Sensus Healthcare Inc (SRTS) 2017 Q4 法說會逐字稿

Good day, and welcome to the Sensus Healthcare Fourth Quarter Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Kim Golodetz. Please go ahead.

Thank you. 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 laws. All statements other than historical facts that address activities Sensus Healthcare assumes, plans, expects, believes, intends or anticipates and other similar expressions will, should or may occur in the future are forward-looking statements. The forward-looking statements are management's beliefs based on currently available information. Sensus Healthcare undertakes no obligation to update or revise any forward-looking statements, except as required by law.

All forward-looking statements are subject to risks and uncertainties, including those Risk Factors described in the company's Forms 10-K and 10-Q as filed with the SEC. During today's call, there will also be reference to certain non-GAAP financial measures. Sensus believes these measures provide useful information for investors yet 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 very pleased with the business momentum that led to a record fourth quarter for Sensus Healthcare, our ninth consecutive quarter of double-digit revenue growth.

I also am very pleased with our 2017 financial results. We exceeded $20 million in revenue for the year, an increase of 39% over 2016. This growth demonstrates the success of our sales and marketing team in expanding awareness of the advantages of treating non-melanoma skin cancer and keloids with SRT.

In 2017, we shipped 68 units, half of which were SRT-100 Visions. The increased contribution of SRT-100 Vision system supported by our excellent gross margins, which reached 67% for the year. We shipped 23 systems during the fourth quarter, bringing our worldwide installed base to 334 units. More than 70 centers are now using our systems for treating and preventing keloids in addition to treating non-melanoma skin cancer. I also note that of the 23 systems shipped during Q4, 11 of them were SRT-100 Visions. 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.

Our R&D team has developed new applications, products and upgrades to our offerings. Higher R&D expense during the fourth quarter was anticipated and supports our initiative to drive revenue growth for the foreseeable future.

During Q4, we continued our development work in intraoperative radiation therapy, or IORT, for breast and other cancers. Of note, at the end of December, we filed the 510(k) application with the FDA covering the use of our new IORT system. Our R&D expense level in the fourth quarter reflects this investment, and we expect similar spending levels during 2018. The R&D expense also includes expenses of protecting our proprietary technology, and we now have 4 patents issued and 14 pending. As anticipated, our sales and marketing expenses are quite a bit higher this year as compared with last year, reflecting the expansion of our direct sales force and additional marketing activities.

I am very pleased with the return on investment from these professionals, which will only increase going forward. Although we are comfortable that we have enough sales reps to cover all our major territories, we're looking to make modest increases to our sales and marketing organization in 2018. We also plan to introduce new products during the year that will allow our sales and marketing professionals to further leverage our installed base of physician customers. We continue to invest in marketing activities and in an expanded presence at important medical conferences and trade shows. These efforts have broadened the awareness of SRT and Sensus, and recent clinical research has garnered additional support.

We are very pleased with the reception to poster presentations at both the ASDS Annual Meeting and the Fall Clinical Dermatology Conference, which illustrated the low recurrence rate of keloids post-keloidectomy in conjunction with SRT. We are looking forward to the American Academy of Dermatology Annual Meeting being held in San Diego from February 16 through the 20th. We'll be showcasing our products, including some new products. We look forward to see you -- seeing you at our booth if you're in the area, and our booth number is 4407.

During last quarter's conference call, I discussed our international efforts. Recall that we received clearance in Mexico during the fourth quarter for the SRT-100 for the treatment of non-melanoma skin cancer and keloids. We continue to engage with several potential distribution partners and are preparing for an awareness program to begin this spring and continue through the summer.

The high rates of skin cancer and keloids in Mexico, which are very similar to the U.S. market, should drive demand. We also continue to pursue regulatory clearance in Brazil.

Following the recent launch of the SRT-100 in China for the treatment and prevention of keloids, we're off to a great start, with 3 units already sold to our partner Chindex Medical in Q4. As a reminder, this is in addition to our previous launch in China for non-melanoma skin cancer.

