Sensus Healthcare, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Sensus manufactures radiation therapy devices and related services for healthcare providers and distributors. The company reports one operating segment.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $4.527 million | $12.080 million | $7.941 million | $22.417 million |
| Gross profit | $2.619 million | $8.256 million | $4.241 million | $15.404 million |
| Gross margin | 57.8% | 68.6% | 53.4% | 68.7% |
| Operating income (loss) | $(1.127) million | $4.570 million | $(4.065) million | $8.498 million |
| Net income (loss) | $(0.380) million | $3.524 million | $(2.274) million | $19.586 million |
| Diluted EPS | $(0.02) | $0.21 | $(0.14) | $1.17 |
Q2 cost of sales was $1.908 million; operating expenses were $3.746 million. Six-month operating expenses were $8.306 million. Interest income was $245,000 for Q2 and $488,000 for the first half. The tax benefit was $502,000 for Q2 and $1.303 million for the first half.
For the six months, operating cash flow was $(5.255) million, investing cash flow $(218,000), and financing cash flow $6,000. Cash declined by $5.467 million to $20.053 million. Cash flow included an $8.150 million reduction in accounts receivable, partly offset by a $6.644 million inventory increase.
Balance sheet and liquidity
At June 30, cash and cash equivalents were $20.053 million, current assets $47.392 million, current liabilities $5.193 million, and total assets $52.017 million. Total liabilities were $6.007 million and stockholders’ equity was $46.010 million. The company had no borrowings outstanding and reported $15 million available under its secured revolving credit facility; it was in compliance with financial covenants. Lease liabilities totaled $879,000.
Changes and management commentary
- Q2 revenue declined 62.8% year over year; first-half revenue declined 64.7%. Management attributed the decreases primarily to fewer SRT units sold, customer purchase deferrals, and lower sales to a large U.S. customer.
- Gross margin fell year over year, which management attributed to lower unit sales and higher vendor costs.
- First-half selling and marketing expense rose 27.6%, primarily due to trade show and advertising costs. General and administrative expense rose 12.5%, primarily from professional fees. Research and development expense rose 18.8%, including work on a drug-delivery system for an aesthetic project, expected to be completed by year-end 2023.
- First-half 2022 results included a $12.779 million gain on the sale of Sculptura assets; this contributed to the large year-over-year decline in reported net income.
- Inventory increased to $10.131 million from $3.501 million at year-end 2022, largely reflecting increased completion of finished goods. Cash declined from $25.520 million.
Outlook, risks, and contingencies
The filing provides no quantified revenue or earnings guidance. Management says liquidity needs may be affected by revenue generation, gross-margin and expense fluctuations, and financial-market or banking disruptions. It may seek additional funding, but gives no assurance it can raise funds or on acceptable terms. Planned capital needs include sales and marketing and research and development expansion.
Customer concentration is significant: one U.S. customer represented 46% of Q2 revenue and 52% of first-half revenue, and 86% of accounts receivable at June 30. The company also identifies geographic concentration, including U.S. and China exposure, reimbursement levels, regulation, manufacturing costs, international business risks, and information security as risks. A Department of Justice investigation concerning a physician’s Medicare billing remains unresolved; Sensus says it disputes wrongdoing, has cooperated, and cannot estimate any associated cost. The company reported no subsequent events requiring disclosure and stated disclosure controls were effective.
Important facts for investors to verify
- Whether customer purchase deferrals and concentration in one major customer continue to weigh on equipment sales and receivable collections.
- Whether gross margins recover from higher vendor costs and lower unit volumes, and whether the elevated inventory converts to sales.
- Cash burn, liquidity needs, and continued access to the $15 million revolving facility, particularly if operating results remain weak.
- Developments in the DOJ investigation and any resulting financial exposure; the filing provides no clear estimate.
- The timing, spending, and commercial prospects of the drug-delivery development project.