Sensus Healthcare, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The unaudited consolidated statements cover the company’s medical-device business, including its superficial radiation therapy products and Sculptura system. The company operates as one reportable segment.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $1.68 million | $5.44 million |
| Gross profit / gross margin | $0.71 million / 42.2% | $3.32 million / 61.0% |
| Operating expenses | $4.35 million | $5.51 million |
| Operating loss | $3.64 million | $2.19 million |
| Net loss | $3.59 million ($0.22 per share) | $2.12 million ($0.13 per share) |
| Operating cash flow | Positive $0.43 million | Negative $7.12 million |
Revenue declined 69.1% year over year, primarily due to fewer device sales as COVID-19 disrupted demand, particularly near quarter-end. Product revenue was $1.08 million versus $4.93 million; service revenue rose to $0.60 million from $0.51 million. Gross margin fell 18.8 percentage points. Selling and marketing expense decreased 29.2%, and R&D decreased 37.7%; general and administrative expense increased 31.2%, mainly from one-time severance and related legal costs.
At March 31, cash and cash equivalents were $12.10 million and short-term debt securities were $3.69 million, totaling approximately $15.8 million, versus approximately $15.5 million at year-end. Current assets were $29.54 million and current liabilities $5.63 million. The company had no borrowings under its revolving credit facility at quarter-end; lease liabilities were $1.35 million, including current and noncurrent portions. Operating cash flow included a $6.17 million decrease in receivables, so reported positive cash flow was supported substantially by collections. Investing cash flow was positive $3.57 million, mainly from maturing investments.
Material developments, outlook and risks
- Management attributed the sharp sales decline to COVID-19, including temporary physician-practice closures. The company remained operational as an essential business, but stated that the pandemic had significantly affected sales and its full impact could not be estimated. Management expected COVID-19 to remain significant through at least Q2 2020 and expected Q2 gross margin to be approximately in line with Q1 due to anticipated lower revenue. No full-year numerical guidance was provided.
- After quarter-end, on April 13, 2020, the revolving facility was amended to extend maturity to April 1, 2022 and increase the commitment from $5 million to $10 million, subject to the borrowing base and a $3 million non-formula sublimit. The company said the change was precautionary; there were no facility borrowings at March 31.
- On April 20, 2020, the company received a $1,022,785 Paycheck Protection Program loan at 1% interest, maturing in April 2022, for eligible employee-compensation and facility costs. Forgiveness is subject to program requirements and was not assured.
- A single U.S. customer accounted for approximately 11% of Q1 revenue and 75% of accounts receivable at March 31, creating customer-credit concentration. U.S. customers represented approximately 99% of Q1 revenue.
- The company disclosed a Department of Justice investigation related to a physician’s Medicare billing involving SRT-100 treatments. The company disputed wrongdoing, said it had cooperated, and could not estimate potential costs or outcome.
- Other stated risks include COVID-related demand, supplier and logistics disruption, commercialization and reimbursement risks, and the company’s ability to achieve sustained profitability. Management reported effective disclosure controls and no significant quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether COVID-19-related sales disruption persisted beyond Q1 and how it affected subsequent revenue, margins and cash needs.
- Receivable collection quality and customer concentration, especially the customer representing approximately 75% of quarter-end receivables.
- Availability and covenant terms of the amended credit facility, and actual use of the facility or PPP proceeds and the status of any loan forgiveness.
- Developments, potential exposure and any recorded liability related to the DOJ investigation.
- Whether operating cash generation can be sustained without large receivable collections or investment maturities, given continuing operating losses.