STRATA Skin Sciences Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2024

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the Stratus Skin Sciences Inc. 2nd Quarter 2024 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen only mode. After today's presentation, 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.

Operator

A webcast replay of the call will be available approximately 1 hour after the end of the call through February 14, 2025. I would now like to turn the call over to Joey Delahoussay of CORE IR, the company's Investor Relations firm. Please go ahead, sir.

Speaker 1

Thank you, Betsy. Good afternoon, and thank you for participating in today's conference call. Earlier this afternoon, the company released its financial results for quarter ended June 30, 2024. A copy of that press release can be found on the company's website at www strataskinsciences.com under the Investors tab. Joining me on today's earnings call from StrataSkin Science management team are Doctor.

Speaker 1

Dola Rafaeli, Chief Executive Officer and Chris Lesovitz, Chief Financial Officer. During this call, management will be making forward looking statements, including statements that address Stratuskin Sciences' expectations for future performance or operational results. Forward looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Stravis Kin Science's most recent filed annual report on Form 10 ks and subsequent periodic reports filed with the SEC and Stratusken Sciences' press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time sensitive information that is accurate only as of today, August 14, 2024.

Speaker 1

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. It is now my pleasure to turn the call over to CEO, Doctor. Dolo Raffaele.

Speaker 2

Thanks, Joey, and good afternoon to everyone on the call. During the Q2, we made continued financial and strategic progress in turning our business around. Total revenue of $8,400,000 grew 2% year over year. Total operating expenses declined approximately $860,000 or 14% year over year and our loss from operations declined by $1,500,000 to roughly $500,000 from approximately $2,000,000 last year. On the last quarterly earnings call, I mentioned that we expected to ramp our DTC marketing spend into year end to create additional patient awareness about Xtract and its ability to treat psoriasis, eczema and vitiligo and that is still the plan.

Speaker 2

Our DTC results thus far are encouraging as we grew the number of extract patients appointments in the 2nd quarter from our Q1 levels. Additionally, our cost per lead and cost per appointment metrics thus far in 2024 are lower than that seen in 2021 when we were less focused on DTC like we are now. Given our DTC success thus far in the first half of twenty twenty four, we have expanded from our initial DTC focus in just 4 marketing areas in the Metro Northeast to 28 active marketing areas with a more national focus on lead generation. Our gross domestic recurring billing in the 2nd quarter were down 6% year over year following the 1st quarter decline of 3% year over year. We continue to believe we are near trough levels and with increased DTC efforts, we will turn positive on this metric.

Speaker 2

These last two quarters of low and mid single digit declines are in contrast to year over year declines of 15%, 12% and 14% in the Q2 2023, Q3 2023 and Q4 2023 respectively. With respect to our strategy of redeploying underperforming extract devices in our installed base, Evidence that we are committed to this strategy lies in our installed base of extract devices declining from 907 units at the end of the Q1 to 881 units at the end of June. Again, this is a concerted effort to redeploy our devices in clinics that can drive higher utilization and procedural volume or sell such devices. This effort helped the Q2 equipment revenue increase by 11% from $2,800,000 in the Q2 of 2023 to $3,100,000 in the Q2 of 2024. We plan to continue to optimize our footprint here in the U.

Speaker 2

S. In the coming quarters. If we are successful in the coming quarters, and it will take some time in driving utilization to levels seen before the COVID-nineteen pandemic, we could increase our annual revenue by approximately $8,000,000 and at incrementally higher margins without having to increase the installed base. Our domestic installed base of TheraClear X devices continues to grow and we ended the Q2 at 117 devices in the U. S.

Speaker 2

As compared to 92 at the end of the first quarter. During the Q2, more patients were pre approved for photomimatic acne treatment with the TheraClearx device than in the Q1. Recent published studies as highlighted in press releases over the past few months points to a growing body of evidence with respect to the effectiveness and safety of our Therapeutics platform for mild to moderate to acne. Our goal is for dermatologists and patients alike to have increased awareness of our photopneumatic treatment and see it as a viable alternative in the large acne treatments market either as monotherapy or as an adjunct therapy. As study results show, it can be effective in either scenario.

