Good day, and welcome to the Sensus Healthcare Second Quarter 2018 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Bruce Voss. Please go ahead.

This is Bruce Voss with LHA. Thank you all for participating in today's call. Joining me from Sensus Healthcare are Joe Sardano, Chief Executive Officer; and Arthur Levine, Chief Financial Officer. As a reminder, some of the matters that will be discussed on today's call are forward-looking statements within the meaning of federal securities laws. All statements other than historical facts that address activities Sensus Healthcare assumes, plans, expects, believes, intends or anticipates and other similar expressions will, should or may occur in the future are forward-looking statements. The forward-looking statements are management's beliefs based on currently available information. Sensus Healthcare undertakes no obligation to update or revise any forward-looking statements, except as required by law. All forward-looking statements are subject to risks and uncertainties, including those risk factors described in the company's forms 10-K and 10-Q as filed with the SEC. During today's call, there will also be reference to certain non-GAAP financial measures. Sensus believes these measures provide useful information for investors yet should not be considered as a substitute for GAAP nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in today's financial results press release. With that said, I'd like to turn the call over to Joe Sardano. Joe?

Thank you, Bruce, and many thanks to each of you for joining us this afternoon. I'm happy to report that we continued to post double-digit revenue growth as we have now done for 11 consecutive quarters. We achieved revenues of $6.1 million in the second quarter, which is up 22% over last year's second quarter. Our year-to-date revenues are $12 million. Note that these revenues included continued strong sales of our featured-rich, premium-priced SRT-100 vision system for the treatment of non-melanoma skin cancer and keloids, accounting for 12 out of the 21 systems shipped during Q2. As I've said in the past, growing demand for the SRT-100 Vision with image guidance with ultrasound to facilitate treatment planning is reflective of the dedication of our physician customers to bring the best possible technology to their patients. We are pleased that increasing numbers of clinicians have recognized the capabilities of the Vision and are willing to invest in these premium systems. In addition to our growing revenues, we were very pleased with our ability to manage expenses, while investing in our growth in the form of research and development. Our CFO, Arthur Levine, will tell you shortly our intentions to -- our attention to cost has resulted in a dramatic improvement in adjusted EBITDA, which was a negative $200,000 in Q2 of 2018 compared with a negative $700,000 during Q2 of 2017. Note that we expect payback from the R&D expenses incurred during the past several quarters to begin being evident in 2019. After increasing our sales and marketing expenses last year, in particular to invest an additional direct sales reps, we have maintained our sales marketing expense at fairly consistent levels during both the first and second quarters of this year. Indeed, they are slightly lower than last year due to…

Thanks, Joe. It's a pleasure to be speaking with all of you today. As Joe mentioned, revenues for the second quarter of 2018 increased 22% versus the prior year to $6.1 million. The increase is attributable to a higher number of units sold, in particular the SRT-100 Vision, which has a higher average selling price than the SRT-100. Gross profit for the second quarter of 2018 was $3.9 million or 65.1% of revenue. This compares with $3.4 million or 68.7% of revenue for the second quarter of 2017. The decrease in gross margin percentage was mainly due to lower average selling prices as well as to product mix. Selling and marketing expense for the second quarter of 2018 was $2 million, slightly lower than $2.1 million for the second quarter of 2017. General and administrative expenses for the second quarter of 2018 was $0.9 million, largely unchanged from the second quarter of 2017. Research and development expense for the second quarter of 2018 was $1.6 million compared with $1.2 million for the second quarter of 2017. The increase is mainly due to the ongoing IORT project, along with additional product development in the company's new research facility in Israel. The net loss for the second quarter of 2018 was a negative $0.5 million or negative $0.04 per share. This compares with a net loss for the second quarter of 2017 of negative $0.8 million or negative $0.12 per share. Adjusted EBITDA, which we define as earnings before depreciation and amortization, income taxes, interest and stock compensation expense was a negative $0.2 million for the second quarter of 2018, compared with a negative $0.7 million for the second quarter of 2017. Note that despite the larger R&D investment in 2018, we have carefully managed our other expenses, and we're very pleased…

Thanks, Arthur. Looking ahead for the rest of 2018, we continue to be excited about our positioning and our prospects, particularly during the fourth quarter. We're affirming our expectations for double-digit revenue growth, supported by new products, growing awareness of the SRT value proposition and expanding international reach. Before we take your questions, I just want to flag a few upcoming investment conferences we'll be presenting at. On September 4, we'll be in New York at the B. Riley FBR Healthcare Conference. And later that week, we'll be presenting at the H.C. Wainwright 20th Annual Global Investment Conference also in New York. We will make an announcement once we've finalized their presentation times, and I hope to see some of you there. With those comments, operator, we're ready to take questions.

