Sensus Healthcare, Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; separate Q4 results are not clearly provided in the filing text.
Business context
Sensus develops and sells superficial radiation therapy systems, primarily the SRT-100 product line, for skin cancers and other skin conditions. It also introduced Sculptura, a robotic radiation oncology system cleared by the FDA in February 2019. The company reported one operating segment and an installed base of 471 units in 18 countries.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $27.26 million | $26.43 million |
| Gross profit / margin | $17.56 million / 64.4% | $16.91 million / 64.0% |
| Operating expenses | $19.53 million | $18.92 million |
| Operating loss | $(1.97) million | $(2.01) million |
| Net loss | $(1.70) million | $(2.02) million |
| Net loss per share | $(0.10) | $(0.14) |
| Net cash used in operations | $(2.11) million | $(8.56) million |
- Revenue grew 3.2%; management attributed growth to higher-priced SRT-100 Vision and Sculptura sales and higher average device selling prices. Product revenue was $25.11 million and service revenue was $2.15 million.
- Gross margin improved 0.4 percentage points. Selling and marketing expense increased 6.7% to $9.10 million; R&D rose 2.5% to $6.42 million, primarily for Sculptura development and production ramp-up. G&A decreased 2.9% to $4.00 million.
- At year-end, cash and cash equivalents were $8.10 million and held-to-maturity debt investments were $7.39 million, for combined cash and investments of approximately $15.49 million. Current assets were $34.00 million and current liabilities were $6.47 million.
- No revolving-credit borrowings were outstanding at year-end. The facility had a $5 million commitment, was secured by company assets, and included restrictive covenants. Its maturity was extended after year-end, on January 31, 2020, through April 28, 2020.
- Operating cash use improved from 2018, while investing activities used $4.90 million, mainly reflecting purchases of debt securities. Financing activities provided $2.62 million, mostly from warrant exercises. Cash and cash equivalents declined by $4.38 million during 2019.
Changes, outlook, and significant risks
- The net loss narrowed, but the company remained loss-making; accumulated deficit was $15.23 million at year-end. Management’s stated objective was to achieve consistent profitability, without providing specific revenue or earnings guidance.
- Management said it was reducing expenses while maintaining or increasing selected growth investments, including R&D. It considered available liquidity and financing access sufficient for anticipated needs over the next 12 months, but noted cash needs could change with revenue, margins, expenses, and working capital.
- Management identified international trade issues and the coronavirus epidemic as uncertainties for 2020 that could affect business in China and other regions. The filing provides no quantified estimate of their financial impact.
- Revenue and receivables were highly concentrated: one U.S. customer represented approximately 68% of 2019 revenue and 79% of year-end accounts receivable. The U.S. accounted for approximately 92% of revenue.
- The company relies on a third-party manufacturer and has a single preferred supplier for X-ray tubes and other major components. It was evaluating additional manufacturing sources and possible in-house capabilities.
- A Department of Justice investigation related to a physician’s Medicare billing involving SRT-100 treatments remained unresolved. The company said it had cooperated, disputed wrongdoing, and could not estimate the potential cost; the Department had made no determination known to the company.
- The company reported increased bad-debt expense of approximately $350,000 and an inventory write-down of approximately $90,000 in 2019. It also adopted lease accounting rules, recognizing lease right-of-use assets and liabilities; the adoption was not material to liquidity, results, or covenant compliance.
- The financial statements received an unqualified audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2019; the auditor did not provide an internal-control attestation.
Most important facts for investors to verify
- Whether revenue growth and Sculptura commercialization progress can reduce operating losses and achieve sustainable profitability.
- The financial exposure from the highly concentrated customer and receivable balances, including collection timing and future bad-debt provisions.
- The status and renewal terms of the revolving credit facility after its April 28, 2020 extended maturity date, and any covenant or financing changes.
- The status and potential outcome of the DOJ investigation, for which the company could not estimate costs.
- The effect of coronavirus-related disruption, trade developments, reimbursement changes, and supply or manufacturing constraints on sales and cash needs.
- The June 2020 expiration of the investor warrants: 2,032,187 warrants remained outstanding at December 31, 2019, with a $6.75 exercise price.