Sensus Healthcare, Inc. Q2 FY2025 Earnings Call

Good day, and welcome to the Sensus Healthcare Second Quarter 2025 Financial Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Tirth Patel with Alliance Advisors IR. Please go ahead.

Good afternoon. This is Tirth Patel with Alliance Advisors IR. I'd like to start by apologizing for the press release being issued later than usual as there was a system-wide glitch with our wire service. But thank you all for joining today's call to discuss Sensus Healthcare's second quarter 2025 financial results. Joining me from Sensus 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 that will, should, or may occur in the future are forward-looking statements. The forward-looking statements are management's beliefs based upon currently available information as of the date of this conference call, August 7, 2025. 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, 10-Q and other SEC filings. 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 news release. With that, I'd like to turn the call over to Joe Sardano. Joe?

Thank you, Tirth. Good afternoon, everyone, and thank you for joining us. As you can see from the financial results we're reporting today, after a very dynamic start to Q2, our second quarter domestic sales momentum was temporarily stalled by a proposed local coverage determination or LCD that would limit the reimbursement of ultrasound when used with our SRT-100 Vision systems. Also, just a few weeks ago, Medicare stepped in with a proposed physician fee schedule that we believe may fundamentally alter demand for our products. Let me explain starting with the LCD. Our SRT-100 Vision combines the treatment power of superficial radiotherapy with image-guided ultrasound to ensure the best possible clinical outcome for patients. When treating non-melanoma skin cancer, it's the only way for a physician and patient to establish a treatment plan to visualize the eradication of the lesion from beginning to end. LCDs are reimbursement decisions made by a Medicare Administrative Contractor, or MAC, regarding whether a particular medical service is considered reasonable and necessary as such, whether it's covered under Medicare within the contractor's geographic jurisdiction. The question arose as to the frequency for which the ultrasound feature should be used. In mid-May, a proposed LCD to limit reimbursement for the use of ultrasound imaging prior to treating skin cancer was made public. It's important to note that in treating other forms of cancer, imaging modalities such as MRI, CT, PET, mass spectrometry or nuclear, they use ultrasound or other imaging devices for every fraction of treatment. With the SRT-100 Vision, Sensus innovated and introduced the same approach for treating non-melanoma skin cancer. This proposed LCD came out of nowhere. Up to that point in Q2, we were on track to surpass expectations, yet we found our market at a pause until there's clarification, which we expect soon. We are making considerable investments of time and money to lobby CMS with information and facts supporting the value of ultrasound. With this initiative, we are in lockstep with our major customer as we work together to help those in authority understand the importance of high-frequency ultrasound in treating non-melanoma skin cancer. To date, we believe that our actions are gaining traction and understanding among those in authority and their influencers. I want to be crystal clear that our technology in treating skin cancer with SRT is not in question, but rather the frequency for which ultrasound is being used during the treatment protocols is the subject of the LCD. On the other hand, just a few weeks ago, Medicare proposed a physician fee schedule that would significantly increase reimbursement for the delivery of a code for SRT. Pivoting now to a review of operations, the Sensus team made meaningful progress during the second quarter. We delivered 19 SRT systems, 4 of which were sold to China. These placements speak to growing international demand for noninvasive therapeutic solutions and set the stage for future expansion, which Michael will explain momentarily. During Q2, we signed 5 new FDA contracts and activated 4 sites, mostly all in the first half of the quarter. Importantly, FDA treatment volume increased by 27% over Q1. That tells us practices are getting more efficient and patients are becoming more aware of SRT as a preferred treatment option. We also broadened our U.S. commercial footprint with the appointment of Radiation Oncology Systems as our primary distribution partner for the hospital-based oncology segment. This new relationship gives us specialized coverage in radiation oncology departments and freestanding cancer treatment centers, markets that traditionally require a different approach and level of engagement. ROS brings deep expertise and long-standing customer relationships, and we believe they will help accelerate our growth and increase awareness of the clinical advantages of SRT beyond dermatology. We expect to see results this year. On the R&D front, our 510(k) resubmission for the next-generation TDI platform remains under FDA review. We anticipate receiving feedback later this year. And in the meantime, we continue preparing for commercial deployment. We're also refining training protocols and exploring flexible implementation models to broaden appeal across clinical settings for multiple potential applications. We also took time to elevate awareness of skin cancer and the importance of early detection. May was skin cancer awareness month, and we collaborated with advocacy organizations and providers nationwide to promote the importance of screening and noninvasive treatment options. It's part of our broader effort to position Sensus not just as a technology leader, but as a patient-centric solution provider in the fight against skin cancer. With our domestic execution, international progress, exciting reimbursement progress, new partnerships and a regulatory win, Q2 was a productive quarter that we believe further positions Sensus for success. With that, I'll turn the call over to Michael for additional commentary. Thanks.

