STRATA Skin Sciences Q1 2023 Earnings Call Transcript

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May 15, 2023

There are 4 speakers on the call.

Operator

Greetings. Welcome to the Stratus Skin Sciences First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

Joining on today's call will be Bob Moshev, Chief Executive Officer and Chris Lesovitz, Chief Financial Officer, earlier today Strata released financial results for the quarter ended March 31, 2023. A 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 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 or 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.

Operator

These 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 listen description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including our Annual Report on Form 10 ks for the year ended December 31, 2022. This conference call contains time sensitive Information is accurate only as of the live broadcast today, May 15, 2023. Strata 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.

Operator

Also during this presentation, we will refer to domestic gross 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 1st Quarter ended March 31, 2023, which is accessible on the SEC's website and posted on the Investor Relations page of Strata's website at www.strataskinsciences.com. And with that, I'll turn the call over to Bob Moshe.

Speaker 1

Thank you, and thank you all for joining us on today's call. We are excited to announce strong first quarter revenues of $7,600,000 Representing the strongest Q1 since 2016, contributing to our Q1 success was our acute focus On Strata's strategic priorities, flexibility in capital equipment sales and ramp up of TheraClear X Post its official broad launch in January. XTrak, our 3 0 8 nanometer eczema laser Used to treat psoriasis, vitiligo and eczema has reached 9 16 placements domestically. When looking at Xtract, Our focus is on increasing placements. One way we are making meaningful impact is through partnerships with group locations or partner practices.

Speaker 1

As of March 31 this year, we have penetrated 17% of group accounts in the United States. There remains a great opportunity for us to sell into group practices and place multiple units at a time. Additionally, We are measuring the safety and efficacy of Xtract in treating vitiligo. We see this opportunity to capitalize on the noise being created By the approval of OXOLOR for the topical treatment of vitiligo, DTC advertising on TV, we will drive Vitiligo patients into dermatology practices to seek treatment. As we have previously mentioned, sales force continues to convert Pharos users to our Xtrack partnership program.

Speaker 1

We remain on track with our goal and have converted 86 accounts to date. TheraClear X, our acne device acquired in 2022, officially launched more broadly in January of this year, Has exceeded our expectations in terms of placements. In the Q1 alone, we placed 44 TheraClear X devices and sold over 3,000 TheraClear treatment codes. We expect this momentum to continue to ultimately make an impact on 2023 revenues. Over the past quarter and into the remainder of the year, our sales team's focus is on the XTRAC and TheraClear messaging.

Speaker 1

Our advanced sales training ensures that the sales team is equipped with the knowledge and the sales materials to sell Stratus products. Virtual events, along with group practice events are two ways we are expanding our messaging of Xtrack and TheraClear X. In addition to our focus on advanced sales training, we are increasing our participation in industry conferences. For the first half of the year, We have 10 conferences we have already attended or plan on attending. Conferences are a great way for the Strata team to stay connected with the scientific community.

Speaker 1

And conversely, conferences allow us to keep the community apprised of the progress we are making on our offerings. We plan to continue our scientific engagement efforts throughout the remainder of the year. On the international front, this month we signed an agreement in India. Our plan is to continue exploring other market opportunities where we believe there is a need for phototherapy solutions. Strata recently entered into an exclusive 3 year distribution agreement with Spectra Medical for the distribution of Xtract, TheraClear X and VITRAC.

Speaker 1

Spectrum Medical is India's leading distributor of dermatology medical devices. We believe we will be able to make an impact on the market in India as there is a need for vitiligo treatments with an estimate of 8.8% Of India's 1,400,000,000 population suffering from vitiligo, furthermore, 80% of young adults From the onset of puberty and 30 years of age in India suffer from acne alone. India is a great market for Strata as there is no Currently available excimer laser solutions for phototherapy treatments. This partnership provides us with an opportunity to offer this population An effective non pharmaceutical treatment solution to a range of dermatologic conditions. We expect to receive regulatory approval in India later this year and for revenues to begin in the Q1 of 2024.

Speaker 1

Once we receive approval, we would expect extract treatments to be covered by insurance and TheraClure X to be covered by a mixture of insurance and cash pay. In Israel, the 2 most prominent hospitals purchased Xtract eczema laser and have begun providing treatments. Iqalav Hospital, the largest and busiest dermatology is the 1st medical center with access to the Xtrac Esmer laser. We are pleased with the progress we have made over the past quarter and most recently. We are starting to realize the impact of TheraClearx in the market and we are continuing to remain flexible with our sales model of X TRAC, which we believe has allowed us to consistently achieve continued year over year growth.

Speaker 1

With that, I will now turn the call over to Chris to review financials.

