News
 

STRATA Skin Sciences Reports Third Quarter 2016 Financial Results

Company is cash flow positive for the third quarter

Conference call and webcast, today at 4:30 pm Eastern Time

HORSHAM, Pa., Nov. 10, 2016 (GLOBE NEWSWIRE) -- (NASDAQ:SSKN) STRATA Skin Sciences, Inc. (“STRATA”) a medical technology company dedicated to developing and commercializing innovative products for the treatment and diagnosis of serious dermatological disorders, today reported financial results for the quarter ended September 30, 2016.

Third Quarter and Recent Corporate Highlights

  • Third quarter revenues were $7.7 million
  • Recurring XTRAC revenues were $6.2 million, down 11.8% year-over-year and up 1.8% sequentially
  • Installed base of XTRAC systems in the U.S. expanded to 760 systems placed, up 8.9% from 698 at the end of the third quarter 2015
  • Company generated positive operating cash flow for the third quarter and expects to be cash flow positive in the fourth quarter 2016
  • Podium presentation of new XTRAC data at Fall Clinical Dermatology Conference
  • On October 31, appointed Frank McCaney as President and CEO

“The STRATA business has been in its current form for about a year. We now have a good sense of what has been working well with the XTRAC business, where the challenges lie, and what actions we need to take to address them,” stated Frank McCaney, President and Chief Executive Officer. “I believe that gives us the opportunity to focus on growing the core business through technology enhancements, improved treatment protocols for patients and new marketing initiatives. Importantly, we believe that dermatology office practices are undergoing significant changes, and we plan to take an approach that helps dermatologists and their practices be more efficient, more successful and to better manage the business aspects of their offices.”

“Going forward, one of the priorities of our strategic plan for STRATA will be to expand our product offerings,” continued Mr. McCaney. “The Company already has significant resources in a dedicated dermatology sales organization, a Field Service force, and Field Clinical Specialists as well as a Call Center for Patient Recruitment and a Reimbursement Hotline. I will be working with our senior management to evaluate these resources and to determine if any further improvements need to be made. Together, I believe our current capabilities are important assets in the dermatology space that can and should be leveraged.  Overall, I believe we have the talent, innovation and the infrastructure to enhance our value proposition to our customers and ultimately the value to our shareholders.”  

Reported Financial Results

Revenues for the third quarter of 2016 were $7.7 million compared with revenues for the third quarter of 2015 of $8.3 million, a decrease of 6.7%.

Net loss for the third quarter of 2016 was $1.5 million or ($0.14) per diluted share, which included other income of $0.1 million for the change in fair value of warrant liability, $1.2 million in interest expense, $1.5 million in depreciation and amortization expenses and $0.1 million for income tax expense. This compares with a net loss for the third quarter of 2015 of $12.2 million or ($1.29) per diluted share, which included a deemed dividend of $3.0 million, other expense of $1.3 million for the change in fair value of warrant liability, $5.6 million in interest expense and $1.7 million in depreciation and amortization expenses.

Revenues for the nine months of 2016 were $23.1 million compared with revenues for the nine months of 2015 of $9.0 million. Reported revenues for the nine months ended September 30, 2016 are not comparable to the prior year period since the Company acquired certain assets of PhotoMedex as of June 22, 2015. 

Net loss for the nine months of 2016 was $2.4 million or ($0.71) per diluted share, which included other income of $5.3 million for the change in fair value of warrant liability, $3.6 million in interest expense, $4.8 million in depreciation and amortization expenses and $0.2 million for income tax expense. This compares with a net loss for the nine months of 2015 of $27.3 million or ($3.42) per diluted share, which included a deemed dividend of $3.0 million, other expense of $0.7 million for the change in fair value of warrant liability, $4.8 million in inventory obsolescence charges; $8.7 million in interest expense, $0.5 million in acquisition costs and $2.3 million in depreciation and amortization expenses.

As of September 30, 2016 the Company had cash, cash equivalents and short-term investments of $3.0 million, compared with $3.3 million as of December 31, 2015.

In order to provide information that is helpful to investors relating to the historical and current growth of the XTRAC recurring revenues, the Company is providing the following table, including information obtained from the predecessor company’s disclosures of previous period results.

Q3 2016 Supplemental Proforma Financial Information
As of September 30, 2016, Q3 Earnings Report
(unaudited)
(in thousands)
 
    2015  
    Qtr. 1     Qtr. 2     Qtr. 3   Qtr. 4   YTD  
XTRAC Recurring Revenue   $ 5,376   *   $ 6,678   **   $ 7,032     $ 7,479     $ 26,565   ***
                           
    2016  
    Qtr. 1     Qtr. 2     Qtr. 3   Qtr. 4   YTD  
XTRAC Recurring Revenue   $ 5,528       $ 6,093       $ 6,205       -     $ 17,826    
                                           

*As reported by PhotoMedex, Inc.
**$104 reported by the Company; balance reported by PhotoMedex, Inc.
***$14,615 reported by the Company; balance reported by PhotoMedex, Inc.

