Greetings. Welcome to STRATA Skin Sciences' 2Q 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.

I will now turn the conference over to your host, Nicole Jones, Investor Relations. You may begin..

Thank you. 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 June 30th, 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 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 31st, 2022.

This conference call contains time-sensitive information and is accurate only as the live broadcast today, August 9th, 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 growth 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 second fiscal quarter, June 30th, 2023, which is accessible on the SEC's website and posted on the Investor Relations page of STRATA website at www.strataskinsciences.com.

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

Thank you, Nicole. And thank you all for joining us on today's call. In the second quarter, we continue to make progress operationally, achieving milestones across various aspects of our business.

A few notable achievements include our TheraClearX review and expert perspectives publication in the Journal of Clinical and Aesthetic Dermatology, securing a $12 million financing with MidCap Financial, increasing our TheraClearX installed base to over 70 devices, Dr.

Glynis Ablon, initiating and treating patients in the TheraClearX clinical study and placing 18 new XTRAC devices domestically. . During the second quarter of 2023, we recognized revenues of $8.3 million versus $9.1 million in the same period of 2022.

When excluding a significant one-time order we received from China during the second quarter of 2022 of $1.5 million, sales increased 8.8% during the period.

There were also approximately $900,000 of expected international sales that were shifted to the second half of 2023 as a result of seasonality and lower capital spending due to higher interest rates and slowed macroeconomic factors. We expect to recover those sales during the second half of 2023.

We continue to see large opportunities on the horizon for XTRAC. As we have previously mentioned, there are new FDA-approved treatment options for vitiligo that have emerged over the past year. As a reminder, non-segmental Vitiligo accounts for approximately 15% of domestic XTRAC procedures.

We believe that as the level of interest in vitiligo treatment options increases, we expect to see more opportunities to expand the awareness and usage of XTRAC. For the remainder of the year, we plan to continue removing nonprofitable or underutilized devices from our installed base.

We are also evaluating a plan to move lower-tiered partners into existing membership programs that would offer them a number of codes commensurate with their usage. These changes would result in a more predictable revenue stream for STRATA.

Earlier this year, we announced the official broad launch of TheraClearX, which we expect to become one of the key drivers of our business. We have seen tremendous momentum with 73 TheraClearX devices placed as of June 30th, 2023.

Additionally, as we mentioned in our last earnings call, we have sold over 6,000 TheraClearX treatment codes, showcasing the increasing adoption and effectiveness of our acne solution. We continue to expand the awareness of TheraClearX through multiple avenues.

We have implemented TheraClearX training programs for both our sales force and new TheraClearX providers. The training sessions focused on how to engage patients and promote cash pay services in their respective offices to ultimately drive utilization.

In addition to expanding our training program, we have also hosted peer-to-peer webinars via dermatologists who are experienced with TheraClearX explain best practices to users of the device. This May, we announced that Dr.

Glynis Ablon of Albon Skin Institute and Research Center in Manhattan Beach, California, initiated and treated the first 6 patients in her TheraClearX open-label single-arm clinical research study.

The study titled a seven-week open-label study evaluating the efficacy and safety of TheraClearX on mitigating mild-to-moderate acne in healthy teenagers and young adults aims to further substantiate the efficacy and safety of TheraClearX as a stand-alone treatment for mild-to-moderate acne.

The study will evaluate 30 healthy male and female subjects aged 12 to 40 years and older over the course of seven weeks. We expect the study to be completed by the end of Q3. as a reminder, acne affects up to 50 million Americans annually and accounts for up to 20% to 25% of dermatology visits.

Acne is also prevalent in adolescents with 85% experiencing some degree from the ages of 12 to 24 years old. We believe TheraClearX FDA-cleared technology is well suited to address this need in the market.

In July 2023, we announced that the Journal of Clinical and Aesthetic Dermatology also known as JCAD published a review and expert prospective article in the June 2023 supplemental addition titled photo-pneumatic technology for the treatment of mild-to-moderate acne vulgaris.

