Sensus Healthcare, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Amounts are in U.S. dollars, generally in millions unless stated otherwise. Sensus manufactures radiation therapy devices and related services for healthcare providers and distributors. The company reports one operating segment.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Revenue | $3.414 | $10.338 | Down 67.0%; management cited fewer units sold, inflation-related customer purchase deferrals, and lower sales to a large customer. |
| Gross profit / margin | $1.622 / 47.1% | $7.149 / 68.9% | Gross profit down 77.5%; lower volume and higher vendor costs weighed on margin. |
| Operating expenses | $4.561 | $3.219 | Up 41.7%, including higher selling and marketing and R&D costs. |
| Operating income (loss) | $(2.939) | $3.930 | Turned to operating loss. |
| Net income (loss) | $(1.894) | $16.062 | Q1 2022 included a $12.779 gain on sale of Sculptura assets. |
| Diluted EPS | $(0.12) | $0.97 | Q1 2023 loss per share. |
| Operating cash flow | $(5.997) | $3.082 | Cash used in Q1 2023; Q1 2022 benefited from the prior-period earnings profile and working capital. |
| Cash and cash equivalents | $19.340 at March 31 | $25.520 at Dec. 31, 2022 | Decreased $6.180 during the quarter. |
Revenue mix: Product revenue was $2.469 million, compared with $9.228 million; service revenue was $0.945 million, compared with $1.110 million. U.S. revenue was $3.274 million (96% of total), versus $10.147 million (98%) a year earlier.
Liquidity and debt: Current assets were $49.069 million and current liabilities $6.166 million at quarter-end. The company had no borrowings under its revolving credit facility and reported $15 million of available borrowing capacity; the facility is secured by company assets. Sensus reported compliance with financial covenants. Total liabilities were $7.074 million, including operating lease liabilities; no revolving debt was outstanding.
Material changes and management commentary
- Selling and marketing expense rose 75.0% to $2.099 million, primarily due to higher trade-show and advertising costs. R&D expense rose 57.1% to $1.098 million, largely for development of a drug-delivery system for an aesthetic project; management expects the project to be completed by the end of 2023.
- Accounts receivable declined $4.6 million from year-end, mainly from collections and lower sales. Inventory increased $2.8 million, and prepaid and other current assets increased $3.7 million, primarily reflecting a larger deposit paid to a manufacturer.
- Investing cash flow was $(0.189) million, primarily property and equipment purchases. Q1 2022 investing cash flow included $15 million of Sculptura asset-sale proceeds.
- The Q1 2023 income tax benefit was $0.802 million, versus tax expense of $0.648 million in Q1 2022. The prior-year period included a $3.7 million net release of a deferred-tax valuation allowance.
- Purchases from the contract manufacturer were approximately $6.6 million, versus $3.3 million in Q1 2022; amounts owed to the manufacturer were approximately $1.4 million at March 31, 2023.
Outlook, risks, and contingencies
- The filing provides no formal revenue or earnings guidance. Management identifies revenue generation, gross-margin and expense fluctuations, and financial-market or banking disruption as factors affecting liquidity and capital needs. It may seek additional funding in the future, with no assurance of availability or terms.
- Customer concentration is significant: one U.S. customer accounted for approximately 60% of Q1 2023 revenue (81% in Q1 2022) and 93% of accounts receivable at March 31, 2023 (91% at year-end).
- The company disclosed that deposits at another financial institution exceeded the federally insured limit; it reported no related loss and did not believe the exposure was unusual. The filing also describes the SVB failure and subsequent transfer of the company’s credit-facility relationship; no facility borrowings were outstanding.
- A Department of Justice investigation related to a physician’s Medicare billing and use of reimbursement codes remains unresolved. Sensus says it has cooperated, disputes wrongdoing, and cannot estimate potential costs.
- Other disclosed risks include dependence on a contract manufacturer, reimbursement levels, regulatory requirements, international operations including China, intellectual-property matters, and data security. Management said the Russia-Ukraine war had not had a significant business impact to date.
- Management concluded disclosure controls were effective as of March 31, 2023 and reported no significant quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the steep revenue decline and lower gross margin persist, and whether deferred customer purchases recover.
- The outlook for the large customer’s orders and collections, given its share of revenue and receivables.
- Cash consumption and working-capital needs, including the increased manufacturer deposit and inventory build.
- Progress and spending on the aesthetic drug-delivery project, and whether completion is achieved by year-end 2023.
- Any developments in the DOJ investigation, banking relationships, uninsured deposits, or availability and terms of the revolving credit facility.