Q3 2024 STRATA Skin Sciences Inc Earnings Call

Speaker Change: Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Strata Skin Sciences, Inc. Third Quarter 2024 Financial Results and Corporate Update Conference Call.

Speaker Change: At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

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Speaker Change: Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes.

Speaker Change: I would now like to turn the call over to Joey De La Juce of CoreIR, the company's industrial relations firm. Please go ahead.

Speaker Change: Thank you. Good afternoon and thank you for participating in today's conference call. Earlier this afternoon, the company released its financial results for the quarter ended September 30th, 2024. A copy of that press release can be found on the company's website at www.strataskinsciences.com under the investors tab.

Speaker Change: Joining me on today's earnings call from Stratascan Sciences Management Team are Dr. Dolev Rafaeli, Chief Executive Officer, and John Gilling, Vice President of Finance.

Speaker Change: During this call, management will be making forward-looking statements, including statements that address Stratoscan science's expectations for future performance or operational results.

Speaker Change: Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements.

Speaker Change: The content of this call contains time-sensitive information that is accurate only as of today, November 13, 2024.

Speaker Change: Except as required by law, Strataskin Sciences disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

Speaker Change: Thank you, Joey, and good afternoon for everyone on the call.

Speaker Change: Our results during the third quarter demonstrated continued and encouraging progress in our corporate turnaround as several metrics have stabilized and begun to show improvement.

Speaker Change: Revenue per extract device grew 2% year-over-year versus the flat revenue growth seen in the second quarter and versus the decline of 10% seen in fiscal 2023 over fiscal 2022.

Speaker Change: Our gross margin as a percentage of revenue improved for the third consecutive quarter and reached 60.3% in the third quarter versus 56% in the second quarter of 2023.

Speaker Change: Our operating expenses include a one-time accrual of $1.8 million related to a New York state sales tax audit for the years 2014 to 2017.

Speaker Change: Excluding the one-time item, non-GAAP operating expenses decreased to $5.2 million in Q3 of 2024, down from $5.6 million in Q3 of 2023, and down from $5.4 million in the second quarter of 2024.

Speaker Change: collectively, and when combined with stable year-over-year revenue, these positive trends contribute to our first operating profit since 2018 when excluding the one-time accrual.

Speaker Change: Direct-to-Consumer or DTC initiatives remain a central element of our turnaround strategy.

and we continue to see promising results in this segment.

Year-to-date, we have scheduled over 1,900 new patient appointments.

Speaker Change: and many others who are DTC experts versus just eight in all of 2023.

Speaker Change: We've also surpassed the 1,643 appointments scheduled in all of fiscal 2019 before the COVID-19 pandemic disrupted healthcare visits across the industry.

Speaker Change: We continue to expand our geographic focus with DTC and have now launched DTC using Spanish language advertising.

Speaker Change: Our domestic install base of extract devices decreased slightly from 882 units at the end of the second quarter of this year to 873 units at the end of Q3.

Speaker Change: This trend is consistent with our strategy to removing underperforming units from dermatology clinics as warranted.

Speaker Change: The third quarter average revenue per extract device was the highest quarter figure since the end of 2022.

Speaker Change: Gross domestic recurring billing in the third quarter were down 2% year-over-year versus a decline of 6% year-over-year in the second quarter and versus a decline of 3% year-over-year in the first quarter.

Speaker Change: These low, single-digit declines compare favorably to year-over-year declines of 12% and 14% in the second and third quarter of 2023, respectively.

Speaker Change: Obviously, the goal is to turn these metrics positive on a year-over-year basis, and we believe our strategic efforts are paving the way towards helping us reach that goal.

Speaker Change: We reached an install base of 135 TheraClearX devices at the end of the third quarter, up from 117 devices at the end of the second quarter.

Speaker Change: In 2024, we focused on assisting with the adoption of insurance-reimbursed non-cash billing for acne treatment with the TheraClear X devices.

Speaker Change: I'm happy to report that, year-to-date, we have secured pre-authorizations for over 2,000 patients with acne at our partner clinics.

Speaker Change: Additionally, published study results, such as in the July 11, 2024 Journal of Cosmetic and Laser Therapy, continue to highlight improved outcomes for acne treatment with the TheraClear X device.

Doctors and KOLs also report favorable results at dermatology conferences.

Speaker Change: such as the most recent 2024 Fall Clinical Dermatology Conference in Las Vegas. So we are optimistic about continued growth from this acne treatment platform.