We jointly launched the SRT-100 for keloids at the International Congress of the Dermatologic & Aesthetic Surgery International League, or DASIL, in partnership with Chindex Medical, which is a subsidiary of Fosun Pharma. We are excited about the growth opportunity that keloid indication represents in China, as this patient population is very large, approximately 20% of the world's total.

As I've mentioned in the past, we are focusing, among other things, on preventing and treating keloids associated with Cesarean sections, and we have developed a special oval-shaped applicator for use with the SRT for this indication. According to a study 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 postsurgical keloid scarring formation. With the relaxation of China's One-Child Policy in 2015, the prevention of keloids that form over the surgical scar following the first C-section will lessen complications of a second C-section. We are also awaiting China FDA clearance for the SRT-100 Vision, which we anticipate receiving some time in 2018.

We are planning to expand our presence in Israel as part of an enhanced international strategy and expect to have more information about this initiative in the coming months. Although we are developing our own products, we continue to evaluate synergistic business opportunities for our sales reps to sell into their existing channels. These are intended to include products that are immediately accretive to revenues and to earnings. We will also look at products with an existing sales force that could cross-sell our SRT systems. We intend to be very judicious with respect to any acquisitions, and we'll vet them very carefully.

Although we're working to increase sales of service contracts and appreciate the recurring revenue associated with them, our primary focus remains in driving sales of capital equipment. As a reminder, in the U.S. alone, there are approximately 950 Mohs surgeons, about 14,000 dermatologists, 5,500 radiation oncologists, 6,500 plastic surgeons and 1,400 hospitals and surgery centers that compromise -- comprise our target market. We continue working to gain customers in this market, but with worldwide installation base of 334 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 fourth quarter of 2017 increased 33% to $6.5 million, up from $4.9 million in -- for the fourth 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, almost half of the units we sold were Visions.

Gross profit for the fourth quarter of 2017 was $4.3 million or 66.7% of revenue. This compares with $3.3 million or 68.5% of revenue for the fourth quarter of 2016. Gross profit and gross margin in both quarters were positively affected by the increase in sales of SRT-100 Vision systems.

As Joe mentioned, we made 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 fourth quarter of 2017 was $2.1 million compared with $1.7 million for the fourth quarter of 2016. The increase was primarily attributable to higher sales headcount, increased participation in trade shows and other marketing activities.

General and administrative expenses for the fourth quarter of 2017 was $0.9 million in both the fourth quarter -- similar to the $0.9 million in 2016.

R&D for the fourth quarter of 2017 was $1.7 million compared with $0.7 million for the fourth quarter of 2016. The increase was attributable to research projects that were accelerated in the fourth quarter. This was primarily related to the acceleration of the FDA submission in December of the IORT product.

The net loss for the fourth quarter of 2017 was $0.4 million or $0.03 per share, this compares with net income for the fourth quarter of 2016 of $33,000, which rounds to 0 per share.

Adjusted EBITDA, which we define as earnings before depreciation and amortization, income taxes, interest and stock compensation expense, was a negative $0.2 million for the fourth quarter of 2017 compared with a positive $0.2 million for the fourth quarter of 2016.

We continue to have a strong balance sheet with cash, cash equivalents and investments of $11.2 million as of December 31, 2017, and no long-term debt. As of December 31, we had $2.2 million outstanding under our revolving credit facility.

In October 2017, we increased our line of credit with Silicon Valley Bank to $5 million, up from $2 million previously. The new line includes a $2.5 million non-formula sublimit that will be available to us even without a borrowing base from eligible accounts receivable. This should allow us additional flexibility as we continue to grow our business.

