Bob Yedid - Investor Relations Frank McCaney - President and Chief Executive Officer.

Joe Pantginis - H.C. Wainwright Gabriel Fung - Life Sciences Capital.

Good day, everyone and welcome to the STRATA Skin Sciences’ Fourth Quarter and Full Year 2017 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Bob Yedid. Please go ahead..

Thank you everyone and good morning. This is Bob Yedid of LifeSci Advisors. Before we begin, I would like to remind you that management’s comments today may include forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995.

These statements include, but are not limited to our plans, objectives, expectations and intentions and other statements that contain the words such as expects, contemplates, anticipate, plan, intend, believes, assumes, predicts and variations of such words or similar expressions that predict or indicate further events or trends, but 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 assurance that our beliefs or expectations will be achieved.

Actual results may differ materially from our beliefs or expectations due to financial, economic, business, competitive, market, regulatory and political factors or conditions affecting the company and the medical device industry in general.

Given the uncertainties affecting companies in the medical device industry, any or all of the company’s forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward-looking statements.

In addition, more specific risks and uncertainties facing the company are set forth in the company’s reports on Forms 10-Q and 10-K filed with the Securities and Exchange Commission. STRATA urges you to carefully review and consider the disclosures found in its SEC’s filings, which are available at www.sec.gov and on the company’s website.

With those prepared remarks, it’s my pleasure to turn the call over to STRATA’s President and Chief Executive Officer, Frank McCaney.

Frank?.

Good morning, everyone. Welcome to STRATA Skin Sciences earnings and corporate update conference call for the fourth quarter of 2017 as well as for the full year 2017.

As we have discussed, our vision for STRATA is to become the dermatology and aesthetic medicine partner of choice offering highly advantaged best-in-class products, while helping our customers grow their business at every opportunity.

We believe we have and will continue to have best-in-class offerings that present both revenue opportunities and outstanding patient outcomes. Before discussing the full year 2017 results, I would like to review the important announcements we made this morning.

First, a group of new and existing investors led by Accelmed Growth Partners have agreed about $17 million of common stock in STRATA and $1.08 per share. This sale of new common stock will require shareholder approval and a proxy will be circulated in the next several weeks. Based in the U.S.

and Israel, Accelmed is a highly successful investment firm focused on the med-tech industry.

They employ a platform model, integrating innovative and market-ready medical device technologies often from Israeli-based med-tech companies into existing commercial companies such as STRATA Skin Sciences, companies that can effectively distribute and commercialize new medical devices.

Accelmed’s strategy is consistent with STRATA’s goal of adding dermatology and aesthetic products and leveraging both our solid base of relationships with dermatologists as well as our operational infrastructure.

As I have articulated on our prior calls, I believe that STRATA already has the sales and marketing organization in place that could support 2x to 3x our current sales volume by simply adding differentiated dermatology and plastic surgery products.

We look forward to benefiting from Accelmed’s experience and working on success in identifying and acquiring further complementary products and technologies. Second, the investment group is comprised of Accelmed, Dr.

Dolev Rafaeli, former CEO of PhotoMedex and two healthcare dedicated funds Broadfin Capital and Sabby Management which currently own both our common and preferred stock as well as Gohan Investments, the last investor.

Accelmed is the lead investor investing $13 million of the total, if the stock sales approved by shareholders there will be changes made to the Board and management team. Dr. Uri Geiger, the Co-Founder and Managing Partner of Accelmed will join our Board as Chairman. Regardless effective April 10, Dr.

Dolev Rafaeli will become STRATA’s Interim CEO and I will become Interim CFO. As CEO and Board member of PhotoMedex since 2011, Dolev is very familiar with the XTRAC product lines as they were part of PhotoMedex until they sell the assets to STRATA in mid-2015. Dr.

Rafaeli has over 25 years of experience in building med-tech, dermatology and consumer products companies. To review the mechanics the proposed financing will require the approval of at least 51% of a quorum of the votes cast in person or by proxy by shareholders of STRATA, the special meeting expected to be held no later than June 30.

Broadfin Capital and Sabby Management have already pledged to vote their shares in favor of the financing. Third, we have assigned term sheet that allows us at closing to enter into a new agreement to replace our loan agreement with our current lender MidCap Financial.

