Sensus Healthcare, Inc. (NASDAQ:SRTS) Q2 2023 Earnings Call Transcript
Sensus Healthcare, Inc. (NASDAQ:SRTS) Q2 2023 Earnings Call Transcript August 6, 2023
Operator: Welcome to the Sensus Healthcare Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Kim Sutton Golodetz with LHA Investor Relations. Please go ahead.
Kim Golodetz: Thank you. This is Kim Golodetz with LHA. Thank you all for participating in today's call. Joining me from Sensus Healthcare are Joe Sardano, Chairman and Chief Executive Officer; Michael Sardano, President and General Counsel; and Javier Rampolla, Chief Financial Officer. As a reminder, some of the matters that will be discussed during today's call contain forward-looking statements within the meaning of federal securities law. All statements other than historical facts that address activities Sensus Healthcare assumes, plans, expects, believes, intends or anticipates and other similar expressions will, should or may occur in the future are forward-looking statements. The forward-looking statements are management's beliefs based on currently available information as of the date of this conference call, August 3, 2023.
Sensus Healthcare undertakes no obligation to revise or update any forward-looking statements except as required by law. All forward-looking statements are subject to risks and uncertainties as described in the company's Forms 10-K and 10-Q. During today's call, references will be made to certain non-GAAP financial measures. Sensus believes these measures provide useful information for investors, yet they should not be considered as a substitute for GAAP, nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in today's financial results press release. With that said, I'd like to turn the call over to Joe Sardano. Joe?
Joseph Sardano: Thank you, Kim, and good afternoon, everyone. Our second quarter financial results showed improvement over the first quarter. During Q2, we shipped 13 systems, including four SRT systems outside the US, and six SRT-100 Vision systems up from 10 systems shipped during the first quarter of 2023, but down from 33 systems shipped in the prior year quarter. During the quarter, we did achieve a milestone. We have now shipped over 700 systems - 708 to be exact in total, and are making progress as we drive towards 1,000 systems within the next couple of years. If you recall, we delivered the number 500 system during our 11th anniversary year. I made the statement during our then-earnings call that we would achieve the next 500 units in half the time.
So far, we are on track, and we look forward to a better second half of 2023. For Q3, revenues were $4.5 million, an increase of 33% sequentially, but down from the $12.1 million a year ago. As discussed on last quarter's conference call, many of our customers depend on elective aesthetic procedures as a meaningful source of practice, revenue, and profit. And we are hearing encouraging feedback that patient volumes and procedure mix are improving. As such, we continue to build inventory and prepay for components. We're confident that we are planning appropriately, and we are receiving positive feedback from our customers that they are experiencing the return of their patients as volumes slowly grow back to previous levels. And speaking of volumes, our surveys of Medicare show that SRT is experiencing a 27% treatment growth rate year-over-year for the past six years.
If this growth utilization rate continues at its current pace, SRT will soon become the treatment of choice for non-melanoma skin cancer. Our confidence is high, and we've been building inventory and prepaying for components. We expect to ship at least 60 SRT systems during 2023. Concurrently, we are working on programs that will address any remaining hesitancy for our prospects and put us back on a growth trajectory. Our advanced technology is expected to play a key role in our growth. With Sentinel IT, this is our HIPAA-compliant software that stores patient data for multiple clinic purposes and will include artificial intelligence to allow customers to better manage their practices and data. Sentinel IT is expected to play a key role in our growth, and we launched our Sentinel/Sensus Cloud capabilities at the American Academy of Dermatology Annual Meeting this past March.
This new feature of Sentinel is a cloud-based asset management remote monitoring and diagnostic platform and is also now available on our lasers. The platform boasts continuous remote monitoring to track the status of a system from any web browser or iOS device. Continuous backups ensure that valuable information is safely stored in the cloud and allows providers with multiple locations or group practices to monitor their equipment remotely at all times. The Sensus Cloud system also allows providers to monitor any service issues, such as calibration, monitoring voltage, and temperature, without having to send an engineer to the field. As you may expect, Sentinel IT allows us to track system use in real time, an important feature that may support new sales programs.
We look forward to showcasing IT and our SRT products at local trade shows, as well as the American Society for Therapeutic Radiation Oncology beginning October 1. Although the sales cycle is longer for the hospital market, radiation oncology is a highly attractive opportunity as it gains interest in the skin cancer market. During the first quarter, we announced the sale of a system to a hospital in the Northeast, and we are engaged with several more hospital systems. We also introduced new and improved high resolution ultrasound technology to provide a see and treat capability. This leads to great outcomes and patient reassurances because the physician can actually see the impact of each treatment on the lesion resolution after treatment. Our fair market value leasing program results in an ROI with only 2 to 2.5 patients treated a month.
