STRATA Skin Sciences, Inc. Q3 FY2020 Earnings Call

Greetings, and welcome to STRATA Skin Sciences’ Third Quarter 2020 Earnings Conference Call. As a reminder, this conference is being recorded on Tuesday, November 10, 2020. I would now like to turn the conference over to Leigh Salvo, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Earlier today, STRATA released financial results for the quarter ended September 30, 2020. A copy of the press release is available on the company’s website. Before we begin, I would like to remind everyone that comments and various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, our plans, objectives, expectations and intentions and other statements that contain the words such as expects, contemplates, anticipates, plan, intend, believe, assume, predict and variations of such words or similar expressions that predict or indicate further events or trends that do not relate to this historic matter. These statements are based on our current beliefs or expectations and are inherently subject to significant known and unknown uncertainty and changes in circumstances, many of which are beyond our control. There can be no assurances that our beliefs or expectations will be achieved. Actual results may differ materially from our beliefs or expectations due to financial, economic, business, competitive, market, regulatory and other political factors or global pandemic events, such as the current COVID-19 pandemic. Given the uncertainties affecting companies in the medical device industry, any or all of the company’s forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward-looking statements. In addition, more specific risks and uncertainties facing the company are set forth in the company’s reports of the Forms 10-Q and 10-K filed with the SEC. STRATA encourages you to carefully review and consider the disclosures found in the SEC filings, which are available at www.sec.gov and on the company’s website. As a reminder, this conference call is being recorded and will be available for audio rebroadcast on STRATA’s website. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of this date of live broadcast, November 10, 2020. STRATA undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. Leading the call today will be Dr. Dolev Rafaeli, President and CEO. Joining him today will be Matt Hill, CFO. With that, I would like to now turn the call over to Dolev.

