Business Overview - Strata is positioned for growth acceleration in the treatment of chronic skin conditions, addressing large markets with differentiated laser-based treatments[4,6] - The company operates with a recurring revenue model, driven by repeat and sustainable revenues, and has a customer base of approximately 1,000 partner practices[4] - Strata is expanding its international presence in key markets and recent product acquisitions are opening significant growth opportunities[4] Clinical and Treatment - Psoriasis treatments remain the primary use for XTRAC lasers domestically, accounting for 80% of treatments, with opportunities to expand use for vitiligo and atopic dermatitis[13,14] - A multicenter psoriasis study showed that 72% of patients achieved at least 75% clearing in an average of 62 treatments[21] - A vitiligo study showed that 506% of treated patches achieved 75% or more pigmentation, and 255% achieved 100% pigmentation[21] Financial Performance and Growth - Preliminary unaudited total revenue for the full year 2021 is expected to range from $297 million to $301 million, compared to $231 million for the full year 2020[51] - The company's installed base has grown by 25% over the last 3 years, driven by actively redeploying underutilized devices and strategic placements[29] - International partner XTRAC clinics increased to 54 in 2021, up from 28 in 2020 and 10 in 2019[51] Acquisitions and Market Expansion - Strata acquired the U S Dermatology Business of Ra Medical Systems, converting 30 of 73 Pharos users through 12/31/2021[41,43] - The acquisition of Theraclear broadens Strata's opportunity in the estimated $55 billion acne care market[45]

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the periods ended September 30, 2021 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities remained stable, with a notable shift in current and long-term debt obligations Condensed Consolidated Balance Sheets (in thousands) | Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **ASSETS** | | | | Cash and cash equivalents | $13,047 | $10,604 | | Restricted cash | - | 7,508 | | Total current assets | 20,046 | 24,831 | | Property and equipment, net | 6,403 | 5,529 | | Intangible assets, net | 10,546 | 6,345 | | Goodwill | 8,803 | 8,803 | | Total assets | $46,758 | $46,778 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Note payable | - | 7,275 | | Current portion of long-term debt | - | 1,478 | | Total current liabilities | 12,154 | 18,838 | | Long-term debt, net | 7,282 | 1,050 | | Total liabilities | 20,575 | 20,886 | | Total stockholders' equity | 26,183 | 25,892 | | Total liabilities and stockholders' equity | $46,758 | $46,778 | [Condensed Consolidated Statements of Operations (Three Months Ended September 30, 2021 and 2020)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Three%20Months)) The company reported a significant increase in net revenues and gross profit, leading to a reduced net loss for the quarter Condensed Consolidated Statements of Operations (Three Months Ended September 30, in thousands) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Revenues, net | $7,711 | $5,613 | | Cost of revenues | 2,335 | 2,383 | | Gross profit | 5,376 | 3,230 | | Operating expenses | 5,841 | 4,391 | | Loss from operations | (465) | (1,161) | | Net loss | $(521) | $(1,254) | | Loss per common share - basic and diluted | $(0.02) | $(0.04) | [Condensed Consolidated Statements of Operations (Nine Months Ended September 30, 2021 and 2020)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Nine%20Months)) Increased net revenues and a gain on debt forgiveness significantly reduced the net loss for the nine-month period Condensed Consolidated Statements of Operations (Nine Months Ended September 30, in thousands) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Revenues, net | $20,920 | $16,373 | | Cost of revenues | 7,070 | 6,780 | | Gross profit | 13,850 | 9,593 | | Operating expenses | 17,630 | 13,317 | | Loss from operations | (3,780) | (3,724) | | Gain on forgiveness of debt | 2,028 | - | | Net loss | $(1,857) | $(3,969) | | Loss per common share – basic and diluted | $(0.05) | $(0.12) | [Condensed Consolidated Statement of Changes in Stockholders' Equity (Nine Months Ended September 30, 2020)](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity%20(2020)) Stockholders' equity decreased during the period, primarily reflecting the company's cumulative net loss Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2020, in thousands) | Item | Jan 1, 2020 Balance | Sep 30, 2020 Balance | | :--- | :--- | :--- | | Common Stock Shares | 32,932,273 | 33,754,909 | | Common Stock Amount | $33 | $34 | | Additional Paid-In Capital | $243,180 | $244,423 | | Accumulated Deficit | $(214,561) | $(218,530) | | Total Stockholders' Equity | $28,653 | $25,927 | | Stock-based compensation | - | $1,243 (cumulative) | | Net loss | - | $(3,969) (cumulative) | [Condensed Consolidated Statement of Changes in Stockholders' Equity (Nine Months Ended September 30, 2021)](index=8&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity%20(2021)) Stockholders' equity increased slightly, influenced by stock-based compensation and warrant issuance despite a net loss Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2021, in thousands) | Item | Jan 1, 2021 Balance | Sep 30, 2021 Balance | | :--- | :--- | :--- | | Common Stock Shares | 33,801,045 | 34,364,679 | | Common Stock Amount | $34 | $34 | | Additional Paid-In Capital | $244,831 | $246,979 | | Accumulated Deficit | $(218,973) | $(220,830) | | Total Stockholders' Equity | $25,892 | $26,183 | | Stock-based compensation | - | $1,563 (cumulative) | | Issuance of warrants | - | $585 | | Net loss (cumulative for 9 months) | - | $(1,857) | [Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30, 2021 and 2020)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased while investing cash outflow increased due to an asset acquisition and debt refinancing Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30, in thousands) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $839 | $1,750 | | Net cash used in investing activities | (5,996) | (1,447) | | Net cash provided by financing activities | 92 | 2,528 | | Net (decrease) increase in cash and restricted cash | (5,065) | 2,831 | | Cash, cash equivalents and restricted cash, end of period | $13,047 | $18,460 | - Cash paid for interest **decreased from $157 thousand in 2020 to $109 thousand** in 2021[24](index=24&type=chunk) - Fair value of warrants issued in connection with debt was **$585 thousand** in 2021[24](index=24&type=chunk) - Assumed deferred revenue in connection with the Ra Medical asset acquisition was **$1,841 thousand** in 2021[24](index=24&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, estimates, and recent events including acquisitions and debt refinancing [Note 1 The Company: Background](index=10&type=section&id=Note%201%20The%20Company%3A%20Background) The company specializes in dermatologic treatments, expanded internationally, and faced negative impacts from COVID-19 - STRATA Skin Sciences develops, commercializes, and markets innovative products for dermatologic conditions, including **XTRAC® and Pharos® excimer lasers** and VTRAC® lamp systems[25](index=25&type=chunk) - As of September 30, 2021, there were **880 XTRAC systems** placed in dermatologists' offices in the U.S. and **49 internationally** under a recurring revenue model[26](index=26&type=chunk) - The company signed direct distribution agreements for recurring revenue and capital sales in **Japan (September 2020)** and **China (February 2021)**[27](index=27&type=chunk) - A **'Home by XTRAC™' pilot program was discontinued** and is under evaluation[28](index=28&type=chunk) - The **COVID-19 pandemic has negatively impacted** the global economy, supply chains, workforce, and financial markets, leading to suspension of elective procedures and temporary closure of physician practices[29](index=29&type=chunk)[30](index=30&type=chunk) [Note 1 The Company: Basis of Presentation](index=11&type=section&id=Note%201%20The%20Company%3A%20Basis%20of%20Presentation) The unaudited interim financial statements are prepared according to SEC rules and should be read with the 2020 Form 10-K - Financial statements are **unaudited** and include normal recurring adjustments, prepared under SEC rules for interim financial reporting[33](index=33&type=chunk) - Operating results and cash flows for the nine months ended September 30, 2021, are **not necessarily indicative of future periods**[33](index=33&type=chunk) [Note 1 The Company: Significant Accounting Policies](index=11&type=section&id=Note%201%20The%20Company%3A%20Significant%20Accounting%20Policies) No changes were made to the company's significant accounting policies during the nine months ended September 30, 2021 - **No changes** to significant accounting policies during the nine months ended September 30, 2021[35](index=35&type=chunk) [Note 1 The Company: Use of Estimates](index=11&type=section&id=Note%201%20The%20Company%3A%20Use%20of%20Estimates) Financial statement preparation requires management estimates, with the full impact of COVID-19 remaining uncertain - Significant estimates include revenue recognition, goodwill impairment, useful lives of assets, equity-based awards, deferred tax assets, and inventory reserves[36](index=36&type=chunk) - The full impact of the ongoing **COVID-19 outbreak is unknown** and could result in material impacts to future financial statements[37](index=37&type=chunk) [Note 1 The Company: Fair Value Measurements](index=12&type=section&id=Note%201%20The%20Company%3A%20Fair%20Value%20Measurements) Fair value is measured using a three-tier hierarchy, and carrying values of most financial instruments approximate fair values - Fair value measurements follow ASC Topic 820, using a **three-tier hierarchy** (Level 1: quoted prices; Level 2: observable inputs; Level 3: unobservable inputs)[38](index=38&type=chunk)[43](index=43&type=chunk) - The carrying value of cash, restricted cash, short-term monetary assets/liabilities, and debt **approximate their fair values**[40](index=40&type=chunk) [Note 1 The Company: Earnings Per Share](index=12&type=section&id=Note%201%20The%20Company%3A%20Earnings%20Per%20Share) All potentially dilutive securities were anti-dilutive, resulting in diluted loss per share equaling basic loss per share - Basic and diluted loss per common share are calculated by dividing loss attributable to common shares by weighted-average common shares outstanding[41](index=41&type=chunk) - No Series C Convertible Preferred Stock was outstanding as of September 30, 2021 and 2020[42](index=42&type=chunk) - All potentially dilutive securities were **anti-dilutive** for the three and nine months ended September 30, 2021 and 2020[43](index=43&type=chunk)[44](index=44&type=chunk) Potentially Dilutive Securities Excluded from EPS Calculation (in thousands) | Item | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Common stock purchase warrants | 373,626 | 149,901 | | Restricted stock units | 144,497 | 119,330 | | Common stock options | 3,963,889 | 4,908,038 | | Total | 4,482,012 | 5,177,269 | [Note 1 The Company: Accounting Pronouncements Recently Adopted](index=13&type=section&id=Note%201%20The%20Company%3A%20Accounting%20Pronouncements%20Recently%20Adopted) The adoption of ASU No 2019-12 regarding income taxes did not materially affect the company's financial statements - ASU No 2019-12, Income Taxes (Topic 740), adopted January 1, 2021, had **no material effect** on financial statements[45](index=45&type=chunk) [Note 1 The Company: Recent Accounting Pronouncements Not Yet