Nov 4, 2020
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Operator
[00:00:00] Thank you for joining Cutera's third quarter 2012 earnings conference call after the prepared remarks, there will be a question and answer session. The discussion today includes forward looking statements.
These forward looking statements reflect management's current forecast or expectation of certain aspects of the company's future business, including, but not limited to any financial guidance provided for modeling purposes for looking statements are based on current information that is, by its nature, dynamic and subject to change for looking. Statements include, among others, statements regarding financial guidance, regulatory approvals, productivity improvements and plans to introduce new products and expand into additional taxes for that may identify forward looking statements.
We encourage you to refer to the Safe Harbor statement in our press release earlier today. Are all forward looking statements are subject to risks and uncertainties, including those risks factors described in a section entitled Risk Factors in Our Form 10 Days, as well as Securities and Exchange Commission and of the information that you subsequently filed.
Guitarra also cautions you not to place undue reliance on forward looking statements which speak only as of the date, the Army undertakes no obligation to update publicly any forward looking statements to reflect new information, events or circumstances or to reflect the occurrence of unanticipated events. Future results may differ materially from management's current expectations.
In addition, we will discuss nongay plans for measures, including results on an adjusted basis, we believe the financial measures can facilitate a more complete analysis, and greater transparency is the key to our ongoing results of operations, particularly when comparing underlying results from period to period. We refer to the reconciliation from gap to non gap measures in our earnings release.
These non gap financial measures should be considered along with, but not as alternatives to the operating performance measures prescribed by Gap. With that, I like to turn the call over to our CEO, Dave Barry.
And please stand by for one moment.
Dave Mowry
[00:02:34] Thank you, operator. Today, I'm joined on the call by Jason Ritchie, president and chief operating officer, as well as Ryan Seth, our chief financial officer.
I will begin today's call by providing a brief overview of our third quarter twenty twenty business results, highlighting our efforts, improving our top and bottom line performances as customers continue to ramp treatment volumes. Ryan will then provide more detail around our third quarter financial results and then turn the call over to Jason, who will provide an operational update before opening the call to questions.
I will provide some insights into our longer term initiatives as we work to put fiscal year twenty twenty behind us. Turning now to the third quarter, I am pleased with our third quarter results and proud of the way in which Couturiers team has responded to the challenges presented by the global pandemic over the course of Twenty twenty in the third quarter of fiscal twenty twenty, we built upon our previous efforts to increase our account level interactions, engaging customers through increased service and support, and working more collaboratively with practices to drive patient traffic to the Kitara specific treatments they offer.
These efforts delivered near-term improvement to the business and drove sequential growth over second quarter across all revenue categories. Additionally, these efforts have helped to strengthen our relationship with our high value customers running dedicated esthetic practices.
[00:04:07] As we mentioned on our second quarter earnings call and based treatment volumes were running at approximately 70 percent of covid levels exiting June despite excess treatment, demand from patients practices face constraints on the procedure volumes as they implemented social distancing and disinfecting protocols to mitigate the risks of covid-19 within their practice. As we anticipated, practice efficiencies continue to improve over the course of third quarter, and most practices were able to expand their capacity with extended hours or treatment room expansions.
These improvements enabled practices to further ramp energy based treatment volumes, exiting the period between 90 to 95 percent of their covid volumes for these treatment types. Pent up patient demand has diminished slightly, but remains a strong, positive leading indicator of the recovery, with many esthetic practices booked several months out into the future.
While recovery trends varied across regions, we witnessed steady progress over the course of the third quarter among esthetic practices in North America, Japan and several geographies in Europe, along with the treatment volume improvement. We also saw an improving appetite for capital spending across many of the distributor markets.
We serve as practices in these regions continue to reopen and ramp patient treatment volumes across Europe. Some regions, such as France, Spain, UK and Germany remain slightly less predictable, with the increased travel and treatment restrictions coming back into play as the impact of the virus runs its course.
Australia also experienced a temporary setback in the Melbourne region as the spike in covid cases caused the government to reissue temporary localized restrictions. Despite these challenges, our sales teams around the world continue to adapt and deliver results across the portfolio.
Within the period, we saw particular strength in a couple of areas of note. One area of significant year over year growth is in our skincare line offered in Japan, which reached triple digit growth for a second consecutive quarter.
This performance exceeded our expectations and was driven by further expansion of the customer base and the continued loyalty of our existing users. While these results are very positive for the business, we do expect a more normalized level of growth on this new base going into fiscal 21.