Speaker Change: In July 2024, we bolstered our cash position with $2.1 million of equity raised that had strong participation from both existing shareholders and insiders.

Speaker Change: Given our improved execution and stronger balance sheet, we see a path to profitability and sustainable cash flow generation, which are clear objectives of our corporate strategy and actions.

Speaker Change: In a press release published earlier this week, we've announced a positive but partial litigation outcome in a complaint we filed against a competitor.

Speaker Change: The basis of our claim was that the defendant was misrepresenting the technical merits of their laser device compared to our X-Track XMR device.

Speaker Change: in their sales efforts to potential customers and misrepresenting the potential reimbursement with existing CPT codes used for eczema lasers, such as our eczema.

on November 8th, 2024.

Speaker Change: The United States District Court of the Eastern District of Pennsylvania entered a court order that prevents the competitor from making these material misrepresentations in their sales efforts. Additionally, Strata will continue to pursue monetary damages from the defendants for their past misrepresentations and sales efforts.

Speaker Change: It is important that we vigorously defend Strata, our dermatology clinic partners, and patients from false technical efficacy and reimbursement claims and tactics that put providers at risk of an unethical use of CPT reimbursement codes.

Speaker Change: Now, I'd like to turn the call over to John, who will review our financial results in more detail.

John Gilling: Thanks, Dolev. Our total revenue for the third quarter of 2024 was $8.8 million versus $8.9 million in the third quarter of 2023, a decline of 1%.

John Gilling: Global net recurring revenue for the third quarter of 2024 was $5.4 million versus $5.3 million in the third quarter of 2023, excluding deferred billings and other gap adjustments.

John Gilling: XTRAC Gross Domestic Recurring Billings were $4.8 million in the third quarter of 2024, down 2% from $4.9 million in the third quarter of 2023.

John Gilling: As a percent of revenue, the gross profit was 16.3% for the three months ended September 30, 2024, as compared to 56% for the same period in 2023.

John Gilling: Total operating expenses in the third quarter of 2024 were $7 million. Adjusting for the one-time accrual Dolev mentioned previously, operating expenses were $5.2 million versus $5.6 million in the third quarter of 2023, a 7% reduction.

John Gilling: Before moving on I want to offer a little more color on the accrual. The 1.8 million we accrued in the third quarter relates to a sales tax audit in the state of New York covering the 2014 to 2017 time frame.

John Gilling: We initially received a favorable ruling, which was then overturned by the State of New York's Appeal Tribunal, after which we requested that the New York State Court of Appeals hear the case.

John Gilling: On October 22nd of this year, in an unsigned, one-line decision, the Court of Appeals denied our motion to appeal, bringing the matter to a close for that period under audit.

John Gilling: The $8.4 million total cash balance includes $1.3 million of restricted cash related to the sales tax accrual. This will cover the majority of the cost of the unfavorable legal decision.

John Gilling: We continue to believe that we can execute on our strategic goals for 2024 given our current financial position.

John Gilling: As of September 30, 2024, the company had 4,171,161 common shares outstanding.

John Gilling: During the third quarter, we raised $2.1 million in gross proceeds through the sale of 665,136 shares, including insider participation in this financing that illustrates the conviction these insiders have in Strata's strategic plan, ability to execute,

and Path to Profitability.

Speaker Change: That concludes my prepared remarks and I'd like to turn the call back to Dolev for any remaining comments.

Dolev Rafaeli: Thank you, John. Consistent with execution thus far in 2024 led to a solid third quarter that points to a stabilization in our financial performance and offers some early signs of growth.

Dolev Rafaeli: We remain committed to the strategies laid out at the beginning of 2024 that are helping drive our performance.

Dolev Rafaeli: Now I'd like to turn the call over to the operator so that we can begin the question and answer session. Operator?

Speaker Change: Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star, then the number 1 on your telephone.

Speaker Change: If your question has been answered and you wish to withdraw your request, you may do so by pressing star then 2.

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Speaker Change: This concludes our question and answer session. I'd like to turn the conference back over to Dolev Rafaeli for any closing remarks.

Dolev Rafaeli: I want to thank all of you for participating in today's call and for your interest in Stratasteam Sciences. We look forward to sharing our progress on our next quarterly conference call when we report our year-end 2024 financial results, likely in March of 2025. Thank you and have a good day.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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