STRATA Skin Sciences Q1 2025 Earnings Call Transcript

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May 14, 2025

There are 7 speakers on the call.

Operator

Good afternoon, and welcome to the Strata Skin Sciences First Quarter twenty twenty five Financial Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Jules Abraham from the company's Investor Relations firm, Core IR.

Operator

Sir, please go ahead.

Speaker 1

Thank you, operator. 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 03/31/2025. 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 Strata Skin Sciences' management team are Doctor.

Speaker 1

Dola Raffaele, Chief Executive Officer and John Gillings, Vice President, Finance. During this call, management will be making forward looking statements, including statements that address Strata Skin 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 Strata Skin Sciences' most recently filed annual report on Form 10 ks and subsequent periodic reports filed with the SEC and Strata Skin Sciences' press release that accompanies this call, particularly the cautionary statements within. The content of this call contains time sensitive information that is accurate only as of today, 05/14/2025.

Speaker 1

Except as required by law, Strata Skin Sciences disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It's now my pleasure to turn the call over to CEO, Doctor. Doliv Raffyeli. Doliv?

Speaker 2

Thank you, Jules, and good afternoon to everyone on the call. During the first quarter of twenty twenty five, we continued to execute on the multifaceted turnaround strategy we introduced a little over a year ago. Our strategy focuses on generating higher per device recurring revenue by optimizing extract device placements and use in our partnership model driven We are succeeding in assisting our installed base, achieving higher numbers of procedures and optimally utilizing the resources we provide. Through our Elevate360 consulting model, facilitating higher patient conversion and increased device utilization in underperforming dermatology partner clinics.

Speaker 2

We are also seeing strong performance generated from our expanding direct to consumer marketing efforts, which have achieved increased extract leads and thereby more robust patient appointments volume and higher device utilization. These efforts coalesce with strong performance, growing recurring revenue per device across our domestic installed base of approximately eight fifty devices. This approach is building a more efficient, more profitable business for our stakeholders with growth in recurring revenue and higher margins with lower operating expenses. We are helping our partner clinics that seize upon the opportunity to grow with us, create better opportunities and better experiences for those patients who are more likely to be treated at a more dedicated and experienced clinic. The opportunity to increase utilization of extract devices is significant.

Speaker 2

Moreover, we are seeing positive results from the refocus of our DTC strategy. We generated over 1,000 appointments in the first quarter with number of unique patients for which Strata has handled insurance benefits being up 33% versus Q1 of twenty twenty four, combining both organic and DTC growth. In addition, we continue to expand our Elevate360 consulting program, which we began rolling out in Q4 twenty twenty four. By providing deeper analytical analytics, we are helping physicians understand and realize the financial opportunities associated with patients they already see in their clinic and those they have prescribed but did not follow through with extra scheduling. The process helps implement better practices in their clinic operations.

Speaker 2

In addition, Elevate three sixty provides them with comprehensive resources and hands on assistance to execute those best practices resulting in significant improvement within their clinics in just about every facet of their operations. While we are still in the early stages of implementation, initial results have shown dramatic increases in existing device utilization within the small number of clinics already affected as well as growing demand for expanding the number of clinics utilizing XTRAC from physicians who previously struggled to fully utilize the device. Dovetailing with this, our discipline in removing underutilizing devices ensure we can supply these additional devices in the most capital efficient way often with only very minor refurbishment work. Our LV360 consulting program does require significant time from our sales and clinical staff. So broad expansion across our domestic market is expected to be a multi quarter effort, but the potential payoff is significant.

Speaker 2

As a framework of reference, average revenue of extract device in The U. S. In 2024 was roughly $22,000 In 2019, average revenue per extract device in The U. S. Was nearly $30,000 On eight fifty devices, roughly our current U.

Speaker 2

S. Installed base, this would generate an additional $6,800,000 of revenue with only very modest increase in the cost of sales from depreciation of any refurbishment work. Our Q1 twenty twenty five marks the fourth consecutive quarter of a year over year growth in average net recurring revenue per device in The U. S, a strong indication that our strategy is delivering the intended results. The last time the company had four quarters in a row of year over year growth in net recurring revenue per device in The U.

Speaker 2

S. Was 2019. We're actively tackling the headwinds of our gross domestic recurring billing has experienced caused by combination of changes in reimbursement rates and challenges in broader indication coverage beyond psoriasis by working with KOLs, the American Academy of Dermatology, the American Medical Association as well as legislature in an effort to expand coverage. The AMA has recently held a CPT editorial panel discussion that reviewed the potential indication expansion of the excimer laser CPT codes and Strata anticipates favorable outcomes in the near future, building on the same panel decision to narrow the use of these codes to only excimer laser technology earlier in 2024. Turning briefly to the TheraClear X device.

