Welcome to the Sensus Healthcare Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Kim Sutton Golodetz with LHA Investor Relations. Please go ahead.

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 law. 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 3, 2023. Sensus Healthcare undertakes no obligation to revise or update any forward-looking statements except as required by law. All forward-looking statements are subject to risks and uncertainties as described in the company's Forms 10-K and 10-Q. During today's call, references will be made to certain non-GAAP financial measures. Sensus believes these measures provide useful information for investors, yet they 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. Our second quarter financial results showed improvement over the first quarter. During Q2, we shipped 13 systems, including four SRT systems outside the US, and six SRT-100 Vision systems up from 10 systems shipped during the first quarter of 2023, but down from 33 systems shipped in the prior year quarter. During the quarter, we did achieve a milestone. We have now shipped over 700 systems - 708 to be exact in total, and are making progress as we drive towards 1,000 systems within the next couple of years. If you recall, we delivered the number 500 system during our 11th anniversary year. I made the statement during our then-earnings call that we would achieve the next 500 units in half the time. So far, we are on track, and we look forward to a better second half of 2023. For Q3, revenues were $4.5 million, an increase of 33% sequentially, but down from the $12.1 million a year ago. As discussed on last quarter's conference call, many of our customers depend on elective aesthetic procedures as a meaningful source of practice, revenue, and profit. And we are hearing encouraging feedback that patient volumes and procedure mix are improving. As such, we continue to build inventory and prepay for components. We're confident that we are planning appropriately, and we are receiving positive feedback from our customers that they are experiencing the return of their patients as volumes slowly grow back to previous levels. And speaking of volumes, our surveys of Medicare show that SRT is experiencing a 27% treatment growth rate year-over-year for the past six years. If this growth utilization rate continues at its current pace, SRT will soon become the treatment of choice for non-melanoma skin cancer. Our confidence is high,…

Thanks, Joe. Last quarter, I spoke about our efforts to open up new international territories, a demanding process requiring regulatory approvals and engaging the right distributors. In Q2, Sensus was pleased to announce our first system being sold into Ireland at Beacon Hospital in Dublin. Skin cancer is the most prominent cancer in Ireland with more than 12,000 cases per year, so SRT should be in high demand. Sticking with that part of the world, Sensus also announced a new distribution partner in MIS Healthcare, a very large and well-respected [technical difficulty]. They bring a broad and growing network of relationships within the public and private health care sectors to support an effective market entry for Sensus. They also have a large service and maintenance operation supported by a team of factory-trained engineers and application specialists. Additionally, in Q2, Sensus was excited to expand into the Central American territory with our first SRT system sold into Guatemala. With regard to the future, our plan is to expand our Latin American and Asian footprint as quickly as possible, with Brazil and Japan being longer-term goals as they are highly regulated. China remains our premier international market with now more than 50 SRTs sold. With the pandemic lockdown lifted, we continue to see positive momentum and shipped another two SRT systems there during the quarter for a total of five shipments to Asia so far this year. We expect that China will take delivery of more than 10 SRT systems throughout 2023, and we look forward to expanding further into the Asian territories with a specific target on Korea and Japan. With that, I'll turn the call over to Javier for a discussion of our financial results.

Thanks, Michael, and good afternoon, everyone. As Joe mentioned, our revenues for the second quarter of 2023 were $4.5 million, an increase of 33% over the first quarter of 2023, and a decrease of 62.5% as compared with revenues of $12.1 million a year ago. The decrease versus the prior year was primarily due to a lower number of SRT units sold as customers continued to defer purchases, as well as lower sales to a large customer. Gross profit for the second quarter of 2023 was $2.6 million, or 57.9% of revenues, compared with $8.3 million, or 68.3% of revenues for the second quarter of 2022. The decrease was primarily due to the lower number of units sold and higher costs charged by vendors in the 2023 quarter. Going forward, we anticipate gross margins to return to the mid-60% range as our sales continue to improve in the second half of the year. Selling and marketing expense for the second quarter of 2023 was $1.6 million compared with $1.7 million for the second quarter of 2022. The slight decrease was attributable to lower marketing initiatives and commissions, partially offset by higher headcount costs. General and administrative expense for the second quarter of 2023 was $1.3 million compared with $1.1 million for the second quarter of 2022. The increase was mostly due to higher professional fees, offset by a reduction in insurance expense. Research and development expense for the second quarter of 2023 was $0.8 million, unchanged from the same quarter last year. We expect R&D expense to remain at this same general level for the rest of the year. Other income of $0.2 million for the second quarter of 2023 was related to interest income. Net loss for the second quarter of 2023 was $0.4 million or $0.02 per share,…

