Good day. Welcome to iAccess Alpha Buyside Best Ideas Fall Conference 2024. The next presenting company is Strata Skin Sciences, Inc. If you would like to ask a question during the webcast, you may do so at any point during the presentation by clicking on the Ask Question button on the left side of your screen. Type your question into the box and hit the send button to submit your questions. I'd now like to turn the floor over to today's host, Dr. Dolev Rafaeli, President and CEO, Strata Skin Sciences, Inc. Sir, the floor is yours.
Thank you, and good morning, good afternoon for everyone. Thank you for showing up for this presentation. Thank you, Wiley, for inviting us. Strata is a public company, and so obviously we need to show the safe harbor comments, but I will jump right into presenting the company. As some of the people attending today know, I've been involved with this business multiple times in the past, and we've done three turnarounds for this business. The assets that are now in Strata were sold to Strata by me in 2015 , and I've reassumed as an investor in 2018 , and took it through another turnaround from 2018 until 2020 before COVID, and then a third turnaround coming out of COVID, at which time I left.
I came back to the company at the end of 2023 because I think as an investor, and as a almost 10% shareholder, I believe that this company is misrepresented in terms of valuation, and we can do much better than that. The company is majority owned by a private equity fund called Accelmed and myself, as you can see here, about 39% insiders, and there are two hedge funds that are holding the company and are not represented as insiders. The company deals with dermatological autoimmune diseases, and we do so through devices that we develop and manufacture. Our manufacturing facility is in the West Coast, in Carlsbad, next to San Diego. What makes this company unique is its go-to-market.
As I'll be able to, I hope to explain through the presentation, we are the technology itself is well known, well accepted. We are in most leading teaching institutions in the country, and the company itself is managed by a team that is very seasoned. Myself, I've been on and off involved with this business for many years, Mr. Shmuel Gov, who runs the operations, and John Gillings, who runs our finance. The three topics I would like to cover today are, one, the unique go-to-market or the unique business proposition of this company, in which we place the technologies free of charge with the physicians, charge them a fee per use, provide them an envelope of services that drives the business forward.
That the outcome of that is a win-win-win solution in which the providers, the doctors win, the patients win, but also the company has a huge upside of gaining from that. There's an opportunity to reignite the business domestically as well as outside of the U.S. As I mentioned, I came back to the company at the end of 2023, and we've just recently announced the outcomes of the second quarter. If you look at these outcomes, you can see that this turnaround is well underway. We are stabilizing the revenue. The gross margin is expanding. It went up from approximately 52% in the same quarter last year to about 58% this year.
We are realigning our installed base. The OpEx is meaningfully down, which drives the company to be almost net breakeven. The company is generating cash, and in addition to that, the insiders provided the company with a little bit more cash to be able to create this turnaround, and in the field of reimbursement where we operate, we are doing major strides, major steps forward, so these are the recent highlights of the first half of 2023 . Now, let's talk about the core domestic business and our very, very unique go-to-market, so as I said before, we place the technology with the physicians free of charge, so the physician is the center of our universe.
We call them partners, and we provide them with an envelope of services, a suite of services, that starts with giving them a technology, training them on the technology, training their back office to be able to support the reimbursement work with the insurance companies and collect payments for the patients. Train their clinical staff in treating the patients, and working with the patients themselves through an inbound call center that supports them through DTC marketing, that drives these patients to the clinics, and providing the patients with co-pay support to make sure that the consideration of getting the treatment is easier for these patients. That has resulted in over nine hundred domestic partners in every major geographic or city. We have partners.
We are able to cover these patients, and a team that covers and supports these locations, both sales as well as marketing, clinical support, and an in-house team of call center that supports the patient inbound and supporting the back end of the clinics with their dealings with the insurance companies. The Strata as a company supports these partners with a lot of marketing. There is marketing that is done internally inside the clinics to provide practice development. There is marketing that is done from the clinics out to help them support their own patient base, the patients that are part of that clinic, that have been using these clinics and are accustomed to these providers. But most importantly, we provide DTC support for this installed base. We advertise in the domestic market.
We advertise through social media and the search engines. We generate leads. These leads end up in our own in-house call center, and from there, we convert them into patient appointments. We drive these appointments into the clinics. We triangulate between the patient, the provider, and the insurance company, and make sure that patient is going to be pre-authorized or predetermined by the insurance company, and will be paid by the insurance if the provider finds that patient to be right for the procedure.
