Sensus Healthcare, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; unaudited. Sensus manufactures and markets superficial radiation therapy devices, principally the SRT-100. In January 2016, it converted from an LLC to a Delaware corporation and, in June, completed its IPO.
Financial results and liquidity
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Revenue | $3.57 million | $2.40 million | $6.61 million | $4.33 million |
| Gross profit | $2.32 million | $1.55 million | $4.25 million | $2.75 million |
| Gross margin | 65.0% | 64.6% | 64.4% | 63.7% |
| Operating loss | $349,000 | $88,000 | $339,000 | $568,000 |
| Net loss | $351,000 | $89,000 | $349,000 | $574,000 |
- Revenue rose 49.1% in Q2 and 52.7% in the first half, principally because more SRT systems were sold. Gross margin improved modestly in both comparisons.
- Q2 operating expenses increased 63.2% to $2.67 million. General and administrative expense rose sharply, including a one-time approximately $465,000 stock-compensation charge triggered by the IPO. First-half R&D expense declined 8.6%.
- Operating cash use was $298,000 for the first half, versus $377,000 a year earlier; investing cash use was $245,000. Financing provided approximately $11.23 million, mainly from the IPO and warrant exercises.
- Cash was $15.76 million at June 30, versus $5.07 million at year-end. Current assets were $19.37 million and current liabilities $5.65 million. The current-liability total includes $2.67 million of dividends payable, subsequently paid in July in cash or shares.
- No revolving-facility borrowings were outstanding at June 30, compared with $423,000 at year-end. The $1.5 million facility is secured by company assets, has financial covenants and matures May 2017; the company said it was renegotiating its terms.
Outlook, risks and unusual items
- Management expects revenue to grow as sales and distribution expand, the SRT-100 gains adoption and new products are introduced. It also expects higher sales and marketing costs, public-company and administrative expenses in the second half, and R&D spending as products are developed. No numerical revenue, earnings or cash-flow guidance was provided.
- Management cited reimbursement and coverage decisions, product acceptance, competition, salesforce expansion, regulation, manufacturing capacity and reliance on a third-party manufacturer as material business risks. The filing reports no material changes to risk factors previously disclosed in the IPO prospectus.
- Revenue is geographically concentrated: the U.S. generated 74% of Q2 and 61% of first-half 2016 revenue; China generated 24% and 22%, respectively. A Costa Rican distributor accounted for 2% of Q2 and 14% of first-half revenue.
- Purchases from the contract manufacturer were $2.57 million in the first half, versus $966,000 in the prior-year period. The agreement may be terminated by either party on 90 days’ notice.
- The company accrued $112,500 for a customer lawsuit settled in June. It expanded its headquarters lease under a July agreement running through September 2022. Cash and cash equivalents exceeding federally insured limits totaled approximately $16.04 million at June 30.
- The company reported effective disclosure controls and no significant changes in internal control over financial reporting during the quarter. It stated that results for the interim periods are not necessarily indicative of full-year results.
Key facts for investors to verify
- Whether sales growth and gross-margin gains continue, and how much reflects system volume, geography or product mix.
- Whether operating expenses—particularly post-IPO G&A and sales expansion costs—allow progress toward profitability.
- Cash, working-capital needs and the effect of the July dividend payment; June 30 cash predates that payment.
- Current availability and covenant status of the revolving facility, and the outcome of its renegotiation.
- Exposure to the contract manufacturer, reimbursement changes, geographic and distributor concentration, and the expanded lease commitments.