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spk06: Greetings. Welcome to the Strata Skin Sciences first quarter 2022 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'll now turn the conference over to your host, Lee Salvo. You may begin.
spk01: 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 March 31st, 2022. 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 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 31, 2021. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 11, 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 in the company's earnings release for the first fiscal quarter ended March 31, 2022, 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.
spk09: Thanks, Lee. Good afternoon, everyone, and thank you for joining us for our first quarter 2022 earnings call. I am pleased to share that our Q1 results signal a great start to the year as we continue to make notable progress on target growth strategies, further validating our confidence in delivering strong 2022 results. We were able to navigate the pandemic-related challenges of early Q1 to close the course slightly ahead of our initial expectations. Moreover, we were able to successfully increase our global footprint in the dermatology space through strong commercial execution, expanded partnerships, and strategic acquisitions. As noted in our last earnings call, in early January, we faced headwinds from virus-related office closures, staffing shortages, and lost days in the field for our sales force. In addition, our first quarter is historically impacted by seasonality, as insurance co-pays reset for the new year. Despite these factors, Strata achieved revenue growth in the first quarter of 2022 of 21% over the first quarter of 2021. Our strong performance in the quarter was a result of several factors, including commercial execution leading to expanded extract utilization within our install base, conversion of additional ferrous exomer laser customers to our platform, and continued growth in equipment sales, particularly in international markets. More specifically, our domestic extract install base increased to 903 devices, up from 890 at the end of Q4 2021. And internationally, we are pleased to see continued strength in equipment sales. Our decision to remain flexible in offering either placement or purchase models in order to best attract international customers has paid off, and we will continue this approach going forward in order to capture the greatest market share possible. especially as we branch out and explore new international markets. Throughout the first quarter, we made notable progress on strategies identified last year to secure success in driving long-term sustainable growth. Some recent highlights include our consistent level of investment in DTC advertising has continued to drive patient interest and appointments for extract treatment. Our new directed dermatology marketing has our sales force delivering disease state messaging on benefits of extract laser treatments for psoriasis, vitiligo, and atopic dermatitis. This is now being reinforced by the efforts of our professional relations activities, which has KOL speaking about extract at medical meetings and the value of targeted phototherapy as an excellent treatment option for patients either alone or in combination with drug therapies. We expect all these commercial activities will drive increased usage of extract and grow recurring revenues. In addition, re-engaging with high volume accounts, customers that produce more than 40,000 in revenue per year has also shown positive outcomes. In the first quarter of 2022, we had 162 high volume accounts that contributed 2.4 million or 48% of the total gross domestic recurring revenues. This compares to 150 high volume accounts that contributed 2.4 million or 48% of total gross domestic recurring revenues in Q1 of 2021. This not only signals our ability to add new high-volume customers, but our lower-tiered accounts are contributing at higher levels. It is important to note that these high-volume accounts are also the primary targets for receiving X-Track Momentum, our enhanced eczema laser launched in February. Momentum represents the latest in eczema laser technology, delivering high power and a faster repetition rate than previous models. The Momentum also offers a new, user interface, and slim design intended to improve the treatment experience for both the physician and the patient. We have already commenced placements in the U.S. with a goal of deploying 15 to 20 machines by year-end. These placements will allow dermatologists to treat patients more efficiently and, in return, further improve our recurring revenue stream in these participating high-volume accounts. Removal, refurbishment, and