Q2 2023 STRATA Skin Sciences Inc Earnings Call

Greetings and welcome to the Stratus skin Sciences to Q2023 earnings conference call. At 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.

Now I'll turn the conference over to your host Nicole Jones Investor Relations you may begin.

Thank you.

Joining on today's call will be Bob Beauchamp, Chief Executive Officer, and Chris lots of it Chief Finance Officer.

Earlier today <unk> released financial results for the quarter ended June 30th.

23.

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 federal Securities laws, which are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 90 95.

Any statements contained in this call that do not relate to matters of historical facts are relate to expectations or predictions of future results.

Or performance are forward looking statements all forward looking statements, including without limitation.

That was relating to our operating trends and future financial performance are based upon our current estimates and various assumptions.

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.

Our public filings with the SEC, including our annual report on Form 10-K for the year ended December 31 2022.

This call contains time sensitive information and is accurate only as the live broadcast today August nine 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, we refer to domestic growth 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 or the SEC.

Second fiscal quarter June 30 of 2023, which is accessible on the SEC's website and posted on the Investor Relations page of stride its website at www Dot strata skin Sciences dotcom.

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

Yeah.

Thank you Nicole and thank you all for joining us on today's call in the second quarter, we continued to make progress operationally achieving milestones across various aspects of our business. A few notable achievements include our thorough clear extra review and expert perspectives publication in the journal of clinical and aesthetic.

<unk>, securing a 12 million financing with midcap financial.

Increasing our therapy X installed base to over 70 devices.

Dr. Glenn is AB one initiating in treating patients in the third clinical study and placing 18, new extract devices domestically.

During the second quarter of 2023, we recognized revenues of $8 3 million versus $9 1 million in the same period of 2022.

When excluding a significant one time order we received from China. During the second quarter of 2022 of $1 5 million sales increased eight 8% during the period.

There were also approximately 900000 of expected international sales that were shifted to the second half of 2023, as a result of seasonality and lower capital spending due to higher interest rates and slowed macro economic factors, we expect to recover those sales during the second half of 'twenty.

23.

We continue to see large opportunities on the horizon for extract as we have previously mentioned there are new FDA approved treatment options for vitiligo that have emerged over the past year.

As a reminder, non segmental did a lot of the accounts for approximately 15% of domestic extract procedures, we believe that as the level of interest in vitiligo treatment options increases, we expect to see more opportunities to expand the awareness and usage of extract.

For the remainder of the year, we plan to continue removing non profitable or underutilized devices from our installed base. We are also evaluating a plan to move lower tiered partners into existing membership programs that would offer them a number of coach commensurate with their usage. These changes would result in a more predictable revenue.

Stream for strata.

Earlier this year, we announced the official broad launch if there were clear X, which we expect to become one of the key drivers of our business. We have seen tremendous momentum with 73 very clear ex devices placed as of June 32023.

Additionally, as we mentioned in our last earnings call. We have sold over 6000, there are clear ex treatment coach showcasing the increasing adoption of effectiveness of the solution.

We continue to expand the awareness of <unk> through multiple avenues, we have implemented their ex training programs for both our sales force and news there are clear ex providers. The training sessions focused on how to engage patients and promote cash pay services in their respective offices.

To ultimately drive utilization.

In addition to expanding our training program. We have also hosted peer to peer Webinars, where dermatologists, who are experienced with Derek ex explain best practices to users of the device.

This may we announced that Dr. <unk> AB one of Avalon Skin Institute and Research Center in Manhattan Beach, California.

Initiated and treat the first six patients in her therapy ex open label single arm clinical research study.

The study titled a seven week open label study evaluating the efficacy and safety of therapy X on mitigating mild to moderate Acme and healthy teenagers and young adults aims to further substantiate the efficacy and safety of their acts as a standalone treatment for <unk>.

<unk> to moderate Acme.

The study will evaluate 30 healthy male and female subjects age 12 to 40 years and older over the course of seven weeks.

We expect the study to be completed by the end of Q3.

As a reminder, acme affects up to 50 million Americans annually and accounts for up to 20% to 25% of dermatology visits.

Acme is also prevalent in adolescence with 885% experiencing some degree from the ages of 12 to 24 years old.

