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Edited Transcript of SRTS earnings conference call or presentation 1-Nov-18 8:30pm GMT

Q3 2018 Sensus Healthcare Inc Earnings Call

BOCA RATON Nov 9, 2018 (Thomson StreetEvents) -- Edited Transcript of Sensus Healthcare Inc earnings conference call or presentation Thursday, November 1, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Arthur R. Levine

Sensus Healthcare, Inc. - CFO

* Bruce Voss

Lippert/Heilshorn & Associates, Inc. - MD and Principal

* Joseph C. Sardano

Sensus Healthcare, Inc. - Chairman, CEO & President

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Conference Call Participants

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* Andrew Jacob D'Silva

B. Riley FBR, Inc., Research Division - Senior Analyst

* Anthony V. Vendetti

Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst

* David Michael Solomon

Roth Capital Partners, LLC, Research Division - Director & Research Analyst

* Karthik Sagar Sunkesula

H.C. Wainwright & Co, LLC, Research Division - Research Analyst

* Suraj Kalia

Northland Capital Markets, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Sensus Healthcare Third Quarter Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Kim Golodetz. Please go ahead.

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Bruce Voss, Lippert/Heilshorn & Associates, Inc. - MD and Principal [2]

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Thank you operator. This is Kim Golodetz with LHA. Thank you all for participating in today's call. Joining me from Sensus Healthcare are Joe Sardano, Chief Executive Officer; and Arthur Levine, Chief Financial Officer.

As a reminder, some of the matters that will be discussed on today's call are 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 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. Sensus Healthcare undertakes no obligation to update or revise any forward-looking statements, except as required by law. All forward-looking statements are subject to risks and uncertainties, including those risk factors described in the company's forms 10-K and 10-Q as filed with the SEC.

During today's call, there will also be reference to certain non-GAAP financial measures. Sensus believes these measures provide useful information for investors yet 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?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [3]

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Thank you, Kim, and many thanks to each of you for joining us this afternoon. I'm very happy to report that for the past 12 consecutive quarters, we've posted double-digit revenue growth. Third quarter revenues of $6.3 million were up 32% over last year's third quarter and our year to date revenues of $18.3 million were up 30%. Our Q3 revenues included continued strong sales of our feature rich, premium priced SRT 100 Vision System for the treatment of non-melanoma skin cancer and keloids. Vision sales accounted for 15 out of the 18 systems shipped during Q3.

I'm also happy to report that our adjusted EBITDA has narrowed to almost breakeven at a negative $100,000 for Q3 compared with a negative $800,000 a year ago. I'm very pleased with the momentum and consistent growth we maintained this year and with the continued improvements each quarter in adjusted EBITDA, despite increased spending on research and development.

I want to call out our oncology sales organization in particular as we are starting to generate traction following the addition of reps directed to this sales channel during the past year or so. We're beginning to make inroads. We plan to add to the oncology sales group in preparation for and following the launch of our intraoperative radiation therapy, or IORT system, which I'll talk about in a moment.

I do want to mention one of our key customers, SkinCure Oncology, has several investors (inaudible) as they count for a fair percentage of our sales. SkinCure has proven to be reliable and lucrative for us with a program that provides turnkey solutions to physicians. This group is comprised of individuals with deep experience with sales radiation equipment for other manufacturers and we are thrilled that they have found success with the SRT-100 Vision product.

SkinCure has a history of providing turnkey services in radiation oncology using linear accelerators as their primary device to treat cancer. Now, they're bringing their disciplined model and proven management approach to dermatology. Our point of view is that SRT provides patients with a very attractive alternative to treating non-melanoma skin cancers and we are thrilled with their strategic relationship assisting in the expansion of the market, while we judiciously add to our install base and our premium product line.

As I have said many times before, the U.S. market is quite large and includes 14,000 dermatology practices and 1,000 Mohs surgery practices, not to mention 6,500 plastic surgeons and 5,500 radiation oncologists. We have barely scratched the surface. So we're happy for the support to expand into this market more rapidly. Skincare is an excellent complement to our go to market strategy.

Turning now to some new products during the third quarter, we launched the SRT-100 Plus, a new generation SRT system that adds several innovative features to our existing SRT-100 product, including remote diagnostics, patient medical records integration, as well as core system enhancements. With this system, we've expanded the energy range and also included Grenz rays for the possible treatment of psoriasis. We're very pleased with the reception of this new system and its launch further strengthens our leadership position in dermatology innovation. We will begin to deliver the SRT-100 Plus in Q4.