Assuming the final agreements reflect the term sheet the amount of the loan will be reduced by $3 million by using a portion of the proceeds.

Due to the company’s stronger financial position that is with the investment, STRATA will benefit from a lower interest rate as well as covenants, prepayment and exit fees that were more favorable to the company than what exists today.

Now to review 2017, as we have discussed our vision for STRATA is to become the dermatology and aesthetic medicine partner of choice, offering highly advantaged best in class products for helping our customers grow their business at every opportunity.

Our goal is to position STRATA as the collaborative business partner when they can help practices and physicians to be successful. We believe we have best-in-class offerings that present our customers with both revenue opportunities and outstanding patient outcomes.

Through the course of full year 2017, we took actions to strengthen our balance sheet, to improve procedure volume in a number of our extract placements, and to expand the market for extract through development programs and to STRATA’s product lines and revenues.

While we have made progress on all of these initiatives, the progress has not been material in all of the programs. One initiative that has already helped the company is the simplification of STRATA’s balance sheet, providing the company with greater financial flexibility.

Last September, our shareholders approved the exchange of $40.7 million of senior secured convertible debentures due in July 2021 for new shares of convertible preferred stock. The new convertible stock is non-voting and carries no dividend obligation.

This exchange is as important to STRATA as it removes our obligation to repay the debt in 2021 and eliminates our obligation to pay approximately $4 million of cash interest payments over the next 4 years. We ended the year with 753 recurring revenue placements, which is 2.8% lower than the 775 systems in place at the end of December 2016.

This is due in large measure to our strategy to remove systems and accounts that were unprofitable for us and for our customers. We intend to refurbish those systems and redeploy them at potentially higher volume accounts.

We also put in place new criteria for placements to increase the likelihood that those placements will become high volume systems for us. In our marketing efforts, we have kicked off targeted lower cost marketing programs in mid-February of this year using Internet advertising and social media.

Some of our social media campaigns will promote XTRAC and improved dermatologic indications that we have not marketed to-date at hand eczema. This should boost our sales over time.

However, most of the advertising effort will be to recruit more psoriasis patients for extract, a modality that is reimbursed in nearly all cases as minimal side effects and is very effective. We will keep investors apprised of our progress in these new initiatives. Now, I would like to review the full year financials for 2017.

For the year ended December 31, 2017, revenues were $31.4 million, an increase of $700,000, up 2.4% from full year 2016. Recurring revenues were $22.6 million in 2017, down 3.7% from 2016. For the full year 2017, gross margin was 57.1%, modestly decreased from 58.8% for 2016.

This decrease in margin is due in large measure to the product mix shift from lower recurring revenue to more capital equipment sales. As stated in today’s press release, the non-GAAP adjusted EBITDA for full year 2017 was $4.8 million or 15.4% of revenues.

This represents an increase of $1.9 million or up 67% from the $2.9 million recorded in the end of 2016. As of December 31, 2017, our cash balance was $4.1 million compared to $3.9 million at the end of 2016. During the third quarter, the company continued principal repayments of approximately $850,000 against our $10.6 million senior debt.

We do expect that with the completion of the transaction that will be restructured favorably as part of the previously mentioned replacement one with MidCap. At the end of the year, the company had 753 extract placements reflecting our strategy of focusing on increasing system revenues in our placements and increasing their profitability.

For the fourth quarter, we made 15 new placements and removed 38. For the full year 2017, we had 78 new placements and removed 100. In Q4 of 2017, revenues were $8.6 million, up from $8.3 million or 3.2% from Q4 of 2016. In light of the changes in our strategy, the company is off to a lower-than-expected start in 2018.

For the first quarter of 2018, we expect total revenues would be in the range of approximately $6.3 million to $6.6 million, down 7% to 11% compared to the first quarter of 2017.

In summary, our team has had to focus on current and new initiatives, including improving our current business, expanding the market and expanding our business with new products from external endeavors. The company is very excited about their prospective investment in STRATA by this outstanding group of investors.

Current management believes that this influx of capital, along with bringing in leadership that has good outcomes in this business before, will be a positive factor in the company’s growth and future success. With that, let me open the call for questions.

Operator?.

