Sensus Healthcare, Inc.

Good afternoon and welcome to the Census Healthcare Third 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 star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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 with Alliance Advisors IR. Please go ahead.

Thank you. This is Kim Golodets with Alliance Advisors IR. Thank you all for participating in today's call. Joining me from Census Healthcare are Joe Sardano, Chairman and Chief Executive Officer, Michael Sardano, President and General Counsel, and Javier Rampolla, Chief Financial Officer. As a reminder, some of the matters that will be discussed during today's call contain forward-looking statements within the meaning of federal securities laws. All statements other than historical facts that address activities, census, health care, 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, November 14th, 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?

Thank you, Kim, and good afternoon, everyone. Before we jump into the meat of today's call, let me address the distribution of our earnings news release earlier today. As you know, we typically issue our financial announcements after the markets close. Today we had an accidental disclosure situation with the vendor that handles the distribution of our news releases. So out of an abundance of caution, we issued our third quarter news release and filed our 8K and 10Q during live trading hours. We expect to return to our normal timing cadence next quarter. And with that being said, I'm delighted to be reporting another quarter of continued growth in revenues and earnings. This reflects our success in engaging customers with both existing and new sales options for our SRT products. Revenues more than doubled year over year for the second consecutive quarter, and we maintained profitability despite the summer seasonality of our business. We shipped 27 SRT systems during the quarter, including one to Israel, as we continue to build a global presence. This compares with 11 systems shipped in the year-ago quarter. Once again, many of the shipments were for our SRT 100 vision systems, with guided SRT, including a higher number of such systems sold to a large, long-time customer. We value the business this customer provides and applaud their dedication to choosing a far more patient-friendly alternative to Mohs surgery with efficacy that's every bit as good. Our fair deal agreement, which we refer to as FDA, is proving to be as well-received as we had envisioned, perhaps even more so. The FDA is our new shared revenue IGSRT placement model, which we launched in March at the American Academy of Dermatology annual meeting. It complements our leasing programs as well as the outright sales of systems. During the third quarter, we signed seven FDA contracts for a total of 22 as of September 30th. And just this week, we entered into an exclusive agreement with Platinum Dermatology Partners, which will cover all their 130 clinical sites in the US. This is the largest sale to date under FDA or otherwise, and it holds potential to be a meaningful contributor to our top line. Platinum is a group dermatology practice with headquarters in Dallas. They have more than 400 clinicians, staffing clinics in Arizona, California, Florida, Nevada, and Texas. We expect to place several systems during the fourth quarter of 2024 and will continue to provide systems to the platinum network over time. Platinum has been a census customer for several years and has an unwavering commitment to patient care. We are delighted to enter into this collaboration to extend the benefits of superficial radiotherapy to even more patients with non-melanoma skin cancer and keloid scars. Non-melanoma skin cancer afflicts people nationwide. Platinum Dermatology's current geographic footprint makes for a particularly promising partnership as they aggressively pursue strategic expansion nationally. As a reminder, our fair deal agreement provides flexibility for the customers to deploy capital to other areas of their business. which is especially valuable under challenging macroeconomic conditions. Given the growing utilization of SRT to treat non-melanoma skin cancer and keloids and the interest we've generated to date, we believe this option will contribute to our growth for years to come. As our activities continue to grow, we fully expect our objectives for these agreements to be achieved by year end. All these agreements will begin to provide recurring revenue to Census beginning in 2025, with significant volumes projected for the second half of the year. And with that, I will ask Michael to discuss SRT expansion into the other strategic markets. Michael?

