Sensus Healthcare, Inc. (SRTS) Q4 2019 Earnings Report, Transcript and Summary

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

Thank you very much. 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 Javier Rompolla, 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, they 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. We closed out 2019 with an excellent fourth quarter, featuring a 5% increase in revenue over a strong prior year comparison. We also generated meaningful profitability of $1 million or $0.06 per diluted share. I want to remind our long-term shareholders that we said at the time of our IPO in June of 2016. At that time, we projected profitability in 2020, now nearly four years later and with much of the R&D that supported some compelling new products behind us, we are determined to be profitable for the current year. I also want to highlight that we have Javier Rompolla with us today. Javier has worked with Sensus since 2015 and as Director of accounting and reporting and as controller. He played an important role in our IPO and worked to apply the new U.S. GAAP guidelines for revenue recognition and leases. We were delighted to promote Javier to CFO in early January and we believe that this discipline along with his experience will be instrumental in helping us achieve our financial goals. Javier will be giving his prepared remarks shortly and I trust that many of you will be meeting with him in person in the coming months. In recent weeks, we have also promoted two other talented individuals from within the organization. Russ Price is our new Chief Technology Officer. He joined Sensus in 2016 as a Product Manager with more than 20 years of experience in the PET and molecular imaging field including engineering for cyclotrons and scanners. He has played an impactful role at Sensus in the development of our products including Sculptura and we were thrilled to promote him to this position. Nicolas Soro is named Chief Operating Officer, which is a newly created position and one, we felt we needed in order to better manage our growth and take us to the next level. He too joined Sensus in 2016 as Director of Regulatory Affairs and Quality Assurance. His work included the development of new devices including obtaining multiple 510 clearances from the FDA included for Sculptura and the Sentinel software for treatment planning contained in the SRT-100 Vision and the SRT-100 Vision Plus. Turning back to the fourth quarter now. During the quarter, we shipped 25 SRT systems including 16 SRT-100 Vision systems and nine SRT-100 and SRT-100+ systems. The SRT-100+ is a new product that was clear just last year and I'm pleased with the traction it's gaining in the market. Our Sentinel software is embedded in our SRT-100+ units and allows the derm practice to better manage the system with billing and real-time alerts among other capabilities, while we provide remote service and monitoring. Sentinel is a powerful platform that provides large multi-site customers an asset management program. This is an exclusive Sensus product that is not available from anyone else in this market. It also provides users the opportunity to store HIPAA-compliant patient data on the cloud. The system has been working in the SRT-100 Vision for a few years and we've now expanded these capabilities to the SRT-100+. This technology is unique to Sensus and will be part of our platform for all future products. The SRT-100+ helps us provide more efficient service to our customers while making possible a shared revenue program, which began in the third quarter of 2019. We have three SRT systems in this shared initiative and expect to gain two more orders in the first half of the year. While it's still in the early stages, I can tell you that we are encouraged by how this market is developing. Currently, 34% of the systems we have sold have associated recurring service revenues up from 26% a year ago. We've been focused on increasing the proportion of service revenues which also carry a mid-60% gross margin. During the quarter, the bulk of premium priced SRT-100 Vision systems were sold to a key customer SkinCure, but we also sold a Vision system directly to a dermatology practice in Idaho. We are beginning to see greater interest from our customer base in pursuing direct purchase of our Vision product. We find this encouraging. We expect continued strong sales of SRT systems including the sale of our 500 system by the end of the second quarter. This is a tremendous milestone for Sensus and we look forward to that event. While the first quarter will have the usual impact from increased sales, marketing spend with important trade shows. Our presence at these shows are expected to drive future sales. Last week, we exhibited at the South Beach Symposium, an important forum for advanced clinical and aesthetic dermatology education. This was the ninth consecutive year we had presence there. Looking back, I marvel at how far we've come as a company since first attending in February of 2011. We now are a gold sponsor of the symposium with multiple podium presentations about the benefits of treating non-melanoma skin cancer and keloids with SRT. Next month, we'll be at the American Academy of Dermatology Annual Meeting, showcasing our SRT Vision and SRT-100+ systems. The AAD is the biggest dermatology conference of the year with over 11,000 dermatologists descending on Denver in late March. I also want to highlight our progress with individual state regulators to gain approval to sell our SRT systems, as this is an area I haven't discussed in recent calls. As a reminder, because our systems involve radiation, we need to secure regulatory approval for each individual state. This is a painstaking process and as of now we are clear in a total of 42 states with Arkansas granting us approval just this week. During 2019, we opened two additional states, Minnesota and Virginia, in addition to Washington D.C. We expect two or three more states to come online during 2020 with a total of nine states targeted over the next couple of years with Alaska being last on the list. We continue to work through the leads that were generated following the addition of SRT to Premiere group purchasing contracts effective August 1 for the oncology market. Recall that Premiere has 4,000 member hospitals and health systems throughout the U.S. and represents a fruitful avenue for growth. As I said last quarter, it will take some time to convert these leads as hospitals tend to have a long selling cycle for capital equipment purchases, but we believe we still start – we will start to see revenues from this channel as the year unfolds. Turning now to Sculptura, we recently announced the sale of our third Sculptura system during the fourth quarter. This one's a Stanford University. This follows sales to the Perelman Center for Advanced Medicine at the University of Pennsylvania with which we have a research agreement and to Beilinson Hospital at the Rabin Medical Center in Tel Aviv. We are in discussions with several more key institutions and expect these sales to occur this year. Please note that these sales would be at regular commercial pricing. Penn is gearing up for research work with Sculptura in the very near future. Their work will help support our marketing efforts and will provide additional clinical evidence for new indications. 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 the patient in order to deliver a precise beam of radiation. We are very pleased with the work of our oncology team and with the interest being generated for this recently approved product. With a list price of $1.5 million and a recurring revenue stream generated by disposables, Sculptura is expected to play a significant role in the company's future. We believe our international sales are poised for a rebound following the geopolitical upheaval in China during 2019. We look forward to resuming sales there and the U.S.-China trade war appears to be resolving, noting the recent coronavirus outbreak has added unexpected uncertainty. In addition, we received regulatory clearance in Korea during the fourth quarter and sold an SRT unit to Vietnam. Overall, we believe the entire Asia market holds promise. Last quarter we told you that we shipped an SRT-100 system to the veterinary school at Colorado State University for evaluation and studies. CSU is recognized as a premier Equine Center of Excellence and our agreement with the school calls for the development of protocols and published clinical data. The veterinary market represents an area of incremental growth and these studies will support that opportunity. I will now turn the call over to Javier Rompolla, who will go over our financial results in more detail. Javier?