Speaker 2

We are focused on growing our Therapeutics presence with the National Dermatology Clinic Group's accounts that accounts for nearly 40% of the XRET installed base, along with high acne volume accounts across all regions. Since the end of the second quarter, we completed a financing that raised $2,100,000 in gross proceeds. I believe in our strategy focus and approach and showed the confidence I have by participating in this offering. Similarly, insiders and long standing existing institutional shareholders also participated demonstrating their conviction in our corporate direction. The proceeds will be used to continue our turnaround and growth efforts.

Speaker 2

Now I'd like to turn the call over to Chris, who will review our financial results in more detail. Chris?

Speaker 3

Thank you, Dola. Our total revenue for the Q2 of 2024 was 8,400,000 dollars versus $8,300,000 in the Q2 of 2023. Global net recurring revenue for the Q2 of 2024 was $5,300,000 versus $5,500,000 in the Q2 of 2023. Excluding deferred billings and other GAAP adjustments, extract gross domestic recurring billings were $4,700,000 in the Q2 of 2024, down 6% from $5,100,000 in the Q2 of 2023. Equipment revenue was $3,100,000 in the Q2 of 2024 versus $2,800,000 in the Q2 of 2023.

Speaker 3

International sales of Xtract and V Trac devices compromised the majority of equipment revenue in both periods. Gross profit increased to $4,900,000 for the 3 months ended June 30, 2024 from $4,300,000 during the same period in 2023. As a percentage of revenues, the gross profit was 58.5 percent for the 3 months ended June 30, 2024, as compared to 52.3 percent for the same period in 2023. Total operating expenses in the Q2 of 2024 were $5,400,000 versus $6,300,000 in the Q2 of 2023, a 14% reduction. Our cash, cash equivalents and restricted cash position of $6,800,000 at June 30, 2024, along with our credit facility with MidCap Financial supports our growth initiatives and leaner cost structure.

Speaker 3

We continue to believe we can execute on our strategic goals for the 2024 given our current financial position. As of June 30, 2024, the company had 3,506,025 common shares outstanding, reflective of the 1 for 10 reverse split in early June. Subsequent to the end of the second quarter, we raised $2,100,000 in gross proceeds through the sale of 665,136 shares. With insider participation in this financial and showing the conviction in Strata's strategic plan, ability to execute and path to profitability. That concludes my prepared remarks, and I'd like to turn the call back over to Dolev for any remaining comments.

Speaker 2

Thank you, Chris. As we shared on this call, our strategy remains consistent with prior communications. Our execution is on track and the conviction from management and shareholders closest to the story remains resolute as reflected in the recent capital raise where these shareholders contributed approximately 50% of the gross capital raise. I would also like to provide a fond farewell to Chris as he will be leaving StrataStream to pursue other interests. We thank him for his years of service as our Chief Financial Officer and wish him well in the future endeavors.

Speaker 2

We welcome John Gillings, who brings many years of Private Equity Investment Management and Equity Research experience and will be the key financial officer of the company moving forward. Now, I'd like to turn the call over to the operator, so that we can begin the question and answer session. Operator?

Operator

The first question today comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Speaker 4

Hi, thank you. This is Destiny on for Jeff. Thank you I wanted to maybe start with some of the, well, the agreements and the approval in Japan, how there's a minimum number of units that have to be purchased per the agreement. I'm wondering if you can give a little more color on that. And then just remind us how international equipment sales impact, excuse me, margins and if we should see any changes or fluctuations as you launch more heavily in Japan?

Speaker 2

First of all, good afternoon, Destiny. Nice to talk to you. Internationally, we are active in multiple markets. The 4 biggest markets are Japan, South Korea, China and Middle East. Each one has a unique agreement, but in general, they all have the option to purchase capital equipment outright or to place devices in the market.