Adopted](index=13&type=section&id=Note%201%20The%20Company%3A%20Recent%20Accounting%20Pronouncements%20Not%20Yet%20Adopted) The company is evaluating new accounting standards and does not anticipate a material effect on its financial statements - ASU 2020-04 (Reference Rate Reform) is **not expected to have a material effect** due to no hedging activities[46](index=46&type=chunk) - ASU 2020-06 (Accounting for Convertible Instruments) is **not expected to have a material effect** as the company does not currently engage in covered contracts[47](index=47&type=chunk) - ASU 2021-04 (Issuer's Accounting for Certain Modifications) is **not believed to have a material effect**[48](index=48&type=chunk) [Note 2 Liquidity](index=14&type=section&id=Note%202%20Liquidity) Management believes current cash and anticipated revenues are sufficient for the next 12 months despite market risks - The company has historically experienced **recurring losses** and depended on capital raises[49](index=49&type=chunk) - Received and had **PPP loan forgiven**; EIDL loan repaid[49](index=49&type=chunk) - Entered into a Senior Term Facility in September 2021 and an equity distribution agreement in October 2021 to sell up to **$11.0 million in common stock**[49](index=49&type=chunk) - Management believes current cash and anticipated revenues will be **sufficient for the next 12 months**[49](index=49&type=chunk) - Ongoing COVID-19 impact on financial markets and supply chain disruptions could interfere with access to financing[49](index=49&type=chunk) [Note 3 Revenue Recognition](index=14&type=section&id=Note%203%20Revenue%20Recognition) Revenue is recognized from two segments, with recurring procedures accounted for as operating leases - Dermatology Recurring Procedures revenue is generated from XTRAC laser placements, treated as **operating leases** under ASC 842[49](index=49&type=chunk)[50](index=50&type=chunk) - Dermatology Procedures Equipment revenue is recognized when control of products transfers to customers, typically **FOB shipping point**[52](index=52&type=chunk) - Remaining performance obligations related to ASC 606 were **$1,549 thousand** as of September 30, 2021, primarily from deferred revenue acquired in the RA Medical asset acquisition[54](index=54&type=chunk) - Co-pay reimbursements to patients are recorded as a reduction of revenue: **$199 thousand (Q3 2021)** vs $160 thousand (Q3 2020), and **$542 thousand (9M 2021)** vs $414 thousand (9M 2020)[56](index=56&type=chunk) Revenue Disaggregated by Geographical Region (Three Months Ended September 30, in thousands) | Segment | Domestic (2021) | Foreign (2021) | Total (2021) | Domestic (2020) | Foreign (2020) | Total (2020) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Dermatology Recurring Procedures | $5,370 | $340 | $5,710 | $3,690 | $145 | $3,835 | | Dermatology Procedures Equipment | $519 | $1,482 | $2,001 | $261 | $1,517 | $1,778 | | **Total** | **$5,889** | **$1,822** | **$7,711** | **$3,951** | **$1,662** | **$5,613** | Revenue Disaggregated by Geographical Region (Nine Months Ended September 30, in thousands) | Segment | Domestic (2021) | Foreign (2021) | Total (2021) | Domestic (2020) | Foreign (2020) | Total (2020) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Dermatology Recurring Procedures | $14,923 | $918 | $15,841 | $11,957 | $375 | $12,332 | | Dermatology Procedures Equipment | $1,113 | $3,966 | $5,079 | $701 | $3,340 | $4,041 | | **Total** | **$16,036** | **$4,884** | **$20,920** | **$12,658** | **$3,715** | **$16,373** | Expected Future Undiscounted Fixed Treatment Code Payments from International Recurring Revenue Customers (as of Sep 30, 2021, in thousands) | Year | Amount | | :--- | :--- | | Remaining 2021 | $390 | | 2022 | 1,556 | | 2023 | 1,479 | | 2024 | 1,076 | | 2025 | 362 | | **Total** | **$4,863** | [Note 4 Acquisition of Pharos Assets and Liabilities](index=18&type=section&id=Note%204%20Acquisition%20of%20Pharos%20Assets%20and%20Liabilities) The company acquired Pharos business assets from Ra Medical Systems for $3.7 million to expand its recurring revenue base - Acquired U.S dermatology Pharos business assets and liabilities from Ra Medical Systems, Inc in August 2021 for **$3,700 thousand cash**[60](index=60&type=chunk)[61](index=61&type=chunk) - The acquisition allows marketing to Ra Medical's **400 existing dermatology practices**, increasing recurring revenue and XTRAC placements[60](index=60&type=chunk) - Transaction accounted for as an asset acquisition, with consideration primarily allocated to **customer lists ($5,314 thousand)** and assumed deferred revenue ($1,841 thousand)[61](index=61&type=chunk) - Customer lists intangible asset is amortized on a **straight-line basis over twelve years**[61](index=61&type=chunk) [Note 5 Inventories](index=19&type=section&id=Note%205%20Inventories) Total inventories, primarily raw materials and work-in-process, decreased slightly as of September 30, 2021 Inventories (in thousands) | Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Raw materials and work-in-process | $3,024 | $2,949 | | Finished goods | 201 | 495 | | **Total inventories** | **$3,225** | **$3,444** | [Note 6 Property and Equipment, net](index=19&type=section&id=Note%206%20Property%20and%20Equipment%2C%20net) Net property and equipment increased due to a rise in lasers placed-in-service, offset by depreciation Property and Equipment, net (in thousands) | Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Lasers placed-in-service | $25,190 | $22,942 | | Total gross property and equipment | 25,693 | 23,374 | | Accumulated depreciation and amortization | (19,290) | (17,845) | | **Property and equipment, net** | **$6,403** | **$5,529** | - Depreciation and related amortization expense was **$575 thousand (Q3 2021)** vs $454 thousand (Q3 2020), and **$1,576 thousand (9M 2021)** vs $1,535 thousand (9M 2020)[63](index=63&type=chunk) - Recognized a **$73 thousand loss on disposal** of property and equipment during the nine months ended September 30, 2021[63](index=63&type=chunk) [Note 7 Intangible Assets, net](index=19&type=section&id=Note%207%20Intangible%20Assets%2C%20net) Net intangible assets increased significantly due to the acquisition of the Pharos customer list Definite-Lived Intangible Assets, net (in thousands) | Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Core technology | $2,138 | $2,565 | | Product technology | - | - | | Customer relationships | 2,587 | 3,105 | | Tradenames | 562 | 675 | | Pharos customer list | 5,259 | - | | **Total intangible assets, net** | **$10,546** | **$6,345** | - Amortization expense was **$408 thousand (Q3 2021)** vs $353 thousand (Q3 2020), and **$1,113 thousand (9M 2021)** vs $1,258 thousand (9M 2020)[66](index=66&type=chunk) - **No impairment charges** for the nine months ended September 30, 2021[67](index=67&type=chunk) Estimated Amortization Expense for Intangible Assets (in thousands) | Year | Amount | | :--- | :--- | | Remaining 2021 | $463 | | 2022 | 1,853 | | 2023 | 1,853 | | 2024 | 1,853 | | 2025 | 1,148 | | Thereafter | 3,376 | | **Total** | **$10,546** | [Note 8 Other Accrued Liabilities](index=20&type=section&id=Note%208%20Other%20Accrued%20Liabilities) Other accrued liabilities increased, driven by higher accrued compensation and ongoing state sales tax appeals Other Accrued Liabilities (in thousands) | Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Accrued warranty, current | $54 | $87 | | Accrued compensation, including commissions and vacation | 1,578 | 891 | | Accrued state sales, use and other taxes | 3,152 | 3,105 | | Accrued professional fees and other accrued liabilities | 764 | 607 | | **Total other accrued liabilities** | **$5,548** | **$4,690** | - The company is appealing state sales and use tax assessments totaling **$1,484 thousand** (for March 2014-February 2020) and **$720 thousand** (for June 2015-March 2018), plus interest[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) Warranty Accrual Activity (in thousands) | Item | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Accrual at beginning of period | $98 | $139 | $113 | $232 | | Additions charged to warranty expense | 11 | 37 | 52 | 46 | | Expiring warranties/claimed satisfied | (28) | (41) | (84) | (143) | | **Total** | **$81** | **$135** | **$81** | **$135** | | Less: current portion | (54) | (107) | (54) | (107) | | **Total long-term accrued warranty costs** | **$27** | **$28** | **$27** | **$28** | [Note 9 Note Payable](index=21&type=section&id=Note%209%20Note%20Payable) The company fully repaid its $7,275 thousand note payable on September 30, 2021 - The **$7,275 thousand note payable** was repaid on September 30, 2021, using proceeds from a secured time deposit[76](index=76&type=chunk) [Note 10 Long-term Debt](index=22&type=section&id=Note%2010%20Long-term%20Debt) The company entered into an $8.0 million Senior Term Facility, refinancing previous loans and issuing warrants - Entered into an **$8.0 million Senior Term Facility** on September 30, 2021, with MidCap Financial Trust, repaying the Note Payable and EIDL loan[77](index=77&type=chunk) - The Senior Term Facility bears interest at **LIBOR + 7.50%** and matures on September 1, 2026[77](index=77&type=chunk) - **Monthly interest-only payments** are required through September 30, 2024, followed by 24 equal monthly principal payments plus interest[77](index=77&type=chunk) - The company issued warrants to purchase **373,626 common shares at $1.82 per share** to an affiliate of the lender, valued at $0.6 million[81](index=81&type=chunk) - Subject to a quarterly financial covenant requiring **minimum net revenue** for the trailing 12-month period ($24.0 million as of Sep 30, 2021)[79](index=79&type=chunk) - The **$2,028 thousand PPP loan was forgiven** in the second quarter of 2021, resulting in a gain on forgiveness of debt[83](index=83&type=chunk) - The **$500 thousand EIDL loan**, obtained in May 2020, was repaid on September 30, 2021[84](index=84&type=chunk) Future Minimum Principal Payments (as of Sep 30, 2021, in thousands) | Year | Amount | | :--- | :--- | | 2024 | $1,000 | | 2025 | 4,000 | | 2026 | 3,000 | | **Total** | **$8,000** | [Note 11 Stock-based Compensation](index=23&type=section&id=Note%2011%20Stock-based%20Compensation) Stock-based compensation expense was $1,563 thousand for the nine-month period, with more shares authorized for grants - Stock-based compensation expense was **$320 thousand (Q3 2021)** vs $403 thousand (Q3 2020), and **$1,563 thousand (9M 2021)** vs $1,243 thousand (9M 2020)[86](index=86&type=chunk) - Shareholders approved an increase of **2,700,000 common shares** for issuance under the 2016 Omnibus Incentive Plan in July 2021[85](index=85&type=chunk) - Total unrecognized compensation expense for unvested stock options was **$2,720 thousand**, to be recognized over ~2.4 years[89](index=89&type=chunk) - Accelerated vesting of unvested options for the former CEO in February 2021 resulted in **$173 thousand additional compensation expense**[91](index=91&type=chunk) - Total unrecognized compensation expense for unvested restricted stock units was **$167 thousand**, to be recognized over ~0.8 years[92](index=92&type=chunk) Stock Option Activity (Nine Months Ended September 30, 2021) | Item | Number of shares | Weighted average exercise price per share | | :--- | :--- | :--- | | Outstanding at January 1, 2021 | 5,292,888 | $1.87 | | Granted | 2,043,714 | $1.67 | | Exercised | (1,557,628) | $1.12 | | Forfeited/expired | (1,815,085) | $1.84 | | **Outstanding at September 30, 2021** | **3,963,889** | **$2.05** | | Exercisable at September 30, 2021 | 1,236,841 | $2.77 | Restricted Stock Unit Activity (Nine Months Ended September 