We believe their actions F D. A clear technology is well suited to address this need in the market.

In July 2023, we announced that the journal of clinical and aesthetic Dermatology also known as Jay Katz published a review and expert perspective article in the June 'twenty 'twenty. Three supplemental addition, titled photo pneumatic technology for the treatment of mild to moderate acne vulgaris.

Harris.

Expert perspectives round table featured dermatologist Ashish part here.

Cheryl Burgess.

Krish Mountain Valley, and Jason Smith, some key takeaways from the round table, where there are clear exit safe and efficacious, providing visible improvement in acne as soon as the second treatment.

Additional benefits include visible improvement of pore size erythema and skin texture.

There are clear extra settings can be customized to treat all fitzpatrick skin types.

Treatment sessions are quick and comfortable with no downtime, resulting in compliance and satisfied patients.

<unk> X is ideal for a new active patient wanted to expedite their acne clearance indoor and existing patient wanting to enhance their current active regimen.

The review and Jay Cat Auto by Doctor Girish Might've, Bali highlighted circa <unk> mechanism of action key features of the device and the outcomes experienced in the clinic.

Dr. Munn of Ali mentioned that he often utilize just Eric ex in his clinic to treat mild to moderate Acme.

He also described described the benefits to patients as they experience little to no downtime and visible reductions in redness early on in the treatment.

The expert perspective article in the round table showcase the safety efficacy and visible improvements patients experience with their clear ex this publication serves as another treatment to the devices efficacy and helps us to continually increase the devices market awareness.

Looking ahead, we remain committed to our strategic priorities advanced sales training and expanding our market presence through virtual events and industry conferences.

These efforts will further solidify our position as a leader in providing innovative phototherapy solutions to patients and health care providers worldwide.

I will now turn the call over to Chris to describe to discuss the financials.

Thank you Bob.

Revenues for the second quarter of 2023 were $8 3 million as compared to revenues of $9 1 million in the second quarter of 2022.

Global recurring revenues in the second quarter of 2023 were $5 5 million as compared to global recurring revenues of $5 6 million for the second quarter of 2022.

Equipment revenues for the second quarter of 2023 were $2 8 million as compared to $3 5 million for the second quarter of 2022.

For the second quarter of 2023, non-GAAP extract gross domestic recurring billings were $5 1 million as compared to 6 million in the second quarter of 2022.

Overall gross profit for the second quarter of 2023 was $4 3 million or 52, 3% of revenues as compared to $5 million or 54, 8% of revenues for the second quarter of 2022.

The decrease in gross profit during the three months ended June 32023 was primarily the result of higher depreciation material cost.

Lower recognition of previously deferred service revenue associated with assumed service contracts from Rob Medical acquisition, which is decreasing as it related service contracts expire.

And an increase in domestic sales with longer warranty periods.

Leading to a greater amount of deferred revenues for those sales.

Looking ahead, we can we can expect gross margins throughout the remainder of 2023 to be in the mid fifties to low sixty's with some quarterly fluctuation based on the mix between recurring revenues from system placements and equipment sales.

Operating expenses for the second quarter of 2023 were $6 3 million as compared to $6 7 million in the second quarter of 2022.

The decrease in operating expenses in the second quarter 2023 is primarily due to a reduction in sales and marketing costs.

Offset by slight increase in engineering and G&A expenses.

Other expenses for the second quarter of 2023 was $1 2 million as compared to 200000 for the second quarter of 2020 to the.

The increase in other expense for the second quarter was primarily attributed to a loss on debt extinguishment of 900000 for the three and six months ended June 30 of 2023.

Net loss for the second quarter, 2023 was $3 1 million or a loss of nine per basic and diluted common share as compared to net loss for the second quarter of 2022 of $1 9 million or a loss of <unk> <unk> per basic and diluted common share.

As of June 32023, cash and cash equivalents were $10 4 million.

The increase in cash and cash equivalents is due to the $12 million financing with midcap financial the.

The new debt facility consist of a refinancing of the existing $8 million term loan and an additional 7 million tranche funded at closing.

Straddle also has the option to receive an additional 5 million tranche in 2024.