Thanks, Javier and Michael. SRT treatments surpassed $480,000 in the last two years alone, and the ROI for our premium SRT system under our fair market value leasing program continues to be compelling. Interest in SRT remains high. We expect to ship at least 60 SRT systems during 2023 and return to profitability in the second half of the year. Clinical results in treating non-melanoma skin cancer non-invasively are excellent with published studies showing that SRT is as good or better than most surgery. This should be reason enough to choose SRT. Add to the fact that most procedures can leave scars and raise the risk of infection and the fact that our reimbursement is so much higher than it was two years ago, while most surgery reimbursement has come down, and SRT becomes the clear choice. We are very excited to be working on making this choice even easier. As a final topic before we take your questions, I want to add that our new lasers have the Sentinel IT solution capabilities embedded in them, including all six of our Sensus-branded aesthetic smart lasers and our transdermal drug delivery system. This system will, for example, allow PRP to be applied to the scalp in a pain-free hair restoration experience. In addition, posters have already been presented on the application for hyperhidrosis or overactive sweat glands. We expect this device to be cleared by the FDA by the end of the year. Our transdermal drug delivery system has drawn interest from many pharmaceutical companies looking to provide patients with a pain-free experience. We are still in the early stages of tapping the enormous market opportunity for SRT. Our systems are well positioned in a large and largely untapped market. They provide a compelling alternative to surgery for millions of patients and arguably the only solution to prevent the recurrence of keloids following surgical excision. As an overlay to all this, an estimated one in five Americans will develop skin cancer during their lifetime. This tells us that nearly 70 million people will have non-melanoma skin cancer. So clearly, there's a need for our SRT systems both now and even more so in the future. We're confident that Sensus is positioned for success despite the challenges we faced in February. We have a great staff to drive growth and implement our strategies, which is why we have built inventory to meet the expected demand. Make no mistake about our enthusiasm and excitement for our technology and our future. Our technology treats skin cancer as well or better than surgery, while we treat keloids better than anything else. With those comments, I thank you for your time and attention. And now, operator, we're ready to take questions.

[Operator Instructions] The first question comes from Scott Henry with ROTH Capital. Please go ahead.

Thank you. And, good afternoon. Joe, some progress certainly sequentially from first quarter to second quarter. Can you talk about how we should think about the cadence in the third and fourth quarter? It sounds like you're looking for about 35 to 40 placements. How should we think about when they may fall?

Yes, Scott, thanks for being on. As we've said from the first quarter earnings call that we experienced some delays in the first half would be tough, but we thought that the second half would be a lot better. So, how do we look at it? We really are looking at approximately 60-plus systems for the year. I would say that third quarter traditionally has been a low quarter for us, but I think it's still going to be better than the second quarter. And I think the fourth quarter, which traditionally has always been our best quarter, will continue to be the best quarter. So, I think between the two sequentially, I think, again, third quarter better than the second quarter, fourth quarter, best of all.

Okay. And if I recall, you made some comments about being breakeven or profitable in the second half of the year. It sounds like the breakeven is about 16 units give or take. But do you feel comfortable you'll be profitable for the second half of the year? Or what kind of guidance would you like to give?

Yes. No, I'd like to tell everybody that we will be profitable in the second half of the year. I think that we've been saying that from the beginning that profitability would return. Our number one objective is to be profitable for the entire year. So, if things come around the way I think they will, will definitely meet the profitability objective that we've had from day 1.

Okay. And then, on the income statement, it looks like selling expenses were a little lower than I would have expected in the second quarter, down sequentially from first quarter. Anything of note there? How should I think about it going forward? Is first quarter or second quarter more representative? Obviously, they go up a little with volume?

