Sensus Healthcare, Inc. (NASDAQ:SRTS) Q4 2022 Earnings Call Transcript

Sensus Healthcare, Inc. (NASDAQ:SRTS) Q4 2022 Earnings Call Transcript February 9, 2023

Operator: Welcome to the Sensus Healthcare Fourth Quarter 2022 Earnings Conference Call. . Please also note that this event is being recorded today. I would now like to turn the conference over to Kim 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 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 as of the date of this conference call, February 9, 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 conference 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. I address you today with the highest of confidence that Sensus Healthcare is better positioned today than ever before in our history with all the pieces in place for even greater execution of our business plan. We believe our superficial radiation therapy technology remains the #1 choice for noninvasive treatment of skin cancer by both physicians and patients. Our improved reimbursement, combined with our fair market value lease program, provides our customers with an excellent patient acquisition tool, making the acquisition of our lead technology and easy transplant. Our new and improved high-resolution ultrasound technology provides see-and-treat capability, which leads to great outcomes and patient reassurances.

During the fourth quarter and throughout 2022, we strategically executed delivering strong revenue and profits. Importantly, we also took a number of steps to position Sensus for future success. These included assembling the staff and strategies to drive exceptional growth, building inventory, developing new aesthetic products that are anticipated to receive FDA clearance in the latter half of 2023, further investing in our Sentinel IT solutions capability and increasing sales and marketing programs, headcount and capabilities. As we’ve been saying for some time, with better reimbursement of superficial radiation therapy for non-melanoma skin cancer and lower reimbursement for Mohs surgery along with data suggesting that 1 in 5 Americans will develop skin cancer, we have powerful tailwinds to support our programs.

Recall that in January ’21, our SRT therapy received improved reimbursement from the centers for Medicare and Medicaid services when they revalued our main code upwards by 66% for a course of SRT in non-melanoma skin cancer. In addition, ancillary codes received a double-digit boost. We continue to capitalize on these reimbursement changes, and more and more practitioners are recognizing SRT as a best practice for the noninvasive treatment of non-melanoma skin cancer. Our rigorous physician education program, highlighting the improved return on investment for SRT is ongoing, especially at dermatology conferences and trade shows. In fact, this weekend at the important South Beach Symposium in Miami, a key opinion leader, Dr. Michael Gold, will be discussing SRT and its benefits.

This will be followed up 2 weeks later at the Winter Clinical Conference in Miami by another key opinion leader, Dr. Mark Nestor. We recently launched important upgrades to this system, including new state-of-the-art, solid-state, high-frequency ultrasound, which provides the industry’s best view of the epidermis and utilizes a new ergonomic design probe with single-use disposables. This upgrade system is garnering interest among physicians and the SRT-100 Vision has become our leading SRT product. The fair market value lease program we launched earlier last year continues to support purchases of our feature-rich SRT-100 Vision system, and its percentage of system sales continues to increase. While we are maintaining focus on our core dermatology business and providing products our customers need and want, radiation oncology is another important avenue for growth.

We’re gaining awareness among radiation oncologists and recently sold an SRT-100+ system to a large luminary hospital in the Northeast. And with that overview, I’d like to turn the call over to Michael Sardano for a bit more color on the quarter.

Michael Sardano: Thanks, Joe. We’ve been executing extremely well as evidenced by record high revenues for both the fourth quarter and the full year. We expect continued top line momentum in 2023 and beyond from our unique line of superficial radiation therapy devices, which will continue to lead our revenue growth throughout the coming years. We expect the recently acquired aesthetic devices to materially add to our revenue in the latter part of 2023 as we advance through the regulatory process. Additionally, we now have a dedicated and experienced aesthetic sales professional to manage this part of our business. During the fourth quarter, we shipped 36 SRT units, of which 27 were the SRT-100 Vision. Despite higher interest rates, our fair market value lease program continues to draw interest as an efficient way to acquire our devices.

Our international business is also doing well as we shipped a record 16 units during the 2022 and 6 during the fourth quarter, most of which went to Asia. We are concentrating on opening new markets in Latin America, Australia and the EU. So we have enormous potential outside the United States. With that, I’ll turn the call over to Javier Rampolla for a discussion of our financial results.

