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Operator
Good day and welcome to the Census Health Care First Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Kim Golodets, LHA and Vista Relations. Go ahead, please.
Kim Golodets
Thank you. This is Kim Golodets with LHA. Thank you all for participating in today's call. Joining me from Census Healthcare are Joe Sardana, Chairman and Chief Executive Officer Michael Sardana, 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 Census 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, May 9, 2024. Census 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. Census 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?
Joe Sardano
Thank you, Kim, and good afternoon, everyone. I'm delighted to report excellent results for Q1 2024. Census Healthcare has seen some very positive momentum, and as the dermatology community recognizes the importance of IGSRT to their patients and their practices as non-invasive and highly efficacious in modality to treat non-melanoma skin cancer. Dermatologists are now benefiting from a choice in acquisition options, including our new fair deal agreement formally introduced at the AAD in March, which complements our proven fair market value lease program. The fair deal agreement is gaining momentum as we continue to expose the details to our dermatology community and as the word begins to spread throughout. Our first quarter financial results were very, very good as we more than tripled revenues compared with comparable 2023 quarter. In addition, we recorded a substantial profit that reflects our customers' adjustments to the macroeconomic environment, especially compared with last year's net loss. We shipped 26 systems during the quarter compared with 10 a year ago when inflation and macroeconomic uncertainty had pronounced effect on our customers' businesses, confidence, and spending plans. Although macroeconomic headwinds persist, we are seeing a determined shift by the dermatologists toward a medical dermatology platform versus aesthetic dermatology. As we do this time every year, we attend three very important trade shows and enjoyed excellent booth traffic at all of them. In February, we attended the Winter Clinical in Miami and the South Beach Symposium. Then in March, we attended the American Academy of Dermatology annual meeting where we launched our new fair deal agreement to the largest annual gathering of dermatologists in the U.S. with more than 10,000 medical personnel at this year's event. Under the Fair Deal Agreement, dermatology offices gain access to census image-guided award-winning superficial radiotherapy technology under a new service model with an economic value proposition that's second to none. Census manufacturers themselves only proven FDA-cleared IG SRT system and holds a patent for SRT combined with ultrasound, which is deeper and more effective. The response among conference attendees exceeded our most optimistic expectations. We also generated a record high number of sales leads for our portfolio of SRT products. Quite simply, we are now delivering the best technology under the best agreement while offering customers an economic choice. Our proven technology has the simplest formula to treat non-melanoma skin cancer non-invasively and with the highest cure rates of up to 99.1%. This new fair deal agreement complements our longstanding capital equipment sales model and more recently, our fair market value lease model to expand our market. Our corporate and SRT vision brands are well established and highly regarded in the industry and dermatologists know they will get unmatched product quality, the best customer service, and the most compelling value proposition with census. We're delighted to have already entered into several contracts under the Fair Deal Agreement, and we've assembled a growing pipeline of leads that we expect to convert as the year progresses. To review, the Fair Deal Agreement is a recurring revenue option that addresses the customer's need to deploy capital to other areas of their business, and it facilitates what we believe is a compelling economic model. We've been carefully preparing this model for more than a year, making sure that the economics work for both our customers and for us, and ensuring that we were abiding by all applicable laws and regulations. Note also that the capabilities of the SRT 100 vision with image-guided ultrasound and the availability of Sentinel technology, which includes HIPAA-compliant planning software, make the recurring revenue model possible. The improved high-resolution image-guided ultrasound technology provides a see and treat capability, which leads to great clinical outcomes because the physician can actually see the impact of each treatment on the lesion and the lesion resolution after treatment. The combination of our world-class technology and now a user-friendly agreement provides our base with the best value proposition in the market today. To enhance the fair deal agreement, during the first quarter, we engaged Curays to provide customers with oversight and supervision and facilitate the utmost efficiency and effectiveness of the dermatology practice. In addition, Curays will research new indications for sensitive superficial radiotherapy including inflammatory diseases. In addition to launching the Fair Deal Agreement at these trade shows, we also showcased the state of the art capabilities embedded in the SRT100 vision. This included our newly patented technology covering 33 individual claims. The patent describes the technology that essentially a treatment planning system made possible by fusing a radiation therapy device with high frequency ultrasound permitting seamless operation. Between interest in this new technology and our new sales offering, we have assembled a significant pipeline of potential customers, so much so that we've ordered more inventory to satisfy anticipation by the end of the year and the demand, as Javier will highlight in his prepared remarks. While dermatology is our primary market, we continue to engage with this radiation oncology market, which is mainly a hospital-based channel. As a reminder, this market has a longer sales cycle as we continue to generate increased interest. Turning now to our transdermal infusion or TDI product, recall that we filed a 510 application with the US FDA in the fourth quarter of 2023. We're still awaiting a response from the agency and are optimistic it will be coming in the second half of this year. We've generated a great deal of interest in our TDI product and trade shows as it works in progress. This system will, for example, allow platelet-rich plasma, or PRP, to be applied to the scalp in a pain-free restoration experience. In addition, posters have already been presented on its application for hyperhidrosis or overactive sweat glands. Our transdermal system includes Sentinel IT solution capabilities. With those remarks, I'll turn the call over to Michael Cerdano, our President and General Counsel, who will give you a brief update on our international business. Michael.