Thanks, Joe. During the second quarter, we continued to execute well on our 3-pronged strategy: increase patient awareness for SRT, grow internationally and advance our pipeline. The FDA program has proven to be a key strategic asset, aligning our growth, analytics, and customer marketing support. We are working with practices to help them increase awareness in their local markets, streamline patient pathways, and maximize throughput. On that note, I want to point out that the reason we are able to offer this program is because of our internally developed HIPAA-compliant software platform that we call Sentinel. Sentinel enables our physician customers to store data via the cloud and also allows Sensus engineers to remotely diagnose and fix almost any problem that happens with the device. On the international front, momentum is building, and our future is now greatly supported, thanks to the recent MDSAP certification. MDSAP stands for Medical Device Single Audit Program, and this regulatory certification marks a key milestone for Sensus. MDSAP validates the strength of our quality systems and provides us with immediate access to the markets of Brazil, Canada, Japan, and Australia. It also enhances our credibility with partners in regions where regulatory rigor is a prerequisite. We are actively working with potential commercial partners that serve those countries and laying the foundation for additional revenue contributions potentially as early as later this year. The 4 systems shipped to China in Q2 represent significant sales growth and is a potential sign of economic strengthening in the territory. Shifting to the domestic market, the proposed Medicare physician fee schedule and the new potential delivery code could have a transformative effect on our U.S. commercial strategy. Historically, dermatologists billing for superficial radiotherapy have operated under a separate and lower reimbursement structure compared with hospitals, even when delivering superior therapeutic outcomes. We believe the new outpatient CPT delivery code, if issued, will improve SRT's positioning and allow physicians who have been on the fence to finally commit to offering their patients the nonsurgical choice. With that, I'll turn the call over to Javier for a review of our financial performance. Javier?

Thanks, Michael. Good afternoon, everyone. I will first review our recent financial results, and then I will turn to year-to-date results. Revenues for the second quarter of 2025 were $7.3 million compared with $9.2 million for the second quarter of 2024. The year-over-year decline was primarily due to fewer capital system sales to a large customer, partially offset by growth in the recurring revenue from Fair Deal Agreements. Gross profit was $2.9 million for the second quarter of 2025 compared with $5.4 million for the prior year quarter. Gross margin was 39.7% versus 58.7% a year ago, primarily driven by lower sales and higher cost of service. General and administrative expense was $2 million for the second quarter of 2025 compared with $1.6 million in the second quarter of 2024, reflecting higher professional fees and compensation. Selling and marketing expense was $1.4 million for the second quarter of 2025 compared with $1 million in the second quarter of 2024. The increase was due to higher trade show expenses, higher costs related to clinical studies, and higher payroll costs due to an increase in headcount. Research and development expense was $1.5 million for the second quarter of 2025 compared with $0.9 million for the prior year quarter, primarily due to costs associated with ongoing product development and readiness for the anticipated TDI commercialization. Net loss for the second quarter of 2025 was $1 million or $0.06 per share compared with net income of $1.6 million or $0.10 per diluted share for the second quarter of 2024. Adjusted EBITDA for the second quarter of 2025 was negative $1.8 million versus a positive $2.1 million in the year-ago quarter, reflecting higher operating expenses and lower revenue. Please see the table in the news release we issued earlier today for a reconciliation between GAAP to this non-GAAP financial measure. Turning now to our year-to-date financial results. Revenues for the first half of 2025 were $15.7 million compared with $19.9 million for the first half of 2024. The decrease was primarily driven by a lower number of units sold to a large customer in the 2025 period. Cost of sales was $8.4 million in the first half of 2025 compared with $7.8 million for the first half of 2024. The increase was primarily related to higher cost of service in the 2025 period. Gross profit was $7.3 million for the first half of 2025 or 46.5% of revenues compared with $12.1 million or 16.8% of revenue for the first half of 2024. The decrease was primarily driven by sales and higher cost of service in the 2025 period. General and administrative expense was $4.2 million for the first half of 2025 compared with $3.2 million for the first half of 2024. The increase was primarily due to higher professional fees and compensation. Selling and marketing expense was $3.6 million for the first half of 2025 compared with $2.3 million for the first half of 2024. The increase was primarily due to higher trade expenses, costs related to clinical studies, and payroll costs due to an increase in headcount. Research and development expense was $4.1 million for the first half of 2025 compared with $1.8 million for the first half of 2024. The increase was primarily due to significant lobbying costs related to the billing code reimbursement, increased headcount, and existing product development costs. Other income of $0.4 million for the first half of 2025 and 2024 relates primarily to interest income. Regarding our cash position, our balance sheet remains strong as we ended the quarter with $22.2 million in cash and no debt. As a final topic, with the potential increase in reimbursement through the issuing of a new SRT delivery code, we remain very excited about our long-term revenue trajectory and the new market opportunities we face, as both Joe and Michael described. I will now turn the call back to Joe for closing remarks.

