Q1 2022 STRATA Skin Sciences Inc Earnings Call
[music].
Greetings and welcome to the strata skin Sciences first quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to your host Leigh Salvo you may begin.
Thank you and good afternoon, everyone. Joining me today are Bob Moshe Chief Executive Officer, and Kris <unk> Chief Financial Officer.
Earlier today Strider released financial results for the quarter ended March 31st 2022.
A 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 may 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 did not relate to matters of historical fact that 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 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 broadcasting.
11 2022.
Starter 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 in the company's earnings release for the first fiscal quarter ended March 31, 2022 which is accessible on the SEC's website and posted on the Investor Relations page of Stratus website adept adapt at Stratasys.
<unk> Sciences, dotcom and with that I'll turn the call over to Bob Moshe.
Thanks, Lee good afternoon, everyone and thank you for joining us for our first quarter 2022 earnings call I am pleased to share that our Q1 results signal that great start to the year as we continue to make notable progress on targeted growth strategies.
Validating our confidence in delivering strong 2022 results.
We were able to navigate the pandemic related challenges of early Q1, two closed the quarter slightly ahead of our initial expectations.
Moreover, we were able to successfully increase our global footprint in the dermatology space through strong commercial execution expanded partnerships and strategic acquisitions.
As noted on our last earnings call in early January we faced headwinds from virus related office closures staffing shortages and loss days in the field for our sales force. In addition, our first quarter is historically impacted by seasonality as insurance co pays reset for the new year.
Spike These factors daughter achieved revenue growth in the first quarter of 2022 of 21% over the first quarter of 2021.
<unk> performance in the quarter was a result of several factors, including commercial execution, leading to expanded extract utilization within our installed base.
Additional pharos excimer laser customers to our platform and continued growth in equipment sales, particularly in international markets.
More specifically our domestic extract installed base increased to 903 devices up from 890 at the end of Q4 2021.
And internationally, we are pleased to see continued strength in equipment sales our decision to remain flexible and offering either placement or purchase models in order to best attract international customers has paid off and we will continue this approach going forward in order to capture the greatest market share possible, especially as we branch out explore new international.
No markets.
Throughout the first quarter, we made notable progress on strategies identified last year to secure success success in driving long term sustainable growth. Some recent highlights include a consistent level of investment in DTC advertising has continued to drive patient interest and appointments for extract treatment.
Our new director Dermatology marketing has our sales force delivery disease state messaging and benefits and extract laser treatments for psoriasis.
I go and atopic dermatitis. This is now being reinforced by rapidly by the efforts of our professional relations activities, which has kols speaking about extract at medical meetings and the value of targeted therapy as an excellent treatment option for patients either alone or in combination with drug therapies.
We expect all of these commercial activities will drive increased usage of extracting grow recurring revenues.
In addition, re engaging with high volume accounts customers that produce more than 40000 in revenue per year. It is also showing positive outcomes in the first quarter of 2022, we had 162 high volume accounts that contributed $2 4 million or 48% of the total gross domestic recurring revenues. This compares to one.
150 high volume accounts that contributed $2 4 million or 48% total gross domestic recurring revenues in Q1 of 2021 there's.
There's not always signals or our ability to add new high volume customers, but they are lower tiered accounts are contributing at higher levels. It.
It is important to note that these high volume accounts are also the primary targets for seating X track momentum our enhanced excimer laser Washington February momentum represents the latest in excimer laser technology, delivering high power and a fast repetition rate than previous models. The momentum also offers a new user interface.
The slim design intended to improve the treatment experience for both the physician and the patient.
We have already commenced placements in the U S. With the goal of deploying 15 to 20 machines by year at these placements will allow dermatologists to treat patients more efficiently and then return further improve our recurring revenue streams in these participating high volume accounts.
Removal refurbishment and redeployment of non revenue generating placements is also a strategy. We are pursuing in order to gain further leverage and cost efficiencies to mitigate potential suppliers chain risks.