Speaker 2

We reached an installed base of 160 TheraClear X devices in The U. S. At the end of the first quarter, up from 104 devices at the end of Q1 twenty twenty four. In addition, while TheraClear remains a smaller portion of our revenue, it is steadily gaining traction having grown in excess of 50% on a year over year basis in six of our last seven quarters including Q1 twenty twenty five. As mentioned previously, Strata focuses on partner clinic that adopt the billing of the insurance reimbursed CPT code for use of the TheraClear X device over clinics that opt for cash payments.

Speaker 2

And the 1,000 patients submitted for reimbursement in Q1 twenty twenty five show a 138% increase over the four thirty eight submitted just a year ago with pre authorized rates exceeding 85%. Our international business achieved another strong quarter with sales of $2,500,000 up 8% versus the prior year period with equipment sales up 13% and recurring treatments revenue up 27, partially offset by a decline of 5% in parts and maintenance. Performance in the first quarter was strong. We are pleased with the traction our turnaround strategy has gained and the increase in demand for cost efficient and effective treatments in international markets. Anecdotally, we have shared over social media an image of one of our devices in China that has treated in nine years nine thousand eight hundred and seventy six patients with just over 6,800,000 doses.

Speaker 2

The same clinic now uses four new devices in two locations. While we are cautiously eyeing the potential negative impact of tariffs on near term sales, we look forward to the expansion of the number of clinics and devices used in all of our international markets as we deploy recurring revenue placements in addition to the traditional capital sales model. Now, I'd like to turn the call over to John, who will review our financial results in more detail. John?

Speaker 3

Thank you, Dolan. Our total revenue for the first quarter of twenty twenty five was $6,800,000 up 1% compared to Q1 twenty twenty four. Global recurring revenue for the first quarter of twenty twenty five was $4,700,000 also up 1% versus the prior year period. Excluding deferred billings and other GAAP adjustments, XTRAC gross domestic recurring billings were $4,100,000 in the first quarter of twenty twenty five as compared to $4,600,000 in the first quarter of twenty twenty four. Equipment revenue was $2,100,000 in the first quarter of twenty twenty five, up 1.4% versus the first quarter of twenty twenty four.

Speaker 3

Gross profit increased to $3,600,000 for the three months ended 03/31/2025, up from $3,100,000 during the same period in 2024. This resulted in gross margin of 53.5% for the first quarter of twenty twenty five compared to 45.6% for the same period in 2024. The increase in gross margin was driven primarily by continued efficiency gains in our recurring revenue business and the absence of a one time inventory write off that impacted the equipment margins in Q1 twenty twenty four, but did not recur in Q1 twenty twenty five. Total operating expenses in the first quarter of twenty twenty five were $5,700,000 versus $6,000,000 in the first quarter of twenty twenty four, a reduction of 5% year over year. Engineering and product development expenses declined 60% due primarily to reduced headcount and project specific consulting expense that did not recur in Q1 twenty twenty five.

Speaker 3

Selling and marketing expenses declined 1% driven by reductions in compensation and consulting expenses, which more than offset planned increases in DTC spending. Finally, G and A expenses declined 5% versus the prior year period due to reduced compensation expense more than offsetting modest increases in accounting, legal and consulting expenses. Given the seasonally lower revenue we consistently experienced in the first quarter of each year, it tends to be the most challenging quarter for margins, EBITDA and cash flow. Our focus on expanding margins and controlling costs resulted in an improvement of $732,000 in non GAAP adjusted EBITDA, our best first quarter adjusted EBITDA since Q1 of twenty twenty two. Turning to the cash flow statement, our cash burn in the first quarter was $749,000 an improvement of roughly 800,000 versus cash burn of $1,550,000 in the prior year period.

Speaker 3

We exited Q1 twenty twenty five with cash, cash equivalents and restricted cash of $7,800,000 This total cash balance includes $1,300,000 of restricted cash related to the sales tax audit accrual we made in Q3 of last year. As of 03/31/2025, the company had 4,171,161 common shares outstanding. That concludes my prepared remarks, and I'd like to turn the call back over to Doliv for any remaining comments. Doliv?

Speaker 2

Thank you, John. Our consistent execution and focus on cost containment continues to drive improvements in our results. That said, despite a strong start of the year, we believe it is important to caution investors about the potential impact of tariff on our international business. The rhetoric and posture that took place during the first quarter had no meaningful impact on our business, And it is too early in the second quarter to reasonably assess the potential impact. But if the situation is not resolved, we would expect to see meaningful reduction in international revenue.

