Welcome to the Sensus Healthcare Second Quarter 2023 Earnings Conference Call. 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 achieved 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 500th 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. 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. 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, and we've been building inventory and prepaying for components. We expect to ship at least 60 SRT systems during 2023. Concurrently, we are working on programs that will address any remaining hesitancy for our prospects and put us back on a growth trajectory. Our advanced technology is expected to play a key role in our growth. With Sentinel IT, our HIPAA-compliant software that stores patient data for multiple clinic purposes and includes artificial intelligence to allow customers to better manage their practices and data. We launched our Sentinel/Sensus Cloud capabilities at the American Academy of Dermatology Annual Meeting this past March. This new feature of Sentinel is a cloud-based asset management remote monitoring and diagnostic platform and is available on our lasers. The platform offers continuous remote monitoring to track the status of a system from any web browser or iOS device. Continuous backups ensure that valuable information is safely stored in the cloud and allows providers with multiple locations or group practices to monitor their equipment remotely at all times. The Sensus Cloud system also allows providers to monitor any service issues, such as calibration, voltage, and temperature, without having to send an engineer to the field. Sentinel IT allows us to track system use in real time, an important feature that may support new sales programs. We look forward to showcasing IT and our SRT products at local trade shows, as well as the American Society for Therapeutic Radiation Oncology beginning October 1. Although the sales cycle is longer for the hospital market, radiation oncology is a highly attractive opportunity as it gains interest in the skin cancer market. During the first quarter, we announced the sale of a system to a hospital in the Northeast, and we are engaged with several more hospital systems. We also introduced new and improved high-resolution ultrasound technology to provide a see and treat capability. The ROI for our premium SRT system under our leasing program remains compelling. Interest in this program remains high, as evidenced by booth traffic at the conferences and trade shows we've been attending. Our customers are also inquiring about other types of sales programs, and we are actively looking at potential options. These activities are vital to our future. Not all dermatologists know about the advantages of SRT, as many still need to be educated. Given the higher reimbursement and favorable comparisons to most, we've stepped up our marketing and education programs. While we've always had a presence at larger conferences, we're increasing our presence at smaller regional conferences. These events allow us to get closer to our customers without competing with so many other companies for attention. You can follow us on Facebook or Instagram to get a sense of how active we are. So with that overview, I'd like to turn the call over to Michael Sardano for a bit more information on our plans and our priorities. Michael?

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 prevalent 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 organization. They bring a broad and growing network of relationships within the public and private healthcare 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 regards to the future, our plan is to expand our Latin American and Asian footprint as quickly as possible, with Brazil and Japan being long-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% compared to revenues of $12.1 million a year ago. The decrease 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, which compares with net income of $3.5 million or $0.21 per diluted share for the second quarter of 2022. Adjusted EBITDA was negative $1 million for the second quarter of 2023 compared with positive $4.7 million for the second quarter of 2022. I'll briefly review our year-to-date financial results. Revenues for the first half of 2023 were $7.9 million compared with $22.4 million for the first half of 2022, reflecting a lower number of SRT units sold. Gross profit was $4.2 million or 53.4% of revenue, compared with $15.4 million or 68.7% of revenue for the first half of 2022. The decrease was primarily driven by the lower number of units sold and higher costs charged by vendors in the first half of 2023. Selling and marketing expense for the first half of 2023 was $3.7 million compared with $2.9 million for the first half of 2022. The increase was primarily attributable to higher trade show expenses and headcount costs, partially offset by lower commissions. General and administrative expense was $2.9 million for the first half of 2023, compared with $2.4 million for the first half of 2022. The increase was primarily due to higher professional fees, offset by a reduction in insurance expense. Research and development expense was $1.9 million for the first half of 2023, compared with $1.6 million for the first half of 2022. The increase was mostly due to expenses related to the development of a drug delivery system for aesthetic use. We expect to complete this project by the end of the year. Other income for the first half of 2023 was related to interest income. Our net loss for the first half of 2023 was $2.3 million, or $0.14 per share, compared with net income of $19.6 million or $1.17 per diluted share for the first half of 2022. Adjusted EBITDA for the first half of 2023 was negative $3.7 million compared with a positive $21.5 million for the first half of 2022. Turning now to our balance sheet. Cash and cash equivalents as of June 30, 2023, were $20.1 million, down from $25.5 million as of December 31, 2022, and up from $19.3 million as of March 31, 2023. The company had no outstanding borrowings under its revolving line of credit as of June 30, 2023, or December 31, 2022. We continue to prepare for the growth ambition. Specifically, we are building finished goods inventory and preparing for materials, in part to get ahead of any inflationary price increases. Inventory stood at $10.1 million at the end of the second quarter, up from $6.3 million at the end of Q1, and up from $3.5 million as of December 31, 2022. Pre-pay and other current assets were $8.1 million versus $10.7 million as of March 31, 2023, and $6.9 million as of December 31, 2022. Our cash spend is very focused and is intended to support our ability to achieve our long-term goals. Nevertheless, our balance sheet continues to position us well to take advantage of the compelling growth opportunities we may come across. As a final comment, please see the table in the news release we issued earlier today for our consideration of GAAP to non-GAAP financial measures. With that, I'll turn the call back over to Joe.

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 excited to work on making this choice even easier. 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 allow PRP to be applied to the scalp in a pain-free hair restoration experience. Additionally, 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. An estimated one in five Americans will develop skin cancer during their lifetime, which tells us that nearly 70 million people will have non-melanoma skin cancer. There is 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 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.

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, we experienced some delays in the first half, which were tough, but we thought that the second half would be a lot better. We're looking at approximately 60-plus systems for the year. The third quarter traditionally has been a low quarter for us, but it's still going to be better than the second quarter. 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 believe the third quarter will be better than the second quarter, and the fourth quarter will be the 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 we've been saying that from the beginning, that profitability would return. Our number one objective is to be profitable for the entire year. If things come around the way I think they will, we will definitely meet our profitability objective.

