Group. I'm the Director of Research. The CEO of Strata Skin just joined, so we'll start here in a minute. Welcome to the second day of the Maxim Group Virtual Healthcare Conference. Today is day two of the 3-day conference, where we showcase over 85 companies with 30-minute webinars, as well as 3 panels. The vast majority of the webinars are hosted by the CEOs of these companies. So today is day two, and we have our panelist today is Dolev Rafaeli. He's the CEO of Strata Skin, symbol is SSKN. So we will turn it over to Dolev once he's ready here, so just bear with us for another. Okay. Sorry for a little bit of a late start.
This is Anthony Vendetti, Director of Research at Maxim Group. With us today, we have the CEO of Strata Skin , symbol is SSKN, and I'm gonna turn it over to Dolev Rafaeli, the CEO, for about a five to six-minute overview, and then we'll open it up to questions from the audience, as well as some prepared questions that I have. So, Dolev.
Good m orning, Anthony, and thank you for inviting us. Happy to be here and present Strata Skin Sciences. Strata deals with the treatment of dermatological autoimmune diseases. We're very unique in our go-to market. We design and manufacture our devices in California, but we don't sell them. We place them with the physicians free of charge. We charge a fee per use. We help the physicians with everything that it takes to build up their business. The procedures are fully reimbursable, and these procedures are delegatable, so the physician can prescribe to a patient, and then the patient is being treated by a nurse or a technician. The procedures have their own established CPT codes. We have two technologies in the market.
One is XTRAC, which is an excimer, a 308 nm gas-based excimer laser that treats diseases like psoriasis, vitiligo, atopic dermatitis, and we have the TheraClearX , which is a photopneumatic device that treats acne. Both devices, the go-to market is the same. We place them with the physicians free of charge. We charge a fee per use domestically. Outside of the U.S., we're selling capital equipment. Our biggest markets outside of the U.S. are China, Japan, South Korea, and the Middle East. In each one of these markets, we are the leading provider for these technologies. The business is split about two-thirds domestically, one-third outside of the U.S., and the margin driven by recurring revenue in the U.S. is what makes this business interesting.
That business is measured by us in revenue per device per quarter, and that marginal contribution of the revenue comes in at over 90% contribution margin, which makes it very interesting. We drive the business through providing services like DTC advertising to drive patients to the clinics, training their staff, taking care of onboarding of patients, and taking care of their benefits with the insurance companies, taking care of the back office of the providers by making sure these payments by the insurance companies are being paid, and this is how we grow the business.
We have in excess of 900 devices of XTRAC in the market as of the end of Q2, and we have just over 120 of the TheraClearX devices. Both install bases are growing and expanding. We are in about 25% of the clinical dermatology offices with an opportunity of growing into more offices and increasing the utilization of each one of these offices as we have done in the past. As Anthony might remember, I've been involved in this business multiple times. Originally, I acquired that business from a company called PhotoMedex in 2011, tripled it in size, and sold it to Strata Skin Sciences in 2015.
Then I got re-involved with the business in 2018 as an investor, led it again through a turnaround, left in 2021, and came back at the end of 2023 to do another turnaround with the business. The company itself is majority held by insiders and has not done any financing since 2018 when we came in. And that shows that the company has the capability of growing EBITDA and growing cash from operations.
Okay. That's a good, quick overview. Covered a lot there, Dolev, so we'll dive in deeper into some of that. So what makes Strata Skin unique from some of the other traditional aesthetic laser companies, is that the pure aesthetic laser companies that I also follow and have been following for 20 years or so, they most of their products, whether they're acne products, hair removal, treatment for any type of benign lesions, pigmented lesions, melasma, these are all cash pay. The XTRAC that treats psoriasis, vitiligo, that's reimbursable. That's one of the major differentiators for Strata Skin. Can you talk about that device versus your acne device, and you know, how that sales process differs?
Absolutely. First of all, let me go back into that differentiating factor you pointed out. Traditional aesthetic dermatology companies are mostly capital equipment, even though some of them did try to go into recurring revenue in the last five, six, seven years. Most of their P&L comes from selling capital equipment, which means that their sales force goes and visits customers once every technology cycle, and they try to either upgrade or upsell or exchange the platform. We own the technology. We own the devices. Most of our customers, almost one thousand of them, have devices that we own. They're on our balance sheet, and we place them there.
In economic cycles like we've been going through in the last few years, where if interest rate goes up, people do not buy capital equipment, we do not suffer. In economic cycles where we go through COVID, we do not suffer, because people are still sick, and they still go and tap their insurance for coverage of their conditions.
