Q4 2024 STRATA Skin Sciences Inc Earnings Call
and many more. Thank you. Thank you.
Ladies and gentlemen, thank you for standing by.
Speaker Change: Joining me on today's earnings call strata skin Sciences management team are Dr. Don Raphael, Chief Executive Officer and Joe.
John Gillings: John Gillings, Vice President of finance.
Speaker Change: During this call.
Speaker Change: We will be making forward looking statements, including statements that address strata skin sciences expectations for future performance or operational results.
Speaker Change: Oh, we're looking statements involved risks and other factors that may cause actual results to differ materially from those statements.
Speaker Change: For more information about these risks please refer to the risk factors described in Australia skin Sciences. Most recently filed annual report on Form 10-K, and subsequent periodic reports filed with the SEC and Australia skin Sciences press release that accompanies this call, particularly the cautionary statements.
Speaker Change: Yeah.
Speaker Change: The content of this call contains time sensitive information that is.
Speaker Change: Accurate only as of today March 27th 2025.
Speaker Change: Except as required by law strata skin sciences disclaims any obligation to publicly update or revise any information to them.
Speaker Change: What events or circumstances that occur after this call.
Speaker Change: It is now my pleasure to turn the call over to CEO, Dr. Olaf Raphael.
Speaker Change: Thanks, Louis and good afternoon to everyone on the call we had a strong fourth quarter with continued progress in our corporate turnaround and as highlighted in various metrics in the quarter.
One of the primary elements of the strategy is helping our installed base improve the utilization of our machines. During this process. We are removing units from significant underperformance accounts, while helping our other higher performing accounts higher volume customers to better utilize our X.
Speaker Change: <unk> devices, we are expecting this strategy to be helping them on.
Speaker Change: I understand the benefits of our systems for their patients as well as the economics.
Speaker Change: Financial benefits to the client so the clinics themselves.
Speaker Change: During the fourth quarter. The success of our efforts was underscored by a significant improvement in average net revenue per device, which was up 11% over the previous quarter and up 6% over the prior year period, while our U S. Extra installed base declined from 923 to 864 from <unk>.
Speaker Change: Q4, 'twenty free to Q4 24, our average gross billing per device increased from $5359 to $5637 over the same time period, which is a reflective of the strategy I just mentioned.
Speaker Change: This quarter represents the highest quarterly average revenue per user per extract device. Since the end of 2022, we expect continued progress as we continue to work with clinics to make.
Speaker Change: The better use of argue biases.
Speaker Change: Our gross margin remained elevated at 60% showing a 480 basis point improvement over the prior year Q4, and getting us closer to the range of roughly 70% gross margin the business enjoyed in the strongest quarters of 2019.
Speaker Change: In 2021.
Speaker Change: Result of higher revenue strong gross margin and operating cost controls, we saw significant improvement in operating loss, which adjusted for noncash impairment charges in both periods improved 68% as compared to the fourth quarter of 2020.
Speaker Change: During 2020 for our direct to consumer advertising ramped up from $0 in 2023 and $25000 in both 2021 and 2022 to just over $14000 a week generating approximately 2800 patient appointment.
Speaker Change: So testing the 2022 numbers of new patient appointments.
Speaker Change: D efficiencies gain.
Speaker Change: Gains in the DTC campaign now enable us to focus on enhancing in clinic philosophy identifying partner clinic with the greatest opportunities those with the highest peak.
Speaker Change: Patient based on the number of existing patients in the indication a prescribed extra extra procedures and completed procedures.
Speaker Change: These consulting like efforts have started in the fourth quarter of 2024, showing very meaningful upside with a small number of partner clinics across the country and are now being extended to both individuals and private equity group owned clinics.
Gross domestic revenue billings in the fourth quarter were $4 9 million versus $4 8 million $4 7 million and $4 6 million for the third second and first quarters, respectively. This was the third consecutive quarter of sequential increase highlighting the results of our efforts.
Speaker Change: And we expect continued improvement in the periods ahead.