Speaker 2

We hope to be able to offer greater clarity on the second quarter call, which we expect to hold in mid August. Now I'd like to turn the call over to the operator, so that we can begin the question and answer session. Operator?

Operator

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

Speaker 4

Hi, Dilip and John. Thanks for taking our questions. We're wondering if you could talk about TheraClear a little bit as far as the pipeline of numbers as far as Q2 or maybe full year aspirational numbers where you plan to get to on the fleet and any learnings out there in the marketplace?

Speaker 5

Hi, Jeff. Good afternoon. This is Golev. I'm not sure I understand the question. You want the pipeline of numbers for what?

Speaker 4

If you could talk about TheraClear placements, what you're finding out there in the marketplace and how that looks for the year?

Speaker 5

Absolutely. So I'll touch on three items. One, our installed base keeps growing. Now as you know, we own about two fifty devices. We have about 160 of them deployed.

Speaker 5

That was part of the prepared remarks. About just over half of these are deployed with accounts that are billing insurance. We provided in the prepared remarks the number of patients that went through our reimbursement support team and that is up 138% as compared to Q1 twenty twenty four. So we're at about 1,000 as compared to just over 400 last year. So that keeps on growing.

Speaker 5

We anticipate, as we said in previous calls, we anticipate to be able to have full deployment of our installed base towards the end of twenty twenty five or the beginning of twenty twenty six, at which point we can put more into CapEx. So we're utilizing our existing CapEx. And once we get to a point where that CapEx is stretched to its full extent, then we're going to increase the CapEx investment. The individual patients, the value of a patient to us is somewhere in the range of $50 to $60 per treatment times six treatments. And so you take 1,000 patients that went through our reimbursement team in the first quarter and you multiply it by six and then you multiply it by 50, you get to the value of these patients.

Speaker 5

This is in addition to patients that have been in the pipeline previously and that is in addition to the accounts that are paid for non insurance reimbursement. So these are the numbers we share, and it keeps on going in the right direction. We want to have full deployment of the capital equipment we own that we invested in. We want to have that fully deployed and then we want to have as many of these billing insurance and extending the usage. Our usage which was very focused on a small number of groups of clinics in the Northeast in the beginning of twenty twenty four is now expanding geographically.

Speaker 5

We have now groups of clinics up and down the East Coast in the Midwest as well as in the West Coast. And each one of these groups are utilizing it successfully, which means that within the group we start seeing expansion. Again, going back to the example I used before, when we started doing this at the beginning of twenty twenty four, we had a small number of groups in the Northeast. 1 of these groups that started with one in January of twenty twenty four is now up to 14 devices. The other one is going to actually be surpassing that number in devices.

Speaker 5

So it takes us a few quarters not only for the group of clinics to adopt the billing process from a compliance and regulatory perspective, but also for the providers to prescribe and to get the patients patient flow coming in. We're very happy with the number of patients that are being submitted for reimbursement support. We're very happy with the pre authorization, pre approval of these patients, which is at the level of above 85%. So every 100 patients were to get pre authorization for over 85 of them. This is true across payers, across the different regions.

Speaker 5

So it's true across many insurance companies. I hope I answered the question.

Speaker 4

That's helpful, Dulce. Could you talk any about utilization trends or time that you're seeing as far as analysis for an account to become mature out there for TheraClear?

Speaker 5

Yes. So as I mentioned one patient is worth for us six treatments times approximately $50 so that's $300 And if our goal is to be at from a cost of goods perspective, cost of goods of a TheraPlear is about half as much as extract. So the extra breakeven is at about $18,000 and therapeutic breakeven is at about $9,000 a year. So it's somewhere in the $2,500 a quarter revenue per device where we breakeven on the device. So if you divide 2,500 by 50, that's 50 procedures per quarter or 200 per year.

Speaker 5

So if we had 1,000 patients in Q1 and each one did six procedures, that's 6,000 procedures in Q1 or 24,000 in the year.

Speaker 4

I hope that helps and if you can use these numbers for your analysis. Yes. That's perfect. Okay. One more question.

Speaker 4

Timing on your queue.

Speaker 5

Don, please confirm, I think we're going to be filing tonight. John?

Speaker 3

I apologize. Can you repeat the question? I couldn't hear it clearly.

Speaker 5

The timing on the Q, timing on filing of the Q.

Speaker 3

Yes, that should go through later tonight.

Speaker 4

Perfect. Okay. Thanks for taking our questions.

Speaker 5

Thank you,

Operator

Our next question comes from Jeremy Perlman from Maxim Group. Please go ahead with your question.

Speaker 6

Okay. Thank you. Good evening. So the first question is related back to tariffs. You said it could have depending how it plays out, could have an impact in second quarter in international business.

Speaker 6

Is there any potential impact on the on your domestic business? I know you have called your installed base, so you do have those devices out there. So I guess those wouldn't have those wouldn't come under if you produce those manufactured outside of The U. S, it wouldn't that you still you just have them in inventory, so that wouldn't be. But is there any other potential tariff impact on your domestic business?

Speaker 5

First of all, good afternoon. Thank you, Jeremy, for asking the question. Our supply chain is very mildly impacted by tariff because we manufacture and source most of the material locally. We will have some or we do have some peripheral impacts because suppliers take advantage of the tariff situation to raise prices, but that also happened in 2024. It's not tariff specific.

Speaker 5

We are not directly impacted by the tariff on the supply chain side. We are impacted by the tariff on the outbound into non U. S. Markets, most specifically the Asian markets. And that impact is not only on new sales, but it's also on service and warranty support because even in a situation where we have warranty obligations that we provide the parts free of charge, the entity on the ground, the distributor would have to import them and in a situation where there is 145% tariff, our free of charge part is going to cost them 145% the list price where it was 6% or 8% previously.

Speaker 5

So that is an impact that we cannot quantify at this point. We are not clear yet on what is the meaning of the ninety day reprieve for Q, which is mostly straddling Q2. But we're definitely not clear on what's going to happen beyond that. I hope I answered the question.

Speaker 6

Yes, understood. Thank you for that. And then moving to the extract, it seems like the installed base was flat sequentially. You had roughly $8.64 at the end of this quarter and at the end of 2024. Is it fair to say that you basically we've hit a bottom of your installed base?

Speaker 6

And now is the focus going to be on the current installed base increasing the utilization? Or you're going to also look to sign on new clinics as well while you're focusing on the how should we look at your focus going forward in the rest of 2025?

Speaker 5

You're going to see both. So if you at high points versus low points in terms of installed base, we own on our balance sheet and in our warehouse approximately 100 devices that can be redeployed tomorrow morning because we own them. The redeployment, the one part you can see is the net difference. So the removal versus redeployment of devices. So what you see is a net number.

Speaker 5

The net number of devices out there represents some removals, some redeployments. And I would look at this as a low point. I would look at this as we would try to start expanding. But while we expand, we're still removing nonperforming accounts and expanding into more productive accounts. Let me point out one thing that was in the prepared remarks and I just want to make sure the point comes across.

Speaker 5

We started implementing in Q4 of twenty twenty four a process that we call Elevate three sixty. Most specifically what we do there is we go into accounts that we believe are strategically positioned to grow. However, they are in a point in time in which if they don't grow, we're going to remove them and we offer them the following steps. First, we help them with the analytics. So we show them how many patients with the conditions they have seen over the last year.

Speaker 5

Now we've done this now for multiple offices and the average number is approximately 1,000. That's a lot of patients. Then we show them how many of these 1,000 patients on average they have in 1,000 patients in one year. How many of these 1,000 patients have they prescribed for extract, which means how much of the available market they have in the clinic have they captured into prescriptions. And the average there is about 15%, so call it 150 patients.

Speaker 5

Let me just remind you that one patient is worth about $3,000 for that doctor. So if they converted all of these 150 patients into procedures and billing and revenue that means $450,000 for them. That individual patient is worth $1,000 for us. So if they could have converted all of these 150 patients into procedures and paid us for the procedures that individual patient is worth approximately $1,000 to us. So $150,000 However, when you look at the average revenue per device, we are very far from that number.

Speaker 5

So what we show them on the third line is how many patients they actually have in treatment. Now why do we need to show them because they are not equipped at being able to look at these numbers. They see throughput numbers. They see how many patients, how many individual patients they have seen in the clinic that day, how many procedures they have built, but they cannot see the numbers the way we look at them. Then we have a discussion with the person in charge.

Speaker 5

And the person in charge would be either an owner of an individual clinic or a small group of clinics or it's going to be the private equity that owns a much bigger group of clinics. We show them what is the upside and we say okay here is what needs to happen. You need to have a champion, someone who's going to lead it, someone who's going to consolidate this on your side, someone who's going to see that as many patients as possible are prescribed and then of those that are prescribed even though we do most of the reimbursement reimbursement support, we get them the pre authorization, as many of those that got the pre authorization would be scheduled into procedure and then would be followed on. For those clinics that we were able to go through the full process starting in Q4 of twenty twenty four, we have seen tremendous upside. The tremendous upside is not only reflected in that individual account but also across other clinics they own.

