Good day, ladies and gentlemen, and welcome to the Sensus Healthcare Financial Results Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Ms. Kim Golodetz. Ma’am, the floor is yours.

Thank you. And 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 Javier Rampolla, our Chief Financial Officer. As a reminder, some of the matters that will be discussed during today’s call contain forward-looking statements within the meaning of federal securities laws. All statements other than historical facts that address activity 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 the continuation and severity of the COVID-19 pandemic and its impact on sales and marketing, as described in the company’s Forms 10-K and 10-Q. During today’s call, there will also be reference to certain non-GAAP financial measures. Sensus believes these measures provide useful information for investors that 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 good afternoon, everyone. I hope all is well as the COVID pandemic continues to impact our health and our economy. As we expected and stated at our last earnings call, our quarterly revenues continued to be negatively impacted by COVID-19 with Q2 revenues down sharply to $1.2 million from $7.5 million a year ago. While these are disappointing numbers, we are doing all we can to position Sensus for significant future growth as evidenced by the announcements we’ve made over the past few weeks. I continue to be pleased with our ability to maintain strong customer ties during the pandemic through various virtual offerings and with our judicious conservation of cash and a relentless focus on expense reduction. So we’ve had some exciting recent news that bodes well for the future of Sensus. Earlier this week, we announced the acquisition of two mobile laser companies that serve the state of Florida. Aesthetic Mobile Laser Services serves Southeast and Southwest Florida and Aesthetic Laser Partners serves Central and Northern Florida. Each of these companies has been in business for more than two decades and both have a high level of customer trust and satisfaction. Together, they have approximately 30 lasers and six vans and service more than 150 dermatology practices in Florida, including more than 500 dermatologists who are not current Sensus customers. Their lasers facilitate a wide range of in-office aesthetic dermatology procedures, including facial rejuvenation, wrinkle removal, body sculpting and fat removal, among others. Customers can rent the lasers for a choice of time frames, ranging for as little as one day to several days, weeks and even months. These lasers roll off the van into the dermatology office and then back into the van onto the next customer. Both of these acquired companies are…

Thanks, Joe. It’s a pleasure to be speaking with all of you this afternoon. Revenues for the second quarter of 2020 were $1.2 million compared with $7.5 million for the second quarter of 2019. As you are aware, revenues were heavily impacted by lower unit sales throughout the quarter due to the COVID-19 pandemic. Revenues were largely derived from service contracts. Gross profit for the second quarter of 2020 was $0.6 million or 54.1% of revenue compared with $4.9 million or 66.1% of revenue for the second quarter of 2019. The decrease in gross profit and gross margin are due to lower revenues. Selling and marketing expense for the second quarter of 2020 was $1.2 million compared with $2 million for the second quarter of 2019. The decrease was primarily attributable to cancellation of trade shows due to COVID-19, a decrease in commission expense due to lower sales and reduced spending on marketing activities. General and administrative expense for the second quarter of 2020 was $0.9 million compared with $1 million for the second quarter of 2019. The decrease was primarily due to a reduction in headcount. Our G&A expense going forward is expected to be around $1.1 million per quarter. Research and development expense for the second quarter of 2020 was $1.1 million compared with $1.9 million for the second quarter of 2019. The decrease was primarily due to a reduction in expenses related to development of the Sculptura system. Net loss for the second quarter of 2020 was $2.6 million or $0.16 per share compared with net income of $0.1 million or $0.01 per diluted share for the second quarter of 2019. Adjusted EBITDA, defined as earnings before interest, taxes, depreciation, amortization and stock compensation expense was negative $2.3 million for the second quarter of 2020 compared with…

