Good day, ladies and gentlemen, and welcome to your Sensus Healthcare 3Q 2019 Financial Results Call. All lines have been placed in a listen-only mode and the floor will be open the questions and comments following the presentation. [Operator Instructions]. At this time, it is my pleasure to turn the floor over to Kim Golodetz. Ma’am, the floor is yours.

Thank you. This is Kim Golodetz 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 during 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 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, Kim, and good afternoon, everyone. There were a number of very exciting positive events during the quarter and recent weeks that bode well for Sensus over the long term. That said, revenues for the quarter came in lighter than we had anticipated at 5.8 million on shipments of 16 of our systems. The longer sales cycle for our Sculptura systems in the oncology channel and geopolitical issues in China contributed to the shortfall. I note, however, that we have accumulated a strong pipeline of sales leads that should bear fruit for the upcoming year. In addition, we’re exploring a new channel, which is in the veterinary market, which holds promise for future growth, and I’ll tell you more about that initiative in a bit. I’ll speak first about our oncology market, beginning with Sculptura, which has been generating a great deal of interest within the radiation oncology market. The third quarter and recent weeks were highlighted by our launch of Sculptura at major medical conferences as we look important – as we took important initial steps to build awareness for the capabilities of this important product. We had a large presence at this year’s ASTRO tradeshow, the foremost meeting of radiation oncologists that took place in September, and we’re delighted with the interest shown by potential customers, including an invitation-only gathering for the foremost luminary teaching hospitals co-hosted by UPenn and Sensus. Prior to that, our showcasing of Sculptura at the AAPM meeting and at the 2019 American Brachytherapy Society’s Annual Meeting, generated excitement among physicians and physicists for its new features and technology. Remember that Sculptura employs state-of-the-art Modulated Robotic Brachytherapy with Beam Sculpting capabilities and Robotic Respiratory Tracking. This Robotic Respiratory Tracking employs a robotic arm that considers the breathing of patients in order to deliver…

Thanks, Joe. It’s a pleasure to be speaking with all of you today. Revenues for the third quarter of 2019 were 5.8 million, down 8% from 6.3 million in the third quarter of 2018. The decrease was attributable to fewer unit sales. There were no international sales in the quarter, and as Joe mentioned, the expected signing of certain Sculptura orders was delayed to Q4. Gross profit for the third quarter of 2019 was 3.8 million or 65.8% of revenues. This compares to 4.2 million, which also was 65.8% of revenues for the third quarter of 2018. The comparable gross margin percentage on lower revenues was due to a similar product mix in both periods favoring the high-margin SRT-100 Vision units. We continue to view the low to mid-60s range as an appropriate way to model our gross margin going forward for the next few quarters. Selling and marketing expense for the third quarter of 2019 was 2.1 million, up slightly from 2 million in the third quarter of 2018. As indicated last quarter, we expected sales and marketing expenses to increase a bit in the third quarter, primarily due to costs associated with ASTRO and with the Sculptura launch as well as the hiring of sales reps. Overall, we continue to expect sales and marketing expenses to be somewhat higher for the full year 2019 compared to 2018. General and administrative expenses for the third quarter of 2019 were $0.96 million, about $50,000 more than the third quarter of 2018. We continue to expect G&A expenses to trend relatively flat compared to 2018 for the remainder of the year, given our attention to expense control. Research and development expense for the third quarter of 2019 was 1.6 million compared with 1.7 million for the third quarter of 2018. The…