Meanwhile, research studies for psoriasis are ongoing and the results are expected to form the basis for marketing to physicians for both the SRT-100 Vision and the SRT-100 Plus. These studies are being conducted at sites in Austin, Texas and Tallahassee, Florida and results are expected to be published towards the end of 2019.

As we had previously disclosed, we've been investing in research and development, which we view as essential to the long-term prosperity of Sensus. Arthur will review the numbers later in the call but note that we expect payback from the R&D expenses incurred during the past several quarters to begin to be evident in 2019. Much of the investment has been directed to our new IORT systems for treating breast and other cancers. We filed a 510(K) application with the FDA at the end of 2017 and continue to expect clearance before the end of the year.

We recently attended ASTRO, which is the American Society of Therapeutic Oncology in San Antonio, Texas. There were over 10,000 people registered for this conference and we had our new IORT product, [Sculptura], on display as a works in progress. The reception by attendees was just incredible. Our booth was jammed every minute of the day as word spread of the amazing technology. Demonstration of Sculptura was continuous throughout each day of the conference.

Please note that there was no advertising prior to the show as this is not permissible prior to an FDA clearance. We can only introduce Sculptura as a works in progress. But word spread swiftly and we were pleased with the response. There were many potential luminary institutions that declared their interest in learning more about this technology. We've already identified 4 to 5 leading teaching institutions that we are currently engaged with who are interested in acquiring Sculptura to be used under their IRB program, which stands for Institutional Review Board. This price for Sculptura will be -- the list price for Sculptura will be $1.45 million. The initial units will be provided at very special pricing allowing for various areas of clinical study and applications to be pursued.

Although Sculptura took center stage at ASTRO, the SRT-100 Vision was also on display and demonstrated continuously during the conference with tremendous interest. We've gained numerous prospects for the SRT-100 Vision that we will follow-up on immediately. Overall, we were very busy and the conference was a huge success. We've also begun the interview process to expand our oncology sales force into key regions of the country. This process is currently underway and we expect to have a couple of new, experienced sales people on board by December 1.

Our new facility in Tel Aviv is up and running and we were very pleased to consummate a third sale in Israel of the SRT-100 Vision to Shiva Medical Center in Tel Aviv. Our Tel Aviv base is also cutting edge research and development facility for our new suite of lasers. We've launched 3 laser systems. They are a fractional CO2 for surgical applications that require ablation, vaporization, excision, incision, and coagulation of soft tissue; IPL for hair removal, skin rejuvenation, vascular, and pigmented lesion; and Q-SWITCHED Nd:YAG for tattoo removal, pigmented lesions treatment, aging spots, freckles, and sunspots. We sold 3 systems in Q3 and we will deliver those units in Q4.

In addition to a general manager there, we've hired 3 R&D managers to support the existing R&D and help ramp up the laser business as we consider our manufacturing options. In addition, as I've mentioned, the Tel Aviv site also offers a foothold for sales in Europe and Asia, owing to its location. We've already signed new distributor agreements for municipal markets, including Thailand and India, as well as Latin America.

I want to reiterate what I said last quarter regarding reimbursement, as many of you continue to ask about the potential changes to CMS rates. To reiterate at this point, we know that CMS has said that our main code is grossly undervalued and additional reimbursement rates could be effective January 2018. This is good news. However, we don't know what those additional rates will be. They will come in the form of G codes and we hope to hear some news within the coming days and weeks. This is all I can tell you for right now. It's frustrating for sure, but we're cautiously optimistic and given the timing, we anticipate our usual strong fourth quarter.

In any event, we do continue to expect our install base of SRT systems will increase to more than 400 units by the end of 2018. We've also been asked recently whether or not Sensus is being impacted by tariffs recently imposed on imports from China. The fact is we are. But the impact for us is minimal. If there is any impact from Chinese tariffs, it will not be immediate and is not likely to be material for our results.

That said, the U.S. is by far our biggest market and our number one target, to which we are just beginning to scratch the surface. We're optimistic about the prospects for Sensus and we've never been in a stronger position, both financially and technologically. Our recent equity fundraise with $15.9 million in net proceeds provides important growth capital that enabled us to pay down our revolving line of credit. That has also brought us about 50 new institutional investors and improvement in trading -- in liquidity. I'd like to welcome those shareholders to Sensus and to this conference call.