Thank you, Javier. We share the disappointment and frustration of many other companies that were suddenly impacted by COVID-19. But I believe we are navigating the pandemic to the best of our abilities, and I congratulate the Sensus team for their focus on our customers. We expect a better financial performance in the second half of 2020 and look forward to an excellent 2021 with higher reimbursement amounts for SRT, increased work with Sculptura and commercial sales and the contribution from our newly acquired company SLAS. As a reminder, our products have enormous room to grow. Our SRT systems are well positioned in a large market consisting of some 14,000 dermatologists and 1,000 Mohs surgeons in the U.S., representing more than 7,500 offices and growing. Not to mention a further 6,500 plastic surgeons and 5,500 radiation oncologists. We provide a compelling and alternative to surgery for millions of patients and arguably the only solution for the treatment of keloids. In addition, a five-year retrospective study with SRT showed a cure rate of 98.9%, which exceeds the Mohs cure rate for non-melanoma skin cancer. The market for keloid treatment with SRT is growing and has the data to back it up with the study showing only a 3% recurrence rate after treating keloids with SRT. With an installed base of 473 units, we’ve barely scratched the surface. And with more Mohs surgeons turning to SRT to treat their patients during the time of COVID-19 and most likely afterwards, we believe many of them will even more – will be more convinced of the benefits. With those comments, I’d like to thank you for your time and attention. And now operator, we’re ready to take questions.

Thank you. [Operator Instructions] We will go first to Alex Nowak at Craig-Hallum Capital Group.

Great. Good afternoon everyone. This is Will Fafinski in for Alex. I hope you are all well, and thanks for taking our questions. Joe, just to start, I appreciate the reimbursement comments. Can you just walk us through what happened with the physician fee schedule? What is the protocol with the RUC committee? How far apart are you and CMS? And just what can be done from now until November to have that final decision be in your favor?

Thanks for the question, Will, I appreciate it. First of all, let me say that we’re not far apart with CMS at all. I think that we’re working very, very closely with CMS. And I think that they’re being very cooperative, and I think they understand exactly where we need to be. So they ask for some questions based on the submission by the RUC to the AMA. And one of the questions – I mean the questions are very simple. We want to provide the support to the RUC committee so that they have all of the answers. And so I think that they’re just looking at clarification on some things, is it a delay? Yes. But again, with the government, anything can happen, and we’ll get those questions answered promptly. And I think that we’ll continue to move towards an upward trend in our reimbursement. I think they’re only answering those questions because they want to help us get to where we need to be.

Got it. Understood. Appreciate the color there. And then could you just speak to what your customers’ capital budgets look like right now as we sit in early August? And just what their appetite is for adopting new technology just generally?

Well, I think in the dermatology space, we’re looking at doctors. We still have a healthy prospect with. And I think that we’ll see some results sometime in the fourth quarter, there was a survey that was conducted by a very reliable and reputable group on dermatology practices. It was conducted over 1,000 dermatology practices, which identified the times that they were closed, the amount of money that they lost and when they will – they should be back to about 90% of their workload. And they predicted that sometime in October, that’s when it was going to take place. Now our own surveys with our own customers indicated pretty much the exact same thing. So we’re expecting the fourth quarter to rebound, perhaps not in the same fashion that we’re expecting. But certainly, we’re going to see some rebounds. And I’m going to reflect upon the first – the end of the fourth quarter when we were looking at targeting the year as profits and starting the company off with some great programs. We mentioned at that time, that we’re just waiting to get 2020 out of the way because we felt that 2021 was going to be a year with increased reimbursements and such for our customers. And so we didn’t expect at that time that a pandemic was going to come around like it has. But those words seem to be more compelling at this time than they ever did. I think everybody wants and wishes for 2020 to get over with. We were as anxious to get 2020 started, but we felt that 2021 was our year and we were looking at being profitable in 2020. And unfortunately, this has come around. But based on the processes of Javier and his financial team as well as all of the department heads within the company, I think everybody has done a very, very good job to preserve our cash. I mean it’s hard to fathom that after the end of the second quarter, we have more cash in the bank than we did after the end of 2019, especially with this pandemic. So I think it’s all due to the cost-cutting efforts by every manager in the company. And I think that we recognize that we have an opportunity beyond this period, and that’s where we want to be.