Performance across other recurring revenue categories, service and consumer products, was also solid during the period tracking in line with the increased energy based treatment volumes we anticipated across global esthetic practices in the third quarter of Twenty twenty. Global service revenues were up 27 percent sequentially with second quarter twenty twenty and have returned to pre covid levels within the third quarter of Twenty twenty service revenue was driven by strong field service call volumes and an increased revenue from the sale of extended warranties and field service contracts.
Consumer revenue achieved sequential growth of 62 percent over second quarter twenty twenty, nearly closing the gap to pre covid energy based treatment volumes. Given constrained practice capacities, customers were drawn to true Scott, true kruskal, flex and secret RF procedures.
As these treatments offer practices greater treatment, profitability on competitively shorter procedure times. During the third quarter of Twenty twenty, our consumer product revenue benefited from the growing partnership between the company and esthetic practices in promoting these treatments to their existing customer base.
[00:07:59] As expected in the period, capital sales remain a challenge. Nevertheless, the entire sales organization made meaningful improvements on a sequential basis, delivering 55 percent improvement over second quarter twenty twenty on global systems revenue, largely driven by an increase of 67 percent in North American systems revenue over the second quarter of Twenty twenty.
Many core customers remain hesitant to make significant capital commitments with the uncertainty associated with a possible covid resurgence as we move into the colder months considering the uncertainty surrounding the virus. We continue to expect pressure in the capital equipment demand, environment system sales will continue to track under pre covid levels.
Nevertheless, we anticipate sequential improvement in the fourth quarter of twenty twenty as we continue to expand our sales coverage in advance of the full market recovery. Before turning the call over to Roland, I would like to highlight the results of our operating discipline during the third quarter of Twenty twenty.
As I said previously, we've made several difficult decisions to reduce headcount and rightsize our business in the face of the unknown. While many of these programs were rolled out in the second quarter.
We saw the full effect of these cost reduction initiatives reflected in both our gross margin performance and operating expense controls. These reductions in combination with our above expectation revenue performance provided an accelerated pathway to positive cash generation a quarter earlier than we had previously committed.
We remain committed to maintaining this discipline going forward and intend to keep operating expenses in line with business volumes. I will now turn the call over to Rowin to review specific financial performance results from the third quarter and year to date.
Rohan Seth
[00:09:51] Thank you, Dave. Before I begin, I wanted to share my personal excitement and enthusiasm in joining the team at Guitarra in my short time here is clear to me that there hasn't been a better time to join Kitara.
And it's trying to your history. Dave and his leadership team are in the process of reimagining and creating the future of medical esthetics.
And I'm delighted and humbled to play a role in it. As I review my prepared remarks, I want to note that I will primarily focus on non-GAAP results unless otherwise stated a complete reconciliation of Gap Tanon Gap is included in the earnings release.
We encourage listeners and readers review are non-GAAP metrics in conjunction with the Gap results as contained earnings release, total revenue for the third quarter with thirty nine point one million, compared to forty six point one million for the same period in 2019, representing a decline of approximately 15 percent. The decline is attributed to reduced treatment volumes and lower levels of capital equipment purchases due to cover disruptions around the world.
[00:10:54] North American capital equipment revenue with thirteen point seven million, compared to twenty four point one million for the same period last year, while international capital equipment revenue for the third quarter was ten point four million, as compared to ten point eight million in third quarter twenty nineteen a four percent decline. The year over year performance of our international capital sales benefited from our European direct sales team, driving a growth of sixty eight percent and our Australia New Zealand team delivering sixteen percent growth over the same period prior.
These areas of growth were offset by weakness in distribution markets within the Middle East as well as the Asia-Pacific markets. Our expectations are that these international distribution markets will continue to improve in subsequent quarters as customers and regional distributors continue their recovery efforts.
Covid disruptions, recurring revenue defined as consumables, global service and skincare revenue was 15 million, compared to eleven point two million for the same period last year, representing 35 percent growth over prior year. Decline in energy based treatment volumes over prior had limited impact on both service and consumables revenue.
Gross profit declined over prior year, but improved sequentially over the second quarter as a result of increased revenue in combination with a full quarter of overhead savings. Regional product mix had a slight negative impact during the quarter gap.
Gross profit for third quarter of fiscal twenty twenty was twenty one point seven million. Another bright spot in our financial performance for third quarter twenty twenty was our gross margin performance in the third quarter of Twenty twenty gap.
Gross margin was 56 percent versus 57 percent for the same period last year, holding relatively flat despite the year over year decline in revenue. This performance was the result of improved production efficiencies and substantially lower overhead costs being absorbed across Blokland planned production volumes associated with covid volumes and planned finished goods inventory reductions.