Michael
Thanks, Joe. As I stated on the last call, Census has been working diligently on expanding into new international territories and deepening the penetration where we already have clearance. In 2023, Census achieved sales to three new territories, Ireland, Guatemala, and Turkey. Census announced that Taiwan had approved our SRT technology to be sold into the country, and I am pleased to announce that we have sold our first image-guided SRT100 vision system in Asia to Far Eastern Memorial Hospital in Taiwan. Far Eastern has more than 1,000 beds and is one of the largest private hospitals in Taiwan. We are optimistic this sale will open the door to additional sales of our vision system in the Asian territory due to its compelling patient-centric and user-friendly features and benefits. We are especially excited about Far Eastern as a customer, as they are planning to conduct and publish research on potential new indications for the SRT, which may be instrumental in the support of label expansion beyond non-melanoma skin cancer and keloids. Please note that this system was shipped during the second quarter of 2024, so that revenue will be reflected in next quarter's results. And in another first for Census, we sold an SRT100 system to the leading veterinary hospital in Tel Aviv, Israel, to provide a gentler radiotherapy option to treat tumors in smaller animals with a focus on dogs and cats. SRT is well known in Israel among the dermatology and radiation oncology communities as there are four major hospitals already using the vision system in the territory. We are extremely excited to now enter the veterinary community in Israel as well. Throughout the rest of 2024 and beyond, Census will continue to strive to expand our Latin American, European, and Asian footprint as quickly as possible. Additionally, we are working on new clearances for the SRT100 vision system to augment the clearances for the SRT 100 model. Our goal is to open two to three new territories per year, which we achieved in 2023. With that, I'll turn the call over to our CFO, Javier Rampolla, for a discussion of our recent financial results.
Javier Rampolla
Thanks, Michael, and good afternoon, everyone. As John mentioned, revenues for the first quarter of 2024 more than tripled to $10.7 million, significantly above the $3.4 million for the first quarter of 2023, as we achieved 26 units compared with 10 a year ago. Gross profit for the first quarter of 2024 was $6.7 million, or 62.5% of revenues. compared with gross profit of $1.6 million or 47.5% of revenue for the first quarter of 2023. The increase was primarily due to the higher number of units sold in the 2024 quarter. Salina marketing expense for the first quarter of 2024 was $1.3 million compared with $2.1 million for the first quarter of 2023. The decrease was primarily attributable to a decline in marketing expense, headcount, and threshold cost. Even though we attended the same number of trade shows as last year, we were able to pair expenses and to use our funds more efficiently. This year, we shifted our focus to emphasize product and sales options versus hosting KOL events in previous years. General and administrative expense for the first quarter of 2024 was $1.6 million compared with $1.4 million for the first quarter of 2023. The increase was primarily due to higher professional fees and compensation. Research and development expense for the first quarter of 2024 was $0.9 million compared with $1.1 million in the same quarter last year. The decrease was primarily due to the completion of development of a drug delivery system for the aesthetic market. We submitted the 510K application and were awaiting clearance. Other income of $0.2 million for the first quarter of 2024 was mostly related to interest income and was unchanged from the first quarter of 2023. Net income for the first quarter of 2024 was $2.3 million or $0.14 per diluted share, and this compares with a net loss of $1.9 million or $0.12 per share for the first quarter of 2023. Adjusted EBITDA, which we defined as earnings before interest, taxes, depreciation, amortization, and stock compensation expense, was $3 million for the first quarter of 2024, compared with negative $2.7 million for the first quarter of 2023. Turning now to our balance sheet. Cash and cash equivalents as of March 31, 2024 were $14.7 million versus $23.1 million as of December 31, 2023, and we had no outstanding borrowing under our revolving line of credit. We had a cash receivable outstanding as of March 31, 2024 of $19.6 million compared with $10.6 million as of December 31, 2023. Note that a significant portion of those receivables have now been collected. We continue to build inventory to get ahead of any price increases and to prepare for anticipated growth, especially from the recorded revenue model. As of March 31, 2024, inventories were $14.7 million compared with $11.9 million as of the end of 2023. Prepaid inventory was $3.7 million versus $3 million at year-end 2023. Our cash spend continues to be very focused and highly disciplined. As has been our practice, we maintain a strong balance sheet to position us to take advantage of the compelling growth opportunities we may come across or that we may create ourselves. As a final comment, please see the table in the news release we issued earlier today for a reconciliation of GAAP to non-GAAP financial measures. With that, I'll turn the call back to Joe.