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 the first quarter. Anything of note there? How should I think about it going forward? Is first quarter or second quarter more representative?

Scott, this is Javier. It's a blend. In Q1, we had major threshold expenses that went through, and then in Q2 compared to last year, we had lower sales compared to last year, leading to lower commissions. So, you cannot take one of them as an example. It's basically a blend. You have to see the year-to-date.

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 in the current interest environment? Just your color on the customer.

Yes. The good thing, Scott, is that we're hearing from our customers that their customers are coming back. They're seeing a slight gain in services from the aesthetic side, which again puts cash in their pockets. This also helps them focus on what SRT can do for them in their practice with the fact that you have CPT codes that are paid for by Medicare. This is a great opportunity for them to pursue some revenue that maybe they didn't have before. I think they’re open, and we've always said we haven't lost any prospects. Our prospect base continues to grow, but many decisions were delayed due to impacts on the cash business. So, we're starting to hear good feedback from the field, and we believe that the market is coming back based on their feedback.

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. We're waiting for reports to be incorporated into an FDA submission within the next 30 to 45 days. We expect FDA clearance before the end of the year. One of the things we've added, which I think everyone would expect us to add, was the Sentinel capabilities into this program, so the Sentinel Cloud and all opportunities with Sentinel attached to this device as well. We’re excited for it.

Okay. So, the addition of the Sentinel system, the IT piece, that you're integrating is why it's taking a little 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. That wasn't the delay. It was the testing by the third-party agencies designated by the FDA. You have to have those, and there's quite a backlog. All testing has been completed and the reports are being finalized. The overall delay was about 30 days.

Okay. And then, just going back to the SRT systems. As 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 for the rest of this year? Are you hearing that it's increasing, or are dermatologists reticent to scale back their purchases or even leasing?

I don't think there's any question that they're coming back. We're getting feedback that things are going to start moving in the second half. We're encouraged by talking to our customers. I think during these tough times, just like during COVID, it gave us an opportunity to get closer to our customers because they're always looking for solutions. It gave us more opportunity to have dialogue with them. I think they knew that we were there for them during tough times, which has been comforting too. We're excited about the feedback we’re receiving and feeling positive about the second half of the year.

Okay, great. And you did mention some sales in Asia, specifically China. Can you talk about what you're seeing in that market and an update on Beacon Hospital in Ireland?

Anthony, it's Mike. Regarding China, that seems to be very consistent. The lockdowns are pretty much done. Our VP of International Sales has been in touch with our distributors in China, and we're seeing a lot of consistency. We expect over 10 systems sent to China throughout 2023. We also expect Beacon Hospital to have a high demand because it's a premier private hospital in Dublin. They have a high net worth client base and are very excited to start utilizing the SRT.

Good. So, what do you see as the opportunity, not just in Ireland, but what’s the opportunity for scaling throughout Europe?

That's a very good question. I would invite anyone to go to the Beacon website to check their services. One of the interesting things you see is dermatology in collaboration with radiation oncology to treat skin cancer. This being one of the premier private hospitals in the British isle, they've deemed SRT from Sensus to be the best device to treat that disease. I think that's a model we'll start seeing in the U.S. Most hospitals in the U.S. do not include dermatology in their scope of services. But I think that's going to change following the lead of institutions like Beacon Hospital.

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

Thank you.

Our next question comes from Alex Nowak with Craig-Hallum. Please go ahead.

With the 2023 draft physician schedule coming out, have there been any changes to reimbursement for superficial radiation therapy?

Nothing has been indicated. Michael, any comments?

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

Got it. Can you walk us through how the sales team is adapting their process in this tough capital environment?

The lease program we've been discussing encourages customers to adapt. It’s a very low-cost way to access our technology. Most of our customers pay cash for the system, but we're also coming up with other options like rentals and shared service programs. All these are being proposed to customers, and many are currently evaluating those programs. We anticipate several contracts to take effect between now and the end of the year.

How have your relationships been with your largest customers regarding their ordering patterns and demand?

They've been consistent, experiencing the same market conditions as us. Being our best customer creates opportunities to discuss various ways to work closely together and drive technology through the industry. I believe they will see a resurgence in their business in the second half, just as we’re forecasting. I’d also like to highlight that we've conducted a survey with Medicare, and there's been a 27% compounded increase year-over-year for the last six years in treatments using SRT technology. That's a massive increase. Our engagement of 480,000 people treated in the last two years is significant. If this continues to grow at 27% year-over-year, SRT will become the gold standard for treating skin cancer in the near future.

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

Good afternoon, gentlemen. Thanks for taking the questions. How many treatments per case or per patient does the 480,000 treatments factor in? Has that grown or shrunk?

What we're seeing is between 14 and 16 fractions. That means an average of 15 fractions per patient for the treatment of skin cancer. The 480,000 number refers to skin cancers being treated, which is significant.

Appreciate the clarification. As you make a bigger push internationally, do you have a sense of how the next 300 systems will track in terms of domestic versus international sales?

The international market represents about 5% to 7% of our overall revenue. The biggest market for us is still in the U.S. I think the international market will continue to grow, but the bulk of growth will remain in the U.S.

Lastly, on the Sentinel and AI applications, what improvements are being enabled?

We’ll have to wait until we make the final introduction, expected at AAD next March in San Diego. When you include AI, it creates remarkable opportunities for operators, patients, and physicians. It will provide total EMR capabilities, and we envision significant improvements in patient-provider interactions.

Sounds exciting. 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.

Thank you for your time this afternoon and for your interest in Sensus Healthcare. 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. 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.

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