The expert perspectives roundtable featured dermatologists, Ashish Bhatia, [Indiscernible], Girish Munavalli and Jason Smith. Some key takeaways from the roundtable were TheraClearX is safe and efficacious, providing visible improvement in acne as soon as the second treatment.

Additional benefits include visible improvement of pore size, erythema and skin texture. TheraClearX' settings can be customized to treat all Fitzpatrick skin types. Treatment sessions are quick and comfortable with no downtime resulting in compliant and satisfied patients.

TheraClearX is ideal for a new acne patient wanting to expedite their acne clearance and/or an existing patient wanting to enhance their current acne regimen. The review of JCAD audit by Dr. Girish Munavalli highlighted TheraClearX' mechanism of action, key features of the device and the outcomes experienced in the clinic. Dr.

Munavalli mentioned that he often utilizes TheraClearX in his clinic to treat mild-to-moderate acne. He also described the benefits to patients as they experience little-to-no downtime and visible reductions in redness early on in the treatment.

The expert prospective article in the roundtable showcased the safety, efficacy, and visible improvements patients experience with TheraClearX. This publication serves as another treatment to the device's efficacy and helps us to continually increase the devices market awareness.

Looking ahead, we remain committed to our strategic priorities, advanced sales training and expanding our market presence through virtual events and industry conferences. These efforts will further solidify our position as a leader in providing innovative phototherapy solutions to patients and health care providers worldwide.

I will now turn the call over to Chris to describe -- to discuss the financials..

Thank you, Bob. Revenues for the second quarter of 2023 were $8.3 million as compared to revenues of $9.1 million in the second quarter of 2022. Global recurring revenues in the second quarter of 2023 were $5.5 million as compared to global recurring revenues of $5.6 million for the second quarter of 2022.

Equipment revenues for the second quarter of 2023 were $2.8 million as compared to $3.5 million for the second quarter of 2022. For the second quarter of 2023, non-GAAP XTRAC gross domestic recurring billings were $5.1 million as compared to $6 million in the second quarter of 2022.

Overall gross profit for the second quarter of 2023 was $4.3 million or 52.3% of revenues as compared to $5 million or 54.8% of revenues for the second quarter of 2022.

The decrease in gross profits during the three months ended June 30th, 2023, was primarily the result of higher depreciation material costs, lower recognition of previously deferred service revenue associated with assumed service contracts from Ra Medical acquisition, which is decreasing as the related service contracts expire and an increase in domestic sales with longer warranty periods, leading to a greater amount of deferred revenues for those sales.

Looking ahead, we can expect gross margins throughout the remainder of 2023 to be in the mid-50s to low 60s with some quarterly fluctuation based on the mix between recurring revenues from system placements and equipment sales.

Operating expenses for the second quarter of 2023 were $6.3 million as compared to $6.7 million in the second quarter of 2022. The decrease in operating expenses in the second quarter of 2023 is primarily due to a reduction in sales and marketing costs, offset by a slight increase in engineering and G&A expenses.

Other expenses for the second quarter of 2023 was $1.2 million as compared to $200,000 for the second quarter of 2022. The increase in other expense for the second quarter was primarily attributed to a loss on the debt extinguishment of $900,000 for the three and six months ended June 30th, 2023.

Net loss for the second quarter of 2023 was $3.1 million or a loss of $0.09 per basic and diluted common share as compared to net loss for the second quarter of 2022 of $1.9 million or a loss of $0.05 per basic and diluted common share. As of June 30th, 2023, cash and cash equivalents were $10.4 million.

The increase in cash and cash equivalents is due to the $12 million financing with MidCap Financial. The new debt facility consists of a refinancing of the existing $8 million term loan and an additional $7 million tranche funded at closing. STRATA also has the option to receive an additional $5 million tranche in 2024.

For the fiscal year ending December 31st, 2023, we are revising guidance in the range of $35 million to $38 million. This adjustment is attributed to a slowdown in capital expenditure spending and macroeconomic factors that have impacted our equipment sales.