Thanks, Joe. We also continue to focus on bringing our SRT technology to the radiation oncology market. During the third quarter, we shipped an SRT system to Swedish Hospital in Seattle, which is owned by Providence Health and Services. This sale to such a large and prestigious institution represents our latest success in generating interest in SRT from hospital oncology departments. Although the hospital market tends to have a longer sales cycle, we expect to generate continued demand from this channel. In October, we attended the American Society for Therapeutic Radiation Oncology or ASTRO annual conference, and we were delighted with the traffic at our booth. Hospitals are looking for additional sources of revenue, and the radiation departments are excellent targets because we offer a cost-effective and clinically proven alternative to the very expensive linear accelerators and other electron beam radiation systems to treat non-melanoma skin cancers. Switching gears for a moment, I'll now turn to a brief update on our transdermal infusion product, or TBI. As we relayed to you last quarter, we continue to develop this product with feedback from our KOLs and the many pharma companies interested in this technology. As a result, our engineers have added many new features which we had planned for a phase two development. We expect to submit our 510K application to the U.S. Food and Drug Administration before the end of the year. I would also like to update you on the international and veterinary market potential. We've been making good progress in bringing our SRT systems to global markets, in particular in Asia and the Middle East. Our goal continues to be to open up two to three new territories each year, which we achieved over the last three years. During the third quarter, we shipped a system to a hospital in Israel. This follows a previous sale to Chavat Dat, the Veterinary Specialist Referral Center Knowledge Farm at Bateberry College in Tel Aviv to treat tumors in cats and dogs. The veterinary market is an interesting incremental growth opportunity for us, and recall that Colorado State University, the College of Veterinary Medicine, has two of our SRT systems and are treating household pets as well as horses. They are preserving all of this data to eventually publish their research on treating animals with SRT. We are also speaking with potential veterinary customers for our SRT systems for their individual practices, and we'll update you should we sign any agreements in this channel. With that, I'll turn the call over to Javier for a review of our recent financial results.

Javier? Thanks, Michael. Thanks, Michael. And good afternoon, everyone. Revenues for the third quarter of 2024 more than doubled to $8.8 million, up 127% from $3.9 million in the third quarter of 2023, as we achieved 27 SRT units versus 11 a year ago. The increase was primarily driven by a higher number of SRT systems sold to a large customer. Gross profit for the third quarter of 2024 was 5.2 million or 59.3% of revenues compared with 2 million or 51% of revenue for the third quarter of 2023. The increase was primarily due to the higher number of units sold in the 2024 quarter. Selling and marketing expense for the third quarter of 2024 was 1.3 million which is unchanged from the prior year. Note that marketing expenses tend to be lowest during the summer months as there are fewer trade shows and conferences. General and administrative expense for the third quarter of 2024 was $1.6 million compared with $1.5 million a year ago. The slight increase was primarily due to higher compensation and bad debt expenses which were offset by a reduction in bank fees. The research and development expense for the third quarter of 2024 was $0.9 million compared with $1.1 million in the same quarter last year. The decrease was primarily due to expenses related to a project to develop a drug delivery system for aesthetic use as a majority of the development expense procured last year. Other income of $0.3 million for the third quarter of 2024 was mostly related to interest income and was unchanged from the prior year's third quarter. Net income for the third quarter of 2024 was $1.2 million or $0.07 per diluted share, and this compared with a net loss of $1.5 million or a loss of $0.09 per share for the third quarter of 2023. Adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, amortization, and stock compensation expense, was 1.6 million for the third quarter of 2024, compared with negative 1.7 million for the third quarter of 2023. This represents a tremendous year-over-year improvement of more than 3.3 million. Turning now to our financial results for the first nine months of 2024. Revenues for the nine months ended September 30, 2024 were $28.7 million, compared with $11.8 million for the same period of 2023, an increase of $16.9 million, or 143%. The increase was primarily driven by a higher number of units sold to a large customer. Cost of sale was $11.4 million for the first nine months of 2024, compared with $5.6 million for the same period of 2023. The increase was primarily related to higher sales in the 2024 period. Gross profit was $17.3 million, or 16.3% of revenue, and this compares with $6.2 million, or 52.6% of revenues for the first nine months of 2023. The increase was primarily driven by a hard number of units sold in the 2024 period. We expect gross margin to continue to be in the 60% level for the fourth quarter of 2024. Selling and marketing expense was $3.6 million for the first nine months of 2024, down from $5 million a year ago. The difference was primarily attributable to a decline in marketing agency expense, travel expense, and lower headcount. General and administrative expense was $4.7 million for the nine months ended September 30, 2024, compared with $4.2 million a year ago. The increase was primarily due to higher compensation and budget expenses, which were offset by a reduction in bank fees and insurance expenses. Riches on development expense was $2.7 million for the nine months ended September 30, 2024, compared with $3 million in the prior year period. The decrease was primarily due to expenses related to a project to develop a drug delivery system for aesthetic use. Other income of $0.7 million and $0.8 million for the nine months ended September 30, 2024 and 2023, respectively, relates primarily to interest income. Net income for the first nine months of 2024 was $5.1 million, or 31 cents, per delivery share, compared with a net loss of 3.7 million or a loss of 23 cents per share for the year-ago period. Adjusted EBITDA for the first nine months of 2024 was 6.7 million compared with negative 5.4 million for the first nine months of 2023. As with Q3, the year-to-date improvement in adjusted EBITDA was truly impressive with a swing of more than 12 million. Turning now to our balance sheet. Cash and cash equivalents were $22.6 million as of September 30, 2024 versus $23.1 million as of December 31, 2023, and we had no outstanding borrowings under our revolving credit line. We maintain a strong balance sheet to take advantage of the competing growth opportunities we may come across or create, and our cash end continues to be very focused and highly disciplined. Accounts receivables was 17 million as of September 30, 2024, compared with 11.6 million as of December 31, 2023. As of today, approximately 8 million of those receivables have been collected. Total inventories were 12 million, which is consistent with 11.9 million as of December 31, 2023. We continue to maintain a healthy inventory level to meet the expected demand for the direct sales and for placements on the deferred deal agreement. As a final comment, please see the tables in the news release we issued earlier this afternoon for the reconciliation of GAAP to non-GAAP financial measures. With that, I'll turn the call back to Joe.