30, 2021) | Item | Number of shares | Weighted average grant date fair value | | :--- | :--- | :--- | | Unvested at January 1, 2021 | - | $- | | Granted | 290,861 | $1.44 | | Vested | (146,364) | $1.42 | | **Unvested at September 30, 2021** | **144,497** | **$1.45** | [Note 12 Income Taxes](index=25&type=section&id=Note%2012%20Income%20Taxes) Income tax expense was minimal, primarily due to changes in deferred tax liability related to goodwill - Income tax expense was **$12 thousand (9M 2021)** vs $207 thousand (9M 2020), primarily from changes in deferred tax liability related to goodwill[94](index=94&type=chunk) - The **CARES Act did not have a significant impact** on the company's financial position, results of operations, or cash flows[95](index=95&type=chunk) - Prior ownership changes (Section 382) may **limit the annual utilization of net operating losses**[96](index=96&type=chunk) [Note 13 Business Segments](index=25&type=section&id=Note%2013%20Business%20Segments) Both the Dermatology Recurring Procedures and Dermatology Procedures Equipment segments showed increased revenues and gross profits - Two operating segments: **Dermatology Recurring Procedures** (revenue from XTRAC usage) and **Dermatology Procedures Equipment** (revenue from equipment sales)[97](index=97&type=chunk) Segment Results of Operations (Three Months Ended September 30, 2021, in thousands) | Item | Dermatology Recurring Procedures | Dermatology Procedures Equipment | TOTAL | | :--- | :--- | :--- | :--- | | Revenues | $5,710 | $2,001 | $7,711 | | Costs of revenues | 1,512 | 823 | 2,335 | | Gross profit | 4,198 | 1,178 | 5,376 | | Gross profit % | 73.5% | 58.9% | 69.7% | | Income (loss) from operations | 771 | 939 | (465) | Segment Results of Operations (Nine Months Ended September 30, 2021, in thousands) | Item | Dermatology Recurring Procedures | Dermatology Procedures Equipment | TOTAL | | :--- | :--- | :--- | :--- | | Revenues | $15,841 | $5,079 | $20,920 | | Costs of revenues | 4,648 | 2,422 | 7,070 | | Gross profit | 11,193 | 2,657 | 13,850 | | Gross profit % | 70.7% | 52.3% | 66.2% | | Income (loss) from operations | 1,375 | 1,930 | (3,780) | | Gain on forgiveness of debt | - | - | 2,028 | Segment Results of Operations (Three Months Ended September 30, 2020, in thousands) | Item | Dermatology Recurring Procedures | Dermatology Procedures Equipment | TOTAL | | :--- | :--- | :--- | :--- | | Revenues | $3,835 | $1,778 | $5,613 | | Costs of revenues | 1,368 | 1,015 | 2,383 | | Gross profit | 2,467 | 763 | 3,230 | | Gross profit % | 64.3% | 42.9% | 57.5% | | Income (loss) from operations | 255 | 513 | (1,161) | Segment Results of Operations (Nine Months Ended September 30, 2020, in thousands) | Item | Dermatology Recurring Procedures | Dermatology Procedures Equipment | TOTAL | | :--- | :--- | :--- | :--- | | Revenues | $12,332 | $4,041 | $16,373 | | Costs of revenues | 4,534 | 2,246 | 6,780 | | Gross profit | 7,798 | 1,795 | 9,593 | | Gross profit % | 63.2% | 44.4% | 58.6% | | Income (loss) from operations | 949 | 1,248 | (3,724) | [Note 14 Significant Customer Concentration](index=27&type=section&id=Note%2014%20Significant%20Customer%20Concentration) The company had significant revenue and accounts receivable concentration with single customers in 2021 - For the nine months ended September 30, 2021, one customer's sales were $2,220 thousand, or **10.6% of total revenues**[105](index=105&type=chunk) - One customer represented **10.5% of accounts receivable** as of September 30, 2021[105](index=105&type=chunk) - For the three and nine months ended September 30, 2020, sales to the international master distributor were **15.1% and 13.1% of total revenues**, respectively[106](index=106&type=chunk) [Note 15 Commitments: Leases](index=28&type=section&id=Note%2015%20Commitments%3A%20Leases) The company holds non-cancellable operating leases for facilities and equipment with remaining terms of 1 to 4 years - Leases for facilities and IT/office equipment are classified as **operating leases** with remaining terms of 1 to 4 years[107](index=107&type=chunk) - Operating lease costs were **$108 thousand (Q3 2021)** vs $112 thousand (Q3 2020), and **$331 thousand (9M 2021)** vs $336 thousand (9M 2020)[108](index=108&type=chunk) Operating Lease Maturities (as of Sep 30, 2021, in thousands) | Year ending December 31, | Amount | | :--- | :--- | | Remaining 2021 | $122 | | 2022 | 371 | | 2023 | 242 | | 2024 | 186 | | **Total remaining lease payments** | **$921** | | Less: imputed interest | (117) | | **Total lease liabilities** | **$804** | [Note 15 Commitments: Contingencies](index=28&type=section&id=Note%2015%20Commitments%3A%20Contingencies) The company is involved in routine legal actions and regulatory inquiries as part of its ordinary course of business - The company is routinely subject to legal actions, proceedings, and governmental examinations, which may involve **substantial monetary damages**[109](index=109&type=chunk) [Note 16 Subsequent Events](index=28&type=section&id=Note%2016%20Subsequent%20Events) The company entered into an equity distribution agreement to potentially sell up to $11.0 million of common stock - In October 2021, the company entered an equity distribution agreement to sell up to **$11.0 million of common stock** via 'at-the-market' offerings[110](index=110&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, highlighting COVID-19 impacts, strategic acquisitions, and debt refinancing [Introduction, Outlook and Overview of Business Operations](index=29&type=section&id=Introduction%2C%20Outlook%20and%20Overview%20of%20Business%20Operations) The company focuses on dermatologic conditions, has expanded internationally, and continues to face negative impacts from COVID-19 - STRATA Skin Sciences is a medical technology company focused on innovative products for dermatologic conditions, including **XTRAC® and Pharos® excimer lasers**[113](index=113&type=chunk) - As of September 30, 2021, there were **880 XTRAC systems** in U.S dermatologists' offices, up from 832 at December 31, 2020[114](index=114&type=chunk) - The company signed direct distribution agreements for **Japan (September 2020)** and **China (February 2021)** for capital sales and recurring revenue[115](index=115&type=chunk) - The **COVID-19 pandemic has negatively impacted** the global economy, supply chains, and physician practices, affecting the company's financial performance[117](index=117&type=chunk)[118](index=118&type=chunk)[122](index=122&type=chunk) [Key Technology](index=31&type=section&id=Key%20Technology) The company's key technologies include the FDA-cleared XTRAC® Excimer Laser and VTRAC® Lamp systems - **XTRAC® Excimer Laser** (FDA cleared 2000) delivers targeted 308nm UVB light for psoriasis and vitiligo, covered by most major insurance companies[128](index=128&type=chunk) - **VTRAC® Lamp** (FDA cleared 2005) provides targeted therapeutic efficacy with a lamp system[128](index=128&type=chunk) - Introduced **Multi Micro Dose (MMD) tip** for XTRAC in 2018 and **XTRAC Momentum Excimer Laser Platform** in 2020[128](index=128&type=chunk) [Recent Developments](index=31&type=section&id=Recent%20Developments) Key developments include the Pharos asset acquisition, a new $8.0 million credit facility, and debt forgiveness and repayments - Acquired Pharos dermatology net assets from Ra Medical Systems for **$3,757 thousand** in August 2021, expanding customer base[125](index=125&type=chunk) - Entered into an **$8.0 million Senior Term Facility** with MidCap Financial Trust on September 30, 2021, with interest at LIBOR + 7.50%[126](index=126&type=chunk) - Issued warrants to purchase **373,626 common shares** to an affiliate of MidCap in connection with the credit facility[129](index=129&type=chunk) - The **$2.0 million PPP loan was forgiven** in Q2 2021, resulting in a $2,028 thousand gain[131](index=131&type=chunk) - The **$500 thousand EIDL loan** and the **$7,275 thousand commercial bank note** were repaid on September 30, 2021[132](index=132&type=chunk)[133](index=133&type=chunk) - Entered an equity distribution agreement in October 2021 to sell up to **$11.0 million of common stock** via 'at-the-market' offerings[134](index=134&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) There have been no changes to the company's critical accounting policies during the nine months ended September 30, 2021 - **No changes** to critical accounting policies in the nine months ended September 30, 2021[135](index=135&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) The company saw increased revenues and gross profits, alongside higher operating expenses and a gain from debt forgiveness [Revenues](index=33&type=section&id=Revenues) Total revenues increased significantly for both the three and nine-month periods, driven by growth in both business segments Revenues by Segment (in thousands) | Segment | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Dermatology Recurring Procedures | $5,710 | $3,835 | $15,841 | $12,332 | | Dermatology Procedures Equipment | 2,001 | 1,778 | 5,079 | 4,041 | | **Total Revenues** | **$7,711** | **$5,613** | **$20,920** | **$16,373** | [Dermatology Recurring Procedures](index=33&type=section&id=Dermatology%20Recurring%20Procedures) Recurring treatment revenue increased year-over-year, supported by investments in direct-to-patient advertising - Recurring treatment revenue for Q3 2021 was **$5,710 thousand** (approx 81,000 treatments), up from $3,835 thousand (approx 55,000 treatments) in Q3 2020[138](index=138&type=chunk) - Recurring treatment revenue for 9M 2021 was **$15,841 thousand** (approx 226,000 treatments), up from $12,332 thousand (approx 177,000 treatments) in 9M 2020[139](index=139&type=chunk) - Increased direct-to-patient advertising spend in 2021, expecting a **3-9 month lag** before revenue impact[140](index=140&type=chunk) - Deferred net revenues for domestic placements were **$2,107 thousand** (Sep 30, 2021) vs $1,391 thousand (Sep 30, 2020)[141](index=141&type=chunk) [Dermatology Procedures Equipment](index=34&type=section&id=Dermatology%20Procedures%20Equipment) Dermatology equipment revenues increased for both the three and nine-month periods, driven primarily by international sales - Dermatology equipment revenues for Q3 2021 were **$2,001 thousand** (11 international systems sold), up from $1,778 thousand (19 international, 1 domestic system sold) in Q3 2020[144](index=144&type=chunk)[145](index=145&type=chunk) - Dermatology equipment revenues for 9M 2021 were **$5,079 thousand** (27 international, 5 domestic systems sold), up from $4,041 thousand (29 international, 2 domestic systems sold) in 9M 2020[145](index=145&type=chunk)[146](index=146&type=chunk) [Cost of Revenues](index=34&type=section&id=Cost%20of%20Revenues) Total cost of revenues increased for the nine-month period, reflecting higher sales volumes Cost of Revenues by Segment (in thousands) | Segment | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Dermatology Recurring Procedures | $1,512 | $1,368 | $4,648 | $4,534 | | Dermatology Procedures Equipment | 823 | 1,015 | 2,422 | 2,246 | | **Total Cost of Revenues** | **$2,335** | **$2,383** | **$7,070** | **$6,780** | [Gross Profit Analysis](index=34&type=section&id=Gross%20Profit%20Analysis) Gross profit and margin increased significantly due to higher sales and recognition of deferred service contract revenue Company Gross Profit Analysis (in thousands) | Item | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $7,711 | $5,613 | $20,920 | $16,373 | | Cost of revenues | 2,335 | 2,383 | 7,070 | 6,780 | | **Gross profit** | **$5,376** | **$3,230** | **$13,850** | **$9,593** | | **Gross profit