Now, I'd like to turn the call over to Arthur Levine for a discussion of our financial results. Arthur?

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Arthur R. Levine, Sensus Healthcare, Inc. - CFO [4]

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Thanks, Joe. It's a pleasure to be speaking with all of you today.

As Joe mentioned, revenues for the third quarter of 2018 increased 32% versus the prior year to $6.3 million. The increase is attributable to a higher number of units sold, in particular the SRT-100 Vision, which has a higher average selling price than the SRT-100.

Gross profit for the third quarter of 2018 was $4.2 million or 65.8% of revenue. This compares with $3.2 million or 67.1% of revenue for the third quarter of 2017. The decrease in gross margin percentage was mainly due to lower average selling price. Going forward, we expect that the gross margin percentage will remain at or slightly below the current level depending on the changing mix of products sold.

Selling and marketing expense for the third quarter of 2018 was $2 million compared with $1.8 million for the third quarter of 2017. The increase was primarily due to higher commission expense directly related to the increase in sales.

General and administrative expense for the third quarter of 2018 was $0.9 million compared with $0.8 million for the third quarter of 2017. The increase was primarily due to higher professional services.

Research and development expense for the third quarter 2018 was $1.7 million compared with $1.5 million for the third quarter of 2017. The increase is mainly due to the ongoing IORT project, along with additional product development in the company's new research facility in Israel. The net loss for the third quarter of 2018 was $0.5 million or $0.03 per share compared with a net loss of $1 million for $0.7 a share for the third quarter of 2017. Adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, amortization, and the stock compensation expense was a negative $1.1 million for the third quarter of 2018, compared with a negative $0.8 million for the third quarter of 2017. Note that despite the larger R&D investment in 2018, we have carefully managed our other expenses, and we're very pleased with the continued narrowing of negative EBITDA to almost breakeven level.

I'll turn briefly to the financial results for the 9 months ended September 30, 2018. Revenues for the first 9 months of 2018 increased 30% to $18.3 million. Gross profit was $12 million or 65.7% of revenue, compared with $9.5 million or 67.2% of revenue for the prior year's 9 month period.

Selling and marketing was $6.1 million for the 9 months ended September 30, compared with $6.2 million a year ago.

General administrative expense was $3.2 million year to date compared with $2.8 million for the prior year period. G&A for 2018 includes $0.4 million of stock compensation expense related to fully vested stock grants selling in the first quarter of 2018.

R&D expense for the 9 months ended September 30, 2018 was $4.8 million compared with $3.8 million for the prior year period. The net loss for the 9 months ended September 30, 2018 was $2.1 million or $0.16 per share compared with a net loss of $3.3 million or $0.25 per share for the 9 months ended September 30, 2017.

Although our sales and marketing expense was up overall during the third quarter, the increased expense was mainly associated with increased sales commissions from higher sales. We have kept a close watch on marketing expense and as I mentioned last quarter, once we have IORT clearance, we expect to again expand marketing to support this launch.

We anticipate that we will continue spending on R&D at the same level, at least during the fourth quarter 2018 and in the beginning of 2019 as we approach clearance on the IORT and ramp up to production. We do not expect a meaningful contribution to sales from IORT until 2019.

Our balance sheet is the healthiest in the company's history with cash, cash equivalents, and investments of $17.1 million as of September 30, 2018. During the third quarter, we raised $15.9 million in net proceeds from an underwritten public offering of common stock. We have no long-term debt and during Q3, we paid down the $4.2 million borrowings on the revolving line of credit that had been outstanding at June 30. The $5 million credit facility is still available to us.

With that, I'll turn the call back over to Joe.

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [5]

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Thanks, Arthur. Looking ahead to the rest of 2018, we continue to be excited about our positioning and prospects, particularly during the fourth quarter. Our R&D facility is generating important advances in treating skin conditions and we have funds available to expand our sales organization in a careful, thoughtful way, particularly in oncology as we await IORT clearance. We look forward to continued achievements throughout the remainder of this year, which should provide the base for an excellent 2019.