Great. No, that’s good to hear. One more for me and then I’ll hop back in queue. But several weeks back, there was an unsolicited offer to purchase the company. I understand you’re probably limited in what you can say here, but is there any update or any new details that you can share?

Nothing, nothing to report.

Understood. Thanks for taking the questions.

Thank you.

We’ll go next with Scott Henry at ROTH Capital.

Thank you and good afternoon. I’ve got a couple of questions. First, did you give unit numbers for the quarter? I recognize they’re going to be small, but I didn’t hear if you gave them or if you...

Yes. So quite frankly – Scott, thanks for being on the line, and they weren’t given because there weren’t any new numbers. The entire revenue base for this quarter was based on service.

Okay. Okay. And then could you talk about – and I don’t know if you can because – I mean obviously, if you didn’t have any volume in 2Q. But are you seeing any month-to-month trends? How did July look relative to June, early August? Any trends that would maybe signal where the bottom is?

Yes. I mean the trends are pretty evident. We’re seeing a lot more interest. And as a matter of fact, in July, we started seeing the practices opening up for our salespeople to actually visit the centers so that we can make presentations and so on. So I think that the doors are opening gradually, but they’re opening, and I think it trends to a good second half. When I say good second half, comparable to the first half.

You do expect – I mean obviously, it’s not going to get worse than zero, but you do expect perhaps Q3 and Q4 to look better than Q1, I should say?

Yes. Q3 and Q4 should look better than Q1 and Q2. And I remember, after Q1, people asked – or there was a question that came up that said, trying to get me on guidance and things like that. What does Q2 look like? And I said, I don’t think anybody can predict what Q2 or Q3 is going to bring. But I said, why don’t we start at zero and every penny above that, we’ll be very, very happy for it. So are we happy with $1.2 million? No, but that’s what we’ve got. And we’re facing something that we’ve never faced before, and we’re going to work our way through that. And I only thank our team and everybody within the organization that has stepped up in finding ways to cut costs. And quite frankly, we started that from day one. We just accelerated once the pandemic started.

Okay. And then kind of a follow-up on that reimbursement question. Could you talk about where the reimbursement level is today and where it could go? So if you get a sense of how important any of these changes may be in driving the business?

Sure. I mean we did get some very, very positive news and indications from CMS. In that they did announce E&M codes last year, we were allowed to use and E&M codes for each and every time a patient walked into the office for a treatment. So we know that on average, they’re receiving about 14 treatments. So the E&M codes went from $74 to $96 for reimbursement for each one of those visits, which is an approximate 30% increase. So that’s something that the doctors will relish when they start using those codes for reimbursement beginning in the 1st of January 2021. With that, we fully expect an uptick on the reimbursement for our name code, which is 77401, and we don’t know where that’s going to be. We have no indications where that’s going to be. But the indication is that CMS has asked the questions that maybe there were some blanks or maybe there were some misunderstanding or whatever, but they’re asking for information related to that. And we’re going to provide them with the information. It’s not that it’s difficult information, they’re just asking for the information. With that, we expect that they’ll continue to move forward and continue to provide an increase in the reimbursement. And I have to go back to the fact that this code has not been revalued since 2002. And by statute, they have to revalue it every five years. And three years ago, the CMS folks asked the RUC to reevaluate it. Well, it was revalued in January. It was submitted to the AMA. It was submitted to the CMS folks. And so now we’re getting a question or two that says, can you verify it or can you quantify this, and we’ll provide them with that information. They’re not hard questions. They’re very easy and they’re simply for clarification.

Okay. And the final question, the mobile laser acquisition, I guess, two things. One, did you disclose how much you paid for that anywhere? And second, what’s the driver? I mean why do you want to get in that business? Is it to leverage it into your current business? It just seems so kind of different – it’s a different skill set than what you typically do. So, I’m just trying to understand, I mean, $1 million a year in revenues for the amount of time you may spend on it may be a tough trade-off, but there might be some other reasons. But I just want to get your sense behind that decision.