Thanks, Michael and Javier. We continue to be very excited about the future of Census as we are transforming our company into an industry powerhouse. Our financial results certainly reflect our hard work to date to provide multiple options to our customers. Of course, we wouldn't be successful if our products didn't work with reliable precision or meet important needs in the marketplace. Our fair deal agreement would not be possible without our powerful Sentinel IT software. This is our HIPAA-compliant software with clinical billing and asset management utility that also allows us to track utilization in real time. This technology is ideal for better managing dermatology clinics for all of our customers and is proprietary to Sensus. We believe this software is an extremely valuable asset and is well protected by a host of patents. In the meantime, I'll remind you that our products offer excellent solutions for treating non-melanoma skin cancer and keloid scars, and I'm deeply grateful to the talented team we have here at Sensus for their dedication to making sure the benefits of our products are available to as many people as possible. And indeed, many people will need our products. An estimated one in five Americans will develop skin cancer during their lifetime, representing some 70 million people. So whether Medicare or private insurance, we are in early stages of tapping the enormous opportunity for SRT just in non-melanoma skin cancer and keloids. And with those comments, I thank you for your time and attention. And now, operator, we're ready to take questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're 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 2. Once again, it is star then one to ask a question. At this time, we will pause momentarily to assemble our roster. The first question comes from Jason Wittes with Roth. Please go ahead.

Hi, thanks for taking the questions. First off, with the fair deal agreement with Platinum Dermatology Partners, you mentioned there would be a few this year. The remaining, I don't know if there is a remaining 130, Does that also imply that you'll be signing contracts for the remaining 130 clinics, and how might that cascade into 2025?

Thanks, Jason, for the question. First of all, the contract that we have with them covers their 130 sites, so we don't have to sign any more contracts. It's one blanket contract for the 130 sites. We naturally have to do surveys at various sites immediately to install physicians and clinics that want this unit as quickly as they possibly can get their hands on. So we're going to work as hard as we can to fulfill as many requests as they have that will probably take us well into next year with consistent requests for adding additional products. So I think it's going to be an ongoing process as we continue to add resources to expand a lot of the facilities that they have and to meet the requirements that they have at each one of their sites.

