Sensus Healthcare Inc (SRTS) 2020 Q1 法說會逐字稿

Ladies and gentlemen, and welcome to the Sensus Healthcare First Quarter 2020 Conference Call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to your host, Kim Golodetz. Ma'am, the floor is yours.

Thank you, operator. This is Kim Golodetz with LHA. Thank you all for participating in today's call. Joining me from Sensus Healthcare are Joe Sardano, Chief Executive Officer; and Javier Rampolla, Chief Financial Officer. As a reminder, some of the matters that will be discussed during today's call are forward-looking statements within the meaning of federal securities laws. All statements other than historical facts that address activity Sensus Healthcare assumes, plans, expects, believes, intends or anticipates and other similar expressions will, should or may occur in the future are forward-looking statements.

The forward-looking statements are management's beliefs based on currently available information. Sensus Healthcare undertakes no obligation to update or revise any forward-looking statements, except as required by law. All forward-looking statements are subject to risks and uncertainties, including the continuation and severity of the COVID-19 pandemic and its impact on sales and marketing, and those risk factors described in the company's forms 10-K and 10-Q, as filed with the SEC. 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 good afternoon, everyone. Before we get into our Q1 results, I want to thank all of the physicians, nurses, lab technicians, everyone on the front lines of this pandemic, which has impacted all our lives.

I want to thank all of our employees who worked with our customers and their patients during this time period. Our applications and service team, our manufacturers, especially those that have converted their normal line of manufacturing into manufacturing ventilators, masks, gowns, et cetera for the very needy at this time and supply chain teams for making it all happen.

I want to thank all our customers who continue to treat skin cancer patients while most surgeries were postponed for many weeks. I want to thank all the people in the delivery services and all the truckers who continue to do their jobs during this time, and all of these folks will continue to do so in the future as we all figure out whatever that new standard will be.

I surely hope that you and your loved ones are well as we continue to look out for one another during the COVID-19 pandemic. I am so very proud of the Sensus team and how together we are navigating these challenges, which significantly impacted our first quarter's financial results.

Our intra-quarter sales historically have skewed toward the very end of the quarter, and that is the time period in Q1 when the pandemic began closing the U.S. economy. As a result, our sales of $1.7 million during the quarter were lower than we had anticipated when we spoke to you in February when reporting our fourth quarter results. At that time, we didn't yet know what was immediately ahead. While we wait for economies to reopen, we've been taking multiple actions to prepare for the resumption of post pandemic daily life.

We continue our work to expand awareness of SRT and its utility in treating non-melanoma skin cancer while supporting our physician customers and protecting cash so we emerge from this crisis ready to do business.

We've been -- we have used this time of social distancing as an opportunity to reach out to customers on a personal level as never before. Sensus has built an impressive network of contacts over many years, and we are leveraging our contacts to help customers as much as possible, including sourcing and providing items such as protective masks and critical medicines. We also are sponsoring a series of online programs for dermatologists during which they share information and practice regimens with one another.

The feedback from these programs has been outstanding, and they've been very helpful in keeping Sensus in front of both key opinion leaders and a broader customer base. We are planning our third Zoom presentation led by industry leaders who will share their experience with treating patients during this time and discuss how they're preparing to fully open their practice.

SRT treats non-melanoma skin cancer. And although surgical treatments were put on hold for the majority of patients, SRT treatments became a lifesaver for many practices. On that note, the market has learned that our programs are affirming the use of SRT as an alternative to most surgery. As during this time, physicians are particularly reluctant to incur the risks of infection and adverse events associated with a surgical procedure.

We are convinced that SRT will continue to grow as the #1 nonsurgical choice for skin cancer treatment as physicians and patients alike see the excellent curative results and the ease of use of SRT. We know for a fact that when it was time to shut down practices, the SRT system was the last unit in the practice to be turned off. Now we're seeing some practices beginning to open. And we are seeing that SRT unit is the first device to be turned on as these practices begin to reengage their patients. We all know that skin cancer is not going away anytime soon. And during this time, the Sensus SRT technology is becoming a more valuable tool in treating skin cancer.

No anesthesia, no pain, no cutting, no bleeding, no stitching and no scarring. These are the benefits that patients will experience, especially those with preexisting conditions. We are learning during this pandemic that elderly patients with diabetes, heart conditions, hypertension, are most vulnerable to COVID-19. These same patients are also at greater risk with surgery. SRT from Sensus is a more cost-effective and safer way to treat skin cancer.

We have also stepped up what we call our Sensus university programs where we provide application training for the SRT systems. We are finding that refresher courses are proving to be popular so that physicians and their assistants can keep their skills sharp during this time when they are not seeing patients. However, we are now beginning to receive confirmation of dermatology clinics reopening as we speak.

The timing of this focus back to the fundamental features and benefits of SRT is fortuitous. With our main reimbursement code expected to be revalued upward by the centers for Medicare & Medicaid services this summer and most of surgery reimbursement expected to be revalued downward, we believe SRT will make significant market inroads once the expected new rates go into effect on January 2, 2021. We'll learn what those new rates are this summer, then there will be a public comment period and then the final rates will be set in November. We believe the new rates will put SRT in a compelling competitive position. To-date, we have penetrated only about 2% of the U.S. market. So clearly, there is plenty of opportunity.

The American Academy of Dermatology Annual Meeting in late March was virtual this year. But we did have the opportunity to showcase our SRT-100 vision and the SRT-100+ systems remotely to more than 11,000 dermatologists. Although we were not able to follow-up on the leads we generated in person, we have reached out telephonically and are assembling a list of interested customers to call upon when regional economies open up and practices are back to more normal activity. We've also been advised that this year's ASTRO meeting scheduled for October 25, 28th in Miami is now a virtual meeting as well. We will pursue all possible activities in order to maximize our opportunities during this meeting as well.

We are encouraged by the activity we are starting to see in Asia as China and South Korea were the first countries to be impacted by COVID-19, and they are also the first to turn the corner and head back to normalcy. We have received a few inquiries from potential customers in China and if our trade relations remain stable, we believe we'll resume modest sales later on this year.

Now I'd like to talk briefly about Sculptura, our anisotropic radiation therapy system with beam sculpting capabilities and robotic respiratory tracking. This system has utility in as many as 17 different oncology indications. However, this COVID-19 pandemic is impacting research work with Sculptura at luminary hospitals, including the University of Pennsylvania, so we won't have the benefit of supportive research during the near term. Given current treatment constraints at hospitals, our Sculptura sales forecasts are guarded this year. Although recent interest has been very high, we believe sales of these systems will largely be pushed into 2021.

Before I turn the call over to Javier to drill down into the financial results, I want to mention that during the fourth quarter of 2019, we reduced expenses, including rightsizing our team and expenses. Given these actions, along with our cash position and revolving line of credit, I'm confident we are well prepared for the resumption of sales as geographies open up. Already, we are seeing a return to economic activity in much of Florida, except for Dade, Broward and Palm Beach counties, which we expect to come back in the next week to 10 days. So while sales and earnings will not be what we had hoped for this year, we do think that there will be improvement later in the year.

Now I'll turn the call over to Javier. Javier?

Thanks, Joe. It's a pleasure to be speaking with you all this afternoon. Revenues for the first quarter of 2020 were $1.7 million compared with $5.4 million for the first quarter of 2019. As Joe mentioned, revenues were adversely impacted by COVID-19, primarily near the end of the quarter as social distancing forced decisions to then probably close their practices. During Q1, we sold 3 SRT-100 system and one SRT-100 Vision system in a direct sale.

Gross profit for the first quarter of 2020 was $0.7 million or 42.2% of revenues compared with $3.3 million or 61% of revenues for the first quarter of 2019. The decrease was primarily due to the lower sales previously mentioned. Selling and marketing expense for the first quarter of 2020 was $1.8 million, down from $2.5 million for the first quarter of 2019. The decrease was primarily attributable to lower trade show expense due to cancellations related to COVID-19, decreased commission expense due to lower sales and lower overall spend on marketing activities. General and administrative expense for the first quarter of 2020 was $1.3 million compared with $1 million for the first quarter of 2019. The increase was primarily due to a onetime severance expense on related legal fees.

Our G&A expense going forward is expected to be around $1 million per quarter as we continue with the cost-cutting measures during 2020. Research and development expense for the first quarter of 2020 was $1.2 million compared with $2 million for the first quarter of 2019. The decrease was primarily due to a reduction of research and development related to the Sculptura system. Sensus reported a net loss of $3.6 million or $0.22 per share for the first quarter of this year compared with a net loss of $2.1 million or $0.13 per share for the first quarter of last year.

Adjusted EBITDA, which is defined as earnings before interest, taxes, depreciation, amortization and stock compensation expense was negative $3.3 million for the first quarter of 2020 compared with a negative $1.9 million for the first quarter of 2019. We had an increase in our cash position of $300,000 during the quarter with cash, cash equivalents and investments of $15.8 million as of March 31, 2020, up from $15.5 million as of December 31, 2019. The higher cash position is the result of the lower expenses and improved working capital. At quarter end, Sensus had no long debt term and outstanding borrowings on our revolving line of credit.

I'm very pleased that subsequent to the close of the first quarter, we were able to expand our revolving credit agreement with Silicon Valley Bank to $10 million, up from $5 million previously. In addition, Sensus received a loan under the Small Business Administration Paycheck Protection program enabled by the Cares Act of 2020 to be used for employee compensation and facilities cost. We're confident that with the cost-cutting would affect along with the current cash access to the revolving credit agreement and the PPP loan, we're financially well positioned to come through the coronavirus pandemic intact and ready to do business.

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

Thank you, Javier. Obviously, a lot changed very quickly since our fourth quarter financial results conference call. And it goes without saying that our plans for profitability this year are unlikely to be met. However, we are looking forward to an excellent 2021 with expected higher reimbursement amounts for SRT and increased work with Sculptura along with commercial sales. As a reminder, our products have enormous room to grow. As I've been saying for some time, our SRT systems are well positioned in a large market consisting of some 14,000 dermatologists, 1,000 Mohs surgeons in the U.S., representing more than 7,500 offices and growing. Not to mention a further 6,500 plastic surgeons and 5,500 radiation oncologists. And we provide a compelling alternative to surgery for millions of patients and arguably the only solution for the treatment of keloids.

As a reminder, a 5-year retrospective study with SRT showed a cure rate of 98.9%, which exceeds the Mohs cure rate for non-melanoma skin cancer. The market for keloid treatment with SRT is growing and has the data to back it up with a study showing only a 3% recurrence rate after treating keloids with SRT. With an installed base of 474 units, we've barely scratched the surface. And with more Mohs surgeons turning to SRT during the time of COVID-19, we believe many of them will even be more convinced of the benefits.

Thank you for your time and attention. And now operator, we're ready to take questions.

(Operator Instructions)

And our first question is from Andrew D'Silva.

So obviously, COVID-19 has had a dramatic impact across the industry. So this is not any fault of your own, but I'm just curious when looking at maybe the second or third quarter, do you think that the change in patient volume that's taken place thus far COVID could limit the amount of orders that could take place? Or do you expect there to be some sort of a bolus at some point? Because patients eventually are going to have to come back and get treated and when that is about to happen, you would expect that practices would at least need to have some equipment in place to be able to take care of that. Just kind of curious how you weigh that.

Andrew, I think that what we're seeing right now is that doctors who are Mohs surgeons that have had our equipment use the equipment all the way to the very end until they had to close their practices. They delayed and postponed Mohs surgery for up to 4 to 8 weeks. And we've talked to some Mohs surgeons currently who are back on track with opening their offices saying that they're only going to treat with SRT because it's too early to get involved with Mohs surgery and exposing those patients during the pandemic. So from our perspective, we're seeing some very strong business people running these medical practices who you have to figure have lost $1 million, $2 million during this closure, during this time. They've got to recoup those funds to keep everything going, to keep their salaries, to keep their premises going. And I think one of the things that we've identified here from all of the doctors is the fact that SRT was really a game-changer for them and a lifesaver as they were able to continue to treat their skin cancer patients, continue to work on the backlog of skin cancer patients and then also continue with their productivity and most importantly, with their cash flow using the SRT.

Moving ahead, I think it's going to be even more significant. I think you're going to have a significant number of patients who are on backlog, if you will, waiting for their Mohs surgery. And if they're of the age and of which we know better than 95% of these patients with skin cancer are over 65, I think that they're going to want to minimize the risk. I think the doctors are going to want to minimize the risk. And I think surgery is going to be questionable. So I think that more and more, we're going to see the use of SRT. And I think that will drive demand up. And then when you're looking at the second half of the year, where at some point in July, we're going to see CMS making it clear as to what this new reimbursement is going to be, I think that's going to help us as well.

So I think that we're standing in a good position. I think it's going to help the patients identify with SRT, it's going to help the physicians identify with SRT. And we all know, for instance, what the restaurants are going to have to do. They're cutting the number of patients -- or number of customers that they have in their stores by 1/4. They're going to separate the tables. They're going to have 25% of their maximum capacity before cut to the 25%. Well, it's going to be the same thing with Mohs surgery because most of these Mohs patients have to come into a surgical area of the dermatologist practice and they have their own waiting room. You're not going to be able to have 3, 4, 5, 6 patients sitting in that small waiting room as they're getting cut upon and going in and out of the surgical suite.

So that's going to be minimized. They're not going to be able to do the same number of Mohs surgeries as they've done in the past. But if they want to maintain their productivity, if they want to maintain their cash flow, SRT is the best answer for these doctors to get back in the swing when they're coming back online with -- post-COVID-19. So I think it's a great opportunity for us.

Now it's going to require a lot of coaching, a lot of training, but we're prepared to do it. And I think the Zoom meetings that we've had -- and the last 2 Zoom meetings where we've had in excess of 100 people on each one of the calls with the third one set up in the next few weeks. I think it's helped us tremendously with doctors talking to each other as to why SRT has done so great in their practice, even though they're a Mohs surgeon.

That's interesting, and it actually makes a lot of sense. How about from a mobile standpoint? Could -- you have a turnkey partner, you're implementing a similar kind of turnkey initiatives in Florida. I was kind of curious, one, from a turnkey standpoint, how impacted do you think the industry has been from a cash standpoint, a working capital standpoint and ability to just fund operations going forward? And then two, is there an ability to transition for maybe an in-office model to an at-home model or a mobile model?

Listen, I wish that we had a drive-thru capability where we can just have a patient stick their head out the window and we could treat something on their face by putting the arm out the drive-through window. But I don't think that, that's going to be a solution. I think in any case, when these patients are told that they have skin cancer, to them, they remember the word cancer. It doesn't matter where it is. It doesn't matter if it's breast or lung. Cancer is cancer, and they're worried about it. And have to wait for treatment is a problem for them. And so if they are able to get into a treatment where they don't have to get cut -- literally, when you're looking at SRT, there's nobody that even has to place a hand on the patient. The people that are setting up the SRT, they don't even touch a patient. And so this is a great opportunity versus having to provide anesthesia to a patient and then put the gloves on with 2 or 3 people surrounding that patient and with a surgical instrument that cuts that patient open and then how many more times do they have to go back for wound care or for taking care of the stitching, whatever that is.

I mean, this is a much safer, easier way to do it. Even though there's multiple trips, it's safer for the patients. I think that everybody is going to acclimate themselves to that.

Now when you mentioned mobile, I think of -- we have several doctors that have our machine in the truck. And they bring that Sprinter van with the machine in it, and they can bring patients out of an assisted living facility and treating those patients in the truck or in the van because it's all set up. It's shielded, all the specs are available for them. That could be an opportunity for us in the future because a lot of these patients who exist in assisted living facilities, I don't think that they're going to want to go to anywhere too fast. And I don't think that anybody wants to go into those facilities to treat them. So this is a way of bringing those patients to a van where they can be treated for their skin cancer.

I know that the 2 groups that we have running those mobile vans are doing very, very well economically. And they probably are processing and treating more patients than stationary units. So I think there's going to be several doctors that are going to maybe look into this a little further as we speak.

Okay. Great. And then moving over to Sculptura. Just broadly in radiation oncology, it seems like physicians were making a move towards using SBRT as a treatment of choice because of the limited amount of fractions that are required versus a traditional external beam radiation therapy. It seems like IORT has kind of a similar benefit, although there's a surgery involved.

I'd be just interested on your take if there's any sort of tailwind from social distancing or just limited interaction due to communicable diseases that could tie into Sculptura as well?

Again, I think there's an opportunity there, Andrew. The opportunity is the fact that you have one treatment instead of multiple treatments. So if you think of somebody with lung cancer, post surgically having to go into a cancer center or into a chemotherapy area depending on the protocols that they're faced with, they have to do that almost every day of the week for 5 to 10 weeks. And you're in a room with a group of people waiting to be treated. And again, the social distancing is not going to be that great. It's going to be a tough process. So when you look at a surgical procedure that can be done and having the Sculptura product alongside that surgical procedure where it's just one-time, anything and everything in that surgical suite is very well taken care of postoperatively.

So the people in the hospital know how to secure those products and keep them from bacteria and things. Our system will be no different. So it will be a great opportunity, I think, to have a patient exposed only one-time to a treatment versus having to have the surgery anyway and then having a follow-up of 5 to 10 weeks on the other side.

So I think that this could be real important for the near future, plus the fact that it's a whole lot cheaper than going through the 5 to 10 weeks, a lot more cost-effective overall. So I think that, that continues to grow. And I think this pandemic is only going to provide more realization that this is the right way to treat their patients whenever they can.

Okay, great. Best of luck in 2020. Please, stay healthy and my best wishes to your family as well.

I appreciate it very much, Andy, and I can't wait for a box of your fruit to send my way. Those avocados for sure.

Our next question is from Scott Henry.

Unfortunately, I don't have any fruit for you, Joe, but I do have a couple of questions.

Food for thoughts.

For starters, I think Q1, the business really grounded to a halt. When you think about the way, it was only like the last half of March or maybe -- I don't recall exactly when this all took effect. But my question is when we think about Q2, would you expect Q2 to look worse than Q1?

Scott, I'll tell you that probably within a week of our call, which I think was around February 4 for the fourth quarter. It was about a week after that, that the medical community started realizing what was going on and what had to be done. So they were probably the first to shut down things and, of course, that impacted our Q1. With regard to Q2, it could very well hurt us even more in Q2 because I think when you're looking at these doctors who are reopening up their centers, the hospitals are going to take a long time before they refocus on what we want just like anybody who's selling MRIs or CT scanners, it's going to have the same impact for them.

But on the dermatology side, we're seeing them coming into focus with skin cancer and immediately going to SRT. As I mentioned earlier, it's the first unit that's being turned on. But that's going to clear up a lot of the backlog. It doesn't help us particularly with the prospects that we're looking at to react as quickly as possible because they might have to reassess where they're going to spend their dollars. Keep in mind, they probably lost $1 million during this time period, if not more. But I think that it can go either way. We just don't know yet where it could go. We have to get in touch with our customers. And I think the ones who are intent on buying prior to this will buy. Hopefully, it will be in the second quarter. We think that it can be in the second quarter, especially when they start listening to what happened to the other docs who had SRT, they were able to continue even though they were Mohs surgeries.

I think it's going to be a long time before people are going to get back to being comfortable with doing Mohs surgeries. I think the Mohs surgeons who don't have our SRT system will get right back into it. And I don't think that, that's right. I think that they need to hold off. And patients need to be aware of the fact that they need to go to a doc who perhaps is the Mohs surgeon, but also provides them with the alternative of SRT. I think those doctors are the ones that are going to say, I'm not going to do surgery on you, but we need to get rid of the skin cancer, and we'll use SRT. I think that's the best way to go. We need to get that word out there, and we'll do our best to do that.

Okay. And then another question. I mean when we think about 2021, do you think it will be normal versus expectations prior to this happening or do you think you have to kind of build momentum up again? Meaning, obviously, 2020 is heavily impacted. But then do you snap all the way back to where you were? Or do you just start growing again? I mean is it -- I'm just trying to get how you think of 2021 and the rebound, what that looks like?

Well, if you recall, I think most of you will remember that during the call in the first -- fourth quarter, I said to everybody that we're just -- we're planning on being profitable for the year, and we're looking forward to just getting 2020 out of the way. We wanted to get 2020 out of the way because of what was happening with announcements that we were expecting from CMS. Well, I think that is even more important today based on the consequences of what we're facing today with the virus. And so for me, I believe that there's going to be a lot of buildup between now and the end of the year. I think that there's going to be a lot of positive things that come out of patients being treated with SRT and not as many patients being treated with Mohs.

And I think practices realizing that this is the time to get into SRT because it's probably the device, the only device out there that can pay them money for existing patients that have skin cancer, and that skin cancer is not going to go down in volume. It's going to continue to rise so there's going to be a tremendous backlog as we come out of this year going into 2021. And I think that once it's known as to what CMS is going to do and where our reimbursement is going to be, I think that our base is going to get very, very excited and I think it's going to accelerate demand for SRT. I really believe that.

We believed that before the pandemic, and that's why we said back then that we just can't wait to get 2020 out of the way.

Okay. And then just reading in the press release, it sounds like Sculptura is going to be more of a 2021 event now. Do you think you'll place any machines in 2020?

We have possibilities because we have prospects that are still looking at the machine very, very seriously, and we've come very close with negotiations with some of the facilities. But there's such a distraction with a lot of these hospitals, and you can only imagine the losses that are being incurred by so many hospitals, including the teaching facilities.

I mean they have to redirect and refocus where they want those funds to go. And I just have a tough time seeing a CEO thinking of how much money he's going to spend on various things when they have to recoup what's going on with the pandemic. I think this pandemic is going to affect the hospital market for a longer period of time that's impacting the dermatology market.

So do I see us with an opportunity here and there? Yes. I see this with an opportunity because we're that close to some of those customers. Would I be disappointed or perturbed if it went into 2021? Yes. But I don't expect to lose those orders. Eventually, they'll come in. We just want them to come in now. But if they don't, I expect those orders to be in, in 2021.

Okay. And then on Q1, did you give us the service contracts revenue? How much was that?

I'll leave it up to Javier?

Yes. Service was $600,000.

Okay. And since I got Javier, question, the PPP money that you got, do you think you're going to have to pay that back? I mean that's kind of blurry these days for public companies.

Yes. Listen, the rules regarding and surrounding that are you have to maintain your staff. We cherish the people that we have working for this company. They're great people. They do a lot of work. And so this is able to cover all of the expenses for maintaining our people for the next 8 weeks as well as all the facilities expenses.

So we're very, very comfortable with that, and we think that by the time this expires without having to lay anybody off, worst-case is you got 10 years at 4% to pay it off. It's not a whole lot of money. We can pay it off right away. But the big opportunities that it could go away entirely as long as we don't lay anybody off. And that's what we expect.

Fair enough. And then, Joe, the reimbursement changes on the horizon this summer, what's your confidence level on those? Is that 100%? Or would -- I just want to revisit that?

I would say there's nothing that pertains to the government is 100%. So when you don't have it in your control, you're always worried. And that's -- if anybody ask me what keeps me up awake -- keeps me up at night, it's always government regulation.

So all I can tell you is that the process is going through its paces, and it's going according to what we feel it should do and how it should be. Now we've been exposed, I can't say about it, but we've been exposed to the numbers that have been presented by the AMA to CMS. And so we have confidence in the fact that we've got a relationship in working with CMS over the last 5, 6 years, to try to achieve those goals, and we don't anticipate that there would be any problem with CMS whatsoever. And I think it would make it an extremely favorable reimbursement for all of our doctors compared to where we've been.

And so as long as we continue the process, as long as we continue to see that progress as we go along, and we're monitoring it, I would tell you, on a daily basis, we're happy with where things are going. Can anything happen? Of course, it can. Of course, it can. But we don't think so. This is something that they're very interested in as well.

Okay. Fair enough. Final question, I know I've asked a lot. Just when I do the math, it seems like pricing has to be a little higher in the quarter to get to that number. Was pricing higher? Or am I doing the math wrong?

No, the...

The product mix.

Yes, the product mix showed that we had a higher average selling price in that first quarter. Javier?

Correct. We sold a total of 4 system, and one of them was a vision system sold directly. So it's the product mix that basically is doing that.

Our next question is from Anthony Vendetti.

So on Sculptura, I know you mentioned at the beginning of the call that you're pretty much expecting this to be a 2021 event in terms of selling the actual systems, and I think that's probably the right approach. But it if we do start reopening and even if hospitals take a while to get back, do you expect the pipeline to build so that even if you don't take deliveries or even if the hospitals don't accept deliveries before the end of the year, that you should build a pretty healthy pipeline if you still have all of the sales force in place for this particular product?

Yes. I don't think, Anthony, that we're seeing any less interest in the pipeline that we have. And we continue to grow that.

And I think the exposure as little or as great as we can access during the virtual ASTRO meeting will continue to grow for us. So I don't see anybody backing off of their interest, they all seem to want more and more data and information regarding Sculptura. I just see it being delayed into 2021 versus what we were trying to achieve in 2020 because of the distractions that the hospitals have faced. But I don't see a slowing down in the prospect base at all.

Okay. That's good. And then just remind me how many salespeople you have? And it sounds like you're doing Zoom calls with prospects for not just Sculptura but obviously for the SRT, the SRT-100, the Vision and so forth. How does that pipeline look for the Vision?

And then if you could just talk a little bit about, assuming you do get a higher reimbursement, assuming Mohs does come down, are you expecting a significant acceleration for the SRT systems as we move towards the back half of this year? Obviously, fourth quarter is generally the strongest quarter. If the COVID-19 situation is somewhat under control, and we don't see a resurgence in the fall, is it possible you could see a nice bounce back here in the fourth quarter?

We're anticipating a bounce back in the fourth quarter, understanding that COVID is on its way down. I think that, again, doctors in the dermatology space are business people, and they've got to find a way to recoup lost revenues from the time that they were shut down. This is one of the fastest ways to do it, whether you're an aesthetic physician or a Mohs surgeon. And again, there's many -- plenty of patients out there to fill that backlog, and they're going to be in a hurry to want to get treated one way or another. And again, being in that age bracket of skin cancer as well as COVID vulnerability they don't want to have surgery if they can avoid it.

So I think that this is going to bode well for existing customers. I think their volumes are going to go up. But I think that the doctors that don't have it are going to adapt to it very, very quickly because it's really the best way to get their practice back in shape.

Sure, sure. And I know we've talked about the reimbursement, and I know it was brought up on some of the prior questions. But as best you can tell at this point. Obviously, nothing is 100%, but based on all the conversations you've had with the regulators your team has had, would you say that the likelihood is at least greater than 50% that reimbursement for SRT goes up, reimbursement for Mohs goes down? And if that's the case, even if it -- obviously, it doesn't get implemented until January 2, '21, that could also contribute to an acceleration of sales at the end of the year?

I'm not going to speculate on the percentages, but I think that they're very, very good, and I think that everybody will be happy. I know that the physicians who are involved in the revaluation process, which took place in January in a meeting in Arizona, we're very satisfied with the outcomes of that process in evaluating or reevaluating that code. It also impacts some other codes that we've seen, and we've been told are increasing that are applicable to treating skin cancer with SRT.

So the combination of the 2 will provide physicians with a very, very strong economic model to wanting to have SRT in their practice and to making it have sense of doing it. So can it accelerate in the third quarter? Any time CMS has to announce things and any time you go into a market, I always look at a period of time where we have to personally get involved in the training, educating and then you have to work with your KOLs to be on the podiums to talk about it. And we don't know where those podiums are going to go because all of our meetings this year for dermatology has been canceled, but we're reupping those types of meetings through the Zoom presentations as well as doctors who are doing their own Zoom presentations.

So we're getting a lot of notoriety based on that. And I think that, that information in today's internet can be spread very, very quickly, especially when the government says so. And once they say so, that's something that you guys will know right away because we'll tell you, it's what our customers will know right away because we'll tell them. And now they have to start thinking of the process. What are they going to do to buy it? We just want to get them to buy it as soon as possible. But the big opportunity that we have, Anthony, as you know, is we're not even quite at 2% of the total market capabilities or opportunities.

So all of the best of us, as much as we've grown in the past 10 years, the best is ahead of us. And so I think that we can capture a lot of market share post announcement from CMS, post all of this time. And like I said, get 2020 behind us, and this is going to help us tremendously. So my expectations are great.

Okay. And then just last question on the -- on all the Zoom calls the sales people have been doing. Would you say that at this point, all of your salespeople are doing the Zoom calls? And through the Zoom calls, would you say it's about the same number of touch points or is it more touch points? Because obviously, a Zoom call can be set up -- once you figure out how to do a Zoom calls can be set up much faster and it's -- right, you can potentially touch more people through Zoom than you can by going out and visiting them face-to-face. Now that that's happened, obviously, it's been forced upon us by COVID-19. Is it possible that, that gets integrated as part of the overall sales process and the ability to reach out to more dermatologists, plastic surgeons during this process has begun to increase and could be a way to reach more of them going forward.

Yes. A couple of things. First of all, when this started, we sent out a message to the sales organization and everybody, including application service, everybody who touched customers on a daily basis, including the management team, that this was the time to develop relationships and partners -- partnerships. It wasn't a time to do selling and do all this other stuff. Of course, we stay close to our prospects and to our customers, but it was more important to develop a relationship and to be available when they needed us, if they needed us. And to let them know that we were there to help them any way that we can, their entire staff and offices. So I think the sales team and everybody who touches a customer within the organization has done a great job in doing that. So we've stayed very, very close.

Now to Zoom, just to give you an idea, when we first set up the Zoom as anybody would expect, we don't know what to expect. Okay. So we set it up, and there's certain costs that are involved. So you set it up for 100 people to join Zoom and then that's the number of people that you have allowed to join. So we set it up for the first one for 100 people, and we were oversubscribed by about 35 people. So there was plenty of interest there and people wanted to get on, but we were already locked in at 100. So the next Zoom meeting that we had, we said, well, let's up it. And so we upped it to 500. And of course, there's a cost involved in that. But we had about 140 customers involved in that. I think it's all based on availability, it's all based on knowledge, those types of things. So we had 2 Mohs surgeons who are first hosts, who talked about SRT and how it meant -- what it meant for them in their practices. And they're the ones who told everybody else why SRT was so valuable because they cut off Mohs surgery and they did everything with SRT.

The next 2 physicians that we had were also Mohs surgeons, they were lady Mohs surgeons. And we wanted a different perspective because most of their business is in the aesthetic world, even though they do Mohs surgery and they're avid Mohs surgeons. And they had the same answer that if they were coming out of this, they know that their aesthetic business is going to be very low.

There's going to be some people that pay cash for the business, but they wanted cutting back on the wrinkles around their eyes or their cheeks or their chins and things like that. But skin cancer is still there, and it's not going away, and they have a bunch of patients that they have to treat, and they're not going to treat them with Mohs surgery except for the exception.

And when Dr. Frederic Mohs developed this back in the late '50s, early '60s, it was the exception versus the rule then to do Mohs surgery. They used everything else, including orthovoltage units, which were the prescript to what we're doing with SRT today. And we know that in the mid-70s, more than 55% of dermatology offices used orthovoltage.

So we think that this might be an opportunity or a change where we're going to see Mohs surgery because of COVID and all the other potential problems with surgeries on elderly patients that it could turn back into something that's not the regular thing. SRT could be the regular way of treating, and this could be the alternative. So there's a good chance that, that could happen. We've got to push hard as hell to make it happen. CMS numbers will help us tremendously make that happen because we know that doctors will follow the money.

Our next question is from Alex Nowak.

This is actually Will on for Alex. Just to start, Joe, could you talk more on what a typical quarter looks like in the first 2 months versus the final third month? And if you could just briefly speak to the dynamics of why systems are typically placed at quarter end? That would be helpful.

Sure. Well, I'll relate to how we transition from Q4 into Q1. If you look at Q4, we had, what, about 20-some systems that were delivered and installed. So everybody spent their money. They took advantage of the various coding that helped them with IRS and everything else, they were able to save some dollars. So they took advantage of that and accelerated the reason why they bought early versus late or whatever.

So that was good for us. Now we transition into the first quarter where you had a large number of sales that went into the fourth quarter, and now you're trying to revamp your prospect base, so you can get into more operating numbers that you're trying to look for, for the second quarter.

And keep in mind that we're preparing for major trade shows like we have the South Beach Symposium, which took place in early February. We were able to get that done. There was about 1,000 doctors there. And then you're lining up to get everything going for the AAD in early March where a lot of the doctors are looking to make their decisions. We have doctors that are lined up coming to our booth, and we're trying to close deals based on what they see and what they hear at the AAD.

When that canceled and then, of course, offices shut down, you could see where from the time the first meeting towards the end of -- the beginning of February to where we came in at the end of March where a lot of that business did not happen. It didn't go away. It just didn't happen. People put their decisions on hold.

So if I look at what happened after the fourth quarter and to have 4 systems already sold by the time we had our earnings call and then to get abruptly turned off before a lot of things were able to get started, that was hurtful.

So now you go through that same cycle each and every quarter. It's more impactful in the fourth quarter because of all of the other ramifications surrounding it. But as you close out one quarter, you're now ramping up for another quarter, and it starts from day one, and you start ramping up and you start selling and your selling cycle is a little longer. Some of it overlaps from the previous quarter, and we get those orders early. But that's pretty much how the sales cycle goes.

So it's almost like after one quarter, everybody sits back, takes the breath of fresh air and says, here we go again, and now we start all over. So it's just a normal cycle. I think you see it in almost everything in health care. Again, spent a lot of years at GE Medical Systems, and it was exactly the same thing there. It's something like we program our customers to buy during those periods because those are the most important periods and they're deadlines that we establish for purchasing. So it just happens to be the cycle.

Great. No, understood. I appreciate it. And then just a second question, could you just talk at a higher level about what you're seeing with your existing accounts?

And just if you could comment on the appetite that dermatology clinics have right now for looking at new technology like SRT?

Appreciate it. The existing customers that we have are elated with the fact that they have SRT. And I want to tell you of a story of a unit that we sold in early March in Tennessee to an aesthetic dermatologist who is surrounded by Mohs surgeons, whose patients have been told that they're not going to be treated for the next 6 to 10 weeks until they come out of this. And he looked at it as an opportunity for himself to install the SRT as quickly as possible. And I want to remind everybody that May is skin cancer awareness month. He wanted to take advantage of that fact and start advertising to his community that he can start treating now. Patients with skin cancer don't have to wait, and they can get treated now nonsurgically.

And he's been installed for a few weeks. He's very, very busy as we speak, and I think he's only going to get more busy as time goes on. So I think that's the opportunity a lot of dermatologists are looking at. They're not going to be able to clear out their backlog of skin cancer patients using surgery only. They're going to have instead of spending that one day a week where they designate surgery that day doing 8 to 10 or 12 patients, they're not going to be able to have 8 to 10 to 12 patients in their little surgical suite all at the same time with the amount of disinfectants that they have to apply and all of the things that they have to use. You can't have patients sitting there for that long that close together.

So I think just like restaurants, their business from the Mohs surgery standpoint is going to be cut by 75%. So how do they make up that money? They have to make it up in other ways. They have to treat the SRT -- with SRT treating those skin cancer patients because nothing touches the body. So they can make up that revenues with SRT. They don't have to sit back and lose those patients than anybody else. They can do that.

So I think that the appetite is going to be there. Plus, they have to make up the money that they've lost during this time of closure. And the sooner you make that up, the better off you are. You can't wait 6 months or 12 months to make it up. I think that they can make that up very quickly with SRT.

And especially if CMS comes through with that announcement, I think they'll all want to catch up a whole lot sooner.

Our next question is from Yi Chen.

This is Boobalan dialing in for Yi Chen. Assuming that the COVID-19 persists throughout the year, how many systems would you expect to ship in 2020?

Say that again, if COVID existed or continued for the balance of the year?

Yes. Assuming, the COVID-19 continues throughout the year, how many systems would you expect to ship in 2020?

Not a whole lot. I mean if we -- how are you going to ship systems and who's going to make a decision if they have to shut their offices. So we have to assume that they're opening up their offices, right?

Yes.

So in your question, does the -- are the offices opening, or are they remaining closed like we're seeing?

Like partially open, some sites are also and some are not, for instance, in New Jersey. I don't think there's a whole lot of clinic that are open, but I'm just curious, assuming the business still persist, but the economy is like partially open. So I'm just curious like whether you have any predictions?

Yes. It's difficult to predict those numbers if you're considering that a majority or half of the areas are going to be closed. Keep in mind, the areas that are the most hit are the big centers like New York, Chicago, California. I mean Florida is opening up as we speak. So that continues to be a hot bed. Texas continues to be a good market for us. Arizona continues to be a good market for us. So it's tough to predict how many units we're going to sell when you still might have 1/4, 1/2, 1/3 of the country closed. I don't think that we can answer that question, honestly.

Okay. Understood. So moving forward, have you shipped any system to China in 1Q '20? Considering the escalating tension between the 2 governments, do you think the trade dispute and tariff war would resume in the coming months?

Well, based under that scenario, I don't expect to send anything to China. But if China and Korea are both opening up as we speak as well, they're way ahead of the curve because it hit them first.

Now we've had interest from China for our products for a long time. We have about 40 systems installed in China. I think that, that volume can be increased quite significantly. But I think that there's a lot of things that have to happen over the next several months. But we feel that there's opportunities in Asia. We have sold equipment in Vietnam, in Korea. We have opportunities in Thailand. We have opportunities in China itself. So we continue to work that market because of the large opportunities that we have. So I don't know how many units but if we sold one unit, it's one more than we sold last quarter in China.

There are no more questions.

Okay. So in closing, I want to thank you all for your time this afternoon and for your interest in Sensus. Like so many companies in most every industry sector, our business was hit hard by COVID-19, but we're using this time as productivity as we can, as productively as we can and are optimistic about our prospects when we return to a more typical business pattern.

Thanks again, and may you and your family, friends and associates remain safe and healthy during this time and look forward to talking to you all after the next quarter. Thank you so much.

Thank you. This concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.