% increase over the full year 2020 and.
In equipment revenues for the full year were seven 4 million a 31% increase over 2020.
For the full year 2021, non-GAAP gross domestic recurrent billings were $22 1 billion, a 31% increase over the full year of 2020.
Overall gross profit in 2021 was $19 9 million or 66% of revenues as compared to $14 1 million or 61% of revenues for the full year 2020.
The increase in gross profit as a result of the continued increase of extract usage globally and strong equipment sales.
Gross profit on recurring revenues for full year, 2021 was $16 1 million or 72% of revenues as compared to $11 6 million or 67% of revenues for the full year 2020.
The increase in gross profit as a result of the continued increase of extract usage globally.
Total operating expenses in 2021 was $24 3 million, an increase of 33% as compared to $18 2 million for the full year 2020.
This increase was driven primarily by the sales and marketing spend which was higher due to the impact of COVID-19 on our business in 2020.
Going forward, we expect operating expenses to increase largely due to the rollout of <unk> and increased sales and marketing expenses around extract.
Net loss for the full year 2021 was $2 7 million or a loss of <unk> <unk> per basic and diluted common share.
As compared to the net loss for the full year of 2020 of $4 4 million or a net loss of <unk> 13 per basic and diluted common share.
At December 31, 2021, cash and cash equivalents was $12 6 million as compared to $13 1 million at September 32021.
Turning to our guidance for the full year 2022.
Despite the <unk> headwinds and insurance resets for the new year and the first quarter of 2022.
<unk> projects 2022, full year revenue to be between $33 million and $35 million.
Representing a strong double digit year over year growth.
With that Bob and I would like to open up the call for questions.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, 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 and Chris how are you.
Good Jeff how are you today.
Just fine so could you walk us through how you're anticipating a surge clear rolling out journey 'twenty, two I know theres units out there now.
How do you expect to hold right now as far as your commercial sales force.
We'll be you're a financial model there.
Sure.
Yes.
We are anticipating rollout somewhere around mid year, probably about July we want to try to get it out before the Acme season, which typically is August September you know there are some machines that are out there we had to build up some inventory and we're just really trying to rebrand around very clear. So it has a.
Much more shopper metric message than has been delivered in the past the salesforce will be rolling it out.
Anticipate that our first set of customers will be our 900 extract partners those are medical doctors treating medical conditions with medical devices cell and ideally we want to try to put a there are clear into those offices, we have relationships with those folks and thank god that would be oh.
Excellent place for us to start you know theres a lot of.
Options for treating acne as you know a lot of drug options, but the reimbursement around drugs has really fallen off dramatically over the last several years. So we think we'll have a very nice.
<unk> story with very clear in talking to the dermatologists, who treat acne and give them an option that's not only good for their patients, but good for their practice shell.
We're looking forward to that.
Not going to be a capital equipment sale to answer your second part of the question. We're looking at probably some type of leased or monthly fee.
So that.
Theres some partnership with the Dol the dermatologist and then we will be probably charging on a per use basis.
Okay got it and then could you walk us through the momentum for no as far as conversions during the coming year, we were going after the high high volume practices first and how well they work as far as.
Leasing arrangements and are taking back older units.
Yes, absolutely, we will absolutely be targeting our high volume customers.
You know, it's a faster machine it works a lot quicker than some of the older models, which allows the dermatologists to treat more patients and a lot of these.
Particularly the high volume dermatologists do clinics psoriasis clinics for eczema or prevent a lago. So we want to put it in their hands. The fastest machine. That's available. So we will be targeting those folks first.
We don't have a lot of them built currently I think we have about six or eight and inventory that will rollout here quickly and as we build more we'll roll them out to you know.
The additional.
Additional targets that we've set and then we will take back the other machines that they currently have and refurbish them and place them or redeploy them somewhere else, where they can generate revenue for us.
Got it and then two quick clarifications on.
Some numbers, Chris you talked about.
Q1.
<unk> systems are 18% to 20% that I heard.
Yes, correct.
Correct.
Okay got it.
Commentary on gross margins was.
What is it.
MS <unk> is probably a good range for 'twenty two.
Yes, most likely with the current supply chain issues around it.
Country, yet we're looking between mid Sixty's to high <unk>.
Okay perfect. That's it for us thanks for taking the questions no.
