STRATA Skin Sciences, Inc. Aktie

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the STRATA Skin Sciences, Inc. Third Quarter 2025 Financial Results and Corporate Update Conference Call. [Operator Instructions] Please note, today's event is being recorded.

I would now like to turn the call over to Jules Abraham, Core IR, the company's Investor Relations firm. Please go ahead.

Thank you, Arielle. Good afternoon, everyone, and thank you all for participating in today's conference call. Earlier this afternoon, the company released its financial results for the quarter ended September 30, 2025. A copy of that press release can also be found on the company's website at www.strataskinsciences.com under the Investors tab. Joining me on today's earnings call from STRATA Skin Sciences management team are Dr. Dolev Rafaeli, Chief Executive Officer; and John Gillings, Vice President of Finance.

During this call, management will be making forward-looking statements, including statements that address STRATA Skin Sciences' expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in STRATA Skin Sciences' most recently filed annual report on Form 10-K and subsequent periodic reports filed with the SEC and STRATA Skin Sciences press release that accompanies this call, particularly the cautionary statements within. The content of this call contains time-sensitive information that is accurate only as of today, November 13, 2025, and except as required by law, STRATA Skin Sciences disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

It's now my pleasure to turn the call over to Dr. Dolev Rafaeli, CEO of STRATA Skin Sciences. Dolev?

Thank you, Jules, and good afternoon to everyone on the call. During the third quarter of 2025, we continued to position our business for future growth and lasting shareholder value creation. Key to the progress will be the historic expansion of CPT codes for STRATA's XTRAC 308-nanometer excimer laser, which are expected to become effective January 1, 2027. As a reminder, the revision of these codes expands reimbursement eligibility for excimer laser treatments to include multiple inflammatory and autoimmune skin conditions beyond their original psoriasis indication, enabling coverage for conditions such as vitiligo, atopic dermatitis, mycosis fungiodes, lichen planus, alopecia areata, and cutaneous T-cell lymphoma, better known as CTCL, among approximately 30 indications. The implication of these changes are pivotal to our future business and that of our partners as they exponentially expand our opportunity to provide services to patients in need while creating a meaningful increase in potential revenue from procedures, which until now would not be within reach.

While the revisions are set to go into effect on January 1, 2027, we have commenced the process to expand this change to private payers as well. The latest progress of the recognition of these expanded codes is the Centers of Medicare and Medicaid Services, or CMS, has recognized both the existing psoriasis-only codes and the expanded ones in its Calendar Year 2026 Medicare Physician Fee Schedule Final Rule publication, which will then reflect into the 2027 reimbursement codes. As we have previously indicated, these additional reimbursement codes open our addressable markets to over 30 million patients, expanding our total available markets by threefold. In addition, we have submitted economic data to support a potential increase in the reimbursement rate for each of our codes, which the CMS 2026 Final Rule has indicated will be reviewed for consideration.

We've also continued to strengthen our practice partners through our Elevate 360 consulting model and our innovative DTC campaign. Elevate 360 focuses on improving utilization of the partner clinics by supporting the implementation of best practices to drive optimal use of XTRAC lasers. Since the beginning of 2025, 99 of our approximately 838 clinics operating under our XTRAC usage agreement have entered the Elevate 360 program, which has resulted in an average of 7% growth year-over-year for those businesses, completing a review as a part of the program's design. Additionally, average gross billings per device for all 838 of our U.S. partner clinics of $5,981 for the third quarter of 2025 increased 8.5% versus the third quarter of 2025 and represents the highest gross billings per device since the fourth quarter of 2022.

Turning back to Elevate 360. I want to share a specific example of a partner, which began with 2 clinics in the first half of 2024 and after adopting the Elevate 360 program expanded to 9 clinics and revenue contribution from the account increased tenfold. By providing deeper analytics, we help these partners better understand the financial opportunities associated with the patients they already see in their clinics and those they have prescribed but did not follow through with XTRAC scheduling. We expect that these kinds of improvements will become exponential in the coming year with the addition of new reimbursement opportunities resulting from the expansion of indications for which XTRAC treatment will become available.

Turning to TheraClearX. While this remains a small but growing portion of our revenue, we reached an important milestone with the regulatory approval and subsequent initial commercial placement in Mexico. We believe the continued international expansion of both the XTRAC and TheraClearX technologies represents significant opportunity for growth and value generation. During the third quarter, we continued to experience challenges in our international business, which we believe is attributable mainly to the current trade policy of the United States government, creating uncertainty and pressuring our total revenue for the quarter.

Turning to litigation. We offered an update on our case against LaserOptek regarding its use of false and misleading statements in its marketing. We believe we are strongly positioned in this suit and have the potential to be awarded significant damages. Additionally, an injunction issued late last year was very helpful in limiting any further damage to our domestic recurring business. We are pleased that the court agreed with our position that LaserOptek Korea, the parent of LaserOptek America, as well as another entity, which was used as the face for LaserOptek's U.S. sales efforts, should be added as defendants. We believe this will result in our ability to collect damages.

In the meantime, the injunction and clarity offered by the litigation allowed us to engage multiple dermatology clinics that had been previously misled by false claims about the PALLAS solid-state lasers. To date, over 20 such LaserOptek buyers have partnered back with STRATA under our program or have purchased XTRAC excimer lasers directly from us, which represents more than $1 million in annual capital and recurring revenue, emphasizing XTRAC as the recognized gold standard in the targeted UVB therapy.

With that, I'd like to turn the call over to John Gillings, who will review our financial results in more detail. John?

Thanks, Dolev. Our total revenue for the third quarter of 2025 was $6.9 million, down 20% compared to Q3 of 2024. This was driven primarily by the challenging international environment Dolev described. That said, recurring revenue remains solid, with gross [ code ] sales up 4.1% and net U.S. recurring XTRAC revenue up 2.8%. Global recurring revenue of $5.5 million increased 3% year-over-year, and equipment revenue of $1.4 million decreased 60% in the third quarter of 2025 compared with the prior year period. Gross profit for the third quarter of 2025 was $4.2 million, or 60% of revenue. Gross margin was roughly flat versus the prior year period. Total operating expenses were $5.4 million in the third quarter of 2025 versus $6.9 million in the prior year period.