Joe Sardano
Thank you, Javier. Thank you, Michael. I hope that we've conveyed the excitement we have for the future of census healthcare. We've come through some challenging situations during the past few years, the pandemic shuttering dermatology offices, and then high inflation, economic uncertainty, putting the brakes on practice purchase decisions. I applaud our talented staff for doing the hard work to get us to this most exciting point in our life as a company. SRT offers a more patient-friendly alternative to Mohs surgery with cure rates that are as good or better. With our state-of-the-art and constantly upgraded technology, along with three different purchase options, we believe we have a compelling offering for all practices as we see the Fair Deal Agreement rapidly gaining momentum. Last year, we surveyed Medicare claims and found that SRT experienced a 27% increase annual growth rate for the six years we reviewed. Should this rate continue, SRT will soon become the treatment of choice for non-melanoma skin cancer, making our new fair deal agreement even more attractive. An estimated one in five Americans will develop skin cancer during their lifetime, meaning nearly 70 million people alive today will have non-melanoma skin cancer. So whether Medicare or private insurance, we are in the early stages of tapping the enormous opportunity for SRT just in non-melanoma skin cancer and keloids. 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. We are confident that Census is positioned for success and we have a great team to drive growth and implement our strategies. With those comments, I thank you for your time and attention. And now, operator, we're ready to take questions.
Operator
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, Please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Yi Chen of HC Wainwright and Company. Go ahead, please.
Yi Chen
Hi. Thank you for taking my questions. So my first question is, historically, the fourth quarter would be the strongest quarter in terms of sales. And this first quarter of 24 was really strong, I mean, even to the level of the historical fourth quarter sales levels. So how should we really expect the rest of the quarters, the remainder of 2024, to play out?
Joe Sardano
Well, I think that, Yi, thanks for being on the call and thanks for the question. I think it's a good opportunity if you saw last year and all of the previous years, the first quarter really set the pace for us each and every year as we continue to build our business over the course of the year. And so as like last year in the first quarter, I believe we had $3.6 million in revenue. This year we have $10.7 million in revenue. I think we can grow from that. I think that we can look to Q2 as being as good a quarter. I can't tell you if it's going to be better, but we're going to drive for it to be as good. As we recall, the third quarter is fairly seasonal. It has been for the last 10, 15 years. There usually is a lull in the action there, and then if I look at the fourth quarter, You know that we're very, very conservative. We have an election year coming up. And I'm sure that there's going to be hesitation as we get into the fourth quarter. But the fourth quarter is usually our best quarter, as you've indicated. So we continue to anticipate a good quarter for the fourth quarter. So I think the anticipation is a good second quarter. much equivalent to the first and the third quarter being the seasonal quarter and the fourth quarter I think we have to wait and see and we'll probably be able to determine better by the time the end of the second quarter comes around.
Yi Chen
Do you believe the fair deal agreement is the primary driver for the performance in the first quarter of 24?
Joe Sardano
It's not the primary driver, but I will tell you that it is an indicator for where we're going for the future. We're seeing a lot of activity. There's a lot of questions that are coming up. There's a lot of comparisons that are coming up. We compare very favorably with what's available in the market, and therefore there's a lot more interest coming about, so this recurring revenue model, we'll see placements increase over time this year. But I think in the second half of next year, we should see some significant revenues along with major significance in 2026. But we're growing that part of the business, and we're seeing a lot of action, a lot of activity, and a lot of interest. And I think as the year goes on, it's going to gain even more strength.