We are affirming our expectations for double-digit revenue growth, supported by new products, growing awareness of the SRT value proposition, and expanding international reach. Before we take your questions, I just want to mention that we'll be at the Craig-Hallum Alpha Select Conference in New York on November 15. There won't be a formal presentation. Rather, the format calls for one-on-one meetings. I hope to see some of you there.

So with those comments, operator, we're ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Andrew D'Silva of B. Riley FBR.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [2]

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A couple quick bookkeeping ones first if you could. Just let me know what cash flow for operations and CapEx was for either the quarter or the 9 months. And then did I hear you correctly? Did you actually recognize revenue from 3 laser systems during the quarter or is that the revenue going to be recognized essentially next quarter?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [3]

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The orders were taken in Q3. They'll be delivered in Q4 so revenue will be recognized in Q4.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [4]

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Great. And while you're pulling the cash flow information, could you maybe just give me an update on the -- from a timing standpoint, when you expect to start actually selling the SRT-100 Plus. And if you're seeing any practices or customers waiting to place orders in anticipation of that system being released?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [5]

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I think that we'll begin to deliver the SRT 100-Plus in the fourth quarter. We're seeing some revenue coming in or some orders coming in, in Q4, as we're speaking.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [6]

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And then as it relates to the 510(K) for [Sculptura], has the Q&A, the back and forth essentially with the FDA ended and were you essentially able to answer all the questions they were looking for?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [7]

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We sent in all the information and all the data. All the studies and all the tests have been completed and all that data has been sent into the FDA and as you know, that comes from a third party that is identified by the FDA as a recognizable third party that they accept that data from. All of that has been submitted. It's been there for over a month and we're just waiting for them to get back to us now.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [8]

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Last question. I reviewed the CMS proposed physician fee schedule changes for next year. Just curious I guess on what you would hope for from a G code standpoint? They had different things they were potentially considering. It was either 1 G code or possibly up to as many as 3 I believe. Would 1 be better for you or would 3? And then longer term, when they actually reset the CBT code, do you have any idea or expectation of what kind of coding gaps they're examining to fill that would end up driving the actual reimbursement cost?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [9]

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Well, you're giving me the opportunity to sit in Santa's lap at Macy's Parade here if I give you what I wish for. But there's no question that we've been very, very engaged with CMS and quite frankly, they've been engaged with us. And our doctors requesting proposals and so on. So all of those proposals have been submitted. There can be anywhere between 1 and 3 codes that are identified that would give us additional reimbursement above and beyond the codes that we already have access to. Of course, the main code, which is an important code that we have asked, that has not been revalued since 2002 and we've requested that CMS do that, may not be revalued this time around. But it could be a second phase next year or the year after that that one will come around as well. So if you're asking me what's my wish list, of course, I would like to see 1 to 3 codes that can provide us with reimbursement that is fair and equitable for our physicians based on the amount of work that they put into it and that would be significant for us. But keep in mind, we continue to drive our business at a 30% to 35% clip with the existing codes. It's not that the existing codes are bad. We want them to get better and of course, the doctors feel they deserve to be worth more. And if we can get that up there to where we think it should be, I think that we'll see a nice little push in sales for us with more doctors recognizing that this is a very strong, viable alternative and complement to Mohs surgeon.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [10]

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Thank you, Joe. And then Arthur, were you able to pull that information?

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Arthur R. Levine, Sensus Healthcare, Inc. - CFO [11]

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Sure. Hi, Andy. The CapEx in Q3 was approximately $300,000 and year to date the CapEx was around $800,000. Cash used in operations in Q3 was around $2 million and year to date is around $7 million. The main uses of cash in operations, and I think we talked about it in previous calls, and it's primarily in Q1 for the lengthening of payment terms for a key customer, as well as the build-up of inventory, first of all, in anticipation of significant sales in Q4, as well as building the betas for the IORT. So all of those factors contributed toward using a significant amount of cash in the first 3 quarters of the year, which I expect will be reduced going forward.

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Operator [12]

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Our next question comes from David Solomon of Roth Capital Partners.