Thank you, Leigh, and good morning everyone, and welcome to our third quarter earnings call. We hope you are remaining safe and healthy. First, let's acknowledge that these past quarters dealing with COVID-19 have been challenging for everyone, and I appreciate your continued support and interest in STRATA. Today, I will start with an overview of our third quarter financial results, followed by an update on the execution of our strategic priorities to drive recurring revenue and on the progress we have made on these initiatives. Following my remarks, I'll turn the call over to Matt to cover our financial results in more detail. Overall, the positive recovery trends we began to see as we exited Q2 persisted throughout Q3 and an increasing number of clinics began accepting patients and using their treatment inventory. Total revenue for the third quarter was $5.6 million. Importantly, we delivered 37% sequential growth in recurring revenue, one of our key metrics, driven by our team's resilient efforts. We were also successful in activating 254 accounts that were previously inactive in the second quarter due to COVID. Internationally, we experienced similarly reopening trends in our leading non-U.S. markets of China, Japan, South Korea, and the Middle East. International revenue was up 33% overall, a third of which was attributed to recurring revenues, reflecting the impact of our strategy to convert business where relevant to our unique recurring revenue model. As a reminder, in the third quarter of 2019, we transitioned South Korea to recurring revenue. Just recently, we announced a recurring distribution model in Japan. While we anticipate trading off short term capital sales, we expect to reap the benefits of higher margins, continuity of revenue, and cash flow over the long term. We expect to see the initial gains based on the Japanese agreement and this transition beginning in the fourth quarter. Our continued attention to tight operational control resulted in higher cash flow from operations that allowed us to invest in the re-launch of an increasing number of individual partner clinics as they were ready to reopen. We entered the third quarter with an installed base of 837 recurring revenue extract devices, including 813 in the U.S., and 24 international placements, up from 789 and 17 in the second quarter, reflecting a strong return to the momentum we had pre-COVID in expanding the install base. The growth in domestic expansion was driven by an acceleration in the comebacks, which serve as a reminder of our competitive wins against current owners of competing excimer lasers. Additionally, with the acceleration of placements with private equity backed dermatology clinic groups, we are on track to surpass 860 devices by the end of 2020, putting us within reach of our goal of an installed base of 1000 devices by the end of 2021. To highlight the value achieved in bringing back these accounts, I'd like to give a recent example of the three clinic comeback in the southeast. As a partner clinic since 2015, we were successful in helping them generate approximately 2400 procedures that resulted in annual revenue of over $400,000 for the clinic and $134,000 per STRATA during 2016 alone. In 2017, the account purchased extra devices from a competing company, eliminating the advertising and patient contact components provided by STRATA. By the end of 2018, their business was reduced by over 50% due to the loss of patients. In 2019, they returned as a STRATA customer, becoming a comeback account. The result was double-digit growth in their Excimer business and over $80,000 of recurring annual revenue to STRATA by year-end of 2019. Importantly, this improvement in both our recurring revenue coupled with a return to positive placement cadence highlights a direct correlation between the recovery and a pent up patient demand for our procedures. Moreover, alongside these positive trends, we wanted to provide you with another financial measure that we track to monitor our domestic recurring business, namely, our gross domestic recurring billing, a non-GAAP metric. Our gross domestic recurring billing expanded by 155%, bringing the overall third quarter actual to 74% of the same measure in the third quarter of 2019, up from 30% in the second quarter. In October, we saw a continuation of this improvement trend with our gross domestic billing up to 97% of October 2019. More specifically, we saw one of our four regions, the southeast in excess of 100%, and two other regions, the Northeast and Midwest in excess of 90% of October 2019 gross billings, with the West region not far behind. With the West and the Northeast having had longer and deeper pandemic impacts, we are very satisfied with the progress made there and anticipate as those regions become fully open, they will be well on their way to exceeding 2019 levels. Based on the dynamic of these measures, as we look ahead, we see a path to a normalized 2019 activity rate. At the same time, we continue to face uncertainty with COVID-19 cases spiking in hotspots and regional unpredictability. Through this period, we remain cautiously optimistic about the near term and continue to actively monitor the situation. Turning next to our other growth objectives. I'll start with direct-to-consumer advertising or DTC. After shifting our efforts in March to preserve cash during the height of the pandemic, we resumed DTC advertising in mid-August and expect to continue to ramp up our investment in this initiative to support our partner clinics and increase the number of engaged patients during the fourth quarter, which is traditionally the highest quarter of the year preceding the reset of insurance benefits and deductibles at year-end. We plan to return to 2019 quarterly DTC advertising levels by the first quarter of 2021. Shifting to our patients outreach program, the reopening of inactive accounts was driven by a combination of patient confidence in returning to elective care, and in large part aided by the impact of our patient outreach forum. As a reminder, as states were starting to exit lockdowns, we leveraged our in-house call center and rallied together to contact thousands of patients on behalf of over 300 partner clinics. As this effort continues into the fourth quarter, we believe that we will be able to cover the majority of partner clinics that are interested in outreach. Transitioning to clinical achievements and accomplishments on the reimbursement front. In October, we announced that Cigna issued a new medical coverage policy for excimer laser therapy for previously uncovered Vitiligo. For those of you who are not familiar, Vitiligo is a medical condition that causes the loss of pigmentation in the skin that results in white patches affecting 1% to 2% of the U.S. population, with darker skin patients affected more severely. We are pleased to see that excimer treatment for Vitiligo was accepted as medically necessary by Cigna. We have started patient outreach for those Cigna-covered patients afflicted with this condition, as well as reaching out to inform dermatologists of this change. This further expands our available markets; a single patient can be worth as much as $38,000 to the physician over 52 weeks of treatments. In November, we announced the publication of a peer-reviewed health economic study entitled, Therapies for Psoriasis, Clinical and Economic Comparison. In the November 2020 issue of the Journal of Drugs in Dermatology, our excimer laser and our optimal therapeutic dose treatment protocol utilizing the multi microdose or MMD diagnostic tip were found to deliver the fastest results with the fewest adverse events at the most economical cost of all treatments analyzed, including topical, traditional UV, biologic and systemic therapies. In addition, patients treated with our excimer laser and extract with MMD had fewer actual treatment days compared to all other modalities. It was also the only therapy where patients achieved remission without a maintenance therapy. We would like to thank the team of renowned physicians that assisted in the study. Turning to our strategic goals, in mid-2018, we identified several key strategies that could lead to significant improvement in STRATA's business. At that time, no one foresaw the dramatic and widespread impact of the COVID-19 pandemic. While we necessarily made a number of adjustments to our operations and short-term resources allocation, earlier this year, we have continuously kept an eye on our longer-term growth plan and not wavered from those initial goals. As a recap, we are focused on expanding our recurring revenue installed base domestically and internationally. At the same time, we are driving the utilization of each of these devices through patient outreach, DTC advertisements, extended inclusion indications, and increasing insurance coverage. We believe these initiatives will generate top-line growth, expand margins, and increase cash flow from operations, allowing us to achieve profitability and market expansion. In closing, we have turned the quarter supported by the strength of our core fundamentals and focus on our initiatives, and look forward to delivering meaningful sustained growth over the long term. I would like to now turn the call over to Matt Hill for a closer look at our third quarter financials. Matt?

