Strata Skin Sciences, Inc.

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Strata Sciences, Inc. fourth quarter and year end 2024 financial results and corporate update conference call. At this time, all participants are in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through May 13th, 2025. I would now like to turn the call over to Louie Thoma of Core IR, the company's investor relations firm. Please go ahead, sir.

Thank you, operator. Good afternoon and thank you for participating in today's conference call. Earlier this afternoon, the company released its financial results for the quarter and year ended December 31st, 2024. A copy of that press release can be found on the company's website at www.stratuskinsciences.com under the investors tab. Joining me on today's earnings call from Stratuskin Sciences management team are Dr. Dolev Raffaelli, Chief Executive Officer, and John Gillings, Vice President of Finance. During this call, management will be making forward-looking statements, including statements that address Stratiskin Science's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Stratiskin Sciences' most recently filed annual report on Form 10-K and subsequent periodic reports filed with the SEC and the Stratiskin Sciences press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time-sensitive information that is accurate only as of today, March 27, 2025, Except as required by law, Stratiskin Sciences disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to CEO, Dr. Dolev Raffaele.

Thanks, Louis, and good afternoon to everyone on the call. We had a strong fourth quarter with continued progress in our corporate turnaround and is highlighted through various metrics in the quarter. One of the primary elements of the strategy is helping our installed base improve the utilization of our machines. During this process, we are removing units from significant underperformance accounts while helping our other higher performing accounts, higher volume customers to better utilize our extract devices. We are expecting this strategy to be helping them understand the benefits of our systems for their patients, as well as the economics and the financial benefits to the clinics themselves. During the fourth quarter, the success of our efforts was underscored by a significant improvement in average net revenue per device, which was up 11% over the previous quarter and up 6% over the prior year period. While our U.S. extract and store base declined from 923 to 864, from Q4 23 to Q4 24, our average gross billing per device increased from $5,359 to $5,637 over the same time period, which is a reflective of the strategy I just mentioned. This quarter represents the highest quarterly average revenue per extract device since the end of 2022. We expect continued progress as we continue to work with clinics to make the better use of our devices. Our gross margin remained elevated at 60%, showing a 480 basis point improvement over the prior year Q4 and getting us closer to the range of roughly 70% gross margin the business enjoyed in the strongest quarters of 2019 and 2021. As a result of higher revenue, strong gross margin, and operating costs controls, we saw significant improvement in operating loss, which adjusted for non-cash impairment charges in both periods, improved 68% as compared to the fourth quarter of 2023. During 2024, our direct-to-consumer advertising ramped up from $0 in 2023 and $25,000 in both 2021 and 2022 to just over $14,000 a week, generating approximately 2,800 patient appointments, surpassing the 2022 numbers of new patient appointments. The efficiencies gained in the DTC campaign now enable us to focus on enhancing in-clinic processes, identifying partner clinics with the greatest opportunities, those with the highest patients based on the number of existing patients in the indication, prescribed extract procedures, and completed procedures. These consulting-like efforts have started in the fourth quarter of 2024, showing very meaningful upside with a small number of partner clinics across the country and are now being expanded to both individual and private equity group-owned clinics. Gross domestic revenue billings in the fourth quarter were 4.9 million versus 4.8 million, 4.7 million, and 4.6 million for the third, second, and first quarters, respectively. This was the third consecutive quarter of sequential increase, highlighting the results of our efforts, and we expect continued improvement in the periods ahead. We reached an installed base of 144 TheraClear X devices in the United States at the end of the fourth quarter, up from 92 devices at the end of 2023. In 2024, we have focused on assisting with the adoption of the insurance reimbursed non-cash billing for acne treatment with the TheraClear Axe device with 108 of the 144 devices now billing insurance. I am happy to report that year to date, we have secured preauthorization for over 3,700 patients with acne in our partner clinics. Our international sales were particularly strong. in the fourth quarter with sales of $4.1 million up 27% over the third quarter and up 41% over Q4 2023. This represents our highest level of international sales to date. Our strong growth in these markets is a result of refocusing our international partners on the technology and the clinical advantage of the extract technology. The market dominance of the extract in our key international market is further demonstrated through multiple peer-reviewed clinical studies being published annually. The most recent one was published just last month in Japan, validating the advantages of the high repetition rate, high dose, coherent collimated narrowband eczema laser technology over other sources of UVB light that are less accurate, lack the repetition rate, and or fluent capabilities for treating vitiligo psoriasis, alopecia areata, and atopic dermatitis. Our Japanese market is growing rapidly with almost 100 extract devices sold or placed since 2019. While we are not providing guidance, we would like to highlight a historical pattern to help you refine your models We tend to have a fairly strong seasonal effect between Q4, typically the strongest quarter of the year, and Q1, typically the weakest quarter of the year. This impact is stronger in years in which the fourth quarter is particularly strong. Looking at the last two years, the difference between Q4 2023 and Q1 2024 was sequential decline of 22%, despite the fact that Q4 2023 was relatively weak, coming below Q3 of 2023. The difference between Q4 2022 and Q1 2023 was a sequential decline of 29%, with Q4 2022 representing the typical pattern of a very strong Q4. Now I'd like to turn the call over to John, who will review our financial results in more detail.

