Sensus Healthcare, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial statement amounts are in thousands of dollars unless stated otherwise. The interim statements are unaudited.
Business context
Sensus manufactures and sells radiation therapy devices and related services to healthcare providers globally, including its SRT-100 product line and Sculptura. It reports as one segment. Management says COVID-19 significantly affected sales through 2020 and into 2021, although operations and customer service continued.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $5.422 million | $1.183 million | $8.492 million | $2.862 million |
| Gross profit | $3.345 million | $0.640 million | $4.931 million | $1.348 million |
| Gross margin | 61.7% | 54.1% | 58.1% | 47.1% |
| Operating expenses | $3.624 million | $3.214 million | $6.325 million | $7.559 million |
| Operating and net loss | $(0.279) million | $(2.574) million | $(1.394) million | $(6.161) million |
| Net loss per share, basic and diluted | $(0.02) | $(0.16) | $(0.08) | $(0.38) |
Quarterly revenue rose 358% year over year; six-month revenue rose 197%. Product revenue was $4.250 million in Q2 and $5.924 million for the six months, while service revenue was $1.172 million and $2.568 million, respectively. Improved results reflected more unit sales and service revenue, compared with pandemic-affected 2020 periods.
For the six months, operating cash flow was $0.241 million, investing cash flow was $0.170 million, and financing cash flow was $(0.114) million. Cash increased $0.297 million to $15.204 million. At June 30, current assets were $24.391 million and current liabilities were $5.154 million. Total assets were $26.362 million; total liabilities were $6.147 million.
The company had no borrowings under its revolving credit facility. A PPP loan balance of $159,000 was included in current liabilities, down from $267,000 of total loan payable at December 31, 2020. The company reported compliance with its financial covenants. No dividends or quantitative earnings guidance are reported in the provided filing text.
Material changes and unusual items
- Revenue and gross margin increased substantially versus the prior-year periods, which management attributes partly to COVID-19 disruptions in 2020.
- Six-month selling and marketing expense fell 21% and research and development expense fell 33%. Management attributed the reductions to fewer trade shows, travel and marketing activity, lower headcount, and Sculptura moving into production. Q2 general and administrative expense increased 60%, primarily due to legal and professional fees, public-company costs and insurance.
- In connection with the 2020 acquisition of two aesthetic laser businesses, the purchase-price compensation arrangement was reduced to $229,000 after one party’s arrangement ended. The company sold related property and equipment for approximately $257,000 and recorded $88,000 of intangible-asset impairment charges and a $46,000 loss on sale. Management said it did not expect further acquisition-related impairment charges.
- Deferred revenue was $1.770 million at June 30, consisting of service obligations; $1.436 million was classified as current on the balance sheet.
Outlook, risks and contingencies
Management says the extent and duration of COVID-19’s effects remain uncertain and cannot be reasonably estimated. It identifies revenue generation, margins, operating expenses and working-capital fluctuations as factors affecting liquidity, and says future funding may be sought. No specific forecast or quantified outlook is provided.
Key disclosed risks include customer concentration, dependence on reimbursement levels and providers’ willingness to purchase, international operations, regulatory requirements, intellectual property, manufacturing and cost management, and information security. One U.S. customer accounted for approximately 44% of Q2 revenue and 30% of six-month revenue, and 51% of accounts receivable at June 30. A Department of Justice investigation concerning a physician’s Medicare billing remains unresolved; the company says it has cooperated, disputes wrongdoing, and cannot estimate potential costs. Operating lease liabilities had a present value of $966,000; the company had given notice to terminate its manufacturing facility lease under a termination provision.
Important facts for investors to verify
- Whether revenue growth and improved margins are sustainable after comparisons with the heavily COVID-affected 2020 periods, including the mix of product and service revenue.
- Customer concentration, particularly the major U.S. customer’s share of revenue and receivables, and the related collection risk.
- The status and potential financial impact of the Department of Justice investigation; the filing provides no estimable cost.
- The cash-flow summary in MD&A appears to show financing cash flow of $(1.134) million, while the cash flow statement reports $(0.114) million and the narrative describes approximately $0.1 million used. Verify the correct figure against the filed financial statements.
- The timing and implications of terminating the manufacturing facility lease, and the company’s ability to maintain liquidity and achieve profitability.