Strata Skin Sciences, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Strata Skin Sciences third quarter 2021 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, You may signal an operator by pressing star and zero. I would now like to turn the conference over to Lee Salvo with Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Joining me today are Bob Moshe, Chief Executive Officer, and Chris Lesovitz, Chief Financial Officer. Earlier today, Strata released financial results for the quarter ended September 30, 2021. 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 fact 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. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or applied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factor section of our public filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2020. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 10, 2021. Strategist claims 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. Also during this presentation, we refer to domestic growth recurring billings, which is a non-GAAP financial measure. The reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available on the company's earnings release for the third fiscal quarter ended September 30, 2021, which is accessible on the SEC 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.

Thank you, Lee. Good afternoon, everyone, and thank you for joining us for our third quarter 2021 earnings call. I'd like to start the call this afternoon by welcoming our new Chief Financial Officer, Chris Lesiewicz, who joined Strata in July and was promoted to CFO in early October following the departure of Matt Hill. I've had the opportunity to work closely with Chris in my prior company and have complete confidence in his ability to lead our financial department. Now to our third quarter results. Starting with a few financial highlights, Total revenues in the third quarter increased 37% year-over-year and 4% sequentially. We were also encouraged to see revenues in the quarter exceed pre-COVID levels in the comparable quarter of 2019. Recurring revenue increased 49% over the third quarter of 2020 and 5% sequentially. Our strong results are primarily due to continued recovery of the dermatology offices to pre-COVID operational levels, commercial execution on each of the initiatives we've identified earlier this year, and the shift we are seeing towards improved utilization that drives our recurring revenue model. We exited the third quarter with an installed base of 929 recurring revenue extract devices, including 880 in the US and 49 international placements. This is up from 889 units total, with 848 in the US and 41 internationally at the end of June. We are obviously pleased to see the continued growth of our partner footprint here and abroad. As we noted at the time of our last call, we entered the third quarter in the strongest position since the onset of the pandemic, with patient visits to dermatologist offices increasing for the third quarter in a row. While this trend was encouraging, mid-quarter staffing shortages once again began to resurface in some regions as the pandemic spiked with the Delta variant. This was especially prevalent in larger metropolitan regions, where we see the majority of our business. Despite these challenges, interest in our new extract placements remains strong, especially in group practices. Ultimately, we are confident in our position in the marketplace. We believe that when staffing once again returns to a more normalized patent, and we already are seeing some of that today, we have the right mechanisms in place to grow our installed base at a faster rate. Now to an update on our acquisition of the Rob Medical's Derm business. We have already made significant headway in transitioning current raw customers to our extract system and recurring revenue model. We continue to expect this acquisition to be accretive to EBITDA in the first quarter of 2022. Thus far, in the first six weeks following closing, we've conducted 112 initial meetings with RAS Farrows customers to review options. This yielded 13 comeback placements from Farrows customers by third quarter end with continued progress into the fourth quarter. We are building an exciting pipeline of Ferro's comeback opportunities that we expect will result in migration to extract throughout Q4 and into 2022, representing a tremendous opportunity to further expand our revenue and customer reach. Turning to our commercial execution initiatives, we are making great progress and believe that Strata is well positioned for a strong finish to 2021 and double digit growth in 2022. We recently added a director of business operations. whose responsibilities include centralizing all data sources, analytics, targeting, delivering an overview of the business, and identifying new opportunities for expansion. Our investment in direct consumer marketing continues at 2019 levels. DTC marketing has demonstrated historically to have a positive impact on the business, and we see that in the increase in RDX charts, which continue to trend above 2019 levels. RDX charts are insurance benefit requests for new and existing patients throughout the calendar year and represents patients who have been entered into our system as potential extract patients. High volume accounts, defined as accounts that produce above $40,000 in revenue per year, remain a focus and key metric we track. These high volume customers increased in Q3 from 186 to 214, a 15.7% sequential increase over the previous quarter. and contributed approximately 3.4 million in revenues in Q3, which accounted for 56% of all recurring revenues. The continued growth in the number of high volume customers reflects the focus and execution of our sales force in expanding usage and driving recurring revenues with our customers. Another key metric we track are customers at January 1 of 2021 that had not yet started producing revenues. Bringing these customers back online has been a priority this year, with many of these accounts severely impacted by the pandemic and closed for more than a year. We started 2021 with 198 extract non-revenue regenerating devices, and by the end of Q2, reduced that to 152. By the end of Q3, we further reduced that number to 69. While new non-revenue generating systems have been added throughout the year, our goal is to keep the total percentage of non-revenue generating devices below 15% of our total U.S. install base, with an average startup time of 60 days. Lastly, our new direct dermatology marketing initiative continues to take shape. We will be providing the sales force with updated selling materials that further highlight the features and benefits of the extract laser and the support services we provide. We continue to work with a third party vendor to interact with payers with a goal of improving coverage for the vitiligo indication, which we have discussed in the past is an exciting opportunity for the company in 2022. We are interacting more directly with KOLs and office-based dermatologists to gather further feedback and research that will help fine-tune our messaging going forward. We expect direct dermatologist marketing to be a key driver for the business in 2022 as we continue to seek expanded usage across all indications. Turning to our international business, during the third quarter of 2021, we placed eight units outside of the United States, all under the recurring revenue model. These additional eight placements brings our total to 49, which is a 104% increase over 2020. The OUS opportunity remains an important element in our overall growth goals with eczema laser potential, particularly for the vitiligo indication, as the treatment protocol for vitiligo requires more treatments than psoriasis. This vitiligo opportunity will be a focus as we further expand into additional markets. In summary, I am pleased with our progress so far this year in building the business back to pre-COVID levels and taking important steps to grow our business in 2022 and beyond. We have ramped up investment in sales and marketing and focused our sales force on growing usage while adding additional placements to our install base. The raw acquisition gives us over 400 new potential customers who are sold on the use of eczema lasers and now have limited options going forward. We expect to continue to move more of these accounts to the extract model, further growing our base and recurring revenues. Our international business continues to grow, and we have targeted additional markets in 2022 in which to further expand our reach. Lastly, we are actively looking into additional M&A expansion opportunities and ways to more fully utilize and engage our sales force through the ability to sell complementary products. As we have stated before, we are confident we can return to 2019 recurring revenue levels by the end of the year. We expect our equipment sales to slightly decline as we move more of our installed base to the recurring revenue model, but are confident this model will lead to improved and sustainable value for our shareholders. With that, I will turn the call over to our CFO, Chris Leseditz. Chris?