Turning to the full year results. Revenue for the year ended December 31, 2017, was a record $20.6 million, up 39% from $14.6 million in 2016. Gross profit for the year was $13.8 million or 67% of revenue compared with $9.8 million or 66.5% of revenue for 2016. Selling and marketing expense for 2017 was $8.3 million compared with $4.9 million in 2016. General and administrative expense was $3.9 million for 2017 compared with $3.5 million of 2016. R&D expense for 2017 was $5.5 million compared with $1.8 million for 2016. The net loss for 2017 was $3.7 million or $0.28 per share compared with a net loss for 2016 of $0.3 million or $0.03 per share. Adjusted EBITDA for 2017 was a negative $2.9 million compared with a positive $0.7 million for 2016.

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

Thanks, Arthur. Looking ahead to 2018, our management team will continue to drive double-digit revenue growth for the year. With that, we expect that our installed base will increase to over 400 units, and we're looking forward to continued sales momentum as our existing sales and marketing staff becomes fully productive. And as I mentioned earlier, we add modestly to that headcount.

Before we take your questions, I'd like to mention that we have an active schedule of conferences in front of us. As a reminder, if you're going to the AAD Annual Meeting in San Diego in February, we'd love to see you at booth #4407. And March 1 through 4, we will be at the South Beach Symposium in Miami.

So with those comments, operator, we are ready to take questions.

(Operator Instructions) The first question comes from Anthony Vendetti with Maxim Group.

I just wanted to ask you a number of questions, but I'll start with a couple and then I'll hop back in the queue. ASPs for the Vision had been around $400,000, right. Is that correct?

Correct.

In the fourth quarter...

They're little less than that, Anthony, because of the volumes.

Okay. So that...

High $300,000s, Anthony. We're still targeting $400,000, but its -- the ASPs for the Vision have been in the high $300,000s.

Okay. And is any of that to do with, when you sell to a distributor? Or is that just general across all the products?

That's across all the products.

Okay. And what about for the SRT-100?

It's still very close to $200,000.

Okay. And then in Mexico, I thought you had signed up a distributor already. Is that -- has that changed?

It hasn't changed, but what I will tell you is that we're negotiating with a couple of distributors. So we want to take the best of both worlds. So we'll come to a conclusion probably before AAD.

Okay. So the first one you signed up, it wasn't an exclusive?

It wasn't an exclusive. No.

Okay. And is the plan to still roll out in Mexico in the first quarter?

Yes.

Okay. So 3 systems in China right now. Is that right? Any update on the progress? I know you're working with Chindex, but what's sort of the schedule for the rest of 2018?

Again, we renewed the agreement with them. We have an aggressive schedule. So there will be consistent contribution from China on a quarterly basis. That's as far as I'll go on that agreement.

Okay, okay. And then the revenue recognition on this, Arthur, right, is -- you don't recognize the revenues until Chindex actually sells it to an end customer, correct?

No. We recognize revenue when we ship to our distributors. And obviously, we monitor what they're doing with the systems that we ship. But our policy is to ship -- is to recognize revenue upon shipment to distributors.

Okay, so when you ship it to Chindex. Okay.

Anthony, just to let you know, they don't order a product unless they have a customer it goes to.

Right. I was just -- I was going to say -- at these prices, they're not stockpiling.

No, they don't have inventory.

The next question comes from Suraj Kalia with Northland Securities.

Joe, can you hear me all right?

Yes.

So a bunch of questions, Joe. Were there any pull-throughs from the hurricanes in Q3? And if yes, how much?

No. The hurricanes in Q3 really didn't affect us. We were able to bypass a lot of that, and we didn't receive a direct hit in Florida. Our customers were fine, and it didn't stop any of the order-taking in Florida or up the coast. The only hits we got were some personal damage to the employees' homes or things like that. But everything was still a go.

Okay. In terms of FY '18, your guidance, or at least the implied guidance, Joe, is at least 66 units. So the question I have, should we expect half and half split between Vision and the base SRT? Or can you give us some additional color there?

