Greetings, and welcome to STRATA Skin Sciences’ Third Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, November 10, 2020. I would now like to turn the conference over to Leigh Salvo Investor Relations. Please go ahead..

Thank you, and good morning, everyone. Earlier today, STRATA released financial results for the quarter ended September 30, 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 and intentions and other statements that contain the words such as expects, contemplates, anticipates, plan, intend, believe, assume, predict 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 uncertainty and changes in circumstances, many of which are beyond our control. There can be no assurances 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 other political factors or global pandemic events, such as the current COVID-19 pandemic.

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 of the Forms 10-Q and 10-K filed with the SEC. STRATA encourages you to carefully review and consider the disclosures found in the SEC filings, which are available at www.sec.gov and on the company’s website.

As a reminder, this conference call is being recorded and will be available for audio rebroadcast on STRATA’s website. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of this date of live broadcast, November 10, 2020.

STRATA undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. Leading the call today will be Dr. Dolev Rafaeli, President and CEO. Joining him today will be Matt Hill, CFO. With that, I would like to now turn the call over to Dolev..

Thank you Leigh and good morning everyone and welcome to our third quarter earnings call. We hope you are you are remaining safe and healthy. First, let's acknowledge that these past quarters dealing with COVID-19 has been challenging for everyone, and I appreciate your continued support and interest in STRATA.

Today, I will start with an overview of our third quarter financial results, followed by an update on the execution of our strategic priorities to drive recurring revenue and on the progress we have made on these initiatives. Following my remarks, I'll turn the call over to Matt to cover our financial results in more detail.

We'll then open the call for your questions. Overall, the positive recovery trends we began to see as we exited Q2 persisted throughout Q3 and an increasing number of clinics began accepting patients and using their treatment inventory. Total revenue for the third quarter was $5.6 million.

And importantly, we delivered 37% sequential growth in recurring revenue. One of our key metrics driven by our team's resilient efforts. We were also successful in activating 254 accounts that were previously inactive in the second quarter due to COVID. Internationally, we experienced similarly reopening trends in our leading non-U.S.

markets of China, Japan, South Korea and the Middle East. International revenue was up 33% overall, a third of which was attributed to recurring revenues, reflecting the impact of our strategy to convert business where relevant to our unique recurring revenue model.

As a reminder, in the third quarter of 2019, we transitioned South Korea to recurring revenue. And just recently, we announced a recurring distribution model in Japan. While we anticipate trading-off short term capital sales, we expect to reap the benefits of higher margins, continuity of revenue and cash flow over the long term.

We expect to see the initial gains based on the Japanese agreement and this transition beginning in the fourth quarter. Our continued attention to tight operational control resulted in higher cash flow from operations that allowed us to invest in the re-launch an increasing number of individual partner clinics as they were ready to reopen.

We entered the third quarter with an installed base of 837 recurring revenue extract devices, including 813 in the U.S., and 24, international placements, up from 789 and 17 in the second quarter, reflecting a strong return to the momentum we had pre-COVID in expanding the install base.

The growth is domestic expansion was driven by an acceleration in the comebacks, which is a reminder our competitive winds of current owners of competing excimer lasers.

In addition, with the acceleration of placements with private equity backed dermatology clinic groups, we are on track to surpass 860 devices by the end of 2020 putting us within reach of our goal of an installed base of 1000 devices by the end of 2021.

To highlight the value of achieving of the value achieved in bringing back these accounts, I'd like to give a recent example of the three clinic comeback in the southeast.

As a partner clinic from 2015, we were successful in helping them generate approximately 2400 procedures that resulted in annual revenue of over $400,000 for the clinic and $134,000 per STRATA during 2016 alone.

In 2017, the account purchased extra devices from a competing company, eliminating the advertising and patient contact components provided by STRATA. By the end of 2018, their business was reduced by over 50% due to loss of patients. In 2019, they returned as STRATA customer becoming a comeback account.

The result was double-digit growth in their Excimer business in over $80,000 of recurring annual revenue to STRATA by year end of 2019. Importantly, this improvement in both our recurring revenue coupled with a return to positive placement cadence highlights a direct correlation between the recovery and a pent up patient demand for our procedures.