Sure. First of all, this is – these are companies that we’ve known for quite a long time. And they have an excellent reputation with some of our customers, but they bring to the table a whole slew of customers that we’re not serving. So to make – to add 150-plus new customers to our base in the state of Florida of 90 customers already makes it quite compelling. So now they’re all in the same space. We’re all in the same segment, and it just gives us a whole lot more opportunities to service a whole lot more accounts. On the other hand, we’re fully expecting to introduce a new line of lasers, which we’ve been talking about for the last couple of years in the fourth quarter, first quarter of 2021. And so we’re excited to bring those lasers. And part of the reason goes back to the fact that over the last several years, a lot of our customers have said, “We really like working with Sensus. We wish that you could sell us other products because we want to work with you for other products.” And we said, “So what other products would you like us to serve?” And they said, “Well, number one, we would like for you to sell us laser products.” “Okay. Why laser products?” They said, “You haven’t heard?” And we said, “No, what’s the story?” They said, “How do you get rid of a laser salesman?” That’s the big joke in the laser land. And they said, “Buy one and then you never see the salesperson again.” And the fact of the matter is we consistently stay with our customers. We hold their hands. We help them build their businesses. We’re very interested in their success, and we work very hard…

Okay. Thanks for that color, Joe, and thanks for the taking the multiple questions. Appreciate it.

Thank you, Scott.

[Operator Instructions] We’ll go next to James Terwilliger at Northland Capital Markets.

Hey Joe, can you hear me?

I certainly can, James. How are you?

I’m doing okay. How are you?

Good.

I’ve got a couple of quick questions. First of all, let’s – I’m going to build on what the previous analyst said. In this acquisition, and maybe I’m misinterpreting the press release, it says over 150-plus dermatology practices in Florida alone. Are there other states as well? Or how – what the...

This is just – they just service Florida.

Okay. Just Florida. Okay. And then secondly, it says 500 dermatologists who are not current Sensus customers, but they’re doing 150 dermatology practices. What’s the total doctor base? Can you share that with me? Because if I’m reading this correctly – go ahead, please.

When you’re – well, you got 150 practices, there’s – a lot of those practices that have more than one dermatologist. So it totals about 500 dermatologists in their 150 practices. And so in the state of Florida, there’s a few thousand dermatologists. It’s a big market with a lot of dermatologists within the state. So we go from our 90 practices that represent about 300, 400 physicians that use our equipment in the state to now about 150. The exact number in the state of Florida is 1,568 dermatologists. So we’re approximately now in over 1/3 of the dermatology practices in the state of Florida.

No, perfect. That’s what I was trying to get to was looking at not just the installed base but the potential installed base. So I’m going to pivot here a little bit and go to the international markets. So I thought it was very encouraging to get ahead of business development, especially now with what’s happened here in the United States to maybe pivot a little focus towards the international markets. Already sold a machine into China? How much – just remind me, please, what is your current – in a normalized market, not under COVID, but what’s your current percentage of revenue that is international? And in the press release, you do talk about additional orders coming from China in 2020, 2021? Can you expand on that at all?

Yes. The – our existing population in – outside of the United States is about 10% of our overall installation base. And I would tell you that about 75% of that installation base outside the U.S. is in China. We have approximately 30 units in China itself. And now we’re expanding into Vietnam, Taiwan, Korea and a few other places. And over the last six months, during the COVID pandemic, China seems to be coming out of it very, very soon based on the feedback that we were getting. And so we felt that there was an opportunity to start selling in China based on that opportunity. And it came up to us that we were able to hire this individual away from – he worked with Fosun, which is almost a $200 billion public company on the Hong Kong exchange, and for their distribution partner, Chindex, which they wholly own. And so he was working with them for the last 16 years. And just in talking to him after working with them for the last eight years throughout being on the other side of the fence, found out that he was vulnerable, and we felt that he was a very unique skilled individual who we wanted to bring on board. And we started talking and he accepted. So his communication in China, because he’s perfectly bilingual and speaks Chinese, has allowed us to have better communications, and we were able to take advantage of the early out, if you will, or the early recovery of COVID in China, and it still doesn’t take away the fact that people need to be treated for their keloids as well as their scarring and the other scarring as well as the skin cancer. So this unit went to a scarring institute, which is a beautiful facility right in the town, unfortunately, to be said, where we closed down our embassy. So it’s in a very visible place, very highlight visibly. And so we’re excited, and we think, based on the feedback and the prospects that we have, that we could see additional business in China before the end of the year and well into next year.