Speaker 2

Specifically in Japan, we started working about 15 years ago, in our first entry into the Japanese market was with the V TRAC devices, which are eximer length technology devices. We have about 450 devices or accounts in Japan, which is the largest market share of the relevant technology of the time. We started converting these over to extracts about 6 years ago. And in Japan, things move slower because of the country is more conservative in terms of making changes. So the first wave was with key opinion leaders and there were multiple clinical studies published in Japanese and in English by key opinion leaders in Japan supporting the clinical efficacy, but also the better results that you can get with excellent laser namely Xtract.

Speaker 2

We are now up to approximately, I don't have the exact number in front of me, but we're up to approximately 100 devices of XTrak in Japan, many of which are replacements to the old V Thrac devices, some of which are with newer, younger doctors. The Japanese market is characterized with 2 things. 1, they do more placements than capital equipment purchases because they want the consistency of knowing how much they pay and getting the technological support and the maintenance support of the device. And 2, the leading blockers want to have the best, the fastest, the most advanced technology. It took us about a year and a half to get the Japanese FDA cleared clearance for the momentum.

Speaker 2

And the momentum is the most advanced level of technology that the XTRAC has. So the momentum itself got cleared by U. S. FDA in late 2021. And it took us about a year and a half to get through the Japanese FDA.

Speaker 2

And we anticipate that the volumes of devices going into Japan are going to remain more or less stable, somewhere around the 40 devices, most of which are going to be so 40 devices a year, most of which are going to be are going to be placements, some of which are going to be outright sales. And these devices are going to be gradually migrating from the older Velocity 7 extra technology to the momentum. I'm not sure I fully answered the question. I think you also asked about margins. So I want to point out something that is going to provide an answer to your question about Japan, but also a more fuller answer.

Speaker 2

So when you look at the gross margin of the company, the Q2 of 2024 has a higher gross margin than 2023. But it's more important to look at that time past. So if you look at 2019 and 2021, so the 2 years straddling the COVID pandemic, at which time the revenue mix of the company was about 1 third capital equipment sales and 2 thirds recurring revenue. The overall gross margin of the company was very close to 70%. And we ended Q2, twenty twenty four at 58%.

Speaker 2

And if you want to bridge that gap between 58% 70%, it almost completely lies not in the change of mix and sales of capital equipment outside of the U. S, but more in the fact that the company had a lot of depreciation of the installed base and acquisitions flow through the cost of goods. We are dealing with both of these. The amortization of the acquisitions, we're dealing through write down of the intangibles, which happened at the end of last year. And the depreciation is dealt with in what we do in the domestic market, removing non productive devices away from accounts that are not productive and using the equipment for capital equipment sales.

Speaker 2

So we're actually using a device that's partially depreciated and selling it away from the capital equipment. So if you look at the financials, you'll be able to see 2 things. The one thing which I believe you were pointing to, which is the gross margin, but the other thing is if cash flow statement, you'll see that our cash flow for investment purposes went dramatically down because in Q2 2023, we were at 3.5 for the 6 months, we were at $3,500,000 where in Q2, 2024, we're at 1,000,000. So we use $2,500,000 less. Why?

Speaker 2

Because we're not increasing that installed base. We're actually doing the opposite. And that is helpful both from a cash flow perspective as well as gradually over time, it's going to reduce the depreciation that flows through the P and L and increase the margin back to where it is supposed to be, which is closer to 70%.

Speaker 4

Okay, got it. Got it. And that actually kind of leads into my next question. Can you talk a bit about how much more shrinkage, if you will, you're expecting on the installed base? And for the quarter, obviously, there were more removals from unproductive accounts than additions based on math.

Speaker 4

But I'm curious to know how many additions you are or new placements, I should say, you had in the quarter. And then tied to that as well, which I'm sure you'll touch on, in your answer, are there any changes to the parameters that you're using to determine if an account is unproductive or has that stayed pretty consistent through the first half of the year?

Speaker 2

So I'll start with the last question. The parameters are the same. We're removing an account if we don't see a future with that account. So if that account is either a non user or a dabbler, and there's it doesn't make any sense to leave the device out there with them and provide service, provides so provides technical service as well as providing the sales team support to that account and the reimbursement support. In terms of the numbers, I just want to provide a Ladenburg has been grateful enough to cover in terms of research this business for some years now.