redeployment of non-revenue generating placements is also a strategy we are pursuing in order to gain further leverage in cost efficiencies and to mitigate potential supply chain risks. Typically, when we identify a customer that has not placed an order in six months, we begin the process of removal. This approach has been successful for us thus far, and we plan to continue this practice going forward with the goal of keeping non-revenue generating customers at or below 15% of our domestic install base. Lastly, supporting our commercial team with improved marketing campaigns that can best drive usage among dermatologists. We were pleased to become a corporate sponsor of the Global Vitiligo Foundation. We look forward to further supporting their mission of improving the quality of life for individuals with vitiligo for years to come. Additionally, Strata had a positive presence at the recent American Academy of Dermatology meeting in Boston. We had a number of productive one-on-one meetings with current and potential partners. In addition, our eczema laser was discussed and included in various presentations on psoriasis and vitiligo. Turning to our acquisition of Rob Medical's dermatology business last August, in the first quarter, we were successful in adding 15 former Ferros device owners to our platform, bringing our total to 45 new customers to date. These come-back customers are now committed to our extract system and recurring revenue partnership model. Looking ahead, the majority of the remaining 198 Ferro service contracts expire in 2022, providing substantial opportunities that our sales team can leverage throughout the year. We are actively engaged with these customers in order to provide a smooth transition to the Extract platform. We anticipate further conversion will remain high, and while not all Ferro's customers will switch to Extract, we are confident that we can achieve at least the current conversion rate of at least 40% to 45%. In terms of expansion in the dermatology market, our acquisition in January of the TheraClear Acne System from Theravand Corporation enables us to leverage our existing sales force, customer base, and distribution network to enter the estimated $5.5 billion acne market. Our goal is to launch the new TheraClear X as part of Strata's portfolio in the third quarter of this year. Tracking this timeline, we have already begun to solicit customer feedback, gather key clinical support, build inventory, and invest in sales force training and marketing initiatives targeted towards dermatologists with large populations of acne patients. The feedback thus far is very favorable. Dermatologists are looking for solutions to common skin problems like acne that not only will quickly provide visible results, but that can also be an economic contributor to their practice. Longer term, we believe that DeraClear system has additional indications for dermatologic conditions which we plan to develop and launch in the coming years. Turning to our international results, as I mentioned at the onset of the call, we saw particularly strong international equipment sales. Total revenue for our international business in Q1 2022 grew 45% over Q1 of 2021, reflecting our renewed focus on key regions outside of the U.S., as well as our flexible approach to working with customers and distribution partners. In the coming quarters, we have plans to further expand internationally. We believe that we can leverage the TheraClearX system in more countries as Acme presents a large opportunity, particularly in Latin America. As we enter the second quarter, we have seen Q1 momentum persist and are optimistic this trend will continue. We saw a strong march in which the staffing issues existing throughout the pandemic were finally showing signs of subsiding. We have a training initiative with our sales force in Q2, and we plan to introduce a new automated system that will give our team the tools to target and increase business with historical and current data analysis. Our directed dermatology marketing is also taking hold, and we are seeing the results in increased revenues from the prior year. Our focus on commercial execution is paying off, and I am more encouraged than ever that Strata is heading in the right direction, on track for the remainder of 2022, and expanding its potential going forward. As I look towards the rest of the year, I am very excited about the many catalysts Strata has on the horizon. We are looking forward to rolling out TheraClear X and expanding into the acne care market, further driving adoption and utilization of extract, and interacting more directly with dermatologists to increase exposure among the dermatology community. With that, I'd like to turn the call over to Chris.