Thank you, Dolev. Revenues for the third quarter of 2020 were $5.6 million, a 25% decrease compared to revenues of $7.5 million for the third quarter of 2019 and up 39% from the second quarter of 2020. This reflects the general shutdowns and restart of our partner clinics over the last two quarters due to the COVID-19 pandemic. Recurring revenues for the third quarter of 2020 were $3.8 million, a 36% decrease compared to $6 million for the third quarter of 2019 and up 37% from the second quarter of 2020. Equipment revenues for the third quarter of 2020 were $1.8 million, an increase of 19% compared to $1.5 million for the third quarter of 2019. The increase was the result of the timing of certain sales of units into Asia and a better compatibility between the quarters since our implementation of the recurring revenue model in Korea in the third quarter of 2019. As we discussed last quarter and included in our press release issued this morning, we provided information on a non-GAAP measurement described as gross domestic recurring billings, which represents the amount invoiced to partner clinics with treatment codes sold to the physician. It does not include normal GAAP adjustments, which defer revenue from prior quarters recorded as revenue in the current quarter, the deferral of revenue from the current quarter recorded as revenue in future quarters, adjustments for co-pay, and other discounts. We felt this was an important disclosure in light of the COVID-19 pandemic, to assist in understanding our business and more effectively view the trends that we're seeing in our business. We also wanted to provide transparency with respect to deferred revenue. Since we defer a portion of our GAAP recurring revenue into future quarters, a decrease in deferred revenue can impact each subsequent quarter. Deferred revenue added to the second, third, and fourth quarters was $1.5 million, $500,000, and $1.4 million, respectively. This means our recurring revenue was reduced by nearly $900,000 in Q3. Deferred recurring revenue in and out of each quarter of 2019 was approximately $2 million per quarter. Gross domestic recurring billings for July, August, and September were $1.4 million, $1.6 million, and $1.7 million, respectively. Our total gross domestic recurrent billings for the third quarter were $4.7 million compared to $1.8 million in the second quarter, representing an increase of approximately 155%. Overall gross profit for the third quarter of 2020 was $3.2 million, or 57.5% of revenue compared to $4.6 million, or 61.8% of revenues for the third quarter of 2019. Gross profit was up 8.8% from the second quarter of 2020. Gross profit for recurring revenues for the third quarter of 2020 was $2.5 million, or 64.3% of revenues compared to $4 million, or 67.2% of revenues in the third quarter of 2019. Gross profit for the recurring revenue was up 13.1% for the second quarter of 2020. The primary reason for the decrease in gross profit in the third quarter of 2020 compared to the same period in 2019, was a result of the lower recurring sales due to the COVID-19 pandemic, fixed costs, and lower production. Engineering and product development costs for the third quarter of 2020 were $411,000 compared to $249,000 for the third quarter of 2019 as a result of certain engineering projects. Selling and marketing costs for the third quarter of 2020 were $2.1 million compared to $2.9 million for the third quarter of 2019, primarily due to the downturn in business as a result of the COVID-19 pandemic. The company managed costs with lower trade show costs, travel costs, compensation costs, and direct-to-consumer advertising costs. We plan to steadily increase DTC spend and sales headcount in order to fuel the growth at our partner clinics and serve the growing installed base respectively. General administrative costs for the third quarter of 2020 were $1.9 million, compared to $2.2 million in the third quarter of 2019 as a result of lower audit, legal, and consulting costs in connection with our change of orders in 2019 partially offset by higher insurance and stock compensation costs. Other expenses for the third quarter of 2020 were $21,000, compared to $153,000 for the third quarter of 2019 as a result of lower interest expenses due to the refinancing of our long-term debt in December 2019. We will evaluate our cash secured note payable prior to year-end. Net loss for the third quarter of 2020 was $1.3 million, or a loss of $0.04 per basic and diluted common share, compared to a net loss for the third quarter of 2019 of $860,000, or a loss of $0.03 per basic and diluted common share. As of September 30, 2020, cash, cash equivalents, and restricted cash was $18.5 million, an increase of $3 million from December 31, 2019. We continue to conserve cash and operate on a lower cost structure as we've eliminated many temporary workers and reduced DTC advertising spend and other discretionary costs. Again, we plan to steadily increase DTC spend in order to fuel the growth for our partner clinics. We ended the quarter with $11.1 million in unrestricted cash. The company generated positive cash flows from operations in the quarter. At this point, with the cash on hand and the trends of sales, we do not foresee any liquidity issues to support our business and growth. In summary, while we cannot predict when this pandemic will end, we remain confident that we're prepared to manage through these uncertain times. And now, I would like to turn the call back over to Dolev.