Speaker Change: We reached an installed base of 144 therapy or extra devices in the United States at the end of the fourth quarter up from 92 devices at the end of 2023 and 2024, we are focused on.
Speaker Change: Assisting with the adoption of the insurance reimbursed noncash billing for Acme treatment with the therapy or Ax device with 108 of the 144 devices now billing insurance.
Speaker Change: I am happy to report that year to date, we have secured three authorization for over 3700 patients with acne in our partner clinics.
Speaker Change: Our international sales were particularly strong in the fourth quarter with sales of $4 $1 million up 27% over the third quarter and up 41% over Q4 2023. This represents our highest level of international sales to date are strong growth in there.
Speaker Change: These markets is a result of refocusing our international partners on the technology and the clinical advantage of the extra technology the.
Speaker Change: The market dominance of the extra week in our key international market is further demonstrated through multiple peer reviewed clinical studies being published and annually. The most recent one was published just last month in Japan validating the advantages of the high repetition.
Speaker Change: Rates high dose coherent collimated narrow band excimer laser technology over other sources of UBB lights that are less accurate neck, the repetition rate and or fluence kept their capabilities for treating vitiligo. So why is this alopecia or your auto and a topic dermatitis.
Speaker Change: Our Japanese market is growing rapidly with almost 100 extra devices sold or placed since 2019.
Speaker Change: Well, we are not providing guidance, we would like to highlight a historical pattern to help you refine your models, we tend to have a fairly strong seasonal seasonal effect between Q4, typically the strongest quarter of the year and Q1 typically the weakest quarter of the year.
Speaker Change: This impact is stronger in years in which the.
Speaker Change: The fourth quarter is particularly strong looking at the last two years. The difference between Q4 2023 in Q1 2024 was sequential decline of 22%. Despite the fact that Q4 2023 was relatively weak coming back coming below Q3 of 2023.
Speaker Change: The difference between Q4 2022 in Q1 2023 was a sequential decline of 29% with Q4 2022, representing the typical pattern of a very strong Q4.
Speaker Change: Now I'd like to turn the call over to John who will review our financial results in more detail John.
John Gillings: Thank you Darla, our total revenue for the fourth quarter was 2024 with $9 6 million versus $8 7 million in the year ago quarter, an increase of 10%.
John Gillings: Global net recurring revenue for the fourth quarter of 2024 was $5 8 million versus $5 6 million in the fourth quarter of 2023.
John Gillings: Excluding deferred billings and other GAAP adjustments extract gross domestic recurring billings were $4 eight 7 million in the fourth quarter of 2024 down one 5% from $4 $95 million in the fourth quarter of 2023.
John Gillings: Equipment revenue was $3 8 million in the fourth quarter of 2024 versus $3 1 million in the fourth quarter of 2023. The increase was a result of strong capital sales in international markets.
Gross profit increased to $5 8 million in the fourth quarter up from $4 8 million in the year ago quarter gross margin improved to 61% versus 55, 3% over the same period in 2023.
John Gillings: Total operating expenses for the fourth quarter of 2024 were 10 million versus $8 2 million in the year ago period.
John Gillings: Adjusting for noncash impairment charges in both periods normalized operating expenses in the fourth quarter of 2024 were $6 1 million up slightly versus the prior year period at $6 million.
John Gillings: Our cash cash equivalents and restricted cash position of $8 6 million at December 31, 2024, along with our credit facility with mid cap financial supports our growth initiatives and leaner cost structure. The $8 6 million total cash balance includes $1 3 million of restricted cash related to the <unk>.
John Gillings: Sales tax accrual we discussed on last quarter's call. We continue to believe we can execute on our strategic goals for 2025, given our current financial position.
John Gillings: As of December 31, 2024, the company had $4 million 171161 common shares outstanding.
John Gillings: That concludes my prepared remarks, and I'd like to turn the call back over to Don for any remaining comments.
Speaker Change: Thank you John consistent execution, thus far in 2024 led to a solid third quarter that points to establish vision and our financial performance and offers some early signs of growth. We remain committed to the strategies laid in the beginning of 2024 and are helping drive our performance.