Okay. So that means that probably by the end of the year, all 130 sites should basically be on the fair deal arrangement?

It's all under the fair deal arrangement now, and the potential is 130 sites. But, you know, we have to install them one at a time or in groups at one at a time, and there's training that goes on, there's construction that goes on. So it has to be very well planned out and systematic.

Okay, thanks for the color on that. And then you mentioned your largest customer contributed this quarter. What percentage of placements related to your largest customer?

They represent about 50%.

Okay, great. I'll jump back in queue. Thank you very much.

Thank you, Jason.

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

Thank you. Good afternoon. Just on the, obviously, Platinum Dermatology has been a longtime customer, and it's a great relationship that you have there, 130 clinics, as you pointed out. On the fair deal agreement, which covers all 130 clinics, have they indicated, and I know you said more of it will be in the second half of 25, but have they indicated how many systems they're intending to buy, or not buy, but intending to procure under the Fair Deal Agreement in 25? Any color you can add on that would be helpful, thanks.

Sure. Anthony, thanks again. It was funny. As we were going through the process in developing this agreement, as conversations continued, we were targeting a certain number of units to be part of the agreement. And they requested and, quite frankly, demanded that they didn't want to be limited to that number, that they wanted it open for all 130 sites that they currently have. So it gave them the option to put a unit in, quite frankly, to all of these units. We were very happy to hear that, that they're aggressively pursuing this. Is that practical to happen right away? It's going to take time, but we'll get there. And keep in mind that they're progressing as well. They're continuing to buy clinics all over the country, and in particular in the zones and the areas of the country that they're in right now. So they're only going to add to that, but that's pretty much what the agreement calls for. It's up to their prerogative to put in as many as they want, as many as they can, and we're ready to do it. And they wanted it open for all 130 sites. They didn't want it limited.

Okay, great. No, that's helpful. And it most likely, though, most likely wouldn't be more than one per site. Is that true? And then in terms of other large dermatology practices, Are you in any negotiations with other groups similar in size to Platinum Dermatology?

There's about 12 to 15 of these companies that are private equity sponsored and backed, and I will tell you that we have several that are reviewing the contracts.

Okay, great. And then maybe this is for Michael, but on the international front, How are you pursuing demand in the international market? I think it's mostly through distributors, but are you making the fair deal agreement available there at all, or is that always on a transfer price basis?

Hey, how are you? Thanks for the question. No, so the Fair Deal Agreement will not be offered internationally, at least for the time being. I'm not going to say that we'll never offer it. You never know. But for right now, it's mainly through distributors. In fact, we just had a major conference in Vietnam a week ago, actually, and great, great interest there. Again, more distributors. It's expanding into the larger, you know, Southeast Asia territory. As you may remember, in Q2, we shipped our first ever Vision IGSRT system to Taiwan, and that's creating a lot of buzz and a lot of interest in other major hospitals in areas like Vietnam, Laos, Cambodia. So we're really, really excited for all of that buzz, and we'll see where it goes.

Okay, great. And then maybe, Joe, just a quick comment on, you know, it's traditionally the summer quarter, which just concluded September 30th, is the quietest quarter for the industry in general. What would you attribute it to the, you know, the outperformance from census? Is it mostly related to the platinum dermatology deal, or what else would you attribute to the better quarter than expected?

Well, you know, it's a better quarter than we've had in other third quarters, but keep in mind it still wasn't as good as our second quarter, so we did see seasonality into it. But quite frankly, the third quarter didn't recognize any contribution from the platinum deal, so that's yet to come. But, you know, the FDA agreements we're going to see as we get into, as we install more and more of these units, we're starting to see revenues increase. from the installations that we have that are related to FDA. We're starting to see increases of patient volumes from month to month. And as I stated before, I think that we'll see more significant revenues being accounted for in the second half of 2025 as we continue to install more and more machines, volumes continue to increase and revenues begin to increase. So I think that that will continue to grow. I think we're really trending well as far as the existing installations, and as we keep adding more and more installations as we come close to the end of the year, and then we're going to have a very heavy schedule of installations in the first half of next year as well.