Typically when we identify a customer that is not placed an order in six months, we began the process of removal.
Removal.
This approach has been successful for us thus far and we plan to continue this practice going forward with a goal of keeping non revenue generating customers at or below 15% of our domestic installed base.
Lastly, supporting our commercial team with improved marketing campaigns that can best drive usage among dermatologists.
We were pleased to become a corporate sponsor of the global Dental Libra Foundation, we look forward to further supporting their mission of improving the quality of life of individuals with vitiligo for years to come. Additionally, strata had a positive presence at the recent American Academy of Dermatology meeting in Boston, We had a number of productive one on one meetings with current and potential partner.
In addition, our excimer laser discussion included in various presentations on psoriasis and vitiligo.
Turning to our acquisition of <unk> medical Dermatology business last August and the first quarter. We were successful in adding 15, former parents device owners to our platform, bringing our total to 45 new customers to date.
<unk> come back customers are not now committed to our extract system and recurring revenue partnership model.
Looking ahead, the majority of the remaining 198 Ferro service contracts expire in 2022, providing substantial opportunities that our sales force our sales team can leverage throughout the year. We are actively engaged with these customers in order to provide a smooth transition to extract to the extra platform.
We anticipate further conversion will remain high and while not all faros customers will switch to extra App. We are confident that we can achieve at least the current conversion rate of at least 40% to 45%.
In terms of expansion in the dermatology market our acquisition in January the third they're acting system from third bancorporation enables us to leverage our existing sales force customer base and distribution network to enter the estimated $5 $5 billion of acne market.
Our goal is to launch the new third their apps as part of that strategy portfolio in the third quarter of this year.
Tracking this timeline, we have already begun to solicit customer feedback gathered key clinical support build inventory and invest in the sales force training and marketing initiatives targeted towards dermatologists with large populations of patients.
The feedback thus far is very favorable dermatologists are looking for solutions to common skin problems like Acme and not only will quickly provide visible results, but that can also be an economic contributor to their practice.
Overtime, we believe that there are clear system as additional indications for dermatologic conditions, which we plan to develop and launch in the coming years.
Turning to our international results as I mentioned at the onset of the call. We saw particularly strong internationally equipment sales total revenue for our international business. In Q1, 2022 grew 45% over Q1 of 2021, reflecting a renewed focus on key regions outside of the U S as well as our flexible approach.
<unk> been working with customers and distribution partners in the coming quarters, we have plans to further expand internationally. We believe that we can leverage the third etch system in more countries as Latin as acne presents a large opportunity, particularly in Latin America.
As we enter the second quarter, we have seen Q1 momentum persist and are optimistic. This trend will continue we saw a strong march in which the staffing issues existing throughout the pandemic. We're finally showing signs of some subsiding, we have a training initiative with our Salesforce in Q2, and we plan to introduce a new automated system.
It will give our team the tools to target and increased business with historical and current data analysis.
Our direct dermatology marketing is also taking hold and we are seeing the results in increased revenues from the prior year.
I focused on commercial execution is paying off and I'm more encouraged than ever that strider is heading in the right direction on track for the remainder of 2022 and expanding its potential going forward.
And then look towards the rest of the year I am very excited about the many catalysts strata has on the horizon. We are looking forward to rolling out there their apps and expanding into the Acme care market further driving adoption and utilization of extract and interacting more directly with dermatologists to increase exposure among the dermatology community.
I'd like to turn the call over to Chris.
Thank you Bob.
Revenues for the first quarter of 2020 247 million, a 21% increase over the first quarter of 2021.
Considering the headwinds from Oh, My God, our first quarter revenue was driven by a continued focus on driving usage with extract partners.
Strong equipment sales internationally to start the new year.
Recurring revenues in the first quarter were $5 1 billion in.
An increase an 8% increase over the first quarter of 2021.
The increase in recurring revenues was strong.
Even with the impact from a loss treatment days in January due to COVID-19 surge as well as insurance resets.