Thanks, Arthur. Our fourth quarter revenues are typically the highest of the year, and we expect this trend to continue in 2019. While our dermatology market is fairly consistent, we do expect the oncology market to pick up with a few shipments of Sculptura to key university research hospitals. While we have always been very diligent about our cost structure, we recently took a deep look at expenses and are taking advantage of opportunities to reduce spending where possible. That said, our cost reductions will in no way jeopardize our future growth, and we believe that our products have enormous room to grow. With an installed base of approximately 450 units, our SRT systems are well positioned in a large market, consisting of some 14,000 dermatologists; 1,000 or more surgeons in the U.S. representing more than 7,500 offices and growing. Not to mention a further 6,500 plastic surgeons and 5,500 radiation oncologists. I’ll repeat what I’ve said in the past. We continue to work to ensure that physicians are aware of the recent positive data comparing SRT and non-melanoma skin cancer to most surgery. And note that physicians who exceed the most curate for non-melanoma skin cancer, the market for keloid treatment with SRT is growing and has the data to back it up, with a study showing only 3% recurrence rates treating keloids with SRT. We’re very pleased with our position in our target markets, providing efficacious and price attractive solutions to physicians and patients. Furthermore, we expect that external factors such as reimbursement and tariffs will ultimately resolve in our favor. Thank you for your time and attention. And now operator, we’re ready to take questions. Thank you.

Thank you. [Operator Instructions]. Our first question comes from Alex Nowak with Craig-Hallum Capital. Please go ahead.

Good afternoon, Joe and Arthur. This is Will on for Alex today. Thanks for taking our questions.

Hi, Will.

Hi. I’ll start with China. Just to quantify how many placements went to China in Q2? Understand there weren’t any OUS placements in Q3, but just want a better sense of how much of a headwind that was? Any way you can kind of parse that out or give additional color would be helpful. Thanks.

Yes, I don’t think we had anything in Q2. What we were comparing to was if we looked at the third quarter of last year, we had several units. And before the end of the year, we had several units going to China. And I think it was just towards the end of Q2 or the beginning of Q3 that we saw some additional tariffs knocked on us, which knocked us out of the park. They were 25% importation – or exportation tariffs into China as a result of the trade wars that were going on. So that happened pretty drastically. And I think we’re seeing changes in what transpires almost on a daily basis with that trade war.

Got it, okay. Yes, that makes sense. And then you mentioned last quarter, still needed to work out some of the terms of SkinCure. I appreciate your comments earlier, but could you just provide an update on the partner, more specifically on the credit situation. Where that sits today? And just if there’s any updates from that partnership? Thanks.

Sure. First of all, it’s a great partnership. We work very, very well together and it’s a great opportunity for both us and them to penetrate this market. Talks continue to keep ongoing and we continue to answer needs that we have for each other. And I think that we’ll be able to probably announce something before the end of the year with regard to finalizing and continuing our agreement, which we both have intentions to do. It’s just a very good partnership. And like I’ve said before, I wish I had two or three more partners like these guys. But right now, things are going very, very well.

Got it. Understood. And then if I could just sneak one more in here. You started this practice of leasing your own systems during Q2. Could you just comment on where this stands today? And if you could just provide a little bit more detail on this business model, such as how and when you’re paid for the systems and ultimately, how the systems are capitalized on the balance sheet? Thanks again.

All right, Will, I appreciate that question. The model is very much like a model that exists out there now. It’s a fee-for-service or a shared service program that we have with one of the biggest organizations in the country for dermatology and dermatology practices. So we install – we have installed three systems so far. We have two more that are going to be going in for installation as we continue that process. And just to give you an idea, five systems – had we sold five systems, you would be looking at about $1 million in revenue. Going with this model, you’re looking at about $750,000 per unit going in over the course of the term. So you’re looking at about $3.5 million to $4 million in revenue that can be realized from this model versus the actual sales model. So this is a good opportunity for us. It seems to be fitting a niche for a lot of these larger organizations that are supported by investment bankers. And so it’s exciting. We expect this to grow as we continue. And we’re excited for the opportunity, and it should spread to other major users as well.

Thanks.

Thanks, Will.

And our next question comes from Andrew D’Silva with B. Riley FBR. Please go ahead. Andrew D’Silva: Hi. Good afternoon. Thanks for taking my questions. I guess just from a high level, can you just let me know when you were looking at the business during the second quarter call, it seemed like the visibility was more clear at least from where you were standing? And it seems like 2019 would shake out more favorably and consistently on a quarterly basis? And then also, just a standard SRT-100 standpoint that seemed to underperform what we were expecting domestically. Could you just provide a little context around everything please?