spk05: Thank you, Bob. revenues for the first quarter of 2022 were 7 million a 21 increase over the first quarter of 2021 considering headwinds from omicron our first quarter revenue was driven by a continued focus on driving usage with extract partners and strong equipment sales internationally to start the new year recurring revenues in the first quarter were 5.1 million an increase an 8% increase over the first quarter of 2021. The increase in recurring revenues was strong, even with the impact from the lost treatment days in January due to COVID surge, as well as insurance resets. Equipment revenues for the first quarter were $1.9 million, a 72% increase as compared to $1.1 million for the first quarter of 2021. These results reflect the flexibility we have granted our international distribution partners to drive top-line revenues. We have found that in some markets, the placement model is not a good commercial option. Thus, we want to be able to gain share with capital sales. For the first quarter of 2022, non-GAAP gross domestic recurring billings was $5 million. an 8% increase as compared to $4.6 million in the first quarter of 2021. Overall gross profit for the first quarter was $4.1 million or 59% of revenues as compared to $3.7 million or 64% of revenues for the first quarter of 2021. The lower gross margin in the quarter was primarily due to the increase in intangible amortization expenses associated with our recent asset acquisitions of Theraclear and Barris. Looking ahead, we expect these gross margin improvements throughout the remainder of 2022, returning to historical levels in the mid-60s, with some quarterly fluctuation based on the mix between recurring revenues from system placements and equipment sales. In addition, while we have taken steps to mitigate supply chain risk, some minimal impact is still anticipated. Gross profit for recurring revenues in the first quarter were $3 million, or 60% of revenues, as compared to $3.2 million, or 68% of revenues in the first quarter of 2021. As previously noted, the decreases in profit margins were due to the increase in intangible amortization expenses associated with our recent asset acquisitions of TheraClear and Farris. Operating expenses were $6.4 million. an increase of 5% compared to $6.1 million in the first quarter of 2021. Going forward, we expect operating expenses to slightly increase as we prepare for the launch of TheraClearX in Q3 and our continued investments in sales and marketing throughout 2022. Net loss for the first quarter of 2022 was $2.5 million, or a loss of $0.07 per basic and diluted common share. as compared to the net loss for the first quarter of 2021 of $2.4 million, or a loss of $0.07 per basic and diluted common share. At March 31, 2022, cash and cash equivalents was $10.9 million, as compared to $12.6 million at December 31, 2021. Turning to our guidance for the full year 2022, as we laid out in our last quarter's earnings call, We continue to expect full year 2022 revenues to be in a range of $33 million to $35 million, representing strong double-digit growth. We are pleased with the progress that we made towards this goal in Q1 and are looking forward to building upon this strong base in the coming quarters.
spk08: With that, Bob and I would like to open the call for questions. And at this time, we will be conducting a question and answer session.
spk06: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
spk08: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Jeffrey Cohen with Lattenburg-Doutman.
spk06: Please proceed with your question.
spk02: Hi, this is actually Destiny on for Jeff. Thank you for taking our questions. Firstly, I was just wondering if you could discuss a little bit more about the marketing efforts underway ahead of your TheraClear launch. I'm just curious, is there any crossover with patients suffering from both acne and psoriasis? And are you able to leverage any of this historic marketing data you have for your current patients and clinics and kind of use that to educate your TheraClear campaign?
spk09: Hi, Destiny. Thanks for your question. Yeah, so we've got a lot of activity going on, as you can imagine. We're getting ready for a launch right now. We're scheduling for July. We've done some additional market research. We've actually placed some machines with five key opinion leaders in the acne space so they could, you know, get some experience with it, give us some feedback from patients, who they treat, and also they'll help us with some before and after information We have a launch meeting where we'll do training for our sales force in June and preparing marketing materials for the launch. We're at full speed getting ready for this exciting launch for us moving into this acne space. It's a great opportunity. We have a lot of experience in it from past companies and think we'll be very successful there. As far as crossover, as you probably realize, acne is typically a disease state of teenagers and young females. That does cross over slightly into psoriasis, but I think the majority of our psoriasis patients are probably more mature in age. The real opportunity is with the 900 current extract partners because they are medical dermatologists in general who are treating medical conditions. If they're treating psoriasis, they're typically treating acne as well, so we expect that those will be You know, key targets for us, just to kind of round out their device options for patients, now for psoriasis, vitiligo, atopic dermatitis, we'll add acne, and I think there will be other indications for TheraClear down the road. So the crossover really comes with our partners, not so much with the patients themselves, although there will be some.
spk02: Okay, I got it. Similar strategies, different messaging. I got it. And then that kind of leads into the next question. I'm curious, what other indications do you think that seroclear would be appropriate for? I've heard you mention a couple times that you're definitely thinking about expanding it.
