Strata Skin Sciences, Inc.

Greetings. Welcome to the Strata Skin Sciences fourth quarter and full year 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Lee Salvo, Investor Relations. You may begin.

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 December 31st, 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. Our 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 implied 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 31st, 2021. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 21st, 2022. 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. Also during this presentation, we 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 on the company's earnings release for the fourth fiscal quarter ended December 31st, 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 Moshe.

Thanks, Leigh. Good afternoon, everyone. And thank you for joining us for our fourth quarter 2021 earnings call. I'm incredibly proud of the progress that Strata team made throughout 2021 as we navigated and adapted to unprecedented pandemic-driven global challenges, changes in executive management, and several new initiatives that were introduced and executed throughout the year. Our many achievements were the result of strong commercial execution that delivered growth from our core extract business and resulted in record quarterly revenue in Q4. We also expanded our opportunity through acquisition of the U.S. Dermatology of the U.S. dermatology business of a competitive platform, entered new global markets, and fortified our team with highly experienced industry leaders. Most recently, we expanded into the large acne treatment market through another acquisition, further setting up 2022 as a transformational year for our business. I'd like to briefly cover some of our recent financial highlights as well as trends we have seen so far this year. While we did experience headwinds related to staffing shortages brought on by the Omicron wave late in Q4, we ended the fourth quarter of 2021 at 9.1 million, an increase of 35% over the fourth quarter of 2020. In addition, we finished full year 2021 with a strong year-over-year growth of 30% versus full year 2020. Our recurring revenue from our extract partners continued to increase, validating the positive impact of our investment in direct-to-consumer marketing, direct-to-dermatologist marketing, as well as our commitment to improving Salesforce commercial execution. Despite pandemic-related challenges, interest in extract remains strong, and we were able to continue to grow our domestic install base. We exited the fourth quarter with 890 recurring revenue extract devices in place in the U.S., up from 832 units at the end of 2020. In group practices, where we continue to see a highly leverageable opportunity, we added another 76 devices, bringing our total up to 327 from 251 at the end of 2020. As we entered 2022, our business was impacted to some degree by the enduring Omicron surge into the first half of January, particularly in larger metropolitan areas. Staffing in dermatologists' offices and lost days in the field for our sales force due to the virus also had a negative impact on revenues at the start of the new year. Our first quarter also sees the impact of seasonality, as insurance copays reset for the new year. Despite these factors impacting our U.S. recurring revenue, we have seen strong equipment sales and are on track to achieve 18 to 20% year-over-year growth in the first quarter of 2022. We are also seeing the benefit of our acquisition of Raw Medical's dermatology business last August, as we began to win Pharos Comebacks, which are providers who return to our Xtract system and recurring revenue partnership model from device ownership. Within the first five months since acquisition, our commercial team successfully converted nearly half of RAS Pharos customers with expiring service contracts to Xtract, yielding 30 new placements by year end. The majority of the remaining Pharos service contracts expire in 2022, And as such, we are actively engaging with this highly targeted list of potential new extract customers and are prepared to deliver a smooth transition to our platform. In early January, we were pleased to announce our acquisition of Theraclear Acne System from Theravand Corporation, enabling us to enter the estimated $5.5 billion acne market. Research shows that 20% to 25% of all visits to dermatologists are for acne, and are often treated with prescription drugs that can be costly or are difficult to obtain and have significant side effects. TheraClear delivers a combination of vacuum and broadband light for treating acne that has been proven to clear skin rapidly for fast and visible reduction in acne and associated redness. The quick improvement experienced by patient drives compliance and repeats visits to complete the therapy. TheraClear can be used as a monotherapy or in addition to other topical and or oral drugs being prescribed. We view this asset acquisition as a perfect fit for Strata's market expansion goals, as we can leverage our current customer base, commercial team, and worldwide distribution network to drive utilization in the dermatologist's office. We have already started several activities in preparation for the launch, including additional market research, building inventory, investing in Salesforce training, and creating a marketing plan targeted towards potential patients and dermatologists with large populations of acne patients. We continue to anticipate commercial launch in the third quarter of this year. Our sales force is anxious to start promoting and selling this new