So we are in a unique situation where we benefit from the business, and that's the purpose of the company, but also the physician makes money, the patient gets a good outcome, a good clinical outcome, and the insurance company ends up paying less, and that's the pitch going into a new provider, coming in and saying, "We can bring you another sleeve of business, another piece of the business in your office, 'cause you will be, as a dermatologist, seeing patients that have psoriasis or vitiligo or acne. That's a fact, and you have essentially two options. You either prescribe and send them off to CVS, or you treat them, and you make money, and if you wanna treat them and make money, then you can do this with us. You don't have another option."
We used to have one other competitor in the market, which you, Anthony, have covered them as an analyst in the past. We've acquired their business in 2021. The company itself went under, and we're the only game in town. We're the only game in town because for over 20 years, the AMA, and so the American Medical Association, and the American Academy of Dermatology have supported these CPT codes, have supported them in terms of how much the provider is being paid for the procedure, and have supported the fact that these codes are limited only to excimer lasers, so they're limited only to us. So if you are a provider, and you wanna be doing this and be paid, you only have one option. You can work with us or decide you don't wanna be in that business. And what's in it for you?
If you're in it for 20-30 procedures a week, of 10 minutes, delegated to your technician or nurse, then you're gonna be making somewhere between $200,000 and $300,000 of additional revenue annually, and if you do more procedures, it's more, and if you do less, it's less, and we take the risk of placing the devices and helping you to grow, and that's what makes it interesting as you compare this to the other aesthetic dermatology devices in the market. The other companies, as Anthony, as you well know, have been going through the last economic cycle and have not been faring it well because people don't have the money to invest.
They don't wanna take the loans at 10% or 15%, and they don't see the patients coming in and willing to shell out cash for the procedures. Whereas in our situation, the number of patients in the market did not change. The other offerings in the market did not materially change. As a physician, you can prescribe a medication, or you can do us, and we're extremely well clinically supported. We have hundreds of clinical studies supporting the outcomes and the results we can get to the patients, and when I say hundreds, it's in the numbers that nobody else has.
We have over 300 peer-reviewed clinical studies supporting the XTRAC being used for psoriasis. We have approximately the same number supporting the device to be used for vitiligo, and so on and so forth, and that is also the case outside of the U.S., where even though it's a capital equipment sale there, they're buying the device, they're spending a lot of money, but it's a workhorse, and it's a workhorse that's highly supported by clinical studies, and it provides the outcomes for the patients.
Dolev, there's a lot there. What percent of your business is the reimbursable procedures done by the excimer laser, the psoriasis, the vitiligo, versus the acne laser, or some of your other laser systems?
So we didn't parse out acne yet, but our recurring revenue represents in the first six months of 2024, as well as in 2023, about two-thirds of our overall business. And as you can see in our Q2 numbers, once we effect this turnaround, that percentage expands, and by expanding, it expands the gross margin of the company. We just went up eight percentage points in Q2, and we anticipate this further expansion to happen as we go into Q3 and Q4. Why? Because as more recurring revenue comes in as a proportion of the overall business that overall gross margin is gonna expand.
Okay, great. And what percent right now, approximately, are revenues that are domestic versus international?
Again, about 2/3 to 1/3. So, about 1/3 of our revenue comes from international. Almost all of it is capital equipment. A small part of it is recurring. We do break this out in our financials, but it's about 1/3, 2/3.
Okay. And on the recurring. Maybe just delving into the numbers just a little bit, on the recurring revenue model that you have, you place the system, and therefore, you still own it 'cause you're placing it, and you're collecting per procedure. Approximately, what is the amount per procedure if the physician, if he's doing 20 or 30, or he or she's doing 20 or 30 per month, can generate revenues of $200,000-$300,000, what is the per procedure fee paid to Strata Skin Sciences?
We take about 40% of that, so the average CPT reimbursement or the average procedural reimbursement is about $200. We take about $80 out of that. So the net to the physician is about $120 for about a 10-minute procedure in which they have invested 10 minutes of their time and a small footprint on the floor of real estate.
Right. Okay, great, and it , so that's for the excimer laser for psoriasis, vitiligo. So are you using the same model then for acne, except that's a cash pay business? And, since there's not reimbursement there, what's the fee associated, the recurring fee on the acne?
Let me just correct you there. So there is a reimbursement code, and the reimbursement code is for acne surgery, which involves removal of the milia or the sebum from outside the acne lesion, and that's the code that's being used by most of our providers when they use the device. That code pays, on average, nationwide, about $120. It ranges. Certain areas, it goes up to $300, and certain areas, it goes below $120. And we charge them approximately 50 bucks, $50 for the procedure. Exactly the same approach. We just started deploying these devices last year. We have 117 devices deployed so far. Most of them are in the Northeast area, just because this is where we started. We have two very successful clinic groups that are using them, there plus other individuals.
