Sensus Healthcare, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Sensus manufactures radiation therapy devices, including the SRT-100 family and Sculptura, and operates as one segment. Its unaudited financial statements are prepared under U.S. GAAP.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1.62 million | $5.84 million | $4.48 million | $18.75 million |
| Gross profit / margin | $0.67 million / 41.5% | $3.84 million / 65.8% | $2.02 million / 45.1% | $12.10 million / 64.5% |
| Operating loss | $2.28 million | $0.81 million | $8.49 million | $2.95 million |
| Net loss | $1.69 million | $0.73 million | $7.85 million | $2.74 million |
| Basic and diluted loss per share | $0.10 | $0.04 | $0.48 | $0.17 |
- Q3 revenue fell 72.3% and nine-month revenue fell 76.1% year over year. Product revenue was $0.48 million in Q3 and $1.62 million for the nine months; service revenue was $1.14 million and $2.86 million, respectively.
- For the nine months, selling and marketing expense declined 40.0% to $3.99 million and R&D declined 39.4% to $3.32 million. G&A increased 9.4% to $3.21 million.
- Cash and cash equivalents were $16.13 million at September 30, versus $8.10 million at year-end 2019. Current assets were $24.64 million and current liabilities $4.76 million. Total assets were $27.72 million; stockholders’ equity was $20.41 million.
- Operating cash use was $0.07 million for the nine months, versus $2.57 million used in 2019. Investing activities provided $7.13 million, mainly from matured investments; financing provided $0.97 million, mainly from the PPP loan. Cash increased $8.03 million.
- The company had a $1.02 million PPP loan outstanding, at 1% interest, due April 2022. It applied for forgiveness of $796,710; forgiveness was not assured. No borrowings were outstanding on the revolving facility. The facility’s commitment was increased to $10 million in April 2020, subject to borrowing-base terms; the company reported covenant compliance.
Material changes and significant items
- Management attributed the substantial sales decline to COVID-19-related practice closures and lower unit sales. The company remained operational as an essential business, but the pandemic continued to affect demand in Q3.
- Gross margin fell as sales volumes declined while fixed compensation, depreciation and amortization costs continued. Management said any Q4 revenue or margin improvement depended on pandemic developments and market response; it did not provide quantified guidance.
- On August 3, 2020, Sensus acquired two mobile aesthetic laser rental companies to complement its offerings. The company recorded a $588,011 bargain-purchase gain. The acquired businesses contributed approximately $23,000 to nine-month gross profit. The filing also states that the aggregate $999,000 purchase price was deemed compensation for post-acquisition services and would be expensed over the service periods.
- The company’s cash and investment position included $16.13 million of cash at quarter-end; its $7.39 million of debt securities held at year-end had matured by September 2020.
Outlook, risks and contingencies
- Management could not reasonably estimate the pandemic’s overall impact or predict whether revenue would recover in Q4. Risks include renewed closures, travel and logistics restrictions, reduced customer demand, and possible broader economic weakness.
- Other disclosed risks include dependence on key customers and markets, reimbursement and regulatory requirements, competition, manufacturing and single-source suppliers, product quality and liability, intellectual property, and the need for additional financing if required. A U.S. customer represented 32% of Q3 revenue and 24% of receivables at September 30; two Chinese customers together represented 20% of Q3 revenue.
- A Department of Justice investigation related to Medicare billing by a physician who treated patients with SRT-100 remained unresolved. Sensus said it was cooperating, disputed wrongdoing, and could not estimate the matter’s cost.
- Management reported effective disclosure controls as of September 30, 2020, with no significant quarterly change in internal control over financial reporting. The filing reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether product sales and gross margins recover from the pandemic-driven decline, and whether management provides subsequent-period guidance.
- The status and terms of PPP loan forgiveness and the availability and covenant requirements of the revolving credit facility.
- The acquisition’s compensation expense schedule, realized contribution, and integration results, given the reported bargain-purchase gain and post-acquisition service arrangement.
- Developments in the DOJ investigation and any resulting liability or financial impact.
- Customer concentration and collection risk, including the substantial reduction in receivables that supported operating cash flow during the period.