Photo by Christopher Boswell on Unsplash

Javier Rampolla: Thanks, Michael. It is a pleasure to be speaking with all of you this afternoon. Our revenues for the fourth quarter of 2022 were $13.1 million and this compares with revenues of $13 million for the fourth quarter of 2021. Gross profit for the fourth quarter of 2022 was $8.4 million or 63.7% of revenue compared with $8.9 million or 68% of revenues for the fourth quarter of 2021. The decrease was primarily driven by the higher manufacturing costs in 2022, all due to inflationary pressures, yet our gross margin remains in our target range of the mid-6s percentage. Selling and marketing expense for the fourth quarter of 2022 was $1.6 million compared with $1.3 million for the fourth quarter of 2021. The increase was attributable to higher advertising expense and higher compensation expense due to increased headcount.

General and administrative expense for the fourth quarter of 2022 was $1.4 million compared with $1.1 million for the fourth quarter of 2021. The increase was primarily due to higher professional fees along with higher compensation and bad debt expense. Research and development expense for the fourth quarter of 2022 was $1.2 million, unchanged from the current year quarter. We expect R&D expense to remain at this general level each quarter of 2023. We recorded a provision for income tax in the fourth quarter of 2022 of $1.6 million as we had no such provision in the fourth quarter of last year. Net income for the fourth quarter of 2022 was $2.8 million or $0.17 per diluted share and this compares with net income of $5.3 million or $0.32 per diluted share for the fourth quarter of 2021.

The decline was largely attributable to the income tax in 2022, and to a lesser extent, increase in cost of goods. Adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, amortization and stock compensation expense was $4.3 million for the 2022 fourth quarter compared with $5.6 million a year ago. Turning briefly to full year financial results. Revenues for 2022 were $44.5 million compared with $27 million for 2021. The 65% increase was driven by a higher number of unit sold in 2022 due to the increase in demand. Cost of sales for 2022 were $14.9 million compared with $10.1 million for 2021, with an increase reflecting the higher number of units sold. Gross profit for 2022 was $29.6 million or 66.5% of revenue compared with $17 million or 62.8% of revenue for 2021.

The increases were driven by a higher number of units sold in 2022 and service revenue on installed units. Selling and marketing expense for 2022 was $6.3 million compared with $4.8 million for 2021. The increase was primarily attributable to higher spending on marketing activities and increase in headcount. General and administrative expense for 2022 was $5 million compared with $4.6 million for 2021. The increase was primarily due to higher compensation and bad debt expense. Research and development expense for 2022 was $3.5 million compared with $3.4 million for 2021. As I just indicated, we expect R&D expense in 2023 to be generally consistent with 2022. The company reported other income for 2022 of $13.2 million compared with $0.01 million for 2021.

The increase was mostly related to a gain on the sale of a noncore asset. Net income for 2022 was $24.2 million or $1.46 per diluted share compared with $4.1 million or $0.25 per diluted share in 2021. Net income for 2022, excluding a gain on the sale of a noncore asset, was $11.5 million or $0.69 per diluted share. Adjusted EBITDA for 2022 was $28.1 million compared with $5.1 million for 2021. Turning now to our balance sheet. Cash and cash equivalents were $25.5 million as of December 31, 2022, compared with $14.5 million as of December 31, 2021. The company had no outstanding borrowings under its revolving line of credit as of December 31, 2022 or 2021. In preparation for the future growth , we placed orders for inventories. We stood at $3.5 million in inventory and $6.3 million in prepaid as of December 31, 2022, up from $1.8 million in inventory and $1.9 million in prepaid a year ago.

Accounts receivables were $17.3 million, up from $12.1 million on December 31, 2021, reflecting the increase in sales. I’ll underscore what we have been saying for some time. Our attention to expense management is front and center, and we continue to be in a stronger financial position in the company’s history. Our balance sheet positions us well to take advantage of the compelling growth opportunity we may come across. As a final comment, please see the table in the news release we issued earlier today for a reconciliation of GAAP to non-GAAP financial measures. With that, I’ll turn the call back over to Joe.