John? Thank you, Dholav. Our total revenue for the fourth quarter of 2024 was $9.6 million versus $8.7 million in the year-ago quarter, an increase of 10%. Global net recurring revenue for the fourth quarter of 2024 was $5.8 million versus 5.6 million in the fourth quarter of 2023. Excluding deferred billings and other gap adjustments, extract gross domestic recurring billings were 4.87 million in the fourth quarter of 2024, down 1.5% from 4.95 million in the fourth quarter of 2023. Equipment revenue was 3.8 million in the fourth quarter of 2024 versus 3.1 million in the fourth quarter of 2023. The increase was a result of strong capital sales in international markets. Gross profit increased to 5.8 million in the fourth quarter, up from 4.8 million in the year-ago quarter. Gross margins improved to 60.1% versus 55.3% over the same period in 2023. Total operating expenses for the fourth quarter of 2024 were 10 million versus 8.2 million in the year-ago period. Adjusting for non-cash impairment charges in both periods, normalized operating expenses in the fourth quarter of 2024 were $6.1 million, up slightly versus the prior year period at $6 million. Our cash, cash equivalents, and restricted cash position of $8.6 million at December 31st, 2024, along with our credit facility with mid-cap financial, supports our growth initiatives and leaner cost structure. The 8.6 million total cash balance includes 1.3 million of restricted cash related to the sales tax accrual we discussed on last quarter's call. We continue to believe we can execute on our strategic goals for 2025 given our current financial position. As of December 31st, 2024, the company had 4,171,161 common shares outstanding. That concludes my prepared remarks, and I'd like to turn the call back over to Doliv for any remaining comments.

Thank you, John. Consistent execution thus far in 2024 led to a solid third quarter that points to stabilization in our financial performance and offers some early signs of growth. We remain committed to the strategies laid in the beginning of 2024 and are helping drive our performance. Now I'd like to turn the call over to the operator so that we can begin the question and answer session. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Jeffrey Cohen with Leidenberg Thalmann. Please go ahead. Go ahead.

Hello, DeLev and John, and thanks for taking our questions. So I guess firstly, DeLev, I just remember you talked about 144. They're a clear place, but there was some 108 number prior to that.

Yes, so as we did in the prepared remarks, we are working on moving or migrating these accounts to non-cash insurance reimbursed accounts, so accounts that are taking their patients and billing insurance. And as we pointed out in the prepared remarks, 108 of the 144 are those accounts.

I got it. That's clear. Could you talk a little bit about what types of practices that you're seeing the uptake on the newer accounts and also talk a little bit about the geographical presence domestically here, please?

For TheraClear, your question is about TheraClear?

Yes.

