Sensus Healthcare, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are with FY2019. The filing is an annual report, not a standalone fourth-quarter report. Sensus develops and sells radiation-therapy devices, primarily its SRT-100 product line, and operates as one reportable segment. In August 2020, it acquired two Florida mobile aesthetic laser businesses, combined as Sensus Laser Aesthetic Solutions (SLAS).
Financial performance and condition
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $9.58 million | $27.26 million | Down $17.69 million (64.9%) |
| Gross profit | $5.25 million | $17.56 million | Down $12.31 million |
| Gross margin | 54.8% | 64.4% | Down 9.6 percentage points |
| Operating expenses | $13.48 million | $19.53 million | Down $6.04 million |
| Operating loss | $8.23 million | $1.97 million | Loss widened |
| Net loss | $6.84 million | $1.70 million | Loss widened |
| Net loss per share, basic and diluted | $0.42 | $0.10 | Loss per share increased |
| Operating cash flow | $(0.43) million | $(2.11) million | Use of cash narrowed |
| Cash and cash equivalents | $14.91 million | $8.10 million | Up $6.81 million |
| Total assets | $28.01 million | $36.92 million | Down $8.91 million |
| Total liabilities | $6.51 million | $8.92 million | Down $2.41 million |
Product revenue fell to $5.45 million from $25.11 million, while service revenue rose to $4.13 million from $2.15 million. The filing attributes the product decline mainly to fewer units sold during COVID-19 disruptions. Operating expenses fell, chiefly from reduced sales and marketing and R&D spending, but did not offset the revenue and gross-profit decline.
Net loss included a $588,011 bargain-purchase gain from the SLAS acquisitions and $757,782 of PPP loan forgiveness. Without these favorable items, reported net loss would have been higher. Cash-flow investing activities provided $7.03 million, primarily from maturities of investments; financing activities provided $210,006, mainly from the remaining PPP loan proceeds. The cash balance rose despite operating cash use, in large part because investments matured.
At year-end, the company had no borrowings on its revolving credit facility. It reported a $266,777 PPP loan payable; $757,782 of the original $1.02 million loan had been forgiven. The revolving facility had a $10 million commitment, subject to borrowing-base limits, and matures April 1, 2022. Current assets were $25.17 million and current liabilities were $4.86 million. Management said available resources, investment maturities, borrowing capacity, and access to capital were sufficient for operating needs for the next 12 months from the report’s issuance.
Material changes and business developments
- COVID-19 substantially curtailed sales, as physician practices temporarily closed and travel and marketing activities were restricted. Revenue fell 64.9%, and gross margin declined.
- R&D expense decreased 35.2% to $4.16 million as Sculptura entered production. Sculptura had received FDA clearance in February 2019; the filing gives no quantified revenue contribution or commercial adoption outlook for it.
- SLAS broadened the business into mobile aesthetic laser rentals. The acquisition contributed approximately $166,000 to 2020 gross profit and had no material impact on net loss, according to the filing.
- Revenue remained highly concentrated: one U.S. customer accounted for approximately 40% of 2020 revenue, versus 68% in 2019, and 56% of year-end accounts receivable. The filing reports differing U.S. concentration measures in different sections: 91% of product sales in the risk discussion and approximately 97% of total revenue in the financial-statement note.
Outlook, risks, contingencies, and unusual items
Management’s stated priority was to pursue profitability by controlling operating costs while continuing product R&D. It expected COVID-19 effects and international trade issues to remain uncertainties in 2021, including possible adverse effects on China-related business. Management said restrictions were easing and technology-enabled communication could help reach prospective customers, but the filing provides no numerical revenue, earnings, or margin guidance. The duration and future financial impact of COVID-19 could not be estimated.
- Key risks include dependence on the SRT-100 line, reimbursement and market acceptance, customer and geographic concentration, and reliance on a preferred supplier for X-ray tubes and other major components.
- Competition, regulatory compliance and approvals, intellectual-property protection, international operations, cybersecurity, and the ability to achieve profitability or obtain additional capital could materially affect results.
- The Department of Justice had investigated a physician’s Medicare billing involving SRT-100-treated patients and had sought information from the company. Sensus said it cooperated, disputed wrongdoing, and could not estimate any potential cost; management did not record a liability for the matter.
- The company reported ordinary-course legal proceedings that management did not expect, in aggregate, to materially affect results, financial position, or cash flows. It also reported no off-balance-sheet arrangements.
- The company recorded a full valuation allowance against its $4.80 million net deferred tax asset; therefore, no income tax benefit was recognized despite the net loss.
Most important facts for investors to verify
- Whether product sales and unit placements recover after COVID-19 disruption, and whether revenue concentration in the largest customer declines further.
- Whether recurring service revenue and the newly acquired SLAS business can meaningfully offset weakness in device sales.
- Cash use, working-capital needs, facility availability and covenants, and the timing and terms of any additional financing.
- Commercial uptake and economics of Sculptura, and the company’s progress toward profitability without one-time gains or loan forgiveness.
- Any developments in the DOJ inquiry, reimbursement coverage, or supplier availability that could affect sales or operations.