Thanks, Joe. It's a pleasure to be speaking with all of you today. Revenues for the fourth quarter of 2019 were $8.5 million, up from $8.1 million for the fourth quarter of 2018. The increase was primarily due to higher average selling prices. There was one international sale in the quarter and one Sculptura was sold at luminar restitution pricing. Gross profit for the fourth of 2019 was $5.5 million or 64.1% of revenues. And this is up from $4.9 million or 60.2% of revenue for the fourth quarter of 2018. We continue to view the low- to mid-60s as an appropriate range to model our gross margin for the next few quarters. Selling and marketing expense for the fourth quarter of 2019 was $2.5 million compared with $2.4 million for the fourth quarter of 2018. The slight increase was primarily due to higher headcount. General and administrative expense for the fourth quarter of 2019 was $1.1 million compared with $1 million for the fourth quarter of 2018. The increase was primarily due to bad debt expense of $0.4 million largely offset by declining payroll expense. Research and development expense for the fourth quarter of 2019 was $0.9 million compared with $1.5 million for the fourth quarter of 2018. The decrease was mainly due to lower expenses related to the Sculptura development as commercial production begins. As Joe mentioned, we reported net income of $1 million or $0.06 per diluted share for the fourth quarter of 2019. This is up sharply from net income of $0.1 million or $0.01 per diluted share for the fourth quarter of 2018. Adjusted EBITDA defined as earnings before interest, taxes, depreciation, amortization and stock compensation expense for the fourth quarter of 2019 was $1.3 million compared with $0.4 million for the fourth quarter of 2018. Cash and investments were $15.5 million as of December 31, 2019 compared to $15.4 million as of December 31, 2018. The company has no long-term debt and no outstanding borrowings on its revolving line of credit as of year-end 2019. I’ll turn briefly now to our full year financial results. Total revenues for 2019 were $26.3 million, up from $26.4 million for 2018. Gross profit for 2019 was $17.6 million or 64.4% of revenue, up from $16.9 million or 64% of revenue for 2018. Selling and marketing expense increased to $9.1 million for 2019 from $8.5 million in 2018, primarily due to higher headcount. General and administrative expense decreased to $4 million from $4.1 million for 2018, mostly due to lower payroll expenses. Research and development expense was $6.4 million for 2019 compared with $6.3 million for 2018. The increase was primarily attributable to the FDA clearance of Sculptura as well the company’s ramp-up to production. The net loss for 2019 was $1.7 million or a loss of $0.10 per share, and this compares with a net loss of $2 million or a loss of $0.14 per share for 2018. Adjusted EBITDA for 2019 was a negative $0.8 million compared with a negative $0.4 million for 2018. With that, I'll turn the call back over to Joe.