[Operator Instructions] The first question is from David Solomon of ROTH Capital Partners.

Just wanted to first touch on the SRT-100 Vision. Did you get any of those to any non-Mohs surgeons or any health care systems? Can we get a rough breakdown on whether it was general dermatologist or who are purchasers this quarter?

The SRT-100 Vision 11 went to dermatology practices. They continued to adopt the higher-based product because of the features and benefits, and one was installed at a hospital.

And then as far as the 100 Plus, where do you see that getting the best traction between the different types of physicians that are using the product currently?

Yes. I think the 100 Plus is going to fit and extremely well with the dermatology practices. They are the ones who really asked us for a wider range of energies, particularly to the lower range, which they call Grenz rays in the 20 and 30 KV areas. Those are the areas that in the past, historically, treated psoriasis principally. And -- so a lot of our doctors said, let's bring that back if we possibly can, because that's a range or an application that we really miss, and we think that we can make use of it. So that's an important part of the SRT-100 Plus. However, the SRT-100 Plus is a lot more than just a radiation and the different levels of KV that it offers. It's got some dynamite technology that's attached to it, one of it, and the biggest part is IT, information technology. This is a system that has brains. It communicates with the workstation that can be stationed anywhere. As a matter of fact, you can literally follow the operation of the equipment with an Apple Watch, if you will. That's how high-tech it is. So our teams here at the corporate office, we can monitor the product as it performs. We can gauge its performance. We can tell how the performance is coming along. Everything is HIPAA compliant, so if physicians wanted to be able to add patient data, that's up to them, and would be all cloud-based. It has connectivity to existing EMR systems that they may have. So there's a whole lot more parameters involved with this device than just the KV limit expansion to 20 and 30 KV.

And so we're thinking an ASP somewhere closer to Vision than the 100?

No, this is a very good product that continues to provide economics for the physician. We're upgrading the entry-level product for dermatologists, and our sales force should have a lot more applications and benefits to the doctors. And I think that they're going to see the benefits to wanting to get in with this type of a product. Because if you look at some of the facilities that we have, we have facilities that have as many as 15 systems throughout their network, because a lot of these big groups are starting to gain some ground with our footprint by buying up various practices as well as opening up new offices. So from an asset management standpoint, this is an ideal tool that they have, where they can operate their systems and be able to identify what's going on with every installation that they have, every patient that's being treated and the parameters surrounding those patients, which all can be captured now with data. And so it's very, very unique as to the opportunity it provides with the physicians. It gives them much more flexibility, much more productivity. And from the management standpoint, it's an excellent tool for them to manage their network.

Excellent. Looking forward to seeing it. And just one last one on the lasers. Did you guys end up selling any this quarter?

We have several in backlog. We didn't ship any this quarter. And so we've got 3 units that we're going to be shipping in this third quarter.

The next question is from Yi Chen of H.C. Wainwright. Please go ahead.

This is Kartik on for Yi. So I have one question regarding the SRT-100 Plus and a few related commentary on it. So what's the selling price of the SRT-100 Plus?

Well, go ahead, sorry.

And what major geographic markets you intend to really find through within the tree? And lastly, do you think that the SRT-100 plus given all the benefits and amazing technology could cannibalize sales of SRT-100?