While we believe sales could improve during the second half of this year, this updated guidance offers a current and conservative perspective on the business. We are pleased with the progress made in Q2 and are looking forward to building upon the strong base in the second half of the year.

As Bob mentioned, sales internationally were pushed into the second half of the year, and it is our expectation that these will materialize in subsequent quarters during the balance of the year. With that, Bob and I would like to open the call for questions..

At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Jeff Cohen with Ladenburg Thalmann. Please proceed with your question..

Hi. Thank you. This is actually Destiny on for Jeff. I guess can we start kind of following Chris' comments around those international sales.

Do you have any additional color to what quarter that will be in? Is it more of a Q4 type of revenue recognition? Or do you think it will be split more evenly between Q3 and Q4?.

Yes, this is Bob. Thanks for your question. Yes, we think it's going to probably be more into the Q4 quarter. We'll start to see some rebound in Q3, but we're hearing particularly from a couple of our Asian partners that credit issues and interest rates ask them -- they asked us to push these out.

We do expect to recover them, but I think it's going to be later in the year..

Okay, got it. And then could I just transition to vitiligo for a second? I know with the launch of OPZELURA, there's been a lot more awareness around vitiligo. So, I'm wondering, have you heard anything about it being used in conjunction with your systems? Or is there anything else you can discuss really around vitiligo..

Sure. Now, anecdotally, yes. Obviously, it's not been studied in the combination. So we can't go out and promote it that way. But anecdotally, we have heard from some KOLs who are using our laser alongside OPZELURA and getting very good results. So, we'd love to be able to promote that, but obviously, we're not allowed to do that.

So, I think the noise level, those has really helped overall just for XTRAC and vitiligo. It's been approved for a number of years for that indication. And I think that patients have enjoyed the re-pigmentation that they get from using the excimer laser, which is one of the key selling points for it.

So, I think as more patients start to see the new opportunities with the drugs that are out there like OPZELURA, there's some additional JAKs that are coming and that are going to be approved here shortly, we'll see more patients coming in to get treated, and that will help us with the usage of excimer as well..

Okay, got it. And then I believe you said it accounted or vitiligo accounted for about 15% of procedure revenues, if I heard that correctly.

So, I'm wondering, do you think it will remain consistent at that level or based on some of the greater awareness do you think that could increase going forward?.

Yes, that's our hope. We hope it will actually start to increase. Coverage by insurance companies has always been one of the things that we face. We have excellent coverage for psoriasis, over 80%, 90% of all claims go through. For vitiligo, it's still 70%, which is really good. But even if you get one rejection, the doctor starts to question itself.

We do have a reimbursement team that's part of the services we provide for XTRAC, which has been very effective in getting coverage for patients. So we utilized that quite a bit with our commercial team. And we do hope that vitiligo will become a bigger overall piece of the pie for XTRAC..

Okay. And then lastly for us, I know you called out some macro level issues internationally.

I'm just wondering if there's anything else that you can call out that impacted the topline and that we should be considering as we model the rest of the year?.

No, I don't think there is. I mean you'll see year-over-year, the big drop was international revenue. We had the onetime China sale in 2022. When we take that out, we're pretty much -- we did grow the business, but we didn't grow as much as we wanted to, mainly because of what we've discussed the international push out of orders..

Okay, perfect. That does it for us. Thank you for taking our questions..

Sure. Thank you..

And it looks like we have reached the end of the question-and-answer session. I'll now turn the call back over to CEO, Bob Moccia, for closing remarks..

Thank you. And thank you all again for all of your continued support. Before I conclude the call, I would like to mention that STRATA will be hosting a key opinion leader event on September 20th. The webcast will include XTRAC and TheraClearX experts who will provide their perspectives and experience with STRATA's devices inside the clinic.

Please look out for more details as we get closer to the event. Thank you and we look forward to keeping the community updated on our achievements..

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