Thank you, Javier. Thank you, Michael. Sensus is well positioned, and we have a capable staff ready to capitalize on these opportunities. I extend thanks to our team for their continued dedication to our customers for their partnership. Operator, we're now ready to open the line for questions.

Our first question will come from Benjamin Haynor with Lake Street Capital.

On the proposed CMS reimbursement under the physician fee schedule for next year, it appears that the radiation delivery code has tripled while the imaging code related to the image guidance for SRT has decreased slightly. Is there a connection between this and how CMS views the utilization of the new codes compared to the current billing under the G code for the image guidance?

Yes. Let me let Michael answer that since we're heavily involved with a lot of the lobbying at CMS and so on. So keep in mind that their original letter that came out under the LCD was strictly for the utilization of ultrasound or limiting the utilization of ultrasound because they felt utilizing it for every fraction was too much. They felt that it needed to be used more sparingly. Quite frankly, in the protocols that we use, they are used more sparingly. So Michael, if you want to take that one?

Yes, absolutely. The LCD and the proposed physician fee schedule are actually two distinct items. The LCD was released first and was somewhat more negative than the proposed fee schedule. We don’t anticipate the LCD will be implemented because of our lobbying efforts, along with support from other entities. The LCD targeted only the ultrasound aspect, which was flagged for overutilization. In contrast, the proposed physician fee schedule is encouraging. Having been with Sensus for nearly 15 years since its inception, we've been advocating for SRT, which we originally brought back. On the delivery code front, we have consistently requested changes since the company's start. Initially, it cost about five times more for a hospital to bill for SRT compared to an outpatient facility such as dermatology or radiation oncology, with outpatient facilities receiving only one-fifth of what hospitals received due to built-in fixed costs known as technical components in CMS terminology. Now, the proposal is leveling the playing field by bundling several technical components into SRT, ensuring that regardless of whether a service is performed in a hospital or an outpatient facility, there will be equity. The understanding is that most of the nearly 1,000 units we've sold over the last 15 years are located in outpatient facilities instead of hospitals. Consequently, they recognized the need for balance, and we are very excited to see that the proposal would provide over a 300 percent increase in the delivery code for SRT, which would be remarkable.

Okay. So you are satisfied with the proposed rates. Naturally, you would prefer them to be higher, as would anyone. Regarding the LCD, I understand you think it may not go through, but did it have any effect on interest from the FDA? Did it influence treatment volumes or anything along those lines when it was announced? I imagine everyone was quite concerned.

Yes, there was a pause because there wasn't a clear indication of whether it would happen or not. Over the last two to three months, we've learned through our lobbying efforts that those opposing ultrasound are not the actual users of SRT. It's more about territory disputes. We have studies that demonstrate that ultrasound IGSRT statistically improves the cure rate for non-melanoma skin cancer. Therefore, we strongly believe that IGSRT and SRT are here to stay, and ultrasound will remain a part of the SRT product portfolio.

Okay. Got it. And then just looking for an update. I think you're getting close to 1,000 capital sales out there. Is that still kind of on track for about a year from now, up from the 900-ish that you're at now?

I think the way we're going right now and the way Michael described what possibly could happen, which is one of two things. I think it will accelerate the installation of our units over the next several months once everything is cleared. It's very, very clear that there's one of two things that will happen. One is that everything will remain the same or status quo, which is what we would like to see. It is what our biggest partner would like to see. But if the second thing happens based on the recommendations of CMS and the reimbursement schedule, which you've adequately described at a 300% increase, it also bodes well for the technology moving ahead as well and for the doctors that are going to get the reimbursement. So we don't see any downside, but we would prefer that we move along the same lines with the status quo, which we think based on our lobbying efforts and the information that we've had over the last 2 to 3 weeks, that we're getting closer to that kind of a decision, although it might be another sometime in the fourth quarter before we understand what that decision is. CMS will take their time on this.

Our next question will come from Anthony Vendetti with Maxim Group.

