Hey guys, good to see everyone. I'm Jon Block with Stifel. You heard me say in a prior meeting, you know, aesthetics has not been an easy space of late, but it's an incredible, incredibly durable industry, and Sofwave Medical has been really outperforming many of their peers. They recently reported a strong third quarter, double-digit growth, which has been a pretty consistent theme. They've got some new products, and I'm happy to hear their story, so we have their CEO, Lou Scafuri, and CFO, Assaf Korner. Lou, I think you're going to go through a bunch of slides, hopefully leave some time at the end for Q&A, and we'll get into it.
Absolutely.
All yours.
Thanks, Jon. Good afternoon, everyone. Thank you very much for joining us for an overview of Sofwave today. This presentation is covered under Safe Harbors, and I'm going to give you a little bit of the Sofwave backstory, so the company has next generation, it's truly disruptive, non-invasive ultrasound technology. We have very strong intellectual property. We've been able to attract the interest of many of the top thought leaders since the days of introduction, foundationally. We really have built our credibility on the science, the broad FDA clearances, as well as commercial success. And all of this is fueled by the segment of the market that we're in that continues to grow, which is the non-invasive segment, particularly with the core providers of plastics and derms. We're selling now in over 40 countries. We have a direct sales team in the U.S. and in the U.K.
We've been in the space. I'll talk about the management team and our experience. For several decades, we built two of the market leaders prior to Sofwave, and at the end of the day, besides having a technology that works and very rapidly growing brand awareness, our product is second to none. If you listen in on our website, it's our earnings call where we talk about our ROI. We publish legitimately audited numbers of what the average physician provider's ROI is. It's second to none in the industry. So there's a lot of reasons why things are going well for us versus some of our peers at present time. The company is also traded on the Tel Aviv Stock Exchange. We're up significantly for the year versus our peer group, and we're looking at options in the future, possibly at a dual listing or some other ideas.
So I mentioned we have a very experienced management team. What this means is execution. You know, we launched this product right when COVID hit in December of 2019, and we haven't had to do a single pivot, mostly because, you know, an example is I've been with Shimon Eckhouse, who's considered to be one of the founders of this industry. With three companies, we created a company called Lumenis, Syneron, and Candela. Assaf was with us, instrumental in the merger. We've created companies of scale, market cap, breadth, and depth on a global basis. Our channel to market knowledge, I think, is deep and well documented, as is our ability to launch innovative ideas. And the rest of our team, we've just recently added several industry veterans of note that are responsible for the growth of some of the major companies in the space.
Again, it's because our story continues to separate itself and differentiate itself from what's happening, where a lot of companies are going backwards, not forwards. The problem is very simple. Most of the solutions to date involve downtime. Most of the solutions are complicated. They involve disrupting the dermis. You know, you can't hide behind a Zoom camera. People prefer nothing to happen. They want, they expect an ideal result. They expect a big difference. But yet the downside is an expensive, possibly a treatment that could lead to complication. This could be, this is a Fraxel patient here that's being displayed here. But you have a little bit of a lesser effect, but you still see disruption of the epidermis and the downtime associated with microneedling that's been out there. So we looked at this issue.
We were the first company to introduce RF microneedling back at Syneron Candela, with what's now known as the Profound device, and we said, how do you do this? How do you reach the ideal temperature to stimulate the mid dermis? The mid dermis is where all the fibroblasts are, all the collagenesis basically takes place, as well as the production of elastin and hyaluronic acid. How do you do it where you can reach a temperature of 65- 67 degrees and do it without disrupting the dermis, so therein lies the secret sauce of Sofwave, where we develop the technology. We have a unique array of seven transducers at once that cause a volumetric injury. This injury pattern is differentiated and unique because it's not sticking a needle point or sticking a laser beam in a horizontal perpendicular basis.
We're actually delivering the stimulation to the mid-dermis in a parallel basis, which works in the same vector the way a plastic surgeon would approach lifting the face and tightening the face. The procedure is extremely fast. It's 30- 45 minutes. We can do it and have the patient tolerate it with a topical concentration anesthetic. The FDA clearances show durability where the treatment, one treatment will last for 14-1 5 months. We've demonstrated this histologically. We demonstrated it in terms of before and afters, and at the end of the day, you know, a happy patient is a happy doctor, particularly if they're getting a premium price for the procedure, so we thought about this before we went to market. I've been with the company. I'm employee number seven before the FDA approval. We said, what is the ideal business model?