percentage** | **69.7%** | **57.5%** | **66.2%** | **58.6%** | - Increase in gross profit for 9M 2021 was primarily due to **higher sales** and recognition of deferred service contract revenue from the **RA Medical acquisition**[149](index=149&type=chunk) Dermatology Recurring Procedures Gross Profit (in thousands) | Item | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $5,710 | $3,835 | $15,841 | $12,332 | | Cost of revenues | 1,512 | 1,368 | 4,648 | 4,534 | | **Gross profit** | **$4,198** | **$2,467** | **$11,193** | **$7,798** | | **Gross profit percentage** | **73.5%** | **64.3%** | **70.7%** | **63.2%** | Dermatology Procedures Equipment Gross Profit (in thousands) | Item | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $2,001 | $1,778 | $5,079 | $4,041 | | Cost of revenues | 823 | 1,015 | 2,422 | 2,246 | | **Gross profit** | **$1,178** | **$763** | **$2,657** | **$1,795** | | **Gross profit percentage** | **58.9%** | **42.9%** | **52.3%** | **44.4%** | [Engineering and Product Development](index=35&type=section&id=Engineering%20and%20Product%20Development) Expenses increased for the nine-month period due to consulting costs for development projects - Engineering and product development expenses were **$371 thousand (Q3 2021)** vs $411 thousand (Q3 2020)[153](index=153&type=chunk) - Engineering and product development expenses for 9M 2021 were **$1,158 thousand**, up from $950 thousand in 9M 2020, mainly due to consulting costs[153](index=153&type=chunk) [Selling and Marketing Expenses](index=35&type=section&id=Selling%20and%20Marketing%20Expenses) Expenses increased significantly due to renewed investments in sales, marketing, and direct-to-consumer advertising - Selling and marketing expenses were **$3,295 thousand (Q3 2021)** vs $2,051 thousand (Q3 2020)[155](index=155&type=chunk) - Selling and marketing expenses for 9M 2021 were **$9,387 thousand**, up from $6,446 thousand in 9M 2020[155](index=155&type=chunk) - Increase driven by investments in **sales, marketing, and direct-to-consumer advertising**, contrasting with cost reductions in 2020[155](index=155&type=chunk) [General and Administrative Expenses](index=35&type=section&id=General%20and%20Administrative%20Expenses) Expenses increased due to higher compensation and severance costs related to the CEO transition - General and administrative expenses increased to **$2,175 thousand (Q3 2021)** from $1,929 thousand (Q3 2020)[156](index=156&type=chunk) - General and administrative expenses for 9M 2021 were **$7,085 thousand**, up from $5,921 thousand in 9M 2020[156](index=156&type=chunk) - Increase primarily due to higher compensation, severance, and stock option costs from the **CEO transition** in Q1 2021[156](index=156&type=chunk) [Gain on Forgiveness of Debt](index=36&type=section&id=Gain%20on%20Forgiveness%20of%20Debt) The company recorded a $2,028 thousand gain from the forgiveness of its PPP loan - Recorded a **$2,028 thousand gain** on forgiveness of debt during 9M 2021 due to the PPP loan forgiveness[158](index=158&type=chunk) [Interest Expense, net](index=36&type=section&id=Interest%20Expense%2C%20net) Net interest expense was not material for the reported periods - Interest expense, net of interest income, was **not material** during the three and nine months ended September 30, 2021 and 2020[159](index=159&type=chunk) [Income Taxes](index=36&type=section&id=Income%20Taxes) Income tax expense was minimal and primarily related to changes in deferred tax liability for goodwill - Income tax expense was **$12 thousand (9M 2021)** vs $207 thousand (9M 2020), primarily from changes in deferred tax liability related to goodwill[160](index=160&type=chunk) - There were **no federal and state taxes** on the PPP loan forgiveness[160](index=160&type=chunk) [Non-GAAP adjusted EBITDA](index=36&type=section&id=Non-GAAP%20adjusted%20EBITDA) Non-GAAP adjusted EBITDA improved significantly, reflecting better operational performance and debt forgiveness Non-GAAP Adjusted EBITDA (in thousands) | Item | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(521) | $(1,254) | $(1,857) | $(3,969) | | Depreciation and amortization | 983 | 807 | 2,689 | 2,793 | | Amortization of right-of-use-asset | 87 | 83 | 261 | 242 | | Loss (gain) on disposal of property and equipment | 10 | 4 | 73 | 23 | | Income taxes | 4 | 72 | 12 | 207 | | Gain on forgiveness of debt | - | - | (2,028) | - | | Interest expense, net | 52 | 21 | 93 | 38 | | Non-GAAP EBITDA | 615 | (267) | (757) | (666) | | Stock compensation | 320 | 403 | 1,563 | 1,243 | | **Non-GAAP adjusted EBITDA** | **$935** | **$136** | **$806** | **$577** | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital increased, while cash from operations decreased and cash used in investing increased due to an acquisition - Working capital increased to **$7,892 thousand** as of September 30, 2021, from $5,993 thousand at December 31, 2020[162](index=162&type=chunk) - Cash, cash equivalents and restricted cash decreased to **$13,047 thousand** as of September 30, 2021, from $18,112 thousand at December 31, 2020[162](index=162&type=chunk) - Net cash provided by operating activities was **$839 thousand (9M 2021)**, down from $1,750 thousand (9M 2020)[171](index=171&type=chunk) - Net cash used in investing activities was **$5,996 thousand (9M 2021)**, up from $1,447 thousand (9M 2020), due to the Ra Medical asset acquisition[172](index=172&type=chunk) - Financing activities included **$7,867 thousand net proceeds** from the Senior Term Facility and **$7,775 thousand in debt repayments** in 9M 2021[173](index=173&type=chunk) - Management believes current cash, anticipated revenues, and the **$11.0 million equity distribution agreement** will provide sufficient liquidity for the next 12 months[170](index=170&type=chunk) [Commitments and Contingencies](index=38&type=section&id=Commitments%20and%20Contingencies) There were no significant new commitments or contingencies beyond those disclosed in the 2020 annual report - **No significant new commitments and contingencies** beyond those described in the 2020 annual financial statements[174](index=174&type=chunk) [Off-Balance Sheet Arrangements](index=38&type=section&id=Off-Balance%20Sheet%20Arrangements) The company had no off-balance sheet arrangements as of September 30, 2021 - **No off-balance sheet arrangements** as of September 30, 2021[175](index=175&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosure about Market Risk](index=38&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) This section states that there are no applicable disclosures about market risk for the company - Not applicable[176](index=176&type=chunk) [ITEM 4. Controls and Procedures](index=38&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal control [Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2021 - Management concluded that disclosure controls and procedures were **effective** as of September 30, 2021[177](index=177&type=chunk) [Limitations on the Effectiveness of Controls](index=38&type=section&id=Limitations%20on%20the%20Effectiveness%20of%20Controls) Control systems provide reasonable, not absolute, assurance that objectives are met due to inherent limitations - Control systems provide **reasonable, not absolute, assurance** due to inherent limitations[178](index=178&type=chunk) [Changes in Internal Control over Financial Reporting](index=38&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There were no material changes in internal control over financial reporting during the most recent fiscal quarter - **No material changes** in internal control over financial reporting during the most recent fiscal quarter[179](index=179&type=chunk) [Part II. Other Information](index=39&type=section&id=Part%20II.%20Other%20Information) [ITEM 1. Legal Proceedings](index=39&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is routinely involved in legal proceedings incidental to its normal business operations - The company is routinely a party to pending and threatened legal actions, some of which may be **material**[181](index=181&type=chunk) [ITEM 1A. Risk Factors](index=39&type=section&id=ITEM%201A.%20Risk%20Factors) A description of risks is provided in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - Risk factors are detailed in Item 1A of the **Annual Report on Form 10-K** for the fiscal year ended December 31, 2020[182](index=182&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report - None[183](index=183&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=39&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report - None[183](index=183&type=chunk) [ITEM 4. Mine Safety Disclosures](index=39&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) There were no mine safety disclosures to report - None[184](index=184&type=chunk) [ITEM 5. Other Information](index=39&type=section&id=ITEM%205.%20Other%20Information) There was no other information to report in this section - None[185](index=185&type=chunk) [ITEM 6. Exhibits](index=40&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate, credit, and warrant agreements - Includes Certificate of Incorporation, Bylaws, Asset Purchase Agreement, Credit and Security Agreement, Warrant Agreement, and various certifications[188](index=188&type=chunk) [Signatures](index=41&type=section&id=Signatures) The report is duly signed by the company's President & Chief Executive Officer and Chief Financial Officer - Report signed by **Robert J Moccia (President & CEO)** and **Christopher Lesovitz (CFO)** on November 12, 2021[191](index=191&type=chunk)

Financial Data and Key Metrics Changes - Total revenues for Q3 2021 were $7.7 million, a 37% increase year-over-year and a 4% increase sequentially [23] - Recurring revenue increased to $5.7 million, representing a 49% increase over Q3 2020 and a 5% increase over Q2 2021 [24] - Gross profit was $5.4 million, or 70% of revenues, compared to $3.2 million (58% of revenues) in Q3 2020 [26] Business Line Data and Key Metrics Changes - The installed base of recurring revenue XTRAC devices grew to 929 units, including 880 in the U.S. and 49 internationally, up from 889 total units at the end of June [12] - High-volume accounts increased from 186 to 214, a 15.7% sequential increase, contributing approximately $3.4 million in revenues, accounting for 56% of all recurring revenues [16] Market Data and Key Metrics Changes - International placements of XTRAC devices reached 49, a 104% increase over 2020, with 8 units placed in Q3 2021 [20] - The company identified China, Japan, and South Korea as key markets for growth, with plans to expand into additional countries in Asia and the Middle East in 2022 [48] Company Strategy and Development Direction - The company is focused on transitioning Ra Medical's customers to the XTRAC system, expecting this acquisition to be accretive to EBITDA in Q1 2022 [14] - STRATA is investing in direct-to-consumer marketing and direct dermatology marketing initiatives to drive growth in 2022 [15][19] - The company aims to return to 2019 recurring revenue levels by the end of 2021 and anticipates double-digit growth in 2022 [22] Management's Comments on Operating Environment and Future Outlook - Management noted that patient visits to dermatology offices have increased for three consecutive quarters, although staffing shortages due to the Delta variant have posed challenges [12] - The company is optimistic about growth opportunities in the vitiligo treatment market and plans to enhance coverage with payers for both vitiligo and atopic dermatitis [47] Other Important Information - The company entered into a new credit agreement for an $8 million senior secured term loan facility with favorable terms [30] - Cash and cash equivalents were $13.1 million as of September 30, 2021, down from $17 million at the end of June [31] Q&A Session Summary Question: Contribution from Ra Medical in the quarter - The company recognized around $336,000 from Ra Medical's deferred revenue in Q3 and moved 13 of their comebacks into its business [35] Question: Active accounts and recurring revenues - Active accounts are primarily high-volume customers who have overcome staffing issues, contributing to increased recurring revenues [39] Question: Margins and sustainability - The company expects to achieve sequential growth similar to the increase from Q2 to Q3, aiming for 2019 recurring revenue levels by year-end [44][45] Question: Patient treatment distribution - Approximately 75-80% of treatments are for psoriasis, with 15% for vitiligo and a smaller portion for atopic dermatitis due to coverage issues [46] Question: International business growth - The majority of international business is in China, Japan, and South Korea, with plans to expand into Europe and Latin America [48]