Moreover, alongside these positive trends, we wanted to provide you with another financial measure that we track to monitor our domestic recurring business, namely, our gross domestic recurring billing, a non-GAAP metric.

Our gross domestic recurring billing expanded by 155%, bringing the overall third quarter actual to 74% of the same measure in the third quarter of 2019, up from 30% in the second quarter. In October, we saw a continuation of this improvement trend with our gross domestic billing up to 97% of October 2019.

More specifically, we saw one of our four regions, the southeast in excess of 100%, and two other regions, the Northeast and Midwest in excess of 90% of October 2019 gross billings, with the west region not far behind.

With the West and the Northeast having had longer and deeper pandemic impacts, we are very satisfied in the progress made there and anticipate as those regions become fully open, they will be well on their way to exceeding 2019 levels. Based on the dynamic of these measures, as we look ahead, we see a path to a normalized 2019 activity rate.

At the same time, we continue to face uncertainty with COVID-19 cases spiking in hotspots and regional unpredictability. Through this period, we remain cautiously optimistic about the near term and continue to actively monitor the situation. Turning next to our other growth objectives. I'll start with direct-to-consumer advertising or DTC.

After shifting our efforts in March to preserve cash, in the height of the pandemic, we resumed DTC advertising in mid-August and expect to continue to ramp up our investment in this initiative to support our partner clinics and increase the number of engaged patients during the fourth quarter, which is traditionally the highest quarter of the year preceding the reset of insurance benefits and deductibles at year end.

We plan to return to 2019 quarterly DTC advertising levels by the first quarter of 2021. Shifting to our patients outreach program, the reopening of inactive accounts was driven by a combination of patient confidence in returning to elective take, and in large part aided by the impact of our patient outreach forum.

As a reminder, as states were starting to exit lockdowns, we leveraged our in-house call center and rallied together to contact thousands of patients on behalf of over 300 partner clinics. As this effort continues into the fourth quarter, we believe that we will be able to cover the majority of partner clinics that are interested in outreach.

Transitioning to clinical achievements and accomplishments on the reimbursement font. In October, we announced that Cigna issued a new medical coverage policy for excimer laser therapy for previously uncovered Vitiligo.

For those of you who are not familiar, Vitiligo is a medical condition that causes the loss of pigmentation in the skin that results in white patches affecting 1% to 2% of the U.S. population with darker skin patients affected more severely. We are pleased to see that extra treatment for Vitiligo was accepted as medically necessary by Cigna.

We have started patient outreach for those Cigna covered patients afflicted with this condition, as well as reaching out to inform dermatologists of this change. This further expands our available markets; a single patient can be worth up can be worth as much as $38,000 to the physician over 52-weeks of treatments.

In November, we announced the publication of a peer reviewed health economic study entitled, therapies for psoriasis, clinical and economic comparison. In the November 2020 issue of the Journal of Drugs in Dermatology.

Our extra excimer laser in our optical optimal therapeutic dose treatment protocol utilizing the multi microdose or MMD diagnostic tip were found to deliver the fastest results with the fewest adverse events at the most economical cost of all treatments analyzed, including topical, traditional UV, biologic and systemic therapies.

In addition, patients treated with our extra excimer laser and extract with MMD had fewer actual treatment days compared to all other modalities. It was also the only therapy where patients achieved remission without a maintenance therapy. We would like to thank the team of renowned physicians that assisted in the study.

Turning to our strategic goals, in mid-2018, we identified several key strategies that could lead to significant improvement in STRATAs business. At that time, no one foresaw the dramatic and widespread impact of the COVID-19 pandemic.

And while we necessarily made a number of adjustments to our operations and short term resources allocation, earlier this year, we have continuously kept an eye on our longer term growth plan, and not wavered from those initial goals. As a recap, we are focused on expanding our recurring revenue installed base domestically and internationally.

At the same time, we are driving the utilization of each of these devices through patient outreach DTC advertisements, extended include indications and increasing insurance coverage. We believe in these initiatives.

We believe these initiatives will generate top line growth, expand margins, and increased cash flow from operations law allowing us to achieve profitability and market expansion.

