Sensus Healthcare, Inc. — Q1 2024 Form 10-Q
Business and period. Sensus manufactures radiation therapy devices for healthcare providers and provides related maintenance and repair services. This unaudited report covers the three months ended March 31, 2024, compared with Q1 2023. In February 2024, the company formed a wholly owned healthcare-services subsidiary; its signed service contracts had not commenced by quarter-end.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 or comparison |
|---|---|---|
| Revenue | $10.663 million | $3.414 million; up 214.7% |
| Gross profit / margin | $6.662 million / 62.5% | $1.622 million / 47.5% |
| Operating expenses | $3.775 million | $4.561 million |
| Operating income (loss) | $2.887 million | $(2.939) million |
| Net income (loss) | $2.274 million | $(1.894) million |
| Diluted EPS | $0.14 | $(0.12) |
| Operating cash flow | $(8.187) million | $(5.997) million |
| Cash and cash equivalents | $14.728 million at March 31 | $23.148 million at December 31, 2023 |
| Accounts receivable | $19.625 million at March 31 | $10.645 million at December 31, 2023 |
Revenue growth primarily reflected more units sold to a large U.S. customer. Product revenue was $9.493 million, compared with $2.469 million; service revenue was $1.170 million, compared with $0.945 million. Operating cash use reflected a $9.0 million increase in accounts receivable and higher inventory and prepaid inventory, despite the quarter’s net income. Management attributed the receivables increase to higher sales and extended payment terms.
At March 31, current assets were $53.913 million and current liabilities were $5.473 million. Total liabilities were $6.066 million; the company reported no borrowings under its credit facility. It had $10 million of availability under a Comerica revolving facility, bearing interest at SOFR plus 2.50% if drawn, secured by company assets and subject to a $3.5 million minimum unencumbered-liquid-assets covenant. The company reported compliance with its covenants.
Material changes and management commentary
- Gross profit rose with unit sales, while gross margin expanded by 15.0 percentage points year over year.
- Selling and marketing expense declined 38.1%, attributed to lower marketing agency costs, headcount and tradeshow costs. General and administrative expense increased 14.3%, mainly from professional fees and compensation. Research and development expense fell 18.2%, largely because development of an aesthetic drug-delivery system was mostly completed in 2023.
- One U.S. customer represented approximately 71% of Q1 revenue and 86% of accounts receivable at March 31, 2024. The U.S. generated 98% of quarterly revenue.
- Management reported inflationary pressure in commodity, shipping, energy and labor costs, and said it was ordering inventory in advance to mitigate effects on product costs and sales. Short-term capital needs include possible expansion of sales and marketing and research and development. Management said it may seek additional funding, with no assurance it can obtain it or on acceptable terms.
Risks, contingencies and outlook
The filing provides no specific revenue, earnings or cash-flow guidance. Forward-looking risks include reimbursement levels and providers’ willingness to purchase products, customer and geographic concentration, competition and technological obsolescence, regulation, manufacturing costs, international business risks, trade or other government actions, cybersecurity and intellectual-property matters. The filing says geopolitical events had not significantly affected the business to date, but are being monitored.
The Department of Justice has investigated a physician’s Medicare billing involving SRT-100 treatments and sought information from the company about possible involvement in reimbursement coding. Sensus says it has cooperated, disputes wrongdoing and, to its knowledge, the Department has made no determination about company wrongdoing or legal action. As of March 31, the company could not estimate the cost of the matter. The company also makes advance payments to its contract manufacturer; prepaid inventory was $3.671 million at quarter-end. Management concluded disclosure controls were effective and reported no significant quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the large customer’s elevated purchasing pace and payment terms continue, and whether the $19.625 million receivable is collected on schedule.
- Whether cash use moderates as receivables, inventory and prepaid inventory convert into cash, and whether liquidity remains adequate.
- Whether gross margin gains are sustainable as product volume, manufacturing costs and inflation change.
- Any developments in the DOJ investigation, including potential exposure or resolution.
- Whether the new healthcare-services contracts commence and contribute meaningful revenue or costs.