Q4 2022 STRATA Skin Sciences Inc Earnings Call

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Hello, and welcome to the strata skin Sciences fourth quarter, 2022, and full year earnings call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad.

Question and answer session will follow the formal presentation.

Yeah.

As a reminder, this conference is being recorded its now my pleasure to turn the call over to Gary deeper Arena. Please go ahead.

Thank you and good morning, everyone.

Joining me today are Bob O'shaughnessy, Chief Executive Officer, and Chris Watson, Chief Financial Officer.

Earlier today <unk> released financial results for the quarter ended December 31, 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 facts.

As to expectations or predictions of future button.

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.

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 these risks and uncertainties associated with your 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, 2022.

This conference call contains time sensitive information and is accurate only as of the live broadcast today March 31 2023.

<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 refer to gross domestic 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 fourth fiscal quarter ended December 31 2022.

Which is accessible on the SEC's website and posted on the Investor Relations page as strong as what.

And with that I'll turn the call over to Bob Moshe Bob.

Thank you Gabby. Thank you to all for joining US today 2022 proved to be a record year for strata, we announced record revenue of $36 2 million, which was above guidance, representing a 26% growth compared to the prior year period. Our successes are a direct result of our acute focus on commercial execution.

<unk> and strategic priorities.

As a brief recap this year, we achieved record revenues acquired and successfully launched commercially launched there are clear extra acne treatment launched extract one point or momentum or faster laser device than our standard model strengthened our leadership team with the addition of John Bagdasarian, Vice President professional relations and Mike Goodman head of international.

<unk> entered into new international markets, including Israel, and Mexico, and continue to raise awareness of our extract and aircraft systems at various dermatology conferences.

Two is to achieve the strong double digit growth, we continued to invest in direct to consumer marketing and directed dermatologists marketing engaged with high volume accounts refurbished and deployed underutilized assets interacting with key opinion leaders to fine tune, our messaging and helped delivered clinical support to our devices.

Since September 32022, we placed 45 extract machines, resulting in a total of 909 systems placed in dermatologist offices in the United States. This growth signals that demand and need for additional treatment options for psoriasis eczema and vitiligo.

Extract continues to present us with a unique opportunity as 80% of the usage in the United States is for psoriasis as we have previously mentioned, we have initiated with our commercial team to drive usage for vitiligo. We expect the recent approval of the first FDA drug treatment for <unk> cream more commonly known as <unk> could.

Extract treatment and drive traffic to dermatologist offices.

In February of this year, we announced the launch of our New X track website, the new website its patient forward educational and easy to use it allows potential patients to find the dermatologist in the surrounding area by using the practice find your function. The website emphasizes our focus on broadening patient awareness with the ultimate goal of serving patients who suffer.

From Germany, a lot dermatologic conditions, and increasing X track usage.

At the beginning of 2022, we announced the acquisition of their clear X from Cerave incorporation.

There are clear accident noninvasive in office treatment targeting the root cause of mild to moderate Acme.

In July 2022, we commercially launched their acts as part of our launch we carried out additional market research built inventory invested in our sales force and created a marketing plan. We have utilized the extra sales channels to sell through the circular X system and we're excited to continue patient and physician education on this Earth X device.

The cost of their clear extra the patient is a fraction of the cost of the competitive device launch this year.

As a reminder, 20% to 25% of all visits to dermatologists for Abbvie, often treated with prescription drugs that can be costly or device delivers a unique combination of broadband light and vacuum technology that begins to clear the skin rapidly Arthur ex treatment can help potentially increase compliance of prescription treatments as patients.

We begin to see results rapidly.

A poster titled Advancement in personalized photodynamic therapy for rapid visible improvement in patients with mild to moderate acne was presented this January at the <unk> dermatology aesthetic and surgical conference. The clinical assessment was conducted by Dr. Gilly Mundo Valley, MD medical director and founder of Dermatology.

Laser vein specialists of Carolinas in Charlotte, North Carolina, and Dr. Jason Smith and Dr. Taylor Smith of Northwest, Georgia, Dermatology. The objective of the clinical assessors assessment was to evaluate via photographs changes in visual equity lesions in skin texture. After a series of tailored photo pneumatic their therapy.

<unk> limited patients with mild to moderate acne.

Highlights from the clinical assessment included all patients experienced the visible reduction in call me don't pustules and inflammatory facial lesions readiness reduction and improvement in skin texture pore size and Perry lesion of everything what was observed in the treatments. Most patients responded with two to three treatments one adult female patient with persistent.

Perry oil actually experienced complete clearance and adverse events were infrequent limited to mild erythema mild bruising superficial erosions and temporary changes in pigmentation.

These results are encouraging continue to highlight the efficacy and safety of therapy as a treatment for etsy.

This February <unk> was demonstrated in the inaugural winter.

Conference Dr. Joel Cohen M. D was a director of about skin dermatology in Greenwood village, Colorado spoke during the live presentation in Dr. Cohen practice, he utilizes their apps to build confidence in compliance and patients are waiting for prescription therapy to kick in.