Thanks, Javier. As we reminded you last quarter, our fourth quarter revenues were typically the highest of the year and indeed that trend continued in 2019. We continue to expect our dermatology market growth to be consistently positive, with Sculptura’s sales are expected to be lumpy given the long lead time and price point. I do want to reiterate that we expect a few more units to be sold during the year. I also want to reiterate our focus on cost containment and our goal for full year profitability. Judicious spending will support that goal and we believe that we have adjusted our cost structure to achieve profitability while spending the necessary funds to drive revenue. Most important, we have strong, responsible and disciplined management to carry out the objectives. Our products have enormous room to grow. Our SRT systems are well positioned in a large market, consisting of some 14,000 dermatologists, 1,000 most surgeons in the U.S. representing more than 7,500 offices growing, not to mention a further 6,500 plastic surgeons and 5,500 radiation oncologists. And we provide a compelling alternative to surgery for millions of patients and arguably the only solution for the treatment of keloids. As a reminder, a five-year retrospective study with SRT showed a cure rate of 98.9%, which exceeds the most cure rate 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 a 3% recurrence rate after treating keloids with SRT. With an installed base of 471 units, we're barely scratching the surface while we hit our major milestone of 500 units installed sometime in the second quarter. Thank you for your time and attention. And now operator, we're ready to take questions.

Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from Alex Nowak from Craig-Hallum Capital. Go ahead, Alex.

Great. Good afternoon, everyone. Joe, the Street – I just want to follow-up actually on your last point, the Street is sitting at $33 million for 2020 that implies 21% growth. Now, I know 2019 was impacted a bit by SkinCure, but how confident are you in hitting a growth target around that 21%. And then secondly, how would you expect that growth to flow into the model? Meaning, how much of that growth is going to be tied to SRT versus Sculptura.

Thanks for being on the line, Alex, and thank you for the question. We’ve had an organic growth over the last eight, nine years that has almost exceeded the 21% that we’re targeting. I think that – the numbers that we hit for 2019, we’re the biggest numbers that we have ever had. But we did have some hiccups in two of the quarters – two of the four quarters, which caused us some traction – shortness on the traction. I think that we’re in prime position to regain that motion and as we gain some clearance and some visibility on what the reimbursements could be by 2021, I think we’re going to see renewed interest in the second half of the year and potentially a little more activity to get in line to achieve that reimbursement in those areas that we think we’re going to find interest. So I think that the prospect base is going to grow in the second half of the year as we get closer and reimbursement becomes more visible to our market. And then I think also with the addition of Sculptura, I think we’re going to see some additional parts there. But I would say, that Sculptura is going to represent out of the 3.3%, maybe 7% to 8% of our total revenue.

Okay, understood. That makes sense. And then your partner SkinCure oncology, they got some access to some pretty significant financing there and they also got a PE backing in the year. Are you starting to see an acceleration from them looking to place more SRTs?

I think that the possibility is there. I mean, they’re a good partner as we’ve always claimed and I think that the potential for them to grow and to answer to the dollars that have been invested in them, I think, is real. And so I think that they have to grow. I don’t think that they went back to their bank and said, we’re going to stay status quo, we’re going to do less. I think that they’ve made the proposal to them that they’ve got to do more. So we’re ready, willing and able to work with them side by side to gain the goals that they’ve projected to their bankers. So we’re excited for that opportunity.

Okay, got it. And then for UPenn, what is the earliest state of put out a publication on Sculptura. And would you argue that a publication is necessary for – to see more big centers come in and adopt the system. Or are you still seeing interest as long as they can make room in the budget?

That’s interesting. First and foremost, we’re bound by the protocols that they are currently developing and getting patients in the queue for their clinical. I don’t believe that they have to have publications in order to create interest with other institutions like themselves, because they’re getting calls as well as we are getting calls from interested parties all over the country and quite frankly, all over the world. But I think what is necessary is the fact that they start treating patients and that we start seeing the results of those treatments. I think once that starts to happen, I think that we’re going to see a lot more interest and a lot more activity in that area. So it doesn’t necessarily need to be publications, but certainly results, positive results are going to create and steer up the interest.

Okay, got it. That’s good to hear. And then just last quick question, just on the OpEx, would you expect OpEx from the Q4 level to be fairly consistent throughout 2020 or should we be expecting an increase in sales and marketing, while keeping the rest of the lines flat.

Well, we achieved some highlights and milestones for the company in 2019. It was the highest revenue year that we ever had. So that continues to grow. And the fourth quarter proved again that it’s always our best quarter and that’s the most revenue that we had in a single quarter. If you go back a couple of years, I mean, we’ve grown the standard of every quarter bigger and better than the year before pretty much from a regular standpoint for the most part, 95% of the time I would say, out of the 16 quarters that we’ve had since going public, there was two quarters that we weren’t satisfied with out of that. So I think that it’s pretty good. But I think that there’s no question. After the fourth quarter, we want to try to set that as the standard for hitting every quarter, but the first quarter is usually a quarter that people are getting back into sync. The second quarter seems to be a little better. We all know that the third quarter is a tough one, because all of our doctors and decision makers are on vacation. And then again, we’re going to see the fourth quarter is being our best quarter all over again. So I think that we’re going to see that kind of growth that’s going to be consistent with what we’ve seen in the past. But we certainly want the first quarter to be better than we’ve ever had before and to continue to move up the ladder each and every quarter.