Joseph Sardano: Thanks, Javier and Michael. As Javier just said, Sensus Healthcare has never been in a better position to meet the challenges of the future. We are well capitalized and have business momentum. In addition, we’re very excited about the portfolio lineup we have planned for later this year, and especially, in 2024, along with future enhancements to our SRT-100 Vision and Sentinel IT Solutions software. Sentinel is a proprietary HIPAA-compliant software solution and is available on all our new products. It allows physicians to easily and accurately document and store patient data for clinical billing and asset management purposes. This technology has been a game changer for our SRT customers and for Sensus as it clearly demonstrates the attractive ROI for the SRT-100 Vision and the SRT-100+ systems.

A priority focus for Sensus is expanding the capabilities and indications of our Sentinel technology. Under the leadership of our newly promoted Chief Technical Officer, we have already doubled the number of engineers at Sensus to 6 as we work to include artificial intelligence and diagnostic capabilities in Sentinel. I want to add that our new lasers, including all 6 of our Sensus-branded aesthetic smart lasers, will have the Sentinel IT Solutions capability embedded in them. In recent months, this portfolio has expanded to include silk diode laser, a truly portable laser with a lightweight handpiece, super cold cooling tip and the highly repetition ring. The ability to blend wavelengths while emitting light vertically towards the skin increases efficiency by maintaining the density of the laser in the selected area, resulting in deeper and better penetration and more homogeneous energy distribution.

Importantly, the laser is sensitive to all skin types, making this laser removal available to everyone. We have showcased Silk at the Fall Clinical and will also showcase the Laser this weekend in our booth at the annual South Beach Symposium. While we’re very excited about the potential of Silk, we’re also excited about the new lasers we plan to introduce later this year and early next year once cleared by the FDA. We have stepped up our marketing as well. We’re pleased with the early success of our new digital advertising initiatives to increase patient awareness of SRT. Our Facebook page remains very active as we work to engage the public. We will continue to increase our SEO activity, which is resulting in many more patients visiting our website to learn about SRT treatment.

Our SRT systems are well positioned in a large and largely untapped market consisting of some 14,000 dermatologists and 1,000 Mohs surgeons in the U.S., representing more than 8,500 offices, not to mention a further 6,500 plastic surgeons and 5,500 radiation oncologists. Our systems provide a compelling alternative to surgery for millions of patients and arguably, the only solution to prevent the recurrence of keloids following surgical excision. In addition, skin cancer is a large and growing condition with estimates that 1 in 5 Americans will develop skin cancer during their lifetime. This tells us that nearly 70 million people will contract non-melanoma skin cancer in this country. So clearly, this is a need for our SRT systems both now and even more so in the future.

In summary, we have our strongest team ever in place to support our growth with thoughtful programs, efficiency and leadership. We are deploying capital to invest in Sensus, deploying and bringing in new technologies and adding to our sales force. As evidence of our enthusiasm for our future, we repurchased $3 million of our common stock through a share buyback program. With those comments, I thank you for your time and attention. And now operator, we’re ready to take questions.

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Q&A Session

Operator: . And our first question here will come from Ben Haynor with Alliance Global Partners.

Benjamin Haynor: First off, for me, on the 510(k) submissions that are going in this year offer aesthetic products, should we think about those all as lasers? Or are there other 510(k)s that will be going in? And any color on conditions that those might treat outside of the laser submissions.

Joseph Sardano: Ben, thanks for being on. Good to hear in your voice, and I appreciate the question. It’s going to be a variety of aesthetic products that are going to be submitted to the FDA products that we’ve been able to acquire this technology, and we’re excited for that offering. But I would tell you that it’s going to be a variety of various aesthetic products that are going to be unique to the market that is going to have a very, very nice niche into the marketplace.

Benjamin Haynor: Okay. And do you plan to let investors know about those upon submission? Or do you wait till approval or launch?

Joseph Sardano: I think that we want to try to wait until we get to the launch period. And it’s going to make sense because as we go through this process of getting the equipment ready as it’s going through all of its testing with the various regulatory people and assembling all that data, we have to get that to the FDA, which could take a little bit of time. But we’re expecting to submit either by the end of the first quarter or the middle of the second quarter, and since their 510(k)s, they usually result in a 90-day approval process. But as we get closer to that, I would say that we would be able to announce it to the world as it works with progress sometime around the American Academy of Dermatology meeting.

