STRATA Skin Sciences, Inc. Releases 2024 10-K Report Highlighting Financial and Operational Performance
STRATA Skin Sciences, Inc., a leading medical technology company specializing in dermatology, has released its 2024 Form 10-K report. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges it faces. STRATA Skin Sciences is known for its innovative products such as the XTRAC® and Pharos® excimer lasers, VTRAC® lamp systems, and the TheraClear® Acne Therapy System, which are used to treat conditions like psoriasis, vitiligo, and acne-related skin conditions.
Financial Highlights
- Revenues, net: $33.562 million, a slight increase of 1% from the previous year, driven by a 23% increase in international sales despite a 9% decrease in domestic sales.
- Gross Profit: $19.081 million, representing a 3% increase from the prior year, with a gross profit percentage of 62.7% for dermatology recurring procedures and 46.8% for dermatology procedures equipment.
- Loss from operations: $(9.255) million, an increase in loss by 8% compared to the previous year, primarily due to higher impairment of goodwill and increased general and administrative expenses.
- Net loss: $(10.256) million, a reduction in net loss by 6% from the previous year, aided by other income from the Employee Retention Credit.
- Non-GAAP adjusted EBITDA: $0.389 million, reflecting adjustments for impairment of goodwill, stock-based compensation, and other non-cash items.
Business Highlights
Company Overview: STRATA Skin Sciences has transitioned from a master distributor model to a direct distribution model in international markets since 2019, enhancing its global reach and operational efficiency. Despite challenges from the COVID-19 pandemic and geopolitical events like the Russia-Ukraine war impacting supply chains and operational performance, the company continues to adapt by focusing on direct-to-patient advertising campaigns and expanding its product offerings. The company operates under a recurring revenue model in the U.S., placing XTRAC systems in physicians' offices at no upfront charge and generating revenue on a per-use basis. Internationally, the company has been transitioning to a direct distribution model for equipment sales and recurring revenue on a country-by-country basis.
Revenue Segments: The company's revenue is primarily generated from two segments: Dermatology Recurring Procedures and Dermatology Procedures Equipment. In 2024, recurring treatment revenues were approximately $21.2 million, with an estimated 253,000 XTRAC treatments performed at prices between $65 and $100 per treatment. The Dermatology Procedures Equipment segment saw revenues of $12.4 million in 2024, with 98 systems sold internationally (89 XTRAC and 9 VTRAC) and 12 XTRAC systems sold domestically.
Geographical Performance: In 2024, domestic sales accounted for 62% of total revenues, while international sales represented 38%. The company has been expanding its presence in Asia and other international markets through direct distribution agreements with distributors in countries such as Korea, Japan, China, Israel, Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, UAE, Jordan, Iraq, Mexico, and India.
Sales Units: In 2024, the company sold 98 dermatology procedures equipment systems internationally (89 XTRAC and 9 VTRAC) and 12 XTRAC systems domestically. This represents an increase from 2023 when 68 systems were sold internationally (60 XTRAC and 8 VTRAC) and 24 XTRAC systems were sold domestically.
New Product Launches: In February 2022, the company launched the next-generation excimer laser system, XTRAC Momentum® 1.0, which delivers higher power and a faster repetition rate than previous models.
Future Outlook: STRATA Skin Sciences plans to continue expanding its direct-to-patient advertising campaign in the United States to increase awareness of XTRAC treatments among psoriasis and vitiligo patients. The company aims to motivate patients to seek out treatments from its physician partners through various media channels and social media platforms. Additionally, the company is focused on maintaining its competitive advantage through ongoing research and development efforts.
Strategic Initiatives
The company has focused on strategic initiatives to enhance its financial stability and growth potential. This includes amending its credit facility with MidCap Financial Trust to revise the applicable minimum net revenue threshold financial covenant and further clarifying provisions related to cash collateral accounts. Additionally, the company has been actively involved in expanding its product offerings and increasing patient utilization in the United States, as well as growing its presence in Asia.
In terms of capital management, the company has repurchased $50 million of its own shares under an authorized buyback program and increased its quarterly dividend by 5%. The company also completed a reverse stock split at a ratio of one-for-ten shares to consolidate its share structure. Furthermore, the company entered into an equity distribution agreement allowing for the sale of up to $11.0 million of common stock in 'at-the-market' offerings, with $2.1 million raised in July 2024.
Looking ahead, the company plans to continue its focus on strategic debt management and capital allocation to support growth initiatives. This includes maintaining a strong liquidity position to fund sales and marketing initiatives, engineering and product development activities, and other corporate purposes. The company also aims to leverage its existing credit facilities and explore additional financing options if necessary to support its strategic objectives.
Challenges and Risks
The company's reliance on a single supplier for key raw materials presents a significant risk, as any disruption in supply could adversely affect production schedules and financial performance. The Russia-Ukraine War has disrupted supplies of rare gases essential for the company's laser products, leading to potential supply interruptions and increased costs. Additionally, the company's limited number of suppliers for production components poses a risk of significant delays if current suppliers fail to meet needs.
The company faces substantial competition in the medical device industry, which is subject to rapid technological changes. Competitors may develop more effective or cost-efficient products, impacting the company's market position. The company also relies heavily on third-party reimbursement for its products, and any changes in reimbursement policies could reduce demand and adversely affect revenues.
Regulatory risks are significant, with the company needing to comply with complex FDA regulations and international regulatory requirements. Any failure to obtain or maintain necessary clearances could hinder product distribution and marketing efforts. The company is also subject to potential liabilities from environmental and health safety laws, which could result in significant expenses or operational restrictions.
Operational risks include the potential for disruptions in information technology systems due to cyber-attacks or other breaches, which could lead to data loss and financial harm. The company also faces risks related to its indebtedness, which could limit financial flexibility and increase vulnerability to economic downturns.
Management has identified the need for strategic acquisitions and partnerships to expand technologies and operations as a key focus area. However, there are risks associated with integrating new acquisitions and achieving expected profitability. The company plans to finance these initiatives through debt or equity securities, which may dilute existing stockholders' interests.
The company is exposed to market risks such as fluctuations in foreign currency exchange rates, which could adversely affect financial results. Additionally, changes in healthcare policies and reimbursement rates could impact the company's revenue streams. Management is actively monitoring these risks and exploring strategies to mitigate potential adverse effects.