STRATA Skin Sciences, Inc.
Q4 2020 Earnings Call Transcript

Published: 24 Mar 2021

[Operator:]

Greetings, and welcome to STRATA Skin Sciences Fourth Quarter 2020 Earnings Conference Call. . I will now turn the conference over to your host, Leigh Salvo. You may begin.

[Leigh Salvo:]

Thank you, and good afternoon, everyone. Earlier today, STRATA released financial results for the quarter ended December 31, 2020. A copy of the press release is available on the company's website. Before we begin, I would like to remind everyone that comments and various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, our plans, objectives, expectations, intentions and other statements that contain the words such as expects, contemplates, anticipates, plan. Intend, believe, assumes, predicts and variations of such words or similar expressions that predict or indicate further events or trends that do not relate to this historic matter. These statements are based on our current beliefs or expectations and are inherently subject to significant known and unknown uncertainties and changes in circumstances, many of which are beyond our control. There can be no assurances that our beliefs or expectations will be achieved.

[Robert Moccia:]

Thank you, Leigh, and good afternoon, everyone. Welcome to our fourth quarter 2020 earnings call. We hope everyone is remaining safe and healthy. I'm really excited to be participating in my first call as CEO of STRATA Skin Sciences. It is an honor to have the opportunity to lead this company. I thank the Board for their confidence in my leadership skills, experience in the dermatology industry and track record of building growth companies. STRATA has always been a stronger -- has always had a strong reputation and a history of being a reliable partner in dermatology with excellent self-service-oriented staff and best-in-class technology with XTRAC excimer laser. XTRAC has been shown in more than 150 peer-reviewed clinicals to be the safest and most effective treatment on the market for psoriasis, vitiligo and atopic dermatitis, skin diseases that impact more than 31 million people in the U.S. today. There is a significant value proposition with XTRAC, and I'm confident our unique business model can drive sustained growth. Before we review our fourth quarter performance, I want to take a moment to acknowledge the challenges faced this past year with COVID-19 and express our gratitude to everybody on the front line dedicated to keeping us safe and helping us recover from this pandemic. I also want to thank the STRATA team for your unwavering commitment to our mission. Our improving performance despite COVID is a testament to the team's ability to step up and deliver through unprecedented hardships. Thank you.

[Matthew Hill:]

Thank you, Bob. I welcome you to the STRATA team and look forward to working with you further. Looking at the financials. Revenues for the fourth quarter of 2020 were $6.7 million, a 24.5% decrease as compared to revenues of $8.9 million for the fourth quarter of 2019 and up 19.7% from the third quarter of 2020, reflecting the general shutdown, staffing issues and restarted partner clinics due to the COVID-19 pandemic in the fourth quarter. Recurring revenues for the fourth quarter of 2020 were $5.1 million, a 22.7% decrease as compared to $6.6 million for the fourth quarter of 2019 and up 32.4% from the third quarter of 2020. Equipment revenues for the fourth quarter of 2020 were $1.6 million, a decrease of 29.5% as compared to $2.3 million for the fourth quarter of 2019. Overall, revenues continued to be negatively impacted by the COVID-19 pandemic with continued office closures and staffing issues in the dermatologist office. In addition, our equipment revenue will be impacted in the shorter term by our transition from the capital equipment model to the recurring model internationally. But we anticipate higher revenues and margins in the longer term as our partners drive in-country placements. As we discussed last quarter and included in our press release this afternoon, we provided information on a non-GAAP measurement described as gross domestic recurring billings, which represents the amount invoiced to our partner clinics when treatment codes are sold to the physician. It does not include normal GAAP adjustments, which are deferred revenue from prior quarters recorded as revenue in the current quarter, the deferral of revenue from the current quarter recorded as revenue in the future quarters and other adjustments for co-pay and other discounts. We have felt that this is an important disclosure in light of the COVID-19 pandemic and -- to assist in understanding our business and to more effectively view trends that we're seeing with our business.

[Operator:]

. Our first question is from Jeffrey Cohen with Ladenburg Thalmann.

[Jeffrey Cohen:]

A few questions for you. So first, as you spoke about the recurring revenue from -- as it affects Q4 into Q1 2021. Could you talk about what that looks like into the second quarter of '21 and beyond? Or hypothesize with us what that may look like?

[Robert Moccia:]

Yes. I think we certainly are seeing that the derm offices are open, Jeff. What we're not seeing is the return of patients to pre-COVID levels, and that -- and the fact that some of these offices have not fully staffed yet. But my feeling is that as more and more folks get vaccinated, I think those numbers are going to increase on both counts. I think you'll see more patients seeking treatment that they hadn't sought in the last several months because of the COVID. And I also think that the offices will be hiring back staff and getting more of a full complement of treatments that they typically offer. So I'm encouraged going forward. I think there are some headwinds that we are still facing, but as folks get vaccinated, I think we'll start to get out of that mess.

[Jeffrey Cohen:]

Okay. Got it. And then secondly for me is a housekeeping item. Could you walk us through domestic and international revenue for Q4, please, or for the year?