Benjamin Haynor: Okay. So stay tuned. Got it. And then on the — congrats luminary on the Northeast radiation oncology. What are your thoughts on the kind of the sales cycle that these radiation oncology apartments will require and kind of initial level of interest? Any color you could provide there.

Joseph Sardano: Yes. The hospital market is a very difficult market, and I describe it as when they — when everybody at the hospital says, yes, we want to buy it, it could take up to 12 to 14 to 16 months, 18 months before you get a purchase order. So it’s a very long selling cycle. This — but we’re starting to see some hospitals that are requesting some quotes, if you will, for our system because there’s a lot more interest in that hospital market or in the radiation oncology market to get involved with skin cancer. And I think one of the reasons that we’re seeing that is that centers for Medicare and Medicaid services are working hard to reduce reimbursement in other areas of cancer. For instance, breast cancer, lung cancer, all of these cancers because they’re high-volume types of cancers with very high expense.

We’re starting to see reduction in those reimbursements across the line, and as those reductions happen, your hospitals are starting to look at additional sources of revenue. And if they’re looking over the fence, if you will, looking at greener , one of the things that they don’t have access to or have not accessed, whether it’s on purpose or not, is the skin cancer market. And when you look at skin cancer, it’s 4x greater than all the other cancers combined. So the acquisition of a technology like SRT is very minimal compared to the millions of dollars they spend on the radiation oncology products in those other areas yet the return on investment for them is very, very good and very strong. So I think that they see an additional cash positive opportunity in cancer, in an area that they’re not addressing.

And I think that the bigger hospitals, the smart hospitals that look at the future are looking at this and are asking us about SRT.

Benjamin Haynor: Okay. That makes sense. And then lastly for me on the share repurchases, you gotten a little bit more aggressive there. Maybe my recollection is wrong, but I think you had 3 million authorized or plans to kind of re-up the authorization there and continue with the share repurchase activities.

Joseph Sardano: We went to the Board and the Board was more than happy to provide us with $3 million to repurchase our shares. We did that. To the fullest extent, we spent the 3 million shares. We think that we were as good as investors as anybody else in getting those shares at a very decent price, and we think the best investment is in our own company. And so is the opportunity out there in the future? I think the Board is always open to making things like that happen, and we’ll definitely look at it if that opportunity should come across again.

Operator: Our next question will come from Alex Nowak with Craig-Hallum.

Alexander Nowak: The reimbursement increase has been a big boost in the business over the last couple of years. And as investors, we all get it, but I’m curious about physicians. When you go out there in the field and speak with them, the physicians, do they all get the reimbursement change at this point? Or is it still, call it, a minority of physicians who get the reimbursement? And really what that would do for their practice? Just curious where we are in that process of physicians starting to figure this piece out.

Joseph Sardano: Alex, again, thanks for being on. Appreciate the question. It’s an ongoing process. You have to remember that these individual business owners are very, very business — very, very busy in doing a lot of things to keep their practices open. They faced with a lot of challenges. Every time we touch base with them, every time we’re face to face, every time we go to these meetings, it has — they have to be reminded of what the reimbursement is. And so it’s ongoing. We continue to push it now, the ones that have it already are recognizing the reimbursement increases because they’re the ones that are reaping the benefits because they already have the product. As these references go by or continue to move, I think that’s where we gain additional sales and additional references because it is good for them.

And now keep in mind that last year was the first year since COVID, 2 years, that we’ve been able to go to meetings and talk to these doctors face to face. That’s where we have the biggest impact. When we’re in the field, we’re knocking on doors, they’re busy. They’re listening. Sometimes they comprehend, but it always takes additional conversations for them to understand. But I would tell you that we’re getting there, and — but it’s never easy to make these sales. And when you look at our technology, you could say, well, we’re the only technology in the market, we have no competition. I would tell you that the competition is everybody who’s knocking on the doors of dermatologists because they have a dollar, everybody is trying to get a percentage of that dollar, and we have to have a good story in doing it.

And so far, I would say that a 65% increase in our business over last year, I think that we’re making headway. I think that we’re doing well there. So we are getting across to them, and as we go to the meetings and more presentations are made, I think that we’ll continue to achieve the goals that we’re looking at.