I think, obviously, the local coverage determination won't go into effect. In the meantime, you mentioned that a large customer has paused purchases. Is that your largest customer? And once this reimbursement issue is clarified, have they indicated that they just need clarification and are ready to move forward? Where does that stand right now?

Yes, the answer to your question, Anthony, is absolutely yes. Whenever there are uncertainties, there tends to be a pause. We've experienced pauses during COVID, due to reimbursement issues, and other situations. In healthcare, when things are unclear, everyone tends to wait for a final decision. Our customer is committed to IGSRT from Sensus Healthcare, and I believe that's definitely the case. Once the situation becomes clear and the current state remains unchanged, I think our customers will quickly want to enhance everything. No one is losing interest in IGSRT; it remains a top priority for all these customers and the doctors who want to implement it in their practices. We are not going to be losing any customers; rather, we will be working hard to fulfill deliveries before the end of the year, and I am confident that this will be resolved before then.

The fourth quarter is always a major period in the aesthetic industry, especially in December, as many try to make purchases before the year-end for tax purposes. We are almost halfway through the third quarter, and this may lead to a significant impact on sales for the quarter ending September 30.

It could happen. Yes, it could happen unless, of course, the CMS lets us know early. I mean there's no timeline as to when they're going to tell us, but hopefully, earlier, the better, but I can't predict when they're going to say something, but they have to say something soon.

Okay. Can some of that be offset through China? I know you delivered four to China in the second quarter. Those purchases are typically variable. If you delivered four in the second quarter, is there a possibility you could deliver more to China this quarter? Or is that unlikely in this quarter?

I would say that due to MDSAP, which is the license to sell all of our SRT technologies, not just the SRT-100 as we had previously in the EU and China, we can now sell all our products, including the Vision product, to many more countries than before, such as Japan, India, and Brazil. This expansion would have cost us a significant amount of money and likely would have taken another two years to achieve. Michael, along with our quality and regulatory teams, played a key role in this. We've been working on MDSAP for the past 24 months, and we successfully met all the requirements, completed the audits quickly, and received approval. Therefore, I believe that China will continue to place orders, but we are also looking forward to receiving orders from other regions.

Okay. Great. And then lastly, regarding the reimbursement issue, you have the LCD and the proposed physician fee schedule. Let's say you've been lobbying for the LCD. If it comes back with significantly reduced reimbursement, what is your plan? Can you appeal it? Or once it's decided, is it difficult to reverse?

Yes. Anthony, I'll let Michael address that, but I want to emphasize that we're solely concentrating on ultrasound and one specific code, not all codes. This is strictly about the ultrasound code. They seem to be suggesting that it's being overused. You don't have to use it for every single treatment session, and that's the point they're trying to make. Conversely, we are arguing that MRI, CT scanners, and other technologies are used consistently for every treatment session when dealing with lung cancer, breast cancer, prostate cancer, and so forth. Why should it be different for skin cancer? Ultrasound is the only device that can initiate and demonstrate a treatment plan from the start, which is crucial. Even in surgical cases, if a patient asks if the entire lesion was removed, the doctor can only say they got it all, but without visible proof. The ultrasound on the Vision product is unique in showing the patient that the lesion has been eliminated. Initially, it was there, but now it’s gone. No other technology provides that clarity. Go ahead, Michael.

Yes. To reiterate what Joe was saying, on the LCD side, it was really only about the parameters of ultrasound use. The issue arose from a single organization that decided to challenge it without any evidence to support their claim that it doesn’t help. In contrast, we, the SRT stakeholders along with two other entities, have substantial evidence indicating that image guidance on SRT is extremely beneficial. This includes a clinical study published by the NIH, which is a highly regarded source for clinical studies. Therefore, we have overwhelming evidence that will counter the concerns on the LCD side. As for the Medicare side, the proposed physician fee schedule includes a proposal to increase the delivery code for SRT. This proposal applies to the Vision, the Plus, and the SRT, meaning it does not depend on the specific device being used, whether it’s the SRT-100 Vision, the SRT+, or the base SRT-100. It would benefit both the Vision, which includes ultrasound, and the SRT-100 that does not. This is something we have been advocating for even before we developed IGSRT, which is quite exciting. Does that make sense?

Yes. No, it makes a lot of sense. I mean, as we all know, skin cancer is the #1 cancer. And we all know whether you surgically try to remove it or whether you use SRT, you have to make sure you get the entire parameter, whether that's vertically deep or horizontal out to make sure you clear those margins. And you would think imaging that to ensure that is something that should be standard practice. So it is a little bit shocking, but hopefully, the proper...