Speaker Change: 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: Okay.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speaker phone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: The first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.
Speaker Change: Yeah.
Jeffrey Cohen: So there aren't a lot of them John and thanks for taking a question.
Jeffrey Cohen: So I guess first one hi, Jeff I misread a number you talked about 144 there.
Jeffrey Cohen: <unk> placed but there were some one or weird number prior to that.
Jeffrey Cohen: Yes, so as we as we did in the prepared remarks.
Jeffrey Cohen: We are working on.
Jeffrey Cohen: Moving or migrating these accounts too.
Jeffrey Cohen: Noncash insurance reimbursed accounts.
So accounts that are taking their patients and building insurance and as we pointed out in the in the prepared remarks of 108 of the 144 are those accounts.
Jeffrey Cohen: Oh I got it that's clear.
Jeffrey Cohen: Could you talk a little bit about what types of practices that youre seeing the uptake.
Jeffrey Cohen: On the newer accounts and also talk a little bit about the geographical presence domestically here. Please.
Jeffrey Cohen: Yeah.
Jeffrey Cohen: For therapy or your question is about therapy, yes.
Jeffrey Cohen: Yeah. Okay. So apparently are the initial uptake of insurance reimbursed accounts started in the northeast and in our first two or three quarters. During 2024 were stronger in the northeast the characterization of these accounts would be mostly.
Jeffrey Cohen: Small to medium sized groups, where they would adopt it in one or two offices and if it works and I will explain further what it means if it works then they would expand as well.
Jeffrey Cohen: What they what they did is they took it in and they wanted to see the.
Jeffrey Cohen: Insurance are payers are actually pre authorizing the patients for the treatment. What we saw is that across the board most in most payers are.
Jeffrey Cohen: Ah Preauthorized most patients were actually at a run rate of approximately 86% of patients being pre authorized for 10 or more procedures that are done over a period of time.
Jeffrey Cohen: And then they wanted to see that these patients actually show up for the procedures actually go through the procedures and then they that they actually get paid and when that happened we started extending across these these groups. So we currently have.
Jeffrey Cohen: Three groups in the northeast that have more than 15 devices or clinics each.
Jeffrey Cohen: And in in Q4, we started extending beyond the northeast to other regions of the country doing the same thing we start with one or two accounts in the inside the group we showed them that it works we show that they get the Preauthorization, we show them that the pay.
Jeffrey Cohen: Pay rate is the right rate, we showed them that it that at the right.
Jeffrey Cohen: <unk> way of operating this they have sufficient number of patients and what they need to do is get them get them Preauthorized and then treat them and they have and repeat so I hope that answers the question.
Speaker Change: Yes, that's great and one more if I may could you talk a little bit about what's driving the strength internationally.
Speaker Change: Geographically speaking.
Jeffrey Cohen: I'm aware of Japan, but.
Speaker Change: Talk a little bit about some of the other regions. Please.
Speaker Change: Yes, so our our fourth strongest markets internationally or Japan.
Speaker Change: Japan, China, South Korea, and the Middle East and I'm going to speak about each one of them independently.
Speaker Change: The middle East is as steady as she goes historically it used to be mostly tender business. So it would be public hospitals are issuing public tenders for for purchases and acquisition and over the past couple of years. It has migrated.
Speaker Change: More towards private clinics and that that helps us enhance the business because we're not just reliant on public tenders.
Speaker Change: In Oh I'm in China in the.
Speaker Change: At least in 'twenty 'twenty four the business was strong we saw more adoption by both private and public hospitals public hospitals are treating patients that are paying much much lower rates than the U S, but having a much higher patient volume in and that's where the.
Speaker Change: <unk> for the stability of the technology and the and.
Speaker Change: The clinical efficacy of the technology come and the private clinics, where patients are paying higher rates.
Speaker Change: And that's where again the appreciation comes towards the ability to run.
Speaker Change: A large number of patients that I'm going to refer specifically to quantities in a second.
Speaker Change: The <unk> in Japan as you pointed out we discussed in the previous quarter, where we're penetrating the market with extract the market.
In the market we had.