Okay. So the initial uptake of insurance reimbursed accounts started in the Northeast, and our first two or three quarters during 2024 were stronger in the Northeast. The characterization of these accounts would be mostly small to medium-sized groups where they would adopt this in one or two offices, and if it works, and I'll explain further what it means if it works, then they would expand this. What they did is they took it in and they wanted to see that insurance or payers are actually preauthorizing the patients for the treatment. What we saw is that across the board, most payers preauthorized most patients. We're actually at the run rate of approximately 86% of patients being preauthorized for 10 or more procedures. that are done over a period of time. And then they wanted to see that these patients actually show up for the procedures, actually go through the procedures, and then that they actually get paid. And once that happened, we started expanding across these groups. So we currently have... three groups in the Northeast that have more than 15 devices or clinics each. And in Q4, we started expanding beyond the Northeast to other regions of the country doing the same thing. We start with one or two accounts inside a group. We show them that it works. We show that they get the pre-authorization. We show them that the pay rate is the right rate. We show them that at the right time, way of operating this they have sufficient number of patients and what they need to do is get them pre-authorized and then treat them and repeat so I hope that answers the question yes that's great and one more if I may could you talk a little bit about what's driving the strength internationally geographically speaking I'm aware of Japan but

Talk a little bit about some of the other regions, please.

Yes, so our four strongest markets internationally are Japan, China, South Korea, and the Middle East. And I'm going to speak about each one of them independently. The Middle East is steady as she goes. Historically, it used to be mostly tender business. So it would be public hospitals issuing public tenders for purchases and acquisitions. And over the past couple of years, it has migrated more towards private clinics. And that helps us enhance the business, because we're not just reliant on public tenders. In China, at least in 2024, the business was strong. We saw more adoption by both private and public hospitals. Public hospitals are treating patients that are paying much, much lower rates than the US. but having a much higher patient volume, and that's where the appreciation for the stability of the technology and the clinical efficacy of the technology comes. And the private clinics where patients are paying higher rates And that's where, again, the appreciation comes for the ability to run a large number of patients. And I'm going to refer specifically to quantities in a second. In Japan, as you pointed out, we discussed in the previous quarter, we're penetrating the market with extract. In the market, we had historically placed and sold more than 400 VTRAC devices and that market, the Japanese market has about 1,000 clinical dermatologists. So we've had the highest penetration rate in the market in the technology. And we're now in the process of replacing these gradually with the extract devices. Now the devices are more expensive, but they're allowing faster treatment of existing patients in Japan. All of the population is insured, and the reimbursement rate is approximately 20% of what it is in the US. So they need a higher patient throughput to justify the treatment. Hence, they need a more reliable platform. I kept Korea left on purpose because we are affected Both in Korea as well as in China by by what has happened over the last quarter both the going out of business or the declaration of of chapter 11 of certain competitors in the market which are pushing pressure on the local market distributors. The availability of their cash towards us is more limited than it was before. And despite that, we see more revenue coming from these markets and more growth because we've re-emphasized the technology. We've shown them the distributors and through them the providers that they're better off using a proven technology that has proven clinical efficacy and stability in the market. In the Chinese market, we're facing the uncertainty of what's going to happen with tariffs coming in or not in the next few months. So again, we work with partners. They work in their own market. Both these markets, China. all these markets, China, Japan, and Korea went through currency exchange fluctuations because of the last few months, as well as some instability in Korea. So I hope I answered the question, but it's a combination of much better appreciation to the technology and the availability for them to provide better services and offering to their end customers, the providers, the doctors in the market, as well as the economic changes in these markets. Now, as I pointed out, these markets mark a much higher volume use of these devices. So if an extract device in the US is being used several hundred times a year. These devices in Japan and South Korea and China are being used several hundred times a week. So it's a multiple of 20, 30, 40, 50 times more times of use. And they need a very stable platform to use.

Super. Thanks for taking our questions.

Thank you, Jeff.

Again, if you have a question, please press star, then one. Our next question comes from Jeremy Pearlman with Maxim Group. Please go ahead. Thank you for taking my question.

So just maybe how do you determine what accounts are being underutilized and how many of those accounts, let's say, currently have you identified? You'll pull the device, and then on the flip side of that, You know, the new clinics, I know I think you touched a little bit this on the call, but if you could provide some more information, how do you determine, you know, new clinics to place the devices?