spk09: Yeah, so IPL light is used for not only acne, but hair removal. It's also used for redness associated with rosacea. It can be used for fine lines and wrinkles, tattoo removal. So there's a number of different options. You know, we're going to look at the markets and identify what makes the most sense for the audience that we're trying to reach, mainly our current partners and beyond. And, you know, we'll go down that road with some additional clinical studies and support materials. So when we go and promote it, we'll have some good clinical data to show the physicians.
spk02: Okay, understood. So maybe I'll just transition to some of the Pharaoh's comebacks. What strategies are you utilizing today? to kind of determine which accounts your sales organization is spending the most time with? Are there certain metrics that you're utilizing or how are you approaching that?
spk09: Sure. Well, it really starts with, you know, the number of Ferro's owners who are coming off service contracts. You know, we identified that early on in the process that there were approximately 250, about 155 of them were coming off in 2022. You know, we had some success obviously in the first quarter. and transitioning another 15, so the total is up to 45. But the ones that haven't come over yet, that doesn't mean we won't get them. It just means that they're not ready. A lot of these dermatology practices have purchased those ferrous machines, and they're still working. So until they have a need for service or an event happens where the machine just doesn't work for them anymore, they're going to continue to use that machine. But once that happens, we'll be in a position hopefully to step in and offer them the extract partnership. But as far as targeting, certainly we want to get all of them, but the highest volume ones are certainly at the top of our list. Those are some of the Pharos users that were actually extract users years ago and switched over to Pharos, so we're hoping to bring them back.
spk02: Okay, I understand. Got it. And then maybe just shifting to your comments around OUS efforts, Can you discuss some of the additional territories you believe you'll expand into next? And are you able to disclose any additional partnerships OUS at the moment?
spk09: Yeah, we haven't signed any new partnerships in Q1. You know, we are looking to expand, particularly in Asia, because we've had a lot of success over there. You know, we've got a registration going in Taiwan. We've looked at Australia as an opportunity as well. We haven't done much in Europe, and I think that's an area that we want to explore next and see what kind of opportunities exist there for not only extract but for TheraClear. And we also have not done much in Latin America, and we know that there is an opportunity absolutely for TheraClear there. There actually are some devices down there currently, so we hope to expand upon that and then introduce extract as well.
spk02: Okay, last one, and then I'll jump back in queue. you've had an appetite for M&A recently. So I'm curious if there are any other areas you think some tuck-ins or an acquisition would be appropriate or if they're going to be full throttle focused on your current platforms for the remainder of 22 and 23. Thank you.
spk09: Thanks, Destiny. Yeah, I mean, obviously we want to be focused on launching TheraClear and doing that correctly. I mean, commercial execution around that as well as, you know, the continued growth of extract is most important to us. But that being said, I think I've said it before, we want to be opportunistic. We're looking in the medical side of dermatology, so we're looking at additional medical devices and potential indications could be skin cancers or hyperhidrosis or warts is a very undertreated area. I don't rule out the possibility of adding a topical at some point. The management team has a lot of experience in marketing and selling topicals in dermatology, so if that right the right opportunity came along in that area, that's something we explore as well.
spk02: Perfect.
spk07: Thank you. Thanks, Destiny.
spk08: Our next question comes from the line of Suraj Kalyan with Oppenheimer Company.
spk06: And, Company, please proceed with your question.
spk03: Hey, Bob, Chris, can you hear me all right?
spk09: Yeah, you're fine. Good afternoon.
spk03: I hope everyone is safe and healthy. Thank you. Hey, so, Bob, Let's start out with patient retention or rather completing their full course. How do things stack up currently in the U.S.? And more specifically, when I look internationally, your focus internationally, I'm curious if you can give us some guideposts on how to think about OUS, you know, just in terms of whether it's therapy or whether it's extract, right? how should we think about patients coming in and completing their full regimen of treatment?
spk09: Sure. You know, our data shows that on average the typical patient for psoriasis is coming in about a dozen times, you know, and we have clinical data that shows that the patients you'll see a 75% PASI score after about 6.7 treatments. So a little bit more than actually the clinical says, but I don't think that's unusual. Every dermatologist treats the disease state differently. So we think we're doing well in that area. Retention of those patients is certainly a focus of ours. We're using our customer service group as well as some of our new marketing efforts are direct-to-patient mailings and e-blasts to remind them that when they get a flare-up again to come back in and get the extract treatment, especially we're assuming that it was successful for them in clearing up their disease state. So I think that is a big effort that we want to continue to drive. It did drop off during COVID, as you would imagine. It was hard enough to get patients to come in for a doctor's visit to begin with, let That's clearly a focus for us. On the international side, I think, as you know, Suraj, the majority of the treatments internationally are for vitiligo, and that requires more treatments. And my understanding from our distributors is that a lot of the dermatologists that treat vitiligo on an international basis do it in large clinics. So, you know, they'll set up a whole day basically to treat vitiligo patients and just, you a number of patients through the eczema laser in a single day and then bring them back again, obviously, on some type of schedule. So I can't really give you the details of what the percentage of them who finished the treatment is, but I think my experience has been with international dermatology markets that the patients are a little bit more attuitive to finishing their therapy than they are in the U.S., So I'm guessing it might be leaving a little bit better in the U.S., but I don't have any real data to support that.
spk03: Fair enough. Bob, in terms of one question for you and one for Chris. So, Bob, in terms of, you know, the number of – I believe you said about 100 – please forgive me if I screwed up these numbers – Like 168 clients delivered 2.1 million in the quarter of 48% of recurring. I'm sure I screwed up one of these numbers. I mean, the rough math suggests it's about a little around 12, 12 and a half thousand per quarter. You know, as you get entrenched in the business, Bob, what are you seeing that these guys are doing differently versus the others? What does the gap analysis suggest? And, Chris, if I could pose a question for you in terms of the RA contribution for FY22 guide. My memory is failing me here. Remind me how you'll factor in, quote, unquote, organic versus acquired growth. Gentlemen, thank you for taking my questions.
spk09: Thanks, Suresh. I'll take the first part. So there's 162 high-volume customers that contributed about 2.4%. million or 48%. And I think what the high volume customers, from my experience, what differs with them is one, obviously they're very sold on the usage of the extract laser, not only for psoriasis, but for vitiligo as well. They use it not only as a monotherapy, but in combination with some of the drugs that they're using. Secondly, I think they understand the economic value to their practice and You know, by treating more patients, obviously, you know, they're able to generate more revenue for their practice. So I think that they, you know, understand that piece of it as well. And then lastly, I think, you know, the high volume customers typically have a pretty large patient base. You know, I think on average, you know, a typical dermatology practice will see somewhere in the range of 50 to 60 patients a day. but a high-volume practice may see close to 100. So, you know, typically they're the bigger practices. They could be in a group, and they generate, obviously, more patients, which probably generates more revenue out of that practice. So hopefully that answers your question, and I'll turn it over to Chris.
spk04: Hey, good afternoon, Siraj. So on the raw acquisition, we didn't really put in there what we were anticipating from a dollar revenue standpoint. However, it was noted in prior quarters here. We want to try to gain 40% to 45% of that 270 units that are out there from a service contract perspective. We anticipate that that sales mix will probably mirror our current revenue per machine anywhere from the $6,000 to $7,000 per device when it's all said and done. That's where we're anticipating for this year.
spk07: Thank you.
spk08: And we have reached the end of the question and answer session.
spk06: I'll now turn the call back over to Bob Moshe for closing remarks.
spk09: Yeah, thank you. I'd just like to thank everybody for joining the call today, and I look forward to speaking to you with our Q2 results shortly, I believe. So thanks again. Have a good evening.
spk06: And this concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.
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