Speaker Change: Historically placed and sold more than 400 V track devices and.
That market the Japanese market has about 1000 clinical dermatologists. So we've had the highest penetration rate in the market in the technology and we're now in the process of replacing these gradually win with the extra devices and other devices are more expensive, but but they're they're allowing oh.
Speaker Change: Faster treatment of existing patients in Japan, all of the population is insured and the reimbursement rate is approximately 20% of what it is in the U S. So they need a higher ah patient throughput to justify the the treatment, hence they need a more reliable platform.
Speaker Change: I I kept correale left on purpose because we are affected.
Speaker Change: Both in Korea, as well as in China by by what has happened over the last quarter.
Speaker Change: The.
Speaker Change: Going out of business or the declaration of.
Speaker Change: Chapter 11 of certain competitors in the market, which are pushing our pressure on the local market distributors with Bbs the availability of of their cash towards us is more limited than it was before and despite that.
Speaker Change: We see more rare.
Speaker Change: Revenue coming from these markets in more growth because we've we've reemphasize the technology, we've we've shown them the distributors and through them the providers that they're better off using a proven technology that has proven clinical efficacy and stability in the market and in the Chinese market.
Speaker Change: We're we're we're facing.
Speaker Change: Uncertainty of what's going to happen with tariffs coming in or not E. In the next few months. So again there there we work with partners they work in their own market.
Speaker Change: Both of these markets China, All these markets, China, Japan, and Korea went through a currency exchange.
Speaker Change: Fluctuations because of.
Speaker Change: The last few months as well as some instability in in in Korea. So I hope I answered the question, but it's a combination of of up much better appreciation to the technology and the availability.
Speaker Change: For them to provide better services, and and and and offering to their end customers the providers the doctors and the market is.
Speaker Change: As well as the the economic changes in these markets now is as I pointed out these markets Mark a much higher volume use of these devices. So if if if and extract device.
Speaker Change: In the U S is being used several hundred times a year.
Speaker Change: These devices in Japan, and South Korea, and China are being used several hundred times a week. So it's it's it's a multiple of <unk>.
Speaker Change: 2030, 40 50 times.
Speaker Change: More times of use and they need a very stable platform to use.
Speaker Change: Super Thanks for taking our questions.
Jeff: Thank you Jeff.
Jeff: Again, if you have a question. Please press Star then one.
Speaker Change: Our next question comes from Jeremy Pearlman with Maxim Group. Please go ahead.
Jeremy Pearlman: Thank you for taking my question. So just maybe how many how do you determine what accounts are being underutilized and how many of those accounts that they currently.
Have you identified you'll pull the device and then on the flip side of that the new clinics I know I think you've touched a little bit this on the call, but if you could provide some more information how do you determine new clinics to place the device.
Jeremy Pearlman: Great questions. So.
If you had followed the business the extra business over the past many years that it was it was in the market. What you would have seen that in a stable here, we would be churning through approximately 10% of the accounts.
Jeremy Pearlman: And that relates to accounts that either the the original owner has has moved out of the business decided to sell the business decided that he is not no longer interested or it had to do with our decision.
Jeremy Pearlman: To looking at the accounts, saying theres not enough money coming from that account now since we look at our expense structure as being more of a fixed expense we have we have there.
Jeremy Pearlman: Sales team, which are which are farmers not hunters. They they take care of of accounts. We have approximately 25 territory managers. We have approximately 900 accounts that gives us about 36 37 accounts per territory manager to work with added more acute.
Jeremy Pearlman: <unk> without removing accounts.
Jeremy Pearlman: Two the fixed expense base of the company so with ads b the cost of the sales team. It also adds the depreciation and the cost of service of an existing device and that fixed expense is is the are the level. We look at as a threshold for looking at it and then Mcdonald's and saying does that account makes sense for us.
Jeremy Pearlman: Or not if you look at the P&L that fixed expense calculates to work approximately a 15 and $16000 per device.
Jeremy Pearlman: We look at the other 900 devices, because if you and that's very easily can be very easily calculated from the.
Jeremy Pearlman: The cost of sale.