In closing, we have turned the quarter supported by the strength of our core fundamentals and focus on our initiatives, and look forward to delivering meaningful sustained growth over the long term.

I would like to now to turn the call over to Matt Hill for a closer look at our third quarter financials, Matt?.

Thank you Dolev. Revenues for the third quarter of 2020 were $5.6 million, a 25% decrease as compared to revenues of $7.5 million for the third quarter of 2019 and up 39% from the second quarter of 2020. Reflecting the general shutdowns and restart our partner clinics over the last two quarters due to the COVID-19 pandemic.

Recurring for the revenues for the third quarter of 2020 were $3.8 million, a 36% decrease as compared to $6 million for the third quarter of 2019 and up 37% from the second quarter of 2020. Equipment revenues for the third quarter of 2020 were $1.8 million, an increase of 19% as compared to $1.5 million for the third quarter of 2019.

The increase was the result of the timing of certain sales of units into Asia and a better compatibility between the quarters since our implementation of recurrent revenue model and Korea in the third quarter of 2019.

As we discussed last quarter and included in our press release issued this morning, we provided information on a non-GAAP measurement described as gross domestic recurring billings, which represents the amount of invoice to partner clinics with treatment codes are sold to the physician.

It does not include normal GAAP adjustments, which deferred revenue from prior quarters recorded as revenue in the current quarter.

The deferral of revenue from the current quarter recorded as revenue in future quarters, adjustments for co-pay and other discounts, we felt this was an important disclosure in light of the COVID-19 pandemic, to assist in understanding our business and more effectively view the trends that we're seeing in our business.

We also wanted to provide transparency with respect to deferred revenue. Since we defer a portion of our GAAP recurring revenue into future quarters, a decrease in deferred revenue can impact each subsequent quarter. Deferred revenue added to the second, third and fourth quarters was $1.5 million, $500,000 and $1.4 million, respectively.

Meaning, our current -- meaning our recurring revenue was reduced by nearly $900,000 in Q3. Deferred recurring revenue in and out of each quarter of 2019 was approximately $2 million per quarter. Gross domestic recurring billings for July, August and September were $1.4 million, $1.6 million and $1.7 million, respectively.

Our total gross domestic recurrent billings for the third quarter were $4.7 million as compared to $1.8 million in the second quarter, representing an increase of approximately 155%. Overall gross profit for the third quarter of 2020 was $3.2 million or 57.5% of revenue as compared to $4.6 million or 61.8% of revenues for the third quarter of 2019.

Gross profit was up 8.8% from the second quarter of 2020. Gross profit for recurring revenues for the third quarter of 2020 was $2.5 million, or 64.3% of revenues as compared to $4 million, or 67.2% of revenues in the third quarter of 2019. Gross profit for the recurring revenue was up 13.1% for the second quarter of 2020.

The primary reason for the decrease in gross profit in the third quarter of 2020 is compared to the same period in 2019, was a result of the lower recurring sales due to COVID-19 pandemic fixed costs and lower production.

Engineering and product development costs for the third quarter of 2020 were $411,000 as compared to $249,000 for the third quarter of 2019 as a result of certain engineering projects.

Selling and marketing costs for the third quarter of 2020 were $2.1 million as compared to $2.9 million for the second quarter for the third quarter of 2019, primarily due to the downturn in business as a result of the COVID-19 pandemic the company manages costs with lower tradeshow costs, travel costs, compensation costs, and direct-to-consumer advertising costs.

We plan to steadily increase DTC spend, and sales count headcount in order to fuel the growth at our partner clinics and serve the growing installed base respectively.

General administrative costs for the second quarter of 2020 were $1.9 million, as compared to $2.2 million in the second quarter of 2019 as a result of lower audit, legal and consulting costs in connection with our change of orders in 2019 partially offset by higher insurance and stock compensation costs.

Other expense for the third quarter of 2020 was $21,000, compared to $153,000 for the third quarter of 2019 as a result of lower interest expense to the refinancing of our long term debt in December 2019. We will evaluate our cash secured note payable prior to year-end.