Speaker 5

So I'm going to use one example. We have an account that was on its way to be removed. We have done Elevate360 in October of twenty twenty four and that account which used to be in our terms used to be a 30,000 to $40,000 account which was in twenty twenty one, twenty twenty two went down to a $13,000 revenue until October of that year and generated to us $28,000 in Q4 twenty twenty four, which means it was very successful in that individual clinic. However, the owner of that clinic now has deployed the same approach across seven more clinics and now we have eight. So that comes into a partial answer to your previous question.

Speaker 5

So we have now redeployed seven devices that were sitting in our inventory into seven new clinics that are going to be more productive just because we have done that process. So it's not only that one individual account that was there since 2019 and was good in 2021, '20 '20 '2 but was not good in 'twenty three and 'twenty four. This account was not removed. It became a very productive account. In addition to that, we have seven more accounts that over Q1 and Q2 of twenty twenty five have shown to be very productive.

Speaker 5

We will be able in the coming quarters to share more information about that as this become more systemic and not just individual accounts. As I said in the prepared remarks, we are now deploying this across dozens of accounts where in Q4 we were in a small number of accounts and now we're approaching 100 accounts in which we utilize this. This gives us a better ability to either make them better, deploy across more clinics that they own or we move faster. Just show them what is the potential, get a clear answer why they're not utilizing it and if they're not utilizing it remove it. But if they are willing to put the efforts into and it's a range of things but put a lead person on the business, make sure that the front desk schedules people, make sure that we can do online scheduling for the patients, make sure that billing goes out according to instructions and many, many other details then it becomes very productive.

Speaker 5

I hope I answered the question.

Speaker 6

Yes. No, that was very helpful. And then just one quick follow-up question. So you said now you're roughly doing this to 100 accounts, this Elevate360. Is that what other what's the just a quick percentage of clinics in your installed base that you think this would be helpful for?

Speaker 5

The number 100 represents we have 25 territory managers and it represents four per territory. So we went from having five accounts in October of twenty twenty four. We wanted to see it works, so we went with five. We selected five and it was we operate in three regions, but it was one per region and then one region had more accounts. And then once we saw that working, we selected four accounts per territory.

Speaker 5

Each territory manager we have 25 territory managers. And if you take our eight fifty plus or minus eight fifty net accounts divide this by 25 you'll see that each territory manager has approximately 35, 30 seven accounts. That is a 10% penetration. Now if you go back to the prepared remarks, you'll realize that it's a lot of consulting works because we have to go in and not only collect the data and analyze it, but we need to present it to them. So they need to put in effort.

Speaker 5

So just for the sake of explanation, last night we had a dinner meeting with one of these accounts. The owner had to collect 13 providers, so 13 doctors had to be there. We were there. We presented the numbers. We showed them what they need to do.

Speaker 5

They had to make their own decisions whether because we cannot tell them how to practice medicine. So they need to make their own decisions whether they want to do this and how they want to do this and how they want to implement the procedures internally. If they do this, we're going to handhold them handhold the execution in the clinic. We're going to be providing them with reporting, with top line numbers and analytics of what they do. But that's why we went from five to 100.

Speaker 5

Once we see this works at 100 which means four per territory or approximately 35 per region, then we will be able to expand beyond that. So that's why in the prepared remarks we say we put a lot of resources into that.

Speaker 6

Okay, great. Thank you for all that information. I'll hop back in the queue.

Speaker 5

Thank you.

Operator

And at this time, I'm showing no additional questions. I'd like to turn the floor back over for any

Speaker 5

Thank you everyone for participating in today's call. We look forward to seeing all of you again in mid August when we will be presenting the results of the second quarter. Thank you so much and have a great evening.

Operator

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

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Key Takeaways

  • Turnaround strategy leveraging the Elevate360 consulting program and expanded direct-to-consumer marketing to boost per-device utilization and recurring revenue across the installed base.
  • Over 1,000 DTC-generated patient appointments in Q1 2025 drove a 33% year-over-year increase in unique patients for whom Strata handled insurance benefits.
  • First-quarter gross margin improved to 53.5% (from 45.6% a year ago) and non-GAAP EBITDA rose by $732,000, marking the best Q1 adjusted EBITDA since 2022.
  • The TheraClear X installed base climbed to 160 devices (up from 104), with reimbursement submissions up 138% and pre-authorization rates exceeding 85%.
  • International revenue grew 8% to $2.5 million, although potential tariff actions pose a near-term risk to outbound equipment and service shipments.
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Earnings Conference Call
STRATA Skin Sciences Q1 2025
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