The meaningful reduction was primarily due to higher costs in the prior year period related to a onetime $1.8 million accrual for sales tax in New York State recorded in G&A in the third quarter of 2024 and settlement gains booked this quarter for roughly $680,000. Net loss for the third quarter of 2025 was $1.6 million, or EPS of negative $0.36 per basic and diluted common share as compared to a net loss of $2.1 million, or EPS of negative $0.51 per basic and diluted common share in the third quarter of 2024. Adjusted EBITDA was slightly positive in the quarter compared to negative $240,000 in the comparable quarter of the prior year. The improvement was driven primarily by lower operating expenses. During the quarter, we raised $2.2 million net in a straight common registered direct offering. Cash and cash equivalents at September 30, 2025, were $7.1 million.

That concludes my prepared remarks, and I'd like to turn the call back over to Dolev for any remaining comments. Dolev?

Thank you, John. In summary, our team is extremely passionate about our business, focused on driving growth. We are excited about what lies ahead, including a seasonally stronger fourth quarter 2025, the tripling of our patient population with expanded indications for use of our excimer laser, and favorable reimbursement trends. That said, we believe it is important to continue to remind investors about the lingering impact of tariffs on our international business. While there were no meaningful impacts on our business in the first quarter, we saw some weakening in China in the second quarter and continued weakness in the third quarter. We hope to move past these issues and hope to be able to offer greater clarity on the fourth quarter call, which we expect to hold in early March.

Now I'd like to turn the call over to the operator so that we can begin the question-and-answer session. Operator?

[Operator Instructions] Our first question comes from Jeff Cohen of Ladenburg Thalmann.

This is Destiny on for Jeff. Could you maybe talk to the average revenue per device in the third quarter? And any trends you're seeing going into the fourth quarter in terms of treatment volumes?

Yes. Hi, Destiny, and nice hearing from you. As I mentioned in my prepared remarks, the average revenue -- the gross average revenue per device was $5,981, just shy of $6,000. It's the highest average revenue per device we had since 2022.

We're in a growth trend. If you followed the last few quarters, you'll see this is growing, and it's growing because of the increased utilization of devices, which is driven mostly by 2 things. One, we're removing nonproductive devices. So we're moving them back into inventory. That helps us in not having to build new devices, not having to invest into CapEx. We own these devices. They're on our balance sheet. And two, we're focusing on increasing utilization through our Elevate 360 and our normal DTC operations.

And we anticipate this to continue going up. As you can recall, just 3 years ago, our average revenue per device was in the range of $7,500. So we see this as a huge opportunity because if we could increase our average revenue per device from $6,000 to $7,500, that's $6,000 per device per year times the $800 and some devices, just that is an increase in top line of about $5 million. So we're very aggressively pursuing that. And we're using these 2 tools, removing nonproductive devices and increasing utilization on the existing ones. We do anticipate that towards the end of this year, our installed base is going to start increasing again. I hope I answered your question.

Yes, you did. And then sticking on the theme of your DTC campaigns, I'm wondering if there has been any increase in your show-up rates, and if that's helping or improving the revenue per device as well? And then can you just remind me how many clinics are part of your -- or clinic groups are part of your Elevate 360 program currently?

Well, that's a very complex question, so I'll break it into parts. We have -- as of the end of Q3, we had 838 partner clinics that are part of our usage agreement relationship. These are -- of these, we have managed to perform Elevate 360 with 99, and I covered that in our prepared remarks. And we're actively pursuing others. As you can see in our investor presentation, we have approximately 25 territories covered by 25 territory managers. So it's approximately 4 accounts per territory managers that were covered from the beginning of this year. We hope to accelerate the pace and get to a much bigger number than that. Obviously, we're going after those that we see the potential, those that either had [ test ] higher performance or we have the reason to believe that they can grow, whether it's because of their patient population or because of the history that we had with them. So these are the more lower-hanging fruits.

We're going after these. And as you can see, not only our gross and net recurring revenue grew, and I'll spend a minute talking about this in a second, but not only the gross and net recurring revenue grew, but also the average revenue per device grew, which means the utilization per device. As I mentioned in our prepared remarks, approximately 2 dozen devices were comebacks as a result of the litigation. We were able to bring them back. These were accounts that were very productive in the past and were approached by another company with false pretense and giving them false claims. We lost them either in 2023 or 2024. We were able to bring them back, a big chunk of that, almost half of these 2 dozen devices is coming back towards the back half of this year. And they're going to be -- just these 10 accounts are going to be accountable for an increase of just about $0.5 million a year in revenue. So we're doing this one piece at a time, making sure that our installed base and presence in the market is ready towards the end of 2026 for the expansion of the codes and being able to handle more patients coming in because of the expanded indications, but also being able to handle the existing patients more effectively.

Now going back to your -- the beginning of your question, which is DTC, our DTC covers nationwide, but we cover -- we go in geographies, we go after the accounts that could see the benefits from having DTC patients. And these accounts would be the accounts that are already very good at converting their own patients and see the benefit of an increased patient flow and utilization. So what we do see in DTC, and that's not geography specific, is that in the second half of 2025, because of a variety of reasons, we have better, much lower cost per acquisition of DTC patients, which is driven both by better cost per lead, so our cost of media, better conversion. That means the efficiency of our call center and being able to place them into appointments. And then down the funnel, better show rates and better conversion rates. And that is mostly because of the focus we have with these accounts. We stop sending patients to accounts that are not converting, and we're using these patients with accounts that do convert. We redirect patients from accounts that are not very good at converting and use them better. So these numbers are basically across the funnel of DTC. And this is why we can see with more or less the same sales and marketing expense, we're getting better results in recurring revenue, which is converting into better contribution margins from the business.

And may I point out that our gross margin stayed flat even though we lost international business. So we're actually doing better as a core recurring revenue business in the U.S. Again, I hope I answered the question in full.

And then one last one for me on TheraClear. Can you remind us what the installed base on that might look like by the end of '25? And I think you previously mentioned 2026. But I'm also curious to understand how the -- moving into Mexico and having commercial placements there may tie into the overall strategy of TheraClear.

