Good day ladies and gentlemen and welcome to the Sensus Healthcare Second Quarter 2022 Earnings Conference Call. [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. This is Kim Golodetz with LHA. Thank you all for participating in today's call. Joining me from Sensus Healthcare are Joe Sardano, Chairman and Chief Executive Officer; Michael Sardano, President and General Counsel; and Javier Rampolla, Chief Financial Officer. As a reminder, some of the matters that will be discussed during today's call contain 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 as of the date of this conference call, August 4, 2022. 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 the continuation and severity of the COVID-19 pandemic and its impact on sales and marketing, as described in the company's forms 10-K and 10-Q. 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, Kim and good afternoon, everyone. I'm delighted to be reporting on another quarter of strong financial performance with significant year-over-year revenue growth and continued profitability. Our revenue of $12.1 million was more than double last year's Q2 revenue. In addition, we earned $0.21 a share compared with $0.20 from continuing operations in the first quarter of this year and a loss of $0.02 last year. We've maintained our momentum since the close of the quarter and we're optimistic the second half of the year will be terrific. If you recall, in January 2021, our SRT therapy received improved reimbursement when the centers for Medicare and Medicaid Services, or CMS, revalued our main code upwards by 66% for a course of SRT in non-melanoma skin cancer. In addition, ancillary codes received a double-digit boost. Of note, Mohs surgery reimbursement went down. Last quarter, we reported continued growth in patient volumes at customer sites in part because SRT became so much more prominent during the pandemic, while surgeries were kept to a minimum. This has continued in a best practice migration towards SRT that will not only be a permanent gain for Sensus but will continue to generate demand for a noninvasive treatment approach. We continue to leverage the improved reimbursement for SRT via a number of activities. First, we embarked on a rigorous education program to ensure our physician customers were educated on the improved ROI. This work is ongoing and is especially significant at dermatology conferences and trade shows. More recently, early this year, we established our fair market value lease program with our banking partners and that has driven increased sales of our premium SRT-100 Vision with more than half of Vision sales now occurring under lease. Importantly, the leasing program brought Vision into a more affordable…

Thanks, Joe. It is a pleasure to be speaking with all of you this afternoon. As Joe mentioned, revenues for the second quarter of 2022 were $12.1 million and this compares with revenues of $5.4 million for the second quarter of 2021 which was impacted by the COVID-19 pandemic. Revenues for the 2022 quarter reflects a higher number of units sold, including the sale of 5 SRT-100 systems that were shipped to Asia, along with revenue from service contracts and our mobile laser business. Gross profit for the second quarter of 2022 was $8.3 million or 68.6% of revenues and this compares with $3.3 million or 61.1% of revenues for the second quarter of 2021. The increases were primarily driven by the higher number of units sold in 2022, service revenue on installed units and the impact of COVID-19 on the 2021 quarter. [Indiscernible] expense for the second quarter of 2022 was $1.7 million compared with $1.3 million for the second quarter of 2021. The increase was primarily attributable to higher threshold expense, advertising expense and commissions offset by a decline in other marketing expenses. General and administrative expense for the second quarter of 2022 was $1.1 million compared with $1.4 million for the second quarter of 2021. The decrease was primarily due to higher legal and professional fees in 2021. Research and development expense for the second quarter of 2022 was $0.8 million compared with $0.9 million in the prior year quarter. We recorded a provision for income tax in the second quarter of 2022 of $1.1 million and had no such provision in the second quarter of last year. Net income for the second quarter of 2022 was $3.5 million or $0.21 per diluted share and this compares with a net loss of $0.3 million or $0.02 per…

Thank you, Javier. Once again, I'd like to stress how proud I am of our entire Sensus team, including our customers and their continued dedication to our patients during challenging times and their tenacious dedication to growing our business. Our financial results speak to that dedication. I'm also proud to share with you that our President and General Counsel, Michael Sardano, was honored last week by the South Florida Business Journal as one of the region's top 40 executives under the age of 40. Congratulations on this achievement, Michael. Our SRT systems are well positioned in a large market consisting of some 14,000 dermatologists and 1,000 Mohs surgeons in the U.S., representing more than 7,500 offices, not to mention a further 6,500 plastic surgeons and 5,500 radiation oncologists. Our systems provide a compelling alternative to surgery for millions of patients and arguably the only solution to prevent the recurrence of keloids following surgical excision. Before we open the call for questions, I want to mention that we'll be presenting at the H.C. Wainwright Global Investment Conference being held in New York City, September 12 through the 14th and we'll be available for one-on-one meetings. I hope to see some of you there. With those comments, I thank you for your time and attention. And now operator, we're ready to take questions.