Gap total operating expenses for the third quarter of Twenty twenty were 23 million, compared to twenty eight point six million for the same period last year, a 20 percent decrease that delivered 300 basis points of improved leverage. Our results reflect lower variable compensation expenses, as well as the thoughtful and durable cost reduction measures implemented by the company.
In face of the business, disruptions associated with covid-19 headwinds, sales and marketing expense for the third quarter of Twenty twenty was twelve point three million, compared to seventeen point seven million for the same period last year, a 31 percent reduction. [00:13:52] The lower expense was primarily a direct result of our cost reduction measures and to a lesser extent, lower variable compensation expenses from lower revenue.
R&D expenses for the third quarter of Twenty twenty were three point four million, compared to three point six million for the same period last year as a result of project timing. Finally, GenY expenses for the third quarter of Twenty twenty were seven point two million, compared to seven point three million in the same period last year, driven by improved internal efficiencies offset by some onetime legal expenses incurred in the period.
I would like to take a moment to discuss our Jeanny outlook going forward. During the third quarter of Twenty twenty, we had some one time charges relating to completion of our rightsizing activities and resolving open legal matters going forward.
With these issues behind us and in conjunction with the cost cutting measures implemented in the second quarter, we expect to see continued improvement in our cost run rate in the fourth quarter as we benefit from a full quarter. The reduced run rates for the third quarter of Twenty twenty are non-GAAP operating income, also called adjusted EBITDA was a profit of two point four million, compared to a profit of two point four million for the same period last year.
While we exceeded expectations, we recognize the importance of holding the line and delivering sustained profitability coming out of the corporate environment, there were no material or significant changes to our tax positions. [00:15:26] Turning now to our balance sheet.
We ended the quarter with approximately forty two point four million of cash and equivalents, compared to twenty nine point four million at the same time last year and forty six point six million at the end of the second quarter of Twenty twenty. Regardless of this renewed strength, we are paying particularly close attention to working capital management in the current environment.
As highlighted previously, we effectively work with our vendor partners to conserve cash, but have been able to come in during the third quarter time period, ensuring no interruption of material parts or services. I'm pleased to report that the goals we outlined at the onset of the covid-19 pandemic are bearing fruit.
We ended the quarter with twenty nine point three million of inventory, down seven point six million from the high watermark coming out of Q1 twenty twenty. We expect to continue this effort monetizing our inventory through the end of 2009.
Additionally, we have remained diligent on collections recognizing business challenges being faced by distribution partners and customers while bringing down the accounts receivable exposure. We believe that our approach has been fair yet firm and built on good commercial processes to qualify customers in the current environment.
Our balance sheet is in excellent shape and remains capable of supporting our growth initiatives going forward. With that, I will not pass it over to Jason for his comments.
Jason Richey
[00:16:51] Thanks, Roland. At the speed of recovery in the global static space continues to be highly dependent on reasonable restrictions, I am proud of our commercial team's resilience and agility as they navigate this complex business environment since the return of elective procedures post lockdown.
We are encouraged by the continued backlog of patient demand for esthetic procedures and that the vast majority of practices have reopened. However, most practices continue to enforce strict precautions limiting the number of people allowed in a clinic at any given time.
These conditions, along with our priority of maintaining the health and safety of our employees and customers, have made face to face commercial interactions challenging. As a result, our team continues to utilize a combination of creative methods to augment Face-To-Face visits with key decision makers to navigate the sales process.
These new methods include virtual meetings, social media, direct messaging, video conferences and offsite demonstrations and interactions to communicate the unique long term value proposition of Kittridge innovative portfolio of esthetic devices. [00:17:58] Our commercial team remains highly focused on our flagship body sculpting franchise, comprised of our award winning through Sculpt, Edem and Kruskal flex platforms in both North America and international markets.
We have recently launched our True Body program, promoting the use of our Idy and platforms. In combination, we believe this 360 degree approach to body sculpting will deliver unmatched clinical results for patients by removing fat, renewing skin and building muscle.
The Driscol Tidiane Flex combination equips clinicians with the most robust en suite of tools to stay ahead of their competition in the field of body sculpting. Late in the quarter, we launched Praksis in the United States, a platform designed to expand our micron needling offering the Franks's pro delivers best in class Micronesians capabilities, along with the fractional ablate of CO2 laser.
This device provides a unique value to our core customers, combining powerful capabilities, a robust feature set and a small footprint. It is well suited to support the needs of our core customers in esthetic dermatology and plastic surgery.