Jeremy Pearlman: So if we see an account the drops in run rate below that there's two options one we bring them back up or two we remove a and it's a it's a it's a it's a question of the territory manager the relationship with the account the reasons for why the account is going down.
Jeremy Pearlman: And in the Optionality of of working with the account can bring them back up so I'll I'll I'll speak about both removing the account is easy we have our our agreements with the accounts have.
Jeremy Pearlman: In General 30 days out we tell them, we're going to be removing the.
Jeremy Pearlman: Device within 30 days and.
Jeremy Pearlman: And we come in we take the device we move it out so that easy.
Speaker Change: Bringing that back up is a is an involved process and we need to understand what is going on within the account whether it's the the the patient population or it's the the provider.
Speaker Change: Provider that made decisions, whether consciously or not to prescribe or not.
Speaker Change: And is it the actual extenders will be the.
Speaker Change: The nurses or the medical assistance or or did the people the technicians that work in the clinic that are utilizing.
Speaker Change: Utilizing the devices correctly or not and I'm going to use a specific example, so on average and office is going to have somewhere between 1015 hundred relevant patients in the indications in the office.
Speaker Change: Every patient represents approximately $33000 of revenue for the office.
Speaker Change: Every patient represents about $1000 of revenue for us.
Speaker Change:
Speaker Change: So if you if you look at it off is that does that.
Speaker Change: That breakeven point of 15 16000, you were talking about five six patients.
Speaker Change: And if they cannot find within the 1000 patients they are seeing these.
Speaker Change: These five six patients that are going to be.
Speaker Change: Prescribed.
Speaker Change: And then scheduled and then treated then they're not a good niche for us and if they can't find these patients and they prescribe them, but they're not doing a great job of scheduling and scheduling them and having them show up and get treated than we have.
Speaker Change: Work cut out for us and we work with them.
Speaker Change: Whether it's with the owner of the office to point out that they have the patients they have prescribed them, but they have not followed up with them or it's with the with the extra champion in your office or it could be with the front office that doesn't schedule or the backhaul says that doesn't do the right job in billing. So I hope I answered the question, but it's it's a it's a more involved.
Speaker Change: Good answer than just that.
Speaker Change: Historical 10% ratio. So we have we have a higher number of offices that are an opportunity if any given year and we look at these offices and we remove and then we replace and the number you see the number of devices you see as an actual installed base at the end of the quarter is actually the the comps.
Speaker Change: One of the two it's we started with an installed base we removed some replace some and that's what you see at the end of the quarter now to your question what makes a good.
Speaker Change: New accounts for placement that would either have to do with the historical.
Speaker Change: Number of patients they treat and number of patients that are going to prescribe or in many many cases.
Speaker Change: That account used to be an account that we have worked with that has walked away from the business.
Speaker Change: And is now wanting to come back because they want another revenue source. So it if it's if it's off the second decline, we called him come back and it's a much easier approach because they know the business they understand they understand the procedures. They understand the billing all we need to do is to see that they actually have the right staffing in place.
Speaker Change: Two started in and go ahead with this now in a normal stabilized year, we're gonna have somewhere around 10% of removals and somewhere around 10% of placements in in 2024 and as we look into 2025.
Speaker Change: We are going to have more removals in more placements, because we're removing more nonproductive accounts and placing more productive accounts.
Speaker Change: Okay, great understood.
Speaker Change: Great information and you answered my second question about how you work with the quote clinics to increased utilization as part of that answer so I'll have to I'll hop back in the queue. Thanks again.
Speaker Change: Thank you Jeremy.
Speaker Change: Seeing no further questions in queue. Now concludes our question and answer session I would like to turn the conference back to Dr back over to Dr. Dol have Raphael Lee for any closing remarks.
Raphael Lee: So I want to thank all of you for participating on today's call for your interest in strata skin Sciences, we look forward to sharing our progress on our next quarterly conference call. When we report our first quarter 2025 financial results likely in May of 2025, Thank you again and here.
Have a good day.
Raphael Lee: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Raphael Lee: [music].