Sensus Healthcare Inc (SRTS) 2017 Q3 法說會逐字稿

Good afternoon, and welcome to the Sensus Healthcare Third quarter 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded November 2, 2017. I would now like to turn the conference over to Kim Golodetz. Please go ahead, ma'am.

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, 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 the Federal Securities Law. All statements other than historical facts that address activities Sensus Healthcare assumes, plans, expects, believes, intends or anticipates and other similar expressions will, should or may occur in the future are forward-looking statements. The forward-looking statements are management's beliefs based on currently available information.

Sensus Healthcare undertakes no obligation to update or revise any forward-looking statements except as required by law. All forward-looking statements are subject to risks and uncertainties, including those risk factors described in the company's Forms 10-K and 10-Q as filed with the SEC. During today's call, there will also be reference to certain non-GAAP financial measures. Sensus believes these measures provide useful information for investors. 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 thanks to each of you for joining us this afternoon. I'm happy to report that, once again, we had an excellent quarter, with revenues of $4.8 million, up 44% over the prior year. We posted our eighth consecutive quarter of double-digit year-over-year revenue growth. We shipped 15 systems during Q3, bringing our installed base to 311 units. And of those, 70 units are being used for treating and preventing keloids, in addition, non-melanoma skin cancer. I also note that of the 15 systems shipped during Q3, 9 of them were sales of the SRT-100 Vision. The Vision is our higher-end product that includes image guidance with ultrasound, which facilitates treatment planning. We're very pleased that growing numbers of physicians are appreciating the capabilities of our Vision product.

As we reported, our sales and marketing expenses are quite a bit higher this year as compared with last year. We expanded our direct sales force during the first half of the year, and we're starting to see benefits from the investment in these professionals. We are comfortable that we currently have enough sales reps to cover all the major territories we currently have.

We continue to spend significantly in marketing activities during Q4. Our expanded presence at the important medical conferences and trade shows has broadened awareness of SRT and Sensus, and recent clinical research has garnered additional support. We are very pleased that the reception of poster presentations at both the ASDS Annual Meeting and the Fall Clinical Dermatology Conference, which illustrates the low recurrence rate of keloids post-keloidectomy in conjunction with SRT. Our sales are beginning to reflect the success of these efforts, and we believe the luminaires who are supporting Sensus have been very influential in the dermatology community.

Our efforts outside the U.S. continue to move forward. We were very pleased to announce earlier this week the clearance in Mexico of the SRT-100 for the treatment of non-melanoma skin cancer and keloids. Sensus has engaged Cyber Robotics with Mexico City as its distribution partner, and we will embark on an awareness program during the spring and summer. We expect demand for our systems to be driven by both the high rates of skin cancer and keloids in Mexico, which is very similar to the market we have in the U.S.

As we discussed during our last conference call, we were very excited to receive clearance in July of the SRT-100 by the China Food and Drug Administration for the treatment and prevention of keloids. This was in addition to our previous clearance in China for the non-melanoma skin cancer indication.

Last week, I traveled to Shanghai to attend the international Congress of Dermatologic & Aesthetic Surgery International League, or DASIL, where we, in partnership with Chindex Medical, wholly owned subsidiary of Fosun Pharma, had our formal kickoff into the keloid market. Importantly, our distribution agreement with Chindex has been due to expire in October, and I'm very pleased that we've signed a new 3-year agreement. Based on the reception we had at DASIL, we are optimistic for the success of the partnership. We had presentations at DASIL by U.S. and internationally renowned dermatologists, like Dr. Mark Nestor of Miami, Dr. David Goldberg of New York City and Dr. Michael Gold of Nashville. They were well-received and appreciated by the hundreds of physicians in attendance.

Following Shanghai, we moved to Beijing, where we had a special showing to approximately 100 KOLs that were invited and sponsored by Chindex. Again, presentations were provided by doctors Nestor and Goldberg, and along with key opinion leaders from the China market. Remember that China represents about 20% of the world's patient population, so we are talking about a very, very large market.