Moving forward, we expect to expand this product launch into other geographies during fiscal year 2021. [00:19:09] Combined with new product launches are Twenty twenty commercial plan was designed to thoughtfully implement greater focus and structure on pricing discipline, despite Lockdown's increasing global competition, economic certainty and substantial pricing headwinds.
I'm proud of the commercial team's performance year to date as their efforts have enabled us to maintain our year over year average selling prices at historical levels. Lastly, I would like to discuss our commercial outlook in the market environment for the remainder of the year.
As Dave mentioned earlier, many of our customers remain hesitant to make significant capital equipment purchase commitments due to remaining uncertainty to a possible covid resurgence late in the year. And we continue to expect some pressure in the capital equipment demand environment in the fourth quarter despite this pressure.
We expect companies with innovative new technology and strong balance sheets such as ours to continue to do well. As such, we are planning to make some thoughtful investments in expanding sales coverage by key geographies as well as deliver some indication expansion.
I am pleased with the strength, position and resilience of our North American commercial organization, in particular in the early days of the pandemic, with a tremendous amount of uncertainty around the outlook for demand over the remainder of the year. We made the difficult decision to scale back the size of our sales force in an effort to rightsize the team, preserve cash and retain operating flexibility following our capital raise and the view to a pathway for recovery.
We began cautiously bringing back reps throughout the third quarter of Twenty twenty. [00:20:46] In addition to bringing back many reps, were also able to recruit a number of high quality competitive reps to the team.
Based on their performance and the continued recovery we are seeing in the market, I am pleased to report that we will continue to invest and expand our North American commercial organization, balancing the expansion with the improved productivity we are seeing come about on our team. Additionally, we will continue to make intelligent investments through our marketing efforts.
In November, we will host the North American Kitara University Clinical Forum, or SITKOFF. This annual session is well known and highly regarded throughout the field of energy based esthetics.
This is a forum where the community of esthetic practitioners are able to come see ecoterrorist technology firsthand and discuss applications with top clinicians, scientists and researchers. In addition to best practice sharing, the forum also provides an opportunity for customers to use our devices on site and purchase the products they feel will best complement their practices as the environment continues to open.
We will also run a series of regional clinical training workshops to allow for more specialized one on one education and demonstrations of our products. This platform will continue through the balance of the fiscal year, along with our webinars, to support our customers to this ever changing environment.
I want to reiterate how proud I am of our entire team as they continue to successfully navigate this complex business environment. I will now turn the call back to Dave for closing comments.
Dave Mowry
[00:22:18] Thank you, Jason. While there remain several unknowns surrounding the disruptions from the pandemic and the impact of the U.S.
elections that will need to play out over the next several months. We recognize that there is plenty of work ahead for the team at Keitaro.
Regardless of any underlying challenges. The management team and I remain focused on driving the transformation of our business by developing and introducing disruptive technology, driving operational efficiencies and delivering sustained profitability over the long term regarding disruptive technologies.
We are very excited about the early results from our acne solution and continue to work to accelerate our entry into the market. Currently, we are working to secure various regulatory approvals of this novel device and the associated procedure while the acne team continues to address critical path activities to optimize the timeline.
We are also focused on expanding indications and enhancing the performance of our strong energy based esthetic device portfolio to drive growth of the core business in the near term as we advance our various disruptive technologies closer toward launch with respect to ongoing efforts to streamline operations and expand market margins. We have made difficult cuts early in the year and have begun shifting energies towards optimizing these new, leaner structures, improving our supply chain capabilities and building a sustainable sales footprint that enhances account management, improves rep productivity and provides adequate coverage going into Twenty twenty one.
Since joining the business five quarters ago, we have executed on the foundational work we laid out to investors and we have begun to shift our energies from the needed foundational investments to process optimization and top line growth acceleration. Our efforts are intended to deliver a sustainable esthetic market winner with strong top line performance, continued margin expansion and increased leverage of our operating expenses that fuels the R&D engine that will drive our long term growth.
With that, I'd like to open the call, the questions operator.
Operator
[00:24:36] And at this time, we will be conducting a question and answer session, if you'd like to ask a question, please, press star one on your telephone keypad. A confirmation tone will indicate your line is in the question to you.
You may start to, if you like, to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before Christmas dakis.
One moment, please, while we poll for questions. And our first question is from Matthew O'Brien with Piper Sandy.
Please proceed with your question.
Matthew O’Brien
[00:25:07] Afternoon, thanks for taking the questions. I guess I guess just for starters, on the decision to go ahead and start adding reps back, can you give us a sense for, you know, the cut that you've made?