Okay. And then my last question, and I know you don’t want to give guidance. And clearly, I don’t want to push you. But you did a much better job than what I would have thought with my model in terms of managing expenses, and it’s extremely impressive that you actually increased your cash balance during this time. In your press release, you say G&A can kind of run at this level. I would think R&D could quasi be at this level now that Sculptura is gone, but I’m sure you’ve got other things there like the laser business. Should sales and marketing – how should we think of sales and marketing? Because that number came much lower than what I was looking for. And I wouldn’t think that’s going to take off until some of the restrictions are taking off as well. So, I don’t want you to give any guidance, but should R&D be at this level and should sales and marketing stay here? But I know sales and marketing should gradually be trending up as things open up. Any color you could provide would be fantastic for me.

James, this is Javier. So basically, on the G&A, we had a very good decrease of the G&A. I think it’s going to be maintained – I’m sorry, sales and marketing. Sales and marketing is going to be reduced practically in Q2 because of the sales, it’s directly related to sales. So the less sales that we have and the less participation in the threshold, it’s going to reduce the sales and marketing. On the – on R&D, we still have some projects that we’re working on, especially also with the laser. So it will maintain probably the level through the end of the year.

Okay. Fantastic. That’s kind of what I thought, but you did a really nice job on expense control. There’s nothing you can do about it, COVID, and you did a very nice job with conserving cash and generating cash.

I want to further that James to you because it was a very, very good question. Javier answered the expense side of it. And I think that we have that under control pretty much between now and the end of the year, and it’s not going to be reflective on sales or marketing. But in sales and marketing, listen, we wish that we had 10x more expenses on sales – on the sales and marketing piece because we’d have the sales to go with it, therefore, the revenue to go with it. But a lot of our business and presentations had to be conducted via Zoom. But now we’re starting to see action where the doors are opening up, and the doctors are asking us to come in for those presentations. So, I would suspect that the sales and marketing expense will go up slightly in Q3 and might get to normal numbers in Q4. And so that part of the business, I think, will benefit, and we’ll see an increase there, but I think we’ll see an increase in revenues as well.

Okay. Fantastic. Thank you very much for taking my questions. And I think it’s a good quarter under difficult conditions. Take care Joe, take care team.

Thank you. Appreciate it.

[Operator Instructions] We’ll go lastly to Yi Chen at H.C. Wainwright.

This is Boobalan dialing in for Yi Chen. Thanks for taking my question. I wanted to start off by hearing your views on the current status of dermatology practice reopening across the country.