Sure. So let me start with Mexico. And Mexico, interestingly enough, is a country that lies just south of the U.S. So we don't need to travel far to support them, whether it's marketing-wise, clinically wise, or even technical support. We are actively pursuing -- we were actively pursuing throughout 2024 and 2025 the registrations with COFEPRIS, which is the registering body in Mexico. And just a few weeks ago, we were happy to announce that we got the TheraClear registered with COFEPRIS and are able to report the first commercial placement. Our approach in Mexico is very much like the one in the U.S. Instead of trying to sell capital equipment and run into issues of us having to get paid a very meaningful sums of money. And as you probably know, because I know that you are also covering other capital equipment companies, the capital equipment markets are suffering from high interest rates, from tariffs, and so on.

Our approach with Mexico from the beginning was if we can get the registrations, we can expand by placing into Mexico. We were hoping to get the XTRAC registered in Mexico first, but that did not happen. It's still in progress. We got the TheraClear registered in Mexico. And we already announced the first commercial placement, and we are -- and we hope to be able to announce by the end of 2025, a significant number of placements in Mexico, which are going to be following the same commercial relationship we have in the U.S. in which we take the risk of the equipment, we take the risk of training the account and supporting the account, and the account shares the revenue with us.

The average rate of payment that a patient pays in Mexico for an acne visit is about the equivalent of about $140. And we don't see a reason why we cannot collect the same levels we collect in the U.S. which is approximately 40% of that, $50 to $60 of our money. And our technical support teams and our clinical support teams are able to support in Mexico. We've spent multiple visits in Mexico in the last 3 months, getting the local sales team of the distribution partner we have in Mexico, a company by the name of MINO Labs ready to do the sales. We've participated with them in some of the initial meetings with customers. They have access to -- there's over 3,000 dermatologists in Mexico, and they have access to many, many of them. And we believe that -- we believe in the trust in the technology and the need in the market are going to show up as early as in Q4 this year. We are participating with them in a national dermatology conference next week. And I think that's going to be the trigger for these placements.

Now going back to the first part of your question, our U.S. installed base is about 161 devices. We are -- even though we don't parse -- we do not parse in our financials the portion of what TheraClear means inside the recurring revenue that John discussed. As I mentioned in my prepared remarks, it's still a small portion, but it's a growing portion. And more importantly, it gives us a second touch point within the same account. So all of these 161 accounts are within these 838 XTRAC accounts. So for our territory managers, when they visit an account, they cover both the XTRAC and the TheraClear. We have been at the process of expanding usage of TheraClear in the U.S. now for about a year. We are happy to report that the use of the dedicated CPT code 10040 is expanding. About 2/3 of our 161 accounts are using that code for insurance reimbursement. The other 1/3 is -- are charging patients cash for the treatment. And we anticipate -- to wrap up my answer to your question, we're still hoping to get much closer to 200 devices deployed whether in the U.S. or elsewhere under the usage agreement by the end of 2025.

Our next question comes from Jeremy Pearlman of Maxim Group.

First one, maybe you could help us understand a little bit the delta, if I heard correctly. So you said that there was 7% year-over-year growth from those businesses that were part of the Elevate 360 program, but then you said overall average gross billings were up 8.5%. So maybe help us understand where that delta is coming from.

Yes. So first of all, I owe a portion of the answer that -- to the question that was asked before by Destiny. So just as a reminder, we report 2 numbers on the recurring revenue. We report a gross number and a net number. The difference between the gross and the net is, even though it's itemized in our financial reports and in our releases, it includes 2 components. One, we are netting out some of our support to the market. So for example, the -- our coupons given to patients for reimbursing their co-pays are netted out. But the bigger portion of changes happens because we need to defer out revenue that came in during the last part of the quarter, and we defer that into the following quarter. So there's always going to be a difference between our gross numbers and our net numbers. Then in addition to that, I reported 2 growth numbers. One has to do with these -- specifically these 99 accounts that were handled through Elevate 360. And with these accounts, we have seen a growth of 7% in revenue.

These accounts, as I mentioned before, are -- we break our accounts into 5 tiers, tier 1 to tier 5, tier 1 being the highest-producing tiers and tier 5 being the lowest-producing tiers. And we are focused on -- with our Elevate 360, we're focused on tiers 2, 3, and 4 being able to move accounts from tier 4 to tier 3 or tier 3 to tier 2. And with tier 5s, we're either removing them or they have to move up on their own because they're too small for us to focus on. We're not really focused on tier 1 with Elevate 360. These are the accounts that got it and know how to make it work. That 7% number is a 7% growth over these 99 accounts. The 8.5% growth in average recurring revenue per device is across the 838 devices. So it's 2 different populations. The 7%, if you wish, is what we were able to get in growth for these 99 accounts that are mostly tier 2, 3 and 4, where the 8.5% is across the board. And across the board could be also from tier 1s and tier 5. I hope that helps answer the question. And again, the 8.5% is a gross number. So it gets netted out. When we grow, you can actually see these in the net numbers going up slower. That's why when John went through his numbers, you saw a number that's about 4% in overall numbers because the average numbers are per device. I hope that the math makes sense.

Yes. No, I understand. So it's how the -- what tiered clinics are within -- are in the program versus the overall. Got it. That 4%, is that a net revenue growth number? Is that something we could -- or are you not providing that number this quarter?

John, do you mind jumping in on gross to net?

Yes. So that is -- the 4% is the net number. And just in general terms, because anything can happen later in the quarter. But in general terms, if you see the gross number growing a bit faster than the net number, that's usually a positive leading indicator.

And then maybe just talking about the litigation. You said that you had roughly 24, 2 dozen devices that are coming back based on litigation. Is there anything else left in the field that you could -- you think you can pull back? And just what's -- roughly how many more devices do you think you can get from that?