Well, I think that we have been very satisfied with the way the split has taken place over the last year. We're still happy with the reception that the Vision has taken by these dermatologists who are really gravitating towards a more features-rich product. So we want to continue that trend, and as far as we see it, that trend will continue.

Got it. In terms of -- the numbers I have are: FY '16, there were 59 units; FY '17 were 68 units and FY '18, at least the guidance is for at least 66 units. Can you juxtapose that with the number of reps on hand? My understanding -- at least the numbers that I had were on Q3 '17, you all had roughly 27 reps. So just kind of lay it out for us, these many -- we had these many reps in '16, '17 and this is where we expect to go in '18 so that we can calibrate productivity so on and so forth.

Sure. In '16, we had 5 reps. In '17 -- at the end of '16, at the beginning of '17, we started mounting, and to this date, we have 22 total reps, 3 of which are dedicated to the hospital market, and the other 19 are dedicated to the dermatology, plastic surgery space.

And what's the expectation for FY '18? Exiting FY '18, I know you had said modest increase in SG&A, can you quantify that in terms of number of feet on the ground?

Well, we have an expectation for everybody to sell 5 systems. And so some people sell 4, some people sell 6, and so on and so forth, and a lot of that has to do with the expertise and a lot of it has to do with the territory configuration. There are some territories that might be a little bigger than other territories, therefore there's maybe some additional opportunities in those territories. But we manage our business to a high number, and we try to do the best to achieve those numbers. So the expectations that we create for ourselves are much higher than what anybody else creates for us. But we manage to those numbers very, very well. And of course, there's some significant opportunities with every one of the sales reps, and then there's some opportunities that we have to always improve within the sales organization. And we do that very quickly, very rapidly and whenever we need to do it.

Got it. And final 2, Joe. Are we still early in the game where you would advise, "You know what? Don't focus on the utilization rates," whether you want to define it as same-store sales. Just -- I'm more curious, how many patients are been treated per account. Just sort of the trend lines you see. And the second question I have -- Joe, I think so we have an idea, but just for the audience at large, it would be helpful if you can quantify the IORT opportunity, the ability for cross-selling and increased rep productivity.

No, I appreciate it. First of all, we're seeing a growing number of the volume in every one of the sites that we have. We have numerous customers that have been growing the number of units that they have. We have customers that have, again, as little as 1 unit, but we have customers that have as many as 15 units. We're seeing a growth pattern within those customers, where we're seeing between 10% and 15% of the volume of skin cancer that they treat are being treated with SRT. I would say that, that's probably 3x as many as they were treating at the beginning. And if you go to the Medicare numbers, you'll see that, that's been growing at better than -- since day 1, I think it's somewhere around 300%, 400% from the first year that we were in business. So it's growing significantly as we look at the numbers for Medicare patients and payments. So that's one part. From -- with regard to the IORT product, we're not going to see much crossover with our sales force. We have a direct sales force for dermatology and plastic surgery. And then we have a direct sales force for hospitals. This is clearly going to be a hospital-based or an oncology-based product for SRT -- for IORT, and this is going to be an opportunity that we have to break into that market with the relationships that we've developed with existing customers. We do have approximately 50 units in hospitals across the country. We have several hospitals, quite a few hospitals overseas, and we think that all across those hospitals, these are opportunities to sell the IORT and to talk about the IORT within those hospitals. So we're seeing some good opportunities and some good feedback from those hospitals, and we expect to have units installed before the end of the year in some very strategic places.

The next question comes from Andrew D'Silva with B. Riley FBR.

I just have a few follow-up questions. I'll start -- just real quick with bookkeeping. Can you let me know what cash flow from operations and CapEx was either for the year or the quarter? And while you're finding that, maybe just help me understand some of the dynamic differences between some of the emerging economies you're in? For example, Mexico, I'm assuming is probably more likely to utilize the SRT-100 more frequently than probably the Vision due to costs, correct? And then, would that same thought anyway carryover to China, as there a single-payer dynamic would be likely highly focused on costs, and thus Vision being more expensive, do you still think that you'll be able to grab a strong toehold there based on your partnerships?