Financial Data and Key Metrics Changes - Total revenue for Q2 2021 was $7.4 million, representing an 83.1% year-over-year increase and a 28% sequential increase from Q1 2021 [13][24] - Recurring revenue reached $5.5 million, a 95% increase year-over-year and a 17% increase sequentially [13][24] - Gross profit was $4.8 million, or 64% of revenues, compared to $2 million or 49% of revenues in Q2 2020 [28] Business Line Data and Key Metrics Changes - Equipment revenues were $1.9 million, a 56% increase compared to Q2 2020 and a 65% increase from Q1 2021 [25] - The installed base of recurring revenue XTRAC devices increased to 889 units, with 848 in the U.S. and 41 internationally [13] Market Data and Key Metrics Changes - Patient visits have returned to approximately 90% to 95% of pre-COVID levels, with most customer practices reinstating normal operations [14][22] - The acquisition of Ra Medical's dermatology business positions the company to address a $6 billion U.S. market for chronic disease treatments [9] Company Strategy and Development Direction - The company is focused on transitioning from capital equipment sales to a recurring revenue model, enhancing predictability in revenue streams [20] - The acquisition of Ra Medical is expected to be accretive to EBITDA in Q1 2022, enhancing the company's market position [11][33] - Continued investment in direct-to-consumer marketing and re-engagement with high-volume accounts is a priority [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about reaching 2019 revenue levels by the end of 2021 and achieving double-digit growth in 2022 [21] - The company is monitoring the impact of the Delta variant on operations but remains confident in its recovery trajectory [22][57] Other Important Information - The acquisition of Ra Medical includes an upfront payment of approximately $3.7 million and the assumption of service contract obligations [11] - The company has seen a significant increase in direct-to-consumer advertising, which has positively impacted patient engagement [15] Q&A Session Summary Question: Impact of Ra Medical acquisition on existing customers - Management indicated that they will honor existing service contracts and aim for a smooth transition to their technology, leveraging existing relationships with dermatologists [36][38] Question: Expectations for margins and future revenue - Management expects margins to improve as recurring revenue grows, with a target to reach pre-COVID levels in recurring revenue [41][42] Question: Timing of the Ra Medical acquisition closure - The acquisition has already closed as of the date of the call [43] Question: Regional performance and pandemic impact - Management noted that while most regions are recovering, areas like California and New York are slower to return to pre-pandemic levels [55][57]

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) The company's Q2 2021 financials show significant revenue growth and a return to profitability aided by a one-time gain [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets were $44.9 million and stockholders' equity was $25.8 million as of June 30, 2021 Balance Sheet Summary (unaudited) | (In thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | **Total current assets** | $23,462 | $24,831 | | **Total assets** | **$44,899** | **$46,778** | | **Total current liabilities** | $17,779 | $18,838 | | **Total liabilities** | **$19,100** | **$20,886** | | **Total stockholders' equity** | **$25,799** | **$25,892** | [Condensed Consolidated Statements of Operations (Three Months)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Three%20Months)) Q2 2021 revenue grew 83.2% to $7.4 million, resulting in a net income of $1.1 million due to a debt extinguishment gain Q2 2021 vs Q2 2020 Operations | (In thousands, except per share amounts) | For the Three Months Ended June 30, 2021 | For the Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | **Revenues, net** | $7,382 | $4,030 | | **Gross profit** | $4,761 | $1,964 | | **Loss from operations** | $(923) | $(1,615) | | **Gain on extinguishment of debt** | $2,028 | - | | **Net income (loss)** | **$1,082** | **$(1,680)** | | **Diluted earnings (loss) per common share** | $0.03 | $(0.05) | [Condensed Consolidated Statements of Operations (Six Months)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Six%20Months)) For the first six months of 2021, revenue grew 22.8% to $13.2 million, significantly narrowing the net loss to $1.3 million H1 2021 vs H1 2020 Operations | (In thousands, except per share amounts) | For the Six Months Ended June 30, 2021 | For the Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | **Revenues, net** | $13,209 | $10,760 | | **Gross profit** | $8,474 | $6,363 | | **Loss from operations** | $(3,315) | $(2,563) | | **Gain on extinguishment of debt** | $2,028 | - | | **Net loss** | **$(1,336)** | **$(2,715)** | | **Diluted loss per common share** | $(0.04) | $(0.08) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $0.4 million for H1 2021, with total cash decreasing to $17.0 million by period end H1 2021 vs H1 2020 Cash Flows | (In thousands) | For the Six Months Ended June 30, 2021 | For the Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $387 | $1,201 | | **Net cash used in investing activities** | $(1,466) | $(730) | | **Net cash provided by financing activities** | - | $2,528 | | **Net (decrease) increase in cash** | $(1,079) | $2,999 | | **Cash, cash equivalents and restricted cash, end of period** | $17,033 | $18,628 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the impact of COVID-19, the forgiveness of a $2.0 million PPP loan, and a subsequent $3.7 million acquisition - The company is a medical technology firm specializing in products like the **XTRAC® excimer laser** for treating dermatologic conditions, with **848 systems placed in the U.S.** under a recurring revenue model as of June 30, 2021[22](index=22&type=chunk)[23](index=23&type=chunk) - The **COVID-19 pandemic negatively impacted the business** by disrupting supply chains and causing temporary closures of physician practices[26](index=26&type=chunk)[27](index=27&type=chunk) - In Q2 2021, the company's **$2.028 million Paycheck Protection Program (PPP) loan was forgiven**, resulting in a gain on extinguishment of debt[72](index=72&type=chunk) - On August 16, 2021, the company **acquired the U.S. dermatology Pharos business** from Ra Medical Systems, Inc. for a cash payment of **$3.7 million**[101](index=101&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the strong Q2 2021 recovery, improved margins, increased operating expenses, and sufficient liquidity [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Q2 2021 revenue rose 83.2% driven by post-pandemic recovery, with higher operating expenses due to renewed investments Revenue by Segment | (In thousands) | For the Three Months Ended June 30, 2021 | For the Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | **Dermatology Recurring Procedures Revenue** | $5,452 | $2,796 | | **Dermatology Procedures Equipment Revenue** | $1,930 | $1,234 | | **Total Revenues** | **$7,382** | **$4,030** | - The increase in gross profit to **$4.8 million (64.5% margin)** for Q2 2021 from $2.0 million (48.7% margin) in Q2 2020 was primarily due to higher sales as the impact of the COVID-19 pandemic lessened[132](index=132&type=chunk) - Selling and marketing expenses increased to **$3.2 million in Q2 2021** from $1.4 million in Q2 2020, as the company increased investments in direct-to-consumer advertising[138](index=138&type=chunk) - Other income for Q2 2021 was **$2.0 million**, primarily due to the forgiveness of the **$2.028 million PPP loan**[140](index=140&type=chunk) [Non-GAAP adjusted EBITDA](index=31&type=section&id=Non-GAAP%20adjusted%20EBITDA) Non-GAAP adjusted EBITDA turned positive at $682,000 for Q2 2021, a significant improvement from the prior-year quarter Non-GAAP Adjusted EBITDA Reconciliation | (In thousands) | For the Three Months Ended June 30, 2021 | For the Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net income (loss) | $1,082 | $(1,680) | | Gain on extinguishment of debt | $(2,028) | - | | Depreciation/amortization | $961 | $1,028 | | Stock compensation | $581 | $410 | | **Non-GAAP adjusted EBITDA** | **$682** | **$(158)** | [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company holds $17.0 million in cash and believes its liquidity is sufficient for the next 12 months - As of June 30, 2021, the company had **$17.0 million in cash, cash equivalents, and restricted cash**, compared to $18.1 million at December 31, 2020[143](index=143&type=chunk) - The company received a **$2.0 million PPP loan** in April 2020, which was **fully forgiven** in the second quarter of 2021[144](index=144&type=chunk)[145](index=145&type=chunk) - The company holds a **$500,000 EIDL loan** with a 3.75% interest rate, with payments deferred for an additional 12 months from March 2021[146](index=146&type=chunk) - Management believes that **current cash and anticipated revenues will be sufficient** to satisfy liquidity requirements for the next 12 months[147](index=147&type=chunk) [Quantitative and Qualitative Disclosure about Market Risk](index=33&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) The company states that this item is not applicable - Not applicable[153](index=153&type=chunk) [Controls and Procedures](index=33&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Based on an evaluation as of June 30, 2021, management concluded that the company's **disclosure controls and procedures were effective** at the reasonable assurance level[154](index=154&type=chunk) - **No material changes** in internal control over financial reporting occurred during the most recent fiscal quarter[156](index=156&type=chunk) [Part II. Other Information](index=33&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=33&type=section&id=ITEM%201.%20Legal%20Proceedings) The company may be party to legal proceedings incidental to its normal course of business - The company may be involved in legal proceedings in the **ordinary course of business**, including contract claims and employment matters[158](index=158&type=chunk) [Risk Factors](index=33&type=section&id=ITEM%201A.%20Risk%20Factors) This section refers to the risk factors detailed in the company's 2020 Annual Report on Form 10-K - A description of risks is set forth in **Item 1A of the Annual Report on Form 10-K** for the fiscal year ended December 31, 2020[159](index=159&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported for the period - None[160](index=160&type=chunk) [Exhibits](index=34&type=section&id=ITEM%206.%20Exhibits) This section lists filed exhibits, including corporate governance documents and required CEO/CFO certifications - The report includes standard corporate governance documents and required certifications as exhibits, including **CEO and CFO certifications** under Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act[164](index=164&type=chunk)