Net loss for the third quarter of 2020 was $1.3 million, or loss of $0.04 per basic and diluted common share, as compared to the net loss for the third quarter of 2019 and $860,000, or loss of $0.03 for basic and diluted common share.

At September 30 2020, cash, cash equivalents and restricted cash was $18.5 million an increase of $3 million from December 31, 2019. We continue to conserve cash and are operating on a lower cost structure as we've eliminated many temporary workers, reduce and reduced DTC advertising spend and other discretionary costs.

Again, we will plan to steadily increase DTC spend, in order to fuel the growth for our partner clinics. We ended the quarter with $11.1 million in unrestricted cash. The company generated positive cash flows from operations in the quarter.

At this point, with the cash on hand, the trends of sales, we do not foresee any liquidity issues to support our business and growth. In summary, while we cannot predict when this pandemic will end, we remain confident that we're prepared to manage through these uncertain times. And now, I would like to turn the call back over to Dolev..

Thank you, Matt. Operator, let's open the call for Q&A..

Thank you. [Operator Instructions] And our first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question..

Hi, Dolev and Matt. Hi, this is actually Destiny on for Jeff today. I just have about three or four questions I'd like to run through.

Firstly, could you discuss the trends you're seeing? In the dermatology space you have any insight into the current backlog, if any? And then could you perhaps talk a bit about scheduling trends in terms of both volume and patient interest? In other words, are you calling -- are patients calling to schedule or is this of interest being generated by your patient outreach program?.

Good morning Destiny and thank you. Great question. So let's talk about the above the process. Prior to COVID-19 about two thirds of the patients that are in treatment were generated within the clinics and about one third of the patients came through our DTC efforts.

So in 2019, as a whole out of 23,000 new patients in the, in the in-treatment about 6000 were generated by us and the balance about 16,000 were generated by the clinics.

What we have seen over the past few months was with April marking the low point was a low point in, in patient scheduling with what you call patient scheduling, which is patients in being considered for treatment in the clinics. And the way we see this, is we see the, what we call the RDX charts.

RDX is our own internal system that monitors the insurance requests. We have discussed this in a previous earnings call. And we have seen that low point in April, which has since expanded and is making very good progress to getting back to normalized run rates. And what I call normalize run rate is what we have seen in 2019 the whole year.

This is true, on average. However, when you look at the country, we operate in four regions. And as we pointed out, the southeast and the Midwest are the were the fastest to rebound.

And to get out of this, in these areas, we see what could be characterized as pent up demand, I'll get back to this in a second because we are running at numbers that are higher than 100% in June of 2019. The Northeast was, the northeast and the West were the ones most affected.

And while the West rebounded earlier, it rebounded to kind of a steady level not a V shape, but going up slowly and then and then stabilizing. And the Northeast took longer time to rebound mostly because these are metro areas and it takes time for patients to be back their offices to open and staffing to happen.

The scheduling of patients happened because of a collection of three factors. One is the patients want to be there and they want to be treated. And there was actually in no region we have seen an issue of patients wanting to be in the office. And as I said, I promise to get back to pent up demand.

We cannot, we cannot over treat or the physicians cannot over treat. It's not a situation where a patient is being treated twice because he wasn't there for two months, the patient is being treated at the same protocol that the previous patients are treated, the same protocol they were treated before.

However, there are more patients being treated and the reason for that is by and large the driving of more patients into alternative treatments, we are being one of them away from immunosuppressant drugs. And we have discussed that in in previous earnings calls.

So this is most probably what is driving the pent up demand we see in some areas where we reach numbers that are significantly higher than 2019 without having the tailwind of our DTC advertisement.

We believe that our DTC advertisement is going to introduce new patients, ones that we are not aware of the solution, ones that we are not aware of a solution that is not immunosuppressant or ones in the case of Vitiligo and Cigna, ones that were not aware of the of the insurance coverage for their specific condition.

These patients need to be need to be welcomed by an open clinic that has providers and is fully staffed for treatments. And I covered that in in my prepared remarks.

We have seen during the second quarter, we have seen a large number of clinics that either did not open or did open but just with the physician services, whether partially in person and partially virtual, but they were understaffed and were not able to provide services.

