Sensus Healthcare, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; unaudited. Sensus makes and sells radiation therapy devices and related services. The company reports one operating segment.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1.18 million | $7.48 million | $2.86 million | $12.91 million |
| Gross profit / margin | $0.64 million / 54.1% | $4.94 million / 66.1% | $1.35 million / 47.1% | $8.26 million / 63.9% |
| Operating income (loss) | $(2.57) million | $0.05 million | $(6.21) million | $(2.15) million |
| Net income (loss) | $(2.57) million | $0.11 million | $(6.16) million | $(2.01) million |
- Q2 revenue fell 84.2% year over year; first-half revenue fell 77.8%. Management attributed the declines principally to COVID-19-related clinic closures and fewer device sales.
- Q2 product revenue was $69,579, compared with $6.97 million a year earlier; service revenue increased to $1.11 million from $0.51 million. For the first half, product revenue was $1.15 million versus $11.90 million, while service revenue rose to $1.72 million from $1.01 million.
- Cash and cash equivalents were $18.41 million at June 30; investments were $0.46 million, for a combined $18.87 million. Combined cash and investments were $15.49 million at December 31, 2019. Current assets were $27.11 million and current liabilities $4.80 million.
- First-half operating cash flow was positive $2.57 million, versus cash use of $0.94 million in 2019. The principal working-capital contribution was a $12.90 million decrease in accounts receivable; inventory increased $2.47 million. Investing cash inflow was $6.78 million, largely from matured investments. Financing provided $0.97 million.
- The company had no outstanding borrowings under its revolving credit facility. It recorded a $1.02 million Paycheck Protection Program loan, due April 2022 at 1% interest and potentially forgivable subject to SBA requirements. Total liabilities were $7.64 million.
Changes, outlook, and risks
- Compared with Q2 2019, lower unit sales reduced gross profit and margin. Selling and marketing expense declined 41.8%, and R&D expense declined 40.6%; G&A fell 6.2% in Q2 but increased 13.0% for the first half, partly due to severance and related legal fees.
- Management said the company remained operational as an essential business, but could not estimate the duration or full financial impact of COVID-19. Any second-half revenue or margin improvement depended on pandemic developments and customer response. No quantified financial guidance was provided.
- Risks include continued disruption to customer demand and physician practices, supplier or logistics interruptions, customer concentration, and the company’s ability to return to profitability. A U.S. customer represented approximately 30% of Q2 2020 revenue and 19% of first-half revenue.
- The company disclosed a continuing Department of Justice inquiry concerning a physician’s Medicare billing and possible reimbursement-code issues. It says it disputes wrongdoing, has cooperated, and cannot estimate potential costs; the Department had made no determination known to the company.
- On August 3, 2020, after quarter-end, Sensus acquired two Florida mobile aesthetic laser businesses in all-cash transactions described as not significant individually or in aggregate.
Key facts for investors to verify
- Whether device sales and gross margins recover as clinics resume normal operations, and how much recurring service revenue offsets device-sales weakness.
- Whether operating cash generation is sustainable beyond the substantial first-half receivables collection, given the net loss and higher inventory.
- The PPP loan’s forgiveness status and terms of the expanded revolving facility, including covenant compliance and borrowing availability.
- Developments in the DOJ inquiry, customer concentration, and the performance and integration costs of the August acquisitions.