Thank you, Matt. Operator, let's open the call for Q&A.

Thank you. Our first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Hi, Dolev and Matt. Hi, this is actually Destiny on for Jeff today. I just have about three or four questions I'd like to run through. Firstly, could you discuss the trends you're seeing in the dermatology space? Do you have any insight into the current backlog, if any? And then could you perhaps talk a bit about scheduling trends in terms of both volume and patient interest? In other words, are patients calling to schedule, or is this interest being generated by your patient outreach program?

Good morning, Destiny, and thank you for the question. Let's discuss the process. Before COVID-19, approximately two-thirds of patients in treatment came from clinics, while about one-third were generated through our direct-to-consumer efforts. In 2019, we had around 23,000 new patients in treatment, with about 6,000 from our initiatives and the remaining 16,000 from clinics. Recently, we hit a low point in patient scheduling in April, but we've seen significant improvements since then, trending back towards the regular appointment levels we experienced in 2019. This average recovery varies across the four regions of the country. The southeast and the Midwest are bouncing back the fastest, showing what we could call pent-up demand. I will return to this point shortly, as we are achieving numbers that exceed 100% when compared to June 2019. The Northeast and the West were impacted more severely; while the West saw an earlier rebound, it grew steadily rather than sharply, eventually stabilizing. The Northeast's recovery took longer due to its metropolitan nature, which slows patient return and clinic staffing. The scheduling of patients is influenced by three main factors: patients' desire to receive treatment, which is consistent across regions; the increasing number of patients seeking alternative treatments, including us, instead of immunosuppressant drugs, a trend we've highlighted in earlier calls; and the realization that we cannot over-treat, as patients follow the same treatment protocols as before, though more patients are now being treated overall. Our direct-to-consumer advertising is expected to attract new patients who may not have awareness of non-immunosuppressive solutions or might not know about their insurance coverage for specific conditions, like Vitiligo and Cigna. For these patients to receive treatment, clinics need to be fully operational and staffed. During the second quarter, many clinics either did not open or only offered limited physician services, often being understaffed. However, we have successfully reactivated numerous clinics where physicians decided to open up and fully staff their procedures, which has allowed us to resume operations. Importantly, patients were eager to return, and our outreach efforts were crucial to facilitating this reopening. When clinics reopened, they faced a challenge: they had staff available but lacked patients. Our outreach announced to patients that clinics were open, something the clinics were not equipped to communicate at the time. In terms of scale, we reached out to dozens of patients per clinic, and when you consider that we connected with thousands of patients across over 300 clinics, we effectively notified many individuals who were already in treatment or had consulted with a physician prior to the pandemic. These patients were known to the clinics, and we had already confirmed their insurance benefits. By reaching out to them, we informed them that the clinic was available and prepared to treat them. This approach allowed us to schedule more appointments than our usual direct-to-consumer method, as this method typically involves discussing services with patients who are unfamiliar with them and require benefit verification. I hope I thoroughly addressed your questions.

