STRATA Skin Sciences, Inc. (NASDAQ:SSKN) Q1 2023 Earnings Call Transcript May 15, 2023

STRATA Skin Sciences, Inc. misses on earnings expectations. Reported EPS is $-0.08 EPS, expectations were $-0.07.

Operator: Greetings. Welcome to the STRATA Skin Sciences First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. Please note this conference is being recorded. Joining on today’s call will be Bob Moccia, Chief Executive Officer; and Chris Lesovitz, Chief Financial Officer. Earlier today, STRATA released financial results for the quarter ended March 31, 2023. 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 facts 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 Factors section of our public filings with the SEC including our annual report on Form 10-K for the year ended December 31, 2022.

This conference call contains time sensitive information and is accurate only as of the live broadcast today, My 15, 2023. 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, 2023, which is accessible on the SEC’s Web site and posted on the Investor Relations page of STRATA’s Web site at www.strataskinsciences.com.

And with that, I’ll turn the call over to Bob Moccia.

Bob Moccia: Thank you. And thank you all for joining us on today’s call. We are excited to announce strong first quarter revenues of $7.6 million, representing the strongest first quarter since 2016. Contributing to our first quarter success was our acute focus on STRATA’s strategic priorities, flexibility in capital equipment sales and ramp-up of TheraClearX post its official broad launch in January. XTRAC, our 308-nanometer excimer laser used to treat psoriasis, vitiligo and eczema has reached 916 placements domestically. When looking at XTRAC, our focus is on increasing placements. One way we are making meaningful impact is through partnerships with group locations or partner practices. As of March 31st of this year, we have penetrated 17% of group accounts in the United States.

There remains a great opportunity for us to sell into group practices and place multiple units at a time. Additionally, we are measuring the safety and efficacy of XTRAC in treating vitiligo. We see this opportunity to capitalize on the noise being created by the approval of OPZELURA for the topical treatment of vitiligo. DTC advertising on TV, we expect will drive vitiligo patients into dermatology practices to seek treatment. As we have previously mentioned, our sales force continues to convert Pharos users to our XTRAC partnership program. We remain on track with our goal and have converted 86 accounts to date. TheraClearX, our acne device acquired in 2022, officially launched more broadly in January of this year, has exceeded our expectations in terms of placements.

In the first quarter alone, we placed 44 TheraClearX devices and sold over 3,000 TheraClear treatment codes. We expect this momentum to continue to ultimately make an impact on 2023 revenues. Over the past quarter and into the remainder of the year, our sales teams’ focus is on the XTRAC and TheraClear messaging. Our advanced sales training ensures that the sales team is equipped with the knowledge and the sales materials to sell STRATA’s products. Virtual events along with group practice events are two ways we are expanding our messaging of XTRAC and TheraClearX. In addition to our focus on advanced sales training, we are increasing our participation in industry conferences. For the first half of the year, we have 10 conferences we have already attended or plan on attending.

Conferences are a great way for STRATA team to stay connected with the scientific community. And conversely, conferences allow us to keep the community apprised of the progress we are making on our offerings. We plan to continue our scientific engagement efforts throughout the remainder of the year. On the international front, this month, we signed an agreement in India. Our plan is to continue exploring other market opportunities where we believe there is a need for phototherapy solutions. STRATA recently entered into an exclusive three year distribution agreement with Spectra Medical for the distribution of XTRAC, TheraClearX and VTRAC. Spectra Medical is India’s leading distributor of dermatology medical devices. We believe we will be able to make an impact on the market in India as there is a need for vitiligo treatments with an estimate of 8.8% of India’s 1.4 billion population suffering from vitiligo.

Furthermore, 80% of young adults from the onset of puberty and 30 years of age in India suffer from acne alone. India is a great market for STRATA as there is no currently available excimer laser solutions for phototherapy treatments. This partnership provides us with an opportunity to offer this population an effective, non-pharmaceutical treatment solution to a range of dermatologic conditions. We expect to receive regulatory approval in India later this year and for revenues to begin in the first quarter of 2024. Once we receive approval, we would expect XTRAC treatments to be covered by insurance and TheraClearX to be covered by a mixture of insurance and cash pay. In Israel, the two most prominent hospitals purchase XTRAC excimer laser and have begun providing treatments.

Ichilov Hospital, the largest and busiest dermatology facility is the first medical center with access to the XTRAC excimer laser. We are pleased with the progress we have made over the past quarter and most recently. We are starting to realize the impact of TheraClearX in the market, and we are continuing to remain flexible with our sales model of XTRAC, which we believe has allowed us to consistently achieve continued year-over-year growth. With that, I will now turn the call over to Chris to review financials.

Chris Lesovitz: Thank you, Bob. Revenues for the first quarter of 2023 were $7.6 million as compared to revenues of $7 million in the first quarter of 2022. Global recurring revenues in the first quarter were $5.2 million as compared to global recurring revenues of $5.1 million for the first quarter of 2022. Equipment revenues for the first quarter were $2.4 million, a 19.5% increase as compared to $2 million for the first quarter of 2022. For the first quarter of 2023, non-GAAP XTRAC gross domestic recurring billings were $4.7 million as compared to $5 million in the first quarter of 2022. Overall, gross profit for the first quarter was $4.4 million or 58% of revenues as compared to $4.1 million or 59% of revenues for the first quarter of 2022.

The decrease in gross profit was primarily the result of a change in product mix with higher sales of dermatology procedures equipment, which has a lower margin than dermatology recurring procedures and due to higher material costs. Looking ahead, we expect gross margins throughout the remainder of 2023 to be in the low to mid-60s with some quarterly fluctuation based on the mix between recurring revenues from system placements and equipment sales. Operating expenses were $7 million as compared to $6.4 million in the first quarter of 2022. The increase was driven by scoping costs for engineering projects. General and administrative expense also increased to $2.9 million from $2.7 million for the three months ended March 31, 2022. The increase in these expenses was primarily driven by the costs associated with our 2022 year-end audit, including valuation work and related legal expenses.

Net loss for the first quarter of 2023 was $2.8 million or a loss of $0.08 per basic and diluted common share as compared to the net loss [Technical Difficulty] equivalents was $4.2 million. Now turning to our guidance for the full year 2023. We continue to expect full year 2023 revenues to be in the range of $38 million to $40 million, representing double digit growth. We are pleased with the progress made in Q1 and are looking forward to building upon this strong base in the coming quarters. With that, Bob and I would like to open the call for questions.

Q&A Session

Operator: [Operator Instructions] And our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann.

Operator: And we have reached the end of the question-and-answer session. And I’ll now turn the call back over to Bob Moccia for closing remarks.

Bob Moccia: Thank you. Again, we’d like to thank you all for participating in today’s call. We appreciate your continued support, and we look forward to updating the community on our achievements as they develop.

Operator: And this concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.