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David Michael Solomon, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [13]

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So I just want to follow-up on the coding before moving on. I also was looking at that CMS document and it seemed like term insurance was requesting some input from a number stakeholders. And I know that over the history of your company and the technology, there has been sometimes where stakeholders have been contentious with you. have you seen any change recently in this process, in this go about with what kind of input they're getting from the different societies regarding what they think for coding?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [14]

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And I appreciate the question, David. First of all, it's been identified very clearly by CMS that the number one stakeholder in this is our dermatologists. And the reason being is that they have used the coding for treating skin cancer with SRT better than 74% of the time, while the radiation oncologists have used it somewhere around 4% of the time. So it's clear that although there could be several stakeholders, one being us, Sensus Healthcare, since we're dealing directly with CMS as well, it's clear that the dermatologists are the number one stakeholder in that. At the recent ASTRO, we did have meetings with several people who were on the board of that (inaudible). And I think that we're very much in line with what they're looking for, as well as what our dermatologists are looking for. So I think that slowly but surely, CMS can be looked -- or Sensus can be looked as the catalyst that's bringing these various societies together that will help CMS make a decision that will provide fair and equitable reimbursement for the codes that are being used for SRT. So I think that that's a positive outcome for all of this to happen and I think that it's going to result in, I mean, again, what we're hoping for is something that's very, very positive for SRT that's going to expand the footprint and make more patients eligible to receive SRT around the country.

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David Michael Solomon, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [15]

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And just regarding the sale in Israel. Obviously, outside of the U.S. has kind of not really contributed much in recent quarters, and this could be a sign of potentially a new growth vertical. What are we thinking as far as a potential market opportunity in Israel? And then any expectations regarding these other distributor agreements over the next couple of years?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [16]

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Yes, we have expectations that will drive revenue for us. I don't think that it will ever get to, for the next foreseeable future with the growth that we have in front of us in the United States market, I can't see it being more than 10% of the overall revenue. But I think that based on the technology that we have and what we're developing, especially in Israel, and what we've already sold in Israel I think we're seeing a recognition of Sensus Healthcare as being a very good technology company that's providing excellent devices for healthcare. We can never forget the fact that Israel is probably one of the top either 1 or 2 countries in the world that's developing devices and healthcare innovation for the entire world to use. And so for us to be working in Tel Aviv and to have the 3 biggest hospitals out of 9 major hospitals in Israel buy our technology, I mean it's very flattering for us. And I think the fact that we're paying attention, that we have salespeople there, that we're developing products there. I think it all bodes well for continued success in Israel for not just the vision product, which they have major problems with skin cancer and keloids as well. But also for IORT. I think that we're going to see some sales potentially happen in Israel over the next 6 to 18 month s that I think are going to help us and recognize the fact that our [Sculptura] product is something really exceptional. And I think that they'll help us get there as well. So we're excited for the opportunities in Israel, and for being such a small country, to be such a strong proponent of Sensus Healthcare, I think we're very, very excited for that. As far as the rest of the world, we see areas in the rest of the world where we're gaining some access with some consistent representation. And we have hooked up with a company called CellMark. If you go to the website you'll see that they're a multibillion-dollar company and one of their strategic growth areas is in healthcare. They're involved in a lot of different areas but they really want to grow their healthcare. They had 9 representatives from around the world at our booth for the entire week at ASTRO. They're extremely interested. They got training on all of our technology and they brought some of their potential prospects and customers to the booth. And I think that they're all anxious and eager to go back to their respective regions of the world and make Sensus Healthcare a known name. So we're excited for that. That's going to take some time. We talked a little bit about China. We are involved with some of those tariffs, but that's been rather slow over the past 12 months. And so I'm not worried about where we're going to go in China. We still have the CFDA clearances, which means it's going to take a very long time before anybody else comes into those areas. So I feel that we're exclusive in there. But I think that we have opportunities to go around that. We made strategic decision to have an office in Tel Aviv and there's a lot of reasons for that. And we're evaluating opportunities for manufacturing. We've talked to the Commerce Department for the State of Israel. There's plenty of incentives to develop manufacturing over there if we so choose. As a matter fact, costs based on what they would provide for incentives, and grants, and building that out in Israel would bring us to either the same or lower costs than anybody would experience in China. And the big opportunity, quite frankly, is manufacturing in Israel. There are zero tariffs with China and there's zero tariffs with the United States and the rest of the world. So strategically, it makes a lot of sense for us to take a look at that part of the world to continue to develop.