Okay, understood. Well, congrats on a great end of the year here.

Thank you so much. We appreciate your support on that, Alex.

And our next question comes from Scott Henry from ROTH Capital. Go ahead, Scott.

Thank you and good afternoon. Just a couple questions. First just following up on Sculptura, I think, just quickly back of the envelope, it sounds like you’d be thinking maybe three Sculptura placements in 2020. Is that a number that perhaps isn’t aspirational, but that you’re comfortable with that number? And how should we kind of think of the trajectory from a quarterly rollout for Sculptura, since it’s kind of a big lever.

Yes. We want to sell as many as we can. And so three is a good number, a modest number that I think should be achievable for us. And the rollout, because these things cost a lot of money, we’re not going to put them on the shelf ready to go like we have with the SRTs, because those decision making processes are a little longer. But we’ll certainly be able to provide delivery within 90 to 120 days of an order. So if you’re going to calculate one in the second, one in the third and one in the fourth, that would be a good allocation. If we can do better than that, we will.

Okay, thank you for the color there, Joe. And when we think about the Vision and the SRT 100 placements, when we think about 2020 over 2019, the numbers were kind of flattish in 2019. Should we expect perhaps modest volume growth or flat growth in 2020? How should we think about those dynamics and as well any color on pricing in that segment?

I think that modest growth is the best way to go. I think that there’s going to be some cautious optimism coming into this year, because of waiting for the reimbursement news. And I think that everybody recognizes and realizes that there’s a potential for a healthy increase for us. We just came back from a trade show that identified some things – some of the things were presented from some of the people who work with the AAD and I think that they were encouraging. One of the things that is not encouraging for the market, but I think it’s encouraging for us is – it was very well depicted and identified that most surgery is going to have an 8% cut in reimbursement this year. And I’m not sure that that’s going to be a onetime cut. I think that we’re going to see a series of cuts over the next several years, that’s going to cut that reimbursement by as much as 8% a year, maybe over the next three years. So that’s going to be significant for us, because it makes SRT, a valuable partner in a Mohs practice to implement that in that practice to remain productive. But more importantly, to help with the cash flow, if there’s going to be a reduction. Again, I’ve said it before, there’s not a shortage in patients. There is a shortage in the ability and the time for the doctors to meet and reach out to all those patients. And SRT provides tremendous productivity as well as cash flow for those practices. And that’s been proven now. So I think that aspect of our system helps even more as these numbers start coming up. Regarding the pricing for our system, we’ve been very good. The sales teams and the sale leadership has done an excellent job in maintaining our margins over the past several years. They’ve been consistently between 60% to 64%. We want to be able to maintain that. We haven’t let the market drive our prices down in any way. And I think that the market that we serve, they understand the efforts that we’ve given to working with them, the AAD as well as CMS in working very, very hard to try to get them additional reimbursement. And so, there’s a possible chance of getting rewarded for that. So we’re excited. We’re excited for what that opportunity is. Now it can create – to your point, it can create a low in the market. As we get closer, there’s going to be some parts of the market that are going to say, we’re so close, let’s wait to see what the numbers are. And that’s going to be a possibility. On the other side, we’re going to try to push against that by saying, we know where the numbers are going to be. We know that they’re going to be upward. Let’s just take advantage of it, because we might not have the ability to manufacture as many units as we’re going to need going into the next year with the new numbers. So there’s a lot of looks at this and I think there’s several ways that it can go, but we’ll see where the market goes. But I think everything is very encouraging right now.

Okay. Great. And just a couple of very, very minor questions. First, should we think about lasers at the back end of 2020 or should that be more of a 2021 event?

Laser is a very important part of our future. We really believe in that technology and the model that we want to put forth with that technology. So we’re not – it’s not out of our minds, it’s in our minds whether we’re going to be able to get things up and running with FDA clearances and stuff before the end of the year. It’s possible, it can be done. But it has to be certainly a concentrated effort on all parts. And I think that we can do it. I would be safer to say, maybe Q1, Q2 of 2021. But definitely, we want to have lasers in our product line.

Okay. And then did you give a number for service contract revenue? We can wait for the 10-K.

Yes, we did give a number. Our number was up from last year. It went from 26% of our entire volume to 34% of the installed base. So we’ve seen an uptick of about 8% in revenue from our service. And of course the service revenues are still in that 62% to 64% range.

Okay. And when we model out the income statement going forward, obviously that R&D came way down in Q4. Do you expect that to stay kind of at a lower level?