How many folks are adding you've added back already and the plans on the upside going forward? I don't know how much you want to share.
Just give it competitive, competitive considerations there. But how significant are some of those those additions as we think about things, you know, heading into Q4 and then more importantly, into twenty one?
Dave Mowry
[00:25:42] Great question and thanks for asking. You know, as we think about this, you know, we look at our core customers in the business that we have, which, you know, you know, is really all noninvasive technology across the board.
And as we thought about the businesses and many of those core customers, you know, we recognized that they were probably going to be a little bit more conservative in building back their businesses because they have multiple revenue streams. So our thoughts were, you know, let's make sure that we rightsize the business appropriately for the revenues that we expect with our portfolio.
And so that's what guided the discussion. Now, we're not going to just discuss or disclose the exact number of reps that we furloughed or released.
But I will say, you know, we obviously kept a significant portion in play during second quarter and hence we outperformed, I think, the Street's expectations on capital during that period. Were able to leverage that foundation and bring back, you know, I wouldn't say a doubling or anything like that.
But I would say we brought back reps at a rate where we saw productivity improvement in 3Q, not just additive coverage. And I think as we think about that, the contributions going into Q4 will be similar.
We expect that we'll see greater productivity as well as some additional coverage that will get us to to the goal that we've set for ourselves based upon the market recovery. I will say that we do believe the market has recovered slightly faster than we anticipated and we are going to look towards dedicate those reps into some of the more aggressive practice patterns that are buying capital or have a greater appetite for capital.
Matthew O’Brien
[00:27:36] And then is the follow up question just on the just on the capital side of things, our guess is we're looking at this potential second wave and you talked about what's going on in Europe. You know, other medical the other surgical procedures, they're finding ways to just stay open or they have capacity at 90 percent.
Ok, so just through a second wave, you know, maybe it could be a little bit more impacted than to kind of a surgical, you know, type company. So what are your customers doing as far as trying to maintain, you know, full operation, even if we go through another wave, you know, domestically, internationally, and then, you know, what kind of appetite do they have at this point on the capital side specifically?
Rohan Seth
[00:28:30] Well, I think that's another very insightful question, because, you know, there still is quite a bit of unknown. And I think what we've learned through this process is that we still have a lot of opportunities to go out and prospect additional deals.
There are some people that are a lot more aggressive in certain practice patterns. For example, we believe in the plastic surgeons in particular are a little bit more aggressive than the dermatology practitioners because dermatologists have other revenue channels that they can leverage.
So and, you know, a plastic surgeon, you know, greater than 90 percent of their practices on cosmetic treatments. So, you know, we'll continue to kind of make sure that we have the coverage we need to prospekt the deals that are available to be able to be had.
Meanwhile, I think we need to continue to think about what we did exceptionally well in the second quarter, which was partnering with those folks to give them the tools and the training and the support they need to stay, you know, open and continue to move their practice forward. I think it's the fear of the unknown that we need to continue to deal with.
And a lot of what we did in the second quarter and even in the early third quarter was working hand in hand with those physicians and practices in order to support them and help them address the unknowns. So I think we have the playbook for that.
I think we feel very good about it. And, you know, we're going to be very thoughtful to not get over our ski tips with investments and expenses that aren't justified in the business that we think can be had.
Matthew O’Brien
[00:30:11] Very helpful, thank you.
Operator
[00:30:16] Our next question is from John Glass with Stifel. Please proceed with your question.
Unidentified Analyst
[00:30:22] Thanks, guys, and good afternoon. The first one for you, sort of a broad question on the equipment environment, maybe we can just discuss the customers wants and are they very different, the wants and call it the U.S.
versus the international markets? And I guess is it a follow on to that?
Can you just also discuss the different capital outcomes you guys saw in North America was down around 40 percent international and was quiet all the way back to flat. And so maybe just the dynamics within with an international business were results were somewhat surprising to you guys.
Rohan Seth
[00:30:56] Yeah, I think the way I'm going to tee it up here and maybe give you some specifics around certain practice patterns in where we're seeing it, I think in the US, you know, from from our perspective. You know, our our kind of focus has been on the core customers, and I'd say probably more heavily on the Durham type practices or the dedicated esthetic med spies that are led by physicians, which are essentially Durham esthetic type practices.
You know, we've also you know, we also go after some plastic surgeons in certain regions and and certainly where we think that that makes sense. But, you know, I think a lot of times the plastic surgeons are looking to basically down sell people that have sticker shock and they use a combination of minimally invasive and noninvasive products to serve those customers.