Non-GAAP Measures
To supplement the Company’s consolidated financial statements, prepared in accordance with GAAP, the Company provides certain non-GAAP measures of financial performance. These non-GAAP measures include non-GAAP adjusted EBITDA.

The Company’s reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, nor superior to, GAAP results. These non-GAAP measures are provided to enhance investors' overall understanding of our current financial performance and to provide further information for comparative purposes.

Specifically, the Company believes the non-GAAP measures provide useful information to both management and investors by isolating certain expenses, gains and losses that may not be indicative of the Company’s core operating results and business outlook. In addition, the Company believes non-GAAP measures enhance the comparability of results against prior periods. Reconciliation to the most directly comparable GAAP measure of all non-GAAP measures included in this press release is as follows:

      Three Months Ended
September 30,
  Nine Months Ended
September 30,
      2016
  2015
  2016
  2015
      (in thousands)
(Unaudited)
  (in thousands)
(Unaudited)
                                 
Net loss as reported   $ (1,509 )   $ (9,234 )   $ (2,448 )   $ (24,354 )
Adjustments:                
  Depreciation and amortization expense *     1,521       1,710       4,844       2,348  
  Interest expense, net     537       506       1,604       794  
  Non-cash interest expense     638       5,071       1,967       7,944  
  Income taxes     64       -       191       -  
                   
EBITDA     1,251       (1,947 )     6,158       (13,268 )
                   
  Stock-based compensation expense     116       1,007       401       1,483  
  Change in fair value of warrants     (132 )     1,329       (5,316 )     679  
  Acquisition costs     -       -       -       456  
  Impairment of property and equipment     -       -       -       920  
  Inventory valuation reserves     -       -       -       4,818  
                   
Non-GAAP adjusted EBITDA   $ 1,235     $ 389     $ 1,243     $ (4,912 )
                                 

* Includes depreciation on lasers placed-in-service of $1,040 and $1,169 for the three months ended September 30, 2016 and 2015, respectively, and $3,329 and $1,169 for the nine months ended September 30, 2016 and 2015, respectively.

STRATA previously announced the scheduling of a conference call with investors to review the results of the second quarter. Following is the pertinent information for accessing that call. 

Conference Call Detail:

Date:   Thursday, November 10, 2016
Time:   4:30 pm Eastern Time
Toll Free:   888-503-8175
International:   719-457-2631
Passcode:   5890827
Webcast:   www.strataskinsciences.com
     

Replays available through November 26, 2016:

Toll Free:   844-512-2921
International:   412-317-6671
Passcode:   5890827
Webcast:   www.strataskinsciences.com
     

About STRATA Skin Sciences, Inc.
(www.strataskinsciences.com
STRATA Skin Sciences is a medical technology company focused on the therapeutic and diagnostic dermatology market. Its products include the XTRAC® laser and VTRAC® excimer lamp systems utilized in the treatment of psoriasis, vitiligo and various other skin conditions, and the MelaFind® system used to assist in the identification and management of melanoma skin cancer.

Safe Harbor
This press release includes "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995. These statements include but are not limited to the Company’s plans, objectives, expectations and intentions and may contain words such as “will,” “may,” “seeks,” and “expects,” that suggest future events or trends. These statements, including the Company’s ability to generate the anticipated revenue stream, the Company’s ability to generate sufficient cash flow to fund the Company’s ongoing operations beginning at any time in the future, the Company’s ability to execute on on-going or new R&D or treatment protocol programs, the Company’s ability to expand its product offerings,  the public’s reaction to the Company’s new advertisements and marketing campaign, and the Company’s ability to build a leading franchise in medical dermatology, are based on the Company’s current expectations and are inherently subject to significant uncertainties and changes in circumstances. Actual results may differ materially from the Company’s expectations due to financial, economic, business, competitive, market, regulatory and political factors or conditions affecting the Company and the medical device industry in general, as well as more specific risks and uncertainties set forth in the Company’s SEC reports on Forms 10-Q and 10-K. Given such uncertainties, any or all of these forward-looking statements may prove to be incorrect or unreliable. The Company assumes no duty to update its forward-looking statements and urges investors to carefully review its SEC disclosures available at www.sec.gov and www.strataskinsciences.com.

STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
     
    September 30, 2016   December 31, 2015
    (unaudited)    
ASSETS        
Current assets:        
Cash and cash equivalents   $ 2,957     $ 3,303  
Restricted cash     -       15  
Accounts receivable, net     2,936       4,068  
Inventories, net     3,229       4,128  
Other current assets     266       465  
Property and equipment, net     10,848       13,851  
Goodwill and other intangible assets     22,668       24,155  
Other non-current assets, net     46       94  
Total assets   $ 42,950     $ 50,079  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Note payable   $ -     $ 299  
Current portion of long-term debt     857       -  
Accounts payable and accrued current liabilities     3,437       6,607  
Current portion of deferred revenues     327       173  
Senior secured convertible debentures, net     11,398       9,839  
Long-term debt, net     10,549       9,851  
Warrant liability     185       7,042  
Other long-term liabilities     320       181  
Stockholders' equity     15,877       16,087  
Total liabilities and stockholders’ equity   $ 42,950     $ 50,079  
         


STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
 
    For the Three Months Ended
September 30,
  For the Nine Months Ended
September 30,
    2016   2015   2016   2015
                 
Revenues   $ 7,767     $ 8,323     $ 23,126     $ 9,015  
                 
Cost of revenues     3,070       3,042       9,631       10,226  
                 
Gross profit (loss)     4,697       5,281       13,495       (1,211 )
                 
Operating expenses:                
Engineering and product development     382       560       1,541       1,289  
Selling and marketing     2,840       3,913       10,073       5,641  
General and administrative     1,880       3,131       5,882       6,819  
      5,102       7,604       17,496       13,749  
                 
Operating loss before other income (expense), net     (405 )     (2,323 )     (4,001 )     (14,960 )
                 
Other income (expense), net:                
Interest expense, net     (1,175 )     (5,577 )     (3,571 )     (8,738 )
Change in fair value of warrant liability     132       (1,329 )     5,316       (679 )
Other (expense) income, net     3       (5 )     (1 )     23  
      1,040       (6,911 )     1,744       (9,394 )
                 
Net loss before income taxes     (1,445 )     (9,234 )     (2,257 )     (24,354 )
                 
Income tax expense     (64 )     -       (191 )     -  
                 
Net loss     (1,509 )     (9,234 )     (2,448 )     (24,354 )
                 
Deemed dividend related to warrant modification     -       (2,962 )     -       (2,962 )
                 
Net loss attributable to common stockholders   $ (1,509 )   $ (12,196 )   $ (2,448 )   $ (27,316 )
                 
Net loss per share:                
Basic   $ (0.14 )   $ (1.29 )   $ (0.23 )   $ (3.42 )
Diluted   $ (0.14 )   $ (1.29 )   $ (0.71 )   $ (3.42 )
                 
                 
Shares used in computing net loss per share:                
Basic     10,679,761       9,442,022       10,536,824       7,994,012  
Diluted     10,679,761       9,442,022       10,947,713       7,994,012  
                 


STRATA SKIN SCIENCES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
  For the Nine Months Ended
September 30,
    2016   2015
Cash Flows From Operating Activities:        
Net loss   $ (2,448 )   $ (24,354 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization     4,844       2,348  
Stock-based compensation     401       1,483  
Amortization of debt discount     1,821       7,571  
Amortization of deferred financing costs     145       373  
Change in fair value of warrant liability     (5,316 )     679  
Impairment of long-lived assets     -       920  
Inventory write-offs     -       4,818  
Other     395       20  
Changes in operating assets and liabilities:        
Current assets     2,142       (916 )
Current liabilities     (3,068 )     113  
Net cash used in operating activities     (1,084 )     (6,945 )
         
Cash Flows From Investing Activities:        
Lasers placed-in-service, net     (607 )     (1,066 )
Other     140       (117 )
Acquisition costs, net of cash received     -       (42,500 )
Net cash used in investing activities     (467 )     (43,683 )
         
Cash Flows From Financing Activities:        
Proceeds from convertible debentures     -       32,500  
Proceeds from senior notes     -       10,000  
Proceeds from term debt     1,500       -  
Other financing activities     (299 )     (154 )
Net cash provided by financing activities     1,201       42,346  
         
Effect of exchange rate changes on cash     4       17  
         
Net decrease in cash and cash equivalents     (346 )     (8,265 )
Cash and cash equivalents, beginning of period     3,303       11,434  
         
Cash and cash equivalents, end of period   $ 2,957     $ 3,169  
                 
Supplemental information:                
Cash paid for interest   $ 1,517     $ 402  
                 
Supplemental information of non-cash investing and financing activities:                
Conversion of convertible preferred stock into common stock   $ 309     $ 5,283  
Conversion of senior secured convertible debentures into common stock   $ 248     $ 4,593  
Reclassification of property and equipment to inventory, net   $ -     $ 107  
Reclassification of warrants to (from) stockholders’ equity   $ 1,541     $ (5,399 )
Establishment of a warrant liability with a deemed dividend   $ -     $ 2,962  
Recognition of debt discount and beneficial conversion feature on long-term debt   $ -     $ 27,300  
Recognition of warrants issued as debt discount   $ 47     $ -  
                 
Investor Contacts:
Christina L. Allgeier, Chief Financial Officer
STRATA Skin Sciences, Inc.
215-619-3267
callgeier@strataskin.com

Bob Yedid, Managing Director
LifeSci Advisors, LLC
646-597-6989
bob@LifeSciAdvisors.com

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STRATA Skin Sciences, Inc.