You did. You actually answered my second question as well. So I'll jump down to the third; I'm just going to circle back to your comments about coverage by Cigna for Vitiligo. I'm wondering what impact you think that could have maybe just at a higher level, on revenues in 2021 and beyond. If you could kind of discuss the stickiness of these patients relative to psoriasis patients, given that the number of treatments is typically higher. Maybe you could just discuss that a bit. Thank you.

Very good question again. So, let me provide the short background. The three CPT codes that we use, which were written by CMS about 15 years ago, provide coverage for treatment of dermatological conditions caused by the immune system or auto-immune system. These codes include a comment that says in parenthesis psoriasis. Some insurance companies have in their guidelines looked at this and said we cover all autoimmune disease conditions. Other insurance companies looked at this and said we provide coverage only for certain autoimmune diseases, using psoriasis as an example. Some insurance companies instructed the physicians when filing for reimbursement to use other CPT codes, which are more general dermatology procedures. The important part was that if you look at our investor deck, our success rates to obtain insurance benefits for patients inbound on DTC was in excess of 96% for psoriasis patients, and only 76% for Vitiligo patients, owing to the complexity of the coverage by different insurance companies. Our reimbursement team that supports our partner clinics deals with over 600 payers, each with a different policy. So seeing a leading payer moving forward adopting a very wide, inclusive medical necessity guideline that provides full coverage to Vitiligo was very important. As I pointed out in my prepared remarks, this disease impacts more people with darker skin, who have seen that impact of getting less economic benefits from insurance companies over time. I do believe that over time, this wide policy change by Cigna is going to be adopted by other payers as well, if it hasn't already. The Vitiligo patients have a much higher probability of staying in treatment because they see results that are not only short-term in terms of getting into remission, and then a couple of months later, they’re back in with the disease state, which is as it is with psoriasis patients. Through the treatment, not only does it bring them into remission but also re-pigments their skin, which means they have less social impact on their day-to-day life. That's very important for them. We see them staying in treatment much longer, showing much less frustration. Coupling that with the fact that it's fully covered by insurance makes it easier for physicians to treat these patients seeking that procedure. Over the years, we have, even though this was covered by many insurance companies, not pushed the Vitiligo indication as strongly as we have psoriasis indication because of the discrepancy in coverage policies. Once we drive more patients knowing their benefits will be covered, we will turn to Vitiligo patients. I discussed that too and that will be a trend moving forward. We are outreaching to patients and we are also outreaching to physicians not just to update them about the coverage, but also to provide them further training because not all of them are providing these procedures. But more than that, we believe that advertising for this procedure will be less costly for us in the DTC spend. This belief is not just a belief; it’s founded upon our experience through 2019 when we advertised and saw our cost per lead for the Vitiligo patient being much lower than the cost per lead for psoriasis patients, also the conversion being higher, cost per acquisition being much lower. That drives a more reasonable advertising spend. So I have explained the reason why we didn't go overwhelmingly strong on Vitiligo before, why we're going to be going stronger now. But a reminder, in my prepared remarks, I said we are on a path and Cigna is one in a process of several. So this will take time.

Okay, got it. Thank you.

You're welcome. Thank you.

Our next question comes from the line of Manuela Brancati with H.C. Wainwright. Please proceed.

Hey, good morning, Manuela.

Hi, good morning, guys. Thank you for taking my question. I apologize; my line was breaking up a little bit. So you may have addressed a couple of these points earlier, but I was wondering, given the evolving situation around COVID and the different impact of disease on different geographies. Can you provide maybe more color on your more recent outlook at both U.S. geography opening and closing? What are you seeing in the field or in the current situation and maybe in the international geographies as well?

