STRATA Skin Sciences, Inc. Q4 FY2023 earnings call

• Strategic leadership change with CEO Dolev Rafaeli returning in October 2023 to reinvigorate the DTC recurring revenue model.
• Launch of TheraClearX Acne Therapy System in January 2023, with 92 devices under the recurring procedure model by year-end 2023.
• Increased domestic and international recurring revenue installed base to 964 XTRAC devices as of December 31, 2023.
• Amended credit facility with MidCap Financial Trust to align with business projections.
• Initiative to extend insurance coverage for essential dermatological conditions like vitiligo, CTCL, alopecia areata, and atopic dermatitis.
• Refinement of cost structure, including reductions in sales and marketing expenditures and elimination of non-productive accounts.
• Focus on maximizing the economic efficiency of each device placed, with a return to a DTC-centric approach to drive utilization and recurring revenue.

Total revenue for the fourth quarter of 2023 was $8.7 million, and for the full year 2023 was $33.4 million. Global recurring revenues for the full year 2023 were $21.5 million, compared to $23 million in 2022. Equipment revenues for the full year 2023 were $11.8 million, compared to $13.1 million in 2022. Recurring revenue contribution: Global recurring revenues in 2023 made up a significant portion of total revenue, with equipment revenues being another component.

• Focus on driving utilization and rationalizing placements of XTRAC and TheraClearX devices in 2024 to generate incremental high-margin recurring revenue.
• Anticipation of the impact of strategic shifts towards a DTC-centric approach to become increasingly evident in performance metrics in coming quarters.
• Aim to build upon the launch of the TheraClearX system and enhance recurring revenue streams through the XTRAC partnership.
• Plan to optimize the utilization of devices, maximize operational efficiency, and improve the bottom line by the end of 2024.

• Risks associated with operational challenges in transitioning to a DTC-centric approach, as shifts of this magnitude take time to manifest in financials.
• Uncertainties related to FDA labeling for off-label uses of devices, as the company cannot actively promote non-labeled uses.
• Market uncertainties that could affect the expansion of insurance coverage and the success of the DTC revenue model.

Q: Could you talk about how you're planning on defining nonproductive accounts and what percent of accounts are currently nonproductive?

A: Nonproductive accounts are those that do not generate in excess of $15,000-$16,000 in revenue on average. The company has an installed base of over 900 devices, and the goal is to optimize the install base by moving non-productive devices to productive accounts or the warehouse. Historically, the company has removed 100-120 devices annually.

Q: Could you talk about alopecia a little bit as far as what's the recommended number of treatments over what duration and are there any current data points or studies ongoing?

A: Alopecia areata has extensive clinical data. The device is used off-label for this condition as the FDA labeling is for psoriasis, vitiligo, atopic dermatitis, and leukoderma. The company provides clinical data but cannot actively promote off-label uses. Clinicians have treated these conditions, and commercial payers accept them.

Q: On the direct to consumer business, how is that going as far as the traction in both extract and also on TheraClearX?

A: The company started DTC efforts in the second half of January 2024 in four geographic areas. Cost per lead is in the range of $30-$40 and cost per appointment is approximately $300, which remains stable. They've seen growing leads and appointments and expect results to be evident in 2-3 months into the campaign. The goal is to expand DTC efforts meaningfully through Q1 and into Q2 2024.