Great question. So if you had followed the business, the extract business over the past many years that it was in the market, what you would have seen that in a stable year we would be churning through approximately 10% of the accounts. And that relates to accounts that either the original owner has moved out of the business, decided to sell the business, decided that he's no longer interested or it had to do with our decision to looking at the account saying there's not enough money coming from that account. Now, since we look at our expense structure as being more of a fixed expense, we have the sales team which are farmers, not hunters. They take care of accounts. approximately 25 territory managers. We have approximately 900 accounts. That gives us about 36, 37 accounts per territory manager to work with. Adding more accounts without removing accounts adds to the fixed expense basis of the company. So it adds the cost of the sales team. It also adds the depreciation and the cost of service of an existing device. And that fixed expense is the level we look at as a threshold for looking at an account and saying, does that account make sense for us or not? If you look at the P&L, that fixed expense calculates to approximately $15,000, $16,000 per device, if you look at the 900 devices. And that can be very easily calculated from the cost of sale. So if we see an account that drops in run rate below that, there's two options. One, we bring them back up, or two, we remove. It's a question of the territory manager, the relationship with the account, the reasons for why the account is going down, and the optionality of working with the account and bringing them back up. I'll speak about both. Removing the account is easy. Our agreements with the accounts have In general, 30 days out, we tell them we're going to be removing the device within 30 days. And we come and we take the device and we move it out. So that's easy. Bringing them back up is an involved process. And we need to understand what is going on within the account, whether it's the patient population or it's the provider that made decisions, whether consciously or not, to prescribe or not. And is it the actual extender, so the nurses or the medical assistants or the people, the technicians that work in the clinic that are utilizing the device correctly or not? And I'm going to use specific examples. So on average, an office is going to have somewhere between 1,000 and 1,500 relevant patients in the indications in the office. Every patient represents approximately $3,000 of revenue for the office. Every patient represents about $1,000 of revenue for us. So if you look at an office that does that break even point of 15, 16,000, you're talking about five, six patients. And if they cannot find within the 1,000 patients they are seeing, these five, six patients that are gonna be prescribed, and then scheduled and then treated, then they're not a good match for us. And if they can find these patients and they prescribe them, but they're not doing a great job of scheduling them and having them show up and get treated, then we have our work cut out for us and we work with them, whether it's with the owner of the office to point out that they have the patients, they have prescribed them, but they have not followed up with them, or it's with the extract champion in the office, or it could be with the front office that doesn't schedule or the back office that doesn't do the right job in billing. So I hope I answered the question, but it's, It's a more involved answer than just that historical 10% ratio. So we have a higher number of offices that are an opportunity at any given year. And we look at these offices and we remove. And then we replace. And the number you see, the number of devices you see as an actual installed base at the end of the quarter is actually the composition of the two. We started with an installed base. We removed some. We placed some. And that's what you see at the end of the quarter. Now, to your question, what makes a good new account for placement, that would either have to do with the historical number of patients they treat and number of patients are going to prescribe. Or in many, many cases, that account used to be an account that we have worked with that has walked away from the business and is now wanting to come back because they want another revenue source. So if it's of the second kind, we call them comebacks. And it's a much easier approach because they know the business. They understand. They understand the procedures. They understand the billing. All we need to do is to see that they actually have the right staffing in place to start it and go ahead with this. Now, in a normal stabilized year, we're going to have somewhere around 10% of removals and somewhere around 10% of placements. In 2024 and as we look into 2025, we are going to have more removals and more placements because we're removing more non-productive accounts and placing more Okay, great.

Understood. Thank you. That's really great information. And you answered my second question about how you work with the clinics to increase utilization as part of that answer, so I'll hop back in the queue. Thanks again. Thank you, Jeremy.

Seeing no further questions in the queue, this concludes our question and answer session. I would like to turn the conference back over to Dr. Dolev Raffaele for any closing remarks.

I want to thank all of you for participating on today's call for your interest in Strata Skin Sciences. We look forward to sharing our progress on our next quarterly conference call when we report our first quarter 2025 financial results, likely in May of 2025. Thank you again and have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.