Scott, this is Javier. It's a blend. I mean, in Q1, we have major threshold expenses that went through. And then, in Q2 compared to last year, we had lower sales compared to last year, so we had lower commissions. But you cannot take one of them as an example. It's basically a blend. You have to see the year today.

Okay. That's helpful. And final question, Joe, what are you hearing from your customers? Are you seeing the shift to medical from aesthetic procedures? And are they okay with the higher finance rates given the current interest environment. Just kind of your color on the customer.

Yes. Well, the good thing, Scott, is that we're hearing from our customers that their customers are coming back. So, they're seeing a gain - a slight gain in the services from the aesthetic side, which again puts cash in their pockets. So we're excited for that part. It's also helping them focus on what SRT can do for them in their practice with the fact that you have CPT codes that's paid for by Medicare, and this is a great opportunity for them to go after some revenue that maybe they didn't have before. So, I think that they're open. And we've always said that we haven't lost any of the prospects. The prospect base continues to grow, but a lot of the decisions were being delayed because of the fact - the impact that they had on the cash business. So, we're starting to hear some good rumblings from the field. We're excited for them that we seem to believe that the market is coming back based on their feedback. And I think that's what we've been saying all along that the second half will be a much better half as people get back to incorporating whatever economic situation they're experiencing is part of life and the way we move on.

Okay, great. Thank you for taking the questions.

Thank you, Scott.

Thanks Scott.

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

So, on the - just shifting gears back to the transdermal infusion system that you've developed on your own now, just where is the status with the 510(k)? Maybe just an update on where that's at and what your expectations are in terms of the clearance there?

Yes. We've gone through all of the regular testing through the government programs that have required it. And, so those testing, those reports are we're waiting for. We expect those reports to be incorporated into an FDA submission within the next 30 to 45 days, and we expect FDA clearance before the end of the year. 1 of the things that we've added, which I think everybody would expect us to add was the Sentinel capabilities into this program so that the Sentinel Cloud and all of the opportunities with Sentinel attached to this device as well. So it clearly will give our customers the best options possible in providing this kind of drug delivery system, if you will. So we're very, very excited for it.

Okay. So, the addition of the Sentinel system that the IT piece that you're putting with it has the combination of the two is why it's taking a little bit longer, but you're expecting within the next 45 days to submit and then approval by the end of the year. Is that right?

Yes. And it hasn't - that wasn't what delayed it. It was the testing by the third-party agencies as designated by the FDA. You have to have those. And there's quite a line of people lining up to bring product to market through the FDA, and they've got a backlog. But all of those testings have been completed and the reports are being finalized. So that was the delay. And when I say delay, it was maybe a 30-day delay overall.

Okay. And then, just going back to the SRT systems. And as I guess, the sales force has been speaking to clients. I know you've kept consistent with the 60 systems in total by 2023. But as we enter the second half, just in conversations with dermatologists, what are you hearing in terms of their appetite for new systems as we move through the rest of this year? Are you hearing that, that's increasing just in general, as we're dealing with higher interest rates and so forth, whether it's for the SRT or for other systems, is there a sense that dermatologists are reticent or scaling back their purchases or even leasing? Or are things now back to what - I'm not going to say normal, but have returned in terms of what you would consider a normal appetite for new systems into their practice?

I don't think that there's any question that they're coming back. And so, we're getting feedback that things are going to start moving in the second half. We're seeing signs of that almost every day. So, we're encouraged by talking to our customers. And I think, during these tough times, just like it was when we were going through COVID, for instance, it gave us an opportunity to get even closer to our customers because they're always looking for solutions, and it gave us more opportunity to have dialogue with them. And so, I think they knew that we were there for them during the tough times - were there with them during the good times, just like we were during COVID. So, I think that the feedback that we've been getting has been very, very positive, and it's been very, very secure in how we're feeling towards the second half of the year. So, we're excited.

Okay. Great. And then, you did mention, I think, some sales in Asia, specifically China. And then, I was wondering if you could talk about what you're seeing in that market and then also just an update on Beacon Hospital in Ireland?