Because it has to be a win-win situation. Because all the dynamics are very simple. The fundamentals of the industry is everybody wants to look better, particularly as they age, and you can make a lot of money doing so. So we made sure that we did the scientific work. We now have eight FDA clearances on the Sofwave device, which are very broad, fit a number of indications. So there's great utility for the device. We made sure that we had great success in terms of getting publications, podium time, having mind share with the various societies around it. We backed it up with probably, I would say, we're probably at the stage now in our distribution. We'll talk about the numbers shortly.
Where we're going beyond the innovators, we're going on the early adopters, and now we're in the FOMO stage where we're going over to the mid broad adoption in the market. And we're fueling it all with a very strong digital effort. We brought on initially from day one, not a marketing team who was going to tell you the spot size and why this is better than that. We brought on a team that had previous know-how and a track record to create an e-store to understand best practices for SEO, how to build a community, and the like. Brand awareness is essential. The doctors like their phones to ring in the office. And at the end of the day, you need the best people possible out there selling direct in the U.S. and in the U.K.
Again, with our 25+ years' experience, we know who the major partners are who have very strong marketing efforts in some of the key growth markets. But what's it like really today? It's a war zone. It's a tough market today. We're happy that we're growing. I think that that's attributable to a great procedure that works better than anything else. It's disruptive. That's what doctors want. They're not going to buy replacement technology. They're not going to buy a new hair removal. They're not going to buy color correction. They're going to buy something where they have a lot of patients where they need a better modality. So we have that. We prove that with the core market, with the plastic surgeons and derms, the regulatory clearances are very, very important. We've proven the science. We have all the peer-reviewed documentation there.
We see the GLP-1s. We see that working directly into what we solve, which is the laxity and tightness issue. We also introduced a 4th-gen muscle toning device, which gives them an ideal package to treat these patients. If you look at what's really happening there, some companies will tell you, well, we're not selling the body contouring devices. We're not selling this because the GLP-1 patient doesn't have the money to spend. We're seeing the opposite. They're feeling better. They're looking better. And feeling better, their overall appearance is better, but they want to optimize. So we're seeing providers who have a particular segment of their population, which is ever increasing. We're seeing them, you know, our inbound leads are as high as they've ever been around our device and what we're doing and the brand we're establishing there.
The other thing is the fact that some of the other technologies like RF microneedling that one of the publicly listed companies has their flagship product there, it's becoming a commodity. There's lots of discounting going on in the marketplace and the like, and the doctors, if they're going to invest the time and effort to acquire technology, want to make a margin, so we differentiate ourselves from there. We help them in terms of the brand awareness with patient acquisition. The phones are ringing, and we help them with retention because the treatment does work, and despite the fact we're cleared that it's a durable treatment, one and done for a year, patients are coming back more frequent. They're combining it with other things like fillers and the like, biostimulators, and it's win-win.
I'm not going to go through all the FDA indications, but it treats not only from the eye lift to the jawline to the submental area. We have best of breed, the best consistent results of any technology that's on the marketplace today. And again, we've done the studies around all that. So the business model works very simply. We sell the device. We sell the piece of capital equipment, much as if you would sell a cell phone. And then just like you buy minutes on the phone, every time you use the device, it consumes pulses. So the device comes preloaded with 3,000 pulses. It's enough to do 15 patients. So they get started therein. The average treatment price is between $2,500 and $4,000. In New York, you're getting a premium still for the procedure.
And then we have an e-store to refill the device, which simply they go online. The device is IoT-enabled, put their credit card on file, and they have no consumable to stock, invest in, and the like. So it's frictionless. So the ROI, many, many advantages here. You know, the whole cost of acquisition, cost of ownership argument. We thought about this long and hard coming into the marketplace. We weren't trying to sell the device for $250,000 and then be done with the customer, which a lot of the box companies have that mindset. We made it so that our average customer pays cash for the device. Our ASPs are close to $100,000 per device. Very low cost of acquisition. If they do two treatments per week, they basically can pay for the device in four to six months.
The average device of most of our competitors, the ROI typically is 18-24 months. So right away from that standpoint, we can attract a lot of attention. Our consumable cost is about 50% less than other devices because it's very effective in terms of the volumization and the like. We also have a minimum advertised policy that we police the Instagram and the internet. If anyone's discounting excessively, we'll no longer offer them a discount when we have a promotion and the like. And we do everything to make sure that the customer feels that we have their back and that they're successful. We also have, and it's not in the slide deck, a customer success team where once a week we take the various appropriate responsible people in the company and we go through the entire list.