I think our – we don’t want to ever give up on R&D, that’s going to be something that we constantly do. There’s always going to be a budget for continuing research and development for our products existing as well as future. So I would say, that with the – the most of the revenue or the R&D expense behind us on Sculptura, we still have a few things working with our partners like UPenn. There’s certain requests and requirements and desires that they have and we want to satisfy those only because it makes our system better and makes our system more usable. And we want to provide our customers with the best possible outcomes that we do. So we’re certainly going to take their recommendations as we continue to build. And that’s going to be a continued expense and part of the R&D. But I certainly don’t see the expense that we’ve incurred over the last two, three years to remain. I think that that’s most of it is behind us and I think that that’ll be a real good opportunity for us moving forward. And quite frankly, the management team that we have in place is what’s the exciting part of being able to maintain all of those budgets that we’ll put together and accomplishing exactly the same thing. But, being very disciplined in how we do it. And I think that’s the biggest opportunity that we have.

Okay. Great. Thank you for taking the questions.

No. Thanks, Scott.

And our next question comes from Andrew D’Silva from B. Riley. Go ahead, Andrew. Andrew D’Silva: Good afternoon. Congrats Joe on the sequential rebound. Good to see the volume is picking up again. Just a couple of quick questions. First one, just related to the turnkey initiatives that you were beginning to implement in 2019. Any sort of momentum there. If I recall correctly, you started to actually place some systems, is that correct?

Yes. And thank you, Andy for recognizing the achievements. We really appreciate it. We have installed three units. They’ve only been installed for about a month. They’re still going through training as we speak. We have two more that are under contract that we will place sometime in the first quarter as soon as we find the right places to put them in, which our customer and partners looking very closely at. The good thing about it is that there is a monetization of the Sentinel program within those and we have received payment for our first month of use for the first three units that we’re in for the use of the Sentinel. So we’re monetizing the Sentinel product. We think that it’s a good way to go and it’s a great opportunity for a lot of these customers to look at it. It’s what manages their business and it’s very important to them. So that value is beginning to take effect. And so we’re realizing some revenues from there. Again, not much, but the patient volumes will start to pickup at some point and we’ll be better at the end of the year than they are at the beginning. But we’ll get there. And then focusing on the next two units that we’ll install. I think that we’ll start seeing some progress with all five units being installed by the middle of the year. And hopefully the first three hitting their stride by June and July, and then the next two hitting their stride within the quarter or the same quarter, the third quarter. So we’re expecting some good things there and we expect to grow that business from there. Andrew D’Silva: I guess a hypothetical question. As you start to consider growing that turnkey business on an internal basis what kind of – how do you utilize your sales and marketing, right? So you’re – in opt-in situations out in the field and end up effectively working with SkinCure in a sales and marketing capacity, but now that you have your own kind of solution for that. Is there a way to decide when it makes sense for that to fall under the Sensus banner?

That’s a very, very good question. And the sales management leadership can make those decisions on the spot for every one of those customers that want to pursue that vein. So, quite frankly, it’s a flip of a switch. Andrew D’Silva: But it’s really your decision at the end of the day.

Exactly that, exactly that. Andrew D’Silva: Okay. And just my last question is related to the reimbursement. Obviously it’s been kind of focused on the 77401 code. I was just curious, there’s obviously a multiple other codes that kind of tie into the broader treatment paradigm. How are those codes expected to turn out from what you’ve seen or your discussions as CMS looks to reset going into 2021?

Yes. Our focus has been totally on 77401. That’s the code that CMS says needs revaluing. That’s the code that everybody is focused on, including the AAD. That's the code that we have to get revalued. And there's a significant upside opportunity for that. The other codes that exist, we're not talking about those codes. We're not looking at touching those codes. If CMS decided to do something about those codes were not aware of it. But it's one of the reasons, why we continuously meet with CMS is to make sure that 77401 is addressed, while at the same time making sure that the other codes remain intact. And so far, we've not received any indication from them on anything else. So that's why we're excited. Now there was a presentation by one of the people from the AAD, who made the presentation that said, get ready guys, because most surgeries going down 8%. And last year CMS made it very, very clear that E&M codes are codes that are viable for SRT and should be addressed and used for skin cancer, for the treatment with SRT. They also made the announcement that, that code, the one particular code, just to give you an example, there's four or five E&M codes that exist. And they said, the recommendation by the RAC [ph] as they call it to the AMA, and this is with ASTRO, AAD, AMA, all in – all presence, okay, to provide that information and this information came directly from CMS to that group that said, these E&M codes are codes that patients and doctors have more conversation. We want to promote that conversation between the doctors and the patient. We want the doctors to prepare more for the patients so that we know that, that conversation is going on. Well, they took one particular code, they're all up. But they said this one particular code, which is a code that's relevant to us, that pays like $74 and that's for every time a patient walks into the office for treatment is going to go to $96. That's already mandated – that's already been mandated by CMS. So when you're talking about that code along with hopefully a healthy increase in the 77401, and that we don't know, it'll come out sometime in July or August for comments. And then based on the comments, then it'll be taken back by CMS and then they'll put it out in November and say it's going to take effect January 1, 2021. If that's a decent raise, if you combine those two codes alone, you're looking at a healthy increase for our doctors than the reimbursement. And so I'm not going to say that the other codes are insignificant. They're tremendously significant and we want to protect those other codes so that it continues to add to the reimbursement structure for treating skin cancer. And so all of these things are pretty much in place, we just got to see where the cards fall by the time July comes in and then it's open for public comment. And I don't think the doctors will comment negatively towards a price increase, especially if they're going to get a reduction in reimbursement in another area. So I think that SRT is going to become more significant in the dermatology space than it has been in the past because of the reimbursements. Andrew D’Silva: Sorry, I actually spurred one more quick question. As it relates to all and in its totality what you get kind of typically, our physician gets reimbursed for – and the practice, gets reimbursed for the treatment. But what kind of – what percent of the total treatment is the 77401 typically, when you're talking about total dollars to the physician/practice?