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David Michael Solomon, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [17]

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And just regarding the [Sculptura], any specific color regarding ASTRO, the physicians, whether they're interested in not only breast, but the other potential radiation therapies and whether or not there's a possibility you think you could potentially book sales in Q4. Or do you think it's better just to assume that sales will begin in 2019 for the Sculptura ?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [18]

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Here's what I'll tell you. When we were presenting this, first of all, the booth was just jam-packed. I would tell you that I firmly believe that the [Sculptura] product was the start of the show, and the co-star of the show was the Vision, because of the fact that when these people came to the booth to take a look at Sculptura , they had no choice but to also say, well, what's this device? They get a demonstration on that and they were all saying fantastic on this one as well. So we gained a lot of prospects on the Vision side. But the Sculptura , I guess the best way to describe it was when we gave a presentation to a group of doctors at various hospitals, they would look at us, and they'd say, “You're saying that this product can do that?”; and they're like, they have a smile from ear to ear on their face with the Sculptura product. So it's clear in our minds that although this is an intraoperative radiation technology, it cannot be compared to existing IORT products that are in the market today. Our market is to add, or to replace, or to complement existing HDR products, high-dose rate products. And David, you know from your background and from your training. There's tens of thousands of these units installed around the world and these units are kind of like, in the rest of the world, unlike the United States even though there's thousands installed in the United States, they're kind of like the poor man's linear accelerator. They treat a lot of different cancers. So the doctors that we're interfacing with are saying, “We can treat pancreatic CA with this. We can treat prostrate. We can treat head and neck, vaginal, colorectal, breast cancer”; and they keep going on and on with the types of cancers that they can treat. And that's because they just don't have access with either they're socialized health care or the type of hospitals that they're in to be able to access a $4 million radiation oncology or electron beam machine. So they're looking at this as a great opportunity and it's something that they can complement a linear accelerator with. They can complement other HDR products that they have. And then most of the HDR products that are out there also utilize radioisotopes. We know that radioisotopes are extremely expensive. They're very difficult to transport. They're difficult to store and to put on the shelf. They have a half-life, which is important, and they're very difficult to administer to the patient. It's all very expensive. So with our system, we can alleviate all that. There is no cost for that and so that saves hospitals and healthcare groups a whole lot of money in being able to apply what we can do versus what exists out there today. So we think that based on what we're seeing indications for, this is a much, much larger market than we originally thought of. And we're finding customers or potential partners at the beginning that want to help us with that. So we've identified, as I mentioned before, 4 to 5 key luminary teaching institutions, big name institutions that we're discussing, under NDAs and with contracts transferred the potential for acquiring these so that they can utilize this under an IBA. It means investigational review board, IRB. They can acquire these units, utilize them, treat patients, even prior to an FDA clearance. We're currently manufacturing 4 of these units for delivery. If we're able to get the contracts, if we're able to manufacture them on a timely basis, there might be an opportunity for us to deliver up to 4 units before the end of the year. I'm not counting on it but the possibility is there. And we're working as fast as we can to try to make that happen, if we can get the paperwork done. And so far, we're not seeing any delays by the potential partners that we have in this area. Now, these institutions want to be the first in everything. Anything that's new, they want to be the first. And they're institutions that we want them to be the first because they've got great names. And of course, you're going to get special terms, and conditions, and pricing but in exchange for that, they're going to help us with publications, with studies, with treatments, with the experience that we'll be able to pass on to our main target through the commercialization of this product as we get through the FDA clearance and into the market for 2019. So we're excited for the excitement that's being developed and quite frankly, when we see our engineers tell us about what this product can do, we're excited. But when we sit in front of customers and they see presentations on that, and they display their excitement, I mean that's just even 10 times greater for us. So we're really, really pumped on this.

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Operator [19]

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Our next question comes from Anthony Vendetti of Maxim Group.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [20]

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Just on the aesthetic lasers, I know you've talked about the technology that you have and the advantage you have. Can you talk a little bit about where you are in terms of developing proprietary systems and how you intend to approach this market as you move through the rest of this year and into 2019?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [21]

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Sure. Again, one of the reasons why we went to Tel Aviv and to Israel in the first place was that's really the hotbed and the mindset of people that have developed some of the greatest laser companies in the world. And consequently, they've had a lot of talent and skillsets that exist there that have developed some of the greatest technologies that we've seen in this area. So you've got big companies that have come out of Israel and we want to access and get close to that mindset and to those skillsets. So we now have 3 full-time engineers that are working diligently on bringing those types of technologies to the market. And we're at the point where we've identified the types of technologies that we're looking at within the laser market. And we feel that at some point in 2019, we're going to be able to bring some of those technologies to market with some of the unique features that we will bring to market that we think will create additional IP that hasn't existed in the laser market for 10, 15, 20 years. So we're working very hard at it. I don't want to get too deep into it because I don't want to give away exactly what we're working on but I think that it will be exceptional. I think that it will be a next generation type of technology and I think it's going to be something that facilities throughout the world are going to have to have because it's the only way it will work. And I think we're going to be able to deliver something totally different than exists today.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [22]

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Two last follow-ups. One is just an update on the CFDA process for the SRT-100 Vision.