One more thing, Anthony. To that point, we've got a new administration, and they're looking at everything. So we know that our health and human services is looking at everything that they possibly can to try to reduce costs, make sure that there's no fraud and abuse in anything. And so they're very, very particular. So it's our job now, unfortunately or fortunately, to have to go through the lobbying efforts to help them better understand this new administration, what's going on. Think of it, there was no letter, there was nothing for the last 5 years. And all of a sudden, an entity comes up with a letter, and they are not even a stakeholder in this. They have no say in any of this, but they came up with a letter because they're thinking that this is being used too much or whatever. Well, we're going to prove that it's not being used too much, that it's a help to the patient and it's a help to the outcomes for the patient. So as we educate them, this new administration, I think that they're gaining understanding. It seems that they recognize that when we talk to them each and every time, and they're open to the discussions. It's not like they're closed. They're almost like this letter came in and now they got to address it. They want to do the right thing. So we're presenting the other side of the story, but there was really nothing as far as evidence from the other side that decided to make a beef about it. They don't have any proof that it doesn't work. It works, and we're showing them that it does.

Our next question will come from Yi Chen with H.C. Wainwright & Co.

This is Eduardo on for Yi. Kind of an interesting rollwind with this LCD and the schedule change. Maybe have some details on the ROS distribution efforts and when you expect that to mature and impact sales? And yes, just get some details there. And then I have a follow-up on the smaller conferences you guys are planning on attending and any success with that.

I'll give you an opening statement on this. And again, I'll pass it on to Michael. But we've had a relationship with ROS and the leadership there for, I would say, 10, 15 years. Very, very highly respected organization within the radiation oncology world. They have strategic relationships throughout oncology, and they've been able to provide equipment and services to radiation oncology for the last 20, 25 years. So we've been kind of friends and wanting to work together for the last several years. COVID probably got in the middle of a lot of things, and you had to do a lot of resets, both them as well as us post-COVID. But that relationship is very, very strong, and we finally got together, put together an agreement and we're anxious for the results. From my standpoint, I think that we're going to see results before the end of the year, and I'll pass it on to Michael since he's had the last conversation with the whole organization. But their leadership is phenomenal and their infrastructure is great.

Yes. We continue to have meetings with them. They're getting ramped up very quickly. They've been around for about 20 years. They have excellent relationships with hospitals. So we're very excited to partner with them, their whole organization. They even have an international front as well, which we may expand into. They have some expertise. I told them about our MDSAP and they were extremely excited. So I think that they can put us in touch with really, really high-end distributors that do the same thing that they do here domestically, internationally in certain territories.

That's really helpful. And on that note of the MDSAP certification and expanding into international markets, do you have a timeline? Obviously, the connection through ROS is going to be hopefully beneficial. Do you have a timeline for when do you expect those relationships or kind of agreements to materialize and formalize?

Yes, definitely. Some developments will happen soon. For example, I'm traveling to Japan and Taiwan at the end of this month for a co-radiation meeting. I will be accompanied by our VP of International Affairs to meet with both the Japanese and Taiwanese Radiation Regulatory Committees. Last year, we sold an SRT-100 Vision to Taiwan, and the official ribbon-cutting ceremony will take place soon, although they have been treating patients for over a year now. I anticipate that progress will be quick, especially in Asia due to our presence in China over the past decade, which has a positive impact. South America should follow shortly after, and as Joe indicated, this also greatly benefits us in India, providing us with an international foundation we previously lacked. We're quite enthusiastic about the future.

Yes, it's really exciting, especially given the current uncertainty domestically. I have one final question. Do you see any macro-level softness in capital equipment spending in dermatology or oncology? Or do you think this pause is just related to the immediate uncertainties?

No, I don't think so. I think it's just immediate for SRT. And if you remember that the new administration just increased the Section 179 spending limit for $1 million from $500,000. So that's going to be helpful. And Joe, I think you were trying to say something as well.

Yes. I think that either way, I think that our FDA agreement is still going to be continuing to grow. As Javier announced, we had a 27% increase in utilization of patients being processed with our FDA program over Q1. We feel that Q3 is going to show the same results, if not greater. So it continues to evolve. And whether it's one program or the other, and again, our preference is to remain status quo, we think that this is going to grow in leaps and bounds. And I think that once the government makes the decision as to which way they're going to go, preferably again, the status quo, I think that gives clear sight for everybody in the marketplace that this is the way to go and the FDA, I think, is going to prosper and I think it's going to accelerate.

With no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Joe Sardano for any closing remarks.

Okay. Well, as we wrap up today's call, I want to thank you all for your continued interest in Sensus Healthcare. We look forward to speaking to you again in about 3 months. Have a good one, everybody. Thank you.

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