```markdown PART I – Financial Information [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents STRATA Skin Sciences' unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows, with detailed notes for Q1 2021 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $45,854 thousand, liabilities increased, and stockholders' equity declined to $24,136 thousand by March 31, 2021 Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total Assets | $45,854 | $46,778 | | Total Liabilities | $21,718 | $20,886 | | Total Stockholders' Equity | $24,136 | $25,892 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a net loss of $2,418 thousand for Q1 2021, a significant increase from the prior year, driven by lower revenues and higher operating expenses Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Revenues, net | $5,827 | $6,730 | | Cost of revenues | $2,114 | $2,331 | | Gross profit | $3,713 | $4,399 | | Operating expenses | $6,105 | $5,347 | | Loss from operations | $(2,392) | $(948) | | Net loss | $(2,418) | $(1,035) | | Basic Loss per common share | $(0.07) | $(0.03) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity decreased to $24,136 thousand by March 31, 2021, primarily due to the net loss, partially offset by stock-based compensation Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric (in thousands) | January 1, 2021 | March 31, 2021 | | :-------------------- | :-------------- | :------------- | | Total Stockholders' Equity | $25,892 | $24,136 | | Stock-based compensation | - | $662 | | Net loss | - | $(2,418) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly decreased to $153 thousand in Q1 2021, while cash used in investing activities increased to $740 thousand Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $153 | $598 | | Net cash used in investing activities | $(740) | $(596) | | Net (decrease) increase in cash and restricted cash | $(587) | $2 | | Cash, cash equivalents and restricted cash, end of period | $17,525 | $15,631 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures for the unaudited financial statements, covering business, accounting policies, liquidity, revenue, and COVID-19 impacts [Note 1 The Company: Background and COVID-19 Impact](index=8&type=section&id=Note%201%20The%20Company%3A%20Background%20and%20COVID-19%20Impact) STRATA Skin Sciences, a medical technology company, develops XTRAC® and VTRAC® systems; COVID-19 negatively impacted operations, leading to mitigation strategies - **STRATA Skin Sciences** develops, commercializes, and markets innovative dermatologic products, primarily the **XTRAC® excimer laser** and **VTRAC® lamp systems** for psoriasis and vitiligo[19](index=19&type=chunk)[93](index=93&type=chunk) - As of March 31, 2021, there were **837 XTRAC systems** placed in US dermatologists' offices and 34 internationally under a **recurring revenue model**[20](index=20&type=chunk)[94](index=94&type=chunk) - The company expanded international distribution with agreements in Japan (September 2020) and China (February 2021) for direct capital sales and **recurring revenue**[21](index=21&type=chunk)[95](index=95&type=chunk)[97](index=97&type=chunk) - The **COVID-19 pandemic** negatively impacted the company's **recurring revenue model**, **financial position**, and **cash flow** due to the elective nature of procedures, physician office closures, and supply chain disruptions[23](index=23&type=chunk)[24](index=24&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) - Mitigation efforts included **business continuity plans**, **employee safety measures**, **direct-to-consumer advertising** to restart partner businesses, **employee furloughs**, **reduced discretionary spending**, and **delayed vendor payments** (approx. **$785 thousand** as of March 31, 2021)[24](index=24&type=chunk)[25](index=25&type=chunk)[101](index=101&type=chunk) [Note 1 Basis of Presentation & Significant Accounting Policies](index=9&type=section&id=Note%201%20Basis%20of%20Presentation%20%26%20Significant%20Accounting%20Policies) Unaudited financial statements are prepared under SEC rules, consolidating the Company and its inactive Indian subsidiary, with no material accounting policy changes in Q1 2021 - The financial statements are unaudited, prepared under **SEC interim reporting rules**, and consolidate the Company and its **inactive Indian subsidiary**[26](index=26&type=chunk)[27](index=27&type=chunk) - No material changes to **significant accounting policies** occurred in Q1 2021. **Management's estimates**, including those for **revenue recognition**, **goodwill impairment**, **asset useful lives**, **equity-based awards**, **deferred tax assets**, **inventory reserves**, and **sales/use tax accruals**, are subject to the unknown full impact of **COVID-19**[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) [Note 1 Fair Value Measurements](index=10&type=section&id=Note%201%20Fair%20Value%20Measurements) Fair value measurements adhere to ASC Topic 820, using a three-tier hierarchy, with most monetary assets/liabilities approximating fair value - **Fair value measurements** adhere to **ASC Topic 820**, utilizing a **three-tier hierarchy**: **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than quoted prices), and **Level 3** (unobservable inputs requiring significant judgment)[32](index=32&type=chunk)[33](index=33&type=chunk)[37](index=37&type=chunk) - The carrying values of **cash**, **cash equivalents**, **restricted cash**, **short-term monetary assets/liabilities**, **note payable**, and **long-term debt** are estimated to approximate their **fair values**[34](index=34&type=chunk) [Note 1 Earnings Per Share](index=10&type=section&id=Note%201%20Earnings%20Per%20Share) Basic and diluted loss per common share for Q1 2021 was $(0.07), with all potentially dilutive securities being anti-dilutive Note 1 Earnings Per Share (in thousands) | Metric | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :----- | :---------------------------- | :---------------------------- | | Basic and Diluted loss per common share | $(0.07) | $(0.03) | | Weighted average common shares outstanding | 33,802,129 | 33,164,321 | - **Potentially dilutive securities** (**warrants**, **restricted stock units**, **stock options**) were excluded from **diluted EPS calculations** as their inclusion would have been **anti-dilutive** for both periods[38](index=38&type=chunk)[39](index=39&type=chunk) [Note 1 Accounting Pronouncements](index=11&type=section&id=Note%201%20Accounting%20Pronouncements) ASU No. 2019-12 had no material effect; ASU 2020-04 and 2020-06 are not expected to materially impact current financial statements - Adoption of **ASU No. 2019-12 (Income Taxes)** on January 1, 2021, had no material effect[40](index=40&type=chunk) - **ASU 2020-04 (Reference Rate Reform)** is not expected to have a material effect as the company has no **hedging activities**[42](index=42&type=chunk) - **ASU 2020-06 (Accounting for Convertible Instruments and Contracts in an Entity's own Equity)** is not expected to have a material effect currently, but could in the future if the company engages in covered contracts[43](index=43&type=chunk) [Note 2 Liquidity](index=12&type=section&id=Note%202%20Liquidity) Despite recurring losses and COVID-19 impacts, management expects sufficient liquidity for 12 months, though future financing may be affected by the pandemic - The company has historically faced **recurring losses** and **negative impacts from COVID-19**[44](index=44&type=chunk) - Management anticipates **sufficient liquidity** for the next 12 months, supported by cash, **expected revenues**, and **PPP/EIDL loan proceeds**[44](index=44&type=chunk) - The ongoing **COVID-19 pandemic** could negatively impact the company's ability to **access financing on favorable terms**[44](index=44&type=chunk) [Note 3 Revenue Recognition](index=12&type=section&id=Note%203%20Revenue%20Recognition) Revenue from recurring procedures is recognized based on usage or ratably, while equipment sales are recognized upon control transfer, with $1,769 thousand in deferred revenues - **Dermatology Recurring Procedures** revenue is recognized on a **per-procedure basis** or as a **fixed fee over a period**, treated as **operating leases under ASC 842**[45](index=45&type=chunk)[46](index=46&type=chunk) - **Dermatology Procedures Equipment** revenue is recognized when **control transfers to the customer**, usually upon shipment (**FOB shipping point**)[49](index=49&type=chunk) - **Deferred revenues (contract liabilities)** were **$1,769 thousand** as of March 31, 2021, expected to be recognized over the **remaining usage period**[51](index=51&type=chunk)[114](index=114&type=chunk) Note 3 Revenue Recognition (in thousands) | Revenue Segment (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :----------------------------- | :---------------------------- | :---------------------------- | | Domestic Recurring Procedures | $4,426 | $5,597 | | Foreign Recurring Procedures | $253 | $104 | | Domestic Equipment Sales | $258 | $315 | | Foreign Equipment Sales | $890 | $714 | | Total Revenues | $5,827 | $6,730 | [Note 4 Inventories](index=14&type=section&id=Note%204%20Inventories) Total inventories decreased to $3,312 thousand by March 31, 2021, primarily due to reductions in raw materials and work-in-process Note 4 Inventories (in thousands) | Inventory Type (in thousands) | March 31, 2021 | December 31, 2020 | | :---------------------------- | :------------- | :---------------- | | Raw materials and work-in-process | $2,751 | $2,949 | | Finished goods | $561 | $495 | | Total inventories | $3,312 | $3,444 | [Note 5 Property and Equipment, net](index=15&type=section&id=Note%205.%20Property%20and%20Equipment%2C%20net) Net property and equipment increased to $5,788 thousand, mainly due to lasers placed-in-service, while depreciation expense decreased to $481 thousand in Q1 2021 Note 5 Property and Equipment, net (in thousands) | Asset Type (in thousands) | March 31, 2021 | December 31, 2020 | | :------------------------ | :------------- | :---------------- | | Lasers placed-in-service | $23,596 | $22,942 | | Total property and equipment, net | $5,788 | $5,529 | - **Depreciation and related amortization expense** decreased to **$481 thousand** for Q1 2021 from **$586 thousand** for Q1 2020[55](index=55&type=chunk) [Note 6 Intangible Assets, net](index=15&type=section&id=Note%206.%20Intangible%20Assets%2C%20net) Net definite-lived intangible assets decreased to $5,993 thousand, with amortization expense of $352 thousand in Q1 2021 and no impairment charges Note 6 Intangible Assets, net (in thousands) | Intangible Asset (in thousands) | Balance (Gross) | Accumulated Amortization | Net (March 31, 2021) | | :------------------------------ | :-------------- | :----------------------- | :------------------- | | Core technology | $5,700 | $(3,278) | $2,422 | | Product technology | $2,000 | $(2,000) | $0 | | Customer relationships | $6,900 | $(3,967) | $2,933 | | Tradenames | $1,500 | $(862) | $638 | | Total intangible assets, net | $16,100 | $(10,107) | $5,993 | - **Amortization expense** for **definite-lived intangible assets** was **$352 thousand** for Q1 2021, compared to **$452 thousand** for Q1 2020[56](index=56&type=chunk) - No **impairment charges** were recognized for **definite-lived intangible assets** during the three months ended March 31, 2021[57](index=57&type=chunk) [Note 7 Other Accrued Liabilities](index=16&type=section&id=Note%207.