Yes. So I'm not going to go into specific account numbers, quantities of accounts, but I will say that the overall damage caused by the false claims is in the range of 75 to 100 accounts. And we are actively pursuing bringing all of them back. So again, if you take a perspective over the last 1.5 years, even though you saw our top line number -- since 2024, you saw our top line number slightly decrease because of removals, you should look at them, at what happened between 2023 and 2024. And this is when we lost these accounts. More importantly, these accounts were very productive accounts, and they were lost based on false claims. And the false claims had to do with 2 major areas. One was the technical and clinical equivalence or superiority, which the defendants in this case cannot support because they do not have not even one clinical study to their name that shows clinical efficacy on treating of psoriasis. And they have one 16-patient case done in Korea for vitiligo. And that's it. That's what they have in clinical studies.

And the technical claims that have to do with speed and ease of use and performance, which are far from being substantiated. But more importantly, they claimed that their device can be used for treatment for reimbursement. And the CPT codes are very specific. They say excimer laser treatment for psoriasis. And so there's no 2 ways to understand that. It says excimer laser. If you have something that's not excimer laser, then it's not excimer laser. And these very productive accounts do not want to face both -- the first part, which is not getting clinical efficacy for their patients and being straddled with something that works slower and maybe does not work. But also, most importantly, they do not want to face the potential of being pursued for nonethical billing of something that cannot be billed. So this is why they tend to come back and work with us. And in addition to the fact that we give them a full envelope of services that includes helping them with preauthorization of patients and driving DTC patients to them and so on and so forth.

So there is a meaningful additional upside of comebacks to come from them. Just as a reminder, in the past, we had a similar situation with a competitor, a company called Ra Medical, which we ended up eventually acquiring the business in 2021. But before that, they had a few hundred devices, and we were actively pursuing them, and we were able to convert a few hundred devices of the Ra Medical Pharos device into being XTRAC users.

That's good information. And then just 2 questions. I think I might have missed this on the call. Did you say how many patients the DTC marketing campaign drove through this quarter into clinics? Or I might have missed that.

Good catch. No, we did not. We will probably have to follow up with a press release that outlines that.

Okay. And then just last question for me. You mentioned, I think, last quarter that I know you got the CPT codes to hopefully go into effect, the expanded codes in 2027. And you did say there's a possibility of getting temporary codes. Is that something that's still on the table for 2026? And when would that -- when might that be, if that's a possibility?

So the CMS Physician Fee Schedule that came out about 10 days ago, the Final Rule for 2026, CMS specifically related to our request and said that they do not want to create confusion in the market, considering that there is the existing codes for psoriasis only. There is a change of expanded codes coming in, in January 1, 2027. And then there is the ongoing examination of the value of the codes, which is right now in the hands of the RUC committee, which are -- between these 3 things, the CMS thought it would not be a good or wise thing to create temporary codes for the 2026 cycle.

[Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Dolev Rafaeli for any closing remarks.

Thank you, everyone, for showing up for this call. I appreciate your interest in the company. We will be presenting again in the middle of March, presenting our fourth quarter results. Thank you very much.

Thank you. This conference call has now concluded. You may disconnect your lines. Thank you for attending today's presentation.

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the STRATA Skin Sciences Inc. Second Quarter 2025 Financial Results and Corporate Update Conference Call. [Operator Instructions] Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately 1 hour after the end of the call through February 13, 2026.

I would like to turn the call over to Jules Abraham of Core IR, the company's Investor Relations firm. Please go ahead, sir.

Thank you, Steve. Good afternoon, and thank you all for participating in today's conference call. Earlier this afternoon, the company released its financial results for the quarter ended June 30, 2025. A copy of that press release can be found on the company's website at www.strataskinsciences.com under the Investors tab.

Joining me on today's earnings call from STRATA Skin Sciences management team are Dr. Dolev Rafaeli, Chief Executive Officer; and John Gillings, Vice President of Finance.

During this call, management will be making forward-looking statements, including statements that address STRATA Skin Sciences' expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in STRATA Skin Sciences' most recently filed annual report on Form 10-K and subsequent periodic reports filed with the SEC and STRATA Skin Sciences press release that accompanies this call, particularly the cautionary statements within.

The content of this call contains time-sensitive information that is accurate only as of today, August 13, 2025. And except as required by law, STRATA Skin Sciences disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

It's now my pleasure to turn the call over to CEO, Dr. Dolev Rafaeli. Dolev?

Thank you, Jules, and good afternoon to everyone on the call. The second quarter of 2025 saw pivotal developments positioning our business for future growth and lasting shareholder value creation. We're especially heartened by the American Medical Association, the AMA, CPT Editorial Panel's historic expansion of CPT codes for STRATA's XTRAC 308-nanometer excimer laser in May of this year. The revision of these codes expands reimbursement eligibility for excimer laser treatments to include multiple inflammatory and autoimmune skin conditions beyond their original psoriasis indication, enabling coverage for conditions such as vitiligo, atopic dermatitis, mycosis fungoides, lichen planus, alopecia areata and cutaneous T-cell lymphoma, better known as CTCL, among approximately 30 indications.

The implications of these changes could not be more dramatic for us and our providers. While the revisions are set to go into effect on January 1, 2027, we have commenced the process to accelerate access to these revised codes through temporary G codes. Assuming successful implementation of the temporary G codes into the 2026 reimbursement period, we have the potential to pull forward revenue opportunities by 1 year as we expand into new indications.

These developments open our addressable market to 30 million patients, expanding our total available market TAM threefold. In addition, we have submitted economic data to support a potential increase in the reimbursement rates for each of our codes. Should rates increase be approved, we could be headed into a period where both the number of patients eligible for the treatment and the revenue per patient procedure are increasing simultaneously.

We've also continued to strengthen our practice partners through our Elevate 360 consulting model and our innovative DTC campaigns. Elevate 360 focuses on improving revenue for both clinics and STRATA by supporting the implementation of best practices to drive optimal use of the XTRAC lasers. By providing deeper analytics, we help physicians understand the financial opportunities associated with the patients they already see in their clinics and those they have prescribed but did not follow through with XTRAC scheduling.

Having these best practices in place lays the groundwork for effectively managing and benefiting from the dramatic increase in patients' eligibility for reimbursement under the expanded CPT codes I mentioned previously. Optimizing XTRAC devices placement in physicians' practices facilitates more procedures and opportunity that utilizes the resources we provide. Further, simultaneously expanding our direct-to-consumer marketing campaign increases XTRAC device utilization and recurring revenue per device across our domestic installed base.