device and preparing a list of key customers to approach upon launch. Based on initial conversations we have had with our dermatology customers, feedback has been overwhelmingly positive. On the product development front, last month we announced the commercial launch of Extract Momentum 1.0 and its first U.S. installation. This enhanced extract eczema laser technology delivers higher power, a faster repetition rate than current models, and offers a new user interface and slim design intended to improve the treatment experience. We expect that Momentum will become a catalyst for our high-volume customers to treat more patients and increase revenues as we roll this device out over time. Turning to our international business, total revenue for the full year grew 28% over 2020, highlighting the significant traction achieved through our distribution partners. The OUS opportunity remains an important element in our overall growth goals. We will continue to offer the option of recurring revenue placement model as well as equipment sales to provide flexibility in these regions. We are especially encouraged by the potential expansion opportunity internationally in vitiligo, as that indication is more frequently treated by extract in international markets. Additionally, in January of this year, we announced the expansion to Israel through a partnership with Juvenile, the dermatology and aesthetics portion of Tramico, a leading distributor in Israel. This agreement enables us to commercialize and market our extract eczema laser to an additional 300,000 psoriasis and 160,000 vitiligo patients and is already underway with the first placement earlier this year. At the beginning of 2021, I identified several areas of focus for the year that included return to historical investment in DTC marketing with resumed funding to consumer advertising, actively reengaging with high volume customers or accounts, bringing non-revenue generating customers back following the impact of the pandemic on their business, and supporting our sales organization with improved marketing campaigns that can best drive usage among dermatologists. We made consistent and notable progress throughout the year. First, our investment in DTC marketing had the anticipated upside impact on our business. RDX charts, which reflect insurance benefit requests for new and existing patients throughout the calendar year and represent patients who have been entered into our system as potential extract patients, trended above 2019 levels throughout 2021 and are directly tied to our DTC efforts. In terms of the number of high-volume accounts producing above 40,000 in revenue per year, in the fourth quarter, the number of high-volume customers was steady at 213 versus 214 in Q3 and up from 186 in Q1. High-volume customers contributed well over $3 million in revenues and accounted for 54% of all revenues in Q4. High volume customers will continue to be a focus in 2022, as well as moving all customers up in our revenue tiers throughout the year. The continued focus on the number of high volume customers reflects the commitment and execution of our sales force in expanding usage and driving recurring revenue with our customers and will continue to be a priority for us going forward. We also made significant improvement in bringing non-revenue customers back throughout 2021. with the goal of keeping the total percentage of non-revenue generating devices below 15% of our total US install base with an average startup time of 60 days. We were successful in ending the year 2021 with 15% of our installed base non-generating revenue in Q4, down from 19% in Q1. In 2022, we plan to continue to identify placements with customers who are not producing revenues, refurbishing those machines and reselling them to new customers. In Q1, we have already removed 21 devices that will be redeployed to new extract customers. Lastly, our new directed dermatology marketing initiative is underway. This includes updated sales materials that focus on specific disease states and training to reinforce extracts' effectiveness in treating approved indications on every call. In addition, we continue to work with a third-party vendor to interact with payers with a goal of improving coverage for vitiligo and atopic dermatitis. We are also interacting more directly with KOLs and office-based dermatologists to fine-tune our messaging going forward, gearing up to participate in several dermatology meetings and to recruit an advisory committee. In short, we expect direct dermatologist marketing to continue to be a key driver in 2022 as we further expand extracts usage across all indications. Before I turn the call over to Chris, I want to welcome Dr. Patricia Walker to our Board of Directors. Patty is a practicing dermatologist and has deep experience leading R&D efforts for several high-quality medical device and therapeutic companies, as well as for numerous educational institutions. We are excited to have the opportunity to leverage her vast industry experience. In addition, John Bagdasarian has joined the Strata team as Vice President of Professional Relations. John brings years of experience in dermatology and building advocacy with KOLs and dermatology societies within the specialty. In this role, John will be focused on capitalizing on his relationships with dermatologic foundations, KOLs, and strengthening our key partnerships. Lastly, Strada will be participating in the American Academy of Dermatology meeting in Boston this week, where we hope to see some of you. With that, I will now turn the call over to our CFO, Chris Lesovitz. Chris? Thank you, Bob.