Equipment revenues for the first quarter were $1 9 million, 72% increase as compared to $1 1 billion for the first quarter 2021.
These results reflect the flexibility we have granted our international distribution partners to drive top line revenues.
We have found that in some markets. The placement model is not a good commercial option thus.
Thus, we want to be able to gain share with capital sales.
For the first quarter 2022, non-GAAP gross domestic recurring billings was $5 million, an 8% increase as compared to $4 6 million in the first quarter of 2021.
Overall gross profit for the first quarter was $4 1 million or 59% of revenues as compared to $3 7 million or 64% of revenues for the first quarter of 2021.
The lower gross margin in the quarter was primarily due to the increase in intangible amortization expenses associated with our recent asset acquisitions, there are clear and Paris.
Looking ahead, we expect these gross margin improvements throughout the remainder of 2020 to.
Returning to historical levels in the mid sixties.
With some quarterly fluctuation based on the mix between recurring revenues from system placements and equipment sales.
In addition, while we have taken steps to mitigate supply chain risks some minimal impact is still anticipated.
Gross profit for recurring revenues in the first quarter were $3 million or 60% of revenues as compared to $3 2 million or 68% of revenues in the first quarter of 2021.
As previously noted the decrease has been profit margins were due to the increase in intangible amortization expenses associated with our recent acts asset acquisitions up there are clear and Paris.
Okay.
Operating expenses were $6 4 million, an increase of 5% compared to $6 1 million in the first quarter of 2020 one.
Going forward, we expect operating expenses to slightly increase as we prepare for launch a third clear ex in Q3.
And our continued investments in sales and marketing throughout 2022.
Net loss for the first quarter 2022 was $2 5 million.
Or a loss of seven cents per basic and diluted common share.
As compared to the net loss for the first quarter of 2021 a $2 4 million or a loss of seven cents per basic and diluted common share.
At March 31, 2022, cash and cash equivalents was $10 9 million.
As compared to $12 6 million at December 31, 2021.
Turning to our guidance for the full year 2022.
As we laid out in our last quarter's earnings call. We continue to expect full year 2022 revenues to be in a range of $33 million to $35 million.
Representing strong double digit growth.
We are pleased with the progress that we've made towards this goal in Q1 and are looking forward to building upon the strong base in the coming quarters.
With that.
Bob and I would like to open the call for questions.
And at this time, we will 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 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.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Hi, This is actually destiny on for Jeff. Thank you for taking our questions.
Firstly I was just wondering if you could discuss a little bit more about the marketing efforts underway ahead of her Sarah clear launch I'm. Just curious is there any crossover.
The patient suffering from both acne and psoriasis and are you able to leverage any of this historic marketing do you have for your current patients and clinics and kind of use that to educate your theory clear campaign.
Hi, Destiny. Thanks for your question.
Yeah. So we've got a lot of activity going on as you can imagine we're getting ready for a launch right now with where our scheduling for July .
We've.
Done some additional market research, we've actually placed us of machines with five key opinion leaders in the acne space. So they could you know get some experience with it give us some feedback from patients who they treat and also they'll help us with some before and after.
Photos, we have a launch meeting where we'll do training for our sales force in June .
Preparing marketing materials for the launch so.
We're full speed getting ready for this exciting launch for us moving into this acne space.
It's a great opportunity, we have a lot of experience at it from a past companies and say it will be very successful there as far as cross over you know as you.
Probably realize.
<unk> is typically a disease state of teenagers and young females.
That does crossover slightly into psoriasis, but I think the majority of our psoriasis patients are probably.
You know more mature in age so that's the real the real opportunity is with the 900 current extract partners.
Because they are medical dermatologist in general who are treating medical condition. So if they're treating psoriasis. They typically treating acne as well. So we expect that those will be you know key targets for us I'm.
Just to kind of round out there are they device options for patients now for psoriasis vitiligo atopic dermatitis will add acne and I think there'll be other indications for third player down the road. So the crossover really comes with our partner is not so much with the patients themselves. Although the there will be some.
