Sensus Healthcare, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Sensus manufactures radiation therapy devices and related services for healthcare providers and distributors. Financial amounts below are in U.S. dollars; unless noted, figures are in millions.
Financial performance
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $3.90 | $9.01 | $11.84 | $31.43 |
| Gross profit / margin | $1.99 / 51.3% | $5.87 / 65.6% | $6.23 / 52.5% | $21.28 / 67.8% |
| Operating income (loss) | $(1.90) | $2.16 | $(5.96) | $10.66 |
| Net income (loss) | $(1.45) | $1.83 | $(3.73) | $21.42 |
| Diluted EPS | $(0.09) | $0.11 | $(0.23) | $1.28 |
| Operating cash flow | Not separately provided for Q3 | $(4.81) | $8.70 |
Revenue fell 56.7% in Q3 and 62.4% for the first nine months year over year, primarily reflecting fewer SRT units sold, customer purchase deferrals, and lower sales to a large customer. Management attributed lower gross margins to fewer units and higher vendor costs. Operating expenses rose 4.6% in Q3 and 14.8% for nine months; R&D increases included work on an aesthetic drug-delivery system. Nine-month 2022 results included a $12.8 million gain on asset sales, largely related to the Sculptura assets, which substantially boosted prior-year earnings.
Financial position and liquidity
- At September 30, cash and cash equivalents were $20.49 million, versus $25.52 million at year-end 2022. Current assets were $45.86 million and current liabilities $5.23 million.
- Total liabilities were $5.96 million; there were no borrowings outstanding. The company replaced its Silicon Valley Bank facility with a $10 million Comerica revolving facility in September. It was undrawn at quarter-end, is secured by company assets, bears interest at SOFR plus 2.50% if drawn, and is repayable on demand. A covenant requires at least $3.5 million of unencumbered liquid assets in a Comerica account.
- Nine-month cash decreased $5.03 million: operating cash use of $4.81 million and investing cash use of $0.19 million were partly offset by financing cash use of $0.03 million. Operating cash flow included a $9.82 million inventory build, partly offset by $10.42 million of receivables collections/decrease.
- Inventory increased to $13.20 million from $3.50 million at December 31, 2022; accounts receivable decreased to $6.88 million from $17.30 million. Prepaid inventory was $3.95 million.
Outlook, risks, and notable items
- The filing provides no numerical revenue or earnings guidance. Management said the aesthetic drug-delivery development project was expected to be completed by the end of 2023.
- Management identified revenue generation, gross-margin and expense fluctuations, and financial-market or banking-system disruption as factors affecting liquidity and capital needs. It may seek additional funding, with no assurance of availability or terms.
- Revenue and receivables are concentrated: one U.S. customer represented approximately 52% of nine-month 2023 revenue and 86% of receivables at September 30. The United States accounted for 90% of nine-month revenue; China accounted for 7%.
- A longstanding Department of Justice investigation concerns a physician’s Medicare billing involving SRT-100 treatments and possible reimbursement-code issues. Sensus says it disputes wrongdoing, has cooperated, and cannot estimate potential costs; the Department had made no determination about the company as of the filing.
- The company authorized a $3 million share-repurchase program in August and repurchased 9,427 shares in September at an average $2.82 per share. Approximately $2.97 million remained available under the program at September 30.
- Management reported effective disclosure controls and procedures and no significant change in internal control over financial reporting during the quarter. Geopolitical conditions had not had a significant business impact to date, according to the filing.
Most important facts for investors to verify
- Whether unit sales and the large-customer concentration improve, and how customer purchase deferrals affect future revenue.
- Whether gross margins recover from 51.3% in Q3 and 52.5% for nine months, given reported vendor cost pressures.
- Inventory conversion, operating cash use, and the company’s ability to maintain liquidity while funding operations and development.
- Availability and terms of the Comerica facility, including its demand feature and minimum-liquid-assets covenant.
- Any developments in the DOJ investigation and any resulting financial exposure.
- Progress and costs for the aesthetic drug-delivery project; the filing’s expected completion timing was year-end 2023, not a broader financial forecast.