As I've told you previously, we are focusing on preventing and treating keloids associated with Cesarean sections, and we've developed a special oval-shaped applicator for use with this SRT-100 for this indication. According to a study by 20 -- in 2010 by the World Health Organization, 46% of babies born in China were delivered via C-section. Additionally, although the exact numbers are not known, Asians have among the highest incidences of post-surgical keloid scar formations. With the relaxing of China's One-Child Policy in 2015, the prevention of keloids that form over the surgical scar following a first C-section will lessen complications of a second C-section.

We are also awaiting China FDA clearance for the SRT-100 Vision, which, as I mentioned earlier, incorporates ultrasound, among other features. We anticipate receiving this clearance sometime in 2018.

As has been the case throughout our year, our financial results reflect a significant year-over-year increase in research and development expenses to accelerate the introduction of new indications, product enhancements and new products during 2018. We expect R&D to continue to be significant in the fourth quarter and into early 2018, as we continue our development work in interoperative radiation therapy for breast and other cancers.

We continue to evaluate synergistic business opportunities. These are intended to include products that would immediately add revenue and be accretive to earnings by providing additional products for sales reps to sell in their existing channels. We also look at products within existing sales force that could cross-sell our SRT systems. We intend to be very judicious with respect to any acquisition, and we will vet them very, very carefully.

Although we work to increase sales of service contracts and appreciate the recurring revenues associated with them, our primary focus is on driving sales of our capital equipment. As a reminder, in the U.S. alone, there are approximately 950 (inaudible) surgeons, about 14,000 dermatologists, 5,500 radiation oncologists, 6,500 plastic surgeons and 1,400 hospitals and surgery centers that comprise our target market. We continue working to gain customers in this market, but with a worldwide installed base of 311 units, we still have plenty of room to grow.

I'm now going to turn the call over to Arthur Levine, our CFO, for an in-depth discussion of our financial results. Arthur?

Thanks, Joe. It's a pleasure to be speaking with all of you today. As Joe mentioned, revenues for the third quarter of 2017 were $4.8 million, up 44% from $3.3 million for the third quarter of 2016. This growth is attributable to an increase in the number of units sold, in particular, sales of the SRT-100 Vision, which has a higher average selling price. This past quarter, 60% of our unit sales were derived from this premium system.

Gross profit for the third quarter of 2017 was $3.2 million or 67.1% of revenue. This compared with $2.3 million or 67.6% of revenue for the third quarter of 2016.

Gross profit and gross margin in both quarters were positively affected by the increase in sales of the SRT-100 Vision systems.

As Joe mentioned, we have been making significant investments during 2017 in selling, marketing and R&D. Although we have started to benefit from the expanded sales force, we expect a larger benefit from these investments on our revenue and bottom line in 2018 and beyond.

Selling and marketing expense for the third quarter of 2017 was $1.8 million compared with $1.1 million for the third quarter of 2016. The increase was primarily attributable to an increase in sales headcount, greater participation in trade shows and other marketing activities.

General and administrative expense for the third quarter of 2017 was $0.84 million compared with $0.79 million for the third quarter of 2016. The net increase was due primarily to an increase in professional fees and headcount.

Research and development expense for the third quarter of 2017 was $1.5 million compared with $0.4 million for the third quarter of 2016, primarily due to the continued investment in SRT product enhancements and work on the IORT product that began in the fourth quarter of 2016.

The net loss for the third quarter of 2017 was $1.0 million or $0.07 per share compared with a net loss of $0.3 million, which rounds to 0 per share for the third quarter of 2016.

Adjusted EBITDA, which we define as earnings before depreciation and amortization, income taxes, interest and stock compensation expense, was a negative $0.8 million for the third quarter of 2017 compared with a positive $0.2 million for the third quarter of 2016. We continue to have a strong balance sheet with cash, cash equivalents and investments of $9.9 million as of September 30, 2017, and no long-term debt.

At September 30, we had $1.6 million under our revolving credit facility. We are very pleased to have renegotiated our line of credit with Silicon Valley Bank and to have increased it to $5 million from $2 million previously. The new line includes $2.5 million non-formula sublimit that will be available even without a borrowing base from accounts receivable -- eligible accounts receivable. This should allow us additional flexibility as we continue to grow our business.