As I described in my prepared remarks, we were able to reactivate hundreds of clinics, in which the physician decided not only to open his clinic, but also to staff the procedures was able to bring the staff back and start the procedures. And as I said in the beginning, having the patients was not an issue, the patients are, are there and were there.

The outreach played a very important role in this reopening. Because when clinics were reopened, they reopened with an open slate. They had -- it was it was a chicken and egg question for them. Because once they staffed the procedure, they had no patients and us offering outreach.

And we have, we have outreach to thousands of patients provided the announcement to the patient, which was something that the physicians, the clinics were not staffed, were not capable of doing. And if you if you just run the numbers, you're talking about dozens of patients per clinic that were reached out to.

So you take you take many, many thousands, divide this by the number of clinics over 300 we outreach to, and you'll see that we've reached out to dozens of patients on behalf of each clinic.

These patients were patients that were already in treatment, or considered or have seen a physician and were consulted, have consulted with a physician and were prescribed prior to COVID hitting us. So these were all patients known to the clinic. We have already verified their insurance benefits.

And they were sitting at home wanting to be treated and by us outreaching to them, we let them know the clinic is open, doctor is able and ready to take you.

And this allows us to schedule many, many appointments at a percentage that's much higher than our usual DTC approach because in a DTC approach, we discuss with a patient that's that hasn't heard about this before, was not consulted with the physician. And we still need to verify their benefits. I hope I answered your three part question in a whole..

You did. You actually answered my second question as well. So I'll jump down to the third. And then I'll get back in queue. But I'm just going to circle back to your comments about coverage by Cigna for Vitiligo. And I'm wondering, what impact you think that that could have maybe just at a higher level, on revenues in 2021 and beyond.

And then, if you could kind of discuss the stickiness of these patients relative to psoriasis patients given that the number of treatments is typically higher. Maybe you could just discuss that a bit. Thank you..

Very good question again. So, let me let me provide the short background. The 3 CPT codes that we use, which were which were written by CMS about 15 years ago.

Even though they provide if you read the code, even though they provide the coverage for treatment of dermatological conditions that are caused by the diseases that are caused by the immune system or the auto immune system.

These codes include a comment that says in parenthesis psoriasis, some of the insurance companies have in their guidelines, looked at this and said we cover all autoimmune disease conditions. Some insurance companies looked at this and said, we provide coverage only to some autoimmune diseases in example, psoriasis.

And some insurance companies instructed the physicians when filing for reimbursement to use other CPT codes, which are more general dermatology procedures. And I can provide further details offline, but the CPT numbers are not really important here.

What's important was that if you look at our investor deck, our success rates to obtain insurance benefits for patients inbound on DTC was in excess of 96% for psoriasis patients, and was only 76% for Vitiligo patients. And that was because of the complexity of the coverage by the different insurance companies.

Now we deal in our in our reimbursement team, which is supporting our partner clinics. We deal with over 600 payers, and each one of them has a different policy.

So seeing a leading payer move forward and adopt a very wide, very inclusive medical necessity, guideline that not only provides full coverage to Vitiligo, to the extent that if a physician decided that the treatment is necessary four times a week, 52-weeks a year, that would be covered by the insurance company at the full rate was very important because as I pointed out in my prepared remarks, this disease impacts more people have darker skin.

And they have seen, they have seen that impact of being getting less economic benefits from the insurance companies over time. And I do believe that as time moves on this very wide policy change by Cigna is going to be adopted by the other payers as well, if it was not adopted until now.

The Vitiligo patients are more – the probability is much higher for them to stay in treatment, because they see results that are not only short term in terms of getting into remission, and then a couple of months later, they're back in with the disease state is as it is with psoriasis patients.

But it's through the treatment not only brings into remission, but also re pigments, their skin, which means that they have less social impact on their day-to-day life. And that's very important for them. And we see them staying in treatment much longer, showing much less frustration.

And that coupled with the fact that it's fully covered by the insurance is going to make life easier for the physicians using this in the patients seeking that, that procedure.