And our portfolio doesn't really line up exactly to that. And I think we're aware of that ours are all noninvasive by nature.
So I think, you know, we need to understand that and make sure that we're leveraging our portfolio for the right customers and presenting it as a value to their practice where it makes sense. As we think about the international versus the U.S., I do think that, you know, this could be a little bit more kind of a kind of the law of small numbers.
In some cases. We saw some very nice recovery in a couple of geographies in particular where, you know, we had some real stud sales leaders come in versus last year where we maybe weren't doing so well.
And as a result, we saw a really nice pickup that and then in combination, we saw a very nice benefit in Australia with a recent launch of The Flex Jaiswal. If you have, you know, anything you want to add to that?
Jason Richey
[00:32:51] You know, I don't think that there's a dramatic shift in terms of desire by region. I think one of the things that's been interesting for us is there's really four things that clinicians are looking for that they're able to sell to the patient is cost treatment, time, access, and then for the clinician is the return on an investment.
And so I'd say that that navigating through a covered environment is certainly beneficial to have a robust portfolio that we can, you know, really customize the toolset that the clinician needs in order to maximize the return on investment. What we have seen is, you know, moving into sort of the Zoome environment, where a lot of video chatting, a lot of people have spent a lot of time and focus on fast paced procedures, things like micro needling or laser genesis.
And some of the body stuff has some of the somewhat of a seasonal approach as well. So, you know, as people have been in their Zoome meetings, they're really focused on based on appearance at this point in time.
But then when you when you shift to seasonality, we see in Australia right now bodies getting super hot because it's getting ready for summer. So you see some of that regionally.
But I think I guess the take home would be having a portfolio makes us fairly nimble during this time. And we can sort of play to the strengths of whatever the market's yielding at that time.
Unidentified Analyst
[00:34:07] Got it, very, very helpful color and you know, in normal times, market share in esthetics can be challenging just because it's sort of all over the map and market share can sometimes be heavily dictated by who's got the new toy. But they're just curious on your thoughts on that in terms of how you guys were shaking out market your wise, maybe North America in abroad and maybe to your earlier comments, you feel like you're punching above your weight in Durham and maybe slightly below in plastic.
Well, I got one more.
Dave Mowry
[00:34:34] Yeah, I think that's a fair way to look at it. And it's really about how our products appeal to the certain practice patterns that you see there.
Like I said, I think the germs are a little bit more conservative in their capital purchases right now, whereas I think the plastics are being a little bit more aggressive. And then I think when the plastics are looking at portfolios, they're looking at what they can down, sell those customers that come in looking for surgical outcomes or surgical procedures and have a little sticker shock what they can provide them.
And I think a minimal basis in combination with noninvasive is probably the package that they're looking at.
Unidentified Analyst
[00:35:15] Ok, great. And last one for me.
You know, I think we all know what the story's about going forward, but that skincare line was, gosh, I mean, maybe 17 percent of sales versus six percent a year ago. It was the second consecutive quarter of really strong result and revenue growth over one hundred percent.
So can you just give us some more color on that? You know, what's the margin profile of skincare roughly at the gross margin line?
And I know you talked about it moderating, but just to be clear, moderating growth year over year or moderating on an absolute basis, you jump off point. Thanks.
Dave Mowry
[00:35:48] Yeah. Let me go in reverse order.
I look at I think we've established a new foundational basis for that sale level. And and, you know, as you would imagine, we've been very close with our international sales team specifically that in Japan, and we feel very good about that.
Now, that's a distributed product. So as a result, you know, we're kind of leveraging our relationship with the distributor to continue to to provide that.
And I really like the line. I think the customers really like the line.
But I think most importantly, the patients really like the line. And that's given us a lot more stability than I think we had anticipated coming out of Q2.
And and we've pressure test that a little bit. So I think this is the new base that we should be thinking about going forward, you know, in terms of the base of the business.
And I would tell you that that has come about through to two things. In particular, we've seen some improvement in same store sales.
People have promoted it more to other customers or other patients in their practice. But we've seen a significant portion of this growth come from new store sales.
And those seem to be reordering at a rate that makes us very comfortable that this is the new basis. So as you think about twenty one or twenty twenty one, I think what you saw in the last two quarters is probably that foundational basis that we should be thinking about.
But I think we're going to get back to something that's more in line with with kind of a normal growth pattern off of that basis.
Unidentified Analyst
[00:37:23] Got it. Very helpful.
Thanks, guys. OK.
Operator
[00:37:31] And our next question is from Anthony Vendetti with Maxim Group, please proceed with your question.