If anybody has a technical problem or anybody's not utilizing the device, and we grind it out. Last year, we did a survey at the end of 2023 where we went and surveyed all of our U.S. customers. 90% said they'd buy again. 90% said their patients are happy, and 90% said they were first. So we built the company fundamentally from the ground up to make sure that it'd be win-win for us from the standpoint that when we sell these pulses, they're almost at 100% gross margin. I mean, they're very, very lucrative for us to make sure that that customer is successful and that, to make sure that the customer is indeed winning. So this is part of the earnings report. I'm sharing with you a slide of the average numbers, the average ROI state by state. So here in New York, it's 192% year- over- year.
So that means the customer is making twice as much money back in a year. You have markets where the number is crazy high, like New Hampshire. Why is it crazy high? Because there's probably only 10 systems in New Hampshire. But still, I mean, we still have less than 1% market penetration into the derm and plastic space. So there's plenty of room for growth for both the procedure growth, provider ROI, and as far as being able to achieve double-digit top-line growth as well as be EBITDA positive. We see that's well within our reach in the foreseeable future. If you look here at the number of treatments, this documents where if you do eight treatments a month in the Pacific Northwest, you can somehow have well over 200%.
And if you put out $17,000 in disposables, you could generate $257,000 in revenue, which is, again, I mean, the numbers talk. We had our finance team look at it, our lawyers look at it, because the last thing we want to do is have our sales team out there promising something that the customer gets disappointed in. And it's a major selling tool, as well as all the awareness that we have, the recognition that's going on from the Latin American version of People to some of the major things like Cosmopolitan, and I never thought in my lifetime I would be part of something that won the Good Housekeeping Award, but we did that too. So beyond it all with the ROI is if you look at the numbers, and we're going to get into numbers shortly, we create the win-win situation in the sales and marketing number.
We're still devoting approximately 25% of every revenue dollar into brand awareness. This is critical. It's really, really critical today. Something happened very different in the marketplace in 2008 and 2009 with the advent of CoolSculpting coming in. Doctors really expect the companies to create the brand awareness. We're not a pharma company. We can't do B2C at that level, but if you're smart in the digital through both the web as well as in the social channels, you can increase the awareness and drive the utilization, and if we look at what our partners, our distributors contribute, if we look at what the individual providers contribute and do a little bit, it really creates a synergy where the awareness just continues to propel itself.
This is part, you know, through this storm we've been through over here. This is what's allowed Sofwave to dramatically increase our utilization and have the customers continue to get an ROI. We monitor this. These are some of our metrics. We're now up to about 165,000 unique visits a month. We have an active PR network. We have a million organic followers. Anybody can have millions and millions of followers, but they're robots. We have organic followers. Very, very important. We think this is scalable. We measure our conversion rate, what it costs to get a lead, what it costs to close a lead very closely. We're now on to the influencer marketing. We didn't pay for Sarah Jessica Parker. We didn't pay for, you know, some of these other people that are on here. They like the treatment. So they're advocates.
They were over the top, over the moon, and we'd rather invest our money instead of celebrities into the influencers because it seems to get much more mileage, much more traction out of that as well, so I tell the sales team, you got two ways to sell. You have here on the right-hand side, you can give everybody the technology pitch, the mechanism of action, why it's better, why it's disruptive, the FDA clearances, but on the left side, this is really where the value creation is, where we send people in after the sale to make sure they're using best practices and using the device, make sure they know how to use the web, make sure they align their marketing tools with ours. The devices are all IoT-enabled at this point in time. The brand awareness continues to get fueled.
I told at lunch today the anecdotal story in Taiwan. Taiwan, the partner onto themselves or distributor has probably invested this year alone close to seven figures in building the brand. They placed. I wouldn't even exact number, but they placed in the hundreds of devices in a matter of a year. It's incredible what they've done. In terms of the brand awareness, you get off in Taipei, the airport. You'll see a 200 ft electronic billboard of Sofwave, same on the main street. People are realizing the momentum of the frictionless business model. Those smart distributors that have a great audience are really going forward very, very rapidly, particularly in Asian marketplaces. As far as the, we have loyalty programs, which we think will help them attract and retain patients.