We ended the second quarter with 844 units placed with partners' clinics in the U.S., down from 846 at the end of the first quarter. While we continue to seek optimized -- optimization of the installed base, the activity behind the numbers paints a more complete picture. During the second quarter, we removed 21 devices from suboptimal partners and placed 19 devices with new accounts that are interested in growing with us. Importantly, these 19 placements represent the highest number of placements in the United States in the last 6 quarters, which we view as a positive leading indicator for the future revenue growth.

Given these initiatives and these growth driving codes developments, we continue to believe that the opportunity to increase utilization for our XTRAC devices is significant, and we continue to see positive results from the refocus of our DTC strategy. We generated roughly 1,100 DTC-driven patient appointments in the second quarter with a 61% show rate. In addition, our proprietary RDX system handled benefits for approximately 5,100 patients in the second quarter. Of these patients, roughly 1,000 were acne patients with our TheraClearX partner clinics and about 2,500 were psoriasis patients. The balance of patients were other indications treated by XTRAC that would have generally involved extra effort and pre-approvals, illustrating the strong demand for excimer laser therapy among these patients who will soon be more easily covered under the updated CPT codes.

Turning briefly to TheraClearX. We reached an installed base of 161 TheraClearX devices in the U.S. at the end of the second quarter, up from 117 devices at the end of Q2 2024. TheraClearX continues to be a small but growing portion of our revenue.

On the first quarter call, in May, we highlighted the potential impact of the tariffs on our international business. While we were able to completely -- to complete some sales in China during the 90-day tariff pause, the uncertainty about the future they have caused has created a temporary drag on our international business. We generated international revenue of $2.6 million in the second quarter, which declined 15% compared to the prior year period. International equipment sales were significantly affected by lingering trade disruptions in China and distributor challenges in Korea. We continue to see strong underlying demand in these markets and expect these geographies to return to growth once things stabilize.

While we will continue navigating the seasonality of our business, specifically a slower first and second quarters as we turn to the second half of 2025, we continue to anticipate normal seasonality, gaining positive momentum heading into the year-end with the caveat that tariffs still represent a significant unknown. In 2026, we look forward to the potential positive impact of our ongoing discussions with the Centers of Medicare and Medicaid Services, or CMS, to obtain temporary codes that would accelerate access to our recently expanded reimbursement for XTRAC.

Notably, we have secured strong support from members of the legislature, patient advocacy groups and leading academic key opinion leaders. We are further encouraged by the growing body of peer-reviewed publicly available clinical study supporting excimer laser therapy, which points to the new and enhanced application adding to the hundreds of other studies published over the years. Last Thursday, we published a press release with reimbursement and clinical updates that we would point out to you if you have not already read it.

In addition, this press release offered a brief update on our litigation against LaserOptek regarding its use of false and misleading statements in its marketing. We believe we are strongly positioned in this suit and have the potential to be awarded significant damages. We are pleased that the court agreed with our position that LaserOptek Korea, the parent of LaserOptek America, should be added as a defendant. In addition, C. Dalton, LLC, the entity that represented LaserOptek Korea interest in the United States has been added as a defendant. These are important developments and help ensure that should damages be awarded, these responsible will not be able to shield themselves behind other legal entities.

Before turning the call over to John for our financial discussion, let me take a moment to discuss the three recent publications that support excimer laser in vitiligo and atopic dermatitis, expanding the potential use of XTRAC. In a peer-reviewed study featured in the International Journal of Dermatology, a multicenter randomized controlled trial evaluated the efficacy and safety of 308-nanometer excimer laser therapy in combination with oral JAK inhibitors. Oral JAK inhibitors is a novel class of immune modulating drugs. A total of 240 adult patients were enrolled and monitored over the 52-week period.

The study demonstrated superior repigmentation in combination therapy with patients receiving 308-nanometer excimer laser combined with the JAK inhibitor, reporting 100% overall response rate and 96% pigment stability, indicating a durable response. Further, the study showed that treatment was well tolerated across all groups with no serious adverse events reported over the 52-week trial. It is noteworthy to point out that there is no other technology that is enabling such results and that the additional -- the addition of vitiligo as a covered indication will open the door for somewhere between 3 million and 4 million existing patients seeking not only temporary remission gained from the pharmaceuticals, but full repigmentation.

A second study published in Human Vaccines & Immunotherapeutics highlights conjunctive use of excimer laser with JAK inhibitor on a patient that has developed segmental vitiligo 1 week after her third HPV vaccine, achieving approximately 70% repigmentation. Further, a third study published in Dermatology Therapy evaluated the safety and efficacy of 308-nanometer excimer laser therapy in conjunction with JAK inhibitors for treatment of refractory vitiligo in patients complicated by moderate-to-severe atopic dermatitis. The trial involved 19 patients who had not responded to conventional therapy. Patients showing a mean 55% VASI improvement with facial and neck areas responding best with greater than 70% improvement. Importantly, the 55% mean VASI improvement in these challenging patients compared to 39% improvement with the JAK inhibitor alone, suggesting a strong synergy -- synergistic mechanism.

The domestic market has approximately 18 million atopic dermatitis patients. Importantly, STRATA has been preparing for the potential expansion into combined therapy and owns patents that were granted recently for the methods of combining systemic biologic and JAK inhibitor medication with excimer laser dosimetry-controlled treatments. This positions us well for the potential market expansion associated with combination treatment for more challenging patients.

With that, I'd like to turn the call over to John, who will review our financial results in more detail. John?

Thank you, Dolev. Our total revenue for the second quarter of 2025 was $7.7 million, down 9% compared to Q2 of 2024. This was driven primarily by the challenging international environment Dolev described. Global recurring revenue for the second quarter of 2025 was $5.1 million, down 4% versus the prior year period.

Turning to the U.S. Excluding deferred billings and other GAAP adjustments, XTRAC gross domestic recurring billings were $4.7 million in the second quarter of 2025, a decline of 2% versus the prior year period. Moving to the equipment business. Revenue was $2.5 million in the second quarter of 2025, down 18% versus the second quarter of 2024. This was due primarily to challenges in specific international markets with lingering trade disputations in China and supplier challenges in Korea.

