Sensus Healthcare, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Sensus designs and sells radiation therapy devices and related services, including its SRT product line and Sculptura. The unaudited statements consolidate the company and its wholly owned Israeli subsidiary; the company reports one operating segment.
Financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $5.84 million | $6.33 million | $18.75 million | $18.35 million |
| Gross profit | $3.84 million | $4.17 million | $12.10 million | $12.05 million |
| Gross margin | 65.8% | 65.8% | 64.5% | 65.7% |
| Operating loss | $0.81 million | $0.42 million | $2.95 million | $2.04 million |
| Net loss | $0.73 million | $0.46 million | $2.74 million | $2.12 million |
| Net loss per share, diluted | $0.04 | $0.03 | $0.17 | $0.16 |
- Q3 revenue fell 7.8%, primarily because fewer units were sold. Nine-month revenue grew 2.2%, which management attributed mainly to a higher average selling price.
- Q3 gross margin was unchanged year over year; nine-month gross margin declined 1.2 percentage points, primarily due to product mix.
- Q3 operating expenses rose to $4.65 million from $4.59 million. For nine months, they increased to $15.05 million from $14.09 million. Nine-month selling and marketing expense rose 8.2%, and R&D rose 14.5%; G&A fell 7.3%, partly reflecting a nonrecurring $444,000 stock-compensation expense in Q1 2018.
Cash, liquidity and balance sheet
- At September 30, 2019, cash and cash equivalents were $6.91 million and short-term held-to-maturity debt securities were $7.98 million, or approximately $14.9 million combined. Combined cash and investments were approximately $15.4 million at December 31, 2018.
- Nine-month operating cash use was $2.57 million, compared with $6.91 million in 2018. Investing activities used $5.63 million, largely reflecting net purchases of debt securities; financing activities provided $2.62 million, mainly from warrant exercises.
- Current assets were $32.73 million and current liabilities were $6.53 million. Total liabilities were $9.01 million, including operating lease liabilities. No borrowings were outstanding under the revolving credit facility at September 30.
- The $5 million revolving facility was extended after quarter-end, on October 28, 2019, through January 29, 2020. The company reported compliance with its financial covenants at September 30.
Outlook, risks and notable items
- The filing gives no quantified revenue, earnings or cash-flow guidance. Management identifies expansion of sales, marketing and distribution, and R&D, as capital needs; it says it may seek additional funds in the future.
- Sculptura received FDA clearance in February 2019. Management cited marketing and hiring costs related to Sculptura and R&D spending associated with clearance and production ramp-up.
- Customer concentration is significant: one U.S. customer represented approximately 83% of Q3 revenue and 82% of accounts receivable at September 30. The customer represented approximately 70% of nine-month revenue.
- A Department of Justice inquiry concerns a physician’s Medicare billing for patients treated with SRT-100. Sensus says it has cooperated, disputes wrongdoing, and reports that the Department had made no determination; the company cannot estimate the potential cost.
- The company relies on a third-party manufacturer; purchases from it were approximately $5.25 million in the first nine months of 2019. Other disclosed risks include product acceptance and commercialization, reimbursement, regulation, financing needs and the ability to sustain profitability. Management reported no material changes to previously disclosed risk factors.
- Warrants for 405,813 shares were exercised during the first nine months, generating $2.74 million. At September 30, 2,032,187 warrants remained outstanding at a $6.75 exercise price; their extended expiration date was June 8, 2020.
Key facts for investors to verify
- Whether the Q3 unit-sales decline and lower nine-month gross margin persist, and how product mix and selling prices affect margins.
- The scale and timing of Sculptura commercialization, production ramp and related sales and R&D spending.
- Customer concentration, receivable collection and the financial impact if the major customer reduces purchases or delays payment.
- Liquidity needs, covenant compliance and financing options ahead of the January 29, 2020 credit-facility maturity.
- Any developments in the DOJ inquiry, including whether the company can estimate potential exposure.