All good questions. I appreciate it. The list price on the unit is $249,000. So we've raised the list price on this system slightly over the SRT-100. There are many improvements to it that warrant those costs. The market is going to be the same market. It's going to be not quite a replacement for the SRT-100 because you're going to have some physicians that would rather buy a less expensive product not by much, but without all the features and benefits. Now if they want all those other features and benefits, it's available to them at a very, very reasonable price. And so we'll find out what that average selling price will happen to be at some point in a very near future, but we're hoping that it's going to be higher than the SRT-100 at this point. Also, keep in mind that the SRT-100 is approved in other countries outside the United States. So we have to maintain that product until other products become approved. And at times, it could take two to three years in various countries to get approved with newer products. For instance, China, it takes two years to get CFDA clearance in China. So we have FDA clearance for the SRT-100 to treat skin cancers as well as keloid and that's a big opportunity. So we'll continue to manufacturers for that market and there are several other markets from the same vein. So the SRT-100 is not going away. It's a very important product to us, and we'll continue to support that product all the way through. Regarding the market, the market is going to be the same market that we have today with radiation oncology, with plastic surgery and the principal market being dermatology for the SRT-100 Plus. And keeping in mind that it was mostly dermatologists that requested this lower energies so that they can possibly get into potentially treating psoriasis. And so that's a potential market for them, but they're the ones who're going to have to decide that, and I think the I ones who purchase the SRT-100 Plus are going to be consciously aware of the fact that they can do that. And the third question, I can't remember what you asked for?

It was whether it could potentially cannibalize the sales of the SRT-100?

Yes, I think I answered that, the question. It's not going to cannibalize the SRT-100. It sets on its own market, and I think we're upgrading that market. Our doctors are very, very sophisticated, they're getting involved in a lot of the EMR that has to be included in their practice. The IT becomes more and more important for them in their practice. And being able to collect the data which they really weren't able to do before, this is a major improvement. So you're going to have a lot of the offices wanting to do that and being able to manage every one of their sites, knowing exactly what's going on regardless of how remote these sites maybe from their principal offer.

And one more question that comes to mind. So you spoke a lot about dermatologists, but given the amazing technology with the SRT-100 Plus, do you think that Mohs surgeons could potentially be attracted to the new product as well?

No question about it. I mean, keep in mind that we hired on a young lady to change our direction in oncology and to try to improve those markets. And we're seeing changes as we speak. This last meeting that we've had at the American -- the APM meeting which is -- all the physicists involved in radiation oncology attended, we had tremendous traffic through the booth, we've had tremendous interest, and I think that the oncology market is becoming more and more interested in being able to treat skin cancer. There are so, so much skin cancer that's available out there. And then keep in mind, all of these hospitals have OB/GYN practices, where there's a lot of C-sections that can form keloids. There's a lot of keloids that are coming to these hospitals that these oncologists can treat with the product -- the Vision product. So I think that we're seeing again and a lot more interest in the hospital market than we've ever seen before. Of course, we have Astro coming up, which is the big show in October for the American society for therapeutic radiation oncology. I think that will have a very active show there as well.

The next question is from Anthony Vendetti of Maxim.

So just on -- so on the 21 systems sold, they're -- 12 were the Vision, and -- so since the lasers were not shipped this quarter but you expect 3 lasers in 3Q '18 to be shipped the other 9 then are the SRT-100. Is that correct?

Correct, correct.

And were they sold here in the U.S.?

I think as we stated in the call, the 3 went overseas. One to Vietnam, 1 to Korea.

And one to Poland.

And the other six were here then?

Correct.

And then in terms of clearance for the Vision in China, I know China's tough in terms of trying to gauge the timing there, but where are you with the CFDA in China?

Well, the -- we're probably within 6 months of approval there. I don't know if there's any slowdowns based on any trade problems that might exist. But right now, we're still -- we still feel that we're within that 6-month window. Nobody's indicated anything different. Now we have a group, namely Rick Golin is going to be China to talk with the CFDA over there along with our distribution partner, Fosun Chindex. So maybe we'll gain more clarity after that trip, which is taking place towards the end of August.

And how about the status in Brazil?

Brazil continues to be a year away if best. Brazil is very, very tough. I mean, they demand some crazy, crazy things. And I mean, you guys know what it's like in Latin America. We don't want to get involved in a lot of things, but we are working with a potential distribution partner that has some maneuver through those roadblocks, and we continue to work at. So I would tell you that we're closer now than we were before.

And how about in Mexico?

We're approved in Mexico, and now we're waiting for our distribution partner to perform. We just got approval I think was in the -- right at the beginning of the first quarter, end of last -- fourth quarter.

But you don't have any sales there yet but you're expecting...

Not yet. Yes. And keep in mind there's also a lot of trade talks going on between our countries as well, and...

Well aware, well aware.

I don't know what that impact is. We hope that it's no impact because it's medical products, but you just never know with these things.

And then you mentioned you're going to look to modestly increase the sales force as you move through the rest of this year. How many reps are you currently at right now, sales reps?

We're at -- yes, go ahead.

We currently have 19 derm reps and 5 in oncology.

The next question is from [Ben Haner of Orion Global Partners].

Congrats on the SRT-100 Plus clearance.

Thank you very much, Ben. Welcome to the team.

So just thinking about that getting cleared and the three laser units that you have backlogged. Would you maybe expect the Q3 would have a little less seasonality than there has been from Q2 to Q3 in the past?

Whatever happens in Q3, you're still not going to get doctors to stay home from their vacations, and this is the time that they take their vacations with their families. And as much as we're going to push as hard as we possibly can to do better as we do every quarter year-over-year, we're going to give it everything that we've got. And hopefully, we'll overachieve significantly what we did last year. But again, seasonality, this is -- the Q3 is the one that's the hardest to predict because this is where the doctors take their vacation, and they're not going to give up their vacation with their families during this time. And then they come back usually right after Labor Day, and then you try to get them to make a decision in the last three weeks. That's not easy either, but we're going to do our best.

That's understandable. And then when -- where there -- do you get the sense that there were any customers out there that might have been waiting on the SRT-100 Plus? Or wouldn't that have had really any impact sales either earlier this year or potentially later this year?

I think that's an excellent question. I think that anytime you have a government agency involved with identifying something new, and in my 35 years in health care it's always been the same, more and more people became aware of CMS potentially doing something with the code. And so we did have some prospects that said, we're getting closer, why don't we just wait to see what happens. And they all know where it's going that direction is upward, but they still want to know. And so not knowing is more of a problem for them than knowing where it's going. They just want to know. And so there's a few people that will hesitate on that. We're not losing those orders. It's just a matter of time. We'll end up getting those orders. Hopefully, we get them in Q3. But for sure, we'll get them in Q4. So I'm not worried about those customers. Those are customers that are very, very cautious and they have the right to be cautious. We're very, very cautious. I think I've said it to everybody in almost every call, I hate to predict what the government is going to do. It's the only thing that I can't tell you exactly what's going to happen. And so the language is positive, the indications are positive, and we think that $1 more than what the doctors are making today is going to be better than what they had yesterday. And I think that we're on the right track.

And that falls right into, I guess, my next question. It does sounds like what has been vetted back and forth in terms of what the reimbursement could look like that it's quite substantial, it's not in several percent of bump like you see in the past couple of years. It's something that could be 30%, 50%, 60%, 100%.

And those are all great, great numbers. I wish that I could tell you that there's one of them, especially the high one. But again, I can't predict what the government is going to do, but I know that it's going to be plus. If it's plus, plus, plus, then fantastic. If it's plus, we still got a great opportunity. We still got doctors buying our equipment at the current rates. But anything that they gave us is going to be an added plus for us -- for the doctors and for us.

Okay. That's helpful. And then just lastly for me, I know you have a couple of studies going on with the -- looking at Grenz rays and psoriasis. Do you have any sense on when those might wrap up? Or when we might see, kind of, the first publications of those studies?

The publications are funny. You have to get patients to go through the treatments. You have to have a certain number of patients done in order to give you the credibility with the volumes that are involved. The doctors are the ones establishing what their criteria and what they're protocols are, and that gives it much more credibility. We're not sponsoring any of those studies whatsoever, which makes it a whole lot better for when it comes up. Then by the time that you conclude and gather all that data, you have to submit it to peer review which could take anywhere from 6 months to another 9 months. And so we're expecting data to be relevant at some point or gathered at some point probably by the first quarter of 2019, with hopefully the results being published by the middle of 2019. Now what most of the doctors are going on, there are existing studies that have been done with our predecessor, the orthovoltage unit, and which -- and they also had Grenz rays. So there are existing protocols and studies that have been and shown that it's been very, very effective, which is one of the reasons why the doctors ask us to bring it back.

The next question is from Matthew Shea of Northland Securities. Please go ahead.

Calling in today on behalf of Suraj Kalia. My first question is what percent of revenues were contributed from your top customers?

It was approximately two third of the revenue for the quarter.

And then, it looks like the math indicates that there was ASP compression on either the SRT or the SRT Vision. Could you walk us through the ASP dynamics?

Go ahead, Arthur.