Over the years, we have even though this was covered by many insurance companies, we have not pushed the Vitiligo indication as strong as we have pushed the slightest indication, because of that, that discrepancy in coverage policies between psoriasis and Vitiligo.

And again, once again, if you look at our at our investor deck, you will see the difference in economic benefits 76% to Vitiligo 96% to psoriasis. But you'll also see that we were driving a much smaller number of Vitiligo patients.

We've allocated a very small portion of our DTC advertisement to the Vitiligo because of that reason, because we were losing a bigger percentage of them in the insurance benefit process.

By having the ability to drive more patients and be sure that the benefits are going to be covered, we will be turning to more Vitiligo patients on the one hand, and I discussed that and that's going to be a trend moving forward.

We are we are outreaching to patients and we are outreaching to physicians not only to update them about the coverage, but also to provide them further training because not because not all of them were provided were providing these procedures.

But more than that, we believe that this procedure, the advertisement for this procedure is going to is going to be less costly for us in the DTC spent.

Now that belief is not just a belief, it's founded in our experience through 2019 when we advertised and we have seen our cost per lead for Vitiligo patient being much lower than the cost per lead for psoriasis patients, conversion being higher, cost per acquisition being much lower. And that drives to a more reasonable advertising spend.

So I've explained the reason why we did not go very strong on Vitiligo before, why we're going to be going stronger now. But a reminder in my prepared remarks I said, we're on a path and Cigna is one in a process of several. So it's going to take time..

Okay, got it. Thank you..

You're welcome. And thank you..

Our next question comes from the line of the Manuealla Brancati [ph] with H.C. Wainwright. Please proceed..

Hey good morning Manuela [Ph].

Hi, good morning, guys. And thank you for taking my question. I apologize. My line was breaking up a little bit. So you may have addressed a couple of these points earlier, but so I was wondering like given the evolving situation around COVID and the different impact of disease having on different geographies.

Can you provide maybe more color on your more recent outlook at both U.S. geography opening and closing? And like what are you seeing in the field or in the current situation and maybe in the ex-U.S. geographies as well..

Okay, so I'll -- thank you, good question. I'll provide some color. And then Matt is going to provide some more numbers around that discussion. We, we operate domestically in four regions. And as I covered in my prepared remarks, the Southeast was the fastest to rebound and is operating at levels that are above 2019 levels.

And that is without, without any benefit, provided by our DTC advertisements. So, they're double-digit above, above 2019, without us providing any support in the in the form of sending them patients. The Midwest is not far behind.

The Northeast in the western region, both heavily impacted by pandemic and, and the impact stay there for longer mostly in the metro areas, New York City, Boston, New England, Seattle, Washington, San Francisco, the LA County. These areas were not only impacted heavier, they were impacted for a longer time. It took longer for the offices to open.

Once the offices are open, it takes longer for the offices to re-staff. And once they re-staff, it takes longer for the offices to offer the full suite of services they were offering before. We have discussed the numbers in our Q2 earnings call and we have discussed a metric that we call non-GAAP recurring billings.

And that is actually the revenue, the invoices that come out every day or every month, and these reflect the actual purchases of treatment codes by the physicians. And Matt has discussed the conversion of that metric into GAAP revenue as this gets deferred out.

But we have -- we have discussed these numbers during our Q2 earnings call and then today, and what we have seen is that while April was the lowest point, every month following that we have seen very strong double-digit growth in in recurring billings, which means more and more clinics were providing more and more procedures.

And more and more clinics were activated. And more and more clinics that activated, have consumed all of their existing treatments called inventory that they had at the end of Q1, or at the beginning of Q2, and we're ready to reorder and use these treatment codes. We have provided in the prepared remarks.

The numbers for the third quarter and in the third quarter we've we have as a whole, we've operated at 70% of the third quarter of 2019. But once again, if you look at the details every month was a progression over the previous month.

And then we've provided another month into the fourth quarter October, in which we were just short of 100% in comparison to October 2019. We were at 97% of October 2019. Now a reminder and Matt is going to cover this in his portion of answering this question. These numbers do not translate one-to-one into GAAP revenue as they get deferred out.