Sure. And thank you, Andy, for being on the line. Let me address the first one regarding – I think it’s pretty much towards the Sculptura. We’ve got a bunch of units that we manufactured initially for an initial group of luminary accounts. And those accounts continue to work on the paperwork internally. We don’t expect to lose any of those accounts. They have timelines to execute those accounts. And the timelines are before the end of the year, they must provide those. So we thought we were going to get some in Q3, but we didn’t. But we didn’t lose the business. Nobody said no. They’re still working on the paperwork. So we continue to be very positive about those accounts and they’re big accounts. So we can understand why it might take them a little longer. Regarding any of the international business, I think that the – as we mentioned to Will prior, some of these things that are happening with the trade wars that happen on a daily basis I think catch a lot of people off guard. We just happen to be in that sweet spot of medical devices where 25% of the tariffs or increased tariffs are being targeted. So we’re being used as a pawn in a lot of ways. But on the other hand, you have this technology that is very much needed in China. So, hopefully, they can resolve these problems and we can move on with our lives there. Regarding the SRT-100, what we’re seeing all of a sudden is that as we get closer, there’s more information coming out of CMS on a daily basis. And I know that some of you have looked at what CMS has been talking about lately, they make it public – they’ve made it…

Number one, there’s always turnover in the organization. It’s just the nature of sales. You’re always trying to improve and get better in every territory that you possibly can. I would have to say that we’ve got a great bunch of people, probably the best that we’ve ever had in our history. So that continuously is a positive thing for us. Regarding another group next to SkinCure, we’ve got a great partnership now. And quite frankly, I wish that I had that kind of partnership in other areas of our market, whether it be oncology space, veterinarian space or something else, but we’re very, very satisfied with the relationship that we have with SkinCure. And I don’t think that neither one of us are willing to walk away from a great opportunity that we are. And I think that both sides are investing even more, and we’re invested in each other even more in making things happen and growing that business from there. We don’t want to satisfy ourselves with the level of business that we have now. And when you consider the revenue that we reported for Q3, pretty much was all SkinCure. So that’s a pretty darn good partnership I think to have around, while all these other things and parameters are going on around us. What our job to do is now get international going and get the domestic oncology business going. If we can get those going, I think that we’ll be fine. And when you look at oncology, we’re just starting to grow in that market. And again, I relay my experiences in the past that when we were at the ASTRO show, we had developed well over 100 new leads and there was a lot of action around the booth. We had to put…

We still have the discounted ASPs that are coming out. And those are the folks that have the paperwork ready to sign. It’s just a matter of them passing it back to us. Everything has been negotiated. The numbers are right. It’s just a process that we go through and we push hard enough without ticking anybody off, and that’s internal people telling us back off, but we’re pushing hard as hell. So that’s an opportunity clearly that we continue to push. And I think the other part of your question, Andy, forgive me, if you can repeat it? Andrew D’Silva: Yes, just the alternative payment model from CMS as it relates to Sculptura? They had IORT coming down there.

Yes, that’s a positive for us. And as we bring that up to the accounts, they know it. They have quality control people in that space, and they know that this is an opportunity for them as well. But keep in mind we’re still limited to the number of people that we presented to. And irregardless of how that model fits and it’s a positive model in favor of ours, they still have a long internal process to get us purchase orders. But they’re aware of it. The ones that we talk to, they say that this is a perfect fit. This is exactly what we need. Every one of themselves says that, but now we still have to go through the purchase process and get into that cycle. Andrew D’Silva: Okay. Thank you very much for the time and best of luck closing out '19.

Thank you very much. I appreciate it, Andy.

And our next question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Thanks. So, Joe, you said that SkinCure accounted for 13 of the SRT division sales, right?

13 out of the 15 units that went out, yes.

Yes. And they were on – are they on the Sentinel platform? Is that correct?

Yes, they’re on the Sentinel platform.

So I got a chance to see that. It’s an impressive platform. Can you talk a little bit about how the payment works on this platform, the service component just a little bit more about that? I know you addressed it a little bit, but I’m just trying to understand it a little bit better.

Yes. Well, we have a service component, which customers are utilizing in getting extended service warranties. And then you have the Sentinel platform, which is – we’re monetizing and putting on top of that, it’s for utilization. So the biggest area of opportunity is we’ve delivered that to the Vision product with the feedback and with the help from our customer at SkinCure. We’ve applied that to the SRT­100+. So every product that we have has that capability now, which is allowing us to deliver the SRT­100+ in other areas on a fee-shared service platform, which we’re getting paid for upfront on. So those are things that are helping us. We think that in the future as we continue to grow that business amongst our customers that it continues to be an opportunity for us in every way. So we’re looking at a fee that will cover that. We look at a licensing fee, if you will. And so those are the opportunities that we have with the IT platform. We had something along those lines at General Electric, it was called Centricity. It was a very popular IT program. And within that, they were able to charge a lot of different aspects of the business opportunity as far as the asset management or the patient protocols based on HIPAA compliance and things like that. So there’s many, many things that go into it, and we’ll continue to discover each and every one of those opportunities as we continue to grow IT and continue to improve the IT or the Sentinel program.

Okay. And then just in terms of the ASP, division ASP was around 380,000 or so. Is that still holding? Is that about right or has that changed at all?

So it was a little lower than that because there was one sale is Vision other than SkinCure. So our ASPs are slightly more than 350.

Let’s say that SkinCure gets the best deal of anybody because of the volume that they have. Other customers that are buying Vision, it’s higher.

Got it. And then in the commentary, you said that you expect up to three more Sculptura sales by the end of the year. Do you think it could be three or when you say up to three, it might only be one? Where are you in the rollout of those three potential systems?

All three are accounted for as far as the customers that we’re looking at. They have the paperwork. It’s just a matter of executing the paperwork. We want the paperwork executed yesterday, not tomorrow. We were hoping that we were going to be able to get some in Q3, but they’ve fallen into Q4. So we continue to pursue, and they have deadlines within that contract to execute before the end of the year or they lose the opportunity of getting into it at that price level, and then they’ll have to go to the higher ASP. So we are already talking to almost everybody else that are interested at the higher ASP. So everything that we’re talking to, those 100-plus customers that – prospects that came to us at ASTRO, none of those are in the area of the luminary accounts section with these special prices. And my opinion is if those three don’t come forward as per the contract, which they’re all trying to do, they’ll get moved into the higher level as well in 2020. So I think that they’re incentivized to make something happen. And they know it. They’re working hard internally to try to get those things done.

Okay. And then it sounds like you have a good pipeline, you have 100-plus from the ASTRO meeting. But this is a larger sale. This is an ASP of 1 million, 1.1 million or so, right? And I know some of the earlier ones, they’re going to get it at a discount if they close by the end of the year. But if you look at your pipeline for 2020, realistically, since it takes longer to close a Sculptura sale, what is a reasonable expectation or what’s the expectation you’re putting out there for your sales force? Should you be able to sell 20 of that 100 in the pipeline and have that in 2020 or is it too difficult to measure at this point?

I’d love to be able to tell you that we’re going to do 20, but I don’t think that that’s going to meet expectation based on getting involved with the cycles and the budgeting cycles that those hospitals are in. It’s not to say that some won’t jump and be able to find the money by canceling another project. That can always happen. But when you’re looking at selling these units and you’re dropping $1 million to our bottom line, if we sold five or six next year, that’s big money for us. That’s 20% added revenue for us and that’s big dollars for us. So I think that what I would predict is that I have expectations to make those things happen. Would I like a backlog going into '21? I would certainly do that because most of these customers when they order something, they know that delivery is going to be 90 to 120 days. We don’t have these things sitting on the shelf. It’s just too expensive for them to be completed and waiting to be shipped, like we have with the SRT products. But certainly, more the better. We’re trying very, very hard. And you never know, we might hit it sooner rather than later. But we’re going to push for a number. And if we can exceed it, we’re always pushing to exceed it, fine. But if we did five or six, I would tell you that that’s a big year for us. That will be good.

