Strata Skin Sciences, Inc.

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.

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.

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.