%20Other%20Accrued%20Liabilities) Total other accrued liabilities increased to $5,286 thousand, mainly due to accrued compensation, with ongoing appeals for state sales and use tax assessments Note 7 Other Accrued Liabilities (in thousands) | Accrued Liability (in thousands) | March 31, 2021 | December 31, 2020 | | :------------------------------- | :------------- | :---------------- | | Accrued compensation | $1,491 | $891 | | Accrued state sales, use and other taxes | $3,150 | $3,105 | | Total other accrued liabilities | $5,286 | $4,690 | - The company is appealing **state sales and use tax assessments** totaling **$1,484 thousand** (one state) and **$720 thousand** plus interest (another state), believing its **recurring revenue model is exempt** or has other defenses[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) Note 7 Other Accrued Liabilities (in thousands) | Warranty Accrual (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :------------------------------ | :---------------------------- | :---------------------------- | | Accrual at beginning of period | $113 | $232 | | Additions charged to expense | $4 | $3 | | Expiring warranties/claims satisfied | $(32) | $(54) | | Total | $85 | $181 | [Note 8 Note Payable](index=17&type=section&id=Note%208.%20Note%20Payable) A $7,275 thousand note payable was renewed, secured by a time deposit, maturing December 30, 2021, with a 1.40% fixed interest rate - A **$7,275 thousand note payable** was renewed on December 30, 2020, maturing on December 30, 2021, with a fixed interest rate of **1.40%**[67](index=67&type=chunk) - The note is secured by a **pledged time deposit** of **$7,275 thousand**, recorded as **restricted cash**[67](index=67&type=chunk) [Note 9 Long-term Debt](index=17&type=section&id=Note%209.%20Long-term%20Debt) The company holds a $2.0 million PPP loan with a pending forgiveness application and a $500 thousand EIDL loan with deferred payments - The company has a **$2,028 thousand PPP loan** (1% interest, 5-year maturity), with a **100% forgiveness application** submitted in December 2020, pending **SBA approval**[68](index=68&type=chunk)[69](index=69&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[132](index=132&type=chunk) - The company also has a **$500 thousand EIDL loan** (3.75% interest, 30-year repayment), for which **payments were deferred** by an additional 12 months in March 2021[70](index=70&type=chunk)[108](index=108&type=chunk)[133](index=133&type=chunk) [Note 10 Warrants](index=18&type=section&id=Note%2010.%20Warrants) All 19,812 common stock warrants expired on January 29, 2021, resulting in no outstanding warrants as of March 31, 2021 - All **19,812 common stock warrants** outstanding at December 31, 2020, expired on January 29, 2021[71](index=71&type=chunk) - There were **no outstanding common stock warrants** as of March 31, 2021[71](index=71&type=chunk) [Note 11 Stock-based Compensation](index=18&type=section&id=Note%2011.%20Stock-based%20Compensation) Stock-based compensation expense increased to $662 thousand in Q1 2021, with $2,999 thousand unrecognized, and options granted to the incoming CEO Note 11 Stock-based Compensation (in thousands) | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Stock-based compensation expense | $662 | $430 | - As of March 31, 2021, **$2,999 thousand** in **unrecognized compensation expense** remains, to be recognized over a **weighted average period** of **1.38 years**[73](index=73&type=chunk) - **Vesting of unvested options** for the **departing CEO** was **accelerated**, incurring an additional **$173 thousand** compensation expense[74](index=74&type=chunk) - An option to purchase **1,632,590 shares** was granted to the **incoming CEO** on March 1, 2021, with a **strike price** of **$1.73** and an **aggregate fair value** of **$2,103 thousand**[75](index=75&type=chunk) [Note 12 Income Taxes](index=18&type=section&id=Note%2012.%20Income%20Taxes) Income tax expense decreased to $4 thousand in Q1 2021, primarily due to deferred tax liability changes related to goodwill, with NOLs limited by Section 382 Note 12 Income Taxes (in thousands) | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Income tax expense | $4 | $88 | - **Income tax expense** was primarily driven by changes in **deferred tax liability related to goodwill**, an **amortizing asset for tax purposes**[77](index=77&type=chunk) - The **CARES Act** is not expected to significantly impact the company's **financial position**, results, or **cash flows**[78](index=78&type=chunk) - **Section 382 of the Internal Revenue Code** limits the annual utilization of **net operating losses** due to past **ownership changes**[79](index=79&type=chunk) [Note 13 Business Segments](index=19&type=section&id=Note%2013.%20Business%20Segments) The company operates in Dermatology Recurring Procedures and Equipment segments, with total revenues decreasing 13.4% and gross profit percentage declining to 63.7% in Q1 2021 - The company operates two segments: **Dermatology Recurring Procedures** (revenue from equipment usage) and **Dermatology Procedures Equipment** (revenue from equipment sales)[80](index=80&type=chunk) Note 13 Business Segments (in thousands) | Segment (in thousands) | Q1 2021 Revenue | Q1 2021 Gross Profit | Q1 2021 Gross Profit % | Q1 2020 Revenue | Q1 2020 Gross Profit | Q1 2020 Gross Profit % | | :--------------------- | :-------------- | :------------------- | :--------------------- | :-------------- | :------------------- | :--------------------- | | Dermatology Recurring Procedures | $4,679 | $3,178 | 67.9% | $5,701 | $3,899 | 68.4% | | Dermatology Procedures Equipment | $1,148 | $535 | 46.6% | $1,029 | $500 | 48.6% | | Total | $5,827 | $3,713 | 63.7% | $6,730 | $4,399 | 65.4% | - Overall **gross profit** decreased to **$3,713 thousand** (**63.7%** of revenue) in Q1 2021 from **$4,399 thousand** (**65.4%** of revenue) in Q1 2020, primarily due to **lower sales** and **unfavorable deferred revenue impact**[119](index=119&type=chunk)[121](index=121&type=chunk) [Note 14 Significant Customer Concentration](index=20&type=section&id=Note%2014.%20Significant%20Customer%20Concentration) One distributor accounted for 11.7% of Q1 2021 revenues, and one customer represented 22.3% of total accounts receivable - One **distributor** accounted for **11.7% of total revenues** for the three months ended March 31, 2021[85](index=85&type=chunk) - One customer represented **22.3% of total accounts receivable** as of March 31, 2021[85](index=85&type=chunk) [Note 15 Commitments: Leases](index=20&type=section&id=Note%2015.%20Commitments%3A%20Leases) The company leases facilities and equipment under non-cancellable operating leases, with $116 thousand in Q1 2021 costs and $1,148 thousand in total remaining payments - The company leases facilities and IT/office equipment under **non-cancellable operating leases** with **remaining terms** of **1 to 4 years**[86](index=86&type=chunk) Note 15 Commitments: Leases (in thousands) | Year Ending December 31, | Amount (in thousands) | | :----------------------- | :-------------------- | | Remaining 2021 | $349 | | 2022 | $371 | | 2023 | $242 | | 2024 | $186 | | Total remaining lease payments | $1,148 | | Less: imputed interest | $(160) | | Total lease liabilities | $988 | - **Operating lease costs** were **$116 thousand** for Q1 2021, compared to **$112 thousand** for Q1 2020[87](index=87&type=chunk) [Note 15 Commitments: Contingencies](index=21&type=section&id=Note%2015.%20Commitments%3A%20Contingencies) The company is routinely involved in legal actions and regulatory inquiries, including contract and employment matters, with potential for substantial monetary damages - The company is routinely involved in **legal actions and proceedings**, including **contract claims** and **employment-related matters**, with potential for **substantial monetary damages**[89](index=89&type=chunk) - The company is subject to **regulatory and governmental examinations**, **inquiries**, and **investigations**[89](index=89&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2021 financial condition and results, highlighting COVID-19 impacts, mitigation strategies, declining revenues, increased net loss, and liquidity position [Introduction, Outlook and Overview of Business Operations](index=22&type=section&id=Introduction%2C%20Outlook%20and%20Overview%20of%20Business%20Operations) STRATA Skin Sciences, a medical technology company, focuses on dermatological treatments with XTRAC® and VTRAC® systems, expanding internationally, and beta-testing "Home by XTRAC™" amid COVID-19 impacts - **STRATA Skin Sciences** is a medical technology company focused on dermatological treatments using **XTRAC® excimer laser** and **VTRAC® lamp systems**[93](index=93&type=chunk) - As of March 31, 2021, **837 XTRAC systems** were placed in US dermatologists' offices under a **recurring revenue model**, an increase from 832 at December 31, 2020[94](index=94&type=chunk) - The company introduced **"Home by XTRAC™"** for at-home, insurance-reimbursed treatments, currently in beta testing[96](index=96&type=chunk) - The **COVID-19 pandemic** has negatively impacted the company's Q1 2021 results and is expected to continue affecting revenue, earnings, and **cash flows** due to disruptions in **elective procedures**, **supply chains**, and physician practice operations[99](index=99&type=chunk)[100](index=100&type=chunk)[103](index=103&type=chunk) [Key Technology](index=24&type=section&id=Key%20Technology) Key technologies include the XTRAC® Excimer Laser (FDA-cleared 2000) and VTRAC® Lamp (FDA-cleared 2005), with recent XTRAC developments like MMD tip and S3® - **XTRAC® Excimer Laser** (FDA-cleared 2000) delivers targeted **308nm UVB light** for psoriasis and vitiligo, with coverage by most major insurance companies[109](index=109&type=chunk) - Recent **XTRAC** developments include the **Multi Micro Dose (MMD) tip** (2018), the **S3® next-generation XTRAC** (2018), and the **XTRAC Momentum Excimer Laser Platform** (2020)[109](index=109&type=chunk) - **VTRAC® Lamp** (FDA-cleared 2005) provides targeted therapeutic efficacy with a simpler design[109](index=109&type=chunk) [Recent Developments (PPP and EIDL Loans)](index=24&type=section&id=Recent%20Developments) The company secured a $2.0 million PPP loan with a pending forgiveness application and a $500 thousand EIDL loan with deferred payments - The company received a **$2.0 million PPP loan** in April 2020, with a **100% forgiveness application** submitted in December 2020, pending **SBA approval**; the loan's maturity was extended to five years[106](index=106&type=chunk)[107](index=107&type=chunk) - A **$500 thousand EIDL loan** was secured in May 2020, with **payments were deferred** by an additional 12 months in March 2021[108](index=108&type=chunk) [Critical Accounting Policies and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) No changes to critical accounting policies occurred in Q1 2021; these policies are regularly reviewed with the Audit Committee and detailed in the 2020 Form 10-K - No changes to **critical accounting policies** occurred during the three months ended March 31, 2021[110](index=110&type=chunk) - **Critical accounting policies** and estimates are regularly discussed with the **Audit Committee** and detailed in the **2020 Form 10-K**[110](index=110&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Total revenues decreased 13.4% to $5,827 thousand in Q1 2021, with gross profit declining to $3,713 thousand and increased operating