No problem. Thanks, Jeff.
Our next question is from Suraj Kalia with Oppenheimer. Please proceed with your question.
Hey, Bob Chris can you hear me all right.
Hi, Suraj How're you doing yes, we hear you fine.
Hope, everyone is safe and healthy Hey.
So Bob either a question for you or Chris for FY <unk>.
22 the guide.
Can you give us.
The.
So organic ex track versus pharaohs pull through versus Eric here.
Well Suraj, we're not breaking out Rob.
From our from our extract business says you can understand as we convert raw customers over to extract they'd become extract partners. So we were really only measuring kind of the conversion rate. If you will and as you heard earlier in the call. We've converted 30 out of the 70, plus I think it was about 75.
Machines that came off service contracts.
In Q4, and well from August through Q4, we have another 150 plus coming off.
In 2022, so we expect to have at least as good a rate of conversion as we've had so far so that's in the 40% to 45% range in and even the ones that have not come over yet those aren't lost opportunities. They just arent ready yet a lot of these machines coming off service contracts, but it's still.
Operational so the dermatologists are continuing to use them and I think they will until they have an issue with them and at that point that will be our opportunity to step in so I think if I break down kind of like what 2022 looks like I mean, the emphasis is going to be of course on recurring revenue, which is a combination of.
Existing extra.
Extract partners as well as our conversions from Roth and then we have our international business, which continues to grow very nicely, we're hoping to expand not only in the countries that we already are in but beyond that we're also looking to bring on a head of international sales here in the near future to really help us jumpstart that and then lastly.
Very clear and there are clear as I mentioned will be launched in Q3, we're not expecting a whole lot of impact.
In <unk>.
2022 from third clear, obviously, we have to place the machines out there we have to get them up and running obviously training our staff staff within the <unk>.
The dermatologist office, so it will be a contributor in the second half, but not a big contributor overall. So those are the four levers I think if you're looking at how we're going to hit the numbers that were kind of laying out there.
Fair enough, Okay, Bob on momentum.
Give us an idea about the initial accounts being targeted and the thought process around patient retention and the metrics used there off.
Good question, Yes, so I mean again for.
Momentum, we're targeting our highest prescribers, we placed our first one out in a very big clinic out in California.
We've identified the next five that we want to.
Get momentum into they're all high volume customers, who <unk>.
Generation.
The only a lot of revenue for their own individual practices, but for strider as well so.
That will be.
We will focus as far as patient retention, we actually are really have an initiative underway suraj ware.
We're collecting more data than I think we ever have before in the company. We're also looking at a salesforce.
SFA SFA system. So we can capture what theyre doing on every call what kind of inventories out there what the usage is what specific indications they are using it for sale.
One of the things that Deidentified when I came over earlier last year was.
The data wasn't as robust as it could be so we have a real initiative.
Being supported by the board to really upgrade our overall data collection and that way, we can focus a lot more retaining patients going forward. So it is an important piece for us and something that we are looking at.
Fair enough and last question from my side Bob.
I'll hop back in queue.
You guys gave some metrics in terms of revenues per customer so to speak if I could frame a question differently, Bob how does geographic concentration revenue concentration in the U S look like and by the same token how does the Pie chart four.
Our sales Rep concentration look like I E D's, many reps produce that's much of Mt.
The majority of it does the parade on rules still apply for the Red part of the equation gentlemen, Thank you for taking my questions and congrats on the progress.
Thanks Ross.
Yeah.
Both east Coast and West Coast are really where the majority of the revenue was generated in <unk>.
My experience has been that that's probably true for most dermatology companies. We also have a pretty good presence in the.
Upper Midwest, if you will like Chicago.
Wisconsin, Indiana, Illinois that area, so, but majority really as the east and West coast.
We do have 30 reps out there currently.
Most of them are generating somewhere between.
About.
Each quarter, probably about a <unk> 5 million to.
You want to.
Yes.
Bob was saying.
Mainly in North East and the West.
It is where a majority of our extract domestics revenue was coming from.
And as you would imagine.
A lot of our sales force is allocated to those type of territories.
Thank you.
We have reached the end of the question and answer session and I will now turn the call over to CEO , Bob <unk> for closing remarks.
Just like to thank everyone for joining our call today, and we look forward to catching up with you with the next step for thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yes.
Sure.
Yes.
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