Sensus Healthcare, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Financial statements are unaudited; amounts below are in U.S. dollars unless noted.
Business context and reporting period
Sensus manufactures radiation therapy devices and provides related service and maintenance. It reports one operating segment. The company’s February 25, 2022 sale of its Sculptura assets materially affected first-half earnings and cash generation.
Financial performance and condition
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $12.1 million | $5.4 million | $22.4 million | $8.5 million |
| Gross profit | $8.3 million | $3.3 million | $15.4 million | $4.9 million |
| Gross margin | 68.6% | 61.1% | 68.8% | 57.6% |
| Operating income (loss) | $4.6 million | $(0.3) million | $8.5 million | $(1.4) million |
| Net income (loss) | $3.5 million | $(0.3) million | $19.6 million | $(1.4) million |
| Diluted EPS | $0.21 | $(0.02) | $1.17 | $(0.08) |
- Q2 revenue rose 124.1% year over year; first-half revenue rose 163.5%. Management attributed growth primarily to higher device unit sales, service revenue on installed units, and the comparison with COVID-affected 2021 periods.
- For the six months, operating cash flow was $5.0 million, investing cash flow was $14.9 million, and financing cash flow was $(0.7) million. Investing cash flow included $15.0 million in proceeds from the Sculptura sale.
- Cash and cash equivalents were $33.7 million at June 30, up from $14.5 million at December 31, 2021. Current assets were $51.0 million and current liabilities were $10.2 million.
- No revolving credit borrowings were outstanding at June 30; the company reported covenant compliance. The facility was amended in April 2022, extending its term to April 1, 2024 and increasing the commitment to $15 million, subject to borrowing-base terms.
- The company recorded a $12.8 million gain on the Sculptura asset sale in the first half. It also released $3.7 million of deferred-tax valuation allowance, recognized a $3.7 million deferred tax asset, and reported $1.7 million of first-half income tax expense. First-half net income therefore includes significant disposition and tax-related items.
Material changes versus the prior comparable period
Revenue and gross margin increased substantially from the prior-year quarter and half-year, and the company moved from operating and net losses to profits. Operating expenses were $3.7 million in Q2, versus $3.6 million a year earlier; first-half expenses were $6.9 million versus $6.3 million. Selling and marketing costs increased, while Q2 general and administrative and research and development costs declined. The first-half earnings comparison is especially affected by the Sculptura gain, which was absent in 2021.
One U.S. customer represented approximately 78% of Q2 revenue and 77% of first-half revenue, compared with 44% and 30%, respectively, in the prior-year periods. That customer also represented 95% of accounts receivable at June 30, 2022.
Outlook, risks, contingencies, and unusual items
- The filing provides no quantified revenue, earnings, or cash-flow guidance. Management said it expects available cash, borrowing capacity, and other factors to meet anticipated cash requirements, while noting it may seek additional funds.
- Management cited COVID-19 and potential effects on the company, customers, suppliers, and vendors as an ongoing uncertainty. Other disclosed risks include reimbursement levels, customer and geographic concentration, foreign-market exposure, manufacturing costs and execution, regulation, intellectual property, and information security. The company said it did not currently expect the Russia-Ukraine war and geopolitical uncertainty to have a significant business impact, but would continue monitoring developments.
- The company disclosed a continuing Department of Justice investigation concerning Medicare reimbursement codes used by a physician treating patients with its product. Sensus said it disputes wrongdoing, has cooperated, and cannot estimate any potential cost; the Department had made no determination as of the filing.
- The company repurchased 126,523 shares in Q2 for approximately $1.0 million under a $3.0 million authorization; approximately $2.0 million remained available at quarter-end.
- The headquarters lease was renewed through September 2027. Purchases from the company’s contract manufacturer were approximately $6.8 million in the first half, and approximately $2.1 million was due to that manufacturer at June 30.
Important facts for investors to verify
- How much of the recent sales increase reflects durable demand and repeatable device sales, rather than recovery from COVID-affected comparisons?
- What are the customer’s payment status, future purchasing plans, and implications of its concentration in revenue and receivables?
- How should normalized earnings and cash generation be assessed excluding the Sculptura gain and the deferred-tax valuation allowance release?
- What is the status and potential financial exposure of the DOJ investigation, which the company says it cannot currently estimate?
- What borrowing capacity is available under the amended facility after applying the borrowing-base conditions?