Turning to the 9-month results. Revenues for the 9 months ended September 30, 2017, were $14.1 million, up 42% from $9.9 million from 9 months ended September 30, 2016. Gross profit for the first 9 months of 2017 was $9.5 million or 67.2% of revenue, compared with $6.5 million or 65.5% of revenue for the prior year period.

Selling and marketing expense was $6.2 million for the 9 months ended September 30, 2017, compared with $3.2 million a year ago. G&A was $2.8 million for the 2017 period compared with $2.5 million for the 2016 period. R&D expense for the first 9 months of 2017 was $3.8 million compared with $1.1 million in the prior year. The net loss for 9 months ended September 30, 2017, was $3.3 million or $0.25 per share compared with a net loss of $0.4 million or $0.03 per share for the 9 months ended September 30, 2016.

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

Thanks, Arthur. I closed last quarter's earnings call with a note of caution that third quarter revenues tend to be impacted by summer vacations. And while, of course, this past summer was no different, we were pleased that the quarter was as strong as it was. So as we look to Q4, we expect to continue on our growth path.

Before we take your questions, I'd like to mention that we have an active schedule in front of us. We'll be presenting at the LD Micro conference in Los Angeles on December 5, and we'll be holding one-on-one meetings in San Francisco in early January, concurrent with the JP Morgan Healthcare Investment Conference.

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

(Operator Instructions) Our first question is from the line of Suraj Kalia with Northland Securities.

So Joe, forgive me, I've just been hopping in between calls. You guys have had a very good quarter. Did you mention any impact or lost business otherwise from hurricanes, especially in Florida?

Well, I appreciate that question very, very much because I really want to give credit to the team that we have here in Florida. Although we lost several days of power as well as several days of office time due to the hurricane, I think that the productivity of the team in recapturing any days, hours or business that was lost was captured towards the end of the quarter. So I think it's a credit to the team that we have here that really did a good job in making sure that we didn't lose a step inclusive of having the hurricane and many people having to evacuate their homes.

Got it. So it's not like there were any procedures or any business that got pushed out. You were able to recapture it within this quarter itself. Is that a fair assessment?

That is a fair assessment. And with that, I'd like to tell you a story, if you don't mind. We installed a unit in Jupiter, Florida with one key doctor up there, and he had rearranged his schedule in and around the hurricane time. And most of our employees in the state of Florida that were supposed to go to his facility to train his team were unable to leave their facilities in Central Florida because of the evacuation, the lack of gas and fuel to get there and back and so on and so forth. We had one of our employees fly in from Philadelphia, rent a car, had a full tank of gas for the entire weekend, and the doctor accommodated us by having patients and his staff ready for training as well as the beginning of the procedures on that weekend. And patients were happy. The physician was extremely happy in being able to accommodate his patients and their treatment process. And we were thrilled to be able to accommodate the physician as well. But I think that, that was something that was above and beyond the call duty but we made it happen because it was the right thing to do.

Joe, in my models at the -- I am off, and I fully confess, I am off on the relative contribution of SRT versus SRT Vision. And at least for the last 2 quarters, your SRT Vision contribution has picked up pretty nicely. And the list price obviously has doubled. So help me understand. Are there any market fundamentals that are contributing to the pickup -- or the relative pickup of SRT Vision? Is it more to do with you guys' emphasis and your guys' sale emphasis on pushing that product? Any color would be helpful.

Sure. The product is features-rich, and it's providing physicians with benefits and with features that they've never had before. The ultrasound, in particular, is extremely unique in the dermatology space. Having the ability to visually see the lesions, the depth and the width of the lesion is really something special for these physicians to see, and we're seeing them being attracted by that feature when they're doing their treatment planning and also being able to provide the patient with the best treatment possible. So although it takes a little extra effort on the part of the salespeople to make that sale because it's a -- it's a more expensive sale, I think that we're seeing the physicians adapting to the technology much better because of all the features. But I also have to give credit to the sales organization that's spending the extra time to make this happen versus a shorter selling cycle, perhaps with the SRT-100. But again, this is the technology that's being attracted by the dermatologists who are really seeing the need for some type of technology like this. So I give them a lot of credit, but it also shows the hunger for technology that we have in this domain.