[Operator Instructions] And our first question comes from Alex Nowak from Craig-Hallum Capital.

This is [indiscernible] on for Alex. Congrats on the great quarter. Starting out from us. The business seems to be hitting on all cylinders. Your comments concerning the pipeline seemed promising. Any reason we shouldn't be thinking about sequential revenue growth for the remaining 2 quarters of the year here, Joe?

I think all of that is very much possible. I think that we are on a good string here of business and I think that, that will continue between now and the end of the year and I think that we'll have a very strong second half of the year.

Got it. And it was nice to hear your comments on capital allocation. Any additional thoughts you can give us on what you’re seeing, what the market looks like for small M&A or other commercial partnerships in dermatology?

There's a few companies out there that we think could be a good fit with us. We're trying to talk to these companies. It's a very difficult time for a lot of these companies to gain any kind of consensus on what their future is. I think we're all hoping for a great economy but it also provides us with an opportunity and for them to join with a company that's on the right track. So hopefully, we're going to be able to accomplish something and hopefully, we'll be able to do something soon.

Got it. And then, we’ve heard kind of some inklings around the market that in some areas, health care staff and shortages are getting marginally better. What have you heard recently from the field about the dynamic in dermatology offices?

From the point -- standpoint of bringing on people or hiring people, things like that, it's very, very difficult. It's not easy. So you have to be extremely particular. We're not going to settle for second best when we've always worked towards getting the best people we possibly can get. So we want to continue on that track and hopefully, we keep hiring people like who we're hiring right now. So I would say that the hiring is slow only because the process that we've employed is very, very precise and very in depth. So we want to make sure that we get the best people upfront.

Are you seeing any impact from your customers maybe having a difficulty hiring or keeping fully staffed on your business at all? Should we expect any improvement there as the general ecosystem in gross?

First of all, I'll say this about the dermatology footprint that we have and the industry that we're in. The dermatologists have unbelievable loyalty with their employees. So they all are very, very strong with the employee base that they have and how they're administering to their patient base. I think that a lot of them are also expanding and it's that expansion that they're probably seeing some difficulty. But because of the reputations that they have with their patients and in their communities, they're attracting a lot of good talent. And because they have the background and the experience within their practices, they're able to bring good people on board who are willing to work and train them to the benefit of the practice. So I don't see them hurting as much as a lot of people might think in other industries because this is a very vibrant industry.

Got it. No, that’s helpful color. I might have missed that in the press release. But can you share the number of SRT systems that you guys shipped in the quarter? I know that’s something you usually give.

I'll leave that up to Javier here. He'll tell you.

We shipped 35 SRT systems in the quarter.

Got it. And just last for me, if I could sneak one more in. Can you talk a little bit about your relationship with SkinCure? Wondering if it ever would make sense to form a closer partnership there?

I think we got a great relationship with SkinCure. Like I said in the past, I wish I had 10 more customers like these guys. They're wonderful. They know what they're doing. They're professional in every way. They know how to treat patients and they're working very well with their dermatology partners. So we're excited for them. And we're always talking together. So if an opportunity comes to work closer together, we'll see and we'll pursue and we'll discuss.

And our next question comes from Scott Henry from ROTH Capital.

Wow! What another strong quarter. I mean third one in a row, really fantastic. I guess the natural question when you're selling a capital equipment type of objective, is this a bolus of orders and maybe it slows down from here? Or do you think this kind of pace or cadence can be maintained at these higher levels? I mean you've got quarters that look like -- the year looked like in 2020. So we're just trying to get a sense of how sustainable it is.