Thank you, good question. I'll provide some color, and then Matt is going to provide some more numbers around that discussion. We operate domestically in four regions. As I covered in my prepared remarks, the Southeast was the fastest to rebound and is operating at levels that are above 2019 levels without any benefit provided by our DTC advertisements. So they're double-digit above 2019, without us providing any support in patient referral. The Midwest is not far behind. The Northeast and West are both heavily impacted by the pandemic, and the impact stayed there for longer, mostly in the metro areas, such as New York City, Boston, New England, Seattle, Washington, San Francisco, and LA County. These areas were impacted substantially, and it took longer for the offices to re-open. Once the offices are open, it takes longer for them to actually re-staff. And once they re-staff, it takes longer for the offices to offer the full suite of services they were offering before. We have discussed the numbers in our Q2 earnings call and we have discussed a metric that we call non-GAAP recurring billings. This reflects the actual purchase of treatment codes by the physicians. Matt has discussed the conversion of that metric into GAAP revenue as this gets deferred out. But we have, during the low point of April, witnessed very strong double-digit growth in recurring billings, which means more clinics provided more procedures, more clinics activated, and more clinics were willing to consume their existing treatment codes. We provided the numbers for the third quarter. In summary, we operated at 70% of the third quarter of 2019. But once again, if you look at the details, every month was a progression over the previous month. We provided another month into the fourth quarter, October, where we were just short of 100% in comparison to October 2019. We were at 97% of October 2019. Now, a reminder, and Matt is going to cover this in his portion of answering this question: these numbers do not translate one-to-one into GAAP revenue as they get deferred out. The other part that I discussed in an answer to a previous question was the market in terms of the patients. We see more patients coming in, as reflected in the number of calls in our call center, whether it's DTC advertisements that we restarted in mid-August, or outreach calls made to patients of partner clinics. We see the willingness of patients to return to treatment, provided the clinic is open, and the physician is there with staff to see them. I'll finish my comments and turn this over to Matt by saying that we do anticipate, unless there is a resurgence in certain areas, to get back to an average of 2019 billing numbers by the end of this year as we see these areas rebounding. Matt, please?

That's a good question. Thank you very much. To approach it, we'll discuss domestic gross billings first and then talk a little bit about international. Domestic gross billings in Q2, with most clinics shut down, evidenced by the fact that we've opened over 250 inactive accounts in Q3, resulted in approximately $1.8 million of total gross billings. When you compare that to July, at $1.4 million, August at $1.6 million, and September at $1.7 million, we nearly had the entire Q2 gross billings in the first month of Q3. We're seeing positive trends return to our business as partner clinics open. You need to remember that we entered Q3 with $500,000 of deferred revenue from Q2 coming into Q3. When you look at our press release, you'll find a reconciliation between the $4.7 million we had in gross billings down to the GAAP revenue of $3.8 million in domestic recurrent billings. We also had $1.4 million coming out of the quarter into Q4; normally, that figure is around $2 million. Our expectation is, if we can get back to 2019 gross billing levels, then we should begin to defer and get back to that $2 million deferral amount. That depends on time with calculations and all of those considerations we do here. But you need to be aware that, coming into Q4 with $1.4 million and exiting Q4 with a deferred revenue of $2 million, will have an impact on our gross billings to GAAP revenue calculations. Looking internationally, citing the JMEC contract shows Japan's interest in opening back up and moving to the recurring revenue model. We have seven additional placements in Korea, again positive trends. We see growth in our international recurring revenues, along with equipment sales. The expectation remains that we will sacrifice some short-term capital sales as we grow our recurring revenue. I hope that answers your question.

Yes, got it. That's very helpful. Thank you. Maybe another question regarding your recent publication regarding the data and pharmacoeconomic benefits of extracts. I was wondering if you can give us more details on how you can best leverage this data as part of your DTC and physician contacts now during the pandemic situation, and maybe later on when in-person visits can happen more frequently?