Got it. Joe, one question for you and 2 for Art, and I'll -- I promise, I'll hop back into the queue. Keloid usage, 70 units. How do you characterize ROI? Are there pockets that are big in keloids? Any U.S. versus OUS utilization that you're seeing from a keloids perspective, especially, would be -- any color you can provide there?

Sure. First of all, thanks for the question because it's a very, very unique question, very strategic to our sales operations. But what we're finding is that in key pockets of the country, mainly the major centers, like Chicago, New York, Dallas, Texas, Miami, all of these major cities, they have a lot of keloid population there because of the minorities that exist in those areas. We know that this addresses the needs mostly of African-Americans, Asians and Latinos, and there -- that lies where the heavy population is. So when we bring this up to a lot of the physicians that already have our equipment in those areas, this is a business or a part of the business that they're lacking that they don't exercise. And so when we help them identify the markets that they're in and how valuable this kind of a service would be, they provide some slight advertising, if you will. And then we also help them with patients that are contacting us, begging for help. And if you read some of these inquiries, you'll see how desperate these patients are for assistance in getting rid of their keloids. We're able to direct them to our doctors who are willing to train and who are willing to proceed with these procedures. And so the business starts building and one it leads -- one thing leads to another. Word by word, patient to patient, they start identifying with the physicians in their areas. And then of course, they make it -- make their way to those places. And then the success rates that we're seeing is really what's driving the interest of the physicians. All of these papers that are being published along with the abstracts that are being accepted are proof positive that we have between 90% and 100% cure rates for treating these keloids, where, in the past, nothing was better than 50%. So the confidence of the physicians are gaining as they do each procedure. The word gets out to other doctors who are gaining the confidence. And then with the marketing that they have with a little bit of our help in those communities, they're starting to see a lot of patient inquiries and, therefore, starting to treat a lot of patience.

Now, let's move to China. China has the largest keloid population in the world. And just coming back from there last week, it's incredible to see the cases that they have that start with such young patients, adolescents, including infants. Now we're not advocating to be treating the infants. But from adolescents on up, any kind of an injury, all of these scars that exist. So it's not just the keloids, but their hypertrophic scarring that also can be impacted with our system, of which we have FDA clearance with as well. All of these factors are developing into a market that could be bigger than skin cancer itself. So we're very, very excited for this opportunity. And now that we've opened up Mexico as well, because of the skin color in Mexico, there's huge opportunities for keloids there as well as the skin cancer itself. So we're starting to see this snowball in all parts of the areas that we have our equipment, and the doctors are willing to move with this procedure.

Great. And Art, 2 questions for you. Art, reps on hand. And U.S. versus OUS installed base.

Go ahead, Art.

What was the first one? The second one was the U.S. versus out of U.S. installed base. The installed...

And the first one was reps on hand, sales reps.

So the installed base is approximately 80% U.S. and 20% outside U.S., okay? And reps...

So that should remain the same. Okay.

Yes. And the reps were approaching the mid-20s.

Mid-20s?

Right.

Yes.

Our next question is from the line of Anthony Vendetti with Maxim Group.

So just to follow up on the sales force. And then I've got a couple of questions on China and Mexico. So you're about mid-20s now. Can you talk about the plan for the rest of this year in terms of what you would ideally like to be at, what you need to be at to continue the momentum? And then what would be your plan for the end of 2018 in terms of your sales force?

Thanks, Anthony, for being on and for those questions. We appreciate you being there. Number one, we currently have just about 22 salespeople throughout the country. We've always said that we want to get to 30 by the end of the year. But we're being cautious in hiring right now because we are aggressively trying to find a potential acquisition whereby we would be adding employees to our base. So the combination of both, we don't want to be over the 30-person sales force. We want to be right on. So we want to be leery of any acquisitions that we might be able to bring on, some additional people and expertise in those areas as well. So those are the things that we're juggling, if you will, and contemplating as we try to close out the year and potentially do something special for the company and get to our point of 30.

Okay, great. And then, Joe, you mentioned Mexico, and you signed up a distributor there. I missed the name of the distributor. And is that one of the top distributors? How did you select them? And then just go through exactly the launch -- you mentioned spring as a -- I think as a start of the commercial launch?