Thank you. [Operator Instructions] And our first question comes from Joe Pantginis with H.C. Wainwright..

Hi, good morning Frank. Thanks for taking the question, busy times as always at STRATA.

So, first, with regard to the ongoing business, I was just wondering if you could share any additional information with regard to your redeployment efforts how that’s going and also you mentioned sort of new criteria for signing accounts maybe if you could give any additional color on that as well?.

Yes, thanks Joe. Yes, so I think we made a decision in 2017 that a number of the units were not profitable for us. And if they were profitable, there wasn’t a good placement for the customer as well.

So, what we did is we pulled back a number of those units as you can see for the year we had a net decrease in placements and the idea was to take out the ones that we couldn’t get an increasing volume in and that weren’t going to be profitable to bring those back in, to refurbish the units and to seek out new accounts that were potentially a lot more profitable for us and better business for our customers.

So we did most of those removals in the third and fourth quarters. So we really haven’t started a lot of those placements yet or they are just in the process of being starting.

The goal is and the other thing that hurt us a little bit in 2017, but good for the business long-term is we put in a more stringent criteria for new placements what we didn’t want to do is take out a low volume placement and replace with another low volume placement.

So we made it tougher and the sales reps are now getting used to what that new criteria is. They are focusing on better opportunities. And I think over the course of 2018, we will see a higher dollar per unit out in the field than it was in 2017.

Did that answer the question?.

Yes. It certainly does. Thank you.

And then I know this question might be a little early until things are finalized with the bolstering the balance sheet and sort of strategies, but if you have that bolstered balance sheet that’s approved I guess what would be the sort of strategy right now or the balance with regard to further advertising in efforts surrounding extracts versus the potential as you mentioned to add further complementary products?.

Yes. So I don’t want to speak too much for the new management team that will be coming in, but I think it’s fairly obvious. The business was for higher dollar volume revenue and was advertising a lot. There is a tricked advertising and Dr. Rafaeli is extremely good at consumer activity.

And I think his expertise in helping spend those dollars wisely will really help.

We currently have a fairly low market share of psoriasis patients and this is a great treatment modality, it is almost nearly fully reimbursed, it’s highly effective, it does require a number of visits, but the overall time to get resolution of plaque is faster than other modalities.

So we think there is really great opportunity there if more dollars were spend on the advertising world. We did start a program in social media and in Internet advertising that we hadn’t done before, it took us a while to get that going, but it started in mid-February of this year.

And although it’s very early in that program, we are starting to see good results and we starting to learn how to do that. We expect that with the expertise of Dr. Rafaeli that that will get even better going forward..

Great. Thanks a lot Frank..

[Operator Instructions] Our next question comes from Gabriel Fung with Life Sciences Capital..

Hi there. Thanks for taking my question.

So the first one I have here is I wanted to ask with the net $40 million of investments after the debt repayment, will the focus be on looking for additional commercial products in the medical dermatology and plastic surgery sectors?.

So, I would say there is really once again not wanting to speak for new management but just from what I understand is the right approach here. There is really two main initiatives, one will be to increase advertising and the second will be to expand the portfolio of products by looking for other things.

So I think both of those are exactly the right places where a substantial portion of our capital will be deployed, but once again I believe that fully to the new management team..

Okay, I understand. Thank you.

So I just also want to follow-up then, is the company continuing to pursue the optimal therapeutic dose treatment for XTRAC which reduces the number of treatments needed to treat psoriasis?.

Yes. Certainly, I think that’s a great opportunity for the company. I think we are looking at it in a couple of different ways right now, but clearly reducing the number of patient treatments we will expand the market for the product..

Thanks for the clarity there..

Sure..

And it appears we have no other questions at this time..

Okay. Well, I just wanted to thank everybody for their patience. We – the company is very, very excited about the capital I think in 2017 we were able to achieve the conversion of debt to stock which helped to improve the financial flexibility of the company.

This influx of capital and highly experienced management team and also the resources of Accelmed which is also very successful enterprise will do a lot for STRATA and can open the door to the future for it. So we are very excited about it.

I think it’s a great thing for the company and I am glad to share with you today and hopefully in the near future. Thank you..

That does conclude today’s conference. Thank you for your participation..