That approach over the years has led, as I mentioned before, three times for a very meaningful turnaround in which the recurring revenue or top line, very high margin, is driven up by these DTC efforts, in which you can see here through the years, from 2018 all the way to 2023, when the company is doing so, the number of leads goes up, the number of appointments that the company sets up with the clinics goes up, and the number of patients in treatment ends up going up, and which directly drives the recurring revenue, which are the treatment codes being purchased by the providers from the company.
The domestic business of recurring revenue, placing the devices free of charge with the physicians and charging the fee per use, represents about 2/3 of our business. One-third of our business is directed towards activities outside of the U.S. Our four biggest markets are China, South Korea, Japan, and the Middle East, in which we have approximately 1,700 devices, and every year we sell new devices as well as selling maintenance consumables and maintenance support parts. The business itself relies on two very distinct technologies. One is the XTRAC, which treats psoriasis, vitiligo, atopic dermatitis, and leukoderma, about 30 million patients in the market. The other is the TheraClearX, which treats acne.
The TheraClearX is a new technology that we have acquired, the company has acquired at the end of 2022, and we're deploying it. I will now discuss briefly these two technologies and what they do. Both technologies are very well documented. We have a lot of clinical studies. All in all, the company has over three hundred peer-reviewed, published clinical studies done with the technologies. The treatment, the clinical efficacy is very well documented. I'll describe briefly how the XTRAC treats psoriasis, but for those that know or have met somebody that has psoriasis, psoriasis is a condition driven by the autoimmune system of the body that creates the skin creating a plaque on top of itself or overgrowth of skin.
When the excimer laser is used, we actually drive that mechanism of action to a stop, and we deliver the skin condition to go back to its normal stage. The condition itself is recommended by the American Medical Association as a first or second line of defense for the patients, for those patients that have body surface area affected of less than 10%, which are about 90% of the patients in the market. And as such, this condition, sorry, this treatment competes with other available treatments that the physician has. And there are two ways of looking at this. So from an efficacy and cost to the insurance company, the XTRAC treatment leads.
It has higher efficacy, lower side effects, and a lower cost for the payer. But more importantly, from the provider's economic perspective or the economic perspective of the provider, if a provider conducts 20- 30 procedures a week using one of these three CPT codes, which are dedicated to our procedure. The difference between the three CPT codes is the size of the lesion, less than 250 sq. cm, between 250 and 500, or over 500. If that provider does 20- 30 procedures a week, the procedure is going to add a delegated revenue stream to that provider of somewhere between $200,000 and $300,000 a year. That procedure, it can be delegated to a technician, or a nurse, or a physician assistant.
So the provider, the physician sees the patient once prescribed, and the procedure is done by a physician extension or a delegate. The same general guidelines apply to the TheraClearX device. The TheraClearX device is a combination of suction and light therapy treatments for acne. It is very well documented in clinical studies to have the clinical efficacy. It uses the, as I mentioned, the combination of pneumatic suction and light therapy. And the market we go to is the acne market, much younger population than what the XTRAC targets. About 85% of all adolescents encounter acne when they grow up. Every one of the offices we work with, which are clinical dermatology offices, have acne patients.
But the important thing is that by providing this technology to the physicians, we actually provide them with a solution that is, has the clinical efficacy, but also has the ability to be reimbursed. So these clinicians are able to use the same processes or envelope of services we are offering through the XTRAC to put these patients in front of the insurance company, get a pre-authorization for the patient to be treated, bill the insurance for this treatment code, and using the same approach as before, if that clinic does 20 - 30 procedures a week, that would add somewhere between $110,000 and $165,000 of added revenue to that clinic annually. Once again, this procedure is a delegated procedure.
So to sum things up, the way we look at this company through a turnaround process is we have a company that has a very high component of recurring revenue, about 2/3, in every one of the years from 2018 , since I invested in the company, until 2023 . That component has been about 2/3. That component should be driving the gross margin of the company up, should be driving, as you can see down here, the EBITDA and the cash flow from operations. Should make this company self-sustainable, be able to drive its own growth, expand its install base, and by that propagate that growth into more clinics, and more revenue.