Well, Scott, it's a very, very good question. As we're looking at the market and you look at what the market penetration that we've had so far, we're probably somewhere around 3.5% to 4% of the market penetration. So we still have the best ahead of us. And I made a statement maybe 2 quarters ago when we announced 500 units installed. I said that it took us 10 years to install 500 units and we would probably be able to install 500 units in half that time for the next 500. So I still believe that and I think that the market will be able to capture that. And I think COVID kind of projected is closer to that because of best practices. And again, we're seeing a new era of dermatologists and Mohs surgeons that's coming into play, where a lot of these doctors are not afraid of technology. And because of the volumes of patients that are coming through their offices, the productivity that we provide them with SRT gives them so much more time to see so many more patients. And I think that's the key how many patients can they see. So we provide them with the cash flow that they need, with the return on investment that they need and we give them more time to work those extra patients into their practice. So I think we provide them with everything and all the tools for them to grow as well as our practice and our business to grow.

Okay. And I mean the natural question is, I’ve heard the presentation for years and I mean you look at the pictures and the non-invasiveness of SRT versus Mohs surgery with similar results. It did seem kind of like a no-brainer that this shift would happen. But it didn’t really happen for a while. Do you think it was the reimbursement? Or do you think it was just the inflection of enough people seeing it, just reaching critical mass? I mean why now?

Well, I think we've got a couple of things going for us right now. I think, number one, the doctors are seeing more and more each and every year, each and every month, the benefits that their patients are getting from SRT. And we're seeing that more and more patients are hearing about SRT and are starting to demand a nonsurgical choice. With the influx of cash and how we've been able to preserve our cash over the last 2, 3 years in spite of COVID, we're now reinvesting that cash, as I mentioned during the dialogue that we've -- we're working with an outside agency of PR and advertising firm to help create more patient awareness. And prior to that, based off of our website. And if anybody wants to go to our website, you'll see it's a new and revamped website. That's very user friendly for both the doctors and the patients. But we've gone from literally 2 patients a week inquiring by reaching us either off of our website or phone calls, to now we're seeing -- we're approaching 30 calls a day, 30 inquiries a day from patients and we're not even starting the PR program throughout the entire country. We're just starting to touch it. So I think that this is going to continue to grow. And as those patients keep inquiring, we set them up with our doctors in the areas that these patients are living, whether it be for keloids or skin cancer but we're hearing all the worst stories, the horror stories that the patients are going through, the stories that they're getting from their communities regarding the treatment of skin cancer and/or keloids. And now we're directing them to the physicians who have our equipment and I think that they're getting the treatments that they're looking for. And we're getting a lot of letters that say thank you for your help, they haven't received that kind of help in any other kind of modality that they've worked with in the past. So I think the combination of all these things happening at the same time and us being able to now afford reinvesting into this PR and advertising is going to help us accelerate this.

Okay. And with the higher numbers in the first half of ‘22 and even some sales at the end of 2021, do you -- should we still expect seasonality in kind of a stronger 4Q? Historically, that’s been a strong quarter? Or maybe we should think that, that’s more smoothed out given the big numbers we’re seeing?

I would -- until we have go through it, I would have to say that we are looking at some degree of seasonality. As we're going into the third quarter, we're going to be pushing for our growth and continue to grow quarter-over-quarter. But the main thing is profitability. We want to achieve profitability each and every quarter which is what I said from day 1 when we started this year. So as we're going into the third quarter -- there's a lot of things that are going on that could impact what happens in the third quarter. I don't know if they will but these are the things that we think about. We have a midterm election. A lot of people just keep their hands in their pockets until they know exactly what the result is. They just don't like the move. They might anticipate those results but they still don't like to make decisions until after the results are confirmed. On top of that, I look at these doctors that we work with. They really [indiscernible] over the last 2, 3 years during COVID. And they had to recover a lot from their practices, from their families, all of those things that made them better business people, made them better doctors. And when I look at what they've had to go through, they haven't had vacations in 2 years with COVID. Where could you go with your family? Couldn't go anywhere. So -- and a lot of times, their clinics were closed. So if I were them with the new money that they're making or the renewed opportunities that they have within their practice, I think looking at taking some extended vacations with the wife and kids somewhere, whether it's the cottage or whether it's overseas or wherever they want to go after 2 years of being closed up, I think they're going to take advantage of that. And that might extend into the November time frame. Now, I don't know how it's going to impact our sales. I will tell you that we have a good backlog going into the third quarter. So we have a good shot of either meeting or exceeding what we did in Q2. And I would expect that no matter what, our Q4 will still be the best quarter that we've had in the entire year. So that's why we're very, very optimistic about what's going to happen in the second half. And the third quarter is going to be key but we're comfortable with what we're doing so far with the third quarter. We're excited about the second half.