Okay. Yes, that’s very helpful. And then just lastly on China, is that – dealing with all the geopolitical risk that you’re dealing with and headwinds there, is that something you think by the end of the year can come back online or is it better to be more conservative and say, look, this may push into 2020, and we shouldn’t really expect any sales in China in the fourth quarter?

Yes. I’m ultraconservative on all of the numbers that we try to work on. I would say expect zero and if anything comes through, it’s a plus. We definitely – there’s a big need there. There’s a big want, okay? Our distribution partners there want the systems. They have sales that they can conclude and deliver. So they’re not making money by us not delivering to them. The option is, is that we can reduce our price by 25% which is what the cost of the tariff is. But then if you did that once, then that all of a sudden becomes your average selling price over there. And it’s low enough as it is. It continues to meet the 65% target that we try to do with everything, considering that it’s not a cost of sales over there, but just a transfer. So we don’t want to impact that. So we’re remaining solid on the pricing rather than conform, like I know some other companies have done in order to declare sales. We cherish our average selling price and we want to keep it there, and we’ll wait for the tariffs to be over and hopefully, unlock the flood gates.

Understood. Thanks, Joe. I’ll hop back in the queue. Thanks, Joe. Thanks, Arthur.

Thank you, Anthony.

[Operator Instructions]. And our next question comes from Yi Chen with H.C. Wainwright. Please go ahead.

Hi. This is Faizzan on for Yi Chen. Thank you for taking my questions.

Hi, Faizzan. Welcome.

I think a lot of it has been addressed mainly. But how many SRT systems are expected to be shipped in the full year 2019?

Well, we have 450 delivered now. And I think that’s about 50 units year-to-date, somewhere along those lines. So we want to beat what we did in Q4 last year. So hopefully, we’ll be able to manage that and we’re fully expecting to do so.

Great. Thank you. There weren’t any Sculptura – how many Sculptura IORT systems were shipped in Q3 '19?

None.

None, right? Okay. And do you know if – if you could shed some light on if there are any concerns or main concerns that are preventing more customers from adopting Sculptura now? And are the customers waiting for more clinical data for validation?

No. The three customers that we have that we’re waiting for POs on have all the paperwork that they need. It’s just a matter of signing the paperwork and sending it back to us. So we don’t have any concerns with those three, but we do have the concerns of the timing, okay, because they have a difficult time predicting it, and we do as well. But we don’t see anything holding us back from a clinical aspect or anything else. These are luminary facilities that want to be involved in that clinical development with us. Their R&D, their own R&D helps with patient data and so on. And it’s just one of the DNAs that they have in trying to be the first into the marketplace with their programs. So we’re excited for them. They’re excited for us. They keep telling us this is exactly what we want. Stay patient. We’re working on the paperwork and we’ll get it to you. And so we push and push to the point where we don’t want to tick them off, but we are ticking them off, but they don’t understand your demand for having orders in on a quarterly basis.

Sounds good. And then I just wanted to confirm the expected sales in China, they’re mainly – the main reason they’re deterred were by tariffs, right?

Yes.

Okay, great. Thank you. That’s it for me.

Okay. Thank you.

And it appears we have no further questions at this time. I’ll turn it back over to management for any closing remarks.

Thank you. So in closing, I want to thank you all for your time this afternoon and for your interest in Sensus. I want to mention that we’ll be participating in the Craig-Hallum Alpha Select Conference in New York on Tuesday of next week. Please contact Craig Hallum if you’d like to meet with us there. We’re sure as heck would like to meet with you. And thanks, again, and have a great day.

And this does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.