Alexander Nowak: That’s very helpful. I mean — and it still sounds like it’s still building. So I mean it kind of leads into my second question here. You committed to growth this year on the top line and also on the bottom line. But on the top line, how do we think about that growth? You’ve got ramping on the dermatology side. You’ve got this radiation oncology piece started to flow through, new products coming in the second half. Just how do we start to think about growth for this year?

Joseph Sardano: Well, again, we haven’t provided any kind of guidance, and I don’t know if we’re going to get to the guidance piece because I think sometimes there’s levels of expectation that — I don’t know how they’re derived, but there’s levels of expectation for us that might not be as accurate as they should be. But I can assure you this, and I think that you’ve been around for a long time, Alex, and you know what kind of a company we are. We’re ultra conservative, but we work very, very hard, and we try to make the right decisions all the time to grow our business, and we’re always thinking of the future. So how do I think of future business? I have to look at it, and I have to look at my team and we have to challenge ourselves to how do we do better the previous year.

And I think that we’ll do better than the previous year. We keep adding products that will add revenue. We know that, that revenue based on our FDA submissions are going to probably happen around the fourth quarter of this year where we’re going to have any kind of impact whatsoever. So I would say that our SRT business will continue to grow organically, and we’ll continue to grow our top line as well as our bottom line as we continue to pursue these technologies that we’ll add to our portfolio. And again, we want to add technologies that are different, that are better than what anybody else has and that provides what we think is the same theme, and that is a noninvasive way of a treatment that provides the patient with no pain in their treatment, a much better experience and with better results.

So that’s what we’re looking for. That’s our goal.

Alexander Nowak: That’s helpful. And then priorities for capital allocation, obviously, you did the share buyback here, but you reinvested cash back into the business. It goes more towards M&A on the go forward, just the current thoughts?

Joseph Sardano: The M&A is always something that’s on our minds, and we’ve had the opportunity to evaluate a lot of companies this year. We’ve talked to a lot of principles in those companies, and you still have a lot of people that believe their company is worth probably a little more than what we’re willing to pay. And one of the things that we’re committed to is, we do not want to go into debt. We do not want to dilute our existing shareholders. So with that in mind, we’re looking for an opportunity that’s going to add to our portfolio while at the same time adding revenue to what we’re trying to accomplish with exceptional products. And so rather than biting off more than we can chew, we’re looking at technologies that could add to our portfolio that we can get fairly reasonably, that we can find a payback or an ROI in a very rapid succession.

And so what we look for is something that we can pay back within 6 to 12 months, and that’s being very, very aggressive for what we’re trying to do.

Alexander Nowak: And then just real quick, can you maybe comment on the accounts receivable balance? It did spike up here in Q4. The days sales outstanding did increase. So just curious if there’s any onetime items in that number there?

Joseph Sardano: No. I mean what we had was, we had some exceptional growth with some great revenues for — over the course of various months, and customers requested some terms. So we provided them with the terms, but we know that everybody is good for it. So when you look at where our cash position, it was something that we were able to afford while at the same time encouraging and helping our customers accomplish their goals and objectives as well. So we work very, very closely with our customers. Their success is very important to us because as they’ve proven over time, the customers end up buying more than one system. I mean we have a single doctor, for instance, that has 10 of our systems in 14 of his offices. That hasn’t been done without any kind of sensitivity with helping him with his business and with his patients, and it’s the same thing with all of our customers.

So extending the term here or there doesn’t hurt us, and so we will continue to do that when it helps us drive the business and helps our customers as well.

Operator: And our next question will come from Yi Chen with H.C. Wainwright.

Unidentified Analyst: Congratulations on all the success. This is Jake on behalf of Yi Chen. I guess, I think it’s fair to understand that the increase in SRT systems sold is primarily related to the increase in SEO or digital marketing efforts that you guys have put in place so exceptionally well. So related to that, what are your expectations for this year in terms of advertising, digital marketing and/or KOL engagement as it relates to the SRT systems? I know you’re referring from providing any sort of guidance, but any expectations on the kind of marketing activity and also the kind of sales that you expect that would be very helpful. And the second quick question I have is on the Silk laser hair removal systems. Any update on the commercialization process so far?

How is it going? And any feedback, especially on the international markets, as I understand that there are global hubs where people visit for hair removal treatment. So any color on that would be very helpful.