Anthony, it's Mike. So with regard to China, that seems to be very consistent. As I stated, the lockdowns are pretty much done even in China. Benson has been our VP of International Sales, has been in touch with our distributors in China and is a Chinese national himself. So he's very well connected in that area. So, we're seeing a lot of consistency. And like I said, there'll be over 10 systems sent to China throughout the entirety of 2023. With regard to Beacon Hospital, I went over there myself. I met with the contingency there, and it's in the dermatology and radiation oncology facility there, and they're very, very excited to have it. Beacon Hospital is probably the premier private hospital in Dublin. So they have a high net worth individual client base, and they're very excited to start treating there.

Good. Good. Okay. So, great. So, you're there - and what do you see as the opportunity, not just in Ireland with this as a sort of a premier hospital in Dublin. But what's the opportunity do you believe, Michael, to use this sort of as like a platform, hospital and scale the opportunity for Sensus throughout Europe.

Anthony, let me answer that 1, because that's a very, very good question. If you - I would invite anybody to go to the Beacon website and look up the hospital and look at the services that they provide. Like every other hospital, they list orthopedics, cancer care, parts, they have them all listed. One of the neat things that you see is dermatology. And it's a collaboration between radiation oncology and dermatology to treat skin cancer and this being one of the premier private hospitals in the British aisle, they've deemed SRT from Sensus to be the best device to treat that disease. And I think that, that's something that is a model that I think we're going to start seeing in the U.S. If you go to most of the U.S. hospitals and look at their websites, whether it's private or nonprofit, they don't have dermatology listed in their scope of services, all the other big ones are. But I think you're going to start seeing that coming about, just like we saw with Beacon Hospital. So, I think that's a good - it's a good beacon for us to follow for the U.S. market and for beyond. It exists everywhere else in the world, I think it's going to grow to the U.S. market as well.

Yes, very good. All right. Great. Thanks. I'll hop back in the queue. Appreciate you guys.

Thank you.

[Operator Instructions] Our next question comes from Alex Nowak with Craig-Hallum. Please go ahead.

This is [indiscernible] on for Alex. So, with the 2023 draft physician schedule coming out, have there been any changes to reimbursement for superficial radiation therapy?

Nothing has been indicated. Michael, you're...

No, there was no mention of SRT and the physician fee schedule.

Got it. Got it. Okay. Can you walk us through how the sales team is adapting their process in this tough capital environment. I know you mentioned some lease programs, but can you just further expand on that a bit?

Well, the lease program that we have is, we've been talking about for quite a while now, the fair market value lease is something that's very encouraging for the customer to adapt. So, it's just another tool for the customer to gain access to our technology. And it's a very inexpensive way of doing it, much like a car lease, as I've described it, where there's a hefty residual value, if you will, left on the equipment. So they're only paying for a certain portion of it. That will continue to grow, although most of our customers pay cash for the system. We're also coming up with some other derivatives of opportunities to allow our customers to acquire our product in these tough times. You've got rentals, you've got shared service programs. All of these things are being proposed to customers and they're all evaluating those programs now. So I think that we're going to see several of those contracts take effect between now and the end of the year, and I think it's going to become popular.

Got it. Got it. I got one more. How have your relationships been with your largest customers in terms of their ordering patterns and demand? I know that first half of the year is difficult, but can you just further expand what you're seeing from your dermatology practices?

Yes. They've gone through the same thing that we've seen. I mean, it's the same market conditions for them as it is for us. So, them being our best customer, I mean, it gives us opportunities to discuss together various opportunities to work closely together and how we can help drive the technology through the industry. And so that never ceases. I think that we've always said that we've got a great relationship there. They continue to push and try to grow their business. But they have the same problem as we did when we went through COVID. And now that we've gone through the first half of the year, I think they're going to see a rejuvenation in their business in the second half just like we are.

Awesome. Awesome. All right.