For the fiscal year ending December 31, 2023, we are revising guidance in the range of 35 million to $38 million.

This adjustment is attributed to a slowdown in capital expenditure spending and macroeconomic factors that have impacted our equipment sales.

While we believe sales could improve during the second half of this year. This updated guidance offers a current and conservative perspective on the business.

Yeah.

We are pleased with the progress made in Q2 and are looking forward to building upon the strong base in the second half of the year.

As Bob mentioned sales internationally were pushed into the second half of the year and it is our expectation that these will materialize in subsequent quarters during the balance of the year.

With that Bob and I would like to open the calls for questions.

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 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 and may be necessary to pick up your handset before pressing the Z Starkey.

And our first question comes from the line of <unk>.

Jeff Cohen with Ladenburg Thalmann. Please proceed with your question.

Okay.

Hi, Thank you this is actually Jacqueline.

Yeah.

On for Jeff.

I guess can we start kind of following chris's comments around those international sales do you have any additional color.

What quarter that will be and is it more of a Q4 type of revenue recognition or do you think it'll be split more evenly between Q3 and Q4.

Yeah.

Yeah. This is Bob and thanks for your question, Yeah, We think it's going to probably be more into the queue for quarter, we'll start to see some some rebound in Q3, but we are hearing, particularly from a couple of our Asian partners that are credit issues and interest rates.

Ill ask them they asked us to push these out we do expect to recover them, but I think it's gonna be later in the year.

Okay got it and then could I just transition to vitiligo for a second I know sure with the launch of Op Fleuron Theres been a lot more awareness around the July golf. So I'm wondering have you heard anything about it being used in conjunction with your systems.

Is there anything else you can discuss really around did a light go.

Sure No I anecdotally, yes.

Obviously, it's not been studied in combination. So we can't go out and promote it that way, but anecdotally we have heard from some kols who are.

Our using our laser alongside ops lower and getting very good results. So you.

We'd love to be able to promote that but obviously, we're not allowed to do that so I think the noise level. Those really helped overall just for X track in vitiligo.

It's been approved for a number of years for that for that indication and I think that Ah patients have.

Enjoyed the re pigmentation that they get from using the excimer laser which as you know one of the key selling points for it so.

So I think as more patients start to see the new opportunities with the drugs that are out there like ops, Laura there's some additional jacks that are coming and they're gonna be approves here. Shortly we will see more patients coming in to get treated and that will help us with the usage of excellent as well.

Okay got it and then I believe you said it accounted or for like all accounted for about 15% of procedure revenues, if I heard that correctly. So I'm wondering do you think it will remain consistent at that level or based on some of the greater awareness do you think that could increase going forward. Yes, that's our hope we hope it will actually start to.

Increase.

No.

Coverage by insurance companies has always been.

One of the things that we face we have excellent coverage for psoriasis over 80, 90% of all claims go through for Vitiligo, It's it's still 70%, which is really good but even if you get one rejection and the Doctor starts. The question itself. We do have a reimbursement team. That's part of the services, we provide for extracts which has been <unk>.

Effective in getting coverage for patients. So we utilize that quite a bit with our commercial team and you know we do help that a little life. It will become a bigger overall piece of the of the pie for extracts.

Okay, and then lastly for US I know you called out some macro level issues.

Internationally I'm, just wondering if theres anything else you can call out that impacted the top line and that we should be considering as we model the rest of the year.

No I don't think there is I mean.

You'll see.

Year over year, the big drop was international revenue.

We had the one time, China sale in 2022.

I wouldn't take that out we're pretty much we did grow the business, but we didn't grow as much as we wanted to mainly because of what we've discussed the international.

Pushout of orders.

Okay perfect that does it for us. Thank you for taking our questions sure. Thank you.

And it looks like we have reached the end of the question and answer session. I will now turn the call back over to CEO Moshe for closing remarks. Thank.

Thank you and thank you all again for all of your continued support before I conclude the call I would like to mention that Australia will be hosting a key opinion leader event on September 20th the webcast will include X track and third clear ex experts, who will provide their perspectives and experience with stratus devices inside the clinic.

Look out for more details as we get closer to the event to the event. Thank you and we look forward to keep the community updated on our achievements.

And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

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