Interest in this program remains high, as evidenced by booth traffic at the conferences and trade shows we've been attending. Our customers are also inquiring about other types of sales programs, and we are actively looking at potential options. These activities are vital to our future. Not all dermatologists know about the attractiveness of SRT, as many still need to be educated. So, given the higher reimbursement and favorable comparisons to most, overall, we've stepped up our marketing and education programs. While we've always had a presence at the key larger conferences, we're increasing our presence at smaller regional conferences. These events allow us to get closer to our customers without so many other companies competing for the attention.
They also are more cost effective. You can follow us on Facebook or Instagram to get a sense of how active we are. So with that overview, I'd like to turn the call over to Michael Sardano for a bit more color on our plans and our priorities. Michael?
Michael Sardano: Thanks, Joe. Last quarter, I spoke about our efforts to open up new international territories, a demanding process requiring regulatory approvals and engaging the right distributors. In Q2, Sensus was pleased to announce our first system being sold into Ireland at Beacon Hospital in Dublin. Skin cancer is the most prominent cancer in Ireland with more than 12,000 cases per year, so SRT should be in high demand. Sticking with that part of the world, Sensus also announced a new distribution partner in MIS Healthcare, a very large and well-respected [technical difficulty]. They bring a broad and growing network of relationships within the public and private health care sectors to support an effective market entry for Sensus.
They also have a large service and maintenance operation supported by a team of factory-trained engineers and application specialists. Additionally, in Q2, Sensus was excited to expand into the Central American territory with our first SRT system sold into Guatemala. With regard to the future, our plan is to expand our Latin American and Asian footprint as quickly as possible, with Brazil and Japan being longer-term goals as they are highly regulated. China remains our premier international market with now more than 50 SRTs sold. With the pandemic lockdown lifted, we continue to see positive momentum and shipped another two SRT systems there during the quarter for a total of five shipments to Asia so far this year. We expect that China will take delivery of more than 10 SRT systems throughout 2023, and we look forward to expanding further into the Asian territories with a specific target on Korea and Japan.
With that, I'll turn the call over to Javier for a discussion of our financial results.
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Javier Rampolla: Thanks, Michael, and good afternoon, everyone. As Joe mentioned, our revenues for the second quarter of 2023 were $4.5 million, an increase of 33% over the first quarter of 2023, and a decrease of 62.5% as compared with revenues of $12.1 million a year ago. The decrease versus the prior year was primarily due to a lower number of SRT units sold as customers continued to defer purchases, as well as lower sales to a large customer. Gross profit for the second quarter of 2023 was $2.6 million, or 57.9% of revenues, compared with $8.3 million, or 68.3% of revenues for the second quarter of 2022. The decrease was primarily due to the lower number of units sold and higher costs charged by vendors in the 2023 quarter.
Going forward, we anticipate gross margins to return to the mid-60% range as our sales continue to improve in the second half of the year. Selling and marketing expense for the second quarter of 2023 was $1.6 million compared with $1.7 million for the second quarter of 2022. The slight decrease was attributable to lower marketing initiatives and commissions, partially offset by higher headcount costs. General and administrative expense for the second quarter of 2023 was $1.3 million compared with $1.1 million for the second quarter of 2022. The increase was mostly due to higher professional fees, offset by a reduction in insurance expense. Research and development expense for the second quarter of 2023 was $0.8 million, unchanged from the same quarter last year.
We expect R&D expense to remain at this same general level for the rest of the year. Other income of $0.2 million for the second quarter of 2023 was related to interest income. Net loss for the second quarter of 2023 was $0.4 million or $0.02 per share, and this compares with a net income of $3.5 million or $0.21 per diluted share for the second quarter of 2022. Adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, amortization and stock compensation expense was negative $1 million for the second quarter of 2023 compared with positive $4.7 million for the second quarter of 2022. I'll brief review our year-to-date financial results. Revenues for the first half of 2023 were $7.9 million compared with $22.4 million for the first half of 2022, reflecting a lower number of SRT units sold.