Okay I got it similar strategies different messaging I got it and then that kind of leads into the next question I'm curious what other indications do you think that there are clear with the appropriate flatbread you've mentioned a couple of times that you're definitely thinking about expanding it.
Yeah. So I feel light as you know is used for not only acne, but hair removal. It's also used for our red the redness associated with rosacea can be used for fine lines and wrinkles tattoo removal, so theres a number of different options.
We're going to look at the markets and to identify what makes the most sense for the audience that we're trying to reach mainly our current partners and beyond and we will go down that road with some additional clinical studies and support materials. So when we go and promote it will have some good clinical data to show the physicians.
Okay understood. So maybe I'll just transition to some of the Pharos comebacks what strategies are you utilizing two kind of determined which accounts. Your sales organization is spending the most time with are there certain metrics that you're utilizing or how are you approaching sure well it really starts with the number.
<unk>.
Ferrous owners, who were coming off service contracts, we identified that early on in the process that there are approximately 250.
About 155 of them are coming off in 2022, you know we had some success obviously in the first quarter and transitioning another 15, so the totals up to 45, but the ones that haven't come over yet that doesn't mean, we won't get them just means that they're not ready a lot of these dermatology practices had.
Purchase those ferrous machines and they're still working so until they have a need for service or an event happens where the machine.
It doesn't work for them anymore, they're going to continue to use that machine, but once that happens we'll be in a position hopefully to step in and offer them the extract partnership but.
But as far as targeting you know certainly we want to get all of them, but the highest volume ones are certainly at the top of our list. You know those are some of the pharos users that you know, we're actually extract users years ago and switched over to Pharos. So we hope for to bring hopefully hoping to bring them back.
Okay I understand got it and then maybe just shifting to your comments around O U S. Efforts can you discuss some of the additional territories you believe you'll expand into next then are you able to disclose any additional partnerships Oh you asked at the moment.
Yeah, we haven't.
Signing new partnerships and in Q1, we are looking to expand particularly in Asia, because we've had a lot of success over there.
We've got a registration going in Taiwan, I always looked at Australia, as an opportunity as well we haven't done much in Europe , and I think that's an area that we want to explore next than she used to those kind of opportunities exist there for not only X extract but for thorough clear.
And we also have.
I have not done much in Latin America, and we know that there is an opportunity for absolutely for thorough clear. They are there actually are some devices down there currently so we hope to expand upon that and then introduce extract as well.
Okay last one and then I'll jump back in queue, and you've had an appetite for M&A recently, so I'm curious if there are any other areas you think some tuck ins or an acquisition would be appropriate or if they're going to be full throttle focused on your current platforms for the remainder of 'twenty two 'twenty three thank you.
Thanks Destiny.
Yeah, I mean, obviously, we wanted to be focused on launching thorough clearer and doing that correctly I mean commercial execution around that as well as you know the continued growth of extract is most important to us but that being said I think I've said it before we want to be opportunistic and we're looking in the medical side of dermatology. So we're looking at additional medical devices and potential.
All indications could be skin cancers of hyperhidrosis or watch or is it very under treated area and you know I don't rule out the possibility of adding you know a topical at some point the management team has a lot of experience in marketing and selling topical <unk> in.
In dermatology, so if that rate the right opportunity came along in that area. That's something we just explore as well.
Perfect. Thank you.
Thanks Destiny.
Our next question comes from the line of Suraj Kalia with Oppenheimer Company and company. Please proceed with your question.
Hey, Bob Chris can you hear me all right.
Can you find good afternoon.
Oh, I hope everyone is safe and healthy.
So Bob.
Let's start out with a patient retention.
Or rather completing their full course.
Stack up currently in the U S and more specifically when I look internationally. Your focus internationally I'm curious if you can give us some guideposts on how to think about all U S.
Just in terms of visits therapy or whether it's extract right. How should we think about patients coming in and completing their full regimen of treatment sure.
Yeah.
Our data shows that on average the typical patient for psoriasis is coming in about a dozen times you know and we know we have clinical data that shows that the you'll see a 75% passey score after about six seven treatment, so a little bit more than actually the clinical says, but I don't think that.
It's unusual in every dermatologist treats disease state differently. So we think we're doing well in that area.
Retention of those patients as it is certainly a focus of ours.
Using our customer service group as well as.
Some of our new marketing efforts, our direct to patient mailings and and E blast to remind them that you know when they get a flare up again to come back in and get the extract treatment, especially are you know, we're assuming that it was successful for them and clearing up their their disease state. So I think that is a big effort that we.
Wanted to continue to drive at it did drop off during Covid as you would imagine it was hard enough to get patients to come in you know for a doctor's visit to begin with live in mind retention. So.
That's clearly a focus for us on the international side I think as you know suraj. The majority of the treatments internationally for vitiligo and that requires more treatments and my understanding from our distributors is that a lot of the the dermatologists to treat vitiligo and an international basis due in large clinics. So.
They'll set up a whole day basically to treat vitiligo patients and just you know run.
The number of patients through the extra laser.
In a single day, and then bring them back again, obviously on some type of schedule. So I can't really give you the details of what the that the percentage of them who finished the treatment is but I think you know my experience has been with international.
Dermatology markets that the patients are a little bit more you know attributed to the finishing their therapy than they are in the U S. So I'm guessing it might be leaving a little bit better in the U S. But I don't have any real data to support that.
Fair enough.
Bob in terms of one question for you and one for Chris So Bob.
In terms of.
You know that the.
A number of them.
I believe you said about 100 and please forgive me if I screwed up these numbers like 168 clients delivered $2 1 million in the quarter of 48% of recurring I'm sure I screwed up one of these numbers I mean, the rough math suggests its about little around 12, 12, and a half thousand per.
Per quarter.
As you get entrenched and the business Bob.
What are you seeing that these guys are doing differently versus the others. What does the gap analysis suggests.
And Chris if I.
I could pose a question for you in terms of the Ari contribution.
For FY 'twenty to guide my.
Memory is failing me remind me how you all.
<unk> core quote unquote organic versus acquired growth gentlemen, thank you for taking my questions.
Thanks Suraj.
I'll take the first part on.
So it was 162 high volume customers that contributed about $2 4 million or 48% and I think what the high volume customers from my experience you know what what's.
What difference that front with them is one obviously theyre very sold on the they.
The usage of the extract lays it not only for psoriasis, but for vitiligo as well they use it not only as a monotherapy, but in combination with some of the drugs that they're using secondly.
Secondly, I think they understand the economic value to their practice.
By treating more patients, obviously, they're able to to generate more revenue for their practice. So I think that they understand that that piece of it as well and then lastly, I think you know.
The high volume customers typically have a pretty large patient base.
I think on average a typical dermatology practice, we'll see somewhere in the range of 50 to 60 patients a day, but high volume practice may see close to 100, so typically theres a bigger practices that could be in a group and they generate obviously more patients, which probably generates more revenue out of that practice. So hopefully that answers your question and I'll turn it over.
Chris.
Hey, good afternoon, Suraj, so when a brand acquisition.
We didn't really put in there.
What we were anticipating from a dollar revenue standpoint, however, as noted in prior.
Quarters here, we want to try to gain 40% to 45% of that 270 units that are out there from a service contract perspective.
We anticipate that that sales mix will probably mirror our current revenue per machine.
Anywhere from the 6000 to $7000 per device when it's all said and done.
So that's why we're we're anticipating for.
For this year.
Thank you.
Yeah.
And we have reached the end of the question and answer session I will now turn the call back over to Bob Osha for closing remarks.
Yeah, Tim we just say I'd like to thank everybody for joining the call today and I look forward to speaking to you with our Q2 results. Shortly I believe so thanks again have a good evening.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
[music].
Yeah.
Yeah.
Okay.
[music].
Okay.