[Matthew Hill:]

Sure. Yes. I can walk you through domestic and international revenue for the year. And then we could just subtract out the balance from Q3 to get Q4. So looking at our revenue from domestic. And as you know, that we've been growing the international revenue with the recurring revenue, so we're starting to see an uptake in that revenue, which is a positive sign as we get -- as we had 28 placements that were placed in -- that were placed internationally. And our first one was placed in Japan. So give me one second, Jeff. So looking -- let's see. My apologies, Jeff. Give me one second.

[Jeffrey Cohen:]

No. That's okay. I can jump on after...

[Matthew Hill:]

Yes. I will make sure that you get that. That's part of our 10-K filing. I'll make sure you get that.

[Jeffrey Cohen:]

Got it. And then Bob, lastly for me. Could you talk a little bit about your prepared remarks as far as second half launches? Are you referring to new equipment or new channels or modifications to current therapy?

[Robert Moccia:]

Good question. Actually, a little bit of all of it. We're certainly looking at expanding our international footprint. I think there's an opportunity there, and we're in the process of identifying countries that offer the greatest return for our time and effort to get into there. But yes, I think that's one. Two, we do have some upgrades coming to our lasers. So that will be an important launch for us in the second half. And then we're also looking at other opportunities to grow the indications that we have. Vitiligo, I think, is a real opportunity going forward, maybe has not been fully capitalized here in the company. And I think that's something that we can put more attention to with our sales and marketing efforts.

[Jeffrey Cohen:]

Okay. And can you give us a sense of what part of Vitiligo Cigna is responsible for as far as your payer pool significant?

[Robert Moccia:]

Yes. Currently, coverage is around 76% of all of the claims that go in. So it's pretty good. I mean I think it can be better. Obviously, we had the good success with Cigna. I would like to reach out to some of the other payers and see if we can get a similar type of acceptance that we have with Cigna, and that would be an even greater opportunity for us. So right now, the coverage is good, but we want to make it better.

[Operator:]

. Our next question is from Suraj Kalia with Oppenheimer.

[Suraj Kalia:]

Bob, Matt, can you hear me all right?

[Robert Moccia:]

Yes.

[Suraj Kalia:]

Bob, welcome aboard, and wish you all the success.

[Robert Moccia:]

Thank you.

[Suraj Kalia:]

So Bob, a lot of information has been provided. And given that this is your first call, I don't want to go in too much into the weeds. Just -- I'll just relegate it to 2 questions. One, let me start out on a macro level. Admittedly, Bob, you're still getting your arms around it, but you've been in the space long enough. And I'm sure you've already sort of done some level of reconnaissance. Bob, do you see a demand problem or a supply problem? And by that, I mean, are you guys doing everything you can and the demand curve needs to develop over time? Or are you constrained in certain way, feet on the ground, advertising, something, whatever, that could shift the supply curve from your side?

[Robert Moccia:]

Good question. Yes, I don't see it that way. I mean I think what -- as I looked at this, Suraj, when I came onboard is, the company has transitioned from a capital sales model to a recurring model, which is one of the things that attracted me to it. It's more of a drug sale, if you think about it. I've spent a lot of my career in selling drugs to dermatologists. And the way you're successful there is building relationships and frequency. You need to be in those offices on a regular basis. You need to do the complete office call and really get to know and partner with those dermatologists. And I think we can do a better job here, and that's why I'm really focused on our sales and marketing execution right now. I think there's some tweaks that we can make. Maybe some additional training to our sales force, which will help us drive demand in that recurring business. To me, that's priority one. Certainly, we don't want to lose track of more placements and achieving our goals there. But really, for me, it's all about driving the recurring business because that's really going to sustain the growth going forward.

[Suraj Kalia:]

Got it. Bob, let me go down to the company specific issue. And I'll kind of keep this as a two part. Giving you the benefit of doubt in terms of relatively little time to have had a look at everything, are there any pressing operational issues, company-specific that you have identified that -- and I'm not talking about COVID, that require your immediate attention. That's one part. And the second part is, is this something that we can do to improve patient retention operationally to make them come back for their full treatments rather than running for the next new patient to bring on the roster. Bob, congrats again.

[Robert Moccia:]

Thanks, Suraj. To answer your first question, no, nothing that I would call a surprise. Obviously, I did my due diligence before I came on board, and everything was as I expected and even in better shape in some cases. So I don't see any major issues to address at this point. As far as your second question and recurring customers. Again, I think that really starts with the dermatologists. The dermatologists do not want to give up patients. That's been a trend that they've been dealing with now for the last several years because of PBMs and managed care and payers. They tend to sometimes lose patients to general practitioners and they try to keep patients just like everyone else. So again, that's back to the relationship building, the partnership. And I think if we can be sure that the dermatologists and the complete office understands the duration of therapy that needs to take place for XTRAC to be effective, then I think we'll be able to keep those patients and bring them back. Because we know that it's effective. We know that it's safe. And we know that the patient doesn't need as much follow-up as they do to typical topical treatments, and they're expensive. So I think we have a lot of good benefits -- features and benefits that we can present to the dermatologists. And again, that's something that we want to make sure our reps are doing on every call.

[Operator:]

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

[Robert Moccia:]

Well, great. Thank you. Again, I'm just very excited to be here, and I'm looking forward to further updating you about our advances in the future. In the meantime, I hope everyone will please remain safe and hope they have the good happy evening, this evening. Thank you.

[Operator:]

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