Yes. Well, there was some reduction in ASP, and that was the main contributor to the reduction in the margin percentage year-over-year. The main reasons were because we had more international sales, and we had some sales of used SRTs this quarter. The international sales that Joe talked about before were all to new countries, so we gave them very aggressive pricing in order to become new customers. So it's not necessarily indicative of the ASPs that we will have in the future on international. And on the trade-ins, those margins will vary somewhat as well depending on the trade-in allowance that we give to the customer and on the actual selling price. So there was some compression of the ASP this quarter, and particular because of international and sales of used SRTs.

Just one last question from me then. Could you help us understand the psoriasis trial, maybe give us some details, when readouts will happen and expected price structure by chance?

Well, again as I said before, the doctors are setting up the protocols when the data is set up, will have a better understanding as to what the data looks like. They're being totally responsible for these studies. The studies that they want to do themselves, to be able to present themselves. They want us to be able to take the 100% credit for those studies. So that's the benefit to us because there's literally no cost involved for us. And on the other hand, there's no interference from us. So it's completely done by the doctors at their will. So it's not something that we stick our nose into because it's just not appropriate for us to do it at this time, but they're doing a very, very good job because of their willingness to want to do it. Now when you talk about the cost, I mean, there's really no cost to us, and there's really little cost to the physician, and it's more like a badge of honor if they get something published, this is a major accomplishment for them and their staffs. And that's the reason why it's being done the way it is. I remember my days at General Electric, when we had the positron emission tomography of pet CT scanner. We would offer a very nice price to a teaching hospital, and that's because they wanted to do the studies. They gained a lot more access to residents to other doctors who wanted to join their group. The notoriety within the societies and associations. Those are all things that there's a lot of doctors that are very, very interested in doing. They prefer that academic type of recognition versus just being a regular doc. So they want to be barn burners going into this new market. They want to be the first. So that's how that market works today, how it works for us. We're grateful that we've got great doctors that want to do that for us.

[Operator Instructions] Our next question comes from Scott Billeadeau of Walrus Partners.

Most of them have been answered, so I don't have too much. One thing, Joe, I'm wondering is -- you talked a little bit about ASP compression, but is the ASPs still, kind of, the SRT-100 at $200,000 or so? The SRT-100 Plus I think you said close to $250,000, and the Vision at $400,000. Although it still, kind of, roughly the numbers?

The SRT-100 is still in around that area, so that's good margins for us there. The SRT-100 Plus is yet to be determined although the list price is higher. So we're expecting to see what the market can bear, and we're expecting to see a better margin with that versus the SRT-100 because it does have a little more value to it. And the SRT-100 Vision is closer to the $360,000 range and $370,000 range versus the $400,000. But still excellent margins that have given us those margin percentages that we've experienced all along of 65% or greater.

And then is -- I think you laid out the sales force 19, Durham; 5 for oncology. How -- you're comfortable with those? And what's the game plan? What -- will we see more oncology or more Durham in the next 2 months, 6 months, any strategy there?

Yes, a good question. We built, if you noticed the numbers, we've built up our oncology team by 2 since the last time we talked. And the reason being for that is we want to get ready for IORT. And so that's not something that you just start when you get FDA clearance for IORT. You have to start at months in advance to line up potential hospitals without really going into a marketing mode. But there's information, there's training, there's education that happens. Now the 19 on the dermatology side, we want to definitely ramp that up in the second half of the year as we bring on lasers because not we're expanding everybody's briefcase into being able to sell multiple units in various areas where we still have the same decision-maker, making that decision for those multiple technologies So we definitely want to increase that group, and I think that's going to be our focus for the second half of the year. Now to support all those folks, you also have to think of applications, people that have to train the doctors, so we have to add headcount there. So everything we have to -- everything we do has to support each other, and that's what we're doing; so we're doing it strategically, we're doing it systematically, and we're doing it on a timely basis not to incur unnecessary expenses.

This concludes our question-and-answer session. I would like to turn the conference back over to Joe Sardano for closing remarks.

Okay. Thank you, everybody again for being on the line. So in closing, we had a great quarter. The interest in Sensus continues to grow. It just shows with the number of people that we had on the line today with the great questions that we have. We look forward to updating you on our activities when we report Q3 results in early November. So until that time, everybody, please have a great day, a great quarter, and we look forward to talking to you next. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.