Anthony Vendetti
[00:37:54] Sorry, I'm just an update on the on the trends. I know you mentioned on the call, Dave, about 70, 90 to 95 percent.
It appears patients returning to the offices. Is that based on patient volume or procedure numbers?
Dave Mowry
[00:38:10] Yeah, that treatment volumes, not patients. Right.
So, you know, there's been some really good reports out there from a number of folks kind of tracking this. And I think our numbers in pulling our own customers kind of track likewise to those numbers.
Obviously, a lot of the firms are doing the kind of the quick noncontact or limited contact type procedures as people come back. We've seen that kind of reflected in injectables and other things.
As you get into the energy based treatments. I think what we're seeing is that in the Durham practices in particular, you're seeing facial treatments, rejuvenation of the face, and then you're even seeing somebody a little bit lower.
But we think we're probably getting a little bit more share of those treatment volumes in the body just because of the profitability of those procedures. Offer the physician on shorter times.
So, you know, it's a little bit of a multifactorial problem to solve, but I think 90 to 95 percent is treatment volumes of energy based business involves energy based.
Anthony Vendetti
[00:39:21] Ok, and then you mentioned in your 20, you were doing the entire membership program for four capital constrained customers. Is that was that a significant part of your third quarter or is that less less a a factor in your in your third quarter numbers?
And do you expect to continue that program?
Dave Mowry
[00:39:46] Yeah, we knew that so many of these customers could not afford a down payment when they had completely eradicated their cash reserves in their practice. We also knew that they needed to have competitive treatment options to provide their customers or they would lose their customers or their patients.
So it was a courtesy program. You know, I would say that it was not a material factor in our revenues overall.
And I think it was just our way of making sure that were partnering with those practices that couldn't afford the down payment. Likely, you know, it's not a long term contributor to the to the business here, but it's an option that we have.
And we'll keep it kind of, you know, tucked in our pocket here as we think about potential resurgence. But the reality is that, you know, the vast majority of customers that can afford a down payment would rather own the equipment and control the procedure and not have kind of that that rental arrangement established.
So it was kind of an opportunity for a convenient arrangement that allowed them to to build their practice. But it's not something I would expect to be a building block of the future.
Anthony Vendetti
[00:41:03] Ok, and in many, many states on the roll out of the Franks's pro the dermo remodeling product, we launched it very late in the quarter.
Dave Mowry
[00:41:15] And Jason, tell us if you know, you want to give a view to what we saw the uptake to be. You know, we're not going to reduce or give you a numbers, obviously.
But, you know, it was a very late in the quarter launch.
Jason Richey
[00:41:27] Yeah. I mean, this was something that like Dave said, you know, we train to this thing in the last month of the quarter and then it came out literally within about two weeks ago.
I would say that we're pleased with the traction of it thus far. And I think the timing of this launch is good because it pairs well with the esthetic dermatology as well as plastics.
And I think it complements the success that we've had with secret RF. You know, that's sort of been the sweetheart of our portfolio and we've sold a group of them over the course of the last several years.
And I think being able to add in Praksis pro and add that fractional add that fractional ablate of CO2 laser to the advanced suite of products puts us in a nice spot. It fortifies the vertical and it also creates this element that we didn't necessarily have in our existing portfolio that I think will complement the conditions that we're really trying to to court with this.
So more to come on it, but so far so good. It's a nice box.
People are it's really warm receptivity and I look forward to see what we can do with it in the back half of the year.
Anthony Vendetti
[00:42:29] Ok, and then just lastly, on the acne product, you're developing any any updates on on the timeline there, how that's going and any.
Dave Mowry
[00:42:41] Yeah, it's a great, great question. And, you know, we've talked about it.
I want to be really clear. You know, we're probably going to go into a little bit of a quiet period as we're working very closely with the regulatory agencies on securing kind of the pathway to approval on, you know, the probably the next big note you'll see will be when we get to the point of of enrolling patients.
Right. So at some point in time, we'll give you a little bit more insight.But you know, we have a legacy, a legacy product portfolio that we need to continue to invest in and drive growth on.
And, you know, we're going to be focusing our efforts internally on that while we let the researchers, the engineers and the clinicians kind of drive the next stages of acting.
Anthony Vendetti
[00:43:29] Ok, and then just just to get back real quickly to the fracases pro, is there is there a consumable on that or is that just capital equipment?
Dave Mowry
[00:43:37] Yes, there is a consumable just like it's the same consumable that we have in our secret RF micro needling device.
Jason Richey
[00:43:43] We had committed and I wanted to make sure that everyone kind of hears me say this. We have committed that we will not launch another product out of the KUTYA, a portfolio that doesn't have a consumable component to it.