The results from the clinical assessment and the demonstration at the Winter clinical conference continue to highlight the aircraft's safety and efficacy for treating acne with continued exposure in clinic and at industry conferences as well as exposure to our existing sales channels. We are confident in the potential growth of <unk> in 2023 this exposure.

US to broaden the awareness of our device and its proven capabilities. We are excited to see <unk> make an impact on revenues this year.

Now turning to our international operations internationally, we sold 100 systems made up of 88 X track and 12 detract systems. This compares to the 38 systems. We sold in 2021 as a reminder, we have signed distribution agreements in Korea, Japan, China, Israel, Saudi Arabia.

Kuwait, Oman, Qatar, Bahrain, UAE, Jordan, Iraq, and most recently Mexico.

This January we announced an exclusive agreement with Minto labs, a private company that represents international pharmaceutical companies to commercialize innovative products in Mexico for the distribution of extract the track and their exit Mexico for three years, when we look at Mexico as population. It is estimated at 80% of the population is affected.

Mild to severe acne, we are excited to enter into Mexico is nearly $300 million market as there is a great need for additional treatment options. We look forward to updating the community on our progress in gaining regulatory approval, which we expect to receive in the fourth quarter of this year.

In our international markets, there remains a great opportunity to market, our third X system and we expect this to be a focus this year. This year, we welcomed Michael Goodman to strider as the head of international sales, we have already seen meaningful improvement in our international operations, specifically, noting our increased international sales and strategy expansion into Israel and Mexico.

So with that I'll now turn the call over to our CFO , Chris <unk> Chris.

Thank you Bob.

Revenues for the fourth quarter of 2022 were $10 6 million, a 17% increase over the fourth quarter of 2021, and a 13% increase over the third quarter of 2022.

Our fourth quarter revenue was driven primarily by the continued increase in equipment sales internationally.

Recurring revenues in the fourth quarter were $6 5 million, 12% increase over the third quarter of 2022.

Similarly, the increase in recurring revenues was driven by the continued increase in extract usage as a result of the increased emphasis on sales force execution.

Equipment revenues for the fourth quarter were $4 1 million, an increase of 72% as compared to the $2 3 million for the fourth quarter of 2021.

And an increase of 14% as compared to $3 6 million for the third quarter of 2022.

The increase in equipment sales as a result of our increased focus on the international markets over the past year. We have made some significant changes we welcome Michael Goodman as head of International sales remained we remain flexible in our international product offerings and we have now have direct distribution agreements with our international partners.

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As we discussed last quarter and included in our press release issued this morning, we provided information on a non-GAAP measurement described.

Describe this gross domestic recurring billings, which represents the amounts invoiced 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.

Deferral of revenue from the current quarter are recorded as revenue in future quarters.

Adjustments for Copays and other discounts.

We also wanted to provide transparency with respect to the deferred revenue since we have a defer a portion of our GAAP recurring revenue in future quarters, a decrease in deferred revenue can impact each subsequent quarter.

For the fourth quarter 2022, non-GAAP gross domestic recurrent billings was $5 8 million a decrease of 6% as compared to $6 1 million in the fourth quarter of 2021 and.

And an increase of 4% as compared to the $5 5 million for the third quarter of 2022.

Overall gross profit for the fourth quarter was $6 8 million or 65% of revenues as compared to $6 million or <unk>, 66% of revenues for the fourth quarter of 2021.

Net loss for the fourth quarter of 2022 was 160000 or a loss of a half a cent per basic and diluted common share.

As compared to net loss for the fourth quarter of 2021 of 849000 or a loss of <unk> <unk> per basic and diluted common share.

And then that loss of the third quarter of 2022 of 995000 or a loss of <unk> <unk> per basic and diluted common share.

Now turning to the results for the full year 2022.

Revenues were $36 2 million a.

A 26% increase over 2021.

Recurring revenues in 2022 or $23 million in equipment revenues for the full year were $13 1 million, 76% increase over 2021.

For the full year 2022, non-GAAP gross domestic recurrent billings were 20 to $22 2 million, a 1% increase over full year 2021.

Overall gross profit in 2022 was $21 8 million or 60% of revenues as compared to $19 9 million or 66% of revenues for the full year 2021.

Gross profit percentage decrease is attributed to the recording of amortization expense associated with our <unk> and <unk> acquisitions. In addition to the sales mix during a year between equipment revenue to recurring.

Total operating expenses in 2022 was $26 4 million, an increase of eight 9% as compared to $24 3 million for the full year 2021.

This increase was driven primarily by our continued execution on our growth initiatives and expanding our business in the United States.

Additionally, we would like to mention that while companies have been facing supply chain issues, we have been able to use parts from our existing machines for repairs. This has allowed us to mitigate the ways and maintain a timely process where maintenance on our equipment.