While Arthur is looking up those numbers for you, let me talk about the market in Mexico. We feel that the market -- I mean, your assumptions are absolutely correct, we have the same assumptions. We feel that the market in Mexico is very much like that of the United States, where we're able to sell the lower-cost SRT-100 product to hospitals, oncologists as well as plastic surgeons and dermatologists, with dermatology being our biggest market. So that's a good opportunity for us that we have that lower cost unit for them. With regard to China, it's a little different dynamic in that we're anticipating some very good sales with the SRT-100 Vision product. We've seen, and we've talked to several customers that already have the SRT-100, who've indicated that as soon as the SRT-100 Vision is available, they would like to upgrade to the Vision because of the benefits that you derive using ultrasound and being able to visualize the effect of the radiation on each and every treatment on the tumor that they're treating. And then, of course, with the keloids, that's going to be something that they're going to parlay into what we think is going to be the SRT-100 product only because that's just going to be a lower-cost system with a different application. But for the skin cancer piece, we think that they're all going to upgrade to the SRT-100 and any new products -- or Vision, and any new products could go to the Vision as well. So we're anticipating a good market in China for the Vision product. Other parts of the world, we're seeing that the SRT-100 will probably be the prominent unit that's going to be sold.

Okay, to answer your question, our CapEx is a small number. It's only $100,000 or so that we spent on CapEx this year, and cash flow was almost $3 million that we used in 2017, which was planned. And if you go back to the S-1, when we filed for the IPO and raised the money, we intended to spend significant -- a couple of million dollars of cash on ramping up our sales force, increasing our marketing activities and advancing our -- the new products that we submitted to the FDA towards the end of 2017.

That makes a lot of sense. And then also, really great to hear about the China opportunity with the Vision product. I didn't actually think that it would be so robust over there. Moving over to the IORT opportunity. Could you maybe just help me understand, maybe, what your competition is from a procedure standpoint? Right now are you trying to replace accelerated partial breast radiation or brachytherapy, that be -- would you be going head-to-head with? And then, is there any cosmesis data that you have right now that you can point us to?

Well, number one, the answer to the competition is yes. We will be facing brachytherapy as well as the other things with breast cancer that are addressed by the (inaudible) product and some of other things that they're using with Mobiletron and some of the other products. But we're planning on going head to head. We feel that we're going to have a much better mousetrap with much better results for the patients, much easier to use for the physicians as well as the radiation oncologists and the RTTs and so on. And it'll be a very robust product, I think, which, when displayed and when presented, I think, will surprise a lot of people. So the market is going to be extensive. We think that reimbursement is going to drive a lot of that market. And we think that we're going to have an answer to that problem when it comes about very, very quickly and very shortly.

Great. And any information on cosmesis as far as the cosmetic outcomes? Obviously, with APBI, there've been some issues post therapy. So I think, anything that gives better cosmetic results is probably going to be viewed fairly favorably in the breast market.

I think that you're going to see the favorable results, just like you're seeing with SRT, where you have much better cosmesis in administering SRT versus high-dose radiation. I think you're going to see the same thing with the IORT product.

Fantastic. And just last question. You mentioned optimizing the sales force by introducing additional products, potentially looking at acquisitions. Can you maybe give us a sense of potentially what kind of offerings you're looking at? Is it more devices, maybe pharma products? Anything in particular that you're seeing that you could opportunistically utilize your sales force right now with?