Speaker 2

So what I'm going to do now is I'm going to just go back a few years. In 2018 2019, we've done the same thing. We did a turnaround. We removed more than we placed for a period of time in order to stabilize what's needed in the field. And then a year later in 2019, we placed 160 accounts, new accounts and we removed approximately 70.

Speaker 2

So we grew by net 90. And I anticipate the same thing to happen here. So what we're doing now and you will be able to notice this through the average revenue per device. What we're doing now is we're trying to remove as many as we can that are dabblers or non users and or give this as a use the opportunity as a wake up call for them to say, you have been a great user in the past, you stopped using or you're using less. Here's your opportunity to grow.

Speaker 2

Let us help you grow. So that becomes an opportunity. We have some in which that wake up call works and they're becoming more productive and some that we end up using removing and you were right pointing out that we removed more than we placed. We actually placed in Q2, 7 devices. So, you're right, you can do the math.

Speaker 2

We placed 7 and we moved more. I anticipate that towards the end of this year, the removals, the net removals are going to stop and there's going to be net placements. Is that going to happen in Q4 in Q3 or Q4, I don't know yet. But it will happen for sure after we start seeing the average revenue per device expanding. So we need to see utilization going up in the accounts that we keep.

Speaker 2

The utilization should go up. And when it goes up, we are going to start adding more accounts. Again, I'm going to point you back to historical numbers. In 2018, we had we ended the year with approximately $7,200 per device per quarter. We ended 2019 with $7,500 per device per quarter, which was more usage and also more accounts.

Speaker 2

We ended the second quarter at approximately $5,369 per device, which is equivalent to what we had in 2023. And I would like to see Q3 expansion of that number and then Q4 expansion of that number. And then we're going to start seeing net expansion in the number of devices.

Speaker 4

Okay, got it. Thank you for that color. I appreciate it. I guess lastly, I'm impressed that your marketing in 2024 is actually looking better than it did in 2021. And I'm just wondering if there have been any changes to call out that are causing that.

Speaker 4

Are you in new channels? Are you using different messaging? Or is it just based surely on having more experience and more data to pull from your previous DTC marketing efforts?

Speaker 2

It's a combination of everything you said plus the fact that we haven't been advertising for approximately 2 years. And when you go back into markets that were dormant for a period of time, It is very helpful in terms of cost per lead and cost per appointment. We also have again, as a matter of fact, we have more availability in terms of number of accounts now. So it's easier to place them to place them into an appointment. And yes, the experience helps.

Speaker 4

Got it. All righty. That does it for us. Thank you for taking the questions.

Speaker 2

Absolutely. Thank you,

Operator

This concludes our question and answer session. I would like to turn the conference back over for any closing remarks.

Speaker 2

Thank you, Betsy. I want to thank all of you for participating in today's call and for your interest in Charlotte Skin Sciences. We look forward to sharing our progress on our next quarterly conference call when we report our Q3 2024 financial results likely in November. Thank you and have a good day.

Powered by Quartr

Key Takeaways

  • Q2 financials: Total revenue of $8.4 M (+2% YoY), operating expenses down 14% and operating loss narrowed to ~$0.5 M from ~$2 M a year ago.
  • DTC marketing ramp: Expanded from 4 to 28 markets, achieving lower cost per lead/appointment than in 2021 while increasing patient appointment growth.
  • Recurring billing stabilization: Gross domestic recurring billings declined 6% YoY but showed signs of reaching trough levels vs steeper declines in prior quarters, with a positive reversal expected from increased DTC efforts.
  • Device redeployment strategy: Reduced underperforming XTRAC units from 907 to 881 to boost utilization, contributing to an 11% jump in equipment revenue and targeting ~$8 M in incremental annual revenue at higher margins without new installs.
  • Capital raise: Completed a $2.1 M financing with significant insider and institutional participation to fund ongoing turnaround and growth initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
STRATA Skin Sciences Q2 2024
00:00 / 00:00