Net loss for the year of 2022 was $5 5 million or a loss of <unk> 16 per basic and diluted common share as compared to net loss for the full year of 2021 of $2 7 million or a net loss of <unk> <unk> per basic and diluted common share.

At December 2000 at December 31, 2022, cash and cash equivalents was $6 8 million as compared to $8 8 million as of September 32022, resulting partially from the payment of $1 million for the acquisition of <unk>.

We are conservatively estimating top line revenue to be in the $38 million to $40 million range for 2023.

These estimates reflect our current growth expectations on the business and do not reflect the strategic initiatives, we are implementing which should enhance our business growth during the year.

With that Bob and I would like to open it up for call for questions.

Thank you well now be conducting a question answer session.

That can be placed in the question queue. 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 Q1 moment. Please while we pull for questions. Our first question today is coming from Jeffrey Cohen from Ladenburg Thalmann. Your line is now live.

Good morning, Rob and Chris how are you good morning, Jeff how are you.

So congrats on the 21% year over year.

I guess, firstly can we jump into the guard, which.

And it appears a little bit on the conservative Sean I think seven points, 7%, that's the midpoint on the top line any.

Thoughts or commentary and I know that.

Some of this was related to two more equipment sales focus.

Yes, there is a little bit more equipment sales focus.

Internationally, but somewhat in the domestic market as well, Jeff as we found out last year in working with some of the pharos owners some of them just theyre not interested in getting into the partner.

Model. So we've opened it up to potential equipment sales to some of these customers as well as we've always done sold into big institutions. So that that's part of it we took a conservative approach to the guidance for a number of reasons.

There is a lot of initiatives, particularly around international expansion that are relying on regulatory approvals.

The vitiligo opportunity, we need to see how that materializes with the approval of <unk>, how much that drives patients into the Doctor's office, we think it's going to be good. So we're optimistic.

We believe that we can increase hopefully.

Our guidance as the year goes on but coming out of the gate, we wanted to take a conservative approach to it.

Okay.

<unk> ex U S.

And our estimates it looks like that.

Both for 'twenty three would be.

March 10, Philadelphia U S growth levels.

Our current assessment.

Yes, one more time on that Jeff.

On the ex U S growth rate.

The ex U S component of your revenues it looks like from what we're estimating that's gonna be multiple times higher as far as grocery gross.

Going into 2023.

So yes, we think it will still probably be around the same percentage of our overall revenue makeup as 2022, we finished around 35%.

Okay.

Got it.

Could you talk about alopecia <unk>.

Briefly are you seeing treatments are often when things are going on with extra for alopecia specifically.

There is some off label use I mean, obviously, we can't go on promote that.

But certainly that there are laser can be used for alopecia successfully there are some a few I think small studies out there.

It's something we've thought about we've done some work around it and looked at the potential for getting that indication.

So it's certainly an opportunity for us.

Got it and can you talk about any recent trends as far as.

Treatments go and number of cycles members sessions patient compliance and adherence.

Yes, I mean, I think the big issue that we faced last year with extract.

We talked about a lot is staffing it's still been an issue.

Once you get the patient into the program they depending on the severity of the disease, whether its bit of lager or psoriasis.

We think we have a high success rate in getting them through the hole.

Treatment process for psoriasis as you know, it's somewhere between 10 and 20 treatments for vitiligo. It's generally more than 20 treatments. We do have a coupon program, which helps the first some of the costs. So that's been effective and.

With very clear, we're just getting started we have had a lot of success in getting placements now we're into the driving usage with those placements and expanding our footprint even more so we're excited about that opportunity as well.

Okay, and then lastly for us.

You brought it up can you jump in the third quarter and talk about could you give us a sense of.

Number of placements regions.

Typical treatment numbers for patients.

And.

Costs.

Yes, so we.

We finished the year with the 2022 was 17 placements we've had a lot of success in Q1, and obviously, we will be reporting our Q1 numbers here in early may.

Really saw a big pick up here in the first quarter and mainly because we've put a lot more of our sales force emphasis behind it as you know last year. It was a soft launch and we are really trying to gain a lot of information market research, putting the plans together, but it's really started to get traction here in the first quarter typical treatments is is around five.

<unk> they start to see results after the first or second treatment, which is great which makes them come back.

What we're hearing from the dermatology community is the pricing to the patient is kind of across the board, but I'd say on average it's about $250.

We've heard as high as 400, and some of the major cities, but on average it's about $200 to the patient per treatment. So five treatments as a $1000, which is a very reasonable considering some of the other costs for some of the other devices out there.

Yes.

Okay.

I think that does it for us thanks for taking the questions.

Thanks, Jeff.

Thank you we reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.

Thanks, Yes. Thank you for joining US today, we've made great progress on multiple fronts in 2022, and we are excited to continue executing throughout this year. Our goal is to help those who suffer from dermatologic conditions and with the advancements we have made over the past year. We are better equipped to serve them. Thank you again, and we look forward to a successful 2020.

<unk>, three and catching up in the first quarter.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation today.