The ROI success, we have doctors in LA, doctors in New York City who, with a single device, have billed over $1 million in one year, which is incredible. I mean, you're out there selling something that works that they can make money on. You know, and then, you know, how are these guys? You know, the obvious question we've had all day as well is what makes you different than everything else? Everything seems to last two years. But this seems to be, from our perspective, just a great platform that we continue to build upon as we go out and expand our product line. So if we look at the indications we have now, we have a basic configuration with what's known as a Precise applicator, which we can treat all across the face and the body, certain areas.
We have people who just buy it because of the superior results on the neck, because the neck, not only collagen, you lose elastin as well, and you see some great before and afters. We have a clearance for acne scars. We have a clearance for cellulite, and we're adding different applicators as we add on, and to meet the market needs, we've recently introduced a 4th-gen muscle toning device, which works very, very differently than any of the devices that have been out there in that it mimics functional exercise. The other devices that have come previously just to contract the muscle at two points at a time, wherein we can contract 16 different muscle points in various parts of the body, both the front and the back of the patient at the same time, which will mimic plyometric or HIIT exercise.
And we're in the stages of launching that. Assaf, you want to do the financial highlights? You want me to keep going?
Yeah. No, sure. So these are the third-quarter numbers that we released last week. We finished the third quarter with $13.5 million of top line, which represents over 10% year-over-year growth. Out of the $13.5 million, important to say that's almost $5.5 million where recurring revenue from customers coming back after they purchase the capital equipment coming back and by additional consumables in order to sell treatments to the patient. And this is the greatest testimony for the quality of the treatment, for the customer satisfaction, for the patient satisfaction, and for the ROI for the physicians. The recurring revenue represents over 70% year-over-year growth if you compare it to the third quarter of 2023. Year-to-date, January to September, $41.3 million top line represents 18% year-over-year growth.
We finished the quarter with over $21 million in the bank. We're actually cash flow positive this quarter, small $150,000, but still cash flow positive. We are very close to be break-even cash and operating break-even. We have a very healthy gross margin, and healthy gross margin is a key in this industry because of the significant spend, sales, and marketing. You need to have a healthy gross margin due to the consumables that we are selling, which are virtual consumables that come at a 100% gross margin, plus a solid gross margin on the device itself. We have 75.3% gross margin, and as Lou stated before, we sold over 385,000 treatments since we started to sell the device. If we look at our revenue growth on an annual basis, we see 85% CAGR starting 2020.
We actually started to sell the device at the beginning of 2020, right when the pandemic, the global pandemic started, all the way to over $50 million in 2023, and as we said, over $41 million in year-to-date 2024. When we look at it on a quarterly basis, we see solid growth every quarter based on seasonality or comparing to the previous quarter, we see continuous growth in every quarter. In terms of geographical split, approximately 60% of our revenue are coming here in North America. Right behind it, we have the Asia-Pacific region with approximately 30% of our total revenue. It was worth saying that in Asia, we still do not have regulatory clearances in two major markets. One of them is Japan, which we are expecting to get a regulatory approval any day now.
The other one, which is a longer-term opportunity, but a much more significant opportunity, is the Chinese market. We still do not have regulatory approval, NMPA approval in China. But as a long-term opportunity, the Chinese aesthetic market is expected to be as large as the U.S. market in the next few years. We have a local partnership with a company called HTDK, the wholly-owned subsidiary of Warburg Pincus. And we have a collaboration and distribution agreement with them. They are going through the clinical and regulatory process, and they will also be the one to distribute the product once we get an NMPA approval. Quick look at our P&L, whether we look at it on a quarterly basis or look at it on a year-to-date, we see a significant decrease in operating expenses as percentage of revenue. We see a significant decrease in operating losses.
We talked about balance sheets, the fact that we actually created a little bit of cash versus burning over $1 million in the third quarter of 2023. That's the highlights of the financials. Lou, back to you to summarize.
In summary, the technology is unique, differentiated, and quickly becoming the de facto standard across the major markets. We also see the significance of the recurring revenue. You know, this is very, very important to have every time it's utilized, be a partner with the customer and something that's high margin to both of us. The brand awareness is driving it. We like the fact that we're operating within the FDA. We really, from our social media, from everything we do, it's all done. We're marketing within our claims. We're building a company we think will be the clear-cut market leader in the future.
We're looking for continued growth and profitability in the near term. So we'll turn it over to questions. Jon?