Joseph Sardano: Thanks for that question regarding SEO. Let me tell you where we’re at as what we’ve accomplished in just the last 6 to 8 months of aggressively pursuing a digital strategy. We went originally from about 2 patient inquiries per week to now we’re getting about 30 to 35 per day. With that SEO, we moved up on Google from approximately Page 9 to Page 4. We feel that within the next 3 months with continued efforts here and continued emphasis, we’ll be on Page 1. So we’re excited as we progress and invest in that part of our business. Now we also expect the number of patient inquiries to increase, and so what we have done is, we have our own personnel involved with speaking to every one of those patients as they call in for the inquiry.

And we are able to set up those patients with meetings with their doctors, with consults, with doctors that have our equipment in their physical area. And sometimes, we give them a choice, but we always follow up, and we find out that they’ve reached out to one particular doctor or another because of their proximity to where they’re living. And those doctors are gaining a whole lot more patients and patient flow for the treatment of skin cancer with SRT because these patients are specifically demanding a noninvasive approach once they learn about it. So we educate them, we answer their questions and then we set them up with the appointments. Now on the other hand, these physicians are extremely thrilled that we’re providing them additional revenue opportunities by directing those patients to them.

On the other hand, there are many dermatologists in that specific area that are not getting to those patients. They’re not getting those. So our sales force, obviously, gets that information as well and says — we’ve directed I don’t know how many patients in your area over the course of the last month, 2 months, 3 months that you’re not seeing. And so that becomes a good selling tool for a lot of our salespeople, and that’s going to continue to grow as we talk through this and as we continue to add to our CRM program, working with our sales and marketing force. So we’re going to continue to emphasize it. We’re going to continue to put more dollars into it and more time into it. We see where our patient advocacy group is going to grow from the existing person that we have now to several over the next year or so.

And so we’re excited about that, and I think more patients will continue to learn about SRT than ever before. Regarding hair removal, this is a very unique product because it offers a multitude of wavelengths, which we think is going — is very unique and because it applies to various skin colors. And so this is going to be exciting. Now the real introduction of this is going to be at the AAD, where more people will be exposed to it, and we’ll have several of the units on display and for demonstration during that period. So we’re excited for that. We have a certain number of units that we expect to sell during the course of 2023 that will add to our bottom line as well as our top line. So we’ll gain a lot of market in that area. And then also keep in mind that just a few weeks ago, we announced that we did hire a professional in the aesthetic world to help us take this market to another level.

And so all of those things are heading in the right direction, and of course, we feel that it’s going to add more revenue to the company.

Unidentified Analyst: Congratulations once again.

Operator: Our next question will come from Scott Henry with ROTH Capital.

Scott Henry: Congratulations, Joe. Really a tremendous 2022. So I had some specific questions. I recognize that you’re seeing growth on the top line in 2023 and growth on the bottom line. And I know expectations, there’s been some disconnect. So I wanted to flush something a little — a couple of specific questions with regards to the bottom line. When you say growth in 2023 on the bottom line, are you pulling out onetime events from 2022? Just trying to get a sense of what base you’re using for 2022.

Joseph Sardano: Scott, first of all, thanks for being on, and we’re very much looking forward to attending the ROTH Capital Conference in March in Southern California. It’s always a great event, and we’re excited to be there. The — we’re definitely taking out that one event, okay? So when we look at increase in the bottom line, it’s — every product that we’re bringing on board is going to add to that bottom line. Hopefully, it adds to our margin as well because we model everything along those margins. So yes, you’re absolutely right, we’re looking at — taking that one event out of that and still growing our bottom line.

Scott Henry: Okay. Great. And another thing, and this might be for Javier. And I look forward to seeing you as well, Joe. I want to throw that in. The accounting rules, when you make money consistently, at some point, you have to take — you have to book a tax gain for your deferred tax assets, and you start to calculate earnings on a fully tax basis going forward. I mean you’re starting to stack a lot of positive quarters together. Would you expect to report 2023 on a fully tax basis?

Javier Rampolla: Yes, we have to. We have to.

Scott Henry: Okay. At what rate would you advise for that time period?

Javier Rampolla: I will say that at least we should forecast a bit maybe like a 20%. . Yes, we’re working at.