Gross profit of $4.3 million or 56% of revenue for the 3 months ended June 30, 2025, declined from $5 million during the same period in 2024. The reduction in gross profit was driven primarily by lower sales with increases in manufacturing overhead contributing. Total operating expenses were $6.5 million in the second quarter of 2025, up roughly $1 million versus $5.5 million in the prior year period. Engineering and product development was down 57% year-over-year.

Selling and marketing increased 16% versus the prior year due primarily to increases in headcount in the sales and call center and increase in DTC spending. G&A expense increased roughly $700,000 versus the prior year period. Of this, roughly $340,000 is due to litigation that we have chosen to pursue primarily against LaserOptek. In addition to this, G&A expense in the second quarter of 2025 is compared to an abnormally low quarter in the prior year. The second quarter of 2024 had the lowest G&A expense of the year, coming in $500,000 below Q1 of 2024, which was the next lowest quarter of the year. Adjusted EBITDA for the second quarter was a loss of $762,000.

Turning to the cash flow statement. Cash used in operations was $1.9 million in the second quarter. Of this, $1.3 million represents a payment of restricted cash to the state of New York related to the sales tax accrual that we took in the third quarter of 2024. Of the remaining $600,000, roughly $340,000 relates to the legal expenses I described previously. We exited Q2 2025 with cash and equivalents of $6 million. As of June 30, 2025, the company had 4,171,161 common shares outstanding.

That concludes my prepared remarks, and I'd like to turn the call back over to Dolev for any remaining comments.

Thank you, John. In summary, our team is extremely passionate about our business and laser-focused on driving growth. We are excited about the -- what lies ahead, including a seasonality stronger second half of 2025 as well as a potential tripling of our patient population with expanded indications for use of our excimer laser, given favorable reimbursement beginning in 2026 using temporary G codes. That said, we believe it is important to caution investors about the potential impact of tariffs on our international business. While it is no meaningful impact on our business in the first quarter, we saw some weakening in China in the second quarter. We hope to move past these issues and hope to be able to offer greater clarity on the third quarter call, which we expect to hold in mid-November.

Now I'd like to turn the call over to the operator so that we can begin the question-and-answer session. Operator?

[Operator Instructions] First question comes from Jeffrey Cohen with Ladenburg Thalmann.

A couple of questions from our end. So can you give us a sense on the what your back half of the year expectation is as far as the international business? Just recap with us what was in Q2 and perhaps what we should anticipate for the back half?

Jeff, happy to hear you on the call. John is going to give the specific numbers. Our expectation of the second half of the year is to be not much different than last year. But having said that, we need to caution that these expectations are still up in the air as it comes to tariffs. We don't know what's going to happen in China. As you know, the administration just extended the window and things are changing from day to day. Other than that, we anticipate the business to be business as usual, and you can look at prior year progression from the first half to the second half in the international business.

John, do you want to -- mind coming in on the specific numbers because I think you just recited them in your portion.

Yes. So I was just going to say, we haven't given specific guidance versus the second half. But I think Dolev gave you a good indication that our initial expectations were for it to be roughly similar to the prior year, but we do have to give that caution that depending on what happens with the tariffs, we could see any given quarter move fairly significantly. Had it not been for the 90-day pause in the second quarter, our international revenue could have been impacted considerably more. So until that calms down, it's hard to give anything really more concrete than that.

Okay. That's helpful. And then could you jump over to the lawsuit. As far as I can see the cost from Q2, can you give us a sense of cost for the back half of the year and where you're after with the three entities as far as monetary damages and remind us of the state or the ICC or whoever is handling the case -- court system?

So good question. I'll start with the expected damages. The entry of an entity like LaserOptek that chose to use false and misleading advertisement, both in conjunction with the reimbursability of their devices, which their devices are not reimbursable. The codes are very specific, the guidelines from the American Medical Association and the American Academy of Dermatology as well as the specific code descriptors dating all the way back to 2012 are specific and say that the providers can only use excimer lasers.

Then they represented their devices as superior technologically when -- and I'm not going to go through the whole case now, but I'll just mention that their -- even their FDA filings compared their devices to devices that STRATA is no longer selling, no longer offering and that had their -- the devices they compared to or -- have not been in this market for over 10 years. So the combination of them coming to the market with false statements on the reimbursability of the devices as well as claims about technical superiority and clinical availability for devices that frankly, do not have any clinical studies for psoriasis, not even one and not in their original country of origin, Korea, nor in the U.S., and that compares to hundreds of peer-reviewed published clinical studies for XTRAC.

When we approached them to stop what they do, they ignored us, and that is what started the litigation. I'm not going to go again into the details of the back and forth, but very fast -- we filed the litigation in August. And very fast by November, the court has issued an order that bars them from continuing to claim that their devices can be reimbursed and that -- and use the comparative advertisement claims. Having said that, in the approximately 4 years that they were in the market, they were able to either get accounts that had existing excimer users or existing either XTRAC or Pharos devices, both are devices owned by STRATA or they were able to convert previous accounts into users of their device.

As a side note, since then, at least with most of these -- the bigger accounts, we were able to take them back. However, that has caused STRATA not only the immediate revenue loss from these accounts that moved over to LaserOptek devices, but also potential future revenue because when conflicting and confusing and more accurately described by the judge as fraudulent information is disseminated in the market, that creates confusion with the customers.

Now I'm not going to go into the specific damages, but these damages are in the 8-digit range when it comes to calculation. The damages experts have come up with the relevant theories, and STRATA is going to pursue this to the end if needed unless, as you know, in these cases, companies meet and find a way to settle the dispute before the case goes all the way. As maybe should be pointed out, and I did mention this in my prepared remarks, one of the things that LaserOptek has done is they were hiding behind entities that didn't exist.

So for some time since we started this suit in August of 2024, they claimed that all the relevant parties were present. However, we just recently found out that the LaserOptek America was actually not an entity. It was doing business as DBA, but it was another company that they did not present and that is the company I mentioned, which is C. Dalton International, LLC. They also represented themselves as representatives of Korea, which they're not or at least they claim they're not.