Yes, the vision that we have is the fact that we have SRT, which is an exclusive to us in the dermatology space. Other technologies that exist are obviously the laser technologies as well as some radiofrequency technologies that have some great applications in the dermatology aesthetic space. If you could imagine us having all 3 technologies, we'd be the only company in the derm space that can provide all 3 technologies to the dermatologists, and we would -- we could be literally a one-stop shop for all of these technologies. As we look through the market itself, and as we've evaluated and even gone into due diligence with several companies, we've discovered that it's obviously a very, very big cost to buy companies that have existing revenues, which we love. But there's, it would relate to a lot of cash outlay, a lot of stock outlay, a lot of dilution for our stakeholders and our investors, and we have such confidence in our engineering team and our product development team, our R&D team, we think it's one of the best in the world with the space that we're in. We feel that there could be an opportunity for us to develop these products at a lot lower cost internally and bring them to market and have far superior products than exists today in that market space. So we're really being very careful in what we're looking at, how we're looking at it and trying to evaluate it with the expertise that we have in-house and the expertise that we are gaining. Now one of the initiatives that we'd mentioned during our talk is the expansion into and opening up an office in Israel. We'll have some additional information on that. But if you look at technology that's coming out of Israel, it's probably some of the finest technology in the world, health care technology, and especially in the aesthetics world, whether it's RF or laser. We want to try to capture as much of that talent or information or ideas as we possibly can, and see what we might be able to do with it and continue to progress from there. So that's part of the strategy that we have, and we'll find out very, very quickly if it's a good strategy or not. But in the meantime, we think that it's a very cost-effective approach to trying to get into some of these markets, whether it'd be an acquisition or whether it be our own development.

The next question comes from Yi Chen with H.C. Wainwright.

This is Mitchell on for Yi. So you've had 9 consecutive quarters of double-digit revenue growth. How long do you think this is sustainable? How many more quarters? And then, how long do you think it will take to hit breakeven?

All good questions. From our standpoint, we hope that it never ends, but you know that, over time, it's going to be very difficult to maintain 39%, 40% growth year-over-year. That's for sure, because of the -- just pure numbers. But we continue to drive that kind of growth with our sales force and with our customers, and we see a very long runway because we really haven't penetrated this market at all, quite frankly. The biggest and the best is still ahead of us. So that's one of the opportunities that we see and we continue to thrive on. Bringing in more products to fill our salespersons' briefcase, I think that we're developing very good relationships with our customer base. We like our customer base. We love our customer base. It's our biggest asset. And we feel that we have some of the best doctors in dermatology that are working with us and they continue to work with us and they enjoy working with us. So we want to capitalize on those relationships and provide them the opportunity to give us decisions on other technologies that we might have in that bag. We're confident in the sales force that we've begun to build and grow, and we want to make sure that we capitalize on all of their talents and skills, and so we want to give them more product to sell and give the opportunity to those doctors to grow.

Okay, regarding your question about breakeven, we're not giving guidance. And I'll say that we continued to spend carefully. Even though we spent much more in 2017 than 2016, we think we're spending wisely and we're spending where we need to in order to continue to grow the top line. And of course, we're watching our capital, raw cash balance, so that we're not using more of our cash than we feel comfortable using. But we're going to continue to spend wisely and -- in order to continue to grow.

Mitchell, just some feedback. We've been, or we've had 7 years now of operation. Four out of the 7 years, we've had positive EBITDA. The first year, we didn't. 2014 was a year of hold and stay in place because of the Affordable Care Act kind of froze our market and people wanted to see what was going to come of it. So it picked up where it left off starting in January of 2015. This year, we told our market, after going public last year that this is what we were going to do. Trust me, we hate spending money. We're cheap as hell. We do not like to spend a nickel. But it kills on spending the money that we did spend. But the results were, we sent products to the FDA for evaluation a year ahead of time. So this is going to accelerate in 2019 with some important revenues that we think, when you're looking at an IORT product, that's going to be significantly higher in price than the products that we're selling now. So we felt that it was important that we accelerated that road map, and we continue to drive accelerating the road map, whether it be with our own technology or developing new technologies.

The next question comes from Scott Billeadeau with Walrus Partners.