Scott Henry: And then again, for clarity, it sounds like when we look for growth in 2023 over 2022 on the bottom line, should we be thinking on a fully tax basis to a fully tax basis? So otherwise, you started at a disadvantage.

Javier Rampolla: Correct.

Scott Henry: Okay. Great. And then final question just with regards to — I was just hoping to understand kind of the process a little bit because the lease program is important to your revenue model. We get higher interest rates. Obviously, someone has to pick up the cost of those higher interest rates, not that it’s a huge amount, but does that come from the customer? Or do you kind of shrink margins a little to accommodate that? I’m just curious the nuts and bolts of what you do with the lease program when the rates increase?

Joseph Sardano: Yes, it’s coming directly from the customer, okay? So just to give you some idea behind that. The rates have gone up this year, and we’ve always tried to tell the customer that your breakeven with the SRT-100 Vision based under those fair market value leases is approximately 2 patients a month. Well, the realization of it at the beginning, before all these rate hikes, it was probably somewhere around one in the quarter patients, but you can’t breakup a patient into a quarter. So we just said 2 patients a month. As the rates have gone up, it — you could say now that it’s really 2 patients a month. So it’s not over 2 patients a month, it’s really 2 patients a month, and we’re still fairly safe in having it just under the 2 patients a month.

But you have to keep in mind that what the real opportunity is for our physicians is that we’re offering a nonrecourse off-balance sheet program that doesn’t take away from the customer or the doctor’s regular credit line, okay? So that in itself is worth a whole lot of money to these doctors where they don’t have to put their credit in any other way. So this is a great program for them, and it gives them all of the things that they need to be able to afford the Vision product, which is what they want because it has all the tools and benefits. Let me go also to the previous question that you pose to Javier. This quarter alone for the fourth quarter, we paid $1.6 million in — to the IRS. Our goal is to continue to pay to the IRS, all right?

And it’s probably going to be more than $1.6 million and probably closer to $1.8 million to $2 million, but it’s going to be a lot of money, and we want to continue to pay to the IRS. So that’s an objective that we have because we’re making money, but it wasn’t accounted for by whoever derived whatever our earnings per share were, but I think that we’re happy to pay that, and we look forward to paying even more for 2023.

Scott Henry: Well, at least you’re based down in a low tax date.

Operator: . Our next question will come from Anthony Vendetti of Maxim Group.

Anthony Vendetti: So you talked about the fair market. Joe, you talked about the fair market value lease program as being a program that’s helped with 2022 sales. Interest rates went up, but maybe it’s had some impact, but you said, obviously, on the fair market value lease, they may have to see only about another 1, 1.5 patients. I think it’s a month to still be able to make that. The program itself profitable. In other words, I think it was like one a month, and then if they see now 2.5 a month, it still comes — after 2.5, it’s still profitable. Could you just — I might not be getting those numbers exactly right. So if you just go through that with me. And then as best you can say, how much of an impact has rising interest rates you think had on the — on your sales or the fair market value lease program?

And just what’s your outlook for that program? I think it was 80% of sales last quarter. What was it approximately this quarter? And do you expect that trend to be the same in ’23?

Joseph Sardano: Okay. Thanks, Anthony. The — again, I’ll go back to the analogy that in the early times when we introduced fair market value lease, the interest rate was low, but we still told the customer that they required 2 patients a month to breakeven. It was actually about 1.25, 1.5 patients, but you can’t breakup a patient into a quarter or half. It’s either a full patient or not. So we consistently told the customer being as conservative as we were requires 2 patients a month. Now with the increase over the last year as the Fed increased it, it really is about 2 patients a month. It’s still slightly under, but maybe 1 in 7/8 of a patient, but we still claim we still show pro formas based on 2 patients a month. And the physicians are okay with that, but it does require an additional conversation because of the increase.

So it’s not like we say, oh, okay, your interest rate is 4%. We have to go to and say, okay, now your interest rate is 9%. So there is a difference, and it requires an additional conversation or two to go through that, but the breakeven is still 2 patients a month. Now the ROI is still very, very good, as we were saying. It still provides them the opportunity to get into that technology, and we still don’t see any of our customers doing less than 10 patients a month. So they don’t have a shortage of patients. And then the big point of the fair market value lease is the fact that its characteristics is that it’s a nonrecourse off-balance sheet lease, which means the doctor, if he’s in business for 3 years, and we deal with all doctors that are in business for more than 3 years, they don’t have to come up with any personal guarantees.