The judge in his recent remarks to the parties in the case mentioned his dissatisfaction with the way they have conducted their business. However, to your specific question, we are -- our legal expenses are -- most of our legal expenses are behind us. Now we're in the -- towards the end of discovery. And what is going to extend the case somewhat is the inclusion of these two new defendants. However, these two new defendants are not going to come up with anything we don't know.

The LaserOptek in their legal practice have chosen to mark most of their documents attorney's eyes only, which made our work as a company harder to understand what the damages are. But I gave you a framework of where we think it is. It is important to understand that LaserOptek is a publicly traded company. They have assets, and we will be able to recoup our damages awarded by the court or whatever we agreed to in a settlement discussion from the parties in the case now that we know that we can get to every one of the parties relevant. And they are significant in size considering the accounts we lost and the reasons for why these accounts were lost. I hope that answers the question. If not, please ask for more clarification.

Yes. Just one more. Could you give us a sense of how many units during this period that were placed out there in the marketplace?

How many units were placed by LaserOptek?

Yes.

I cannot give you a number because that number as part of their legal practice was hidden away from us. We have our estimates. We have the accounts we know about. It does complicate these accounts, and we did try to make this clear not only through us but -- directly from us, but also indirectly from the American Academy of Dermatology because for a provider to use a device and bill the codes when the codes are specifically saying excimer laser, that puts the provider at risk of being charged with fraudulent charges to CMS.

That when it happens, results in very heavy fines and garnishing of all the revenue they made. It also puts them at a high risk of reputation and so on. So they know that. And that's part of the reason why some of the accounts that were -- that they have taken have come back to us. Other reasons are that these devices actually do not technically work even close to what the XTRAC does. And had they had the substantiation to say that these devices are same or superior, I would assume they would have done one clinical study at least. They haven't done even one.

And I -- in my prepared remarks, I went through three studies for XTRAC that were published in the last month. And one of them had 240 patients and lasted 52 weeks. So it's -- these are things that an honest and good market player would do. I would add one more thing. As part of the litigation, as part of the discovery in the litigation, we found that LaserOptek had a practice of approaching individuals within the organization that drafted the changes to the CPT codes, and they took part in making changes to these codes.

That, when we found that was a big surprise for both ourselves, of course, as well as the American Medical Association that is responsible for these things, that has a very strict policy of nonintervention of outside parties. And I think it also painted their activities with the court the way it should have, which is they're bad players. And as bad players, they will end up paying.

And that's why we highlighted the things because we believe pursuing it to the end would be a good practice. Now Jeff, I believe you were covering other companies in the medical device dermatology space in the past, and there have been things like that in the past. I don't think there have been things as black and white as this one. The codes are very specific, excimer laser and the guidance have been in place since 2012. And then going around and representing themselves as STRATA employees and then trying to flip accounts is going to end up costing them a lot. But thank you for the question.

The next question comes from Jeremy Pearlman with Maxim Group.

First one related to these temporary G codes. Is there anything else on your end that has to be done? Or has the review process already begun? And then what time frame could we expect a response?

Thank you for the question. I'll expand a little bit. So when we found that LaserOptek was actively manipulating things within the AMA and as a result, impacting things that happen in the market, we approached CMS, and this is before the 2025 -- law-making cycle for 2025, which is in effect now. And we asked CMS to make changes based on three things. One, the specific change of the code that happened -- that took effect on 1/1/24, narrowed the language of the code and made it very specific to psoriasis. And that caused limitation to the applicability of the codes to other patients.

Now as I covered in my prepared remarks, we still see about 30% to 40% of our codes being used for non-psoriasis patients, but that takes a lot of effort on our side. So we help our providers by taking every one of these patients through a pre-authorization or predetermination or pre-approval process to make sure that they can be treated. So you can go back into my prepared remarks, and you can see the ratio. Out of 5,100 patients, 2,500 were psoriasis, 1,000 were acne, that's 3,500 and about 1,500 were non-psoriasis patients being treated by XTRAC.

By expanding the codes, which is going to take effect right now on 1/1/27, that is going to alleviate the need to take these patients one by one and take them through the pre-approval process. Having said that, so we started the discussion with CMS back in -- before the rule-making process of 2025. And their response -- and the response comes out in November when the final rule is presented. Their response was we -- one, we do not have sufficient data to make the decision on our own. We need the American Medical Association to opine on the expansion of the codes.

So we went ahead and petitioned with the AMA or made an application for a code change. It's called a code change application, CCA, which resulted in the expansion of the code descriptor as it was -- as it happened in May and was discussed by us in our previous call and in press releases. That code is going to go -- by design, a new code descriptor goes into effect not immediately, but has to go through a review by the RUC Committee. The RUC Committee is another part of -- that takes care of these codes, and they look at the values associated.

So they need to opine on whether there is more cost associated with this or less cost associated with treating other conditions, such as vitiligo, atopic dermatitis and so on. That process is right now happening, and there was a survey sent out by the RUC Committee to providers. We -- the company is not involved in this process, but the outcome of that is going to decide whether the time component in the codes is going to change. We believe it should go up, and we have very detailed backing to that. So that's one part.

The bigger part had to do with the component of the reimbursement code that is called PE, practice expense. And that component includes, among other things, among the cost of gloves and if needed, local anesthesia and so on. It includes the cost of the equipment. As it stands out, the American Academy of Dermatology came to the AMA in 2023 and requested a higher value for that practice expense.

So for reference, our codes reimburse in the range of $160 per procedure, about $22 today are attributed to the cost of the device. What the American Academy of Dermatology in 2023 said and explained to the AMA was that, that component should not be $22, it should be closer to $80, and they provided their reasoning. However, in 2023, CMS being very cautious about the budget, said, thank you, the American Academy of Dermatology for asking for this, but you did not provide any data to support that.