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [23]

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It's still in the process. We're in sync for that. I think that there's probably a slowdown by CFDA with any American products that are trying to get through CFDA clearance because of potential tariffs. And I also believe and have faith in the fact that at some point in the near future, and I'm hoping that it's within the next year if not sooner, that heads will prevail and get things worked out for both sides. And we'll see where that goes. But in the meantime, I think that it's safe to say that there's a slowdown in that development process for the Vision production.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [24]

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And then just last on the sale rep side, you had mentioned that around 24 seems like the right number for now. Has that number changed and do you have a target for 2019 at this point?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [25]

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We're undergoing interviews now to add to the oncology team. We think that we can add 1 or 2 bodies that would be strategically placed in key regions of the country where we're seeing some activity. And so I think that we'll have those people on board by September 1. I think as we get closer to an FDA clearance for a new family of lasers, which expect either by the end of this year or at the beginning of Q1 2019, I think that we want to bring on more people on the dermatology side because we're going to need that help as well. So I think the target of getting to 30 people is still in play. But we've always said that we would see exactly when the best time is to bring those folks on because we don't want to bring on any undue expenses that we don't need. And I think that as we get closer to IORT approval and as we get closer to the submission for the lasers and then approval from the lasers, I think that we'll get a whole lot closer to getting to 30 people.

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Operator [26]

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Our next question comes from Suraj Kalia of Northland Securities.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [27]

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So Joe, a bunch of questions. Forgive me if I missed this, the U.S., O-U. S. distribution, was it just 15 is to 3 or was there another mix?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [28]

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On U.S. distribution, there was -- out of the 18 units that was sold, one went to Israel, 17 to the U.S. Out of the 17 to the U.S., 14 were Vision products.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [29]

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SRT-Vision, 14. And of those 14, Joe, were they all through SkinCure?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [30]

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Yes, they were.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [31]

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Okay. And the accounts receivable from $9.4 million to $10.6 million. I presume that is all SkinCure still is greater than 90% of that or --

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [32]

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Arthur, I'll let you answer that.

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Arthur R. Levine, Sensus Healthcare, Inc. - CFO [33]

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It's approximately in that range.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [34]

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Joe, in terms of IORT, your excitement is palpable. Would the sales channel for IORT be through your direct reps, whether they go from 24 to 30? Or are you anticipating going through a third party also on IORT?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [35]

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It will be direct with our oncology team. If you recall, Suraj, we have 2 sales forces. We have the dermatology sales force and we have an IORT sales force. During the -- throughout the year in 2018, we've had 3 people and I think pretty much the same 3 people in 2017 because we were still selling Visions to the hospital market, which is a very slow market. But we're seeing an uptick in interest with the Vision and therefore, we want to try to get to 6 people in oncology, especially with IORT coming on board.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [36]

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So there would be no third party usage? It would be basically driven by in-house personnel? Is that fair?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [37]

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Correct.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [38]

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And Joe, final question. I'm just going to take a step back on a very high level and I haven't connected the dots, so please forgive me and maybe you can fill in the blanks here. From an IORT perspective, you sounded pretty exciting, not only in breast but I thought I heard you say prostate, colorectal, and a bunch of other cancers. Joe, when we look at [Linax], right, the 6-megavolt Linax , there is a method to the madness defining tumor boundaries. There is a preplanning, pretreatment protocol. The radiation physicist get involved. There is a whole dance that is done and you also need to look at the tumors, MRCT planning, so on and so forth. And you can have real-time adaptation and all that. Specifically for IORT, help me understand, when you look at prostate, for example, or colorectal, I'm very curious how -- what studies have you done or how are you planning on generating or gathering the data in these specific -- I understand the KOL part you mentioned. I get that. But I'm very curious because you have high voltage X-ray strength usage on one side and now, we have IORT from you guys. How do you plan to get into the market and essentially make a case, outcomes are better. This is how we plan, this is how we do it? For example, in prostate cancer, right, you guys show you reduce erectile dysfunction and urinary incontinence by X percent over current therapy. That would require date. I'm just curious if you can walk me through that would be great.