Anthony Vendetti
[00:43:57] All right. I'm back in the queue.
Thank you. Appreciate it.
Great.
Operator
[00:44:07] And our next question is from Chris Cooley, Stephens, Inc., to proceed with your question.
Chris Cooley
[00:44:14] Good afternoon, everyone, and congratulations on the strong quarter. I apologize from the outset.
I'm a couple here this morning. Cautious this afternoon to speak today, but could you maybe provide some additional clarity around the strength, relative strength that you saw there in consumables?
You know, when you think about the decline in North American systems, you know, you compare that to overall consumables, really seems to speak to better utilization trends there. I'm just curious if you could help us pass that out.
Is that broad based? Is that system specific?
Just any kind of clarity or I should say platform specific would be appreciated? I've got one other quick follow up.
Dave Mowry
[00:45:04] Great. Well, it's good to hear you, Chris, and thanks for the question.
I would say that, you know, it's kind of more of the same. And we commented about it very, very briefly in the prepared remarks.
But listen, we have our flagship product, Kruskal, Flex and ID, which, you know, we're seeing greater and greater usage of those in combination as a result of promoting them under our true body approach. And I think that that's led to a lot of uptake on the consumable side of the business.
Additionally, you know, we have secret RF, which has become, you know, a good standard, profitable procedure for a lot of the practices that have it. It's got shorter times and good outcomes.
So when you look at the way that we're thinking about, you know, true scale, both idee and and with secret, it's about driving profitability for the practices with competitively shorter times and a good result or great result that they can charge for. And I think you see more of that in this quarter, as you have in previous.
But I think you're right. You know, with less boxes being sold, you're seeing, you know, when you get a recovery like we saw, you know, you're seeing kind of utilization go up in some regards.
So, you know, generally speaking, we're pleased with the way that that's laid out on the consumables on the service. I have to tell you that we have a really quite an amazing service organization that has hustled through a number of restrictions, travel restrictions, quarantine challenges, et cetera, to deliver these numbers.
And I'm exceptionally proud of what they've done. The surveys we get back from customers regarding our service and our service team are very strong and they do a great work for us.
And I think that's evidenced by the quick and aggressive recovery that they've been able to create on the revenue side, which is, you know, covid levels.
Chris Cooley
[00:47:07] I think it was just on the prior question. But when we think about the new product, just want to be clear in terms of our expectations, you know, you'll see this data when appropriate.
But is that expected to follow a pathway? Are you looking for a specific indication, just like we think about when it comes to work?
This is something I a man who does this more of a consumer, you know, off the shelf type of price point.
Dave Mowry
[00:47:44] You know, you've hit a lot of the topics, Chris, that we're still wrestling with to optimize the outcome from this investment. And obviously, the regulatory pathway is something that we're, you know, obviously not willing to disclose at this point as we're working through, you know, with the U.S.
FDA and even some foreign regulatory bodies to secure regulatory approvals for those those jurisdictions. As that becomes a reality or we become kind of committed to a pathway, you know, we'll make sure that that's shared appropriately in advance right at the time that it happens, I should say, in regards to kind of the way we're thinking about, you know, that business, you know, we continue to see great results and the durability of the results continue to be exceptionally impressive to us because of the studies that we did, you know, over a year ago.
We're still following up those patients. So we remain exceptionally bullish on the option or on the procedure in the device.
We remain exceptionally committed to it because of the just the math of what that means to this business and how transformative it could be. But, you know, I want to remind the folks on the call that we've got a legacy business that is really strong as well.
And, you know, the last thing we want to do right now is get diverted from the value that we can create with this legacy business. And hence, you know, we're trying to keep the right people on our team focused on moving as quickly as possible to a launch on the AP.
Meanwhile, the rest of the team needs to focus on, you know, optimizing what we have and the legacy and core businesses we talked about.
Chris Cooley
[00:49:37] Understood. Thank you so much for the call.
And congrats on a very good quarter in a challenging environment.
Dave Mowry
[00:49:41] Thank you.
Operator
[00:49:47] We have reached the end of the question and answer session, and I'll now turn the call over to the CEO for closing remarks.
Dave Mowry
[00:49:54] Thank you, operator, on behalf of the couture team, I want to thank you for attending our third quarter TWENTY TWENTY earnings call. We look forward to updating you in subsequent quarters.
Until then, please stay safe. Thanks.
Operator
[00:50:08] And this concludes today's conference. And you may disconnect your line at this time.
Thank you for your participation.