Couple of questions. Just following up on the spending. Certainly, when I look at Q4 rate, particularly, like sales and marketing, the Q4 number, multiply that by 4, and that's basically your 2017 total. Same with G&A. R&D, a little different, because your Q4 number, you analyze that, it's a little more as you tried to push the IORT and get the 510(k) filed. Looking at these numbers, you think you would start to get some leverage off those as we look into this fiscal year and beyond, as you get some revenue growth, just given you probably don't have much in G&A going, sales and marketing is going to be modest, and then depending upon if R&D maybe comes down or you peaked it with the IORT here in Q4 or if there's other stuff. Maybe give me a characterization of run rates of those.

Arthur?

Well, selling, marketing is going to go up. As we increase our revenue, we are going to pay more commissions. And we're also going to have some -- the number of the salespeople that we hired in 2017. We have partial year of expense, and in 2018, we're going to have a full year. So those 2 are, I'll consider, normal increases.

Given that, I'm kind of curious, because sales and marketing, when you look at the Q4 number and you annualize that, 4x the Q4 number equals, basically, what the whole 2017 was. So I'm trying to figure out...

You have to keep in mind that the Q4 is a very heavy quarter for trade shows. So don't try to -- I don't think it's completely valid to annualize Q4. I think you have to really look at the whole year. Q4 and Q1 are very -- are significantly higher because of the trade show activity.

Right. But I want -- I guess, what I'm saying is, if I annualize to Q4, that gives you all -- I see what you mean. Yes. It gives you all of...

Significantly higher in Q4. There's major trade shows during that quarter. Okay? And the R&D, we are going to continue spending. We submitted the IORT to the FDA in the end of 2017. There is a lot of work for us to do between now and when we ramp it up to production and formally release it for sale.

Is that usually a 6-month?

So whenever we can, we spend the money on IORT.

But is there a 6-month -- is that kind of a 6-month window for them? I don't know what the 510(k) (inaudible).

Again, we're trying. If there's one thing that I don't sleep about, it's always government issues, because we can't control it. So it's a 510(k). It's supposed to take 90 days. But when you submit something and the day they send you some questions, which -- they're going to ask questions -- I mean, they have every right to ask questions, clarifications on certain things -- the calendar stops and starts all over until we respond, and then it begins all over again. So with the anticipation of the IORT, I would suspect that we're going to get approval in the first half of the year. We're going to be able to start selling it in the second half of the year. And then we're going to run up against the calendars that are involved with hospital schedules and things like that with their cycle -- their financial cycle. Either they start January 1 or they start October 1, and that's going to start the cycle to try to get these units into their budget, and it could take a year from those points. So we don't have a lot of time. There's going to be some hospitals that have discretionary dollars, and there's going to be some hospitals that want it sooner rather than later and they might give us those checks a whole lot sooner. But hospital businesses, we have to be patient.

And you know, you mentioned, what -- do you have any range of what a ASP on the IORT unit will be?

I'll give you a nice number.

Kind of way too early on this.

No, no. I mean, we've gone through that. The range is going to be $800,000 and $900,000. It's going to be a significant piece of equipment. But on the other hand, what we've also learned is the fact that the higher the price for a hospital, the more attention they pay to it. It's tough to sell them the $200,000 product when we're doing MRIs and/or PET/CT scans out of GE, our service contracts were more than our SRT-100s.

Yes. And any different thing on an IORT in terms of any recurring revenue much? Or is it kind of the same type of thing that you see in your other 2 products?

There is going to be recurring revenue opportunity.

(Operator Instructions) The next question comes from Ray Young with Dolphin Asset Management.

A quick question on IORT. What is the predicate device? And also what is the expected gross margin?

I think it's a little early to talk about the gross margins at this time. We've targeted a selling price of between $800,000 and $900,000, but we're still working. Arthur mentioned before that it's an ongoing thing with IORT, and we're still working with the sourcers, the people who're going to source a lot of the equipment for us and lot of the product and components. We've had the opportunity of building a couple of these units for the testing and for the FDA purposes. But now when we get into production, we still have to get our costs identified, and we're still working on those. And we have several months to get it. But we'll get it as low as we possibly can, and we'll try to keep the same targets of 65% to 67% margins.