Yes. We signed on a distributor that we've been working with for the last several months, Cyber Robotics of Mexico City. And they're a company that also distributes other products in this domain, they were also significant in working with us to gain the regulatory approvals in Mexico. So they've been a partner of ours, if you will, getting to this point and reaching our objective in Mexico for the past several months. So we're excited to have the opportunity to work with them. The market itself is very much like the U.S. market. We know what the population of Mexico is, but the percentages are pretty much the same as we have in the U.S. with skin cancer and keloids. So -- and the neat thing about Mexico is that the market and the regulatory portion of that allows for radiation oncologists, plastic surgeons and dermatologist to use this product in their offices or in their hospital. So it's a wide-open market for us, and now we have to create the awareness. Walking into a market, we've never walked into a market and received 100 orders. You have to build to those orders. You have to start with the education and the training. And we'll start attending a whole lot more meetings and regional meetings in Mexico to make that awareness along with Cyber -- our company. They're Cyber Robotics. So they're going to help us with that. And I expect that we'll see some very good revenues in the second half of next year, and that's not to mention that we won't get some revenues before that. And hopefully, before the end of the year. Who knows?

Okay. And then in terms of China, you're just at DASIL. So you have the SRT-100 approved there. Can you explain what you think the ramp could be there? Or the rollout there? And then when you said, you're hoping for clearance for the SRT-100 Vision in 2018, is that more a second half 2018 expectation?

Okay. Let me go through the first question. The -- we have the CFDA clearance now for both skin cancer and keloids with the SRT-100 product. The ramp there is going to be very much like the hospital market here in the U.S. They have to get the budget in, they have to get the budget approved, and then they have to be able to install the equipment and gain the money from the government in order to buy this. So I would think that that's going to be a process much like we have in the U.S., and I think that there's going to be some early adopters. And hopefully, we'll be able to make things happen there sooner rather than later. But I know sooner or later, it's going to hit a hockey stick there, where the prevention of keloids is so, so important and so much on their minds there, including the government. So this is the big opportunity that we have. So the kickoff was exceptional. We had major tail wells and hospitals represented. And we think that that's going to be a good ride for us in 2018. Regarding the Vision product I'm talking about, the Vision has features again that gives them identification of the keloid as well as the skin cancer. It's something that they don't have right now. And the visualization of that lesion is going to be something that really helps them with the treatment. So they're very aggressive in the treatments. They've been trying things that have not worked in the past. They recognize that it's not -- that it doesn't work. And they've got quite a few units already installed in the country that have been used for keloids so they know that it works and they understand what SRT is all about. So we're expecting the Vision product to get its clearance. I'm hoping by the mid part of 2018. And the sooner the better because I'm also hoping that this is not going to hold up purchases of the SRT-100 if they're waiting for that Vision. And a lot of them could be waiting for the Vision, especially -- and when I say larger hospitals, it's ridiculous. They have 33,000 hospitals and most of them, the majority of them, are over 2,000 beds. So they're all (inaudible) hospitals. So it's very, very important for us to get the Vision approved as quickly as possible.

Okay. That sounds great. China looks like a huge opportunity for you guys.

It really is unbelievable. We've had conversations. We spent 10 days there, going from Shanghai to Beijing and meeting with some exceptional people and doctors and hospitals that have already had access to the SRT-100. I know for a fact that the people that have SRT-100, we hosted a meeting of 4 of them, 4 different hospitals, and they want to upgrade to the Vision. So we hope that it doesn't stall sales of the SRT-100 as people wait for the Vision, but it seems like the ones -- the hospitals that have the big budgets are the ones that are willing to wait. So hopefully, there's going to be a whole bunch of smaller ones that buy the SRT right away. (inaudible)

And just real quick -- real -- just last question on that is, do you have a trade-in program? Let's say, they decide, hey, they don't want to wait and they get the SRT-100. Do you have a program where they can upgrade or trade that in and then -- for the SRT-100 Vision when it's available?

We have that program in the U.S. But as far as a program in China, Chindex is going to have to be responsible for that. And I'm -- there's a lot of secondary markets throughout China that they'll be able to place those SRT-100s. But keep in mind, there's not a whole lot of those right now. So that's not a problem that's going to be a major problem for us. Most of these units are going to be brand-new units so it's not that problematic.