We are now expanding to the Southeast, w here other private equity-backed dermatology offices, groups are picking them up. The ones that are successful are able to generate in excess of 500 procedures a year, and I'm just talking about the last year. When you talk about 500 procedures a year, for the company, it's about $25,000. For them, it's about $75,000-$100,000, depends on the reimbursement per device, per location. A nd again, it's an additional revenue from a device that takes about a quarter of a tabletop area space, that they don't invest in the device. All they do is they refer their patients, instead of getting a prescription or over-the-counter medication in CVS, to be treated in the office, and I think the comparison you were trying to make was to the cash pay available technologies in the office.
And these cash pay available technologies in the office, the lasers, are in the hundreds of dollars per procedure cash pay, out of pocket. S o, the patient has three options, go to CVS, be treated with something that's hundreds of dollars per procedure, or be treated by something that's covered by insurance. And that's much easier. It's a much easier selling point for the providers that do that, and that's why it's becoming more and more successful in terms of number of devices and expansion.
Okay, so just to switch gears a little bit more towards, you touched on, sort of your involvement with Strata Skin , and yes, we go way back, and I remember the days of Radiancy, and the no!no!, and PhotoMedex, you know, with the XTRAC system, and acquired by Strata Skin. You got involved again back in 2023 with Strata Skin. What was going wrong, I guess, the first time before you, you know, left in 2021, came back two years later. What happened between 2021 and 2023 that either the board or you decided, "Hey, I wanna come back in and fix what was not working for those couple years?" and maybe just elaborate a little bit.
So let me put this in terms of valuation. My investment in my personal investment, my money into the company was in 2018, and it was at just under $11 a share. The company today is trading at $3 a share. By the end of 2019, just before COVID, the company was trading just under $40 a share. When we exited COVID, and just before I left in March of 2021, the company was trading at $26.50. Now it's $3, so it's 90% down. Nothing has changed in the opportunity. Nothing has changed in the business. I am in this because I see the value for my own investment. I'm in this because I do not see changes in the environment that warrant such a value reduction.
Now, I do realize that the whole microcap market has shrunk in valuations, but I'm also cognizant of the fact that these go in cycles, and we're now in an upcycle. As you look at the Russell in the last few days, we're now starting an upcycle, and I think the market will appreciate the execution, and the execution is gonna come with top-line growth, and we expect that to happen. It's gonna come in margins, and we expect that to happen, and margins deliver cash flow, which means the company can be self-reliant on its own expansion. So, frankly speaking, we've done this three times before, myself and this team, and we're gonna do it again.
That's gonna bring us to a point where we can either do an M&A transaction that's gonna be meaningful, either we acquire something or another business acquires us, or we can make this business or effectuate an exit to the shareholders, me being one of them, that's meaningful compared to where it is today. The company's market cap today is sub $15 million. It was over $100 million when I left. So, that's where I see the opportunity, and in a business that does not require further liquidity events just to fund its own operations, that is a very interesting proposition for me as an investor and for me as an operator.
Now, I do look around me in the market, and there are multiple assets that have lost their graceful valuation of years past, and they all share the same situation. They have sub $100 million of sales. They carry, if they're public, they carry a public company expense structure and a G&A structure that could benefit from a combination. I look at this and I say, Okay, we've done this before with Radiancy and PhotoMedex. We took PhotoMedex from a losing company that was trading at $3 to all the way up to $19. And you were there, you were covering us at the time. And we can do it. And we've done this with Strata back in 2018, 2019, 2020, and then 2021, and we can do it again, and that's why I came back.
No, that's great. That's great. That's great insight, and so you said insiders own the majority, and I know you're a big shareholder. Investors always care about skin in the game, and I know you have skin in the game. What percent of the shares do you own outright, Dolev?
Approximately 8% of the company, and the private equity that it is invested with me in 2018 owns 30-some% of the company, and then there's two other large institutional funds that are one is considered affiliate because it's above 10%, and the other is not considered affiliate because it's 9.9%. But you can see this in the cap table, but between these four holders, there's about 65% of the company, so it's very thinly traded otherwise.
Okay, great. Great, I think that just about wraps it up. If there's anything else you wanna add, we have about another minute, but I think we covered a lot, the history as well as the opportunity. So if there's anything else you'd like to add before we close.
As I said, I'm very excited about the opportunity, and I'm very happy to see the small cap markets or the Russell starts moving, 'cause that's gonna be helpful for us to unravel this valuation.
Yeah, no, it's been, as you said, there's a lot of companies in your situation over the last two to three years. It's been rough for the small cap, microcap market, but with interest rates coming down and probably continuing to do so over the next 12-18 months, you're starting to see some recognition of the names that have an opportunity in the small microcap world and hopefully that momentum continues.
Absolutely. Anthony, thank you for inviting us.
Absolutely, Dolev. Thanks so much. Good to see you.
Thank you. Bye-bye.
Have a progressive day. Thank you.