Yi Chen
Got it. And lastly, could you give us a bit more information on the economics between census and QRAs?
Joe Sardano
QRAs is a very good opportunity for us. Let me hand it over to Michael to talk about it since it's more part of the regulatory piece.
Michael
Sure. Thanks, Yi. This is Michael. QRAs is a group of radiation oncologists that consists of them as a profession. With some of the state regulatory compliance things that we're going through, We believe that it's best practices to involve remote radiation oncology in this. It just makes the states look at census and SRT as a whole as really here to stay and part of the community. And it just helps from a patient standpoint as well. And so that's why we decided to partner with Curate.
Yi Chen
Got it. Thank you, and congratulations for a really good call. Thank you, Yves.
Michael
Appreciate it.
Operator
Our next question comes from Anthony Vendetti of Maxim Group. Go ahead, please.
Anthony Vendetti
Thanks. Good afternoon. Hey, Joe. Hey, Michael. How are you? Good afternoon, Anthony. So on the 26 systems, it's obviously based on your comments, it sounds like most of those are more through the fair market value lease program. The fair deal agreement is relatively new, and I think you mentioned, right, only several deals so far have been signed up on that at this point, correct?
Joe Sardano
Yes, several deals have been signed up. We're still waiting for delivery of a lot of those deals because they take a little longer to implement. I wouldn't count all of the installations being the fair market value deal. A lot of those installations are yet to come, so we're not even counting those.
Anthony Vendetti
You mean the fair deal agreement ones. You're not counting yet. The fair deal agreement, yes. Okay, got it. And then the 26 systems, you know, obviously you have one very large customer that has accounted in the past for over 50% of your revenues. Of those 26 systems... Without naming that customer, is your largest customer responsible for over half of those 26 systems, or was it more spread out this quarter?
Joe Sardano
Yeah, they are. They are. No, listen, they are a very good customer. We work together on a lot of things, and we're constantly in conversation, and they definitely are responsible for more than half of those orders. So they're seeing the market coming back the way we see the market. So it's an exciting time.
Anthony Vendetti
Okay. And this particular customer has many different sites, but concentrated in a certain geographic part of the United States at this point, correct?
Joe Sardano
No, quite frankly, they're spread all over the country. They have really good representation across the country.
Anthony Vendetti
Okay. And then just on the economics of the Fair Deal Agreement, so when – When a customer decides to go that route and take a placement versus purchase it, is there an initial upfront placement fee that's much lower than an actual purchase fee and then do they have to commit to a certain amount of recurring revenue or is the recurring revenue piece higher because the cost of the system is significantly less than if it was purchased outright? How does those economics work out?
Joe Sardano
Well, one of the reasons why we're calling it the Fair Deal Agreement is because none of those stipulations exist. It's a totally different concept that provides us with a very strong balance sheet once the revenue starts or once the patient treatments begin. So, as we say, it's a Fair Deal Agreement. benefits the physician and their practice, and we have a saying, the more patients that they do, the more they keep.
Anthony Vendetti
Right, right, right, right. Okay, okay. Any update on the transdermal infusion system?
Joe Sardano
You know what? It's a very frustrating time right now for us to be working with the FDA, and I sympathize with the amount of work and the bottleneck that they've had. It's a tough position with TDI. They have a bunch of people that are trying to get things done, but there's such a backlog, it's tough for us to even get a phone call return. We keep persisting. We're on track. We're not getting any questions back. Any questions that we did have, we already answered, and so we're in a wait-and-hold position until that happens. We're disappointed that it hasn't happened, but we expect it to happen.
Anthony Vendetti
Okay, thanks very much. I'll hop back in the queue. Appreciate the call.
Javier Rampolla
Thanks, Anthony. Thanks, Anthony.
Operator
Again, if you have a question, please press star then 1. This concludes our question and answer session. I would like to turn the conference back over to Joe Sardano for any closing remarks.
Joe Sardano
Thank you everyone for being on the call and thank you once again for your time this afternoon and for your interest in Census Healthcare. We plan to conduct virtual one-on-one meetings with the investment community in the coming weeks. Please contact LHA, our investor relations firm, if you'd like to request a meeting. We'll speak with you again when we report second quarter financial results in August. In the meantime, thank you again for joining us and happy Mother's Day.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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