(Operator Instructions) We do have a question from the line of Scott Billeadeau with Walrus Partners.

A couple of questions. On -- just back on the sales force. I think you said you got 22 guys now, maybe try to get to 30 by the end of the year. You may acquire some of those. Of the 22, how many would you say are kind of operating at, gee, they're mature, or close to mature versus some that are kind of in the middle and some new? I mean, do you have a -- maybe give us a little layout of the current 22 and how comfortable you are. Are they pretty much hitting their stride now? Or where are they on the curve?

Sure. Scott, just a reminder that my team is playing your team tonight.

That's right. It is.

So with that being said, I would tell you that we've got a good core of people that we're hoping to hit their stride in this fourth quarter. Most of the people that we hired in this process, going from last year from 5 to 22 now, were hired in the first or second quarter of this year. So with the 4 to 6 months ramp-up, I will tell you that we've got some exceptions to the rule, but we've already got people contributing. We've got one person that we hired and it's in -- they're in their fourth month. They have 4 machines sold. We have another person that's in their fifth month, have had 2 machines sold. We have 1 or 2 people that are in their fourth month that don't have a machine sold. But we expect them, with the forecast that we have for the fourth quarter, for them to break out of that slump and to come through with their learning curves and come through with orders. So the telling tale is going to be Q4. We think that everybody is going to be on board, and we're expecting a good quarter.

Great. And then I didn't hear. I think someone had asked the question and I didn't hear the answer in just -- in kind of timing for the Vision 100 in China. Did -- I can't remember if you gave an answer to that.

Yes. I had mentioned that we're hoping to have the middle of 2018. So sometime around June, July. Of course, sooner the better. But we're in the process. The FDA -- I just want to remind everybody that the FDA clearance that we received took just about 18 months, which was about 6 months short of the normal cycle, but that was because of the need of being able to treat keloids. And then I'll also tell you that our partner, Chindex, has hired 3 people away from the CFDA organization to help them accelerate some of their processes with the CFDA and some of the products, including ours, to get through the process a lot quicker. So those are all good things. But again, you're dealing with government and especially, a foreign government, it's hard to put a finger as to exactly what the dates. Here in the U.S., when you submit something for a 5, 10k, it's usually 90 to 120 days. It's a little more predictable. But I hate to give you exact dates on what could happen, but that's what we're hoping for. And we're pushing for it. It's not like we're standing still. We continue to provide data and information and continuous contact with their CFDA group.

Great. And then for Mexico, is the 100 Vision approved there? Or what is the regulatory status for that?

The Vision is not approved. The approvals that we have is for the SRT-100. And you have to keep in mind that these processes in these countries for regulatory approval started 2 years ago. And so we didn't have the Vision 2 years ago. And so now, we've got the SRT-100 approved for skin cancer and keloids. And you also have to remember that in Mexico, I'm not sure that the Vision is something that's going to sell a whole lot, maybe in a couple of hospitals, but the lower-priced SRT-100 is probably going to be the target market there. And so this is a big opportunity for us.

Great. Yes, I was going to do my follow-up question. Is -- when it comes to -- with the Vision and the ability of the ultrasound, is that valuable in the keloid market? Or is it much more valuable, obviously, in the skin lesion cancer market? Or what's your thoughts there?

Well, it's valuable in both because you are able to see below the surface of the skin. So that makes it valuable for both. And you have to keep in mind that up until now, biopsies has been answer for these folks in this market, especially for skin cancer. Keloid is something that grows on the surface of the skin, but the skin cancer is something that grows below. So they've used biopsy in the past. And I don't know if you've had that experience, but biopsy is something that's going to cause a scar. You're going to bleed, and it's a very expensive process. So being able to see exactly what's happening with the radiation treatment during the course of treatment is really important for these docs to know that things are working as they're moving along.

Great. And then can you -- another question. Just give us a little visibility, if there is any, on the IORT. Any -- certainly, spending some money on R&D to push those forward. Anything you can tell us? Or not lots at this point?