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [39]

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Well, I appreciate the question. First of all, let me just say that what I had said before about all these other treatments, these were treatments that our customers or these prospects that came in and said that they would be able to do based on the technology that we have. So you don't have an understanding of the technology. I think if we had an opportunity to discuss the technology or you were able to see a presentation on the technology, a lot of these questions you'd be able to answer yourself. But one of the main features that we have or 2 of the main features that we have on the product is the fact that we can - we have beam sculpting, which has never been realized before, and we have tomosynthesis on the equipment as well. So we have real-time, in essence, CT guidance, if you will, delivering the beam sculpting. So there's a lot of opportunities, which these doctors and these KOLs are seeing that they're responding to us, saying these are -- this is a great technology for us to be able to treat and address those types of cancers. And of course, all of that stuff has yet to be seen. Those applications and indications have to be developed by the KOLs that we're working with and we're not making any claims but we are expressing the excitement that we're seeing from our doctors, who are telling us this. And that's because of the capabilities of the equipment. But clearly, the benefits, the features that the products has lends itself to doctors telling us that this can be used for that. So it's not like the traditional IORT products that you see out there today. It's totally different. It's more, like I said, on the HDR side but much more sophisticated. And as we consider it clean technology, not a dirty technology. We're still using photons, which is exceptional for treating different types of issues in the body. And I think these are the things that we're seeing that's so exciting for everybody in the market. So we're gaining the excitement that we're seeing from the presentations that were given and we're getting the ideas from the doctors. And of course, that's where you always get the best ideas are from your potential customers or from your customers that end up working on the equipment. So we're expecting to gain all that data that you're looking for and asking for from those hospitals and teaching institutions that we're going to work with. We're very, very excited for the opportunity to work with them.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [40]

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And Joe, did you say there is real-time CT guidance on the IORT platform? That would be --

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [41]

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I know it's hard for you to believe, Suraj, but I would invite you to come by and learn more about the product. Because I think that you could be amazed.

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Operator [42]

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Our next question comes from Yi Chen of H.C. Wainwright.

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Karthik Sagar Sunkesula, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [43]

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This is Karthik on for Yi. Can you perhaps elaborate on why the average selling price was lower in the third quarter?

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [44]

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The average selling price, you're looking at a difference in the margin of 65.8% versus 67.1%, right. That's what you're asking about?

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Arthur R. Levine, Sensus Healthcare, Inc. - CFO [45]

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You're asking about on the revenue line, right?

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Karthik Sagar Sunkesula, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [46]

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Right.

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Arthur R. Levine, Sensus Healthcare, Inc. - CFO [47]

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It depends on the mix of products that we're selling and we recently started selling more used SRTs as some customers upgrade to the Vision. And the used SRTs have a lower selling price. Not this quarter, but the previous quarter, which impacted the year to date, we also made some international sales that were at a lower price. So there are various factors at play here and we think it's within a reasonable range of where we had been in the past, the average selling price. And I'll address the margin at the same time, since it's impacted by the selling price. And our margins have fluctuated between around 65% to 67% over the last few years. And we consider those to be normal fluctuations that are based on the mix of new and used U.S.-International versus SRT-100 as well as other factors that are related to the cost of sales. So both the ASP and the -- we consider both the ASP and the gross margin percentages to be excellent for our type of company.

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Operator [48]

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(Operator Instructions) There are no more questions at this time and this concludes our question and answer session. I would like to turn the conference back over to Joe Sardano for any closing remarks.

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Joseph C. Sardano, Sensus Healthcare, Inc. - Chairman, CEO & President [49]

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Thank you very much. So in closing, I want to thank you all for your time this afternoon and for your interest in Sensus. In addition to the Craig-Hallum Conference in New York on November 15, we'll be gearing up for a one-on-one meeting with investors in San Francisco during the JPMorgan Conference. So hopefully, we'll be able to see some of you there. In the meantime, we're available for calls and we look forward to seeing you along the way. So thank you everyone and we look forward to seeing you soon.

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Operator [50]

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