Okay, great. And just a final question, Joe, a little more of a long term. I've kind of noticed you seem to be building a little more of a recurring revenue stream into the business in addition to kind of a capital sale. When you think out 5 years from now, what percent of revenues would you like to think would be recurring revenues in the business model?

Yes. If we were to stick with the current product line that we have, we’re going to assume that we’re not going to get into or expand our footprint into other product lines for the same industry. You’re going to look at anywhere between 10% and 14% of recurring revenue based on the service agreements that we have. I think the service agreements are very important, not just for us but also for the doctors and they’re starting to recognize the importance of the service contract because with the Sentinel, we provide them with a tremendous impact and making sure that these machines do not go down and that’s what they love. They have the reliability and they can expect this product to be working every time they book a patient or schedule a patient for treatment and that’s important to them.

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

So on the TransDermal Infusion Systems, so you sold 10 -- or you have orders for 10 which is great, to this Hair Enhancement Centers. Two are going to be delivered in the third quarter. One is -- have any of those been delivered yet since we’re in the third quarter, 8 are scheduled in the fourth quarter. And then on the revenue recognition side, did any of those systems get recognized -- or did a percent of those get recognized here in the second quarter? Or are all the revenues going to be recognized when delivered in the third and fourth quarter?

Anthony, yes. So the order of 10, we expect at least 2 to be delivered in Q3, the remaining by the end of the year in Q4 now. So that's basically how we plan to recognize the revenue as well.

Okay. So none of these orders were -- no part of the revenues from these 10 orders were recognized in this -- in the second quarter that ended June 30, correct?

Correct. Correct.

Okay, great. And then switching gears to the SRT systems, 35 were delivered. Any of those to China? Or -- did you break that out? Or can you break that out?

Yes, 5 went to China. I should say, 5 went to Asia because we had 4 go to China and 1 to Vietnam.

Okay. And then, Joe, maybe on the TransDermal Infusion Systems, right now, 10 of these are the Hair Enhancement Centers but the opportunity, as we discussed when you first signed this agreement is for other aesthetic procedures as well that require injection, whether it be BOTOX or something else, JUVEDERM or dermal fillers. What’s the -- can you talk about the interest level or the pipeline of other potential aesthetic procedures for the TransDermal Infusion Systems?

Yes. The interest is extremely high. We've got other pending orders. We have a backlog going into the third quarter other than the HEC purchase. We've got quite a few customers that are looking at multiple orders in other groups. So it's extremely high as of right now. So I expect second half to be real exciting for the TransDermal units. Now some of the applications, we've got 1 study that was complete, with the paper presented at the Hawaii meeting, that was with Dr. Nestor, who did the hyperhidrosis for the sweat glands. We have several other customers that are also anticipating being able to treat their patients for that. We have one that we're not prepared to say but was already shipped in the third quarter. And then we have Dr. Ablon, who is working very, very closely with Crown Aesthetics using their PRP serum for hair restoration. And so that's an exciting program as well. And she presented for a facial rejuvenation at the last -- the Vegas Aesthetic Show with a live patient which was very, very strongly attended. And so there was a lot of interest raised there. So it's an exciting product and I think that the advertising and the marketing that we're doing with regard to that and the word of mouth that is going from one doctor to the other, I mean, being able to provide these patients with these services [indiscernible] without the lidocaine, all of these features, again, provides customers with better productivity and patients with less pain and no downtime. And so it's going to encourage a lot of more patients to come into their offices to be treated for these things because it's important to them. So it's exciting.

Okay. Great. And then just lastly, on the strong results for the last couple of quarters, partly due to the increased reimbursement as well as more data that shows the benefits of SRT. But one of the things you pointed out was the also the ability for physicians to instead of purchasing the capital equipment is to take you up on the fair market value lease. What percent of the 35 total systems were, what the number was that were either purchased or delivered through a fair market lease -- and then I know your salespeople have, I’m sure, a slide deck that goes -- that shows the return on investment, the ROI, necessary, how many patients do they need to treat to breakeven on the monthly payment for the fair market lease?