That's great. That's great. Thanks, Lou. I'll see how much I can jam in six minutes. So I guess my first question is, you know, I've been around aesthetics long enough and some of the highs and lows, but like when you talk about some of the shared economics, right, I think about Zeltiq did a great job and they were asking for 20%-25% of the economics. Maybe Cutera overstepped their bounds by asking for 50% of the economics. When I think about you guys and I try to turn the pulses into what the doc's paying and tie it back to roughly the $3,000-$3,500, depending on market dependent, right, in New York. What are you guys getting when I do that sort of a conversion?
Let's go back to this one slide here, which I think it shows you the numbers. If you look at what they're putting out, right, I think.
What do the pulses convert to?
Let's look here. So here, let's go to the Northeast. Assaf, you run the numbers here on what they're generating in terms of revenue on average. On average is $250K and their investment is $19K.
So they're keeping more than 90% of the economics, so that's the compelling factor to them. You're still north of 90%.
We started with the premise of what will the patient pay for a non-invasive procedure? How do they feel? Because, you know, if you charge the expectations, it's hard-earned money, and the more you charge for these procedures, the expectation is very high and the gold standard is surgery.
You can't encroach upon what they could get in terms of the results non-invasively with surgery, nor can you encroach on, you know, their economics. We said $2,500. We started with the assumption that they'll pay $2,500 and in fact, it's a little bit higher. Maybe that's because of market penetration. Maybe it's because they really, the procedure is much better. I would make the argument here today that in terms of the value, that what the patient gets in terms of improvements and what the doctor gets in terms of margin is superior than what even CoolSculpting was offering in their heyday.
Got it. Okay. And then, you know, longer term, especially with gross margins near 100% on the recurring, how do you guys handle the sales force? Do you sort of have your capital and your consumables?
Because longer term is about really driving utilization and the drop through of the 100%, you know, gross margin on the pulses, or do you have the same individual trying to tackle both?
No. So I would say, so first off, we think there's opportunity to expand the margins even further. Number one. Number two, I would say we realize that you have the hunter and the farmer, and you're going to do yourself a disservice by just having this one salesperson go back into the account. It's important that we can use references, that we have great relationships with the customers, which helps the sales rep sell another piece of equipment.
But the addition of the practice development people has really shown us very, very quickly that the investment in putting these extra people out in the street to help the doctors be more productive in terms of with the device, use it more, is clearly a much better way to go.
Okay. I'll pivot. And guys, if you have questions, just shout out. The 43% outside North America, you have a lot of margin to play with. So how are you tackling some of those markets, direct versus distribution?
Well, we have a few distributors that I know are smarter than we are. So, you know, I look at, you know, I look at some of the events. I just was mentioning before the event we had Vietnam.
I mean, we've been to events in some of the big countries there where it was second to none in terms of what the distributors have done. And, you know, we look at, yes, you sacrifice on the transfer price, but you pick it up on the high margin with the consumable. So in those markets, we think it's more efficient to go with the distributor. And if we look at the alternatives, we have certain markets where we don't have good distribution, which are a major market, like Spain as an example. You say maybe we want to go direct in Spain. So we did that in the UK as an example because the UK, we couldn't find the right distributor, so we went direct there. And we'll probably do so in Spain, but we'll do so selectively.
At our last company at Syneron Candela, we sold in 105 countries. We had 14 subsidiaries. We're comfortable in doing both. So we look immediately at the immediate opportunity and we look three to five years down the road, what's the best way to penetrate the marketplace?
Maybe one more for me in the one minute. I'll go to some of the financials. Correct me if I'm wrong. I think the EBIT was darn close to break even in the third quarter, maybe a loss of roughly $1 million. I'm guessing just that top line growth with the margin expansion, the thought is to generate cash in 2025. But if you had a stronger balance sheet or just deeper pockets, how would you run this business differently, if at all, over the next couple of years?
I think we would accelerate the brand awareness and we would probably expand a bit our R&D horizons. We spend a little bit more getting products out the door faster, and we would step on the gas in terms of the brand awareness.
Now that you have that solid install base to come out with new products, be able to leverage that install base and get it out to them?
We think we don't need infrastructure investments. You know, we have the state-of-the-art ERP, state-of-the-art CRM. We feel very comfortable with. We think we get more productivity out of the 130 employees we have now. We're making a lot of noise. When we look at our competitors and we have executives, other people join us that are shocked at how smart and how lean we are.
And we would do the things to accelerate the top line growth as well as improve the margin.
Okay. Is there any last questions? Gentlemen, thank you very much. Appreciate it.
Thank you.
Thank you.