Not signing personal guarantees and having off-balance sheet financing is tremendously important, especially when they bring in their CPAs. Their CPAs are telling them this is — it’s a no-brainer, you need to go into this. Now with all that being said, we’re still seeing the majority of the physicians buying in cash, okay? They have the cash because they have the volume, and they have the confidence with the cash to buy the products. So the majority of our sales are still with cash purchases. And these — the fair market value lease is a great adjunct to get into the conversation, but when push comes to shove and it comes to the end and they’re starting to talk to their CPAs, their CPAs are saying, buy it outright? You got the cash do it. I think — a lot of it has to do with Section 179 of the IRS code.

And I remember, and I say the story often, we were sitting at dinner in a month of December with a physician talking about buying a system. And at the time that we were having dinner before we took our first bite, his CPA called him and was telling him about his financial situation and is there something that he could buy. And he says, well, I’m just sitting with the Sensus guys now talking about buying a machine. And you could hear the CPA at the end of the round say, buy 2. So we only sold one, but the CPA said, buy 2, and that’s because there was so much money being made that the guy needed a tax deduction. So that’s where it is with the fair market value lease. It’s been a tremendous tool for us. It’s a tremendous topic of conversation.

But again, when push comes to shove, the majority of these doctors are buying in cash.

Anthony Vendetti: Okay. And yes, no, I know Section 179 always helps out with fourth quarter sales. In terms of China because I know that, that’s been sort of volatile on a quarterly basis. Were there any sales to China at all this quarter or no?

Joseph Sardano: Yes. We announced that we had 6 systems shipped to China. And overall for the year, we had our best year of all selling — sending 16 units to Asia altogether. Now there was one in Korea and Taiwan was another place where we sold the unit. So you had 14 units to China, 16 units overall to Asia. So that’s a very good year. We — and keep in mind that for the entire year, especially in China, you have the COVID problem that really locked everything up there. That’s starting to open up. As we understand, China opened up from COVID just prior to their new year, which allowed a lot of their citizens to be traveling overseas, of which many came to the United States. So if China remains open, which we think it will, we are hoping to do even better in Asia for 2023, but that’s a good business for us.

Anthony Vendetti: Okay. Great. And then last question on the Silk laser hair removal system. I know you’ve just introduced that. Do you have any feedback in terms of orders? Can you talk about that a little bit?

Joseph Sardano: Yes. I mean the feedback has been very, very positive from the initial introduction at the Fall Clinical in Las Vegas in October. So we’re seeing some good volume that’s being generated with our prospect base. And now that we’ve hired what we consider a real specialty guy who’s going to drive our aesthetics business, I think that we’re going to be successful with the product because it is unique. It does have multiple energies that can be used simultaneously. It is portable. It is very cost effective at a low range as far as the cost, and without consumables, which is exactly what the physicians are requesting. So I think that as we become more known as we start to show it more, I think that we’re going to be more going to be selling more systems.

We will have several units available at the American Academy of Dermatology, the upcoming meeting this weekend. It’s going to be displayed following 2 weeks later at the Fall or the Winter clinical, it will also be displayed. And so as we gain exposure, I think that we’re going to see some sales coming about. So we’re excited about it.

Operator: That’s all the time we have for questions today. And this concludes our question-and-answer session. I’d like to turn the conference back over to Joe Sardano for closing remarks.

Joseph Sardano: Okay. Well, listen, thank you, everybody, for the questions. Thank you for being on. And once again, thank you for your time this afternoon and for your interest in Sensus Healthcare. Again, I want to and wish to repeat that Sensus Healthcare is in the best position that we’ve ever been based on our technology, our people, our ever-demanding patient population seeking a noninvasive solution to their skin cancer needs. We’re looking forward to another great year. I also want to mention that we’ll be presenting at the 35th Annual ROTH Conference. It’s being held March 12 through the 14th in Laguna, California, and we hope to see as many of you there as possible. In the meantime, thank you very much. We look forward to talking to you again at our next results conference in early May. Thank you.

Operator: The conference has now concluded. Thank you very much for attending today’s presentation. You may now disconnect your lines.