We look at this as a platform for mergers and acquisitions, looking at additional technologies that are being offered to the same offices, using the same sales team platform and the presence in the offices. So to sum it up, and I hope to be able to cover this in one-on-one discussions with individual investors, it's a very unique go-to-market. There is a win-win-win solution for the patients, for the providers, and for the company. And we do see a very high value gap in the valuation of the company now, and as insiders are putting our own money where our mouth is and believing that we can turn this around, create top-line growth, extend the margins, generate cash from operations to allow the company to grow itself.
Before I turn this to Q&A, I would like to take you through some additional slides that we have at the back of the investor deck and show you how our business looks like from a DTC perspective in the New York City metro area, where we turned on DTC just about five or six months ago. On the right, you can see the patient leads coming in. We're basically covering the whole market, and on the left, you can see our presence, our installed base, devices we own that are placed free of charge with the physicians, in which we charge a fee per use, and to end my presentation, I will share the point of view of the patient, and this is what we see on social media.
We see patients like this person who's treated in Western PA in one of our clinics, and this is how she presents herself in social media with her before and afters, and the way she has encountered her process in the clinic. So with this, I'll turn to Q&A. Hopefully. Oh, there's a lot of questions. So I'll start with. We have multiple questions, so I'll start as they come. I'll take them one at a time. So the first question was what was the purpose of the recent capital raise, and what's the end game of the company, question mark. Is it to acquire or continue as a going concern? These questions are in light of the major shareholders closing his fund soon. Thank you.
I'll start with the end of this question. The biggest shareholder in the company is a private equity fund called Accelmed. Their end of life for the fund is in 2026 , in two years. And indeed, the investment in the company of Accelmed and myself was to use this company as an M&A platform to stabilize it, make it grow, generate cash on its own, to be able to expand, and to allow the platform itself to become an M&A platform. The company has gone through two M&A transactions in the last three years. One was to acquire the only competitor in the market, so we will be the only player in this space.
And the other was to acquire the TheraClearX, which was the acne platform. The end game is to... The reason for the capital raise was to have the com-- to allow the company to have enough cash to operate and get to that point. The second question is, you mentioned you have been reentering some domestic markets on your last conference call. What markets are you getting traction in these markets? Are we getting traction in these markets? So as of the last earnings call, we are operating in all domestic markets. We're now in expansion mode. We're advertising in all these markets. We're driving patients in all domestic markets. So basically, over nine hundred of our partner clinics are getting DTC leads to be driving their own operations and growth.
Historically, we've seen this process, and this process takes a couple of quarters to take effect in the revenue. As these patients show up and usage in the clinics starts growing, our revenue, the revenue of Strata, grows up. Third question is, you've been talking about net device placements to resume by the end of the year as you are seeing increased utilization. And the answer is yes, we do anticipate net device placement to start to expand again by the end of the year.
As I pointed out, we are re-rationalizing the install base, removing devices that we own from clinics that are less productive, moving it back to our warehouse, to our facility, refurbishing these devices, and by the end of this year, we're going to start seeing expansion again of devices being placed into the market. Next question is, you talk about international expansion being key outside of Asia. What else are you seeing as an opportunity? There are multiple markets that we see as an opportunity. It's going to be a question of resources. The biggest markets where we see opportunities close to us are Mexico and South America. Mexico is a very unique market because it's just over the border. Their procedures are relevant there, and we can support it from the U.S.
Another market that is very high growth, potentially, is India, which is far away, but we do believe that because of the disease conditions, vitiligo specifically, it is relevant in that market. Let me see if there's more questions. Yes. Is there any gross GMs, GMs difference between the two platforms, and what do you think GMs will be in a few years? I assume the question is about gross margin. The company in 2021, just before I left, was running at just over 70% gross margin. Getting there is possible with the existing platform. I will take individual investors through the steps required to get there.
As we've seen in Q2, we've already expanded our gross margins from 52% to 58%, and in 2021, that same quarter was about 65%. We can get closer to 70% annually as time goes by. It's going to take us a few quarters. That is what's going to allow the company cash flow and to be self-sufficient. The last question is, which is the biggest opportunity for the next few years? The biggest opportunity is to expand domestically. We operate in just under 1,000 clinics out of about 5,000 clinical dermatology domestically. The expansion requires our own resources and to be able to use our own cash flow to expand. So that would be the biggest growth.
The second biggest growth will probably come from M&A, where we look for solutions to be deployed into the same clinics using the same sales force and the same G&A team. I see that we're coming up to the end of the time, and I thank everybody so much for showing up. Hoping to see you in the one-on-one meetings. Thank you.