Good afternoon and welcome to the Sensus Healthcare Third Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask question. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kim Golodetz. Please go ahead.

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 that these measures provide useful information for investors. It should not be considered 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 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 is 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 unit 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 have asked about them 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 of radiation equipment for other manufacturers. And we are thrilled that they have found success with the SRT-100 Vision product.…

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 or $0.70 per 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…

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.

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Andrew D'Silva of B. Riley FBR. Please go ahead.

Good afternoon and thanks for taking my questions. 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 nine months. And then, did I hear you correctly? Did you actually recognize revenue from three laser systems during the quarter or is that the revenue going to be recognized essentially next quarter?

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

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?

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.

Great. 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?

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.

Okay, great. And just 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 one G-code or possibly up to as many as three I believe. Would one be better for you or would three? And then, as longer-term, when they actually reset the CPT 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?

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 one and three 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 one to three 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.

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

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 three quarters of the year, which I expect will be reduced going forward.

Got it. That's understandable. Thank you very much, and congrats on the quarter, and good luck as you close out the year.

Thank you, Andy.

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

Hey, guys, congrats on the quarter and thanks for taking my questions.

Thank you, David.

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 it was requesting some input from a number of 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?

Yeah. 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 ASTRO. 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 that 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.

Excellent. 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?

Yes, I mean, 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 either top one or two 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 three biggest hospitals out of nine 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 six to 18 months 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…

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?

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 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,…

Excellent. Well, thanks for taking my questions and congrats again on the quarter.

Thanks, David.

Our next question comes from Anthony Vendetti of Maxim Group. Please go ahead.

Thanks. Good afternoon, Joe. Good afternoon, Arthur.

Thank you, Anthony. How are you?

Yeah, good. 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?

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 skill sets 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 skill sets. So we now have three 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 to work. And I think we're going to be able to deliver something totally different than exists today.

Okay, great. Thanks. And just a - two last follow-ups, one is on the - just an update on the CFDA process for the SRT-100 Vision.

Yeah. It's still in 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 product.

Sure, makes sense. And then, just last on the sale rep side, you have 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?

Yeah, 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 December 1. I think as we get closer to an FDA clearance for a new family of lasers, which we 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 in 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.

Okay, great. I'll hop back in the queue. Thanks.

All right. Thanks, Anthony.

Our next question comes from Suraj Kalia of Northland Securities. Please go ahead.

Good afternoon, Joe. Good afternoon, Art. How are you?

Hi, Suraj. How are you?

Good, gentlemen. So, Joe, a bunch of questions, what was the - forgive me if I missed this - the U.S. OUS [ph] distribution, was it just 15:3 or was there another mix?

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.

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

Yes, they were.

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 did…

Arthur, I'll let you answer this.

It's approximately in that range.

Got it. 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?

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.

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

Correct, correct.

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, Joe, 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 [Lenax] [ph], right, the 6-megavolt [Lenax] [ph], there is a method to the madness, defining tumor boundaries. There is a preplanning, pretreatment protocol. The radiation physicists get involved. I mean, 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 all 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 data. I'm just curious if you can walk me through that would be great. Thank you for taking my questions.

Sure. 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, said that they would be able to do, based on the technology that they have. So you don't have an understanding of the technology. I think if you would - if we had an opportunity to discuss the technology or if 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 two 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 great - 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 are technologies - or 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 product 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 tissues 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.

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

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.

Got it. Gentlemen, thank you.

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

Hi, Joe. Thank you for taking…

Hi, how are you?

I'm good. This is Karthik on for Yi. So, can you perhaps elaborate on why the average selling price was lower in the third quarter?

Well, the - I mean, the average selling price you're looking at, the difference in the margin of 65.8% versus 67.1%, right, that's what you're asking about?

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

Right.

Yeah, okay. Well, 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 in 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 a - 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 been fluctuating 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 good and versus SRT-100, as well as other factors that are related to the cost of sales. So both the ASP - and we consider both the ASP and the gross margin percentages to be excellent for our type of company.

Hello?

[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.

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 cleaning up - or gearing up for a one-on-one meeting with investors in San Francisco during the J.P. Morgan 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.

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