Speaker 2

Thank you, Bob. Revenues for the Q1 of 2023 were $7,600,000 as compared to revenues of $7,000,000 in the Q1 2022. Global recurring revenues in the Q1 were $5,200,000 as A 19.5% increase as compared to $2,000,000 for the Q1 of 2022. For the Q1 of 2023, non GAAP Extract gross domestic recurring billings were $4,700,000 as compared to $5,000,000 in the Q1 of 2022. Overall, gross profit for the Q1 was $4,400,000 or 58 percent of revenues as compared to $4,100,000 or 59% of revenues for the Q1 of 2022.

Speaker 2

The decrease in gross profits was primarily the results of a change in product mix With higher sales of dermatology procedures equipment, which has a lower margin than dermatology recurring procedures and due to higher material costs. Looking ahead, we expect gross margins throughout the remainder of 2023 to be in the low to mid-60s With some quarterly fluctuation based on the mix between recurring revenues from system placements and equipment sales. Operating expenses were $7,000,000 as compared to $6,400,000 in the Q1 of 2022. The increase was driven by scoping costs For engineering projects, general and administration expenses also increased to $2,900,000 from $2,700,000 for the 3 months ended March 31, 2020 2. The increase in these expenses was primarily driven by the costs associated with our 2022 year end audit, including valuation work and related legal expenses.

Speaker 2

Net loss for the Q1 of 2023 was $2,800,000 or a loss of $0.07 per basic and diluted common share. At March 31, 2023, cash and cash equivalents was 4,200,000 Now turning to our guidance for the full year 2023. We continue to expect full year 2023 revenues to be in the range of 38,000,000 $40,000,000 representing double digit growth. We are pleased with the progress made in Q1 and are looking forward to building upon this strong base in the coming quarters. With that, Bob and I would like to open the call for questions.

Operator

Thank you. We will now be conducting a question and answer A confirmation And our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Speaker 3

Hi, Bob and Chris. How are you?

Operator

Hey, Jeff. How are you?

Speaker 3

Just fine. So just a few questions from our end. So On TheraClear, could you talk any about utilization trends that you're seeing? Looks like 51 treatments per unit that's out there in the marketplace for the Q1. Was that Are you driven by new patients or follow-up patients and then you read into utilization?

Speaker 3

And also could you talk about any Publications underway or that won't be seen?

Speaker 1

Sure. So thanks for the question. TheraClear, We really focused on placements last quarter, exceeded what we had originally set as a goal of 25, we had 44. So when they when we place a device, a TheraClear device in a derm practice, they also come with codes, which they purchase. So a lot of the 3,000 codes that are out there are some inventory that's built up.

Speaker 1

It's kind of early in the stage of the launch to See how much pull through we're actually getting. Our goal is to try to enroll 2 patients per week, which it's going to take some time to build up to that. But We think that will certainly give us a nice return on those machines on a yearly basis.

Speaker 3

And the coding is per treatment, not per patient?

Speaker 1

Per treatment, exactly.

Speaker 3

Okay, got it. Can you talk

Speaker 1

If you remember, it's 4 to 6 treatments per patient.

Speaker 3

Yes. Got it. Okay. Can you talk a little bit about Spectra? Was there any upfront there?

Speaker 3

And Will the agreement it's for both platforms, but will it be both Sales of devices as well as per use or will run differently?

Speaker 1

Sure. So we're really excited about partnering up with Spectra. They represent a number of U. S. Dermatology medical device companies already, so they're very well known in the Indian market.

Speaker 1

There was no upfront and we're anticipating capital equipment sales As we've been doing in other international markets, there won't be a code being sold to them. It will strictly be a capital equipment sale.

Speaker 3

Got it. Okay. And Chris, did you say low 50s or low 60s on margins for the balance of the year? 60s. Got it.

Speaker 3

Okay. And then lastly, Bob, perhaps talk to us a little bit about the M and A environment and any You're doing as far as adding on other equipment onto your platform and also some of the work you've been doing on other markets As far as distribution or direct arrangements?

Speaker 1

Sure. Yes, we're as you know, we've been active Actively looking to add additional products to the bag as we call it, both medical devices and primarily we're focused as always on medical Device opportunities, skin cancers, warts, hyperhidrosis, those types of conditions, Acne, obviously, we did with TheraClear. So we are continuing to focus in that as well as we've looked through and talked to some companies about potentially adding OTC products. I think you and I have talked about that being complementary to what we're already doing. When patients go to a dermatology practice, even if they're treated with a device, They're typically walking out with something, whether it's prescription or an OTC moisturizer or acne wash or something like that.

Speaker 1

And we think there's an opportunity for us to capitalize on that. So continue to have discussions with other companies. And hopefully, in the near future, we can get something done where we can add something else new to our portfolio.

Speaker 3

Okay, perfect. That does it for us. Thanks for taking the questions.

Speaker 1

Thanks, Jeff.

Operator

And we have reached the end of the question and answer session. I'll now turn the call back over to Bob Moshe for closing remarks.

Speaker 1

Thank you. Again, we'd like to thank you all for participating in today's call. We appreciate your continued support and we look forward to updating the community on our achievements as they develop.

Operator

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

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Earnings Conference Call
STRATA Skin Sciences Q1 2023
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