The other part that I've discussed in an answer to a previous question was the -- what we see in the market in terms of the patients.

So we see more patients, more patients coming in, as reflected in in the number of calls we see in our call center, whether it's DTC advertisement that we've restarted in the middle of August, which our inbound calls or outreach calls which are done to patients of partner clinics.

And we've done many, many thousands of calls to over 300 -- to patients of over 300 clinics. And we see the willingness of patients to go back into treatment. Again, provided that the clinic is open, the physician is there and his staff to see them and operate.

And I'll finish my comments and turn this over to Matt by saying that in my prepared remarks I said that we do anticipate unless there is a resurgence in certain areas to get back to an average of 2019 billing number by the end of this year as we see these areas of rebounding.

Matt please?.

So it's good question. Thank you very much. What -- well, the way I approach it is this way. Well, we're going to discuss the domestic gross billings first and then we'll talk a little bit about international.

So when you look at domestic gross billings in Q2, where most clinics were shut down, as evidenced by the fact that we've opened over 250, inactive accounts in Q3, so we had approximately $1.8 million of total gross billings.

Now, when you compare that to July of 1.4, August of 1.6, and September of 1.7, you know, we nearly had the entire Q2 gross billings in the first month of Q3. So what we're seeing there is positive trends returned to our business as these partner clinics open up.

What you need to remember and consider is that we entered Q3 with $500,000 of deferred revenue from Q2 coming into Q3. So when you look at our press release, what you'll find is a reconciliation between the $4.7 million we had in gross billings, down to the GAAP revenue $3.8 million in domestic recurrent billings.

We also had $1.4 million coming out of the quarter into Q4, normally that numbers to around $2 million. So our expectation is if we can get back to you, we can get back to 2019 gross billing levels, we should begin to defer and get back to that $2 million deferral amount.

And it really depends on time with the calculations and all those calculations we do here. But what you need to be aware of is if I'm coming into Q4, with $1.4 million, then I exit Q4 with a deferred revenue of $2 million, that they'll still be an impact on our on our gross billings to GAAP revenue calculations.

Now looking internationally, citing the JMEC contract shows Japan's interest in opening back up and moving to the recurring revenue model. Seven additional placements in Korea, again, positive, we're seeing growth in our international recurring revenues, as well as in our equipment sales.

But the expectation is they still have said his prepared remarks that as we grow the recurrent revenue, we're going to sacrifice some short term capital sales. I hope that answered the question..

Yes, got it. That's, that's very helpful. Thank you. Maybe another question regarding your recent publication regarding the data and pharmaco economic benefits of extracts.

I was wondering if you can give us more details on how you can best leverage these data as part of your DTC and physician contacts now in the pandemic situation and maybe, later on when investment visits can, increase and happen again with more frequently..

Thank you. Great question. leveraging this data has two parts, two large parts. One, one is one is more imminent, and the other is much longer term. I'll start with the one that's more imminent. The -- by showing that the procedure is faster, to get to the endpoint, when and all other procedures get to the same endpoint.

But we get there faster, is less expensive to the payer is -- is the only one that is profitable for the physician, has no side effects for the patient. It is the only one that gets the patient to remission and while the patient is in remission, there is no maintenance.

So there is no need to go and see the doctor or take any maintenance medication or any maintenance procedure is very important for the transit we started seeing domestically with regional payers moving towards capitated plans or plans where the clinics are being paid for managing patients outcome versus paying per procedure.

We already have, we already have a number of partner clinics that are part of groups that are participating in Managed Healthcare or in capitated plans. And that's important for them.

Because if they can provide them the procedure and it's going to cost them less and then, then it will cost them less not the insurance company, but it will cost them less, while they're being paid more by the insurance companies.

If they can do that coupled with a faster outcome for the patient, and a less side effect, impact for the patients, that would be good for them. Examples for that would be that we work with, with one of the largest, one of the largest groups in the west that has multiple clinics and hospitals.

And they use this, we work with one, one of the largest group of dermatology clinics in the east and they have clinics to do that. I'm not going to go into specific names for obvious reasons. That's important for them imminently.