Yes. As I stated earlier, the study that was done by an independent group, a very reputable group of 1,000 dermatology practices showed that during the closures of the practices, the accounts, on average, lost about $350,000 per practice, which represented about $3.2 billion in revenue loss by dermatologists during their closure. So in the second half, most of these doctors, if not all, of dermatologists are very, very good business people as well because they run a practice and they know how to make money. They don’t like losing money. So, what we’re seeing is an acceleration in a lot of the aesthetics business. You have a lot of people out there that were used to going to the doctors for their BOTOX, for their fillers, they want to get rid of their wrinkles, they want to do something different. And so that is a very quick way, fast way of earning cash in those practices. On the other side, we also saw, with most surgery practices, SRT is an excellent complement because the SRT was something that was used during the pandemic and still is being used during the pandemic because the profile of patient for COVID is exactly the same patient profile that we have for skin cancer patients. They’re over 65, they have hypertension, they’re on beta blockers, they’re diabetics. They have all the same preexisting conditions. So based on that, prior to the closure, doctors – most surgeons were saying, look, we’re not going to do most surgery. We have to hold off on two or three months. But the people that have the SRT, the most surgeons that have the SRT continued to treat those patients until their protocols were complete. So it proved to them as well as others that SRT is something that can go through any pandemic or any type of a situation. So, I think that as we’re looking in the future, when a patient is – has skin cancer, you’re not going to see a room filled with 10 patients waiting for their surgical procedure because the processes they go in and out of the rooms on a regular basis. I think because of social distancing, we’re going to see fewer patients being treated with Mohs and the potential of more patients being treated with SRT. And this revelation to a lot of the practices out there are going to say, look, we want SRT and we feel that with the combination of an increase in reimbursement for SRT and a decrease in Mohs that, that combination will bring more attention to SRT and help us with our sales.

And do you think the ASTRO recommendations would likely drive the market adoption of the SRT systems in the near-term? Is there – is it possible to quantify a little bit? I know it’s difficult, but...

No. I mean here’s what I would say – and because that’s a very, very good question as well. We know that ASTRO is one of the biggest and most powerful societies in all of health care. They’re very much at the forefront of technologies. They’re very much at the forefront of the political system as well. The first 30 to 50 systems that we have installed within the company when we first started are all in hospital settings. And so they’re all under the supervision of radiation oncologists. So they recognize SRT as being the best way and the best radiation to treat skin cancer. I think with ASTRO’s revelation and comments regarding this type of radiation being the best way to treat skin cancer is identifying that skin cancer is an opportunity for them. And I think the follow up with the ASRT [ph] people regarding the credits – the CEU credits for people who are getting trained by our system is a reflection on the good training that we provide, but also that it’s worthy of receiving CEU credits for the operators of the equipment. So, I would tend to think that with the decline there is – they also announced that there was a 6% cut in all of the reimbursement across the board on all the other cancers. So with an advance or an uptick in our reimbursement, I think that we’re going to start to see the radiation oncologists looking more deeply into the opportunity of treating skin cancer. Because it is a big market, it’s much bigger than the markets they serve currently, might not be the same money, but return on investment percentage-wise, it’s a much better return on their investment. So, I think we’re going to start seeing some activity in that area.

All right. One final one from me. So you mentioned about the Florida mobile is [indiscernible] companies. So are these companies currently open for business despite COVID-19? And do you plan to acquire additional dermatology practices in other states?

Thank you again for the question. They are open and they are currently doing business, and I think that they’re extremely busy with their units in scheduling that business because like I said before, doctors are looking for ways to recuperate the losses that they had when they were closed. So, I think we’re going to see a much better streak, if you will, in the second half of the year with this – with these services, so that is great. As far as acquiring other businesses like that, we’re not acquiring dermatology practices, we’re acquiring services to dermatology practices. We see that trend in other parts of the country as well. And so if like the private equity firms are rolling up derm practices, we think that rolling up these services with laser services is also an opportunity for us because they’re local operators that are doing very, very good business with very high margins. So we think that, that is an opportunity for census as well. And it provides us an opportunity to integrate our own lasers when they become available at the end of the year.

Thank you. And with no other questions holding, I will turn the conference back to management for any additional or closing comments.

Thank you, Jess. Appreciate it. So in closing, I want to thank you once again for your time this afternoon and for your interest in Sensus. We continue to move forward on multiple fronts in spite of the pandemic and are optimistic about our prospects when we return to a more typical business pattern. Thanks again. Have a good day and be safe. Thank you.

Ladies and gentlemen, that will conclude today’s call. We thank you for your participation. You may disconnect at this time, and have a great day.