So our application to CMS now includes three components. One has to do with the time, and I covered that. The second one has to do with the device or the utilization of the device. And we are showing CMS backed by data. And the data we show them is over the span of 2018 until today, there were 1,300 providers using -- or 1,300 devices used or 1,300 clinics using the devices. And that is a combination of our partner clinics, clinics that have purchased the device from us and clinics that have purchased the Pharos device from our -- from Ra Medical, which -- we acquired that business from them in 2021. So there are 1,300 individual clinics using the device.

Since we have insight into the utilization of every one of these devices, we are providing CMS with data covering 1,300 devices going all the way back to 2018, showing them that component, the cost of the device in the code should be approximately 4.5x. So it should be about $95. If that happens, then our reimbursement is going to go -- our average reimbursement is going to go up from $160 up about $70, so it's going to go up to $230. That's kind of the maximum. And that's just based on the practice expense component.

If the time component also expands, that's going to push the reimbursement even further up. The third request from CMS is to provide temporary G codes. Now their response back in November 2024 for the 2025 fiscal year was, we appreciate you asking for this, but there is no code we can provide G codes for because at that point in time, the code was saying only psoriasis. So they said, we can't give you G codes for the other indications since the code only says psoriasis. So what we have now is we have an expanded code that they can attribute the G codes to. We have the data to rely on for the expanded practice expense and time to expand the value of these codes.

And we have the backing of -- and I mentioned this through my prepared remarks, we have the backing of everybody involved starting from key opinion leaders, saying we already are treating patients and have been treating patients in these conditions since 2003, but most importantly, in the last few years from the patient advocacy groups, the Global Vitiligo Foundation, the GVF and others that say we represent hundreds of thousands or millions of patients. And this is a very important modality for them to be treated.

We have comments that are being submitted to CMS for -- from big provider groups, so private -- equity-backed provider groups that are supporting this request. You asked about time line. So CMS issued their draft rule for 2026, approximately 3 weeks ago. And the period for comments ends the second week of September. And then there's going to be an open or not open hearing about the topic. So there's going to be a hearing, maybe they will include us, maybe not. And we anticipate the final rule to come out in November. I hope that helps explaining the time line.

Yes, it does. And then on the last earnings call, you mentioned that roughly 100 clinics were currently undergoing that Elevate 360 consulting services. Are there any metrics you could share how that has impacted those clinics?

I did not prepare for this in this cycle, but we will share this in future disclosures from the company. However, I can say that all of the clinics that have went through the full process, and I will describe the process shortly, have shown higher revenue in Q2 as compared to Q2 previous year and in some cases, a very significant growth.

So let me outline the process. What we do is we go in and we provide the owner or the key person in the clinic, so it depends whether it's an individual clinic or it's a group of clinics. We provide them with insight to what's happening as it comes to these codes. And I will use one specific example, a clinic -- one individual clinic that is in Florida that in 2022 and 2023 was a very productive clinic for us. It was in the range of $40,000 to $50,000 a year for us, which means that they were doing approximately $100,000 for them. And then it started declining.

And in October of 2024, we started the process with them. What we found is that they had -- in the prior 12 months, they had 886 relevant patients, so patients with the relevant indications. They have submitted into our RDX portal 160 patients. So they thought that there are 160, about 20% of their relevant patient population that are relevant for their treatment. We have secured pre-authorization or predetermination. So we have secured approvals from the insurance company for 132 patients, and they have only started treatment on 6 of them.

So specifically for that clinic, the falloff happened between the person that manages the reimbursement and the person that schedules patients. It's that person in probably the front desk that needs to pick up the phone and call the patient and say, we've contacted your insurance and your insurance is going to cover this, for these 132 patients. Now to put this in perspective, every one of these patients is worth about $3,000 for the clinic, and it's worth about $1,000 for us. So had they done this process to the extent of 132 patients, then they would be generating about $400,000, and we would be generating about $100,000 in that clinic.

We started the process in October of 2024. By the end of Q1 2025, not only we had that clinic clicking at, I would say, about 25% of them, so about 25 patients were in treatment. Not only that, but within the same owner of clinics, we expanded from one to nine clinics, and all of them are now producing. So that became a center of excellence for the northern part of Florida. Now I can use examples on other clinics, but I think what you were looking for are metrics that go across the 100 accounts, and I will -- we will be sure to provide that through either a press release or our next call.

Okay. Great. And just last question related to the TheraClear devices. It seems like the installed base was flat quarter-over-quarter. Are you going through the same review process as you are in the XTRAC installed base on TheraClear? Or are you just leaving what's out there and hopefully, recurring revenue will grow a little bit, but the main focus is still on the XTRAC and especially with all the CPT codes potential?

Well, first of all, definitely, the main focus is on the XTRAC devices. They represent the highest upside. We have approximately 850 devices in the market and every $1,000 of increase in productivity per account is going to take us $850,000 up in the revenue. And there is ample upside in terms of the patients already in the clinics that were prescribed and not being put into treatment.

Now just as an add-on to the answer to the previous question, we do the same thing with groups. With groups, it's a little bit more complicated because everything is centralized. So their scheduling is centralized and their business is centralized and their regulatory oversight is centralized but we see the same upside. And again, we will provide more statistics to allow you insight into that.

Now in terms of TheraClearX, you are kind of right The installed base is growing. It's not growing as fast as the XTRAC could grow. And we told you in prior call that we anticipate to be closer to 200 devices by the end of 2025. And we still think we will be at that range. However, if you recall, when the TheraClear was launched back in the second half of 2023, the company's strategy at the time was to approach clinics that treat patients seeking cash pay. And we changed that in the beginning of 2024, realizing that the cash paying patient is harder to convert and the clinics are not very good at that.

And now about 1/2 of our clinics are billing codes and growing accordingly. So our revenue for TheraClear is growing. But as I said in our prepared remarks, it is growing, but it is small. So providing metrics for that, I think, is less important than showing success with XTRAC, which has a huge upside with the -- not only the expanded reimbursement, but higher payment for the codes and more adaptation based on real-world clinical studies.

This concludes our question-and-answer session. I would like to turn the conference back over to Dolev Rafaeli for closing remarks.

Thank you, everyone, for showing up for this call. I appreciate your interest in the company. We will be presenting again in the middle of November, presenting our third quarter results. Thank you very much.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.