Okay. And what is the predicate device?

I'm sorry, I didn't hear you. Oh, the predicate device? You have IORT with the Xoft product, you have IORT with a Zeiss product. So those predicates exist. They've been around for quite a while.

Okay, great. And then in 2017, I think you said 68 units. Can you talk about the, I guess, the geographic concentration for those placements?

Yes. The majority of those placements, I would tell you, 90% of those placements are in the U.S. market. And we have some very, very big states that have needs for skin cancer. So it's the normal sunshine states, if you will, which is Florida, Arizona, Texas, California. But we're starting to see an uptick in the Great Lake states, where people spend a lot of summers around the lakes and so on. So it's really all over the country. But as we expand our sales force, I think that we're going to continue to see it grow throughout the country.

Okay. And what percentage of the 68 units require third-party financing?

We're seeing approximately 50% of the units that we sell are using our resources for leasing. The other 50%, the doctors are taking the cash out of pocket to pay for it.

Okay, great. Okay, fantastic. And lastly, the 2 trade shows, I guess, in San Diego and South Beach, do you move a lot of products at those shows?

We always demonstrate our technology at those shows. We have clinical presentations as well that are done usually by the doctors who have performed these procedures, whether it'd be keloids or skin cancer. So there's a lot of interaction with the doctors. We also have podium time with the physicians, having -- making presentations, demonstrating or talking about SRT and the results that they're having in their practice. So that continues to grow, and we have more and more podium time each and every year. As a matter of fact, I invite everybody to go online for South Beach. South Beach is, in particular, a very, very good trade show for us, along with the Fall Clinical, which is in Las Vegas every September. These are more -- these are smaller trade shows that are more focused on physician-to-physician training and education. And at the South Beach, we sponsor a full day of superficial radiation therapy, with physicians from all across the country presenting. And then there are workshops that are performed at all of these shows that involve SRT as well, including the American Academy of Dermatology.

Next is a follow-up question from Anthony Vendetti with Maxim Group.

Yes, just a couple of quick ones. In China, you're still expecting CFDA clearance or approval by mid-2018 for the Vision product?

Again, what we said in our presentation today was that we were expecting in 2018. I hope that we get it in the first half of the year, but again, you can never count on the government for providing you anything. But like the CFDA approvals that we got for keloids, that was 6 months ahead of time. So we were grateful for getting that one done way sooner than we thought. We hope the same thing transpires for the Vision.

Okay. And then, on the SRT-100 Plus, what other -- what improvements, specifically on the Plus, is there over the base SRT-100?

There's 2 main components of that. The first thing is that we've changed out the radiation source so that it has a lower energy, around 20 kV, which provides Grenz rays, G-R-E-N-Z, which allows for the treatment of psoriasis. The second major component of that is our manufacturing team, R&D team, manufacturer or we will be able to manufacture it at a slightly lower cost, which will allow us to or help us with our margin.

Okay. And -- so the indications for the Plus then would be -- additional indications would be psoriasis. Anything else, or psoriasis is the...

No. Just psoriasis, keloids and the skin cancer. And keep in mind, that radiation tube was already on the Vision product, so it's also part of the reason why the Vision is increasing in volume as well.

Have you come up with an ASP for that yet or not yet?

We want to sell at the same as we're selling the SRT-100.

This concludes our question-and-answer session. I would like to turn the conference back over to Joe Sardano for any closing remarks.

Well, so in closing, everyone, I want to thank you all for your time this afternoon and for your interest in our company as we continue to grow Sensus Healthcare. We look forward to updating you on our activities during the first quarter and speaking with you again when we report Q1 results in early May. Again, our phones are always open to you, and we look forward to seeing you along the way as Arthur and I continue to hit the road. So thank you all, and have a great day.

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