Longer term, as we see the reimbursement landscape changing and more focus is being put on, on the cost of providing a solution for the patients being able to provide the lowest cost outcome is very important. Now, that is true domestically. We have seen the beginning of that trend with the ACA in 2011. And then the trend has stopped.

I believe that the recent political changes are going to reignite the approach of looking at overall patient cost in multiple indications. We do see that with plans that are fully covered like Kaiser, where they look at the overall cost of patients versus the individual procedure. So that is in the domestic market.

Internationally, it is very important because in all the markets we operate, the big competition is the cost in three of the four markets in, in Japan, in South Korea, and in the Middle East. Our procedures are covered by the National Health Plans.

And by that I mean that there's a long trend of editing coverage and expanding of being pushing more procedures towards excimer and away from away from pharmaceuticals. We have discussed this in our previous earning call where Japan has updated its reimbursement. And we are seeing an expansion of reimbursement happening in South Korea as well.

But not only in these markets, and not only when national health insurance is paying, having a solution that’s faster to remission would mean that even a clinic like in China where procedures are done out of pocket.

It means that they can get the patients faster to remission in China, it's mostly Vitiligo, and they can get them tested to remission with no side effects and this is very important for them.

So in all of the markets we operate, the outcomes of this study, the fact that it was done independently, it was published in a peer reviewed journal is important and it's being used in different ways. And I tried to cover some of them both up close, close range and then longer term..

Got it? That's very helpful. Thank you very much..

[Operator Instructions] And our next question comes from the line of Suraj Kalia with Oppenheimer & Company. Please proceed with your question..

Good morning, Dolev, good morning, Matt. Hope everyone is safe..

Good morning, Suraj..

So Dolev, I know it's been a long call, I’ll save the majority of my questions for a follow up.

Average revenues, recurring revenue per system for quarter, my math is suggesting about 4500 approximately, am I close?.

Yes, a little higher about almost 4600..

Okay, fair enough.

Dolev, how are discussions with PE owned clinics going?.

Great question. Let me let me try again provide some background for those that do not know the details. We ended 2019 with about 221 of our partner clinics being in what we call PE owned groups of clinics. And as I have discussed in the second quarter earnings call and I was answering the question, we see different trends coming out of COVID.

There are some that are exiting COVID much stronger than they entered COVID because they, they're taking advantage of the situation and expanding rapidly and editing clinics rapidly. And there are some that took a big blow and are slow to recover, some of them might not recover specific clinics or specific groups.

We, as you can see from the expansion in placements, even though we did not go into details, some of that was into groups, some of that was into individually owned clinics. Regardless of whether this was a comeback or not, we had -- we had major comeback or major win backs from competition that were owned by private equity group.

These -- they appreciate the fact that we can drive their results. And part of the nine comebacks we had in the quarter where we're part of a work clinic in a private equity backed group where they could see that, that it's worthwhile for them to give us clinics that are overly operational because we can significantly increase the business there.

And they see this across the board with the other clinics that are involved with whether it was by driving them through the end of Q1 2020 or by helping them to get out of where, where they were at the low point in April, with using our outreach across the board.

So they were they were very, very much involved, these private equity back clinics, very much involved in our patient outreach initiative..

Got it? And final question, I'll hop back. So Dolev, in a different this time of COVID, logic would dictate fewer sessions with equivalent levels of remission, they would be appealing to, they would be a good selling point.

Right? So can you update us on the MMD adoption in the field? If -- if we are at a critical threshold? Any color there would be great? Folks, thank you for taking my question..

Great question. I would reserve the update on MMD usage to a point where it passes the critical threshold. I did cover the MMD partially through the discussion of the clinical study published. We do see the MMD as a whole as an approach as a diagnostic tip.

And the ability to offer less procedures as a way for the clinics to offer better service for their patients and lower costs for the payers and better retention for the patients. We do see adoption in multiple clinics of the approach. But as I said before, once it gets to a critical threshold, we will provide separate updates..

Operator?.

Dr. Rafaeli, there are no further questions at this time. I'll turn the call back to you for closing remarks..

Thank you, operator and thank you everyone for joining us today. We look forward to updating you again in our next quarter. Thank you..

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines..