Q3 2023 Earnings Summary
- Increasing SRT utilization rate: The company reports that SRT utilization rate is starting to move up, with Medicare and Medicaid data over the last 6 years showing a 27% compounded annual growth rate in treatments, indicating growing adoption of SRT over traditional Mohs surgery.
- Strong fourth quarter sales expected and confidence in meeting sales goals: The company is expecting a strong fourth quarter, traditionally their strongest sales quarter, and is confident in reaching their 60-unit sales goal for the year (having sold 33 units so far), which would launch them into a successful 2024.
- Growing interest from hospitals and radiation oncology centers: Due to reductions in reimbursement for other cancers, hospitals are seeking new revenue sources and are showing increased interest in SRT systems as a low-cost solution to treat skin cancer. The company had dozens of hospitals pre-scheduled for demonstrations at recent trade shows, indicating expanding market opportunities beyond dermatology clinics.
- Macroeconomic challenges are causing customers to hesitate on new installations, potentially impacting Sensus Healthcare's sales growth. The CEO acknowledged that both Sensus and its partner SkinCure are experiencing hesitation from customers in signing new installation agreements due to the tough capital environment.
- There is uncertainty about achieving sales targets amid challenging market conditions. While the company aims to reach 60 units sold for the year, with only 33 systems sold after Q3, they need to sell 27 units in Q4 to meet this goal. Given current trends and macroeconomic changes, there is skepticism about achieving this target, as last year's Q4 sales were 36 units.
- Increased operating expenses may pressure margins and profitability. Higher costs in R&D due to the TDI product development and significantly increased tradeshow expenses (almost 3x higher than two years ago in California) have elevated operating expenses, which may impact profitability if revenues do not sufficiently rebound.
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Sales Guidance and Q4 Expectations
Q: Will you meet your 60-unit sales goal this year?
A: Despite macroeconomic challenges, we remain confident in reaching our 60-unit sales goal by year-end. After this quarter, we've sold 33 systems, and we expect a strong Q4 rebound to meet our target. -
Gross Margin Outlook
Q: What are your expectations for gross margins next quarter?
A: We anticipate gross margins to be in the low 60% range for the next quarter, maintaining profitability despite revenue fluctuations. -
Expense Management and Profitability
Q: Will expenses remain flat or increase into Q4 and 2024?
A: We expect expenses to remain flat for the remainder of the year. While we've incurred higher R&D costs for our TDI product going through FDA approvals, we're disciplined with our spending. Trade show costs have risen, especially in California (almost 3x higher than two years ago), but the value they provide justifies the expense. -
Utilization Trends and Demand for SRT
Q: How is the device utilization rate for SRT in dermatology offices?
A: The SRT utilization rate is increasing, with a 27% compounded annual growth over the last six years based on Medicare and Medicaid data. More patients are choosing SRT over Mohs surgery, and we expect SRT to possibly overtake Mohs as the preferred treatment soon. -
Shifts Towards Medical Dermatology
Q: Are practices shifting back to medical dermatology over aesthetics?
A: Yes, practices are rebalancing towards medical dermatology, which offers higher valuations (valued at 1.25x to 1.75x) compared to aesthetics (0.5x to 0.75x). Economic conditions make aesthetics less reliable, prompting this reset and increasing interest in SRT. -
Partner Performance - SkinCure
Q: How is SkinCure performing amid current market conditions?
A: SkinCure is also seeing an increase in SRT procedures. While there's hesitation in adding new installations due to the capital environment, we both anticipate a better Q4 as patients adapt to inflationary pressures. -
International Market Potential
Q: How does SRT utilization internationally compare to the U.S.?
A: Internationally, SRT is primarily used in radiation oncology departments due to socialized healthcare systems. It's challenging to penetrate these markets, but we're seeing potential in places like Germany and Brazil, and expect future growth based on clinical studies in Asia. -
Revenue-Sharing Model Considerations
Q: Are you considering sharing in procedure economics with clinics?
A: While we've considered revenue-sharing models, we currently offer a fair market value lease that allows customers to keep 100% of their revenues. This approach remains more attractive to customers during high-interest environments, and we'll revisit revenue-sharing if market demand increases. -
Trade Show Activity and Hospital Interest
Q: What trends are you seeing from trade show leads?
A: We've observed increased interest from hospitals seeking to offset revenue losses from reduced cancer treatment reimbursements by CMS. At recent trade shows, dozens of hospitals scheduled demos to explore SRT for treating skin cancer, indicating a growing market opportunity.
Research analysts covering Sensus Healthcare.