Well, first of all, that's the consistent code that's used every time a patient comes in for a treatment. Okay. So it's very, very important and insignificant. And again, I don't know what that percentage is going to be, because we're waiting on the new number. Right now, the old number is not a good number because it hasn't been revalued since 2002. And so that's the part of it. But when you combine it with this E&M code, it probably becomes 65% of the total reimbursement, which is significant. Andrew D’Silva: Okay. Okay. All right, great. Well, hey, congrats on the progress and really best of luck in 2020. Thank you.

Thank you very much. Appreciate it.

And our next question comes from Anthony Vendetti from Maxim Group. Go ahead.

Thank you. Just a little more, Joe, on Sculptura, it seems like it's a fairly large opportunity. I know you started out with the KOLs and you're targeting three in 2020, but if you had to look out over the next three to five years, what is the market opportunity for that product do you think as best you can engage at this point?

Well, it's a very, very big market, Anthony, and I appreciate the question you being on for us today. There are 8,300 Brachytherapy/IORT products in the U.S. installed. In Europe, there's well over 8,000 of those units. There's a lot of old technology that really has not been addressed over the last several years. These products can be anywhere between 10 and 20 years old, if not more. So as they start to change out these technologies, this is a brand new technology that can save an institution a whole lot of money, because for the first thing, their treatments will require a radioisotope. None of our treatments will require radioisotope. So that's a huge savings to any hospital and any healthcare system. So I think that the opportunity is huge and – maybe I made the mistake once of saying that, we're coming into our 10th anniversary after – in the end of June and prior to the end of June, we will probably install our 500 system. I don't think it's going to take us that long to install 500 Sculptura units. I think that once it goes through the system. And all of the bells and whistles are talked about and the indications – the clinical indications are identified, I think it's going to be a good choice for a lot of hospitals and centers around the world to either replace older existing products that they have with the newer technology and to even add the newer technology because of the capabilities that provides to that marketplace. So the need, we're targeting 17 cancer indications with this system that this can address. And that's massive. And when you think that it's one treatment versus the six to 10 weeks that most patients are going through now, I mean, this is a game changer. It really is something that's massive for us. And I think that, we're going to see some of that as soon as UPenn, Stanford, Beilinson since start producing their indications and their studies on their focus interest. So right now, we're looking at breast cancer and prostate cancer, and not prostate cancer, but pancreatic CA and those are two major opportunities for us, and then it'll grow from there.

So just doing the simple math, it's at least if $500 is the right amount and there's 8,300 of them out there, but if you think you can get 500, it's a – with an ASP of about $1 million to $500 million opportunity that you see a clear path to towards over time.

Yes.

Okay. Okay, great. And then just in terms of, obviously there's a lot of talk about the coronavirus and so forth and obviously some of that's sensationalized, but how is that impacting sales to China for you right now?

Well, I'm glad that you asked that. Because I spoke to a Principal in China, he works out of the United States, but he's very involved in everything that’s going on with the coronavirus. And he’s a major player within Fosun, who’s our partner over there. It’s very, very tough. The numbers that we’re hearing here are grossly understated according to this fellow and one of the major problems, and one of the things that they’re working on right now is accessing robes, masks and other and gloves to keep their people safe, their physicians safe, their nurses safe. They can’t get anybody in the United States to ship anything to China at this point, which is a major problem that they have and they can’t produce enough of it themselves. So, we don’t think of the little things like that. We think that that’s normal, but these are the basics that that’s – that they’re going through. And I think that we’re going to hear it – hear of it being a whole lot worse before it gets better. And clearly, it’s going to impact our sales to China. But we have other parts of Asia that we can work with. We sold a unit to Vietnam last year. We’ve got the approval cleared for Korea. We can sell into Thailand. So, these are all opportunities that we have and that we’ve already addressed and spoken to people, who are working on deals for us with our distribution partners in those areas. The other thing that I want to point out is Brexit in the UK and in Europe has really put a – they’ve really slowed down in developing and getting EU approvals. As a matter of fact, the volumes were so great and the complications were so great that there’s only about four companies that do all those validations for various companies to get EU approved and CE Mark approved. Two of those companies have dropped up. One of the companies we were working with. So, we had to start from scratch after being six months behind for getting the EU approval. But we’re in sync now, but I couldn’t tell you when that’s going to happen, because it’s so backed up and so confusing by them that they’re having a difficult time to even work it through the system. But we’re in sync, I don’t know when we’re going to get EU approved, but as soon as we get EU approved, we’ll let everybody know and we’ll move ahead, because it’s not in their best interest to keep any of this new technology away from their citizens and so – but we’re in – we’re caught in that quagmire over there.

Okay. Okay. But it sounds like with the opportunity that you just outlined even though obviously, China will be impacted, you have enough other opportunities around the world that you feel confident in your 2020 plan.

Yes. And keep in mind, our biggest market is right here in the United States.

Of course. Yes. Okay. All right. Excellent. I’ll jump back in the queue. Thanks, Joe.

Thank you, Anthony.

And our next question comes from Ben Haynor from Alliance Global Partners. Go ahead, Ben.

Good afternoon, gentlemen. Thanks for taking the questions.

Yes. Ben, how are you doing?

I’m doing great. How are you guys?

Good.

Excellent. So, just – thanks for sharing the numbers on the service contracts. It looks like by my math, the attach rate during 2019 was something like 85% of the systems that were shipped. Can you maybe, share how that looked in 2018? Presumably, it was quite a bit lower attach rate. And I assume prior to that it was very little. Am I correct in those assumptions and any color that you can share how that’s tracked?

Ben, you’re talking about the service revenue?

Yes. the attach rates for getting the service contracts attached to SRT-100.

Yes. We’ve been pretty consistent with the orders that we get are being followed up with 70% of those orders have service contract or extended service warranties. We’ve installed quite a few units over the past several years. So, as they come off of warranty, that’s where we’re seeing the increase – the significant increase that we’re seeing as we saw last – from last year to this year being 20 – going from 26% to 34% of our assist – of our base of customers. So, it’s moving up and as we continue to install more and more units, it’ll become a significant part of our revenue. And we’ve always anticipated revenue from service to be somewhere around 10% of our total revenue.

Okay. So, you’re saying the attach rate hasn’t really changed all that much. It’s just a function of the passage of time and these things being installed for a longer and longer period of time going of warranty?

Yes. But as our revenues grow up, our cash rate’s going to go up as well, so it’s following the trend.

Okay. That makes sense. And then you mentioned in the press release that you’re working on refining the agreement with your key customer. I guess what does a refining mean in that context?

Well, it continues the communication between us and our best customer, and how we define what’s good for both of us under the circumstances of whatever the market demands are. And so I think, we both have to be very flexible in understanding what each other’s needs are in this market. And I think that the dialogue is wide-open, because it’s a good partnership. And so we believe that it’s going continue to evolve as we continue to move forward. We have growth ideas, they have growth ideas, we want to grow together and there’s an opportunity to do that with that open dialogue. So, it’s all positive.

Okay, great. And then lastly for me, you kind of touched on this a little bit, but you talked about five years ago when you went public, you saw profitability in 2020. It looks like that’s going come to pass. Do you kind of have a five-year plan with regard to SRT? I know you’ve kind of given a sense of what you think Sculptura could look like over the next decade, but anything longer-term that you think that would be worthwhile for analysts and investors to think about longer-term?

Well, again, that’s a good question, because what we’ve done since the beginning of time is every five years, we’ve gotten together with our board and with our leadership team to determine what the next five-year plan will be. And it just so happens that this past July, we gathered for that purpose of to develop the next five-year plan, because we’re going into years, 10, 11, 12, 13 and 14. So, we set ourselves a map, if you will, on how we want to improve our business, how we want to grow our business, and where we think the business is going to grow, and we want to identify areas that we think we could go after in that market and in our space. And the first two, five-year plans that we had representing the first five years and the next five, it was funny to see if you put a graph to it. I mean, we followed the graph very, very well. I think that the next five years, I think is going to be more growth in this market, because in the first 10 years, we didn’t – we worked against what I would say a very tough reimbursement plan. To me, the reimbursement is great. Don’t get me wrong. I think that the reimbursement is great as it is now. but the doctors don’t, they want to make more money. And the comparison that I make is in the state of Florida, for instance, an MRI gets $300 reimbursement and the machine is $1.5 million. They need 17 patients a day to break-even. Our machine or smaller machine is $200,000. The doctors now are getting $2,000. Their break-even is two patients a month and there’s a whole lot of patients to be at. So, when you make those comparisons and you see the opportunities that if we go through this process, it could potentially mean that purchasing a vision product has the same break-even point two patients a month, as our SRT product has right now. So, I think you can decide for yourself based on that, you can potentially see what that growth could be and we’re excited for that. We didn’t have that opportunity the first 10 years, but we were able to work through it. I’m thinking that maybe, the next five is going to be good five years and we’re pushing as hard as we can to make that happen.

Excellent. Well, thank you guys so much for the color and enjoy the rest of your evening.

Thanks, Ben.

And our last question comes from Yi Chen from H.C. Wainwright. Go ahead.

Thank you for taking my questions. My first question is, can we assume that the Sculptura systems to be sold in 2020 to be priced at the single level as those sold in 2019?

No. As we stated in our comments, the systems that we are moving forward with should be at the average selling price target based on the $1.5 million MSRP for that system. Now, it’s not to say that we might take in one or two key luminary accounts, who would enhance our overall program from a scientific and clinical aspect if it was encouraging for them and to get that kind of a name attached to Sculptura and Sensus. So, we’re going to maintain that flexibility that if we have a chance to get an ultra-super luminary at that kind of a revenue scale versus the regular price that we’re shooting for, we’re going to take advantage of it, because it’s our benefit. But the goal is to sell the products at what we’re targeting as an average selling price.

Got it. next question regarding the service revenue associated with 34% of the systems right now; do you have a target that you would like to achieve in 2020 – by the end of 2020 for improvement of that percentage?

On the service, well, I mean we’re doing pretty darn good on the service when you’re getting 70% of all of your orders that come in have an extended service warranty. When I was at General Electric and we were selling PET CT scanners, our number was 80%. but the service contract was $250,000. The machine was $2.5 million. So, 80% was phenomenal for General Electric and we achieve that throughout the world at General Electric introducing that in the first few years. So, for a company like ours to have 70%, I think is very, very good. Now, the neat thing about why we tell customers they need to have a service contract is the fact that our machines are reliable. They don’t break down. And that’s because we have the Sentinel program, where 80% of anything that could go wrong is fixed remotely. We can fix it through software additions. We can also predict the other 20% if it’s going to have a down – have potential for downtime. And so we can send out a service engineer to prevent that downtime from ever happening. So, we’re at the point, where we pretty much can tell the customers will guarantee you 100% uptime if you have a service contract. So, we probably need to take advantage of that aspect and maybe, that’ll help us drive it up. But I mean the customer has to come back to us for any kind of service anyway, but we like those contracts. We’re going to continue to drive those contracts and I think it’s going to continue to be a major part of our revenue.

Thank you. And next question is if there were no tariff issue between U.S. and China and if there is no coronavirus outbreak, could you give us a rough estimate of how many units you could have shipped to China in 2019 and how many units you expect to ship in 2020 to China?

Again, that’s a good question, but it’s hard to say how many units we could have shipped. I mean, would it put a – is not in our dialogue. I mean, I can’t say to how many units we could have shipped, but I know that we did ship some units. We know that we did have some interest. We know that 25% increase in our cost to the customer, because of the tariffs was significant enough for everybody to push back and say, we’re not going to do it. So, the tariffs came in or were knocked out at the end of the year and in China, only became effective in this first quarter. So, although we were aware of it in December that these tariffs were going away when you talk to the people in China, the government hadn’t told them yet and they weren’t going to give them permission to do anything until sometime around the 1st of February. So, with those tariff wars, there would never have been anything sold in 2019 based on it, even though we did sell a couple. So, what would I say, if we were looking at China, could I say that we would have sold five to 10 years? That’s strictly a guess. It’s not a – there’s no signs to it. It’s strictly a guess, but I think that we could have done that probably. Yes.

Okay. And lastly, could you verify that the shares outstanding are still 16.5 million?

That’s correct.

Okay. Thank you.

Thank you.

That appears to be our last question. I would now like to turn it back to management.

Thank you. So, in closing, I want to thank you all for your time, the great questions this afternoon and for your continued interest and support of Sensus healthcare. I want to reiterate that we’ll be at the American Academy of dermatology meeting in Denver on March 20th through the 24th. and we’d be happy to meet with any of those, who are willing to attend. We will have an Investor Relations conference or get together at one of the local hotels to be determined with a small reception, and we are participating in the ROTH capital corporate access conference at Dana Point, California in March 16th and the 17th. So, please contact ROTH if you want to meet with us and get in sync for a one-on-one. We look forward to seeing you as we hit the road and look forward to introducing you to Javier and our new management team. So, thank you everybody.

Thank you. This does conclude today’s conference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.