Gross profit was $4.2 million or 53.4% of revenue, compared with $15.4 million or 68.7% of revenue for the first half of 2022. The decrease was primarily driven by the lower number of units sold and higher costs charged by vendors in the first half of 2023. Selling and marketing expense was $3.7 million for the first half of 2023 compared with $2.9 million for the first half of 2022. The increase was primarily attributable to higher trade show expense and headcount costs, partially upset by lower commissions. General and administrative expense was $2.9 million for the first half of 2023, compared with $2.4 million for the first half of 2022. The increase was primarily due to higher professional fees, offset by a reduction in insurance expense.
Research and development expense was $1.9 million for the first half of 2023, compared with $1.6 million for the first half of 2022. The increase was mostly due to expenses related to the development of a drug delivery system for aesthetic use. We expect to complete this project by the end of the year. Other income of $0.5 million for the first half of 2023 was related to interest income. Other income of $12.8 million for the first half of 2022 was related to the gain on the sale of a non-core asset. Net loss for the first half of 2023 was $2.3 million, or $0.14 per share, and this compares with net income of $19.6 million, or $1.17 per diluted share for the first half of 2022. Net income for the 2022 period includes a $12.8 million gain on the sale of a non-core asset.
Adjusted EBITDA for the first half of 2023 was negative $3.7 million compared with a positive $21.5 million for the first half of 2022. Turning now to our balance sheet. Cash and cash equivalents as of June 30, 2023 were $20.1 million, down from $25.5 million as of December 31, 2022, and up from $19.3 million as of March 31, 2023. The company had no outstanding borrowings under its revolving line of credit as of June 30, 2023, or December 31, 2022. We continue to prepare for the growth ambition. Specifically, we are building finished goods inventory and preparing for materials, in part to get ahead of any inflationary prices increases. Inventory stood at $10.1 million at the end of the second quarter, up from $6.3 million at the end of Q1, and up from $3.5 million as of December 31, 2022.
Pre-pay and other current assets were $8.1 million versus $10.7 million as of March 31, 2023, and $6.9 million as of December 31, 2022. Our cash spend is very focused and is intended to support our ability to achieve our long-term goals. Nevertheless, our balance sheet continues to position us well to take advantage of the compelling growth opportunities we may come across. As a final comment, please see the table in the news release we issued earlier today for our consideration of GAAP to non-GAAP financial measures. With that, I'll turn the call back over to Joe.
A -Joseph Sardano: Thanks, Javier and Michael. SRT treatments surpassed $480,000 in the last two years alone, and the ROI for our premium SRT system under our fair market value leasing program continues to be compelling. Interest in SRT remains high. We expect to ship at least 60 SRT systems during 2023 and return to profitability in the second half of the year. Clinical results in treating non-melanoma skin cancer non-invasively are excellent with published studies showing that SRT is as good or better than most surgery. This should be reason enough to choose SRT. Add to the fact that most procedures can leave scars and raise the risk of infection and the fact that our reimbursement is so much higher than it was two years ago, while most surgery reimbursement has come down, and SRT becomes the clear choice.
We are very excited to be working on making this choice even easier. As a final topic before we take your questions, I want to add that our new lasers have the Sentinel IT solution capabilities embedded in them, including all six of our Sensus-branded aesthetic smart lasers and our transdermal drug delivery system. This system will, for example, allow PRP to be applied to the scalp in a pain-free hair restoration experience. In addition, posters have already been presented on the application for hyperhidrosis or overactive sweat glands. We expect this device to be cleared by the FDA by the end of the year. Our transdermal drug delivery system has drawn interest from many pharmaceutical companies looking to provide patients with a pain-free experience.
We are still in the early stages of tapping the enormous market opportunity for SRT. Our systems are well positioned in a large and largely untapped market. They provide a compelling alternative to surgery for millions of patients and arguably the only solution to prevent the recurrence of keloids following surgical excision. As an overlay to all this, an estimated one in five Americans will develop skin cancer during their lifetime. This tells us that nearly 70 million people will have non-melanoma skin cancer. So clearly, there's a need for our SRT systems both now and even more so in the future. We're confident that Sensus is positioned for success despite the challenges we faced in February. We have a great staff to drive growth and implement our strategies, which is why we have built inventory to meet the expected demand.
Make no mistake about our enthusiasm and excitement for our technology and our future. Our technology treats skin cancer as well or better than surgery, while we treat keloids better than anything else. With those comments, I thank you for your time and attention. And now, operator, we're ready to take questions.
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