Sure. Yes. What I can tell you is that things are moving along as scheduled. So at current, we are building a system that is just about completed so that we can start its initial testing. And once we're comfortable with the product being able to pass any and all tests that are going to be required by the FDA, that's when we'll start the paperwork for the submission. So part of the reason why we've had such expense in R&D is, this was a product that was scheduled to come out maybe at the end of 2018. And if we can get it approved before the middle of next year, that just gives us significant runway to get some sales in-house because you have to keep in mind this is a product that's going to be $800,000 to $900,000. So it's going to have significant revenue impact on the company, but it's going to have even more significant impact in the treatment of the patients. And that's what we're really excited about. This is a game changer and a lifesaver for people that have breast cancer. And it's also going to apply to certain head and neck cancers, colorectal, vaginal cancers. These things are what they call orphan cancers, and this is something that is going to be beneficial in those areas as well.

We do have a question from the line of Raymond Young with Dolphine Asset Management.

I have a quick question concerning the China market. Have Chindex shared any of reimbursement information with you guys? Whether it's for keloids or skin cancer? Just trying to figure out how the healthcare provider would get a return on investment on their -- on their capital cost?

Okay. Raymond, it's a good question, but you have to realize that you're in a one-payer socialized healthcare system. They don't really work for profit. 33,000 hospitals all belong to the government. There's maybe a handful of private hospitals that exist right now. That is growing. But it's growing slowly. But there's definitely going to be a large private sector of that hospital market within the next several years. But for now, the reimbursement is not a consideration. It's the ability to save money with this procedure versus other ways of treatment. And if you think, for instance, of what they're doing with skin cancer or keloids that don't work, the costs are very excruciating. So I'll give you an example. When they do a C-section and the patient develops a keloid, that keloid has to be surgically removed prior to the birth of the next child or else it causes a lot of complications. And then we know it's going to come back. But that's an additional cost. Well, we're going to be able to save them that cost by doing a prophylactic treatment of the area after the first birth, after the first C-section, so that the keloid doesn't come back or doesn't even develop at all. So that's going to be major savings for them, and I think that's what their -- the real emphasis is, is how much do we save their system because it is a cost-effective system in a lot of ways. And all the other treatments that they have in the higher energy utilization of radiation, it doesn't help. It causes more collateral damage to the patient. As a matter of fact, there are papers that have proven that it's 20% less effective. So again, that's adds cost to a healthcare system. If they have the right equipment, it's going to save them money, and that's what they're looking for.

Okay, great. And one quick question in the U.S. market. Have you seen any competitors popping up?

Again, competitors, there's nobody else with SRT. And there's -- we've had some breaky therapy companies that have tried to come through, but they don't have the capability of the SRT product. They don't have the variance in energies that we can use. They have one energy that they can use. And they have a very small focal point. And for sure they can't do keloids. So the competition is the traditional way of treating skin cancers versus competitive equipment. And being able to train, educate patients as well as physicians as to why SRT is a great noninvasive way of treating skin cancer for those patients that are eligible.

There are no further questions at this time. Please proceed with your closing remarks.

Okay. Thank you. So in closing, I want to thank all of you for your time this afternoon and for your interest in our company. We're very, very pleased with our financial performance to date and with the momentum of our business. As I mentioned, for those of you heading to San Francisco for the Annual JPMorgan Healthcare Conference, we'll be holding one-on-one meetings across the street from the conference hotel. The 2018 dates are January 8 through the 10th. And please give LHA a call if you'd like to schedule a meeting. Also as previously mentioned before in Suraj's questioning, but I really want to thank the team that we have here at headquarters in surviving the hurricane. I know a lot of people had personal property damage but in spite of that, everybody kept their nose to the grindstone. We gave everybody the time off that they needed to be able to fix things at home, but the dedication and the loyalty and the commitment that we have from the folks here at headquarters and across the country working for Sensus was really experienced during that time, with everybody looking to help a hand to everyone else. So I want to congratulate everybody for working through that. I want to thank God for making sure that they preserved everybody intact. And so we're looking forward to the future. Otherwise, we look forward to speaking to you again when we report fourth quarter results in February. And for everybody, please have a great day. Thank you so much for being on the call.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.