expenses leading to a higher net loss Results of Operations (in thousands) | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Total Revenues | $5,827 | $6,730 | | Total Cost of Revenues | $2,114 | $2,331 | | Gross Profit | $3,713 | $4,399 | | Gross Profit % | 63.7% | 65.4% | [Dermatology Recurring Procedures Revenue](index=25&type=section&id=Dermatology%20Recurring%20Procedures) Revenue from Dermatology Recurring Procedures decreased 17.9% to $4,679 thousand in Q1 2021 due to COVID-19 and lower deferred revenue, with plans for increased advertising Dermatology Recurring Procedures Revenue (in thousands) | Metric | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :----- | :---------------------------- | :---------------------------- | | Revenue (in thousands) | $4,679 | $5,701 | | Estimated Treatments | 67,000 | 82,000 | - The decrease in **recurring revenue** was attributed to the ongoing **COVID-19 pandemic** and the unfavorable impact of lower deferred revenue from Q4 2020[112](index=112&type=chunk)[114](index=114&type=chunk) - The company plans to increase **direct-to-patient advertising** and **marketing spend** in 2021 to drive **patient traffic** to partner clinics and increase **recurring revenue**, anticipating a **3-9 month lag** for results[113](index=113&type=chunk) [Dermatology Procedures Equipment Revenue](index=26&type=section&id=Dermatology%20Procedures%20Equipment) Dermatology Procedures Equipment revenue increased 11.6% to $1,148 thousand in Q1 2021, but future revenues may be negatively impacted by the international recurring revenue model transition Dermatology Procedures Equipment Revenue (in thousands) | Metric | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :----- | :---------------------------- | :---------------------------- | | Revenue (in thousands) | $1,148 | $1,029 | | International Systems Sold | 2 (XTRAC) | 3 (VTRAC) | | Domestic Systems Sold | 0 | 1 (XTRAC) | - The transition to a **recurring revenue model** with **international distributors** is expected to negatively impact **equipment revenues**[115](index=115&type=chunk)[117](index=117&type=chunk) [Operating Expenses](index=27&type=section&id=Operating%20Expenses) Total operating expenses increased to $6,105 thousand in Q1 2021, driven by higher engineering and significantly increased general and administrative costs due to CEO transition Operating Expenses (in thousands) | Expense (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :--------------------- | :---------------------------- | :---------------------------- | | Engineering and product development | $384 | $292 | | Selling and marketing | $2,932 | $2,953 | | General and administrative | $2,789 | $2,102 | | Total Operating Expenses | $6,105 | $5,347 | - **General and administrative expenses** increased significantly due to **CEO transition costs** (severance, recruiting, accelerated stock compensation)[126](index=126&type=chunk) [Interest (Expense) Income, Net](index=27&type=section&id=Interest%20(Expense)%20Income%2C%20Net) The company reported net interest expense of $22 thousand in Q1 2021, a shift from net interest income in Q1 2020, primarily due to lower interest rates Interest (Expense) Income, Net (in thousands) | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Interest (expense) income, net | $(22) | $1 | [Income Taxes](index=27&type=section&id=Income%20Taxes) Income tax expense decreased to $4 thousand in Q1 2021 from $88 thousand in Q1 2020, primarily due to changes in deferred tax liability related to goodwill Income Taxes (in thousands) | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Income tax expense | $4 | $88 | [Non-GAAP Adjusted EBITDA](index=27&type=section&id=Non-GAAP%20adjusted%20EBITDA) Non-GAAP adjusted EBITDA for Q1 2021 was a loss of $811 thousand, a significant decrease from a positive $599 thousand in Q1 2020, used to show core operating results Non-GAAP Adjusted EBITDA (in thousands) | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Net Loss | $(2,418) | $(1,035) | | Non-GAAP EBITDA | $(1,473) | $169 | | Non-GAAP adjusted EBITDA | $(811) | $599 | - **Non-GAAP adjusted EBITDA** is presented to isolate certain expenses, gains, and losses not indicative of **core operating results** and to enhance comparability[130](index=130&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital decreased to $3,997 thousand by March 31, 2021; operating cash flow declined, while investing cash flow increased, with future financing risks due to COVID-19 Liquidity and Capital Resources (in thousands) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Working Capital | $3,997 | $5,993 | | Cash, cash equivalents and restricted cash | $17,525 | $18,112 | - Net cash provided by **operating activities** decreased to **$153 thousand** in Q1 2021 from **$598 thousand** in Q1 2020, mainly due to a higher net loss[135](index=135&type=chunk) - Net cash used in **investing activities** increased to **$740 thousand** in Q1 2021 from **$596 thousand** in Q1 2020, driven by **lasers placed-in-service** and **property/equipment purchases**[136](index=136&type=chunk) - Management believes current cash, anticipated revenues, and **PPP/EIDL loan proceeds** will be sufficient for the next 12 months, but **COVID-19** poses risks to future financing[134](index=134&type=chunk) [Commitments and Contingencies](index=29&type=section&id=Commitments%20and%20Contingencies) No new significant commitments or contingencies were reported beyond those detailed in the 2020 annual financial statements - No new significant commitments or contingencies were reported beyond those in the 2020 annual financial statements[138](index=138&type=chunk) [Off-Balance Sheet Arrangements](index=29&type=section&id=Off-Balance%20Sheet%20Arrangements) The company had no off-balance sheet arrangements as of March 31, 2021 - The company had no **off-balance sheet arrangements** as of March 31, 2021[139](index=139&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosure about Market Risk](index=29&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) This section is marked as "Not applicable", indicating no material quantitative or qualitative disclosures regarding market risk are provided for the period - This section is marked as **"Not applicable"**[140](index=140&type=chunk) [ITEM 4. Controls and Procedures](index=29&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management, with the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2021, concluding they were effective at a reasonable assurance level, with no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=29&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021 - Management, with CEO and CFO participation, concluded that **disclosure controls and procedures** were **effective at the reasonable assurance level** as of March 31, 2021[141](index=141&type=chunk) [Limitations on the Effectiveness of Controls](index=30&type=section&id=Limitations%20on%20the%20Effectiveness%20of%20Controls) Control systems provide reasonable, not absolute, assurance that objectives are met, acknowledging inherent limitations that prevent absolute detection of all control issues - **Control systems** provide **reasonable, not absolute, assurance** due to **inherent limitations**[142](index=142&type=chunk) [Changes in Internal Control over Financial Reporting](index=30&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the most recent fiscal quarter - No **material changes in internal control over financial reporting** occurred during the most recent fiscal quarter[143](index=143&type=chunk) PART II - Other Information [ITEM 1. Legal Proceedings](index=30&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is routinely involved in legal actions and proceedings, including contract claims and employment-related matters, some of which may be material - The company is routinely a party to **legal actions and proceedings**, including **contract claims** and **employment-related matters**, some of which may be material[145](index=145&type=chunk) [ITEM 1A. Risk Factors](index=30&type=section&id=ITEM%201A.%20Risk%20Factors) Risk factors are detailed in Item 1A of the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - **Risk factors** are detailed in Item 1A of the company's **Annual Report on Form 10-K** for the fiscal year ended December 31, 2020[146](index=146&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) None to report - **None to report**[147](index=147&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=30&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) None to report - **None to report**[147](index=147&type=chunk) [ITEM 4. Mine Safety Disclosures](index=30&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) None to report - **None to report**[148](index=148&type=chunk) [ITEM 5. Other Information](index=30&type=section&id=ITEM%205.%20Other%20Information) None to report - **None to report**[149](index=149&type=chunk) [ITEM 6. Exhibits](index=31&type=section&id=ITEM%206.%20Exhibits) The section lists various exhibits, including corporate governance documents (e.g., Certificate of Incorporation, Bylaws), employment-related agreements (e.g., CEO separation and employment agreements, stock option agreement), and certifications (e.g., Rule 13a-14(a) Certificates, Section 1350 Certifications) - The section lists various exhibits, including **corporate governance documents** (e.g., Certificate of Incorporation, Bylaws), **employment-related agreements** (e.g., CEO separation and employment agreements, stock option agreement), and **certifications** (e.g., Rule 13a-14(a) Certificates, Section 1350 Certifications)[152](index=152&type=chunk) [Signatures](index=32&type=section&id=Signatures) The report is signed by Robert J. Moccia, President & Chief Executive Officer, and Matthew C. Hill, Chief Financial Officer - The report is signed by **Robert J. Moccia**, **President & Chief Executive Officer**, and **Matthew C. Hill**, **Chief Financial Officer**[156](index=156&type=chunk) ```

Start Time: 16:30 January 1, 0000 5:08 PM ET STRATA Skin Sciences, Inc. (NASDAQ:SSKN) Q1 2021 Earnings Conference Call May 12, 2021, 16:30 PM ET Company Participants Robert Moccia - CEO Matthew Hill - CFO Leigh Salvo - IR Conference Call Participants Joseph Pantginis - H.C. Wainwright Jeffrey Cohen - Ladenburg Thalmann Suraj Kalia - Oppenheimer Operator Greetings, and welcome to STRATA Skin Sciences First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A ques ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _____________ Commission file number: 0-11635 STRATA SKIN SCIENCES, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 13-3986004 (I.R.S. Employer Identification No.) 5 Walnut Grove Drive, Suite 1 ...

STRATA Skin Sciences, Inc. (NASDAQ:SSKN) Q4 2020 Earnings Conference Call March 24, 2021 4:30 PM ET Company Participants Leigh Salvo - IR Robert Moccia - President, CEO & Director Matthew Hill - VP & CFO Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann & Co. Suraj Kalia - Oppenheimer Operator Greetings, and welcome to STRATA Skin Sciences Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions]. I will now turn the conference over to your host, Leigh Salvo. You may begin. Leigh S ...

STRATA Skin Sciences, Inc. (NASDAQ:SSKN) Q3 2020 Results Earnings Conference Call November 10, 2020 8:30 AM ET Company Participants Leigh Salvo - Investor Relations Dolev Rafaeli - President and Chief Executive Officer Matt Hill - Chief Financial Officer Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann Suraj Kalia - Oppenheimer & Company Operator Greetings, and welcome to STRATA Skin SciencesÂ' Third Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference ...