Q3 2022 STRATA Skin Sciences Inc Earnings Call
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Greetings, ladies and gentlemen, and welcome to the Stratus science.
Skin Sciences third 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. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Nicole Jones Investor Relations. Thank you. Please go ahead.
Thank you and good afternoon, everyone. Joining me today are Bob Moshe Chief Executive Officer, and Chris Watson.
Chief Financial Officer.
Earlier today <unk> released financial results for the quarter ended September 30 of 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 that include forward looking statements within the meaning of the 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 that do 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 are based upon our current estimates and various assumptions.
These statements involve 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 Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31 2012.
Anyone.
This conference call contains time sensitive information and is accurate only as the live broadcast today November nine 2022.
<unk> 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 billing, which is a non-GAAP financial measure.
Reconciliation of this non-GAAP financial measure to the most recently comparable GAAP financial measure is available on the company's earnings release for the third fiscal quarter ended September 30th 2022, which is accessible on the SEC's website and posted on the Investor Relations page of <unk> website at Www Dot strata skin science.
The dot Com I will now turn the call over to Bob.
Thank you Nicole.
We're really excited to announce very strong revenues of $9 $4 million for the period, ending September 32022, representing 22% year over year growth driven by record extract sales, we remain acutely focused on the commercial execution and positioning the company.
For accelerated growth over the coming quarters.
Remain targeted in our sales approach and are focused on closing the loop between our direct to consumer advertising efforts and the prescribing dermatologists, which we believe has set the stage for our success this quarter.
During Q3, we successfully introduced our new product X for mild to moderate Acme, we are enthusiastic about entering into the $5 5 billion dollar acne treatment market and we believe our product has the potential to make a meaningful impact for those who suffer from <unk>.
The device utilizes vacuum extraction with light therapy to clear out the occluded pores, while reducing sebum oil production simultaneously.
Accordingly, <unk> X delivered strata and exciting new commercial opportunity growth opportunity, whereby we have the ability to sell through our well established partnership program.
Contributing to our record sales this quarter was our focus on our targeted therapy messaging, increasing equipment sales in our international markets and key opinion leader engagement.
In our international markets, we have remained flexible in our offerings shifting to more equipment sales as we saw this quarter. What we projected going forward is that our international revenue will largely come from capital equipment sales.
<unk> has continued to invest in direct to consumer also known as DTC marketing and directed dermatology dermatologist marketing to ultimately drive awareness adoption and utilization of extra our approach to DTC has become more focused as we rely on analytics to drive our tactics and strategy to drive decisions around our marketing efforts.
In August Ladenburg Thalmann hosted a key opinion leader or Kols event with Dr. Benjamin watching M. D F. A D for strider as part of its healthcare Symposia series Doctor, Washington is a director of clinical trials as a director of the clinical trial Center at Derma Associates, and it's been a board certified dermatologist.
Just for over 18 years. He also serves as an assistant professor at Georgetown University during Dr. Watkins presentation. He highlighted extract as a safe and cost effective option for patients suffering from chronic skin conditions like psoriasis and vitiligo you discussed extracts place as a non pharmaceutical approach to manage cost.
Diseases, and how does device can be used across the spectrum of disease severity for monotherapy or combination therapy, we would like to thank Ladenburg Thalmann and Dr. <unk> again for their time and efforts in hosting this KOL event.
Turning now to extract earlier this year, we debuted extract momentum which has a smaller sleeker footprint allows for faster procedure times.
We remain enthusiastic about our rollout of momentum as it represents the latest in excimer laser technology and provides an improved treatment experience for physicians and patients alike.
As of September 32022, there were 899 extract systems placed a dermatologist, obviously, the United States any increase from 890 units placed in the period ended December 31 2021, we.
We continue to be focused on our strategy of refurbishing and redeploying underutilized assets.
Definitely helps on multiple fronts. It allows strategy to reduce cost of goods sold since we are able to utilize the parts from those other machines that had been removed. Additionally, it allows us to better manage our or whether supply chain issues as they arise.
We believe keeping underutilized machines below 15% will ensure that the machines in the market are being utilized on a minimal level basis.
In July <unk> insights obsolete became the first FDA approved treatment for vitiligo, a chronic autoimmune condition that causes the skin to lose pigment.
With the approval of the first prescription treatment for vitiligo. We believe this could help drive patients into dermatologist office and demand for <unk> services as a complement to the prescription treatments for vitiligo.
As a reminder, Australia acquired the assets of Rob Medical systems in August of last year, effectively eliminating a major medical equipment competitor and allowing us to market our full business solution to Rob Medical's existing base. The acquisition increased our installed base by an additional 400 dermatology practices accounting for 250, new accounts are still.
Those forces aggressively focused on converting faros users to the abstract partnership model. We are pleased to have converted 10.
<unk> uses to extract partnership this quarter totaling totaling 67 customers to date, who are committed we are on track with our conversion expectations. As we previously mentioned conversions are largely dependent on when the <unk> devices will need to be serviced in which at that time, we had the opportunity to convert the customers the extract partnership.
Model.
In July we announced the commercial introduction of <unk>, our noninvasive in office treatment targeting the root cause of mild to moderate Acme launching the company into the $5 5 billion at the treatment market.
Advice combines vacuum technology and broadband light to treat acne do our partnership program dermatologists are able to offer this therapy or expectations without the need to purchase expensive equipment was the Acme accounting for 20%, 25% of dermatology visits we believe <unk> could be a great.
Synergy for the company. Additionally, strata is leveraging its national sales force and commercial team to sell through its existing channels. We expect to have several placements by the end of 'twenty, two and executed on a full launch in 2023.
With respect to our international operations, we have remained flexible to the strategy, which has shifted to more equipment sales. In this model devices are sold directly to dermatologists emphasize you had cash driven reimbursement approach as a reminder, we have distribution agreements in Korea, Japan, China, the middle East and Israel. Furthermore, actually delivers.
A large international opportunity, which we hope to address with <unk> X.
X device with a focus on international operations. We believe we will continue to see meaningful growth.
Into the future.
With that I would like to now turn the call over to Chris to discuss the financials Chris.
Thank you Bob.
Revenues for the third quarter of 2022 were $9 4 million, a 22% increase over third quarter of 2021.
Our third quarter revenue was driven by strong international equipment sales.
non-GAAP adjusted EBITDA was $1 1 million as compared to 900000 for the third quarter of 2021.
Equipment revenues for the third quarter were $3 6 million an increase.
78% increase as compared to $2 million for the third quarter of 2021.
Recurring revenues in the third quarter were $5 8 million as compared to $5 7 million for the third quarter of 2021.
non-GAAP gross domestic recurrent billings was $5 5 million.
5% decrease as compared to $5 8 million in third quarter of 2021.
Overall gross profit for the third quarter was $5 8 million or 61, 6% of revenues as compared to $5 4 million or 69, 7% of revenues for the third quarter of 2021.
Our gross margin in the quarter was primarily due to the increase in intangible amortization expenses associated with our recent asset acquisitions of therapy or in Paris.
Excluding amortization gross margin was 67% in Q3 2022 versus 71, 6% in Q3 of 2021.
The decrease in gross profit percentage was primarily the result of the product mix with higher sales of dermatology procedures equipment, which has a lower margin than dermatology recurring procedures.
Looking ahead, we continue to expect to see gross margin improvement throughout the remainder of 2022.
Operating expenses were $6 6 million, an increase of 12, 7% compared to $5 8 million in the third quarter of 2021.
The increase reflects investments in our commercial strategy, including higher direct to dermatologists marketing.
Professional relations activities.
<unk> expenses related to the launch of <unk>.
Increased employee related expenses and higher consulting service costs.
Net loss for the third quarter of 2022 with $1 million or a loss of <unk> <unk> per basic and diluted common share as compared to the net loss for the third quarter of 2021.
500000, or a loss of <unk> <unk> per basic and diluted common share.
At September 32022, cash and cash equivalent was $8 8 million as compared to $10 million at June 32022.
Now turning to our full year guidance, we laid out in the beginning of the year. We continue to expect full year 2022 revenues to be in the range of $33 million to $35 million.
I will now turn the call over to Bob for his closing remarks.
Bob.
As you look at the remainder of the year. We believe there are a few catalysts that will continue to drive revenues, we project very very.
There are clear X to be a significant contributor to our revenues in 2023 to reiterate we plan on utilizing our already existing sales force to market. The device as dermatologist look for nonprescription complementary treatment for acne, we are confident that <unk> could provide the results and clinical benefit necessary as we mentioned earlier.
We launched extract momentum for our major customers the devices improved design and increase throughput will allow for treatment to be completed quicker, which could drive increased utilization.
Over the past year strategy has aggressively implemented.
Implemented an initiative, we're underutilized machines removed into redeployed with the goal to reduce the underutilization machines to 15% by <unk>.
Focusing on this strategy, we were able to manage costs and potential supply chain issues when looking towards the international markets. Our flexible sales model has allowed us to shift more towards equipment sales by this measure.
National sales channels are making a meaningful impact on our revenues, which we plan to continue for the remainder of the year and beyond.
Our acquisition of <unk> Medical systems will also contribute to our revenue growth as we aim to convert raw uses to extract as devices need service servicing of repair. The extract partnership model is ideal for dermatologists in their practices as it does not require the purchase of capital intensive equipment. The asset light model allows dermatologists to remain flexible in there.
Our offerings.
We remain excited to capitalize on our catalysts over the over the remainder of this year, we will continue to drive extra utilization grow our presence in our international markets focused on our direct to consumer direct direct dermatologist marketing and continue to rollout <unk> X, which we believe will meaningfully contribute to growing our top line I'll turn.
The call over to the operator for a question and answer session operator.
Thank you we will now be conducting a question and answer session for analysts if he would 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 would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up the handset.
Before pressing the star keys.
Again for any analysts I would like to ask a question. Please press star one on your telephone keypad at this time.
Our first question today is coming from Jeff Cohen with Ladenburg Thalmann. Please go ahead.
Hi, This is destiny on for Jeff. Thank you for taking our questions.
Hi, Jess.
Hi, Hi, Hope you guys are doing well.
To start first with your commentary around leveraging your DTC campaigns that are existing for extract and that you're leveraging four there are clear can you just give us some additional color on the benefits that that will have in terms of not only growing topline getting.
Awareness out other counts, but also the benefit in terms of your sales and marketing costs.
Sure Yeah as you know the company has had a lot of success in the past with direct to consumer advertising and particularly using social media platforms as well as in office promotion driven from the offices out to their patients.
We've been had a lot of success with that extract with the partnership model and driving patients into the.
The dermatologists office for treatments and we think that will work just as well with there are clear we haven't completely rolled out a full program for therapy. At this point as you know we are having a controlled launch here since July and really gearing up for a full launch as we move into 2023, but we do see the opportunity to develop in office.
<unk> waiting room type materials.
Brochures that the patients can bring home and we will be utilizing social media as well for therapy.
As part of our overall DTC marketing plan for 2023.
As that relates to our sales and marketing efforts.
Really as I think I've talked about it before destiny. It's in my mind is closing the loop. So we'll follow up that was also directed dermatologist marketing we want to make sure that when we do send patients into the dermatologist office that the providers.
Sure that.
Extract or third clear is the right choice for that patient so that requires not only our marketing and professional relations activities, but our sales force and they are delivering the right message to our providers. So that they feel confident in prescribing extract or therapy for their patients.
Does that answer your question.
It definitely does thank you for that and then I guess I'd like to transition. Thank you.
Transition towards your commentary around vitiligo, we enjoyed hosting doctoral option for our investors that and when he was discussing.
This new drug that you know.
Recently launched he was here.
Discussing that there could be opportunity for strata to also benefit from that and I I heard you discuss that briefly in your prepared remarks. So I'm. Just wondering if you can speak a little bit more to that and if there are any trends you're seeing early on.
Sure absolutely so.
There hasnt been as you probably know anything really approved for the indication vitiligo for a longtime drug or or device for that matter X track is one of the few medical treatments that is available for <unk>. So the approval of <unk>. We believe is going to probably caused a lot of bit of legal pay.
<unk>, who haven't sought treatment for awhile to return to the dermatologist to just see what this is all about and as Dr. Washington said on the on the interview you had with them I think not only will that additional patient load coming into the dermatologist would be good for extracts, but there is some anecdotal discussion out there between PLO.
<unk> debt that the drug might work better with light and obviously extract is a light therapy targeted therapy very effective in the use.
<unk>, so we believe that.
Dermatologists get more experienced with ops lower they may incorporate light therapy or X track into that.
<unk> regimen, so I think that's exciting for us and we've already armed our sales force with information around that and.
Marketing materials to promote that message.
Okay got it. Thank you and then lastly for US can we just discuss your.
Our U S strategy, a bit more and more specifically around fees. There are clear device. Thank you for taking our questions.
Sure. Thanks Destiny.
So I think.
As you know earlier this year, we start to transition a little bit more to capital equipment sales. So U S. We do still have a placement model out there we have a number of placements in Asia.
But we did get feedback from some of our distributors that they thought that they could be more effective and actually selling capital equipment and some of the countries. So we wanted to be flexible with our distributors there they have boots on the ground and figure that they know those markets better than we do so we did give them that flexibility and it's really paid off for us, particularly if you remember last quarter we had.
$1 million sale in China that was very helpful for the for Q2 as well as for the overall year.
It continues going forward, we're seeing more and more of our partners.
Looking to purchase machines.
All of them and sell them in their countries versus the placement so.
It's worked very well and we believe that's going to be similar with Derek there. We think that will when we start to launch there were clear in other countries, particularly the Asian countries as well as we think Theres an opportunity in Latin America, they will probably be mainly capital equipment sales.
The devices.
<unk> expenses as an extract or V track for that matter. So I think.
We'll probably see more of our partners looking to purchase. These there are clear from US then.
Placement model.
Got it alright, thank you for taking our questions I'll jump back in queue. Thanks Destiny.
Thank you. The next question is coming from Suraj Kalia of Oppenheimer. Please go ahead.
Good afternoon, Bob and Chris This is actually Mike on for Suraj, congrats might be doing.
Good thanks for taking my questions I wanted to start by asking how is the utilization in our Rev persist, especially if you can comment on higher volume accounts versus lower volume accounts and I don't know if you gave any of the high volume account metrics that I think you've shared in the past around number of accounts.
<unk> as a percent of reps that kind of thing.
Yes, we did it.
We.
As you know from last quarter, we have around 200 high volume accounts that number doesn't fluctuate a whole heck of a lot they're generating about 50%.
Maybe a little bit over 50% of our overall revenue.
I continue to be real drivers of the business. They seem to have come overcome some of the operational issues that we're seeing in some of our more.
More mill accounts, if you will we've talked about a lot. This year, there's a lot of staffing issues out there.
Is that a lot of dermatologist, who sold their practices to private equity. So I think post COVID-19, there's been a lot of changes in the dermatology landscape and we've done a good job navigating through that.
But the high volume customers in particular continue to really drive our business.
Okay that makes sense Bob.
Then.
Turning to the consumer in this current environment are you seeing any changes in consumer behavior any impact on their session completion rates that sort of thing.
No I think the.
The patients have good that really strong I mean <unk>.
To a dermatologist that are in private practice.
Have long waiting waiting list of patients and long waits for appointments so.
Patients is not an issue.
Staffing has been the real problem operationally.
<unk> had a lot of turnover and hiring has been a problem just like in any other industry. So that's been the real kind of headwind that we've seen all year long, we're hoping that it's really starting to go in the other direction now and we're expecting a strong Q4. So I think those are.
Some of those issues will start to take care of themselves but.
That's really the only thing that I would say, it's been a headwind for us as far as patients go the patients who come back very strong.
Okay, that's great to hear and then.
You said you expect a strong for acute any.
Color you would offer as to the performance either on the top line or the gross margin line, you know relative to <unk>.
Look at the balance of the year, obviously, you reaffirmed your guidance for the year. Despite the nice beat today.
Yes, I'll, let I'll, let Chris handle that one.
Sure I mean, you can see you can expect the margins to still increase as compared to prior three quarters here.
With that being said the recurring revenue historically.
Historically, you will see Q4 has always been the best quarter for us and we're anticipating that to occur again.
Equipment Wise international.
Historically Q4 has always kept a little bit so.
We're anticipating the same there, but we're expecting another strong quarter another strong recurring revenue quarter.
Great Yeah, Mike just to add to that I mean, as you know.
This is the majority of our our usage in the United States for X tracking.
Whether it gets cooler that's been suraj the starts to flare up so.
We always see the fourth quarter being very very strong for that reason and no reason to believe it won't be this time around as well.
Okay. That's all really helpful. Thanks, guys.
Sure.
Once again, if theres any analysts I would like to ask a question. Please press star one on their telephone keypad at this time well pause for any additional questions.
Yeah.
We're showing no additional questions in queue at this time I would like to turn the floor back over to Mr. Moshe.
Thank you again for joining us for the third quarter earnings call. We look forward to updating you on our continued progress everybody have a good evening.
Okay.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time and enjoy the rest of your evening.
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Yes.
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