Thank you. Great question. Leveraging this data has two parts, one imminent, and the other longer term. I'll start with the more imminent part. By showing that the procedure is faster to get to the endpoint, when all other procedures reach the same endpoint, but we get there faster, is less expensive for the payer, is the only one that is profitable for the physician, has no side effects for the patient. It is the only one that gets the patient to remission and while the patient is in remission, there is no maintenance therapy. This is important for the trends we see domestically with regional payers moving towards capitated plans or plans where clinics are paid for managing patient outcomes versus paying per procedure. We already have a number of partner clinics that are part of groups participating in Managed Healthcare or capitated plans; this is important for them. If they can provide the procedure and it will cost them less, then it will cost the insurance companies, while they’re being paid more by insurance, that’s good for them. We're working with one of the largest groups in the west with multiple clinics and hospitals and one of the largest dermatology clinic groups in the east, but I won’t go into specifics for obvious reasons. This is important for them imminently. In the longer term, as we see the reimbursement landscape changes and more focus is placed on the patient cost of treatment overall, being able to provide the lowest cost outcome is essential. This is true domestically; we saw the beginning of that trend with ACA in 2011, but it stopped. I believe that recent political changes will reignite the focus on overall patient costs across multiple indications. We see this with plans like Kaiser, where they look at the overall cost of patients versus individual procedures. So domestically, this data is also critical. Internationally, it’s significant because in all the markets we operate, the competition is the cost in three of the four markets: Japan, South Korea, and the Middle East. Our procedures are covered by the National Health Plans. National health insurance provides coverage and expands, pushing procedures towards excimer treatments and away from pharmaceutical treatments. This has been discussed in previous earnings calls where Japan has updated its reimbursement. We are seeing reimbursements expanding in South Korea as well. Not to mention that in markets where procedures are done out of pocket, having a solution that is faster to remission means clinics can get patients to remission quicker without side effects. This is essential. All the markets we operate in will utilize the outcomes of this study, given that it was done independently, published in a peer-reviewed journal. It's important and the data is being leveraged in different ways, both close range and long term.

Got it? That's very helpful. Thank you very much.

Our next question comes from Suraj Kalia with Oppenheimer & Company. Please go ahead with your question.

Good morning, Dolev, good morning, Matt. Hope everyone is safe.

Good morning, Suraj.

So Dolev, I know it's been a long call. I'll save the majority of my questions for a follow-up. Average revenues, recurring revenue per system for the quarter, my math suggests about 4,500 approximately. Am I close?

Yes, a little higher, about almost 4,600.

Okay, fair enough. Dolev, how are discussions with private equity-owned clinics going?

Great question. Let me again provide some background for those that do not know the details. We ended 2019 with about 221 of our partner clinics being in what we call private equity-owned groups of clinics. As I have discussed in the second quarter earnings call, we see different trends coming out of COVID. Some are exiting COVID much stronger than they entered because they're taking advantage of the situation and expanding rapidly and opening up clinics. Others took a big hit and are slow to recover; some may not recover at all. As you can see from the expansion in placements, even though we did not go into details, some of that was into groups and some of that was into individually owned clinics. Regardless of whether this was a comeback or not, we had major wins from competitions that were owned by private equity groups. They appreciate that we can drive their results. Part of the nine comebacks we had in the quarter were partnered with private equity-backed groups where they recognized it was worthwhile to give us clinics that are underperforming because we can significantly increase business there. They see this across the board with other clinics that are involved, whether helped by driving them through the end of Q1 2020 or by getting them out of their low point in April using our outreach.

Got it? Final question, I'll hop back. So Dolev, during a different phase of COVID, it would normally make sense that there are fewer sessions with similar levels of remission, which seems like a strong selling point. Can you provide an update on the MMD adoption in the field? Are we reaching a critical threshold? Any information on that would be appreciated. Thanks, everyone, for addressing my question.

Great question. I would reserve the update on MMD usage to a point where it passes the critical threshold. I did cover MMD partially through the discussion of the clinical study published. We do see MMD as an approach, as a diagnostic tip, and the ability to offer fewer procedures as a way for clinics to provide better service and lower costs for payers and better retention for patients. We do see adoption in multiple clinics of this approach. Once it gets to a critical threshold, we will provide separate updates. Operator?

Dr. Rafaeli, there are no further questions at this time. I'll turn the call back to you for closing remarks.

Thank you, operator, and thank you everyone for joining us today. We look forward to updating you again in our next quarter. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.