Let me bring one thing up to, which I think is important for everybody to understand, which I mentioned during the introduction. We're experiencing - we did a survey with Medicare, Medicaid and found that there was a 27% compounded increase year-over-year for the last six years in treatments using SRT technology. That's a huge increase. That is massive. I don't want anybody to lose sight on the fact that more people are choosing to be treated with SRT versus any other option versus surgery. So, one of the numbers that we mentioned, 480,000 people treated in the last two years. If that's going to continue to grow at 27% year-over-year, which we feel it's going to be and maybe even accelerate from that, you can see where we're going to become the gold standard for treating skin cancer in the very near future. And so that's important is that the utilization of it. And if you take the number of units that we have, we have now 708 systems worldwide with about 600, 590 of those being in the United States. 480, that's - unless I say it's an average of 240,000 patients a year. you can see how many patients each customer is treating every year, and then you can calculate how much or how quickly their ROI is on the equipment. So, it's very easy to derive what kind of money they're making now that we have these significant volumes of patients being treated.

Our next question comes from Ben Haynor with Alliance Global Partners. Please go ahead.

Good afternoon, gentlemen. Thanks for taking the questions. I definitely appreciate the big picture commentary and not having to follow Joe's pun here. But just thinking about some of the things that you mentioned, the 480,000 treatments over the past couple of years, how many treatments per case or per patient does that factor in? And has that grown, shrunk? Is there any trend there?

Well, what we're seeing, Ben, and I appreciate you being on. What we're seeing is between 14 and 16 fractions. So, I guess, you could say an average of 15 fractions per patient for the treatment of skin cancer. But when we were talking about the number of 480,000 - that's 480,000 skin cancers that are being treated.

Lesions.

Lesions. So it's not actual treatment. So, times the number of treatments for those patients, 480,000 times an average of 15 gives you the number of treatments that are taking place. And again, those treatments without anesthesia because there is no pain, there is no cutting, no scarring, no bleeding and best of all, no scarring for the patients. So, that's what we're all excited about. I think that's going great, and I think it will continue to grow.

I do appreciate the clarification there, because I actually took it as 400,000 fractions. So, would have been mistaken, I guess, there. And then, on the - getting to 1,000 systems, obviously, you've made a bigger push internationally starting to bear fruit. The next 300-ish systems, do you have a sense of how those will track in terms of the split, domestic versus international? Or any color that you might be able to share there?

I think that the international market is represented at about 5% to 7% of our overall revenue. And quite frankly, I think the biggest market is still in the U.S. So, as we continue to grow, I think the biggest growth is still going to be in the U.S. and the international market in spite of growing and gaining more ground in different parts of the world. I still think it's going to be between 5%, 7%, 8% of our overall revenue. It's still going to come from the U.S.

Okay. Got it. And then, lastly for me on the Sentinel and the AI applications that you guys are building in. I apologize if I missed this, but what sort of functionality/improvements/applications, the AI that you're developing and putting in these into Sentinel enable?

Well, I think that we'll have to wait until we make the final introduction, which we expect to do by AAD next March in San Diego. But when you include AI, it gives you some unbelievable opportunities for the operator, for the patient, for the physician, all of the above to benefit from that, and it provides us with total EMR capabilities, electronic medical records so that everything can be stored within the context of the product as well as billing and all the billing and collections and all of those. But I guess, if I had a dream, if I was to tell you what I think it's going to be, if you look at the SIRI or any of these other things with some of the other programs, I could see us having a program where we can talk to the machine, and it will give us exactly what we're looking for.

Okay. So stay tuned there, and it sounds like there's some exciting developments.

Yes. It will be fun.

Good deal. Well, that's all I had gentlemen. Thanks for taking the questions and congrats on the sequential improvement.

Thanks Ben. Appreciate it.

Thanks Ben.

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

Okay. Thank you. Thanks, once again, for your time this afternoon and for your interest in Sensus Healthcare everybody. I'd like to mention that we'll be presenting at the Dawson James Small Cap Growth Conference on Thursday, October 12 in Jupiter, Florida. Also in the coming weeks, we plan to hold a series of 1-on-1 virtual meetings. So, please contact LHA if you'd like to get on the schedule. We'll speak with you again when we report third quarter financial results in early November. In the meantime, thank you all for joining us today. Thank you.

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