Strata Skin Sciences, Inc.

Greetings ladies and gentlemen and welcome to Strata Skin Sciences second quarter of 2022 earnings conference call. At this time all participants are in 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 then zero on your telephone keypad. As a reminder this conference is being recorded. I would now like to turn your conference over to your host, Lee Solvo, Investor Relations.

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 June 30, 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 Securities and Exchange Commission, 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, August 10, 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 recently comparable GAAP financial measure is available in the company's earnings release for the second fiscal quarter into June 30, 2022, which is accessible on the SEC's website and posted on the Investor Relations page of Strata's website at www.stratuskinsciences.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 second quarter 2022 earnings call. Continued execution on our commercial growth plan delivered another quarter of positive financial results, including record revenue, and further validates our opportunity to gain share in the market for in-office treatment of dermatologic conditions. Our team is more energized than ever as we've expanded our portfolio and entered new markets where we see tremendous long-term potential. Second quarter revenue was $9.1 million, reflecting a 23% year-over-year growth and included a $1 million one-time capital equipment sale in China. As we have discussed on previous calls going forward, we will be offering the flexibility of both a placement model and capital equipment sales internationally and expect that OUS revenue will largely come from capital equipment sales, whereas U.S. customers will continue to follow our placement model. As of the end of Q2, our domestic extract install base increased to 915 devices, up from 903 at the end of Q1 of 2022. Excluding the contribution from the equipment sale in China, our results were driven by a continued focus on strong commercial execution, expanded usage among existing extract users, particularly our high-volume customers, increased KOL engagement and support for Strata's product portfolio through advocacy and at industry events, and continued direct-to-dermatologist marketing. More recently, we were excited to commercially launch TheraClear X, our FDA-cleared technology that allows us to address the substantial market opportunity for acne treatment with a non-invasive, highly effective in-office procedure. This soft launch in select markets enables us to continue to build inventory and gain more market knowledge. We expect this to be a meaningful growth driver for us in the future. As an update on the commercial strategies that we first outlined in 2021, we continued our focus on high volume accounts or customers that produce more than 40,000 in revenue per year, which yielded further improvement in the second quarter. These customers are valued to Strata as they account for roughly half of our overall revenues. In Q2, we had 210 high-volume accounts that contributed 54% of total gross domestic recurring revenues as compared to 185 high-volume accounts contributing 51% of total gross domestic recurring revenues in Q2 of 2021. These high-volume accounts are also our primary targets for receiving extract momentum. As a reminder, extract momentum is our newly improved laser that allows dermatologists to treat patients even more efficiently. We remain on track to reach our goal of deploying 15 to 20 extract momentum machines by year-end, with a plan over time to improve the overall quality of machines deployed in the U.S. and drive further utilization. We also continue to invest in direct-to-consumer and direct-to-dermatologist marketing, further driving patient awareness and product adoption in dermatology practices. Our sales force is delivering a more refined message, highlighting the benefits of our medical devices for patients with psoriasis, vitiligo, and eczema. This, coupled with our continued professional relations activities, has allowed Strata to expand uses of extract and increase recurring revenues. In an effort to gain further leverage in cost efficiencies and to mitigate potential supply chain risks, We made great progress in removal, refurbishment, and redeployment of non-revenue generating placements of prior extract placements that have not been in use for six months or more. We have outlined a goal of keeping non-revenue generating customers at or below 15% of our domestic install base, and we work hard every quarter to achieve that level. Turning to our expansion into the acne treatment market. As I noted earlier, we recently announced U.S. commercial launch of TheraClear X, a non-invasive in-office treatment that targets the root cause of mild to moderate acne. The TheraClear X system, based on FDA-cleared technology, acquired through an asset acquisition earlier this year, is engineered and indicated specifically for the treatment of acne on patients' face, chest, and back. This was an exciting milestone for us, as I'm confident we can be highly competitive in the estimated $5.5 billion acne market. Our enhanced device combines vacuum technology and intense broadband light, which has been proven to show significant promise in the fight against acne. In order to achieve best results, patients are recommended to complete four to six treatment sessions that are pain-free and can be completed in 15 to 20 minutes. Over the past several months, we have worked to prepare our sales force for the launch of TheraClear X. As part of these preparations, we held a national launch meeting in June and established a TheraClear X advisory board to discuss the long-term strategy and vision for the product. We also actively engaged with key leaders in the dermatology space with continued dialogue paying off. We plan to keep these productive conversions a priority so that we can support our partner dermatological clinics as best possible. Additionally, we continue to invest in marketing initiatives targeted towards dermatologists with large populations of acne patients. As part of those efforts, we are excited to now offer an acne treatment through Strata's well-established partnership program, which offers dermatology practices in the U.S. practical, in-office treatment solutions without the need to purchase expensive equipment. In addition, our commercial team has an excellent opportunity to target the current extract and stall base, as many synergies exist. We are still in the early stages of rolling out this platform and expect to see measurable contribution from TheraClearX beginning in 2023, but are very encouraged by the significant opportunity, competitive advantages, and early physician interest. Long-term, we believe that TheraClearX system has the potential for a number of additional indications for dermatologic conditions, which we are excited to pursue in the coming years. Turning to our acquisition of the raw medicals dermatology business, we were pleased to convert an additional 12 machines in the second quarter, bringing our total to 57 new customers to date that are committed to our extract partnership model. There are now 54 ferro service contracts that are due to expire in 2022. Then in 2023 and 2024, there's a remaining 43. The biggest factor in our ability to transition customers is timing. Customers will use the ferrous machines they own until they need maintenance, and once that occurs, Strata has the opportunity to convert these customers to the XTRACT model. We are well positioned to capitalize on these potential customers and actively engage to offer a seamless transition to XTRACT. Encouragingly, we are on track with our initial expectations and believe there is more opportunity to convert ferrous users in the coming months. Turning to our international results, as noted earlier, We received a one-time payment of approximately $1 million from a capital equipment sale in China. This sale further reinforces our decision made in Q1 to offer either placement or purchase models to international customers. This strategy has been successful for us thus far, and we will continue to remain flexible in our offerings so that we can capture the greatest market share possible. We were pleased to welcome Michael Goodman to the Strata team as our new head of international sales in Q2. Newly created role, Michael has become a key leader in our expanding commercial leadership team. Since joining in mid-May, Michael has been charting a plan to grow current business with distributors and has been using past relationships to begin discussions in new countries in Asia, Latin America, and Europe. Additionally, we sold an extract machine in Europe in August, our first in that market in several years, giving us renewed optimism that we can open more doors for us internationally. Strata has the capability and capacity to target additional international markets. Acme presents a large opportunity across the globe, and we plan to leverage the TheraClearX system to penetrate those opportunities. Combined with our extract presence and an increased focus on distributed relationships, I see our international franchise driving meaningful results for us as soon as 2023. Entering the second half of 2022, we are cautiously optimistic in our ability to deliver strong results that remain in line with our current guidance of full-year revenue growth in the range of 10% to 17% year-over-year. We will monitor factors impacting the broader macroeconomic environment and adjust commercial strategies as necessary, with continued attention to cost efficiencies and cash preservation. Our team is more energized than ever with the numerous growth catalysts on the horizon and the encouraging customer attention we are gaining. We will continue rolling out their X to capitalize on the large acne market acne care market, increase our presence internationally, further drive adoption and utilization of extract through continued support for our customers and DTC advertising, and continue to execute our key commercial strategies. With that, I'd like to turn the call over to Chris.