Okay, great. Thanks for all that, Kalar. I'll hop back in the queue. Appreciate it.

Thank you.

Thank you.

The next question comes from Ilya Zubkov with Freedom Broker. Please go ahead.

Good afternoon, and thank you for taking my question. So my first question is on the fair deal agreement with Platinum. So I'm curious, so 130 clinics is quite a lot, and that's great. And if you have a few more orders like this, will your production capacity be enough to serve it?

That's a good question, Ilya. We do have the capacity to be able to install units, and keeping in mind that, like I said before, there's about 12 to 15 of these companies that have anywhere between 100 and 400 centers. So we're capable of handling the volume that they're going to give us. It's not something where you're going to install 20 of these systems in one month because it has to be systematically installed with training, construction, and all of these things that have to go on. So it takes a lot more planning in order to get a lot of these machines in there. But we'll get into a solid rhythm once all of these potential orders start coming in. We'll be able to adapt. We're not worried about that. We can manufacture whatever we need. We currently have enough inventory to cover us for all of 2025, and we're preparing orders for more orders in 2025, which will be delivered in the second half of this year and again going into 2026. So I'm very, very comfortable with our capability of manufacturing. That's number one. I think the second question that you had was regarding pretty much the same topic. So we want to get more of these companies signed up to us. I think that they recognize that we're a very good partner to be working with. They recognize that our agreements are very compatible with their philosophy of doing business. And so I think the reason why we branded it as the fair deal agreement is that it is. It's a fair deal agreement that's fair for us as well as fair to them.

Great. You've already answered my second question, so thank you very much.

Thank you.

Thank you.

The next question comes from Jade Montgomery with HC Wainwright. Please go ahead.

Hi. Thanks for taking my question. I'm on for Yi Chen from HC Wainwright. So with moving into 2025, could you provide any comment of the target number of systems shipped or the target number of fair deal agreements you expect to make next year?

As many as we possibly can. I mean, we really don't provide guidance, but we always attempt to get as much as we possibly can. I think that the interest is going to continue to increase as we continue to work with companies and groups like Platinum. I think that we have a very, very good contract. I think we have an excellent technology. We provide the software to that technology that allows them to be able to manage the assets themselves as well as to be able to control the patient data, the billing, and so on. So we give them all the tools that they need to have a very successful installation and practice surrounding SRT and skin cancer and keloids. So I think it will catch on, and hopefully we can turn it into an epidemic. Pardon me for using that word.

Well, hopefully it'll be a better epidemic than last time.

We hope so.

Yeah. And also I may have missed this, but given the deal with platinum dermatology, obviously that doesn't affect the third quarter results, but will that affect sales for this quarter? And also just in general, do you expect the sales of this fourth quarter to again exceed what you had last year?

Well, keep in mind that the FDA agreement doesn't impact sales numbers because it's not a sale. It's a recurring revenue, and we can only count on the revenue that we receive from treating each one of the patients. So it's not going to be a big bulk payment or revenue that we can count like a $500,000 sale, but over time it will compound itself into very significant numbers for us, and we see those significant numbers being increased. very, very apparent to us when we get into the second half of 2025. In the meantime, we'll continue to sell product. We still have customers out there that want to buy the product. They don't want to share revenue with anybody because they feel that they want to keep all the revenue to themselves, which is fine. We have leasing products that they can enter into, which they are, So we're excited to be able to provide our customers with every opportunity to acquire any of the products that we sell any way that they want to achieve it.

All right. Thank you so much for answering my questions.

Thank you, Jay.

And that's it for all the questions we have for today. I would like to turn the conference back over to Joe Sardano for any closing remarks.

Hey, thank you. Thank you, everyone, for being on the call today, and thanks 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 days and weeks. Please contact Alliance Advisors, IR, formerly LHA, our investor relations firm, to request a meeting, and in particular, Kim Golodets. We'll speak with you again when we report fourth quarter financial results in February. In the meantime, thanks again for joining us today.

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