The breakeven is just under 2 patients a month. 1/3 of the sales that we made in the second quarter were with fair market value lease. The rest was cash.

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

Congratulations, everyone. [indiscernible] on behalf of Yi Chen. Luckily, you've answered most -- you've already answered most of my questions that I had. So I'll just keep it very short. When it comes to the SRT systems, have your sales reps, have they started finding it easier to have one-on-ones with dermatologists and have more face time with them considering the recent environment? And also, just -- I know that you've given a lot of color and thanks for providing information on the rise in the inquiries from patients following your PR program. So I was wondering if you could also provide some color on potential revenue increase, thanks to your ongoing marketing efforts and also the recent reimbursement news.

Sure. Well, I'll just say this, it's never easy to get face-to-face with any of the doctors. It's always a battle. It's always tough because their time is very, very important to them and they're seeing a whole lot more patients than they've ever had in the past. So they're extremely busy. So we have to see them whenever we have the opportunity but the good thing is that the word is getting out so that they want to see us and therefore, they're encouraged to try to find time to meet with us. So that's the good thing. But it's always a difficult thing because of the way their practice is built. The -- with regard to the PR and the advertising, we continue to reinvest into that part of our business. And we think that it's an investment well done because of the patient awareness program as we now start to provide patients with information regarding where they can get these treatments and understanding that they do have an option versus surgery. And a lot of the patients that are coming to us, they're coming to us because they're not given an option by some of the doctors who are only telling them that they should have surgery. When they find out that there's an option, they come to our website, they fill out the form and we are able to get back to them with the interest and they're so thrilled to talk to a doctor that might be doing both. And that's what I would suggest to all of the most surgeons out there. You can't be a one-arm bandit in this thing. You've got to be able to provide patients with the choices that they're looking for. And I think the doctors that are going to be able to provide those skin cancer patients with those choices are the ones that are going to win out in the end. They're going to win the battle for the patient. And so, we're seeing an increased interest of the patient. That's what we want to do. We want to provide them with that information and education and we're going to continue to build on that and we'll do whatever we can to make more patients aware all of the time.

Excellent. And lastly, on the TransDermal systems, could you perhaps summarize the feedback that you've gotten so far from the stakeholders that have used it. And also, I know you've provided some color but what are your plans with it for the next -- what are the commercial plans for the next year or so?

Well, I'll give you an example. We had employees witness a patient for the sweat glands, witness a patient being treated at Dr. [indiscernible] Clinic down in Fort Lauderdale, Florida. He's a very, very popular position amongst his patients. He has a tremendous following and they decided to be able to transpose the serum in through his armpits, whereas before, you had to inject with the needle and you had to provide lidocaine in order to make sure that there was no pain because this is multiple needles in both armpits to help this patient with the sweat glands. After we went through the process and experienced the process, he looked at the physician, he said, why aren’t we doing this all the time. And so the patient you saw it right away that they preferred to have the treatment without the needles. And I think that we’re going to see that happen more often when patients are going to be more encouraged to go to a physician’s office when the physician is able to provide them with a no pain treatment as well as not just no pain but being able to say to the patient, you can live your life, you don’t have to change your schedule. You don’t have to stop doing this or that because of all these injections and because of the pain. We’re also experiencing the same thing with hair restoration. Because of the fact that you’re not sticking thousands of needles into a scalp which is extremely painful. Now you’re going to have patients that are going to say, hey, I want more of this, I want to do it on an ongoing basis because it is something that they have to do ongoing in order to maintain the hair restoration growth over the course of their lifetime. So these are all exciting procedures for patients and for the doctors to be able to administer. So again, no pain, all gain and normal life for the patient.

And we ran out of time for questions. I'd like to turn the floor back over to Mr. Sardano for closing remarks.

Okay. Thank you and I appreciate everybody's remarks and questions. I want to thank you once again for your time this afternoon and for your interest in Sensus Healthcare. We look forward to our next financial results conference call when we report our third quarter results in early November. And until then, be well, everybody. Thank you so much.

Thank you. Ladies and gentlemen, 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.