Sensus Healthcare, Inc. — Q1 2018 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2018, compared with Q1 2017. Sensus designs, manufactures and markets superficial radiation therapy devices, primarily the SRT-100 product line, for healthcare providers. It opened a wholly owned Israeli subsidiary in February 2018 and reports one operating segment.
Key financial results
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $5.96 million | $4.35 million; up 36.8% |
| Gross profit / margin | $3.94 million / 66.2% | $2.85 million / 65.6% |
| Operating expenses | $5.05 million | $4.44 million; up 13.8% |
| Operating loss | $1.11 million | $1.59 million |
| Net loss / diluted loss per share | $1.13 million / $0.08 | $1.57 million / $0.12 |
| Cash used in operating activities | $3.48 million | $2.88 million per cash flow statement |
Revenue growth was attributed primarily to increased sales of the higher-priced SRT-100 Vision. Gross margin improved modestly. Selling and marketing expense declined 2.1%; general and administrative expense rose 28.6%, mainly from stock compensation, while research and development rose 31.9%, primarily due to new projects. Stock-based compensation was $542,000, versus $104,000 a year earlier.
Liquidity, debt and cash flow
At March 31, cash and cash equivalents were $9.52 million, versus $10.09 million at year-end; there were no remaining debt securities. Current assets were $19.29 million and current liabilities $4.96 million. Accounts receivable increased to $8.06 million from $4.96 million, contributing to operating cash use. Cash declined by approximately $569,000 during the quarter.
Revolver borrowings increased to $4.22 million from $2.21 million. The facility has a $5 million commitment, matures October 31, 2019, is secured by company assets, and bears stated rates of 5.50% on formula borrowings and 6.25% on non-formula borrowings. The company reported compliance with financial covenants at March 31. Financing activities provided $2.09 million, mostly from net revolver borrowing. Capital expenditures were $288,000.
Outlook, risks and other disclosures
The filing provides no specific financial guidance. Management identifies revenue growth, margins and expenses, and working-capital fluctuations as factors affecting liquidity; it may seek additional funds in the future. Reported risks include achieving and sustaining profitability, market acceptance and commercialization of products, reimbursement and regulatory conditions, manufacturing and supplier reliance, competition, and customer concentration. One U.S. customer represented approximately 75% of Q1 revenue and 93% of accounts receivable at March 31. The company also disclosed that cash balances substantially exceeded federal deposit-insurance limits.
Legal proceedings are described as arising in the ordinary course; the filing does not provide a clear amount for any related liability. No material changes to previously disclosed risk factors were reported. Disclosure controls were considered effective, and no significant internal-control changes were reported. Adoption of ASC 606 had no material reported revenue impact.
Important facts to verify
- Customer concentration and collection of the large receivable balance, given the quarter’s substantial operating cash outflow.
- Remaining borrowing availability under the revolver’s borrowing-base and non-formula limits, as well as covenant headroom and repayment capacity.
- The filing gives inconsistent 2017 operating-cash-flow comparisons: the cash flow statement reports $2.88 million used, while MD&A reports $2.76 million.
- The revenue-recognition note describes adoption using the modified retrospective method in one passage and the full retrospective method in another; verify the intended transition method.
- Execution of SRT-100 Vision sales growth and new R&D projects, and whether these support a path to profitability without additional financing.